UBS Investment Bank - CA.gov

NEW ISSUE - BOOK-ENTRY ONLY INSURED RATINGS: Standard & Poor's: "AAA"

Fitch: "AAA" UNDERLYING RATINGS:

Standard & Poor's: "A" Fitch: "A+"

(See "Ratings" herein.)

Delivery of the 2007 Bom/J i11ubject to the receipt of an opinion of Fulbright & Jawonki L LP., Lw Angele1, California, Bond Coumel to the effect that, under exi1ting law, intereJt on the 2007 BondJ i1 exempt from penonal income taxeJ of the State of California, and aJJuming continuing compliance by the Authority and the Tax-Exempt ParticipantJ with certain covenant1, intereJt on the SerieJ A BondJ will be excludable from grwJ income of the ownerJ thereof for federal income tax purpo1e1 and will not be included in computing the alternative minimum taxable income of individua/J or, except a1 deJcribed herein, corporatiom, Interest on the Series B Bonds is ,wt intended to be excludable from gross income of the owners thereof for federal income tax purposes under existing law. See "TAX MATTERS" herein,

SLO COUNTY FINANCING AUTHORITY $157 ,845,000 $38,565,000

NACIMIENTO WATER PROJECT NACIMIENTO WATER PROJECT REVENUE BONDS, 2007 SERIES A REVENUE BONDS, 2007 SERIES B

(TAXABLE) Dated: Date of Delivery Due: September l, 2040 as shown on the inside cover page

The SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series A (the "Series A Bonds") and SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable) (the "Series B Bonds" and, together with the Series A Bonds, the "2007 Bonds") are being issued pursuant to the provisions of Chapter 5 (commencing with Section 6500) of Division 7, Title 1 of the Government Code of the State of California (the "Act") and an Indenture, dated as of September 1, 2007, by and between the SLO County Financing Authority (the "Authority") and U.S. Bank National Association (the "Trustee"). The 2007 Bonds will be obligations of the Authority payable solely from and secured by certain Pledged Revenues (as defined herein) pledged under the Pledge Agreement (the "Pledge Agreement"), dated as of September 1, 2007, by and between the San Luis Obispo County Flood Control and Water Conservation District (the "District") and the Authority. Pledged Revenues consist principally of gross water sales revenues of the Water Enterprises (as defined herein) of several Participants (as defined herein) payable under separate Water Delivery Entitlement Contracts, as amended (each, a "Delivery Contract"), with the District, pursuant to which each has covenanted to pay its share of various capital expenses relating to the funding of design costs, engineering, planning, mapping, acquiring easements and right-of-way, and construction in connection with the Water Project described herein

Proceeds of the 2007 Bonds will be applied to (a) finance and refinance the capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Nacimiento Water Project (as more particularly described herein), (b) defease the SLO County Financing Authority Subordinate Bond Anticipation Notes (N acimiento Pipeline Project) scheduled to mature on December 1, 2008; (c) finance a Reserve Fund for the 2007 Bonds, (d) fund capitalized interest on a portion of the 2007 Bonds, and (e) pay costs of issuance of the 2007 Bonds. See "THE NACIMIENTO WATER PROJECT" and "ESTIMATED SOURCES AND USES OF FUNDS" herein

The 2007 Bonds will be issued in fully registered form only and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC will act as securities depository for the 2007 Bonds. Individual purchases will be made in book-entry form only. Ownership interests in the 2007 Bonds may only be purchased in book-entry only form in denominations of $5,000 and any integral multiples thereof. Purchasers of the 2007 Bonds will not receive physical certificates representing their beneficial ownership interests in the 2007 Bonds purchased. Payments of principal of, and premium, if any, and interest on the 2007 Bonds will be paid by the Trustee, to DTC, which is obligated in turn to remit such principal of, premium, if any, and interest on the 2007 Bonds to its DTC Participants for subsequent disbursement to the beneficial owners of the 2007 Bonds as described herein. See APPENDIX C - "BOOK-ENTRY ONLY SYSTEM" herein

Pursuant to each of the Delivery Contracts, the Participants, severally and not jointly, have pledged certain revenues (collectively, the "Capital Projects Installment Debt Service," as more particularly defined in the Pledge Agreement) to be collected by their respective Water Enterprises and have made certain covenants with respect thereto. See APPENDIX D - "SUM1IARY OF PRINCIPAL LEGAL DOCUMENTS'

Purchase of the 2007 Bonds involves some degree of investment risk. See "CERTAIN RISK FACTORS" herein

The 2007 Bonds are subject to optional and mandatory redemption as discussed herein. See "THE 2007 BONDS - Redemption."

The payment of the principal of and interest on the 2007 Bonds as and when due will be insured by a financial guaranty insurance policy to be issued by MBIA Insurance Corporation simultaneously with the issuance of the 2007 Bonds

WISDOM IN ACTION•

MATURITY SCHEDULE (See Inside Cover Page)

THE 2007 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY AND ARE NOT A LIEN OR CHARGE UPON THE FUNDS OR PROPERTY OF THE AUTHORITY, EXCEPT TO THE EXTENT OF THE PLEDGE AND ASSIGNMENT UNDER THE INDENTURE. THE 2007 BONDS ARE NOT A DEBT OF THE AUTHORITY, THE DISTRICT, THE COUNTY OF SAN LUIS OBISPO OR THE STATE OF cALIFORNIA, AND THE AUTHORITY, THE DISTRICT, THE COUNTY AND THE STATE IS NOT LIABLE FOR THE PAYMENT THEREOF. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF THE 2007 BONDS OR INTEREST THEREON, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PLEDGE AGREEMENT AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA OR OF ANY POLITlcAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2007 BONDS. THE AUTHORITY HAS NO TAXING POWER.

This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined will have the meanings set forth herein

The 2007 Bond1 are offered by the Underwriter when, a1 and if iJJued by the Authority and accepted by the Underwriter, 1ubject to the approval of validity by Fulbright & Jawonki LLP., Lw Angele1, California, Bond Coumel, and 1ubject to certain other conditiom, Certain legal matterJ will be paJJed upon for the Underwriter by Orrick, Herrington & Sutcliffe LLP. Certain legal matterJ will be paJJed upon for the Authority and the Di1trict by the County of San Lui1 Obi1po County Coumel, for the Ata1cadero Mutual Water Company by Elli1 & Collim, San Lui1 Obi1po, California, Company Coumel,for the City of P@o Roble1 by lri1 Yang, City Attorney,for the City of San Lui1 Obi1po by Jonathan P. Lowell, City Attorney, and for the Templeton Community ServiceJ Di1trict by Bartkiewicz, Kronick & Shanahan, Sacramento, California, Di1trict Coumel, It i1 expected that the 2007 Bond1 in book-entry form will be available for delivery through the facilitieJ of DTC in New York, New York, on or about September 26, 2007,

UBS Investment Bank

Dated: September 10, 2007

Maturity Principal Interest (September 1) Amount Rate

201 l $2,430,000 4.00% 2012 2,535,000 4.00 2013 2,630,000 3.75 2014 2,735,000 4.00 2015 2,850,000 4.00 2016 2,985,000 5.00 2017 3,135,000 5.00 2018 3,295,000 5.00 2019 3,460,000 5.00

MATURITY SCHEDULE

$157,845,000 SLO County Financing Authority

Nacimiento Water Project Revenue Bonds, 2007 Series A

Base CUSIP No.: 798693t

$60,975,000 Serial Bonds

Maturity Principal Yield cus1P1 (September 1) Amount 3.47% AY3 2020 $3,640,000 3.50 AZO 2021 3,830,000 3.52 BA4 2022 4,030,000 3.55 BB2 2023 4,230,000 3.60 BCO 2024 4,445,000 3.67 BD8 2025 4,670,000 3.74 BE6 2026 4,9!0,000 3.84' BF3 2027 5, 165,000 3.93' BG!

Interest Rate Yield cus1P1

5.00% 4.00*% BH9 5.00 4.06' BJ5 5.00 4.12' BK2 5.00 4.17' BLO 5.00 4.21' BM8 5.00 4.24' BN6 5.00 4.26' BPI 5.00 4.29' BQ9

$30,080,000 5.00% 2007 Series A Term Bonds due September 1, 2032, Priced to Yield 4.43'% CUSIP BR7t $47,580,000 5.00% 2007 Series A Term Bonds due September 1, 2038, Priced to Yield 4.48'% CUSIP BS5t

$19,210,000 4.50% 2007 Series A Term Bonds due September 1, 2040, Yield: NRO CUSIP BT3t

$38,565,000 SLO County Financing Authority

Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable)

Base CUSIP No.: 798693t

$4,315,000 5.196% 2007 Series B Term Bonds due September 1, 2017, Priced to Yield 5.196% CUSIP Buot $34,250,000 5.571 % 2007 Series B Term Bonds due September 1, 2040, Priced to Yield 5.571 % CUSIP BV8t

t CUSIP data included here is subject to Copyright 2007, American Bankers Association. CUSIP data included herein is provided by the Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. and is provided for convenience of reference only. None of the Authority, the Participants or the Underwriter shall be responsible for the selection or correctness of the CUSIP numbers set forth herein. * Yield assumes par call on the September 1, 2017 optional call date.

Nacimiento Riva Crnuill g

LEGEND

Conveyance Pipeline

Service Areas

Pump Station (P/S)

Turnout

Tank

River Crossing

Pacific Ocean

San Luia Obispo County Flood Control & Water CcnJcr,,-a~ion District

Pmm Roble1 (TV

TrunpletflU CSD (T4}

Salin@ River Cnusing- South

Cuesta TotmefTank UnitG2

UnitB

Roeky Canyon Tank r Unil:Fl

Rocky Canyoo PIS r UnitF2

E:dsti:ng Cueda Tunnel Uni:t H

Unit Map for Nacimiento Water Project

[THIS PAGE INTENTIONALLY LEFT BLANK]

SLO COUNTY FINANCING AUTHORITY NACIMIENTO WATER PROJECT REVENUE BONDS

Participants

Atascadero Mutual Water Company City of Paso Robles

City of San Luis Obispo Templeton Community Services District

SLO COUNTY FINANCING AUTHORITY

Commission of the Authority

Gere W. Sibbach, Chairperson David Edge, Vice Chairperson

Frank Freitas, Treasurer

SPECIAL SERVICES

Fulbright & Jaworski L.L.P. Los Angeles, California

Bond Counsel

Public Financial Management Seattle, Washington Financial Advisor

U.S. Bank National Association Los Angeles, California

Trustee

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 2007 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement. If given or made, such other information or representations must not be relied upon as having been authorized by the Authority, the Participants or the Underwriter.

This Official Statement is not to be construed as a contract with the purchasers of the 2007 Bonds. Statements contained in this Official Statement which involve estimates, projections, 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 facts.

The information set forth herein in APPENDIX A - "THE PARTICIPANTS" has been furnished by the respective Participants, and the information set forth in APPENDIX C - "BOOK-ENTRY ONLY SYSTEM" has been furnished by OTC. All other information set forth herein has been obtained from the Authority, the District and other sources that are believed to be reliable, but such other information is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Authority, the District, the Participants or the Underwriter. 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 of the 2007 Bonds shall, under any circumstances, create any indication that there has been no change in the affairs of the Authority, the District, the Participants or OTC since the date of this Official Statement. This Official Statement is submitted with respect to the sale of the 2007 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the Participants. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.

In connection with the offering of the 2007 Bonds, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the 2007 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the 2007 Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page of this Official Statement and said public offering prices may be changed from time to time by the Underwriter.

Certain statements in this Official Statement, which may be identified by the use of such terms as "plan," "project," "expect," "estimate," "budget" or other similar words, constitute forward-looking statements. Such forward-looking statements refer to the achievement of certain results or other expectation or performance which involve known and unknown risks, uncertainties and other factors. These risks, uncertainties and other factors may cause actual results, performance or achievements to be materially different from any projected results, performance or achievements described or implied by such forward-looking statements. None among the Authority, the District or the Participants plans to issue updates or revisions to such forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based, occur, or if actual results, performance or achievements are materially different from any results, performance or achievements described or implied by such forward-looking statements.

TABLE OF CONTENTS

Page

INTRODUCTION ............................................................................................................................................. 1 General; Authorization .......................................................................................................................... 1 Security and Sources of Payment ......................................................................................................... 2 The Participants .................................................................................................................................... 4 Bond Insurance ..................................................................................................................................... 5 Continuing Disclosure .......................................................................................................................... 5 Certain Changes .................................................................................................................................... 5 Certain Information Related to this Official Statement ........................................................................ 5

THE NACIMIENTO WATER PROJECT ........................................................................................................ 6

PLAN OF FINANCE ......................................................................................................................................... 7

ESTIMATED SOURCES AND USES OF FUNDS ......................................................................................... 9 THE 2007 BONDS ............................................................................................................................................ 9

General ................................................................................................................................................. 9 Redemption ......................................................................................................................................... 11 Transfer and Exchange of 2007 Bonds ............................................................................................... 16

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ............................................................... 16

General ............................................................................................................................................... 16 The Delivery Contracts ....................................................................................................................... 19 Contract Payments .............................................................................................................................. 20 Participant's Pledge and Covenants .................................................................................................... 22 Term of Delivery Contracts ................................................................................................................ 23 Amendments To Delivery Contract .................................................................................................... 23 Assignment of Delivery Contract ....................................................................................................... 24 Financial Covenants under the Delivery Contract .............................................................................. 24 Reserve Fund ...................................................................................................................................... 25 Debt Service Reserve Fund Surety Bond ............................................................................................ 26 Investments of Amounts on Deposit Under the Indenture .................................................................. 27 Existing Obligations ........................................................................................................................... 28 Additional Authority Bonds ................................................................................................................ 28 Events of Default and Remedies ......................................................................................................... 28

DEBT SERVICE SCHEDULE ........................................................................................................................ 31

BOND INSURANCE ...................................................................................................................................... 31

The MBIA Insurance Corporation Insurance Policy .......................................................................... 32 MBIA Insurance Corporation ............................................................................................................. 32 Regulation ........................................................................................................................................... 3 3 Financial Strength Ratings of MBIA .................................................................................................. 33 MBIA Financial Information .............................................................................................................. 33 Incorporation of Certain Documents by Reference ............................................................................ 34

THE AUTHORITY ......................................................................................................................................... 34

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES ...................................... 35 Article XIIIB ....................................................................................................................................... 35 Proposition 218 ................................................................................................................................... 36 Future Initiatives ................................................................................................................................. 38

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TABLE OF CONTENTS ( continued)

Page

CERTAIN RISK FACTORS ........................................................................................................................... 39

Constitutional Limit on Fees and Charges .......................................................................................... 39 Limitations on Remedies Available .................................................................................................... 39 No Obligation to Tax .......................................................................................................................... 39 Environmental Regulation .................................................................................................................. 39 Change in Law .................................................................................................................................... 40 Project Completion Risk ..................................................................................................................... 40 Natural Disasters ................................................................................................................................. 40 Loss of Tax Exemption ....................................................................................................................... 41

TAX MATTERS .............................................................................................................................................. 41 Series A Bonds .................................................................................................................................... 41 Tax Accounting Treatment of Discount and Premium on Series A Bonds ........................................ 42 Series B Bonds .................................................................................................................................... 43 State Tax Exemption ........................................................................................................................... 45

ERISA CONSIDERATIONS .......................................................................................................................... 45

APPROVAL OF LEGALITY .......................................................................................................................... 46

FINANCIAL ADVISOR ................................................................................................................................. 46 LITIGATION ................................................................................................................................................... 47

UNDER WRITING .......................................................................................................................................... 47

RATINGS ........................................................................................................................................................ 47

CONTINUING DISCLOSURE ....................................................................................................................... 47 AUDITED FINANCIAL STATEMENTS ...................................................................................................... 48

VERIFICATION .............................................................................................................................................. 48

MISCELLANEOUS ........................................................................................................................................ 49 APPENDIXA-THEPARTICIPANTS ........................................................................................................ A-1

APPENDIXB -PARTICIPANT AUDITED FINANCIAL INFORMATION ............................................. B-1

APPENDIX C - BOOK-ENTRY ONLY SYSTEM ...................................................................................... C-1 APPENDIX D - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS .................................................... D-1

APPENDIX E -PROPOSED FORMS OF LEGAL OPINION ..................................................................... E-1

APPENDIX F - FORM OF CONTINUING DISCLOSURE AGREEMENT ................................................ F-1 APPENDIX G - SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY .................................... G-1

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OFFICIAL STATEMENT


$157,845,000 NACIMIENTO WATER PROJECT REVENUE BONDS, 2007 SERIES A

$38,565,000 NACIMIENTO WATER PROJECT REVENUE BONDS, 2007 SERIES B

(TAXABLE)

INTRODUCTION

This Introduction is subject in all respects to the more complete information included and referred to elsewhere in this Official Statement, and the offering of the 2007 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Introduction and not otherwise defined shall have the respective meanings assigned to them elsewhere in this Official Statement. All capitalized terms used in this Official Statement and not otherwise defined herein shall have the same meanings as in the Indenture and if not defined in the Indenture, as set forth in the applicable document from which such term derives.

General; Anthorization

This Official Statement, including the cover page, the inside cover page and the appendices hereto, is provided to furnish certain information in connection with the sale and issuance by the SLO County Financing Authority (the "Authority") of $157,845,000 aggregate principal amount of the Authority's Nacirniento Water Project Revenue Bonds, 2007 Series A (the "Series A Bonds") and $38,565,000 aggregate principal amount of the Authority's Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable) ( the "Series B Bonds" and, together with the Series A Bonds, the "2007 Bonds"). See "THE 2007 BONDS." The 2007 Bonds are being issued pursuant to the provisions of Chapter 5 ( commencing with Section 6500) of Division 7, Title I of the Government Code of the State of California (the "Act") and an Indenture, dated as of September I, 2007 (the "Indenture") by and between the SLO County Financing Authority (the "Authority"), and U.S. Bank National Association, a national banking association organized and existing under the laws of United States of America, as trustee (the "Trustee"). The Authority is a California joint exercise of powers authority, duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement (the "JPA Agreement"), dated as of August 15, 2000 by and between the County of San Luis Obispo, California (the "County") and the County of San Luis Obispo Flood Control and Water Conservation District ( the "District") under the provisions of the Act. The Indenture provides for the issuance of Additional Bonds (as defined herein) and such Additional Bonds at any time Outstanding under the Indenture, together with the 2007 Bonds, are referred to herein as the "Bonds."

The 2007 Bonds will be dated their date of issuance (the "Dated Date") and will mature (subject to prior redemption) on September I in each year, and bear interest from the Dated Date at the respective rates, calculated on the basis of a 360-day year of twelve 30-day months, as set forth on the inside cover page of this Official Statement. Interest evidenced by the 2007 Bonds will be payable semiannually on March I and September I of each year, commencing March I, 2008 (each, an "Interest Payment Date"). See "THE 2007 BONDS" herein. The 2007 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The 2007 Bonds will be initially issued in book-entry form only and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("OTC"), which will act as securities depository for the 2007 Bonds. Payments of principal of, premium, if any, and interest on the 2007 Bonds will be paid

I

by the Trustee to OTC, which is obligated in tum to remit such principal of, premium, if any, and interest on the 2007 Bonds to its OTC Participants for subsequent disbursement to the beneficial owners of the 2007 Bonds as described herein. See APPENDIX C - "BOOK-ENTRY ONLY SYSTEM" herein.

The 2007 Bonds are subject to optional and mandatory redemption as described herein. See "THE 2007 BONDS - Redemption."

Proceeds of the 2007 Bonds will be applied principally to finance and refinance the capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Water Project, as defined below. The Atascadero Mutual Water Company ("AMWC"), the City of Paso Robles ("Paso Robles"), the City of San Luis Obispo ("SLO") and the Templeton Community Services District ("Templeton") and the County of San Luis Obispo Service Area 10, Zone A ("CSA 10") have joined efforts and initiated plans to build a forty-five mile pipeline to bring a supplemental water supply to their service areas. Each has entered into a form of Water Delivery Entitlement Contract, as amended (each, a "Delivery Contract"), with the District, pursuant to which each has covenanted to pay its share of various capital expenses relating to the funding of design costs, engineering, planning, mapping, acquiring easements and right-of-way, and construction in connection with the Water Project. With the exception of CSA 10, which is funding its obligation with current revenues and reserves, each of AMWC, Paso Robles, SLO and Templeton have determined to be Participants in the issuance of the 2007 Bonds.

Security and Sources of Payment

The Bonds will be obligations of the Authority payable solely from and secured by the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the funds and accounts established pursuant to the Indenture ( excepting the Rebate Fund). As defined in the Indenture, the term "Revenues" means: (a) all amounts derived from the Pledge Agreement, and (b) investment income with respect to the funds and accounts established under the Indenture, except for investment earnings on the Rebate Fund. Under the Pledge Agreement, the District has pledged the Revenues from the Delivery Contracts (as defined herein) with certain Participants (as defined herein) pursuant to a Pledge Agreement, dated as of September 1, 2007 (the "Pledge Agreement"), by and between the District and the Authority. Currently, AMWC, Paso Robles, SLO and Templeton (each, a "Participant" and, collectively, the "Participants") have elected to participate in the financing of the Water Project (as defined herein) through the issuance of the 2007 Bonds. The Water Project will serve the Participants, their service areas and potentially other users located in north San Luis Obispo County cities and unincorporated areas of the County including the unincorporated area of Cayucos. CSA 10 will have no obligation with respect to the Bonds and its Delivery Contract, as defined below, will not provide payments or security for the Bonds.

Each Participant has entered into a form of Water Delivery Entitlement Contract, as amended ( each, a "Delivery Contract"), with the District, pursuant to which each has covenanted to pay its share of various capital expenses relating to the funding of design costs, engineering, planning, mapping, acquiring easements and right-of-way, and construction in connection with the Water Project. Under the Pledge Agreement, the District has pledged certain Pledged Revenues from each of the respective Delivery Contracts, Net Revenues it collects from the operation of the Water Project, and all amounts on deposit in the Nacimiento Water Fund. As used in this Official Statement the term "Pledged Revenues" means, collectively, the Capital Projects Installment Debt Service due from each Participant, including Delinquent Debt Service payments and the interest thereon, together with the Net Revenues of the District. As provided in the Delivery Contracts, and in order to carry out and effectuate the pledge and lien contained therein, the District has agreed that all Pledged Revenues shall be received by the District in trust and shall be deposited when and as received into the Nacimiento Water Fund, which fund the

2

District will maintain and hold in trust separate and apart from other funds so long as any Bonds remain unpaid. During the term of the Pledge Agreement, the District will withdraw amounts from the Nacimiento Water Fund on each Payment Date for deposit into the Debt Service Fund to be transferred to the Trustee to pay interest then corning due on and maturing or called principal of the Bonds. As to each Participant, revenues consist principally of gross water sales revenues of the Participant's Water Enterprise (as defined herein). Two Participants are facing challenges to recent rate increases in the form of a referendum and initiative. See "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES -Proposition 218."

Proceeds of the 2007 Bonds will be applied to (a) finance and refinance the capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the water project described in that certain Nacimiento Water Project Environmental Impact Report SCH #2001061022, certified January 2004 (the "Water Project") in connection with the Water Project described herein, (b) defease the SLO County Financing Authority Subordinate Bond Anticipation Notes (Nacimiento Pipeline Project); (c) finance a Reserve Fund for the 2007 Bonds, (d) fund capitalized interest on a portion of the 2007 Bonds through September I, 2010, and (e) pay costs of issuance of the 2007 Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS" herein. The Water Project is being developed to serve the future water supply requirements of the Participants and CSA 10. See "THE NACIMIENTO WATER PROJECT." The Water Project is expected to start deliveries in late 2010.

Under its Delivery Contract, the respective Participant has covenanted, inter alia, to pay its share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building of the Water Project. Further, pursuant to each of the Delivery Contracts, the Participants, severally and not jointly, have pledged certain revenues ( collectively, the "Capital Projects Instalhnent Debt Service," as more particularly defined in the Pledge Agreement) to be collected by their respective water enterprises (collectively, the "Water Enterprises") and have made certain covenants with respect thereto. See APPENDIX D -"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the funds and accounts established pursuant to the Indenture ( excepting the Rebate Fund) are pledged by the Authority to secure the full and timely payment of the principal of and interest and premium, if any, of the Bonds, and amounts owing to the Insurer, in accordance with their terms and the provisions of the Indenture. Said pledge shall constitute a lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after delivery of the Bonds by the Trustee and the Revenues and other items pledged under the Indenture shall inunediately be subject to the lien of such pledge without any physical delivery thereof or further act.

The obligation of the District to make payments to the Authority under the Pledge Agreement is a special obligation of the District payable solely from Pledged Revenues, the Nacirniento Water Fund and other funds described in the Pledge Agreement, and does not constitute a debt of the District or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction.

3

The Participants

The Participants include AMWC, Paso Robles, SLO and Templeton. The District has entered into that certain Water Delivery Entitlement Contract, dated as of August 17, 2004, as amended (the "AMWC Delivery Contract"), by and between the District and AMWC, that certain Water Delivery Entitlement Contract, dated as of August 17, 2004, as amended (the "Paso Robles Delivery Contract"), by and between the District and Paso Robles, that certain Water Delivery Entitlement Contract, dated as of August I 7, 2004, as amended ( the "City of San Luis Obispo Delivery Contract"), by and between the District and SLO, and that certain Water Delivery Entitlement Contract, dated as of August 17, 2004, as amended (the "Templeton Delivery Contract" and collectively with the AMWC Delivery Contract, the Paso Robles Delivery Contract and the SLO Delivery Contract, the "Delivery Contracts"), by and between the District and Templeton. Each Delivery Contract has been amended by the Memorandum of Understanding (First Amendment to Nacirniento Project Water Delivery Entitlement Contract) and the Second Amendment to the Nacirniento Project Water Delivery Entitlement Contract (the "Second Amendment") (as so amended, the "Existing Contract"), pursuant to which each Participant and CSA 10, has agreed to pay its share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Water Project. See APPENDIX A - "THE PARTICIPANTS."

The proceeds of the Series A Bonds will provide funds for the benefit of Paso Robles, SLO and Templeton, which, together with other participants eligible to borrow on a tax-exempt basis under the Tax Code (the "Tax-Exempt Participants"). The proceeds of the Series B Bonds will provide funds for the benefit of the remaining Participant, AMWC, which is not eligible to borrow on a tax-exempt basis under the Tax Code.

The District has also entered into that certain Water Delivery Entitlement Contract, dated as of October 24, 2006, as amended (the "CSA JOA Delivery Contract"), by and between the District and the County, acting on behalf of CSA 10. CSA 10 will have no obligation with respect to the Bonds and its Delivery Contract, as defined below, will not provide payments or security for the Bonds. CSA 10 was formed in 1993 under Title 3, Division 2, Part 2 of the California Government Code for the purpose of furnishing potable water. CSA 10 is governed by the County Board of Supervisors as an enterprise fund and is operated and maintained by the Utilities Division of the County Department of Public Works. CSA 10 is located in the northern coastal portion of the County within the community of Cayucos, California. Cayucos has a population of approximately 3,000 residents and CSA IO currently provides water to approximately 716 customers, which are predominantly domestic users. CSA IO currently obtains all of its water supply from Whale Rock Reservoir. Whale Rock Reservoir is a 40,662 acre-foot reservoir located in Cayucos, California.

CSA 10 has a contractual right to 190 acre-feet of water per year from Whale Rock Reservoir. In addition, CSA 10 has entered into an exchange agreement with SLO for up to 80 acre-feet per year of water from the Water Project. CSA IO provides domestic drinking water to approximately 713 residential and 3 commercial water customers. Average water consumption per residential unit is approximately 0.23 acre-feet per year. It is anticipated that upwards of 180 additional single family residential lots could be developed in the future, given adequate water supplies.

Upon completion of the Water Project, CSA 10 will be able to obtain supplemental water therefrom in an amount up to 80 acre-feet per year. Water from the Water Project will not be directly delivered to CSA. Instead, CSA 10 will exchange its water from the Water Project for an equal amount of SLO's allocation of water from the Whale Rock Reservoir. The Exchange Agreement for this future

4

exchange of water was approved and executed by SLO and CSA 10 in 2006. Additional water supplies will become available to CSA 10 for potable purposes upon the completion of the Water Project.

Bond Insurance

The payment of the principal of and interest on the 2007 Bonds as and when due will be insured by a financial guaranty insurance policy (the "Insurance Policy") to be issued by MBIA Insurance Corporation (the "Insurer") simultaneously with the issuance of the 2007 Bonds. See "BOND INSURANCE" herein and APPENDIX G - "SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY" attached hereto.

Continuing Disclosure

The Authority has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the 2007 Bonds and the Authority will not provide any such information. The District and each Participant will covenant in its respective Continuing Disclosure Agreement, dated as of September 1, 2007 (each, a "Disclosure Agreement") to provide, or cause to be provided, not later than nine months after the end of its respective fiscal year, commencing with the report for the 2006-07 Fiscal Year, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a state repository and any public or private repository for purposes of Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission ( the "Rule") certain annual financial information and operating data of the type set forth in Appendix A hereto including, but not limited to, certain relevant portions of its audited financial statements and, in a timely manner, notice of certain material events. These covenants have been made to assist the Underwriter in complying with the Rule. None of the District or the Participants has ever failed to comply with the Rule regarding the filing of annual reports or notices of material events. See "CONTINUING DISCLOSURE" herein and APPENDIX F - "FORM OF CONTINUING DISCLOSURE AGREEMENT" attached hereto.

Certain Changes

This Official Statement replaces the Preliminary Official Statement dated August 30, 2007. Certain limited changes from the Preliminary Official Statement may be found under the caption "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES - Proposition 218" with respect to pending petition challenges to existing rates for two Participants and in APP EN DIX A -"THE PARTICIPANTS" with respect to limited updates of information. In addition, certain inunaterial conforming changes have been made in APPENDIX D - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

Certain Information Related to this Official Statement

The brief descriptions of each Participant, the Authority, the Water Project, the 2007 Bonds, the Indenture, the Pledge Agreement, the Delivery Contracts and other documents, statutes, reports and other instruments included in this Official Statement do not purport to be complete, comprehensive or definitive. All references to the Indenture, the Pledge Agreement, the Delivery Contracts and any other documents, statutes, reports and other instruments are qualified in their entirety by reference to such document, statute, report or instrument, and all references to the 2007 Bonds are qualified in their entirety by reference to the form of 2007 Bond set forth in the Indenture. The forms of the Pledge Agreement, the Delivery Contracts and the Indenture are available upon request and payment of duplication and mailing costs from the Trustee at 633 West Fifth Street, 24th Floor, Los Angeles, California 90071, Attention: Corporate Trust Department.

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THE NACIMIENTO WATER PROJECT

Several governmental entities have joined efforts and initiated plans to build a forty- five mile pipeline to bring a supplemental water supply to Paso Robles, SLO, Templeton, AMWC and CSA I OA. Upon completion, the Water Project will include approximately 45 miles of pipe from Lake Nacimiento ranging from 12 inches to 36 inches in diameter, a new intake structure at Lake Nacimiento, three new pump stations ranging from 1,200 horsepower (hp) to 3,500 hp, and three water storage tanks ranging from 300,000 gallons to 850,000 gallons.

The Water Project is being developed to serve the future water supply requirements of north San Luis Obispo County cities and several unincorporated areas of the County including the unincorporated area of Cayucos. Since 1959, the San Luis Obispo County Flood Control and Water Conservation District (and its 18 participating agencies and cities) has had rights to 17,500 acre-feet per year (afy) of Lake Nacimiento water for use in San Luis Obispo County. One acre-foot is generally enough to serve two to three single-family homes for a year. The Water Project is expected to start deliveries in late 2010.

The Project's Environmental Impact Report was adopted in January 2004. Design related activities have been performed through April 2007, are currently on schedule and are approximately $1.5 million under the approximately $18.9 million design-phase budget. The construction documents were approved by the District's Board of Supervisors in May 2007. Construction is planned to begin in October 2007, and run through the end of 2010. The total Project cost is currently estimated at $175 million, having been adjusted following a period of evaluation and redesign, taking into consideration increased construction costs, since its original budget was established in 2004.

Pursuant to the Delivery Contracts, the District will contract for the public works comprising the Water Project on such terms as the District, in its sound business judgment may deem in the best interests of the District, the Participant and the Other Participants, but only following consultation with the Nacimiento Project Commission. The Participants and CSA 10 have agreed to cooperate with the District and its Consultants in connection with the planning, acquisition and construction of the Water Project. The Participants have agreed to cooperate with the District for the authorization and delivery of the Municipal Obligations (as defined herein) including the 2007 Bonds. The District will use its best efforts to cause or accomplish the construction and financing of the Water Project, the obtaining of all necessary authority and rights, and the performance of all things necessary and convenient therefor. The District, the Participants and CSA 10 are prepared and have agreed in accordance with the Delivery Contracts to commence the acquisition and construction of the Water Project.

The District expects to enter into construction agreements with the five construction contractors in connection with the Water Project ( the "Construction Contracts"). Each Construction Contract is a "fixed price" contract. The District will not be obligated to pay for increased costs of the Water Project unless such increased costs are the result of changes under the Construction Contract approved by the District. In accordance with the terms of the Construction Contracts, each Contractor will be required to post a performance bond in the amount of 100% of the contract price and to post a payment bond in the amount of 100% of the contract price. State law requires the bond to be in effect at all times. The Construction Contracts provide for a formal change process that the parties must follow in order to modify the Contract Time, Price, and/or Schedule. The contractors are not entitled under the Construction Contracts to either an extension of time or an adjustment of the contract sum for any foreseeable delay of the completion of the work beyond the respective completion dates caused by conditions within the control of the contractor, including performance of the contractor and subcontractors, timely material delivery, financial inability of the Contractor or any subcontractors, and any default of any subcontractor without limitation.

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Although the District, the Authority and the Participants each believes that it is reasonable to expect that the Water Project can be completed within the estimated budget and schedule, there can be no assurance that this will occur. See "CERTAIN RISK FACTORS -Project Completion Risk" herein.

The District hired John R. Hollenbeck, P.E. as a full-time employee to serve as the Nacirniento Project Manager in April 2005. From May 2003 to April 2005, Mr. Hollenbeck was employed by Bookman-Edmonston, a Division of GE! Consultants, Inc., Glendale, California (serving as Vice President Executive Manager of the Glendale office of B-E/GEI), an engineering consulting firm. From January 1986 to May 2003, Mr. Hollenbeck was employed by Black & Veatch and worked at several locations including Kansas City, Kansas, Los Angeles, California and Texas. Mr. Hollenbeck served as Senior Project Manager, Project Manager of the civil engineering function of the Los Angeles office (2000 - 2003), Engineering Manager in charge of the design for the P-1 Pump Station at Diamond Valley Lake for Metropolitan Water District of Southern California (1994 - 2000), Project Engineer for various engineering studies and designs for projects related to darns and hydroelectric projects (1991 - 1994 ), Construction Manager for new hydroelectric projects and darn modification projects in Texas (1989 -1991), and Engineer for various hydraulic and hydrologic studies for darn and watershed projects associated with hydroelectric developments (1986 - 1989). Mr. Hollenbeck holds a BSCE from Kansas State University (1984), an MSCE from Kansas State University (1986), and is a registered Professional Engineer in both California and Kansas. He is currently a member of the American Society of Civil Engineers.

Notably, Mr. Hollenbeck was the Senior Project Manager for civil engineering design of the Black & Veatch Los Angeles office from 2000 to 2003. He was the Project Manager for the Morris Darn rehabilitation project near Los Angeles, the Design Manager for the Rancho Penasquitos Pressure Control and Hydroelectric Facility near San Diego, and the Civil Engineering Manager for the Stone Canyon Filtration and Pumping Project near Los Angeles.

From 1994 to 2000, he was the Lead Design Engineer for the design and construction support for the Hiram W. Wadsworth Pumping Plant at Diamond Valley Lake (formerly known as the Eastside Reservoir Project.) Mr. Hollenbeck served six years as civil engineer, and then lead design engineer for various facilities associated with this project, a new 800,000 acre-feet off-stream reservoir in Riverside County owned by Metropolitan Water District of Southern California. He was the lead design engineer for the 72,400 hp Wadsworth Pumping Plant, a $72 million facility completed in 2000. The multipurpose facilities pumps water into the off-stream reservoir, dissipates the hydraulic energy when drafting from the reservoir, and provides emergency drainage from the reservoir. His responsibilities were to oversee all disciplines of the design, coordinating all the construction drawings and integrating all pre-purchased design elements into the general construction. He also oversaw the development of all specifications. He was civil engineer in charge of the design of the 500 acre-feet forebay, a concrete lined facilities regulating flow between the supply conveyances and the pump station. He designed the steel lining for the 16-feet diameter tunnel that connects the pump station with the Inlet/Outlet tower.

PLAN OF FINANCE

Proceeds of the 2007 Bonds will be applied to (a) finance and refinance the capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Water Project, (b) refund and defease certain Bond Anticipation Notes, as described in detail below, (c) finance a Reserve Fund for the 2007 Bonds, (d) fund capitalized interest on a portion of the 2007 Bonds through September I, 2010, and (e) pay costs of issuance of the 2007 Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS" herein. The

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Water Project is being developed to serve the future water supply requirements of the Participants and CSA 10. See "THE NACIMIENTO WATER PROJECT" above.

A portion of the net proceeds of the 2007 Bonds will be applied to refund and defease the $6,555,000 outstanding principal amount of the SLO County Financing Authority Subordinate Bond Anticipation Notes (Nacimiento Pipeline Project), 2005 Series A (the "Refunded Notes") which were issued on December 22, 2005. The Refunded Notes were issued pursuant to the Act and a Note Resolution (the "Note Resolution") adopted on November 15, 2005, by the Authority. The Refunded Notes were issued to finance SLO's share of the capital expenses relating to the funding of design costs, engineering, planning, mapping, acquiring easements and right-of-way, initial construction management and environmental efforts in connection with the Water Project, and pay costs of issuance of the Refunded Notes. Such proceeds of the 2007 Bonds will be deposited in an escrow account (the "Escrow Account") pursuant to an Escrow Deposit and Trust Agreement, dated as of September I, 2007, (the "Escrow Agreement") by and among the Authority and U.S. Bank National Association, as Paying Agent (the "Paying Agent" and in its capacity as escrow agent thereunder, the "Escrow Agent") and used to purchase certain non-callable investments issued by the United States of America and specified in the Escrow Agreement ("Federal Securities") to be held in trust for the benefit of the owners of the outstanding Refunded Notes. The Federal Securities in the Escrow Account are scheduled to mature at such times and in such amounts, and will bear interest payable at such times and in such amounts, that, together with the moneys available in the Escrow Account, sufficient moneys will be available to provide for the remaining scheduled interest payments on, and the maturing principal payment of, the Refunded Notes, including on their December I, 2008 maturity date. See "VERIFICATION" herein.

The maturing principal of and the investment income to be derived from the Federal Securities in the Escrow Account will be held in trust solely for the Refunded Notes and will not be available to pay the principal and interest evidenced by the 2007 Bonds or any obligations other than the Refunded Notes.

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ESTIMATED SOURCES AND USES OF FUNDS

The 2007 Bond proceeds and other available funds will be applied as follows:

Sonrces of Fnnds

Principal Amount Net Original Issue Prerniwn

Total

Uses of Funds

Project Fund Escrow Account (l)

Reserve Fund Interest Account (Z)

Costs of Issuance Fund C3l

Total

Series A Bonds

$157,845,000.00 6,370,686. 70

$164,215,686.70

$126,520,136.50 6,678,571.27

10,049,200.00 19,239,768.52

1,728,010.41

$164,215,686. 70

Series B Bonds

$38,565,000.00

$38,565,000.00

$32,313,900.36

5,775,641.43 475,458.21

$38,565,000.00

Total

$196,410,000.00 6,370,686.70

$202,780,686. 70

$158,834,036.86 6,678,571.27

I 0,049,200.00 25,015,409.95

2,203,468.62

$202,780,686. 70

(1) To provide for the remaining scheduled interest payments on, and the maturing principal payment of, the Refunded Notes, including on their December 1, 2008 maturity date. (2) Represents capitalized interest on a portion of the 2007 Bonds through September 1, 2010. (3) Includes Underwriter's discount, bond insurance premium, premium for the Debt Service Reserve Fund Surety Bond (as defined herein) (allocable to the Series B Bonds), legal fees, financial advisory fees, printing costs, fees of the Trustee and the Paying Agent and other miscellaneous expenses.

THE 2007 BONDS

General

The 2007 Bonds will be dated their date of issuance (the "Dated Date") and will mature (subject to prior redemption) on September I in each year, and bear interest from the Dated Date at the respective rates, calculated on the basis of a 360-day year of twelve 30-day months, as set forth on the inside cover page of this Official Statement. Interest evidenced by the 2007 Bonds will be payable semiannually on March I and September I of each year, commencing March I, 2008 (each, an "Interest Payment Date"). The 2007 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof (an "Authorized Denomination"). The 2007 Bonds will be initially issued in book-entry form only and will be registered in the name of Cede & Co., as nominee of OTC, which will act as securities depository for the 2007 Bonds. Individual purchases of the 2007 Bonds will be made in book-entry form only. Purchasers of 2007 Bonds will not receive physical certificates representing their ownership interests in the 2007 Bonds purchased.

Payments of principal of, prerniwn, if any, and interest on the 2007 Bonds will be paid by U.S. Bank National Association, as trustee (the "Trustee"), to OTC, which is obligated in turn to remit such principal of and premium, if any, and interest on the 2007 Bonds to its OTC Participants for subsequent disbursement to the beneficial owners of the 2007 Bonds as described herein. See APPENDIX C -"BOOK-ENTRY ONLY SYSTEM" herein. So long as any 2007 Bond is registered in the name of the Nominee, all payments with respect to principal of, and interest on such 2007 Bond and all notices with

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respect to such 2007 Bond shall be made and given, respectively, as provided in the Representation Letter or as otherwise instructed by OTC and acceptable to the Authority.

Interest on the 2007 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a 2007 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date, (ii) a 2007 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Dated Date provided in the form of the applicable Series of the Bonds, or ( iii) interest on any 2007 Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest shall be paid on each Interest Payment Date to the Persons in whose names the ownership of the 2007 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest on any 2007 Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the Person in whose name the ownership of such 2007 Bond is registered on the Registration Books at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to such Owner not less than fifteen (15) days prior to such Special Record Date. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date; or by wire transfer made on such Interest Payment Date to any Owner of $1,000,000 or more in aggregate principal amount of 2007 Bonds who shall have requested such transfer pursuant to written notice filed with the Trustee on or before the preceding Record Date.

The principal of the 2007 Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof at the Principal Office of the Trustee. Payment of principal upon maturity or earlier redemption of any 2007 Bond shall be made only upon presentation and surrender of such 2007 Bond at the Principal Office of the Trustee.

With respect to the 2007 Bonds registered in the Bond Register in the name of the Nominee, neither the Authority nor the Trustee shall have any responsibility or obligation to any broker-dealers, banks and other financial institutions from time to time for which OTC holds 2007 Bonds as securities depository (the "OTC Participants") or to any person on behalf of which such a OTC Participant holds an interest in the 2007 Bonds. Neither the Authority nor the Trustee shall have any responsibility or obligation with respect to (i) the accuracy of the records of OTC, the Nominee, or any OTC Participant with respect to any ownership interest in the 2007 Bonds, (ii) the delivery to any OTC Participant or any other person, other than an Owner of a 2007 Bond as shown in the Bond Register, of any notice with respect to the 2007 Bonds, including any notice of redemption, (iii) the selection by OTC and its OTC Participants of the beneficial interests in the 2007 Bonds to be redeemed in the event the Authority redeems the 2007 Bonds in part, or (iv) the payment to any OTC Participant or any other person, other than an Owner of a 2007 Bond as shown in the Bond Register, of any amount with respect to principal of or interest on the 2007 Bonds. The Authority and the Trustee may treat and consider the person in whose name each 2007 Bond is registered in the Bond Register as the holder and absolute Owner of such 2007 Bond for the purpose of payment of principal and interest with respect to such 2007 Bond, for the purpose of giving notices of redemption, if applicable, and other matters with respect to such 2007 Bond, for the purpose of registering transfers with respect to such 2007 Bond, and for all other purposes whatsoever.

The Authority shall pay all principal of and interest on the 2007 Bonds only to or upon the order of the respective Owner of a 2007 Bond, as shown in the Bond Register, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the Authority's obligations with respect to payment of principal of and interest on the 2007 Bonds to the

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extent of the swn or sums so paid. No person other than an Owner of a 2007 Bond, as shown in the Bond Register, shall receive a 2007 Bond evidencing the obligation of the Authority to make payments of principal and interest pursuant to the Indenture. Upon delivery by OTC to the Owners of the 2007 Bonds, and the Authority of written notice to the effect that OTC has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Date, the word "Nominee" in the Indenture shall refer to such nominee of OTC. See APPENDIX D - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

Redemption

Optional Redemption of the Series A Bonds. The Series A Bonds maturing on and after September I, 2018 are subject, at the option of the Authority at the direction of the District, to call and redemption from any available source of funds prior to their stated maturity on any date on or after September I, 2017, as a whole or in part in the order directed by the Authority, from any source of available funds, at a redemption price equal to the principal amount of the Series A Bonds to be redeemed, without premiwn, plus accrued interest thereon to the date fixed for redemption.

Mandatory Sinking Payment Redemption of Series A Bonds. The Series A Bonds maturing on September I, 2032 are subject to mandatory redemption in part by lot, on September I in each year commencing September I, 2028, and on each September I thereafter up to and including September I, 2032, from mandatory sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the following principal amounts:

Sinking Fund Payment Date (September I)

2028 2029 2030 2031 2032

Principal Amount

$5,430,000 5,705,000 6,005,000 6,305,000 6,635,000

The Series A Bonds maturing on September I, 2038 are subject to mandatory redemption in part by lot, on September I in each year commencing September I, 2033, and on each September I thereafter up to and including September I, 2038, from mandatory sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the following principal amounts:

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Sinking Fund Payment Date (September 1)

2033 2034 2035 2036 2037 2038

Principal Amount

$6,975,000 7,330,000 7,705,000 8,100,000 8,515,000 8,955,000

The Series A Bonds maturing on September 1, 2040 are subject to mandatory redemption in part by lot, on September 1 in each year commencing September 1, 2039, and on each September 1 thereafter up to and including September 1, 2040, from mandatory sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the following principal amounts:


2039 2040

Principal Amount

$9,390,000 9,820,000

Selection of Series A Bonds for Partial Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Series A Bonds of a maturity, the Trustee shall select the Series A Bonds to be redeemed from all Series A Bonds of such maturity not previously called for redemption, as directed by the Authority, at the request of the District, or, in the absence of such direction, by lot in any manner which the Authority in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Series A Bonds shall be deemed to be comprised of separate Authorized Denominations and such separate Authorized Denominations shall be treated as separate Series A Bonds which may be separately redeemed.

Optional Redemption of Series B Bonds. The Series B Bonds are subject, at the option of the Authority at the direction of the District, to call and redemption from any available source of funds prior to their stated maturity on any date, as a whole or in part, from any source of available funds, at a redemption price equal to the greater of (a) 100% of the principal amount thereof or (b) the Discounted Value thereof, plus in either case, accrued interest thereon to the date of redemption. The Series B Bonds may be redeemed in any principal amount determined by the Authority in its sole discretion. All calculations and determinations referred to in this section, except as provided in the preceding sentence, will be made by a financial advisor selected by the Authority.

"Discounted Value" means, with respect to the Series B Bonds to be redeemed, the sum of the amounts obtained by discounting all remaining scheduled payments of principal and interest ( exclusive of interest accrued to the date of redemption) from their respective scheduled payment dates to the applicable redemption date, at a yield ( computed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months) equal to the applicable Discount Yield.

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"Discount Yield" means, with respect to the Series B Bonds to be redeemed on a particular date, the Blended Treasury Yield determined with respect to the Series B Bonds, plus .125% per annum. The Discount Yield will be calculated assuming semi-annual compounding based upon a 360-day year consisting of twelve 30-day months.

"Blended Treasury Yield" means, with respect to the Series B Bonds, the yield computed by the linear interpolation of two Market Treasury Yields such that the theoretical maturity that corresponds to the interpolated Market Treasury Yield equals the date that corresponds to the remaining average life of the Series B Bonds to be redeemed. The first Market Treasury Yield will be based on an actively traded U.S. Treasury security or U.S. Treasury index whose maturity is closest to, but no later than, the date corresponding to the remaining average life of the Series B Bonds to be redeemed; the second Market Treasury Yield will be based on an actively traded U.S. Treasury security or U.S. Treasury index whose maturity is closest to, but no earlier than, the date corresponding to the remaining average life of the Series B Bonds to be redeemed.

"Market Treasury Yield" means that yield, assuming semi-annual compounding based upon a 360-day year consisting of twelve 30-day months, which is equal to:

(i) the yield for the applicable maturity of an actively traded U.S. Treasury security, reported, as of 11:00 a.rn., New York City time, on the Valuation Date on the display designated as "Page PX!" of the Bloomberg Financial Markets Services Screen (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in U.S. Treasury securities); or

(ii) if the yield described in (i) above is not reported as of such time or the yield reported as of such time is not ascertainable, the most recent yield data for the applicable U.S. Treasury maturity index from the Federal Reserve Statistical Release H.15 Daily Update ( or any comparable or successor publication) reported, as of 11:00 a.m., New York City time, on the Valuation Date; or

(iii) if the yields described in (i) and (ii) above are not reported as of such time or the yield reported as of such time are not ascertainable, the yield for the applicable maturity of any actively traded U.S. Treasury security will be based upon the average of yield quotations for such security (after excluding the highest and lowest quotations) as of 3:30 p.m., New York City time, on the Valuation Date received from no less than five primary dealers in U.S. Government securities selected by the Authority.

Each yield quotation for each actively traded U.S. Treasury security required in (i) and (iii) above will be determined using the average of the bid and ask prices for that security.

"Valuation Date" means the third Business Day preceding the redemption date.

Mandatory Sinking Payment Redemption of Series B Bonds. The Series B Bonds maturing on September I, 2017 are subject to mandatory redemption in part on a pro rata basis (as described below and in the Indenture), on September I in each year commencing September I, 2011, and on each September I thereafter up to and including September I, 2017, from mandatory sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the following principal amounts:

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2011 2012 2013 2014 2015 2016 2017

Principal Amount

$525,000 555,000 580,000 615,000 645,000 680,000 715,000

The Series B Bonds maturing on September 1, 2040 are subject to mandatory redemption in part on a pro rata basis (as described below and in the Indenture), on September 1 in each year commencing September 1, 2018, and on each September 1, thereafter up to and including September 1, 2040, from mandatory sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the following principal amounts:

Sinking Fund Sinking Fund Payment Date Principal Payment Date Principal (September 1) Amount (September 1) Amount

2018 $ 755,000 2030 $1,470,000 2019 800,000 2031 1,555,000 2020 845,000 2032 1,645,000 2021 895,000 2033 1,740,000 2022 945,000 2034 1,840,000 2023 1,000,000 2035 1,945,000 2024 1,055,000 2036 2,055,000 2025 1,115,000 2037 2,170,000 2026 1,180,000 2038 2,295,000 2027 1,245,000 2039 2,430,000 2028 1,315,000 2040 2,565,000 2029 1,390,000

Selection of Series B Bonds for Partial Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Series B Bonds of a maturity, the Trustee shall select the Series B Bonds to be redeemed from all Series B Bonds of such maturity not previously called for redemption, on a pro rata basis. For purposes of such selection, all Series B Bonds shall be deemed to be comprised of separate Authorized Denominations and such separate Authorized Denominations shall be treated as separate Series B Bonds which may be separately redeemed. "Pro rata'' is determined, in connection with any redemption, in part, by multiplying the principal amount of the Series B Bonds of such maturity to be redeemed on the applicable redemption date by a fraction, the numerator of which is equal to the principal amount of the Series B Bonds of such maturity owned by an Owner, and the denominator of which is equal to the total amount of the Series B Bonds of such maturity then Outstanding inunediately prior to such redemption date, and then rounding the product down to the next lower integral multiple of $5 ,000, provided that the portion of any Series B Bonds to be redeemed shall

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be in Authorized Denominations and all Series B Bonds of a maturity to remain Outstanding following any redemption shall be in Authorized Denominations.

Notice of Redemption. Notice of redemption shall be mailed by the Trustee, for and on behalf of the Authority, by first class mail, postage prepaid, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books and to the Securities Depositories and the Information Services at least 30 days but not more than 60 days prior to the redemption date. Neither the failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest as of the redemption date. Each notice of redemption shall state the redemption date, the place or places of redemption, the CU SIP numbers and the Series and Bond numbers of the Bonds to be redeemed, and in the case of Bonds to be redeemed in part only, the respective Authorized Denominations of the principal amount thereof to be redeemed. Each such notice shall also state that on said date there will become due and payable on each of said Bonds the principal amount relating thereto or of said specified portion of the principal thereof in the case of a Bond to be redeemed in part only, plus accrued interest, if any, and through which date such interest will accrue, and that from and after such date interest thereon shall cease to accrue and shall require that such Bonds be then surrendered at the Principal Office of the Trustee. Neither the failure of any Bond Owner to receive any notice so mailed nor any defect therein shall affect the sufficiency of the proceedings for redemption of any Bonds nor the cessation of accrual of interest thereon.

Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of Authorized Denominations equal in aggregate principal amount or maturity amount, as applicable, representing the unredeemed portion of the Bonds so surrendered.

Effect of Notice of Redemption. Notice having been given as aforesaid, and moneys for the redemption (including the interest to the applicable date of redemption and including any applicable premium), having been set aside in the Redemption Fund or any of the accounts therein, the Bonds shall become due and payable on said date of redemption, and, upon presentation and surrender thereof at the Principal Office of the Trustee, said Bonds shall be paid at the redemption price thereof, together with interest accrued and unpaid to said date ofredemption and premium, if any.

If, on said date of redemption, moneys for the redemption of the Bonds to be redeemed, together with interest to said date of redemption, shall be held by the Trustee so as to be available therefor on such date of redemption, and, if notice of redemption thereof shall have been given as aforesaid and not cancelled, then, from and after said date of redemption, interest represented by such Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability for interest thereon.

All Bonds paid at maturity or redeemed prior to maturity shall be cancelled upon surrender thereof and destroyed.

Purchase in Lieu of Redemption. In lieu of redemption of any Bond, amounts on deposit in the Principal Account or Redemption Account may also be used and withdrawn by the Trustee at any time, upon the Written Request of the Authorized Representative, for the purchase of such Bond at public or private sale when and at such prices ( including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as the Authority may in its discretion determine, in accordance with all applicable laws, so long as such prices do not exceed par.

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Transfer and Exchange of 2007 Bonds

During any time the 2007 Bonds are not registered as book entry only as described in APPENDIX C - "BOOK ENTRY SYSTEM," 2007 Bonds may be transferred or exchanged upon presentation and surrender at the principal corporate trust office of the Trustee and whenever any 2007 Bond or 2007 Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new 2007 Bond or 2007 Bonds for a like aggregate principal amount, in an Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer.

Any 2007 Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such 2007 Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee. The Trustee shall not be obligated to make any transfer of 2007 Bonds during the period selected by the Trustee for the selection of 2007 Bonds for redemption, or with respect to any 2007 Bonds selected for redemption.

The 2007 Bonds may be exchanged at the Principal Office of the Trustee for a like aggregate principal amount of 2007 Bonds of Authorized Denominations and of the same maturity. The Authority may charge a reasonable sum for each new 2007 Bond issued upon any exchange ( except in the case of any exchange of temporary 2007 Bonds for definitive 2007 Bonds and except in the case of the first exchange of any definitive 2007 Bond in the form in which it is originally issued) and shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any exchange of 2007 Bonds during the period selected by the Trustee for the selection of 2007 Bonds for redemption, or with respect to any 2007 Bonds selected for redemption.

SECURITY AND SOURCES OF PAYMENT FOR THE BONDS

General

The Bonds will be obligations of the Authority payable solely from and secured by the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the funds and accounts established pursuant to the Indenture ( excepting the Rebate Fund). As defined in the Indenture, the term "Revenues" means: (a) all amounts derived from the Pledge Agreement, and (b) investment income with respect to the funds and accounts established under the Indenture except for investment earnings on the Rebate Fund. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the funds and accounts established pursuant to the Indenture ( excepting the Rebate Fund) are pledged by the Authority to secure the full and timely payment of the principal of and interest and premium, if any, of the Bonds, and amounts owing to the Insurer, in accordance with their terms and the provisions of the Indenture. Said pledge shall constitute a lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after delivery of the Bonds by the Trustee and the Revenues and other items pledged under the Indenture shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act.

Under the Pledge Agreement, the District has pledged certain Pledged Revenues from each of the respective Delivery Contracts, Net Revenues it collects from the operation of the Water Project, and all amounts on deposit in the Nacimiento Water Fund. As used in this Official Statement the term "Pledged Revenues" means, collectively, the Capital Projects Installment Debt Service due from each Participant,

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together with the Net Revenues of the District. As provided in the Delivery Contracts, and in order to carry out and effectuate the pledge and lien contained therein, the District has agreed that all Pledged Revenues shall be received by the District in trust and shall be deposited when and as received into the Nacimiento Water Fund, which fund the District will maintain and hold in trust separate and apart from other funds so long as any Bonds remain unpaid.

During the term of the Pledge Agreement, the District shall withdraw amounts from the Nacimiento Water Fund on each Payment Date for deposit into the Debt Service Fund to be transferred to the Trustee to pay interest then corning due on and maturing or called principal of the Bonds. Moneys on deposit in the Nacirniento Water Fund not necessary to make any of the payments required above may be expended by the District at any time for any purpose permitted by law.

The Authority shall establish with the Trustee a special fund designated the "Revenue Fund" which the Trustee shall maintain and hold in trust. Within the Revenue Fund, the Trustee shall establish special accounts designated as the "Principal Account" and the "Interest Account." Such fund and accounts shall be held and maintained as separate and distinct funds and accounts. All Revenues, except for investment earnings on the Reserve Fund, shall be promptly transferred to the Trustee by the Authority and deposited by the Trustee upon receipt thereof into the "Revenue Fund." All Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. On each Interest Payment Date, the Trustee shall transfer all Revenues then in the Revenue Fund into the following funds and accounts 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 sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any account subsequent in priority:

(a) The Trustee shall deposit into the Interest Account an amount which, together with the amounts then on deposit therein including, with respect to amounts, if any, transferred by the Trustee from the Reserve Fund, is sufficient to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest corning due and payable on the Bonds on such Interest Payment Date and any amount of interest previously due and unpaid.

(b) The Trustee shall deposit into the Principal Account, if necessary, an amount which, together with the amounts then on deposit therein, including amounts, if any, transferred from the Reserve Fund, shall be sufficient to cause the aggregate amount on deposit in the Principal Account to equal the amount of principal or mandatory sinking account payment corning due and payable on the Bonds within the Bond Year and any amount of principal previously due and unpaid.

As provided in the Pledge Agreement, the District has irrevocably pledged all Pledged Revenues from each Delivery Contract with a Participant, all Net Revenues it collects from the operation of the Water Project, and all amounts on deposit in the Nacimiento Water Fund, to the payment of the Bonds as provided in the Pledge Agreement. As used in this Official Statement the term "Pledged Revenues" means, collectively, the Capital Projects Instalhnent Debt Service due from each Participant, together with the Net Revenues of the District. "Net Revenues" shall mean the sum of (a) the proceeds of sale by the District of Surplus Water, (b) revenues received by the District from Wheeling Customers, and ( c) revenues received by the District from the sale of Reserve Water, less the costs of making such sales and collecting said revenues. This pledge shall constitute a lien on Revenues without any further action or filing by the District or any Participant and notwithstanding a lack of physical possession thereof. The term "Capital Projects Installment Debt Service" shall mean payments on debt or similar obligations incurred by the District for the Water Project consisting of, in the aggregate, (a) principal and interest (or mandatory sinking fund payments, instalhnents or lease or similar payments due) with respect to all Bonds at the time Outstanding in accordance with their terms, provided that capitalized interest funded

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from the proceeds of the Bonds need not be taken into account, (b) annual costs of administering the Bonds, including the annual fees of the Trustee, and ( c) the costs, if any, of annual credit enhancement for the Bonds, whether or not based on a derivative structure as provided in Section 5922(a) of the Government Code.

Pursuant to each of the Delivery Contracts, the Participants, severally and not jointly, have pledged Capital Projects Installment Debt Service to be collected by their respective Water Enterprises and have made certain covenants with respect thereto. See APPENDIX D - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

As provided in the Delivery Contracts, and in order to carry out and effectuate the pledge and lien contained in the Pledge Agreement, the District has agreed and covenanted under the Pledge Agreement that all Revenues shall be received by the District in trust and shall be deposited when and as received into the Nacirniento Water Fund, which fund the District agrees and covenants to maintain and hold in trust separate and apart from other funds so long as any Bonds remain unpaid. As provided in the Pledge Agreement, the Nacirniento Water Fund will be maintained by the District within the Treasury Pool of the County of San Luis Obispo, California, into which the District shall deposit all Net Revenues and all payments received by the District under each Delivery Contract.

During the term of the Pledge Agreement, the District shall withdraw amounts from the Nacirniento Water Fund on each Payment Date for deposit into the Debt Service Fund to be transferred to the Trustee to pay interest then corning due on and maturing or called principal of the Bonds. The term "Payment Date" means the day that is five ( 5) Business Days prior to each Interest Payment Date and the Maturity Date. Moneys on deposit in the Nacirniento Water Fund not necessary to make any of the payments required above may be expended by the District at any time for any purpose permitted by law.

The District shall not be required to pay or advance any moneys derived from any source of income other than Revenues, the Nacirniento Water Fund and the other funds provided in the Pledge Agreement for the payment of amounts due on the Bonds, or for the performance of any agreements or covenants required to be performed by it contained in the Pledge Agreement. The District may, however, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose.

The obligation of the District to make payments to the Authority under the Pledge Agreement is a special obligation of the District payable solely from Revenues, the Nacirniento Water Fund and other funds described in the Pledge Agreement, and does not constitute a debt of the District or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction.

The District will preserve and protect the security of the Pledge Agreement and the rights of the Authority to the payments due under the Pledge Agreement and under the Delivery Contracts and will warrant and defend such rights against all claims and demands of all persons.

The 2007 Bonds are special obligations of the Authority and are not a lien or charge upon the funds or property of the Authority, except to the extent of the pledge and assignment under the Indenture. The 2007 Bonds are not a debt of the Authority, the District, the County of San Luis Obispo or the State of California, and the Authority, the District, the County and the State are not liable for the payment thereof. The Authority shall not be obligated to pay the principal of the 2007 Bonds or interest thereon, except from the funds provided under the Indenture and the Pledge Agreement and neither the faith and credit nor the taxing power of the State of California or of any political subdivision thereof, including the

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Authority, is pledged to the payment of the principal of or interest on the 2007 Bonds. The Authority has no taxing power.

See APPENDIX D - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

The Delivery Contracts

For purposes of the Delivery Contracts, the 2007 Bonds constitute "Municipal Obligations" as do amounts due to the Insurer with respect to the Insurance Policy and any Debt Service Reserve Fund Surety Bond (as defined herein). The parties to each Delivery Contract respectively have acknowledged that the total Water Project construction costs are estimated to be $175 million, with the actual total costs of construction of the Water Project to be determined through a competitive bid process applicable to the District at the conclusion of the Design Phase ( collectively, the "Construction Bids"). Each Delivery Contract is substantially similar in its terms, but for certain particulars. The following sununary is applicable to each of the Delivery Contracts, except where otherwise noted.

On or before April I of each Calendar Year, the District shall estimate the new or additional Nacirniento Project Costs for the Fiscal Year cornrnencing on the irnrnediately following July I and the result shall comprise the Total Participant Contract Payments due, collectively, from the Participant under the Delivery Contract and from the Other Participants under their respective Like-Contracts for the said Fiscal Year. Nacirniento Project Costs shall include:

(I) Nacirniento Project Construction Costs; (2) Additional Capital Project Costs; (3) Capital Projects Installment Debt Service; (4) Master Water Contract Costs incurred following the first date upon which an allocation of

ad valorem property taxes as described under the caption "Contract Payments -Participant Credits Against Contract Payments";

( 5) Capital Reserve Costs; ( 6) Operation and Maintenance Costs; (7) Variable Energy Costs; and (8) Other annual or incidental costs associated with the Nacirniento Facilities.

Nacirniento Project Costs shall be allocated by the District among the Participant and all Other Participants as follows:

The District shall allocate Capital Reserve Costs and Operation and Maintenance Costs to each Participant on the basis of the Unit Percentage Share attributable to the Units used by the District to deliver the Delivery Entitlement to the Participants and CSA 10. As of August 28, 2007, there is apportioned to each Participant, and CSA 10, the following proportional share of the said costs ( expressed as a percentage) for each of the Units used to deliver water to such Participant and CSA I 0:

Participant Atascadero Mutual Water Company City of Paso Robles City of San Luis Obispo Templeton Cornrnunity Services District County Service Area 10, Zone A

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Cap. Res. Costs andO&M

$ 772,922 1,341,731 1,327,737

186,344 9,821

$3,638,555

Cap. Res. Costs andO&M

21.24% 36.88 36.49

5.12 0.27

100.00

The District shall allocate Capital Projects Installment Debt Service among all Participants, according to the proportion of Nacirniento Project Construction Costs paid by the Participant and the Other Participants, as they may be adjusted for cash contributions as described under the caption "Contract Payments - Participant Credits Against Contract Payments" below; provided, however, that the Capital Projects Installment Debt Service shall further be allocated into a component representing principal of and interest on the Series A Bonds or other Tax-exempt Bonds (the "Tax-Exempt Debt Service") and a component representing the principal of and interest on Series B Bonds or other taxable Bonds (the "Taxable Debt Service").

The District will allocate all other Nacirniento Project Costs not otherwise provided for above, including Master Water Contract Costs, to the Participants and to CSA 10 on the basis of the Delivery Entitlement Share for the Participants and CSA 10.

Percentage Allocation of Nacimiento Delivery Entitlement Shares

Participant Atascadero Mutual Water Company City of Paso Robles City of San Luis Obispo Templeton Community Services District County Service Area 10, Zone A

Percentage 20.715% 41.429 35.008

2.589 0.259

These allocations shall be calculated by the District each Fiscal Year for the Participants and the calculations of said allocations shall be made available to each Participant. The obligations of the Participants for any Approved Additional Project will be established at the time of and by the agreement for each such Approved Additional Project.

During the term of the Delivery Contracts, the District shall proceed with due diligence to collect Total Participant Contract Payments as and when due, and shall deposit amounts collected into the Nacirniento Water Fund promptly upon receipt, and shall apply all other amounts comprising Total Participant Contract Payments in the following order of priority:

(A) To the payment of Master Water Contract Costs; (B) To the payment of Operation and Maintenance Costs; (C) To the payment of Variable Energy Costs; (D) To the payment of Additional Capital Project Costs; and (E) To the replenishment of Capital Reserves for the Nacirniento Project.

Contract Payments

(A) Time and Amount of Contract Payments. Except as established under Paragraph (C) below as to Capital Projects Installment Debt Service, the Contract Payments to the District shall commence no later than the first Fiscal Year during which the Delivery Entitlement is made available to the Participant under the Delivery Contract, and in any event, promptly following receipt by the Participant of an invoice from the District. The Contract Payments shall be determined by the District as provided in the Delivery Contract and shall be paid by each Participant to the District in accordance with the respective Delivery Contract, except and to the extent each Participant shall, in accordance with paragraph (B) below, be entitled to an offsetting credit.

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(1) On or before July 1 of each Fiscal Year, each Participant shall pay a swn equal to sixty percent (60%) of the Participant's Allocation of Capital Reserve Costs, and Operation and Maintenance Costs as calculated and allocated as provided in the Delivery Contracts; and

(2) On the inunediately following January 1 within each Fiscal Year, each Participant shall pay a swn equal to forty percent (40%) of the Participant's Allocation of Capital Reserve Costs and Operation and Maintenance Costs as calculated and allocated as provided in the Delivery Contracts; and

(3) On or before the thirtieth (30th) day following its receipt of an invoice from the District as provided in the Delivery Contracts, each Participant shall pay Variable Energy Costs as calculated and allocated as provided in the Delivery Contracts, for the Calendar Quarter most recently concluded; and

(4) On or before July 1 of each Fiscal Year, each Participant shall pay a swn equal to the Participant's Allocation of Capital Projects Instalhnent Debt Service as calculated and allocated as provided in the Delivery Contracts.

(5) On or before July 1 of each Fiscal Year, each Participant shall pay a swn equal to the Participant's allocation of remaining Nacirniento Project Costs, including Additional Capital Project Costs and Master Water Contract Costs as calculated and allocated as provided in the Delivery Contracts.

(B) Participant Credits against Contract Payments. The following shall constitute credits against the Contract Payments to the District:

( 1) If, prior to the date upon which the District causes the Municipal Obligations ( as defined below and including the Bonds) to be sold, each Participant shall contribute to the District, in cash, a sum as and for the Participant's Capital Share of the District's estimate of the Total Nacimiento Project Construction Costs, or any portion of the Participant's Capital Share of said construction costs, then the amount of Capital Projects Instalhnent Debt Service allocated to the Participant as provided in the Delivery Contracts shall be reduced accordingly, but in no event to less than zero; and

(2) If any Participant shall, following the date of delivery of the Municipal Obligations, successfully implement a financing plan within its jurisdiction to fund all or a portion of the Participant's Contract Payments, during the term of the Municipal Obligations, by means of a levy of ad valorem property taxes, special assessments or special taxes, then all or a portion of the amount of Capital Projects Installment Debt Service to be allocated to the Participant as provided in the Delivery Contracts, shall be credited to the Participant from amounts paid under such levy as though such amounts were paid directly by the Participant under the Delivery Contract, subject to the prior approval of each rating agency then rating the Municipal Obligations and any bond insurer then providing insurance therefor; provided however, that, to the extent legally permissible, the District shall be made a third-party beneficiary of any pledge of such alternate source of revenues, with the power to enforce collection thereof, in the event that the Participant should fail to do so; and

(3) Each Participant shall be entitled to a credit against the Participant's obligations to the District under the Delivery Contract in the form of a share of the Net Revenues the District shall have received during the Fiscal Year in question. In determining the amount of such credits against the obligations of the Participant under the Delivery Contract, the District shall apportion the District's net revenues from the foregoing sources; (i) first, against the obligations allocated to the Participant and to the Other Participants for the Reserved Capacity Construction Cost component and in the same amount as the percentage allocation set forth for the Participant in the Delivery Contracts, and then (ii) against the obligations allocated to the Participant and to the Other Participants for the All Other Construction Costs

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component and in the same amount as the percentage allocation set forth for the Participant in the respective Delivery Contract.

As defmed in the Delivery Contracts, the term "Municipal Obligations" shall mean all the Taxable Obligations and the Tax-Exempt Obligations, in the form of bonds, notes, certificates or similar securities, sold by or on behalf of the District to finance all or a portion of the Nacirniento Facilities or an Additional Capital Project, and specifically includes the Notes and the 2007 Bonds.

(4) On or before December 1 of each year, the District shall deliver to each Participant a statement as to the actual Operation and Maintenance Costs and Capital Reserve charges incurred or imposed during the Fiscal Year most recently concluded, and shall set forth in such statement the District's determination as to whether the Contract Payments theretofore paid by the Participant were in excess of or less than the Participant's allocated share of the actual costs incurred by the District for said items. If any Participant shall have paid less than the Participant's actual Unit Percentage Share for said items for such Fiscal Year, the Participant shall remit the difference to the District within one hundred eighty (180) days of the date upon which the Participant receives such a statement from the District. If any Participant shall have paid more than the Participant's actual Unit Percentage Share for such items for such Fiscal Year, the District shall credit the difference against the Participant's future Contract Payments to the District.

(5) If, in any Fiscal Year, the Nacimiento Water Fund receives its allocated portion of the ad valorem taxes levied on the real property within the County of San Luis Obispo under the authority of Article XIIIA, Section l(a) of the California Constitution, then the District shall apply said apportioned amount received by the District to the reduction of Reserved Capacity Construction Cost component and the District shall continue to do so in each Fiscal Year in which the District receives such apportioned amounts up to and until the said Reserved Capacity Construction Cost component is paid. The District shall credit to the Participant the Delivery Entitlement Share of said apportioned tax proceeds received by the Nacimiento Water Fund of the District, less any amounts (i) which the District is obligated to pay under the terms of the Master Water Contract and/or (ii) any amounts which are not received or retained by the District because of the operation of the Community Redevelopment Law (California Health and Safety Code Sections 33000 et seq.) or any other applicable law.

As provided in the Delivery Contracts, neither the Participant's failure or refusal to accept delivery of water from the Nacirniento Facilities to which the Participant is entitled under the Delivery Contract nor the District's failure to deliver said water shall in any way relieve the Participant of its obligations to make payments to the District as provided for in the Delivery Contract, and such Participant's Contract Payments shall not be conditional upon the performance or nonperformance by any party to the Delivery Contract, or to the Like-Contracts, for any cause whatsoever; provided, however, that any savings from non-operation of the Nacirniento Facilities shall be apportioned among the Participant and the Other Participants in accordance with their respective percentages of the Participant's and each Other Participant's Unit Percentage Share.

Participant's Pledge and Covenants

The Participant, unless it shall have paid cash as the Participant's portion of the Total Nacirniento Project Construction Costs as provided in the Delivery Contract, pledges under each Delivery Contract, respectively, the gross water sales revenues of the Participant's Water Enterprise to the Participant's obligations under the Delivery Contract, and covenants and agrees to establish, fix and collect rates and charges from the customers of Participant's Water Enterprise at levels sufficient to produce revenues from the Participant's Water Enterprise which are at least equal to:

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(A) The costs of operating and maintaining the Participant's Water Enterprise; plus

(B) The Contract Payments, calculated in accordance with the Delivery Contract, including the amounts allocated to the Participant as the Participant's share of Capital Projects Installment Debt Service; plus

(C) The Coverage Factor for the amounts allocated to the Participant as the Participant's share of Capital Projects Instalhnent Debt Service, provided, however, that there shall be credited towards compliance with the Coverage Factor requirement all Available Capital Reserves of the Participant.

Under certain circumstances, the Participant may be required to pay a surcharge following the occurrence of any payment default by the Participant as provided in the Delivery Contract.

Notwithstanding the provisions of paragraph (C) above, each Participant will be permitted to withdraw and apply Available Capital Reserves for its operational and capital needs from time to time during any water year. As defined in each Delivery Contract, the term "Available Capital Reserves" means amounts maintained by the Participant for is Water Enterprise for capital reserves, including unreserved, unrestricted working capital balances in the funds established for the Water Enterprise, including allowances for contingencies, as of each Calculation Date.

Term of Delivery Contracts

Each Delivery Contract shall remain in effect throughout the term provided by the Master Water Contract; provided, that if and when, through no fault of the District, one or more provisions of the Master Water Contract shall be terminated or suspended in the manner and for a cause specified in the Master Water Contract, the District's obligations to the Participant and to the Other Participants under the Delivery Contract and under Like-Contracts shall likewise be terminated or suspended; provided, however, that the Delivery Contract may not be terminated, suspended or rescinded so long as there remain outstanding any Municipal Obligations issued by the District for the Nacimiento Facilities, including the 2007 Bonds.

Amendments To Delivery Contract

Each Delivery Contract shall be subject to amendment at any time by mutual agreement of the parties thereto, respectively, except insofar as any proposed amendments are in any way contrary to applicable law, or would have a material adverse effect upon the owners of any of the Municipal Obligations. As a condition to any amendment to the Delivery Contract or to the Like-Contracts with the Other Participants, the District shall first have received written confirmation from the rating agency or agencies then providing a rating for the Municipal Obligations, to the effect that the proposed amendments will not adversely affect the rating of the Municipal Obligations and, in the event that the Municipal Obligations, or any portion thereof, shall be covered by municipal bond insurance, the District shall have received prior written consent to such proposed amendments from the provider of such bond insurance. Amendments to the Delivery Contract and to the Like-Contracts of the Other Participants shall occur only after the written and unanimous consent of the District, the Participant and all Other Participants, except, that the following Additional Projects may be effected without said unanimous consent and upon the following conditions:

(A) Approved Additional Projects. Upon the request of the Participant or of any Other Participant, the District may enter into an amendment of the Delivery Contract, and/or of Like-Contracts, in order to undertake the acquisition and construction of an Approved Additional Project; provided, however, the Participant and/or Other Participants desiring such Project shall first demonstrate that said

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Approved Additional Project will be economically feasible with the financial support of only the Participant and/or the Other Participants participating in said Approved Additional Project.

(B) Required Additional Project/Emergency Projects. The undertaking of a Required Additional Project or of any Emergency Project by the District shall not require the consent of the Participant or of any Other Participant nor the amendment of the Delivery Contract or of any LikeContract( s ).

(C) Approval of Amendments by Participant. The Participant covenants and agrees to act in good faith to approve or reject any proposed amendments to each Delivery Contract respectively within a reasonable period of time. The failure to either approve or reject any such proposed amendment within sixty (60) days from the date of adoption by the Board of a resolution approving such proposed amendment shall constitute a lack of good faith.

Assignment of Delivery Contract

The provisions of the Delivery Contract shall apply to and bind the successors and assigns of the respective parties, but no assignment or transfer of the Delivery Contract, or any part of the Delivery Contract or interest in the Delivery Contract, shall be valid until and unless approved by the District. The District shall not approve any such assignment or transfer to any person or entity that is not one or more of the Initial Participants, or a then-existing New Participant, unless and until the proposed assignment or transfer of the Delivery Contract has been offered to and refused in writing by all said Participants. The offer of any such assignment or transfer of the Delivery Contract shall be on the same basis to all Participants and if more than one of the said Participants desires to accept the offer, the Delivery Contract or portion thereof to be assigned or transferred shall be prorated among them in proportion to their respective unit percentage share in the facilities involved in the assignment or transfer. The foregoing notwithstanding, no assignment or transfer of the Delivery Contract or any part of the Delivery Contract or interest in the Delivery Contract shall be valid until such time as the District has received assurances from each rating agency then rating the Municipal Obligations, to the effect that such assignment or transfer will not adversely affect the rating on the Municipal Obligations, and, so long as any Municipal Obligations are then being insured by a municipal bond insurance company, until such time as the District has received the written consent from such bond insurer as to such assignment or transfer. The Participant understands and acknowledges that the District may pledge amounts received and to be received under the Delivery Contract and under the other Like-Contracts to a financial institution and/or Joint Exercise of Powers Authority as further support for the District's obligations under the Municipal Obligations.

Financial Covenants under the Delivery Contract

Punctual Payment; Compliance with Documents. The District shall punctually pay or cause to be paid the interest and principal to become due with respect to all of the Municipal Obligations, but solely from amounts paid to the District under the Delivery Contracts, and the Participant shall punctually pay or cause to be paid the Capital Projects Installment Debt Service, in strict conformity with the terms of the Municipal Obligations, the Delivery Contract and the Legal Documents and will faithfully observe and perform all of the conditions, covenants and requirements of the Delivery Contract and the Legal Documents including any and all supplements thereto.

Extension of Payment of Municipal Obligations. Neither the District nor the Participant shall directly or indirectly extend or assent to the extension of the maturity of any of the Municipal Obligations or the time of payment of any claims for interest by the purchaser or owner of such Municipal Obligations or by any other arrangement, and in case the maturity of any of the Municipal Obligations or the time of

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payment of any such claims for interest shall be extended, such Municipal Obligations or claims for interest shall not be entitled, in case of any default under the Legal Documents, to the benefits of the Delivery Contract, except subject to the prior payment in full of the principal of all of the Municipal Obligations then outstanding and of all claims for interest thereon which shall not have been so extended. The District may issue obligations or cause obligations to be issued for the purpose of refunding any outstanding Municipal Obligations, and such issuance shall not be deemed to constitute an extension of maturity of the affected Municipal Obligations.

Against Encumbrances. Neither the District nor the Participant shall create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the revenues and other assets pledged under the Delivery Contract while any of the Municipal Obligations are outstanding, except the pledge created by the Legal Documents and the Delivery Contract, any Additional Debt and any pledge, lien, charge or other encumbrance which is subordinate to the obligations under the Delivery Contract. Subject to this limitation, the District expressly reserves the right to enter into one or more indentures or trust agreements, and reserves the right to issue other obligations or cause them to be issued for such purposes.

Covenants to Maintain Tax-Exempt Status of Series A Bonds. In the event that any Series A Bonds or Tax-Exempt Bonds attributable in whole or in part, to the Participant are issued and Outstanding, the Participant covenants and agrees not to use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property, the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, would cause the interest on any of the Series A Bonds or Tax-Exempt Bonds to become includable in the gross income, as defined in Section 61 of the Code, of the Owner thereof for federal income tax purposes.

Reserve Fund

A reserve fund (the "Reserve Fund") is established under the Indenture and will be funded initially from proceeds of the 2007 Bonds in that amount set forth under the caption "ESTIMATED SOURCES AND USES OF FUNDS," including the Tax-Exempt Reserve Account and the Taxable Reserve Account. The Reserve Accounts are separated solely for purposes of funding and compliance with the Tax Code and are equally available as security for the 2007 Bonds. Thereafter, amounts may be transferred out of the Reserve Fund only in accordance with the Indenture to the extent that as of the date of calculation amounts on deposit therein exceeds that amount equal to the least of (a) 125% of the average annual debt service on the Tax-Exempt Bonds for that and any subsequent Bond Year, (b) 100% of the maximum annual debt service on the Tax-Exempt Bonds for that or any subsequent Bond Year, or (c) 10% of the issue price of the Tax-Exempt Bonds (within the meaning of section 148 of the Code), and (ii) an amount required by the Insurer as a reserve for the Series B Bonds (the "Reserve Requirement").

In the event that on any Interest Payment Date, the full amount of the interest of or principal or redemption price of the Bonds required to be deposited on such Interest Payment Date, in the Interest Account, Principal Account or Redemption Account, as applicable, is not then on deposit therein, the Trustee shall on such Interest Payment Date withdraw from the Reserve Fund an amount equal to any such deficiency and shall notify the Authority and the District of any such withdrawal. All money in or available under the Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of making transfers to the Interest Account and the Principal Account, in such order of priority, in the event of any deficiency at any time in any of such Accounts or for the retirement of all the Bonds then Outstanding, except that so long as the Authority is not in default under the Indenture, any amount in the Reserve Fund in excess of the Reserve Requirement shall be withdrawn from the Reserve Fund semiannually at least two (2) Business Days prior to each Interest Payment Date and be deposited in the Interest Account and credited to the obligations of the District under the Pledge Agreement. The Trustee

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shall notify the Authority of the amount of any such transfer not later than the second Business Day prior to the applicable Interest Payment Date. So long as the Reserve Fund includes both cash/investments and a Reserve Surety, the Trustee shall, in the event of a Delinquent Debt Service Payment under the Pledge Agreement, apply all cash or the proceeds of investments to the payment of principal of and interest on the Bonds, prior to making a drawing against the Reserve Surety. Upon a draw on the Reserve Fund, the Trustee shall accept Delinquent Debt Service Payments received from the District for purposes of replenishing the Reserve Fund or reimbursing the provider of the Reserve Surety, or both. Investment earnings on funds held within the Reserve Fund and Delinquent Debt Service Payments shall first be applied to restore the Reserve Fund to the Reserve Requirement if a deficit exists. The term "Delinquent Debt Service Payments" means those payments of Capital Projects Instalhnent Debt Service due under any Delivery Contract that are not, in fact, paid on their Due Date. Pursuant to the Delivery Contracts, any Delinquent Debt Service Payments from a Defaulting Participant shall be inunediately due and payable to the District and otherwise bear interest at the Default Rate. The District will forward such Delinquent Debt Service Payments and interest to the Trustee for deposit into the Reserve Fund to replenish the Reserve Requirement, then to the Interest Account and third to the Principal Account.

Investment earnings on amounts in the Reserve Fund shall be deposited to the following funds and accounts and transferred in the following order: first, to the reimbursement to the Insurer for drawings under the Reserve Surety; second, to the Reserve Fund to the level of the Reserve Requirement; third, to the Interest Account, up to an amount sufficient to make payment on the Bonds on the next Interest Payment Date; and fourth, to the Principal Account.

All or any portion of the Reserve Requirement may be satisfied by the provision of a qualified surety bond, being a surety bond issued by an insurance company rated in the highest category by S&P and Moody's and, if rated by A.M. Best & Company, also rated in the highest rating category by A.M. Best & Company (a "Reserve Surety"), that, together with moneys on deposit in the Reserve Fund, provides an aggregate amount equal to the Reserve Requirement. In the event of replacement of cash and investments in the Tax Exempt Reserve Account with a Reserve Surety, the Trustee shall transfer any excess amounts then on deposit in the Tax Exempt Reserve Account into a segregated account of the Revenue Fund, which monies shall be applied either (i) to the payment within one year of the date of transfer of capital expenditures of the Authority or the District permitted by law, or (ii) to the redemption of Bonds on the earliest succeeding date on which such redemption is permitted under the Indenture, and pending such application shall be held either not invested in investment property ( as defined in Section l 48(b) of the Code), or invested in such property to produce a yield that is not in excess of the yield on the Bonds; provided, however, that the Authority may by written direction to the Trustee cause an alternative use of such amounts if the Authority shall first have obtained a written opinion of nationally recognized bond counsel substantially to the effect that such alternative use will not adversely affect the exclusion pursuant to Section 103 of the Code of interest on the Series A Bonds or other Tax-Exempt Bonds from the gross income of the Owners thereof for federal income tax purposes.

Debt Service Reserve Fund Surety Bond

The Insurer will provide a surety bond ( the "Debt Service Reserve Fund Surety Bond") stating that upon notice from the Trustee to the Insurer to the effect that insufficient amounts are on deposit in the Principal Account or Redemption Account, as applicable, to pay the principal of ( at maturity or pursuant to mandatory redemption requirements) and in the Interest Account, to pay the interest on the 2007 Bonds, the Insurer will promptly deposit with the Trustee an amount sufficient to pay the principal of and interest on the 2007 Bonds or the available amount of the Debt Service Reserve Fund Surety Bond, whichever is less. Upon the later of: (i) three (3) days after receipt by the Insurer of a Demand for Payment in the form attached to the Debt Service Reserve Fund Surety Bond, duly executed by the Trustee; or (ii) the payment date of the 2007 Bonds as specified in the Demand for Payment presented by

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the Trustee to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New Yark, New York, or its successor, sufficient for the payment to the Trustee, of amounts which are then due to the Trustee (as specified in the Demand for Payment) subject to the Surety Bond Coverage. Additional information regarding the Insurer is set forth under the heading "BOND INSURANCE."

The available amount of the Debt Service Reserve Fund Surety Bond is the initial face amount of the Debt Service Reserve Fund Surety Bond less the amount of any previous deposits by the Insurer with the Trustee which have not been reimbursed by the Authority or the District. The District and the Insurer have entered into a Financial Guaranty Agreement dated September 26, 2007 (the "Agreement"). Pursuant to the Agreement, the District is required to reimburse the Insurer, within one year of any deposit, the amount of such deposit made by the Insurer with the Trustee under the Debt Service Reserve Fund Surety Bond. Such reimbursement shall be made only after all required deposits to the Interest Account, Principal Account and Redemption Account have been made.

Under the terms of the Agreement, the Trustee is required to reimburse the Insurer, with interest, until the face amount of the Debt Service Reserve Fund Surety Bond is reinstated before any deposit is made to the General Fund. No optional redemption of 2007 Bonds may be made until the Insurer's Debt Service Reserve Fund Surety Bond is reinstated. The Debt Service Reserve Fund Surety Bond will be held by the Trustee in the Debt Service Reserve Fund and is provided as an alternative to the Authority depositing funds equal to the Debt Service Requirement for outstanding Series B Bonds. The Debt Service Reserve Fund Surety Bond will be issued in the face amount equal to Maximum Annual Debt Service for the Series B Bonds and the premium therefor will be fully paid by the Authority at the time of delivery of the 2007 Bonds.

Investments of Amounts on Deposit Under the Indenture

Except as otherwise provided in the Indenture, all moneys in any of the Funds or Accounts established pursuant to the Indenture shall be invested solely in Permitted Investments, or, if the funds and accounts is held by the Trustee solely in Permitted Investments, as directed in writing by an Authorized Representative of the District two (2) Business Days prior to the making of such investment. Such investment instructions shall certify that the investment is a Permitted Investment. Permitted Investments may be purchased at such prices as the Authorized Representative of the District shall determine. All Permitted Investments shall be acquired subject to any restrictive instructions given to the Trustee pursuant to the Indenture and such additional limitations or requirements consistent with the foregoing as may be established by the Written Request of the Authorized Representative of the District. Moneys in any funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Indenture.

Prior to September 1, 2011, all interest, profits and other income received from the investment of moneys in the Interest Account shall remain in such Account. Except as provided in the Indenture with respect to the Interest Account and with respect to the Reserve Fund, all interest, profits and other income received from the investment of moneys in any other fund or account established pursuant to the Indenture shall be deposited in the Project Fund until such dated as the Completion Certificate is delivered to the Trustee, and then investment earnings shall be deposited, first, to the Reserve Fund to the extent necessary to increase the balance therein to the Reserve Requirement, and, thereafter, to the Interest Account. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any Permitted Investments equal to the amount of accrued interest, if, any, paid as part of the purchase price of such Permitted Investments shall be credited to the fund from which such accrued interest was paid.

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Permitted Investments acquired as an investment of moneys in any fund established under the Indenture shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at the lesser of cost or market value exclusive of accrued interest, if any, paid as part of the purchase price thereof.

The Trustee or an affiliate may act as principal or agent in the making or disposing of any investment and shall be entitled to its customary fee therefor. Upon the Written Request of the Authority, or as required for the purposes of the provisions of the Indenture, the Trustee shall sell or present for redemption, any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this section of the Indenture

Investments purchased with funds on deposit in the Reserve Fund shall have an average aggregate weighted term to maturity, except in the case of Permitted Investments qualifying as guaranteed investment contracts, of not greater than five years.

Existing Obligations

For a discussion of existing indebtedness of each Participant, see APPENDIX A - "THE PARTICIPANTS" and the discussion under the subcaptions " - Outstanding Long-Term Indebtedness" therein.

Additional Authority Bonds

In addition to the 2007 Bonds, the Trustee shall, upon Written Request of the Authority, by a supplement to the Indenture, establish one or more other Series of Bonds secured by the pledge made under the Indenture equally and ratably with any Bonds previously issued and delivered, in such principal amount as shall be determined by the Authority, but only upon compliance with the provisions of the Indenture and any additional requirements set forth in the applicable Supplemental Indenture. The Supplemental Indenture providing for the execution and delivery of such Additional Bonds shall specify the purposes for which such Additional Bonds are then proposed to be delivered, which shall be one or more of the following: (i) to provide moneys needed to provide for the Costs of the Water Project by depositing into the Proceeds Fund the proceeds of such Additional Bonds to be so applied; (ii) to provide for the payment or redemption of Bonds theretofore Outstanding under the Indenture, by depositing with the Trustee moneys and/or investments required for such purpose under the defeasance provisions of the Indenture; or (iii) to provide moneys needed to refund or refinance all or part of any other current or future obligations of the Authority with respect to the funding of the Water Project. See APPENDIX D -"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

Events of Default and Remedies

The Indenture provides the following Events of Default:

(a) if default by the Authority shall be made in the due and punctual payment of the principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for sinking fund redemption, by acceleration, or otherwise;

(b) if default shall be made in the due and punctual payment of any installment of interest on any Bonds when and as the same shall become due and payable;

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( c) if default shall be made by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of thirty (30) days after written notice thereof which grace period shall not be extended beyond sixty (60) days, Trustee or the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if the failure stated in the notice can be corrected, but not within the applicable period, the Authority, the Trustee and such Owners shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Authority within the applicable period and diligently pursued until the default is corrected;

( d) the occurrence of an Event of Bankruptcy with respect to the Authority; and

(e) the occurrence ofa default under the Pledge Agreement.

The Bonds are subject to acceleration prior to their maturity, subject to the prior written consent of the Insurer. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding shall be entitled, upon notice in writing to the Authority, to declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding.

Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of moneys due shall have been obtained or entered, the Authority shall deposit with the Trustee a sum sufficient to pay all the principal or redemption price of and instalhnents of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds, and the reasonable charges and expenses of the Trustee, and any and all other defaults known to the Trustee ( other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority and the Trustee, or the Trustee if such declaration was made by the Trustee other than upon direction of the Bond Owners, may, on behalf of the Owners of all of the Bonds rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Subject to the terms of the Indenture regarding certain limitation on the Owners' right to sue, any Owner shall have the right, for the equal benefit and protection of all Owners similarly situated:

(a) by mandamus, suit, action or proceeding, to compel the Authority and its members, officers, agents or employees to perform each and every term, provision and covenant contained in the Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the Authority and the fulfilhnent of all duties imposed upon it by the Bond Law;

(b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Owners, rights; or

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( c) upon the occurrence of any Event of Default, by suit, action or proceeding in any court of competent jurisdiction, to require the Authority and its members and employees to account as if it and they were the trustees of an express trust.

The Insurer ( so long as the Insurer is not in default in its payment obligations under the Insurance Policy) or the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, as determined pursuant to the Indenture, shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee under the Indenture, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction.

As provided in the Pledge Agreement, the District covenants and agrees that it shall enforce its rights under each of the Delivery Contracts, in accordance with the terms thereof, and, in particular, that it shall use its best efforts to collect Capital Projects Installment Debt Service and Net Revenues in such time and amounts as shall permit the payment of principal of and interest on the Bonds in accordance with their terms. In the event of a Debt Service Shortfall, the District covenants and agrees to enforce its right to collect each Delinquent Debt Service Payment under the Delivery Contract with the Delinquent Participant and use its best efforts to remedy such Debt Service Shortfall by enforcing the step-up provisions of the Delivery Contracts with the Participants that are then not delinquent. As defined in the Pledge Agreement, the term "Delinquent Debt Service Payment" shall mean those payments of Capital Projects Instalhnent Debt Service due under any Delivery Contract that are not, in fact, paid on the date upon which each payment of Capital Projects Instalhnent Debt Service is required to be made by a Participant under a Delivery Contract (the "Due Date"). The term "Debt Service Shortfall" shall mean the aggregate amount of Delinquent Debt Service Payments due from Delinquent Participants on the Due Date in question. The term "Delinquent Participant" shall mean any Participant which fails to meet its obligation for payment for Nacimiento Project Water under any Delivery Contract, as further described in the respective Delivery Contract.

The Authority shall have no security interest in or mortgage on any Water Enterprise operated and to be operated by a Participant or any real property of the District or any Participant and no default under the Pledge Agreement shall result in the loss of the respective Water Enterprise or any other property of the District or the Participants. This limitation on remedies of the Authority shall be binding on successors in interest to the Authority's rights under the Pledge Agreement.

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DEBT SERVICE SCHEDULE

The following table sets forth the debt service schedule for the 2007 Bonds.

Bond Year Series A Bonds Series B Bonds (July I June 30) Principal Interest Principal Interest Total

2008 $ 3,297,119.10 $ 918,062.80 $ 918,062.80 2009 7,657,825.00 2,132,274.90 2,132,274.90 2010 7,657,825.00 2,132,274.90 2,132,274.90 2011 7,657,825.00 2,132,274.90 2,132,274.90 2012 $ 2,430,000.00 7,609,225.00 $ 525,000.00 2,118,635.40 2,643,635.40 2013 2,535,000.00 7,509,925.00 555,000.00 2,090,577.00 2,645,577.00 2014 2,630,000.00 7,409,912.50 580,000.00 2,061,089.70 2,641,089.70 2015 2,735,000.00 7,305,900.00 615,000.00 2,030,043.60 2,645,043.60 2016 2,850,000.00 7,194,200.00 645,000.00 1,997,308.80 2,642,308.80 2017 2,985,000.00 7,062,575.00 680,000.00 1,962,885.30 2,642,885.30 2018 3,135,000.00 6,909,575.00 715,000.00 1,926,643.20 2,641,643.20 2019 3,295,000.00 6,748,825.00 755,000.00 1,887 ,036. 98 2,642,036.98 2020 3 ,460,000.00 6,579,950.00 800,000.00 1,843,722.46 2,643,722.46 2021 3 ,640,000.00 6,402,450.00 845,000.00 1,797,900.98 2,642,900.98 2022 3,830,000.00 6,215,700.00 895,000.00 1,749,433.28 2,644,433.28 2023 4,030,000.00 6,019,200.00 945,000.00 1,698,180.08 2,643,180.08 2024 4,230,000.00 5,812,700.00 l ,000,000.00 1,644,002.10 2,644,002.10 2025 4,445,000.00 5,595,825.00 1,055,000.00 1,586,760.08 2,641,760.08 2026 4,670,000.00 5,367,950.00 l,115,000.00 1,526,314.73 2,641,314.73 2027 4,910,000.00 5,128,450.00 I, 180,000.00 1,462,387.50 2,642,387.50 2028 5,165,000.00 4,876,575.00 1,245,000.00 1,394,839.13 2,639,839.13 2029 5,430,000.00 4,611,700.00 l,315,000.00 1,323,530.33 2,638,530.33 2030 5,705,000.00 4,333,325.00 1,390,000.00 1,248,182.55 2,638,182.55 2031 6,005,000.00 4,040,575.00 1,470,000.00 1,168,517.25 2,638,517.25 2032 6,305,000.00 3,732,825.00 1,555,000.00 1,084,255.88 2,639,255.88 2033 6,635,000.00 3,409,325.00 1,645,000.00 995,119.88 2,640,119.88 2034 6,975,000.00 3,069,075.00 I, 740,000.00 900,830.70 2,640,830.70 2035 7,330,000.00 2,711,450.00 1,840,000.00 801,109.80 2,641,109.80 2036 7,705,000.00 2,335,575.00 1,945,000.00 695,678.63 2,640,678.63 2037 8,100,000.00 1,940,450.00 2,055,000.00 584,258.63 2,639,258.63 2038 8,515,000.00 1,525,075.00 2, 170,000.00 466,571.25 2,636,571.25 2039 8,955,000.00 1,088,325.00 2,295,000.00 342,198.68 2,637,198.68 2040 9 ,390,000.00 653,175.00 2,430,000.00 210,583.81 2,640,583.81 2041 9 ,820,000.00 220,950.00 2,565,000.00 71,448.08 2,636,448.08

$157 ,845,000.00 $169,691,356.60 $38,565,000.00 $47,984,933.29 $86,549,933.29

BOND INSURANCE

The following information has been furnished by MBIA Insurance Corporation (the "Insurer" or "MBIA") for use in this Official Statement. Reference is made to Appendix G for a specimen of MBIA' s policy (the "Insurance Policy"). No representation is made by the Authority, the District, the Participants or the Underwriter as to the accuracy or completeness of this information. MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Insurance Policy and MBIA set forth under the heading "BOND INSURANCE." Additionally, MBIA makes no representation regarding the 2007 Bonds or the advisability of investing in the 2007 Bonds.

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The MBIA Insnrance Corporation Insnrance Policy

The MBIA Insurance Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Authority to the 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 2007 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 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 MBIA Insurance 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, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the 2007 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").

MBIA's Insurance Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any 2007 Bonds. MBIA's Insurance 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; (iii) payments of the purchase price of 2007 Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's Insurance Policy also does not insure against nonpayment of principal of or interest on the 2007 Bonds resulting from the insolvency, negligence or any other act or omission of the Trustee or any other paying agent for the 2007 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 MBIA from the Trustee or any owner of a 2007 Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA 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 U.S. Bank Trust National Association, 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 2007 Bonds or presentment of such other proof of ownership of the 2007 Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the 2007 Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the 2007 Bonds in any legal proceeding related to payment of insured amounts on the 2007 Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Trustee payment of the insured amounts due on such 2007 Bonds, less any amount held by the Trustee for the payment of such insured amounts and legally available therefor.

MBIA Insurance Corporation

MBIA Insurance Corporation ("MBIA") 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 MBIA. MBIA is domiciled in the State of New Yark 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. MBIA, either directly or through subsidiaries, is licensed to do business in the Republic of France, the United Kingdom and the Kingdom of Spain and is subject to

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regulation under the laws of those jurisdictions. In February 2007, MBIA Corp. incorporated a new subsidiary, MBIA Mexico, S.A. de C. V. ("MBIA Mexico"), through which it intends to write financial guarantee insurance in Mexico beginning in 2007.

The principal executive offices of MBIA are located at 113 King Street, Armonk, New York 10504 and the main telephone number at that address is (914) 273-4545.

Regulation

As a financial guaranty insurance company licensed to do business in the State of New York, MBIA is subject to the New York Insurance Law which, among other things, prescribes minimum capital requirements and contingency reserves against liabilities for MBIA, limits the classes and concentrations of investments that are made by MBIA and requires the approval of policy rates and forms that are employed by MBIA. State law also regulates the amount of both the aggregate and individual risks that may be insured by MBIA, the payment of dividends by MBIA, changes in control with respect to MBIA and transactions among MBIA and its affiliates.

The Insurance Policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law.

Financial Strength Ratings of MBIA

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

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

Fitch Ratings rates the financial strength of MBIA "AAA."

Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA 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 2007 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 2007 Bonds. MBIA does not guaranty the market price of the 2007 Bonds nor does it guaranty that the ratings on the 2007 Bonds will not be revised or withdrawn.

MBIA Financial Information

As of December 31, 2006, MBIA had admitted assets of $10. 9 billion (audited), total liabilities of $6. 9 billion (audited), and total capital and surplus of $4.0 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of June 30, 2007, MBIA had admitted assets of $10.8 billion (unaudited), total liabilities of $6.8 billion (unaudited), and total capital and surplus of $4.0 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities.

For further information concerning MBIA, see the consolidated financial statements of MBIA and its subsidiaries as of December 31, 2006 and December 31, 2005 and for each of the three years in the

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period ended December 31, 2006, prepared in accordance with generally accepted accounting principles, included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2006 and the consolidated financial statements of MBIA and its subsidiaries as of June 30, 2007 and for the six month periods ended June 30, 2007 and June 30, 2006 included in the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2007, which are hereby incorporated by reference into this Official Statement and shall be deemed to be a part hereof.

Copies of the statutory financial statements filed by MBIA with the State of New York Insurance Department are available over the Internet at the Company's web site at http://www.mbia.com and at no cost, upon request to MBIA at its principal executive offices.

Incorporation of Certain Documents by Reference

The following documents filed by the Company with the Securities and Exchange Commission (the "SEC") are incorporated by reference into this Official Statement:

(1) The Company's Annual Report on Form 10-K for the year ended December 31, 2006; and

(2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.

Any documents, including any financial statements of MBIA and its subsidiaries that are included therein or attached as exhibits thereto, filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the Company's most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, and prior to the termination of the offering of the 2007 Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof from the respective dates of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement.

The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the Company's SEC filings (including (1) the Company's Annual Report on Form 10-K for the year ended December 31, 2006, and (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007 and June 30, 2007) are available (i) over the Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at the Company's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA at its principal executive offices.

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, established pursuant to Article 14.2 ( commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code.

THE AUTHORITY

The Authority is a California joint exercise of powers authority, duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement (the "JPA Agreement"), by and

34

http://www.mbia.com

http://www.sec.gov

http://www.mbia.com

between tbe County of San Luis Obispo, California, and tbe County of San Luis Obispo Flood Control and Water Conservation District under the provisions of Articles I through 4 ( conunencing with Section 6500) of Chapter 5 of Division 7 of Title I oftbe Government Code oftbe State of California.

The Authority was established in order for the members of tbe Authority to borrow moneys, lease, purchase, receive and hold property necessary or convenient for tbe governmental operations of such member. The JPA Agreement provides !bat the Authority is authorized to assist in the financing, construction and equipping of public facilities for one or both of the members and for any other public agency within tbe County !bat applies for and is granted the status of Associate Member as defined and prescribed under tbe JP A Agreement.

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES

This section presents a summary discussion of certain constitutional limitations applicable to certain of the Participants. AMWC is a California corporation and is not subject to these limitations applicable to governmental entities.

Article XIIIB

Article XIIIB of the California State Constitution limits tbe annual appropriations of tbe State and of any city, county, school district, authority or other political subdivision of tbe State to the level of appropriations of tbe particular governmental entity for tbe prior fiscal year, as adjusted for changes in the cost of living and population. The "base year" for establishing such appropriation limit is the 1978/79 fiscal year and tbe limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in tbe appropriations limit of an entity may also be made if (i) the financial responsibility for a service is transferred to another public entity or to a private entity, (ii) the financial source for the provision of services is transferred from taxes to other revenues, or (iii) the voters of tbe entity approve a change in the limit for a period of time not to exceed four years.

Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. "Proceeds of taxes" include, but are not limited to, all tax revenues and the proceeds to an entity of government from ( i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed tbe cost of providing the service or regulation), and (ii) tbe investment of tax revenues. Article XIIIB includes a requirement that if an entity's revenues in any year exceed tbe amounts permitted to be spent, tbe excess would have to be returned by revising tax rates or fee schedules over tbe subsequent two years.

Certain expenditures are excluded from tbe appropnat10ns limit including payments of indebtedness existing or legally authorized as of January I, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly.

Each Participant has advised that it is of tbe opinion that charges for Water Service do not exceed the costs it reasonably bears in providing such services and therefore are not subject to tbe limits of Article XIIIB. Each Participant has covenanted in its Delivery Contract that it will prescribe rates and charges sufficient to provide for payment of Instalhnent Payments in each year. See APPENDIX A -"THE PARTICIPANTS."

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Proposition 218

An initiative measure entitled the "Right to Vote on Taxes Act" (the "Proposition 218") was approved by the voters of the State of California at the November 5, 1996 general election. Proposition 218 added Article XIIIC and Article XIIID to the California Constitution, creating additional requirements for the imposition by most local governments of "general taxes," "special taxes," "assessments," "fees," and "charges." According to the "Title and Summary" of the Proposition 218 prepared by the California Attorney General, Proposition 218 limits "the authority of local governments to impose taxes and property-related assessments, fees and charges."

Article XIIID imposes substantive and procedural requirements on the imposition, extension or increase of any "fee" or "charge" subject to its provisions. A "fee" or "charge" subject to Article XIIID includes any levy, other than an ad valorem tax, special tax or assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership. Article XIIID prohibits, among other things, the imposition of any proposed fee or charge, and, possibly, the increase of any existing fee or charge, in the event written protests against the proposed fee or charge are presented at a required public hearing on the fee or charge by a majority of owners of the parcels upon which the fee or charge is to be imposed. Except for fees and charges for water, sewer and refuse collection services, the approval of a majority of the property owners subject to the fee or charge, or at the option of the agency, by a two-thirds vote of the electorate residing in the affected area, is required within 45 days following the public hearing on any such proposed new or increased fee or charge.

Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water or wastewater service is ultimately determined to be a "fee" or "charge" as defined in Article XIIID, the local government's ability to increase such fee or charge may be limited by a majority protest.

In addition, Article XIIID includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service, (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed, (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or inunediately available to, the owner of the property in question. Propertyrelated fees or charges based on potential or future use of a service are not permitted.

Recent decisions of the California Supreme Court in Richmond v. Shasta Community Services District, 32 Cal. 4th 409 (2004) ("Richmond"), and Bighorn-Desert View Water Agency v. Verjil (published July 24, 2006) ("Bighorn") have clarified some of the uncertainty surrounding the applicability of Section 6 of Article XIIID to service fees and charges. In Richmond, the Shasta Community Services District charged a water capacity fee, which included a capacity charge for capital improvements to the water system and a fire suppression charge. The Court held that both the capacity charge and the fire suppression charge were not subject to Article XIIID because a water capacity fee is not a propertyrelated fee or charge because it results from the property owner's voluntary decision to apply for the connection. In both Richmond and Bighorn, however, the Court stated that a fee for ongoing water service through an existing connection is imposed "as an incident of property ownership" within the meaning of Article XIIID, rejecting, in Bighorn, the water agency's argument that consumption-based

36

water charges are not imposed "as an incident of property ownership" but as a result of the voluntary decisions of customers as to how much water to use.

Article XIIID also provides that "standby charges" are considered "assessments" and must follow the procedures required for "assessments" under Article XIIID and imposes several procedural requirements for the imposition of any assessment, which may include (I) various notice requirements, including the requirement to mail a ballot to owners of the affected property; (2) the substitution of a property owner ballot procedure for the traditional written protest procedure, and providing that "majority protest" exists when ballots (weighted according to proportional financial obligation) submitted in opposition exceed ballots in favor of the assessments; and (3) the requirement that the levying entity "separate the general benefits from the special benefits conferred on a parcel" of land. Article XIIID also precludes standby charges for services that are not immediately available to the parcel being charged.

Article XIIID provides that all existing, new or increased assessments are to comply with its provisions beginning July I, 1997. Existing assessments imposed on or before November 5, 1996, and "imposed exclusively to finance the capital costs or maintenance and operations expenses for [ among other things] water" are exempted from some of the provisions of Article XIIID applicable to assessments.

The California Constitution recognizes the right to repeal laws by referendum, and the ability to enact laws by initiative. Article XIIIC further provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. This extension of the initiative power is not limited by the terms of Article XIIIC to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other authority could result in retroactive reduction in any existing taxes, assessments, fees or charges. In Bighorn, the Court concluded that under Article XIIIC local voters by initiative may reduce a public agency's water rates and delivery charges. The Court noted, however, that it was not holding that the authorized initiative power is free of all limitations, stating that it was not determining whether the electorate's initiative power is subject to the public agency's statutory obligation to set water service charges at a level that will "pay the operating expenses of the agency, ... provide for repairs and depreciation of works, provide a reasonable surplus for improvements, extensions, and enlargements, pay the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due." In the absence of other limitations, provisions of Article XIIIC could be applicable to the water rates charged by the Participants.

In August 2007, one Participant, SLO, received notice of a taxpayer's intent to circulate a petition under Article XIIIC within SLO city limits for the purpose of reducing the water rates charged by SLO and to prevent the SLO City Council from committing taxpayers to paying for capital water projects estimated to cost $10 million or more without their express approval. The same individual previously attempted to organize opposition among water bill payers to SLO' s recent considerations of proposed rate increases. At that time, approximately 1,867 water ratepayers presented opposition, falling short of the approximately 7,000 necessary in order to block the rate increase. The SLO City Attorney has reviewed the form of the petition, prepared the title and sununary for the publication and posting of the Notice of Intention to Circulate Petition and Statement of the Petition in accordance with law as necessary to qualify an initiative for the ballot. SLO has estimated that the petition will require approximately 2,830 valid signatures of registered voters in order to qualify the initiative for the ballot.

The current draft initiative would, by its terms, amend the SLO Municipal Code to revise billings by the SLO utilities division, setting water rates below their current levels, and limit rate adjustments as follows: (i) to reflect any increase in the California Consumer Price Index, (ii) to a one-time rate increase

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in the event of an emergency that affects SLO' s water supply upon 4/5 vote of the SLO City Council, or (iii) in the event of financing for a capital water projects estimated to cost $10 million or more, upon the approval of a majority of voters. The notice of intent states that on the basis of current SLO water supplies and demand, the Water Project is intended primarily for new development, and its financing should be paid for solely by the new development which it may benefit. SLO is unable to predict the final outcome of the initiative process.

In late August, Paso Robles received similar notice of taxpayer intent to circulate a petition under Article XIIIC. In September, the Paso Robles City Clerk was presented with petitions stating a referendum seeking to repeal an ordinance and purporting to contain the requisite signatures of IO percent of Paso Robles' 14,444 registered voters. The County Clerk has verified the authenticity of the signatures as necessary to qualify the referendum for the ballot at a general or special election on a date to be determined. The referendum seeks the repeal of Paso Robles' recently enacted ordinance approving monthly water rate increases, intended to increase in fixed steps up to a $60 flat rate surcharge by 20 IO to pay for Paso Robles' portion of the Water Project or the submittal of the same to the voters. See APPENDIX A- "THE PARTICIPANTS -THE WATER SYSTEM OF THE CITY OF PASO ROBLES - Paso Robles Water System Rates and Charges - Rate Increases." As one option, the Paso Robles City Council has asked its staff to analyze whether a usage-based fee structure might be implemented in place of the flat fee increase. Paso Robles is unable to predict the final outcome of the referendum process.

The Authority and the District are unable to predict the impact of a successful repeal or reduction of water rates and charges charged by any Participant on the financial condition of such Participant or the ability of such Participant to perform its obligations under its Delivery Contract. Nor is the Authority or the District able to predict whether the repeal or reduction of the rates and changes of any Participant would be detrimental to or inconsistent with the contractual obligations of the respective Participant. One might assert that Article XIIIC cannot grant the voters within the Participants' service area the power to repeal or reduce rates and charges in a manner which would be inconsistent with the contractual obligations of the respective Participants, giving rise to an unconstitutional impairment of contract under the U. S. Constitution and the California Constitution. However, there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the 2007 Bonds. Remedies available to beneficial owners of the 2007 Bonds in the event of a default by the Participants are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time-consuming to obtain.

In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations of the District and the Participants, respectively, under the Delivery Contracts are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to such documents, including the respective opinions of Bond Counsel ( the forms of which are attached as Appendix E hereto), will be similarly qualified.

The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues.

Future Initiatives

Articles XIIIB, XIIIC and XIIID were adopted as a measure that qualified for the ballot pursuant to California's initiative process. From time to time other initiatives could be proposed and adopted affecting the Participant's revenues or ability to increase revenues.

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CERTAIN RISK FACTORS

The following are certain risk factors that should be carefully considered by prospective purchasers of the 2007 Bonds. The following list should not be considered to be exhaustive. Inclusion of certain factors below is not intended to signify that there are no other investment considerations or risks attendant to the 2007 Bonds that are as material to an investment decision with respect to the 2007 Bonds that are otherwise described or apparent elsewhere herein.

Constitntional Limit on Fees and Charges

If a portion of a respective public entity Participant's Water Enterprise rates or connection charges were determined by a court to exceed the reasonable costs of providing service, any fee which the respective Participant charges may be considered to be a "special tax," which under Article XIIIA of the California Constitution must be authorized by a two-thirds vote of the affected electorate. The reasonable cost of providing the Water Service has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. Connection fees are generally governed by Section 66000 et seq. of the California Government Code, which provides that water connection fees may not exceed the reasonable cost of providing the service.

Limitations on Remedies Available

In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the 2007 Bonds, the Indenture, the Pledge Agreement, and the Delivery Contracts are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to the application of equitable principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of servicing a significant and legitimate public purpose; the exercise of judicial discretion in appropriate cases; and limitations on legal remedies against public agencies in the State. Bankruptcy proceedings, or the exercising of powers by the federal or State government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights. The various opinions of counsel to be delivered with respect to such documents, including the respective opinions of Bond Counsel ( the forms of which are attached as APPENDIX E), will be similarly qualified.

No Obligation to Tax

The obligation of a Participant to make payments under a Delivery Contract does not constitute an obligation of such Participant for which such Participant is obligated to levy or pledge any form of taxation or for which such Participant has levied or pledged any form of taxation. The obligation of the Participants to make payments under a Delivery Contract does not constitute a debt or indebtedness of the Participants, the Authority, the State of California or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation or restriction.

Environmental Regulation

The kind and degree of water service which is effected through the Water Enterprises are regulated, to a large extent, by the federal government and the State of California. If the federal government, acting through the Environmental Protection Agency or additional legislation, or the State

39

should impose stricter water quality standards upon the Water Enterprises, their expenses could increase accordingly and rates and charges would have to be increased to offset those expenses. It is not possible to predict the direction which federal or State regulation will take with respect to water treatment standards.

Change in Law

In addition to the other limitations described herein, the California electorate or Legislature could adopt a constitutional or legislative property tax decrease or an initiative with the effect of reducing revenues payable to or collected by the public entity Participants. There is no assurance that the California electorate or Legislature will not at some future time approve additional limitations that could reduce Pledged Revenues.

Project Completion Risk

Completion of the Water Project may be delayed as a result of any number of causes, including but not limited to, future financing difficulties including revenue shortfalls, construction contract difficulties or disputes, adverse weather conditions, unavailability of subcontractors, negligence on the part of subcontractors or materials, labor disputes, litigation, unexpected subterranean archaeological or environmental conditions, or unanticipated or increased costs of construction or renovation. Any of these events or occurrences, separately or in combination, could have a material adverse effect on the ability to complete the Water Project, or to complete it as planned within the expected budget and schedule.

Natural Disasters

From time to time, the Participants are subject to natural calamities that may adversely affect economic activity in the service areas of the Participants which therefore may have a negative impact on one or more Participant's finances. There can be no assurance that the occurrence of any natural calamity would not cause substantial interference to the Water Enterprises, or that any Participant would have insurance or other resources available to make repairs to its Water Enterprises, possibly impacting Net Revenues.

Earthquakes. The service areas of the Participants, like most regions in California, are areas of significant seismic activity, and therefor, are subject to potentially destructive earthquakes. The casualty and liability insurance may not cover losses due to earthquake. If there were to be an occurrence of severe seismic activity in the service areas of the Participants, there could be substantial damage to and interference with one or more Participant's Water Enterprises, which could impact the receipt of Net Revenues.

The Los Osos Fault is generally adjacent to the service areas of the Participants, is identified under the State of California Alquist-Priolo Fault Hazards Act as being capable of causing surface rupture damage in the service areas of the Participants. This fault's main strand lies near the intersection of Los Osos Valley Road and Foothill Boulevard. It is considered to present a high to very high fault rupture hazard to development and facilities in the Los Osos Valley, which lies east of the service areas of the Participants. Other faults identified as being capable of causing surface rupture damage in the vicinity of the service areas of the Participants are the West Huasna, Oceanic and Edna Faults. These faults are considered potentially active and present a moderate fault rupture hazard. Several faults have also been identified as potentially causing strong ground motion in the service areas of the Participants, including the Los Osos, Point San Luis, Black Mountain, Rinconada, Wilmar, Pecha, Hosgri, La Panza and San Andreas faults.

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Loss of Tax Exemption

As discussed under the caption "TAX MATTERS" herein, interest on the Series A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the if date the Series A Bonds were issued, as a result of future acts or omissions of the Authority or the Tax-exempt Participants in violation of its covenants in the Indenture, the Pledge Agreement, or the Delivery Contracts. Should such an event of taxability occur, the Series A Bonds are not subject to special redemption and will remain Outstanding until maturity or until redeemed under other provisions set forth in the Indenture.

TAX MATTERS

Series A Bonds

The delivery of the 2007 Bonds is subject to the receipt of an opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel to the Authority ("Bond Counsel"), to the effect that interest on the Series A Bonds (I) will be excludable from the gross income, as defined in Section 61 of the Internal Revenue Code of 1986, as amended to the date of the issuance of the Series A Bonds (the "Code"), of the owners thereof for federal income tax purposes pursuant to Section 103 of the Code, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals, or except as hereinafter described, corporations, under existing statutes, regulations, published rulings, and court decisions. It should be noted that the statutes, regulations, rulings and court decisions on which such opinion is based are subject to change.

Interest on all tax-exempt obligations, including the Series A Bonds, owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a financial asset securitization investment trust, a real estate investment trust (REIT), or a real estate mortgage investment conduit (REMIC). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code is computed.

In rendering the foregoing opinion, Bond Counsel has relied upon representations and covenants of the Authority and the Tax-Exempt Participants pertaining to the use, expenditure, and investment of the proceeds of the Series A Bonds and has assumed continuing compliance with the provisions of the Indenture and each Delivery Contract subsequent to the issuance of the Series A Bonds. The Indenture and each Delivery Contract contain covenants by the Authority and the respective Tax-Exempt Participant with respect to, among other matters, the use of the proceeds of the Series A Bonds, the manner in which the proceeds of such Series A Bonds are to be invested, the periodic calculations and payment to the United States Treasury of arbitrage "profits" from the investment of the proceeds, and the reporting of certain information to the Untied States Treasury. Failure to comply with any of these covenants would cause interest on the Series A Bonds issued under the Indenture to be includable in the gross income of the owners thereof for federal income tax purposes from the date of the issuance of the Series A Bonds.

Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Authority and the Tax-Exempt Participants described above. No ruling has been sought from the Internal Revenue Service ( the "Service") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing program of auditing the tax exempt status of the interest on municipal obligations. If an audit of the Series A Bonds is commenced, under current procedures the Service is

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likely to treat the Authority as the "taxpayer," and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax exempt status of the interest on the Series A Bonds, the Authority may have different or conflicting interests from the owners. Public awareness of any future audit of the Series A Bonds could adversely affect the value and liquidity of the Series A Bonds during the pendency of the audit, regardless of its ultimate outcome.

Except as described above, Bond Counsel will express no other opinion with respect to any other federal, state or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Series A Bonds. Prospective purchasers of the Series A Bonds should be aware that the ownership of tax-exempt obligations such as the Series A Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain foreign corporations doing business in the United States, "S" corporations with "Subchapter C" earnings and profits, owners of an interest in a FASIT, individual recipients of Social Security or Railroad Retirement benefits, taxpayers otherwise qualifying for the earned income tax credit, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances.

Tax Accounting Treatment of Discount and Premium on Series A Bonds

The initial offering price to be paid for certain of the Series A Bonds may be less than the amount payable on such Series A Bonds at maturity (the "Discount Bonds"). An amount equal to the difference between the initial public offering price of a Discount Bond (assuming that a substantial amount of the Discount Bonds of that maturity are sold to the public at such price) and the amount payable on such Discount Bond at its maturity constitutes original issue discount to an initial purchaser of such Discount Bond. A portion of such original issue discount allocable to the holding period of such Discount Bond by the initial purchaser will, upon the disposition of such Discount Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the Series A Bonds described above under "Series A Bonds." Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount Bond and generally will be allocated to an original purchaser in a different amount from the amount of the payment denominated as interest actually received by the original purchaser during its tax year.

However, such interest may be required to be taken into account in determining the alternative minimum taxable income of a corporation, for purposes of calculating a corporation's alternative minimum tax imposed by Section 55 of the Code, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, fmancial institutions, life insurance companies, property and casualty insurance companies, S corporations with "subchapter C" earnings and profits, owners of an interest in a FASIT, individuals otherwise qualifying for the earned income tax credit, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount Bond in the hands of such owner ( adjusted upward by

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the portion of the original issue discount and downward for the payments denominated as interest allocable to the period for which such Discount Bond was held) is includable in gross income.

Owners of Discount Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment.

The initial public offering price of certain Series A Bonds (the "Premium Bonds") may be greater than the amount payable on such Series A Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain ( or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser's yield to maturity.

Purchasers of the Premium Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium on Premium Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Premium Bonds.

Series B Bonds

General. The following is a general sununary of the federal income tax consequences of the purchase and ownership of the Series B Bonds. The discussion is based upon statutes, regulations, rulings and decisions now in effect, all of which are subject to change or possibly differing interpretations. No assurances can be given that future changes in the law will not alter the conclusions reached herein. The discussion below does not purport to deal with federal income tax consequences applicable to all categories of investors. Further, this summary does not discuss all aspects of federal income taxation that my be relevant to a particular investor in the Series B Bonds in light of the investor's particular personal investment circumstances, including, but not limited to, the application of the original issue discount provisions of the Code, or to certain types of investors subject to special treatment under federal income tax laws ( including insurance companies, tax exempt organizations, financial institutions, broker dealers, and persons who have hedged the risk of owning the Series B Bonds). The sununary is therefore limited to certain issues relating to initial investors who will hold the Series B Bonds as "capital assets" within the meaning of Section 1221 of the Code, and acquire such Series B Bonds for investment and not as a dealer or for resale. Prospective investors should note that no rulings have been or will be sought from the Service with respect to any of the federal income tax consequences discussed below, and no assurance can be given that the Service will not take contrary positions.

INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES B BONDS.

43

Internal Revenue Service Circular 230 Notice. You should be aware that:

(a) the discussion in this Official Statement with respect to U.S. federal income tax consequences of owning the Series B Bonds is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer;

(b) such discussion was written in connection with the promotion or marketing (within the meaning of IRS Circular 230) of the transactions or matters addressed by such discussions; and

( c) each taxpayer should seek advice based on its particular circumstances from an independent tax advisor.

This notice is given solely for purposes of ensuring compliance with IRS Circular 230 with respect to the discussion below on the Series B Bonds. IRS Circular 230 will not apply to opinions delivered on obligations like the Series A Bonds on the date the Series A Bonds will be issued.

Reporting of Interest Payments. The Authority has covenanted in the Indenture to treat the Series B Bonds as debt instruments for all federal income tax purposes, including any applicable reporting requirements under the Code. The stated interest paid on the Series B Bonds will be included in the gross income, as defined in Section 61 of the Code, of the owners thereof and be subject to federal income taxation when received or accrued, depending on the tax accounting method applicable to the owners thereof. Subject to certain exceptions, interest payments made to owners with respect to the Series B Bonds will be reported to the Service. Such information will be filed each year with the Service on Form I 099 which will reflect the name, address and taxpayer identification number ("TIN") of the owner. A copy of Form I 099 will be sent to each owner of a Series B Bond for federal income tax purposes.

Backup Withholding. Under Section 3406 of the Code, an owner of the Series B Bonds who is a United States person, as defined in Section 770l(a)(3) of the Code, may, under certain circumstances, be subject to "backup withholding" on payments of current or accrued interest on the Series B Bonds. This withholding applies if such owner of Series B Bonds: (i) fails to furnish to the payor such registered owner's social security number or other TIN; (ii) furnishes the payor an incorrect TIN; (iii) fails to report properly interest, dividends, or other "reportable payments" as defined in the Code; or (iv) under certain circumstances, fails to provide the payor or such owner's broker with a certified statement, signed under penalty of perjury, that the TIN provided to the payor is correct and that such owner is not subject to backup withholding.

Backup withholding will not apply, however, with respect to payments made to certain owners of the Series B Bonds. OWNERS OF THE SERIES B BONDS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THEIR QUALIFICATION FOR EXEMPTION FROM BACKUP WITHHOLDING AND THE PROCEDURE FOR OBTAINING SUCH EXEMPTION.

Withholding on Payments to Nonresident Alien Individuals and Foreign Corporations. Under Sections 1441 and 1442 of the Code, nonresident alien individuals and foreign corporations are generally subject to withholding at the rate of 30% on periodic income items arising from sources within the Untied States, provided such income is not effectively connected with the conduct of a United States trade or business. Assuming the interest received by the owner of the Series B Bond is not treated as effectively connected income within the meaning of Section 864 of the Code, such interest will be subject to 30% withholding, or any lower rate specified in an income tax treaty, unless such income is treated as portfolio interest. Interest will be treated as portfolio interest if (i) the owner provides a statement to the payor certifying, under penalties of perjury, that such owner is not a United States person and providing the name and address of such owner, (ii) such interest is treated as not effectively connected with the owner's

44

United States trade or business, (iii) interest payments are not made to a person within a foreign country which the Service has included on a list of countries having provisions inadequate to prevent United States tax evasion, (iv) interest payable with respect to the Series B Bond is not deemed contingent interest within the meaning of the portfolio debt provision, (v) such owner is not a controlled foreign corporation, within the meaning of Section 957 of the Code, and (vi) such owner is not a bank receiving interest on the Series B Bonds pursuant to a loan agreement entered into in the ordinary course of the bank's trade or business.

Assuming payments on the Series B Bonds are treated as portfolio interest within the meaning of Sections 871 and 881 of the Code, then no withholding under Section 1441 and 1442 of the Code and no backup withholding under Section 3406 of the Code is required with respect to owners or intermediaries who have furnished Form W-8 BEN, Form W-8 EXP or Form W-8 !MY, as applicable, provided the payor has no actual knowledge that such person is a United States person.

State Tax Exemption

The delivery of the 2007 Bonds is also subject to the delivery of the opinion of Bond Counsel, based upon existing provisions of the laws of the State of California, that interest on the 2007 Bonds is exempt from personal income taxes of the State of California.

On May 21, 2007, the United States Supreme Court agreed to review the decision of a Kentucky appellate court in the case of Davis v. Kentucky Dept. of Revenue of the Finance and Administration Cabinet, 197 S. W. 3d 557 (2006). The Kentucky court held that under the Constitution of the United States, a state may not exempt interest on bonds issued by that state or political subdivisions thereof from state and local taxes unless the state also provides such exemption to interest on bonds issued by other states and political subdivisions. California law is similar to the Kentucky law in question, in that it exempts from state and local taxes interest on bonds issued by the State of California and its political subdivisions, but not interest on bonds issued by other states or political subdivisions. The outcome of such review, and its impact, if any, on the exemption of the 2007 Bonds and interest thereon from state and local taxes in California, or on the market value of the 2007 Bonds, cannot be predicted.

ERISA CONSIDERATIONS

Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and Section 4975 of the Internal Revenue Code, as amended (the "Code"), prohibit employee benefit plans as well as individual retirement accounts and some types of Keogh plans ("Plans") subject to ERISA or Section 4975 of the Code from engaging in certain transactions involving "plan assets" with persons that are "parties in interest" under ERISA or "disqualified persons" under the Code (collectively, "Parties in Interest") with respect to the Plan. ERISA also imposes certain duties on persons who are fiduciaries of Plans subject to ERISA. Under ERISA, any person who exercises any authority or control respecting the management or disposition of the assets of a Plan is considered to be a fiduciary of such Plan ( subject to certain exceptions not relevant here). A violation of these "prohibited transaction" rules may generate excise tax and other liabilities under ERISA and the Code for fiduciaries and Parties in Interest.

The Underwriter, as a result of its own activities or because of the activities of its affiliates, may be considered Parties in Interest, with respect to certain Plans. Prohibited transactions may arise under Section 406 of ERISA and Section 4975 of the Code if Bonds are acquired by a Plan with respect to which the Underwriter or any of its affiliates are Parties in Interest. Certain exemptions from the prohibited transaction rules could be applicable, however, depending in part upon the type of Plan fiduciary making the decision to acquire a Bond and the circumstances under which such decision is

45

made. Included among these exemptions are those transactions regarding securities purchased during the existence of an underwriting, investments by insurance company pooled separate accounts, investments by insurance company general accounts, investments by bank collective investment funds, transactions effected by "qualified professional asset managers," and transactions affected by certain "in-house asset managers." Even if the conditions specified in one or more of these exemptions are met, the scope of the relief provided by these exemptions might or might not cover all acts which might be construed as prohibited transactions. In order to ensure that no prohibited transaction under ERISA or Section 4975 of the Code will take place in connection with the acquisition of a Bond by or on behalf of a Plan, each prospective purchaser of a Bond that is a Plan or is acquiring on behalf of a Plan will be required to represent that either (i) no prohibited transactions under ERISA or Section 4975 of the Code will occur in connection with the acquisition of such Bond or (ii) the acquisition of such Bond is subject to a statutory or administrative exemption.

Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA and some church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA requirements nor to Section 4975 of the Code. However, governmental plans and church plans that are "qualified" under Section 401 (a) of the Code are subject to restrictions with respect to prohibited transactions under Section 503(a)(l)(B) of the Code, the sanction for violation being the loss of "qualified" status. Governmental plans may also be subject to state and local laws imposing restrictions on investments.

Any Plan fiduciary who proposes to cause a Plan to purchase Bonds should (i) consult with its counsel with respect to the potential applicability of ERISA and the Code to such investments and whether any exemption would be applicable and (ii) determine on its own whether all conditions have been satisfied. Moreover, each Plan fiduciary should determine whether, under the general fiduciary standards of investment prudence and diversification, an investment in the Bonds is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio, and whether such investment is authorized by the terms of such Plan.

APPROVAL OF LEGALITY

The validity of the issuance of the 2007 Bonds under California law is subject to the approval of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel to the Authority. The proposed forms of legal opinion of Bond Counsel are attached hereto as APPENDIX E - "PROPOSED FORMS OF LEGAL OPINION." Certain legal matters will be passed upon for the Underwriter by Orrick, Herrington & Sutcliffe LLP. Certain legal matters will be passed upon for the for the Authority and the District by the County of San Luis Obispo County Counsel, for the Atascadero Mutual Water Company by Ellis & Collins, San Luis Obispo, California, Company Counsel, for the City of Paso Robles by Iris Yang, City Attorney, for the City of San Luis Obispo by Jonathan P. Lowell, City Attorney, and for the Templeton Community Services District by Bartkiewicz, Kronick & Shanahan, Sacramento, California, District Counsel.

FINANCIAL ADVISOR

The Authority has retained Public Financial Management, Seattle, Washington as Financial Advisor for the 2007 Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. Public Financial Management is an independent advisory firm and is not engaged in the business of underwriting, trading, or distributing municipal or other public securities.

46

LITIGATION

The Authority is advised that as among the Authority, the District and the Participants, there is no pending or, to the best knowledge of the respective party, threatened litigation concerning the validity of the 2007 Bonds or the pledge of Pledged Revenues or Net Revenues or challenging any action taken by the Authority, the District or the Participants in connection with the authorization of the Indenture, the Pledge Agreement, the Delivery Contracts, or any other document relating to the 2007 Bonds to which the Authority, the District or the Participants are or is to be become a party or the performance by the Authority, the District or the Participants of any of their obligations under any of the foregoing.

UNDERWRITING

The 2007 Bonds are being purchased by UBS Securities LLC (the "Underwriter") pursuant to a Bond Purchase Contract by and between the Authority and the Underwriter. The Underwriter has agreed to purchase the Series A Bonds at a purchase price of $163,509,891.12 (representing the principal amount of the Series A Bonds, plus net original issue premium of $6,370,686.70 and less an Underwriter's discount of $705,795.58) and the Series B Bonds at a purchase price of $38,389,936.96 (representing the principal amount of the Series B Bonds, less an Underwriter's discount of $175,063.04). The Bond Purchase Contract pursuant to which the 2007 Bonds are being sold provides that the Underwriter will purchase not less than all of the 2007 Bonds. The Underwriter's obligation to make such purchase is subject to certain terms and conditions set forth in the Bond Purchase Contract, the approval of certain legal matters by counsel and certain other conditions.

The Underwriter may offer and sell the 2007 Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriter.

RATINGS

Standard & Poor's, a Division of the McGraw-Hill Companies, Inc. ("S&P"), and Fitch Ratings ("Fitch") have assigned ratings of "AAA" to the 2007 Bonds, with the understanding that, upon delivery of the 2007 Bonds, the Insurance Policy will be issued by the Insurer. In addition, S&P, and Fitch have assigned underlying ratings of "A" and "A+," respectively, to the 2007 Bonds. Such ratings reflect only the views of such organizations and any desired explanation of the significance of such ratings should be obtained from the rating agency furnishing the same, at the following addresses: Standard & Poor's, 55 Water Street, New York, New York 10041; Fitch, Inc., One State Street Plaza, New York, New York 10004. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2007 Bonds.

CONTINUING DISCLOSURE

The Authority has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold or sell the 2007 Bonds and the Authority will not provide any such information. Each Participant will covenant in its respective Disclosure Agreement to provide, or cause to be provided, to each nationally recognized municipal securities information repository and any public or private repository or entity designated by the State as a state repository and any public or private repository for purposes of the Rule certain annual financial information and operating data of the type set

47

forth herein including, but not limited to, its audited financial statements and, in a timely manner, notice of certain material events. Each Participant has covenanted to provide, or cause to be provided, to each Repository in a timely manner notice of the following "Listed Events" if determined by each Participant to be material: (I) principal and interest payment delinquencies; (2) non-payment related defaults; (3) modifications to rights of Bondholders; (4) optional, contingent or unscheduled bond calls; (5) defeasances; ( 6) rating changes; (7) adverse tax opinions or events adversely affecting the tax-exempt status of the Series A Bonds; (8) unscheduled draws on the debt service reserves reflecting financial difficulties; (9) unscheduled draws on credit enhancements reflecting financial difficulties; (10) substitution of credit or liquidity providers, or their failure to perform; and ( 11) release, substitution or sale of property securing repayment of the 2007 Bonds. These covenants have been made to assist the Underwriter in complying with the Rule. The Authority is advised that none among the District nor any Participant has ever failed to comply with the Rule regarding the filing of annual reports or notices of material events. See APPENDIX F - "FORM OF CONTINUING DISCLOSURE AGREEMENT" attached hereto.

AUDITED FINANCIAL STATEMENTS

Each Participant has provided certain relevant portions of its audited financial statements as of the fiscal year ended June 30, 2006 (April 30, 2007 in the case of Atascadero Mutual Water Company). Relevant portions thereof are attached hereto at APPENDIX B - "PARTICIPANT AUDITED FINANCIAL INFORMATION" and should be read in their entirety. No auditor has reviewed or audited this Official Statement. Questions with respect to the financial reports should be directed to the respective Participant.

VERIFICATION

Upon the delivery of the 2007 Bonds, an independent accountant ( the "Verification Agent"), will deliver a report reviewing the mathematical accuracy of certain computations contained in the schedules provided to them by the Underwriter relating to the adequacy of the maturing principal amount of the Federal Securities held in the Escrow Account established with respect to the Refunded Notes, interest earned thereon and certain moneys on deposit in said account for the payment of the remaining scheduled interest payments on, and the maturing principal payment of, the Refunded Notes, including on their December I, 2008 maturity date. The report of the Verification Agent will include a statement that the scope of their engagement is limited to verifying the mathematical accuracy of the computations contained in such schedules provided to them by the Underwriter and that they have no obligation to update their report because of any event occurring, or data or information corning to their attention, subsequent to the date of their report.

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MISCELLANEOUS

Included herein are brief sununaries of certain documents and reports, which sununaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or Owners of any of the 2007 Bonds.

The execution and delivery of this Official Statement have been duly authorized by the Authority and the inclusion of Appendix A has been approved by the Participants, each as to its respective information.


By: Isl Gere W. Sibbach Chairperson of the Board of Commissioners

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APPENDIX A

THE PARTICIPANTS

Atascadero Mutual Water Company

City of Paso Robles

City of San Luis Obispo

Templeton Community Services District

Information contained in this Appendix A is presented as general background data. The 2007 Bonds are payable solely from and secured by certain Revenues and any other amounts pledged therefor pursuant to the Indenture. The taxing power of the State of California, the County of San Luis Obispo or any political subdivision thereof is not pledged to the payment of the 2007 Bonds. For additional information regarding security for the 2007 Bonds, see "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS." For additional information regarding financial information regarding the participants, see APPENDIX B - "PARTICIPANT AUDITED FINANCIAL INFORMATION." Capitalized terms not otherwise defined in this Appendix A shall have the meanings ascribed to them in the body of this Official Statement.

ATASCADERO MUTUAL WATER COMPANY

General

Atascadero Mutual Water Company ("AMWC"), a California corporation, was incorporated under the laws of the State of California (the "State") in 1913. AMWC is one of the largest mutual water companies in the State and is responsible for meeting the water requirements of more than 28,000 people.

AMWC is a party to a Delivery Contract with the District, pursuant to which AMWC covenanted, inter aha, to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration aud management, installation, grading, razing and building the Water Project.

For additional financial information regarding AMWC, see the financial statements submitted by AMWC in APPENDIX B - "PARTICIPANT AUDITED FINANCIAL INFORMATION."

Governance and Management

A five person Board of Directors (the "Board") elected by AMWC's shareholders has authority to set rates, incur debt aud make decisions relative to the operations of AMWC. Certain actions are subject to a vote of the shareholders. A General Manager, appointed by the Board, is responsible for the day-today administration of the organization aud is responsible for the supervision of all staff.

Land and Land Use

AMWC's service area includes the City of Atascadero and part of the unincorporated portion of the County of San Luis Obispo. The City of Atascadero covers approximately 26 square miles of land. It is situated just north of San Luis Obispo, along Highway 101, aud approximately 218 miles north of Los Angeles and 215 miles south of San Francisco. The portion of the County of San Luis Obispo served by AMWC covers approximately 12 square miles of land.

AMWC's Water Rights

AMWC has significant water rights in both the Salinas River ( considered to be riparian water) aud the Atascadero Sub-basin of the Paso Robles Groundwater Basin ( collectively, the "Atascadero Subbasin"). AM WC has pre-appropriative riparian rights to the waters of the Salinas River and has au appropriative license for these waters. In addition, AMWC has "overlying" water rights to the groundwater in the Atascadero Sub-basin.

AMWC, like other Participants, has entered into a Delivery Contract with the District, pursuant to which it has covenanted to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, mapping, acquiring easements and rights-of-way, initial construction management and environmental efforts in connection with the Water Project.

Litigation

AMWC is not currently involved in any material litigation.

A-1

THE WATER SYSTEM OF ATASCADERO MUTUAL WATER COMPANY

Service Area

AMWC's service area includes approximately 38 square miles covering the City of Atascadero and part of the unincorporated area of the County of San Luis Obispo. The greatest water demand is for single-family residential homes and associated landscaping, with relatively small industrial and commercial water demand. Water rates are the same for all classes of customers. Customer classifications and certain information per classification as of April 30, 2007 are summarized below:

Number of Percentage of Percentage of Customer Classification Customers Water Use Revenue Single-Family Residential 8,998 78.19% 74.52% Multi-Family Residential 329 7.13 8.81 Commercial 671 8.49 8.95 Landscape 192 6.11 7.25 Industrial 26 0.06 0.13 Other 132 0.02 0.34

TOTAL 10,348 100.00% 100.00%

Water Facilities

AMWC has 17 active wells and one standby groundwater well. Each of AMWC's active wells is equipped with a radio-controlled computer system for supervisory control and data acquisition (SCAD A). Disinfection with sodium hypochlorite and treatment with phosphoric acid for corrosion control occurs at five treatment buildings. All wells and treatment facilities are housed in secure buildings and have special valves, waste flushing systems, sand separators and other features.

AMWC's water facilities also include 250 miles of pipeline, 8 storage reservoirs, 8 booster stations, 1,780 valves, 1,503 fire hydrants and 10,348 service meters.

Water Permits, Licenses and Other Regulations

AMWC has a water supply permit from the State of California Department of Health Services. Under this permit, AMWC files reports annually on the quality of its water and is subject to annual inspections by the Department of Health Services. Regulations regarding water quality standards have become more stringent, increasing the costs of delivering water. It is anticipated that this regulatory trend will continue, and management is unable to evaluate the future impact on the operating and capital expenditures of AMWC.

AMWC Water System and Water Supply

As of April 30, 2007, there were 10,348 active connections compared with 9,988 as of April 30, 2006.

AMWC's water system (the "AMWC Water System") consists of a well system, a water distribution system and a water treatment system. AMWC currently has 17 active wells and one standby groundwater well. In 2007, AMWC purchased a 60-acre ranch that overlies the Atascadero Sub-basin for the purpose of developing new water supply wells. AMWC's current pumping capacity is 13.6 million gallons per day (gpd). In fiscal year 2007, 2,164 million gallons of water were delivered to AMWC customers.

A-2

The groundwater is treated in accordance with existing regulatory requirements. Over the past twenty years, one well has experienced increasing levels of total dissolved solids and chlorides. The levels of these constituents are currently below the maximum contaminant level for drinking water.

AMWC is not currently involved in, and is unaware of, any material litigation between any of the water users in the Atascadero Sub-basin.

Historic and Projected Water Supply

Historically, AMWC has met its water supply demand through pumping water from the Atascadero Sub-basin and the Salinas River. These existing groundwater supplies, together with water from the Water Project, are expected to meet all future water demands through 2025. Upon completion of the Water Project, AMWC's groundwater supply will be augmented by additional surface water supplies from the Water Project.

Historic Water Connections

The following table shows the number of water connections to the AMWC Water System for the five most recent fiscal years.

Table 1 AMWC

Historic Water Connections For Fiscal Years Ended April 30, 2003 Through 2007

Source: AMWC.

Fiscal Year Ended April 30

2003 2004 2005 2006 2007

Historic Water Deliveries

Connections

9,255 9,436 9,650 9,988

10,348

Jncrease/(J)ecrease)

NIA 1.96% 2.27 3.50 3.60

The following table presents a summary of historic water deliveries (based on production records) for the AMWC Water System in millions of gallons per year for the five most recent fiscal years.

A-3

Source: AMWC.

Table 2 AMWC

Historic Water Deliveries In Millions of Gallons Per Year For Fiscal Years Ended April 30, 2003 Throngh 2007


2003 2004 2005 2006 2007

Total

2,100 2,187 2,002 1,968 2,164

Jncrease/(J)ecrease)

NIA 4.14% (8.46) (1.70) 9.96

Historic Water Sales Revennes

The following table shows annual revenues from water sales for the five most recent fiscal years.

Source: AMWC.

Largest Customers

Table 3 AMWC

Historic Water Sales Revenues For Fiscal Years Ended April 30, 2003 Through 2007


2003 2004 2005 2006 2007

Sales Revenues

$4,508,690 4,764,959 4,529,737 5,058,051 5,458,649

lncrease/(JJecrease)

NIA 5.68%

(4.94) 11.66 7.92

The following table sets forth the largest customers connected to the AM WC Water System as of April 30, 2007, as determined by total usage in 1,000 gallons. In the aggregate, the largest customers accounted for approximately 6.65% of water usage from the AMWC Water System.

A-4

Table 4 AMWC

Largest Water Customers For Fiscal Year Euded April 30, 2007

Customer

Bordeaux House -Atascadero Atascadero Unified School District City of Atascadero Mark Egan LJC Development Company Oak.glen Homeowners Association Atascadero District Cemetery Villa Margarita Inc. County of San Luis Obispo Atascadero Christian Home

Total

Source: AMWC.

AMWC Water System Rates aud Charges

Water Usage (1,000 gallons)

35, 171 23,581 31,559 12,893 9,407 5,357 7,240 6,473 8,105 4,192

143,978

AMWC water rates are comprised of a monthly minimum charge and a unit charge based on the amount of water used. AMWC also charges for disconnections and reconnections to the AMWC Water System and for construction meter rentals. AMWC currently charges connection fees for new connections to the AM WC Water System.

Monthly Minimum Charge. AMWC's monthly minimum charge is paid by all customer classes and, with the exception of multiple unit customers, is based on meter size. The current monthly minimum charge is set forth in Table 5 below. Monthly minimum charges for multiple unit customers are based on the number of units.

Source: AMWC.

Table 5 AMWC

Current Water Monthly Minimum Charges

Meter Size (in inches)

5/8 3/4 1

1 1/2 2 3 4

A-5

Monthly Minimum Charges

$ 14.00 14.00 18.00 23.00 37.00

135.00 172.00

Unit Charge. AMWC's unit charge is based on the nwnber of 1,000 gallons used and 1s calculated at the rate shown on the following schedule:

Quantity (in 1,000 of gallons)

3 -12 13 -25 26-50

51 & over

Cost/per 1,000 gallons (J)

$1.40 1.90 2.65 2.90

(1) Customers pay a monthly minimum charge of$14 for the first 2,000 gallons of water used. Source: AMWC.

Rate Adjustments. AMWC has imposed 5 rate adjustments since 1990 to reflect then current costs and other economic factors. The rate adjustments for its residential customers are set forth in the following table.

Table 6 AMWC

Historic Water Rate Adjustments

Use (1000 gal) Base ' Tier 1 Tier 2 Tier 3 Tier 4 Effective Date 0-2 3-12 13-25 26-50 51+

05/15/90 Amount $7.00 $0.66 $0.71 $0.79 $0.91 lncrease/(Decrease) NIA NIA NIA NIA NIA

05/15/91 Amount $10.00 $1.15 $1.50 $1.50 $2.00 Increase/ (Decrease) 42.86% 74.24% 111.27% 89.87% 119.78%


04/15/93 Amount $11.00 $1.30 $1.70 $1.70 $2.25 Increase/ (Decrease) (8.33%) (10.34%) (10.53%) (10.53%) (10.00%)



Base rate for a 5/8-inch meter. Source: AMWC.

A-6

Water Service Charges. The table below sets forth a comparison of the average total monthly water service charges of AMWC to those of nearby water purveyors as of July 30, 2006:

Table 7 AMWC

Rate Comparison As of July 30, 2006

CENTRAL COAST SERVICE AREAS

Community AMWC Templeton CSD Paso Robles Pismo Beach Grover Beach SLO Cambria Morro Bay

Total Monthly Charge(l)(l)

$39.40 39.78 43.25 50.97 54.20 62.20 98.60

146.54

(1) Total monthly charge calculation is based on 18,700 gallons per month of metered water. Where several rates exist based on elevation or zone, the lowest rate is assumed.

(2

) Total monthly charge is the sum of monthly residential service charge and monthly commodity charge. Total monthly charges calculated using the inside city rate. Applicable base charges, service charges and surcharges are included in the calculation. The State Public Utilities Commission charges and taxes are not included.

Source: AMWC.

Collection Procedures. AMWC is on a monthly billing cycle for water service. Payment is due by the 30th day after the billing date and is considered delinquent if not paid by that date. If payment is not received, a delinquency message appears on the next monthly water bill for accounts with unpaid balances greater than $10. After 60 days, delinquent customers are billed a late fee and have 30 days to bring the delinquent account current. Water deliveries to accounts not paid in full within 90 days of the billing date are discontinued until all delinquent amounts are paid. Historically, revenue loss from uncollected accounts has been immaterial.

Connection Fees. AMWC charges connection fees for development of new water resources to meet the requirements of community growth. Current connection fees for single family residences, commercial and industrial units vary depending on the size of the water meter provided and range in cost from $12,500 for a 5/8-inch meter to $375,000 for a 4-inch meter.

Future AMWC Water System Improvements

AMWC will finance its pro rata share of capital costs to construct the Water Project through proceeds of the Series B Bonds. It intends to pay its share of such costs primarily with connection fee revenues. Other capital improvements to the AMWC Water System in the amount of approximately $18,680,000 are expected to be funded over the next five years by a combination of water revenues and connection fees. Main extensions to serve new growth are designed, constructed and paid for by developers.

A-7

Projected Water Connections

The following table shows projected water connections to the AMWC Water System over the next five fiscal years.

Source: AMWC.

Fiscal Year Ending April 30

2008 2009 2010 2011 2012

Projected Water Deliveries

Table 8 AMWC


Connections 10,468 10,588 10,708 10,828 10,948

Increase NIA 1.15% 1.13 1.12 1.11

AMWC currently estimates that water deliveries over the next five fiscal years will be as follows:

Table 9 AMWC

Projected Water Deliveries In Million Gallons Per Fiscal Year

Source: AMWC.


2008 2009 2010 2011 2012

Projected Water Sales Revennes

Total 2,190 2,217 2,244 2,270 2,296

Increase NIA 1.23% 1.22 1.16 1.15

The following table projects annual water sales revenues for AMWC over the next five fiscal years, which projections are based on anticipated increases in projected water deliveries described under "THE WATER SYSTEM OF ATASCADERO MUTUAL WATER COMPANY - Projected Water Deliveries" and rate increases. These projections assume a single large rate increase in 2011, but the Board may decide to apportion the increases over one or more years.

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Source: AMWC.

Table 10 AMWC



2008 2009 2010 2011 2012

Projected Water Sales Revenues

$5,556,932 5,645,843 5,730,530 6,767,726 6,855,706

Increase

NIA 1.60% 1.50

18.10 1.30

FINANCIAL INFORMATION OF ATASCADERO MUTUAL WATER COMPANY

Bndgetary Process

The Board establishes and approves an annual budget prior to the beginning of each fiscal year. The 5-year capital improvement plan is updated annually as part of the budget process. The Board reviews financial statements and investments monthly. All rates and charges are reviewed annually and any changes are subject to the approval of the Board. A 30-year cash flow projection ( emphasizing the upcoming 10 years) is maintained and updated periodically. The Board also conducts an annual review and assessment of the levels of its two reserve funds.

Financial Statements

The most recent audited financial statements of AMWC prepared by Barbich Longcrier Hooper & King, Accountancy Corporation, independent certified public accountants, are included as Appendix B hereto. The independent auditor's letter concludes that the audited financial statements present fairly, in all material respects, the financial position of the business-type activities of AMWC as of April 30, 2007, and the respective changes in financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The sununary operating results contained under the caption "Historic Operating Results" are derived from these financial statements ( excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto.

Historic Operating Results

The following table is a summary of operating results of AMWC for the last five fiscal years. These results have been derived from the financial statements of AMWC but exclude certain receipts which are not included as revenues under the Delivery Contract and certain non-cash items and include certain other adjustments.

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Table 11 AMWC

Historic Operating Resnlts Fiscal Year Ended April 30

2003 2004 2005 2006 2007 Revenues

Water sales $4,508,690 $4,764,959 $4,529,737 $5,058,051 $5,458,649 Other revenue 645 821 719 853 1 467 897 3 040 147 3 829 704

$5,154,511 $5,478,812 $5,997,634 $8,098, 198 $9,288,353

Operating Expenses $3,829,708 $4,084,944 $4,413,683 $4,551,949 $4,558,340

Operating income 1,324,803 1,393,868 1,583,951 3,546,249 4,730,013

Non-Operating Revenue 181,274 141,819 103,220 250,116 445,430

Net income before income taxes 1,506,077 1,535,687 1,687,171 3,796,365 5,175,443

Income Tax Expense 8,691 8,016 10,628 11,635 28,202

Net income $1,497,386 $1,527,671 $1,676,543 $3,784,730 $5,147,241

Source: AMWC.

Management's Discnssion and Analysis

The following discussion relates to certain items in the table above.

Gross Revenues. Revenues increased by approximately 80% from 2003 to 2007 primarily due to an increase in the amount of revenues collected in connection with meter installation and connection fees. Water sales revenues for 2007 were approximately $400,000 greater than for 2006, which is primarily attributed to an increase in the volume of water deliveries.

Operating Expenses. Operating expenses increased approximately 19% from 2003 to 2007 primarily due to increases in salaries, wages and benefits, gas, electricity, treatment chemicals, system repairs, and other operating expenses.

Projected Operating Results. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Outstanding Long-Term Indebtedness

AMWC has no current outstanding long-term indebtedness.

Insurance

AMWC is covered under various insurance policies, including general liability, property damage, workers' compensation, automobile and excess liability policies.

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Employees

AMWC currently has approximately 25 full-time employees.

Pension

AMWC adopted a pension plan in January 1, 1974, which may be altered or terminated at its discretion. Trustees of the pension trust are the Board. All full-time employees, with the exception of leased employees and the chief executive officer, who have one year of service and are at least 18 years of age are eligible to participate in the pension plan. Currently, each participant is required to contribute at least 4% of pay to the pension plan. In addition, each employee may voluntarily contribute up to an additional 89% of pay, for a total of 93%, subject to the maximum annual contribution limitation established under IRS Regulations ($15,500 for the fiscal year ended April 30, 2007). Participants in the pension plan who are over age 50 may contribute additional amounts in accordance with IRS Regulations. As required by the pension plan, AMWC contributed 7% of the participating employee's annual compensation for the fiscal year ended April 30, 2007 ($89,474).

Capital Improvement Program

AMWC currently plans to replace and repair certain air tanks, rebuild pumps, replace tank roofs, construct transmission mains, construct recharge basins and recovery wells, construct a new administrative building, make improvements to its corporate yard, and effectuate certain other improvements to the AMWC Water System and its related facilities and grounds.

Investment Policy

AMWC investment policy requires AMWC to invest in insured and other secure investments, such as treasury bills, notes and certificates of deposit. Such securities are stated in the audited financial statements at cost, adjusted for amortization of premiums and accretion of discounts over their remaining lives.

Projected Operating Results and Debt Service Coverage

The estimated projected operating results and debt service coverage for AMWC for the fiscal years ending April 30, 2008 through April 30, 2012 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents AMWC's estimate of projected financial results based on the assumptions set forth in the footnotes to the chart set forth below. Such assumptions are material in the development of AMWC's financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material.

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Table 12 AMWC

Projected Operating Resnlts and Debt Service Coverage Fiscal Year Ending April 30

2008 2009 2010 Revenues

Charges for Sales and Service $5,556,932 $5,645,843 $5,730,530 Connection Fees 2,117,804 2,138,604 2,149,056 Interest and Other Revenue 693,938 951,883 997,963 Land Sales 850,000 1,250,000 1,240,000 Total Revenues $9,218,674 $9,986,330 $10,117,549

Expenses Operating and Maintenance 4,397,384 4,601,775 4,810,925 Water Project Operating and Maintenance Total Expenses $4,397,384 $4,601,775 $4,810,925

Net Revenues Available(1> $4,821,290 $5,384,555 $5,306,624

Water Project Debt ServiceC2)

Projected Water Project Debt Service Coverage

Available Capital Reserves 6,776,750 10,703,095 11,472,270

Capital Available for C!P 4,821,290 5,384,555 5,306,624

Less: Capital Investments 4,818,020 4,615,380 3,279,500

Reserve Fund Balance (year-end) (3) $ lO, 703,095 14) $11,4 72,270 $13,499,394

2011

$6,767,726 2,147,846 1,107,169

$10,022,741

5,124,627

466,969 $5,591,596

$4,431,145

$1,066,137

4.16

13,499,394

3,365,008

1,569,500

$15,294,902

(') Excludes available reserve balances that may be applied towards Water Project debt service for coverage purposes. (0) Reflective of net debt service figures which include capitalized interest through September 1, 2010. 0) Excludes debt service reserve fund. (4) Includes $3,923,075 for reimbursement in fiscal year 2007-08 for the Water Project cost design. Source: A"MWC.

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2012

$6,855,706 2,133,579 1,159,679

$10,148,964

5,492,645

560,363 $6,053,008

$4,095,956

$2,643,635

1.55

15,294,902

1,452,321

1,000,000

$15,747,223

THE CITY OF PASO ROBLES

General

The City of Paso Robles ("Paso Robles"), a municipal corporation, was incorporated in 1889 and is located at the confluence of State Highway 101 and State Highway 46 in the central coast area of the State, approximately 150 miles south of San Jose and 220 miles north of Los Angeles. Paso Robles continues to be the fastest growing city within the County of San Luis Obispo and has become its second largest city with 28,969 residents.

Paso Robles has previously entered into a Delivery Contract with the District, pursuant to which Paso Robles covenanted, inter aha, to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Water Project.

For additional financial information regarding Paso Robles, see the excerpts of the financial statements submitted by Paso Robles in APPENDIX B - "PARTICIPANT AUDITED FINANCIAL INFORMATION."


Paso Robles is organized as a "general law" city with a city council/manager form of government. The mayor is elected at large every two years while the other four council members serve four year staggered terms. The city manager is appointed by the city council to enforce city laws, direct the operations of the city government, prepare and manage the budget and implement the programs initiated by the city council. Paso Robles is a full service city providing both police and fire services. In addition to police and fire services, Paso Robles provides library services, a wide range of recreation services, a full range of public works functions including landfill, airport, street maintenance, wastewater collection and treatment, water production and delivery and public transit services.

Land and Land Use

Paso Robles is located in the northern portion of the County of San Luis Obispo in the upper Salinas River Valley. The Salinas River itself flows through the center of Paso Robles from south to north. The community is bounded by steep hills and canyons on the west, open rolling hills to the east, and relatively flat river valley topography to the north and south. Paso Robles is located in a rich agricultural area where ranchlands are transitioning to vineyards to support a growing wine industry.

Paso Robles is centered on an identifiable downtown and surrounded by residential neighborhoods. The development pattern of Paso Robles is different on the east side of the Salinas River than on the west side. The older part of the community lies west of the Salinas River and Highway 101. This area includes many prominent buildings of architectural interest, which are developed along a traditional grid network of streets and alleys. However, the steep hills on the west side have limited growth in this area, and much of Paso Robles' growth over the past 20 years has occurred on the east side of the Salinas River. The eastern portion of Paso Robles includes many newer developments, and is primarily residential in character.

The total area within the corporate limits of Paso Robles is approximately 19.9 square miles, comprising a total of 12,738 acres. In 2003, Paso Robles established the maximum potential geographical boundaries to which Paso Robles could grow in the foreseeable future.

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As of 2003, there were 28,969 residents and 11,100 dwelling units in Paso Robles. Paso Robles anticipates accommodating a population ofup to approximately 44,000 residents in 2025.

The existing sphere of influence (areas outside of Paso Robles current boundaries where growth may occur in the future) comprise approximately 243 acres of developable land. In addition to allowing buildout of the expansion areas, Paso Robles has adopted a general plan that allows for buildout of vacant and under-developed lands within its city limits, including two large specific planning areas to be located at Chandler Ranch and Olsen and Beechwood.

Paso Robles' Water Rights

Paso Robles has significant water rights in the Salinas River and pumps groundwater from its wells at this location.

Litigation

There is no litigation pending or, to Paso Robles' knowledge, threatened in any way to restrain or enjoin the delivery of the 2007 Bonds, to contest the validity of the 2007 Bonds, or any proceeding of Paso Robles with respect thereto.

THE WATER SYSTEM OF THE CITY OF PASO ROBLES

Service Area

Paso Robles' service area is limited to the incorporated city limits, serving a population of approximately 29 ,000, with a combined 10,300 residential and commercial utility accounts. The service area served is approximately 19 square miles and topography varies from 660 feet above sea level at the Salinas River to more than 980 feet on the hillsides east of Golden Hill storage tanks.

Water and Wastewater Facilities

Paso Robles' water system (the "Paso Robles Water System") is composed of 16 active groundwater wells, six booster stations and four storage reservoirs with a total capacity of 12,150,000 gallons. It also includes approximately 160 miles of distribution mains. The storage reservoirs include: two 4-million gallon welded steel tanks; one 4-million gallon HOPE lined earthen reservoir; and, a 150,000 gallon welded steel tank. Paso Robles also owns and operates a five million gallon per day capacity advanced secondary trickling filter treatment plant (the "Paso Robles Wastewater Plant"), which discharges treated effluent to the Salinas River. The Paso Robles Wastewater Plant is composed of: two bar screens and aerated grit chambers; two primary clarifiers; four trickling filters; one rectangular and three circular clarifiers; polishing ponds; three digesters; a belt press; and, drying beds.


The Paso Robles Water System is permitted and regulated by the State Department of Health Services pursuant to original Water Permit No. 04-06-05PA-005, System No. 401-007. The State Department of Health Services conducts annual system inspections and generates an annual engineering report. The most recent inspection was conducted on December 18, 2006.

The State Water Resources Control Board, Division of Water Rights, regulates the underflow wells pursuant to permit No. 5956. The permit limits the annual diversion ( extraction) of the underflow

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wells to 4,600 acre-feet per year, with a maximwn flow of 8 cubic feet per second. Production over the last few years from the underflow wells has averaged approximately 4,300 acre-feet per year.

The Paso Robles Water System and Water Supply

As of December 2006, there were 10,305 active consumer connections compared with 8,422 as of December 200 I. Paso Robles has no affiliation with other existing water agencies except for its affiliation with for the delivery ofNacimiento Water.

Paso Robles' current water is supplied by local wells. Paso Robles has no surface water supplies and no reclaimed or recycled water supplies. Paso Robles also has no water supply contracts with other water purveyors. Upon completion of the Water Project, Paso Robles expects to increase its sources of water by 4,000 acre feet annually.

Paso Robles has traditionally met the bulk of service area customer needs from groundwater through Paso Robles' primary water wells. Most of these wells pwnp from the Salinas River or the "east side" groundwater basin (the "Paso Robles Basin").

Paso Robles currently has 19 active and standby groundwater wells available for use. Paso Robles' current pwnping capacity is 12 million gallons per day (gpd). In calendar year 2006, 2,420 million gallons were delivered to Paso Robles' customers from groundwater wells.

Paso Robles is currently involved with development of a groundwater management plan (AB 3030 Plan) to proscribe collective management of Paso Robles Basin. With ample storage, ability to recharge the basin by spreading surface waters and apparent flexibility in managing groundwater levels without subsidence problems, the Paso Robles Basin could be conjunctively managed both to meet normal annual demands and to meet water resource needs in the event of a drought and curtailment or loss of inconsistent surface water supplies, resulting in a highly reliable water supply. Current goals are to secure agreements to not pwnp beyond the safe yield of the Paso Robles Basin, supplementing supplies with imported surface water.

The quality of present groundwater meets existing regulatory requirements, with average total dissolved solids of 492.5 parts per million in 2006. Paso Robles plans to supplement its water from the Paso Robles Basin with water from the Water Project.

Paso Robles is not currently involved in, and is unaware of, any material litigation between any of the water users in Paso Robles Basin. The water rights of individual water users within Paso Robles Basin have not been adjudicated.


Historically, Paso Robles has met its water supply demand primarily through pwnping water from the Paso Robles Basin. These water supplies are expected to meet all future water demands through 2025. Upon completion of the Water Project in 2010, Paso Robles ground water supply will be augmented by water from Lake Nacirniento.


The following table shows the growth in the nwnber of water connections to the Paso Robles Water System for the five most recent fiscal years.

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Table 13 Paso Robles


Fiscal Year Ending

Source: Paso Robles.

June 30 2003 2004 2005 2006 2007


Connections 8,946 9,432 9,923

10,305 10,448

Increase 2.84% 5.15 4.95 3.71 1.39

The following table presents a sunnnary of historic water deliveries for the Paso Robles Water System in cubic feet per year for the five most recent fiscal years.


Fiscal Year Ending June 30

2003 2004 2005 2006 2007

Historic Water Sales Revenues



Total (in hundreds)

2,945,620 2,658, 184 4,113,830 2,658,444 3,487,699

lncrease/(Decrease) 4.77%

(10.81) 35.38

(54.75) 31.19

The following table shows annual water sales revenues from water sales for the five most recent fiscal years.





2003 2004 2005 2006 2007

Sales Revenues 2,268, 128 2,551,857 3,167,649 4,658,967 5,327,177

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lncrease/(JJecrease) NIA 11.12% 21.05

1.55 14.34

Largest Customers

The following table sets forth the largest customers of the Paso Robles Water System as of June 30, 2007 as determined by annual usage in cubic feet.


Largest Water Customers Based As of June 30, 2007

Customer

Quail Run Mobile City of Paso Robles Paso Robles Schools Mid-State Fair Housing Authority Woodland Plaza Paso Robles Ceme!ary District Firestone Walker LLC Chemron Inc. Shirlene Raymond

Total

* Multiple users. Source: Paso Robles.

Annual Water Usage in cubic fee

5,737,800 14,174,200 12,873,600 3,842,800 1,651,400 1,604,000 1,327,600 1,323,000 1,183,900 1 160 300

44,878,600

These largest customers accounted for approximately 13.5% of water usage in the fiscal year ended June 30, 2007.

Paso Robles Water System Rates and Charges

Paso Robles' water rates are comprised of a monthly unit (consumption) charge based on the amount of water used and a flat rate monthly surcharge for Nacimiento Water. Paso Robles also charges for connections to the Paso Robles Water System, and for metered construction water consumption.

Connection Fee. Paso Robles assesses a connection fee based on customer class and meter size. The fee is as follows:



Connection Fee Fiscal Year Ended June 30, 2007

Meter Size (in inches)

Up to 5/8 10

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Connection Fee

$8,426 645,941

A study to update Paso Robles' connection fees is being undertaken by Hilton, Famkopf and Hobson. The staff review is complete and is expected to be considered by the Paso Robles City Council Ad Hoc Committee by September 2007. If adopted in its current draft form, the fee for meters that are up to 5/8" will increase to $12,775, and the fee for 10" meters will increase to $979,395. A full schedule of fees for meter sizes between 5/8" and IO" is available from Paso Robles upon request.

Connection fees are updated every two years and are adjusted every July !st by the percentage increase in CPI.

Unit Charge. Paso Robles' user fee is entirely consumption based (except for the flat rate Nacimiento Water surcharge). A unit charge is based on the number of 100 cubic feet used and is automatically adjusted every July I by the CPI. The current water rate is $1.24 per unit, and is scheduled to increase to $1.28 per unit on July I, 2007.

Rate Increases. Paso Robles has imposed five rate increases since the fiscal year ended June 30, 2002 to accommodate increased costs and economic inflation. The rate increases for all customers are set forth in the following table:


Historic Water Sales Rates


2002 2003 2004 2005 2006 2007

Rate per Hundred Cubic Feet

$0.77 0.77 0.96 1.21 1.24 1.28

Increase

NIA 0.00%

19.84 20.6611)

20.14 3.23

(I) Reflects rate increase percentage for the entire fiscal year, including the rate increase from $0.96 to $0.98 on July 1, 2005 and the rate increase from $0.98 to $1.21 on November 1, 2005.


On July I, 2005, Paso Robles imposed the first of a series of annual $6 flat rate surcharge fees in connection with its participation in the Water Project. The current rate is $12 per month per customer and was scheduled to increase each July !st until it reaches $36 per month per customer on July I, 2010. However, due to the current estimated cost of the Water Project, and Paso Robles' need to construct and operate a water treatment facility. The Paso Robles City Council held a Proposition 218 public hearing on July 17, 2007, at which time an ordinance was introduced to modify the annual increases in the fee for the water from Lake Nacimiento from $6 to $12 annually to provide a full rate of $60 per month per customer on July I, 2010. Thus, the $6 increase currently scheduled for July I, 2007 will be deferred until October I, 2007, when it is expected to increase to $12 per month per customer, with $12 increases each July !st thereafter. The ordinance was adopted and the flat rate surcharge will become $24 on October I, 2007 and will be increased by $12 every July !st thereafter until reaching $60.00.

The current monthly charge for debt service and operating costs in connection with the Water Project is $12 and scheduled to rise to $18 on July I, 2007. Thereafter, the charge is scheduled to increase annually in $6 increments through and including July I, 2010. User fee rates are reviewed every two years in tandem with the development of Paso Robles' two year budget and four year financial plan.

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See "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES -Proposition 218" for information regarding a pending effort to qnalify a referendnm with respect to cnrrent rates.

Water Service Charges. The following table sets forth a comparison of the average monthly water services charge of Paso Robles and those of nearby water purveyors as of July 30, 2006.


Rate Comparison As of July 30, 2006


Community

AMWC Templeton CSD Paso Robles Pismo Beach Grover Beach SLO Cambria Morro Bay

Total Monthly Charge<1H2>

$39.40 39.78 43.25 50.97 54.20 62.20 98.60

146.54

(1) Total charge are calculated based on 18,700 gallons per month of metered water. Where several rates exist based on elevation or zone, the lowest rate is assumed.

C2

) Total monthly charge is the sum of monthly residential service charge and monthly commodity charge. Total monthly charges calculated using the inside city rate. Applicable base charges, service charges and surcharges are included in the calculation. The State Public Utilities Commission's charges and taxes are not included.

Source: AMWC.

Collection Procedures. Paso Robles is on a monthly billing cycle for water service. Payment is due by the 5th day of the following month in which the bill goes out and is considered delinquent if not paid by that date. If not paid by end of such day, the account is deemed delinquent and customers are assessed a 10% late fee. If the amount due is not paid within 10 days of the penalty date (about the 15th day of the month following the billing date), water service is discontinued until paid. Termination notices are delivered to each such delinquent account 2 days prior to the discontinuance date. Customers receiving termination notices are currently assessed a $26 penalty fee. If service is discontinued, the customer must pay an additional $77 service restoration fee. Both fees are scheduled to increase by the annual percentage increase of the CPI on July I, 2007.

Connection Fees. Paso Robles charges connection fees for improvement or expansion of water treatment and distribution facilities to meet the requirements of community growth. The current connection fee for single family residences and commercial and industrial units range from $8,426 to $645,941 depending upon the meter size installed. As previously noted, the connection fee is currently under study and is expected to increase to provide adequate revenues to meet new infrastructure needs arising from new development and Paso Robles' capital construction obligations for its pipeline and treatment facility.

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Assessed Valuations, Tax Collections and Tax Delinquencies

The following table sets forth the secured assessed valuation within Paso Robles in the County of San Luis Obispo during the six most recent fiscal years.

As a result of the County of San Luis Obispo' s implementation of the tax distribution system commonly referred to as the "Teeter Plan" and the participation by Paso Robles, beginning in the fiscal year ended June 30, 1994, Paso Robles receives 100% of its share of the 1 % property tax levies without regard to delinquencies. There can be no assurance that the Teeter Plan or the participation of Paso Robles therein will be continued indefinitely.


Secured Assessed Valuation Fiscal Years Ended June 30, 2002 Through 2007

Fiscal Year

2002 2003 2004 2005 2006 2007

Total Secured Assessed Valuation(1

>

$951,469,383 1,095,030,424 1,314,883,360 1,431,862,012 1,656,550,223 3,041,002,615(2

)

(1) Secured property is generally real property, defined as land, mines, minerals, timber and improvements such as buildings, structures, crops, trees and vines.

C2

) Excludes exemptions. Source: San Luis Obispo County Assessor's Office.

Paso Robles' 1 % allocation of property tax revenues in the County of San Luis Obispo for the fiscal year ended June 30, 2006, as reported by the County of San Luis Obispo is $4,952,372, a 0.05% increase over the prior year.

Future Paso Robles Water System Improvements

Future improvements to the Paso Robles Water System over the next five years include the installation of two new productions wells, rebuilding and enlarging the 21st Reservoir, the replacement and installation of water mains in accordance with the 2006 Water Master Plan, and designing and building a surface water treatment plant for water deliveries from Lake Nacirniento.

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Projected Water Connections Fees

The following table sets forth the projected nwnber of water connection fees to be collected by the Paso Robles Water System for the current and next five fiscal years.



2008 2009 2010 2011 2012 2013




Connection Fee

1,591,200 2,012,600 2,433,800 2,506,800 2,531,100 2,632,300

Increase

30.14% 26.48 20.93

3.00 3.00 4.00

Paso Robles currently estimates that water deliveries for the current and next five fiscal years will be as follows:


Projected Water Deliveries In Acre Feet Per Year



2008 2009 2010 2011 2012 2013

Total

7,571 7,798 8,032 8,273 8,521 8,777

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Increase

NIA 3.00% 3.00 3.00 3.00 3.00


The following table of annual water sales revenues, including Nacirniento Water fees of the Paso Robles Water System are based on the recently adopted budget for Paso Robles. Paso Robles currently projects water rates to increase at approximately 3% (estimated CPI) from the fiscal year ending 2008 through and including the fiscal year ending 2012.


Projected Water Sales Revenues For Fiscal Years Ending June 30, 2008 Through 2012



2008 2009 2010 2011 2012

Water Sales Revenues

$ 6,300,000 8,371,900

10,166,200 12,038,000 12,373,600

Increase

NIA 32.89% 21.43 11.48 7.92

FINANCIAL INFORMATION OF THE CITY OF PASO ROBLES

Budgetary Process

In fiscal year 1997-98, Paso Robles modified its budget preparation methodology and presentation format from a single year focus to a four year financial plan. The first effective year of the preparation and publication of the four year financial plan was fiscal year 1998-99. The purpose of preparing a four year financial plan, rather than a single year budget, was to accurately measure the budgetary impact of the resource allocation decisions made today against available resources two to four years into the future. Paso Robles, much like other California cities, found itself constantly in a reactionary mode when dealing with budget constraints which is the nature of single year budgeting formats. It was Paso Robles' desire to become proactive by identifying budget constraints far enough in advance so that it might implement budgetary adjustments without negatively impacting the delivery of municipal services to the public and creating undue hardship and turmoil upon city staff and resources.

To further improve upon this process, Paso Robles also prepares a ten year financial plan. While ten year projections are difficult, they have proven to be successful in identifying major funding challenges.

Beginning in January of each year, as part of Paso Robles' "Mid Year Budget Report" to the Paso Robles City Council, the department managers prepare revenue collection estimates and expenditure projections through June 30 for the current fiscal year. These revenue and expenditure estimates become the basis for projecting year end fund balances and the foundation for preparation of the four year financial plan.

In January/February, department managers estimate collections for the next four fiscal years with respect to revenues under their care and control. The Director of Administrative Services prepares the estimates for all other revenues. These revenue estimates are then scrutinized by the executive management team ( all department managers), an ad hoc committee appointed by the Paso Robles City

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Council ( two Council members) and, fmally, by the full Paso Robles City Council. The revenue format in the four year financial plan provides for the prior two years actual collections, revenue estimate (budget) and collection projection for the current fiscal year and revenue projections for the next four fiscal years.

For expenditures, Paso Robles utilizes a "base budget" approach wherein the four year financial plan may only be modified by existing long term employee bargaining agreements and/or by the submission by the executive manager of a "new and expanded services request" and its subsequent approval by the Paso Robles City Council. This base budget approach is intended to focus analysis and decision making on the policy implications of budget decisions and their long term impact upon the availability and/or allocation of fiscal resources, rather than short term needs and fixes. The expenditure format in the four year financial plan provides for the prior two years actual expended, current year modified budget (as of date of preparation) and projections for the next four fiscal years.

The Director of Administrative Services compiles revenue and expenditure projections into a "draft" or preliminary four year financial plan for publication and review by mid-April of each year. The Paso Robles City Council ad hoc budget committee then holds a series of budget meetings with each executive manager and their respective staffs to discuss their needs and requests. Fallowing these meetings, the ad hoc budget committee formulates recommendations for full Paso Robles City Council consideration. The Paso Robles City Council then holds a number of public workshop meetings and a public hearing, before adopting a final two year budget within the context of a four year financial plan at its second regular meeting in June.


Certain excerpts of the most recent comprehensive annual financial report of Paso Robles prepared by Moss, Levy & Hartzheim L.L.P., independent certified public accountants, are included as Appendix B hereto. The independent auditor's letter concludes that the comprehensive annual financial report present fairly, in all material respects, the financial position of the business-type activities of Paso Robles as of June 30, 2006, and the respective changes in financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The summary operating results contained under the caption "Historic Operating Results and Debt Service Coverage" are derived from these financial statements ( excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto.


The following table is a sununary of operating results of Paso Robles Water System, for the last five fiscal years. These results have been derived from the Financial Statements of Paso Robles but exclude certain receipts which are not included as Revenues under the Water Delivery Entitlement Contract and certain non-cash items and include certain other adjustments. Although Paso Robles Water System revenues, in addition to wastewater system revenues, were pledged to the payment of installment payments with respect to its existing pledges, only wastewater system revenues were used for the payment of such debt service. See the caption "-Outstanding Long-Term Indebtedness" below under this heading.

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Paso Robles Water System Historic Operating Resnlts Fiscal Year Ended J nne 30

2003 2004 2005 2006 20of)l

Revenues Water sales $2,268,128 $2,551,857 $3,167,649 $4,658,967 $5,327,177 Interest income 345,618 125,856 386,549 489,025 800,945 Developer impact fees(]) 2,069,200 1,397,081 3,281,484 3,466,215 1,355,051 Other revenue and income 189 837 165 592 215 305 342 783 409 685

Total Revenues $4,872,782 $4,240,386 $7,050,987 $8,956,990 $7,892,858

Operation and Maintenance CostsC2) 2,237,577 2,207,347 2,690,697 3,045,284 2,978,474

Net Revenues $2,635,205 $2,033,039 $4,360,290 $5,911,706 $4,914,384

(1) Including development impact fees but excludes the value of physical facilities dedicated to Paso Robles by developers.

(2)

(J) Excludes depreciation and amortization of assets. The 2007 Financial Statements are unaudited.


Management's Discnssion and Analysis


Gross Revenues. Paso Robles records revenues when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Thus, revenues are recognized when measurable and available. Paso Robles considers such revenues reported in the governmental funds to be available if the revenues are collected within sixty days after fiscal year-end.


There is currently no outstanding debt secured by Paso Robles' Water Operations Fund.

Insurance

Paso Robles is a member of the California Joint Powers Insurance Authority, a risk sharing selffunded join powers authority whose membership at last count included 113 public agencies. The California Joint Powers Insurance Authority provides program administration, claim servicing, investigation services, legal counsel, and excess coverage to its members. For general and auto liability, the California Joint Powers Insurance Authority provides $50 million per occurrence and $50 million in the aggregate. For workers' compensation, the coverage is statutory plus $10 million per occurrence for employer's liability. Paso Robles also participates in the non-auto property program offered by the California Joint Powers Insurance Authority, which provides full replacement coverage for buildings and facilities. Paso Robles is self-insured for property damage to its equipment and vehicles except for major equipment (i.e., fire trucks), which Paso Robles insures through its participation in a special insurance

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pool. Paso Robles purchases specialty policies to cover airport liability and landfill liability and pollution coverage from other sources.

Pension

Substantially all of Paso Robles' employees are eligible to participate in pension plans offered by Ca!PERS, which provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members. Benefits are based on years of credited service, equal to one year of full time employment. Funding contributions are determined annually on an actuarial basis as of June 30, and Paso Robles is then required to contribute the determined contribution. The total current payroll for covered employees for the year ended June 30, 2006 was $9,805,505 and the total payroll for all employees was $11,413,404. Paso Robles' unfunded actuarial accrued liability is amortized as a level percentage of payroll on a closed basis. For the fiscal year ended June 30, 2006, the total unfunded liability was $363,535. The unfunded actuarial accrued liability for the fiscal year ended June 30, 2005 was $1, 173,804,327.

Post-Retirement Benefits

Paso Robles' City Council has adopted resolutions making health care insurance benefits available for all retired full time Paso Robles employees regardless of bargaining affiliation until age 65. Paso Robles also provides a monthly allowance to qualifying retirees until death. The monthly allowances range from a maximum of $50 to $500 depending upon year of retirement. Qualifying retirees must provide documentation for the monthly payment. Paso Robles has taken all necessary steps to fully comply with GASB 43 and 45. The independently prepared actuarial study identified Paso Robles' Other Post Retirement Benefit liability to be $6. 7 million and identified four funding options. Paso Robles chose to fund the outstanding liability using the 20 year level funding option. The adopted financial plan is scheduled to begin on July I, 2007, and includes full funding of the annual obligation by fiscal year 2010.


Water and sewer development impact fees are currently under study and are expected to increase due to ongoing new development needs. Such impact fees are expected to be phased in over time. Specific plans are underway on three major developable properties. As these three areas develop, in addition to specific plan fees, these properties will pay normal development fees and be required to participate in the community services district established in relation therewith.

Investment Policy

Cash balances from all funds are combined and invested pursuant to the City Council's adopted Investment Policy and Government Code Section of the State. Authorized investments include securities of the United States or its agencies, certificates of deposit, the State of California Local Agency Investment Fund, bakers' acceptances, negotiable certificates of deposit and repurchase agreements. The earnings from these investments are allocated monthly to each fund based upon the closing balance of each fund at month end. All enterprise fund investments are considered to be liquid investments for cash flow and reporting purposes. Funds held by outside fiscal agents under the provisions of bond indentures are maintained separately and interest income earned on such funds are credited directly to the bond fund or reported as if the interest was credited directly to said funds.

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Projected Operating Resnlts and Debt Service Coverage

The estimated projected operating results and debt service coverage for the Paso Robles Water System for the fiscal years June 30, 2008 through 2012 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents Paso Robles' estimate of projected financial results based on the assumptions set forth in the footnotes to the chart set forth below. Such assumptions are material in the development of Paso Robles' financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material.

The following projections assume the rate increases currently subject to challenge by referendum, and that such rates will not be reduced by vote of the electorate or subsequent ordinance. See "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES -Proposition 218."

Revenues


Paso Robles Water System Projected Operating Results and Debt Service Coverage

As of June 30

2008 2009 2010 2011 2012

Charges for sales & service $6,6!0,000 $8,706,900 $!0,526,200 12,413,000 $12,773,600 Interest Income 530,000 620,000 7 l0,000 800,000 Connection Fees 1,591,200 2,012,600 2,433,800 2,433,800

Total Revenues $8,731,200 $11,339,500 $13,670,000 $15,646,800

Expenses Operation and Maintenance 3,804,000 3,749,700 4,017,400 4,045,300 Nacimiento Operation and Maintenance 2,384,000

Total Expenses $3,804,000 $3,749,700 $4,017,400 $6,429,300

Net Revenues Available(1) $4,927,200 $7,589,800 $9,652,600 $9,217,500

Nacimiento Debt Service(2) $1,587,995

Projected Nacimiento Debt Service Coverage 5.80

(1) Excludes available reserve balances that may be applied towards Nacimiento debt service for purposes.

(2

) Reflects net debt service figures which include capitalized interest through September 1, 2010. Source: Paso Robles.


Article XIIIB

755,000 2,531,lOO

$16,059,700

4,006,600 2,479,400

$6,486,000

$9,573,700

$4,224,589

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coverage

Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. Paso Robles is of the opinion that charges for Water Service do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. Paso Robles has covenanted in the Water Delivery Contract that it will establish, fix

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and collect rates and charges from the customers of its Water Enterprise at levels sufficient to produce revenue from the Water Enterprise which are at least equal to: the costs of operating and maintaining the Water Enterprise; plus the Contract Payments (as defined herein). Paso Robles is of the opinion that the water rates and use charges imposed by Paso Robles do not exceed the costs the that Paso Robles reasonably bears in providing such service.

Proposition 218

Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water or wastewater service is ultimately determined to be a "fee" or "charge" as defined in Article XIIID, the local government's ability to increase such fee or charge may be limited by a majority protest. The Participant has initiated a Proposition 218 protest ballot undertaking for increasing its existing Nacimiento Water use fee. The public hearing is scheduled for July 17, 2007 at which time the Paso Robles City Council will consider introduction and first reading of an ordinance to increase the fee effective as of October I, 2007. See the discussion under "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRJATIONS - Articles XIIIC and XIIID of the California Constitution" in this Official Statement.

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THE CITY OF SAN LUIS OBISPO

General

The City of San Luis Obispo ("SLO") is a charter city and municipal corporation of the State. SLO was first incorporated in 1856 as a General Law City, and became a Charter City in 1876. SLO operates as a full-service city that provides police, fire, water, sewer, streets, transit, parking, planning, building, engineering and parks and recreation services to the cornrnunity. SLO operates under the Council-Mayor-City Administrative Officer form of government. Council members are elected at-large and serve overlapping, four-year terms. The Mayor is also elected at-large for a two year term, and serves as an equal member of the Council. The Council appoints the City Administrative Officer ( the "CAO") and City Attorney. All other department heads are appointed by the CAO.

SLO is located eight miles from the Pacific Ocean and is midway between San Francisco and Los Angeles at the junction of Highway 101 and Highway 1. A number of federal and state regional offices and facilities are located in SLO, which also serves as the County seat, including, the Regional Water Quality Control Board and Caltrans District offices. California Polytechnic State University, San Luis Obispo and Cuesta Cornrnunity College are located in the County, not far outside of SLO's city limits. SLO's current population is approximately 44,000. For additional financial information regarding SLO, see the excerpts of the financial statements submitted by SLO in APPENDIX B - "PARTICIPANT AUDITED FINANCIAL INFORMATION."

SLO is a party to a Delivery Contract with the District, pursuant to which SLO covenanted, inter aha, to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Water Project.


SLO has provided water service to its residents for over 100 years. During this time SLO has developed its water sources and treatment facilities ( the "SLO Water System") to satisfy SLO' s growing water needs. The operation of the SLO Water System is administered and managed by a separate Utilities Department, which includes a Water Division and a Wastewater Division. The SLO Water System's operation is aided by the use of computers, automated controls and telemetry systems.

Land and Land Use

SLO's existing water treatment plant is located on Stenner Creek Road, northwest of the California Polytechnic State University, San Luis Obispo campus. This facility was originally constructed in 1 964 to provide treatment of surface water from Salinas and Whale Rock Reservoirs. The plant was originally designed to treat up to 8 million gallons per day (mgd). The plant has been upgraded three times and is capable of treating 16.0 mgd, a level consistent with the SLO's Water and Wastewater Element of the General Plan.

City of San Luis Obispo's Water Rights

The existing city water system is made up of raw water supply from Whale Rock and Salinas Reservoirs, the Stenner Canyon water treatment plant, and four groundwater wells. Brief descriptions of the water sources are as follows:

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Salinas Reservoir. The Salinas Darn was built in 1941 by the War Department to supply water to Camp San Luis Obispo and, secondarily, to meet the water needs of SLO. The Salinas Reservoir (Santa Margarita Lake) captures water from a 112 square mile watershed and can currently store up to 23,843 acre-feet. In 1947, the Salinas Darn and delivery system was transferred from the regular Army to the U.S. Army Corps of Engineers. Since 1965, the District has operated this water supply for the exclusive use of SLO under a lease from the U.S. Army Corps of Engineers. Water from the reservoir is pumped through the Cuesta Tunnel (a one mile long tunnel through the mountains of the Cuesta Ridge) and then flows by gravity to SLO' s Water Treatment Plant on Stenner Creek Road.

SLO has water rights to store up to 45,000 acre feet in the Salinas Reservoir. The original design of the darn included a gate in the spillway to increase the storage capacity. In 2006, the Salinas Reservoir supplied 1,803 acre feet of water, constituting 28% of the total supply for that year.

Whale Rock Reservoir. The Whale Rock Reservoir is a 40,662 acre foot reservoir created by the construction of an earthen darn on Old Creek near the town of Cayucos. The State Department of Water Resources designed and completed the darn in 1961 to provide water to SLO, California Polytechnic State University, San Luis Obispo and the California Men's Colony. The Whale Rock Darn captures water from a 20.6 square mile watershed and water is delivered to the three agencies through 17.6 miles of shared 30-inch pipeline and two pumping stations. The Whale Rock Reservoir is considered a backup supply and provides water during off peak operations, when Salinas Reservoir has excessive turbidity problems following storm events, or to supplement supply when water demand exceeds delivery capacity from Salinas Reservoir. In 2006, the Whale Rock Reservoir supplied 4,562 acre feet of water, constituting 70% of the total supply for that year.

Ground Water. One well currently supplies water for domestic use. Two wells supply water for irrigating SLO golf course, and one well at SLO' s Corporation Yard is used for construction purposes. The one domestic well is currently producing approximately 10 acre feet per month which is approximately 2% of SLO's total water use. The groundwater basin is relatively small and recharges very quickly following normal rainfall periods, but it also lowers relatively quickly following the end of the rainy season. Extensive use of groundwater sustained SLO through the drought of 1986-1991. However SLO's two largest producing wells, the Auto Parkway and Denny's wells, were shut down when elevated nitrate levels were detected. This loss meant SLO could not rely on groundwater for future drought protection.

Litigation

SLO is presently involved in certain matters of litigation that have arisen in the normal course of its city business. SLO management believes, based upon consultation of the SLO City Attorney, that these cases, in the aggregate, are adequately covered by insurance and not expected to result in a material adverse financial impact on SLO.

THE WATER SYSTEM OF THE CITY OF SAN LUIS OBISPO

Service Area

The SLO Water System currently provides water within a service area which consists primarily of the incorporated boundaries of SLO, serving a population of approximately 44,239. In addition, the SLO Water System serves several users located outside city limits, including the California Polytechnic State

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University, under separate agreements. The following table shows active accounts in SLO by type of customer for fiscal year ended June 30, 2006.

Table 26 CITY OF SAN LUIS OBISPO WATER SYSTEM Estimated Active Accounts by Type of Customer

Fiscal Year Ended June 30, 2006

Type of Customer Single Family Multi-Family Non-Residential Dedicated Irrigation Total

Source: SLO

Water/Wastewater Facilities

Active Accounts 10,684

1,608 1,657

476 14,425

Percent 74.03% 11.15 11.49

___lll_ 100.0%

SLO' s existing water distribution facilities include 13 reservoirs/tanks, 10 booster pumping stations, 20 pressure regulating stations, and a total of approximately 165 miles of pipeline. SLO's existing water storage facilities have a total nominal capacity of approximately 24 million gallons. The water system is divided into 15 pressure zones due to the wide range in ground elevations. The engineering estimate for the life expectancy of these facilities is 50 years. Complete replacement within the term of life expectancy results in SLO replacing an average of 2% of the system infrastructure value each year.

SLO operates a water treatment plant which is located approximately one half mile north of Highway I along Stenner Creek Road. The current drinking water permit allows SLO to treat up to 16 mgd maximum, consisting of 8 mgd from the Whale Rock Reservoir with direct filtration and 8 mgd from the Salinas Reservoir with conventional filtration. Water deliveries from Whale Rock Reservoir are of consistently excellent quality and require minimal treatment. Salinas Reservoir's water quality is much more variable, and is permitted to be treated with conventional filtration. SLO is currently constructing additional facilities to provide full conventional treatment of water from all sources. Using this new treatment process, water is first oxidized and disinfected using ozone, then transported to rapid mixers where alum is added for coagulation and then to a ballasted flocculation process (Actiflo) which uses micro sand to enhance removal of floe particles from the water. The water is filtered and chlorinated and fluoride is added before the treated water is stored for use in the SLO Water System.


SLO's water production and distribution system is permitted and regulated by the State Department of Health Services pursuant to amended Water Permit No. 04-06-94P-OOO, System No. 4010009. The State Department of Health Services conducts annual system inspections and generates an annual Engineering Report.

The State Water Resources Control Board, Division of Water Rights regulates the appropriation and use of water from Salinas and Whale Rock Reservoirs pursuant to permit numbers 5882 and 11390 respectively. Permit No. 5882 (Salinas) limits annual diversion to storage to 45,000 acre feet per year and the amount allowed for direct diversion to 12.4 cubic feet per second. Permit No. 11390 (Whale Rock)

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limits annual diversion to storage to 22,040 acre feet per year and the amount allowed for direct diversion to 16 cubic feet per second.

The SLO Water System and Water Supply

As of June 30, 2006, there were 14,425 active consumer connections compared with 14,270 as of June 30, 2005. The SLO Water System consists of raw water supply from Whale Rock and Salinas Reservoirs, the Stenner Canyon water treatment plant and one groundwater well. For additional water supply information, see "THE CITY OF SAN LUIS OBISPO - City of San Luis Obispo's Water Rights."

SLO is not currently involved in, and is unaware of, any material litigation between any of the water users in SLO Groundwater Basin. The water rights of individual water users within SLO Groundwater Basin have not been adjudicated.


Historically, SLO has met its water supply demand primarily from surface water supplies and a small amount of groundwater. These water supplies are expected to meet all future water demands through 2017. Upon completion of the Water Project in 2010, SLO water supply will be further augmented by additional surface water supplies.


The following table shows the growth in the number of water connections, excluding recycled water connections, to the SLO Water System for the five most recent fiscal years.

Source: SLO.

Table 27 SLO Water System



2002 2003 2004 2005 2006

Connections

13,869 13,953 14,036 14,270 14,425


Increase/ (Decrease)

NIA 0.60% 0.59 1.66 1.09

The following table presents a summary of historic water deliveries, excluding recycled water deliveries, for the SLO Water System in acre-feet per year for the five most recent fiscal years.

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Source: SLO.


Historic Water Deliveries In Acre Feet Per Year

Fiscal Year Ending June30

2002 2003 2004 2005 2006

Total

6,588 6,498 6,802 6,620 6,507

Jncreasel(Decrease)

NIA (1.36)% 4.68

(2.67) (1.70)

Historic Water Sales Revennes

The following table shows annual water sales revenues from water sales, excluding recycled water sales, for the five most recent fiscal years.

Source: SLO.



Fiscal Year Ending June30

2002 2003 2004 2005 2006

Sales Revenues

$7,684,200 7,479,200 7,873,000 8,139,300 8,442,100

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Jncreasel(Decrease)

NIA (2.7%) 5.3 3.4 3.7

Largest Customers

The following table sets forth the largest customers of the SLO Water System as of June 30, 2006 as determined by water use.


Largest Water Customers

Customer<n Mustang Village Sierra Vista Hospital Madonna Road Apts, Inc. McCombs Corp Pacific Suites City ofSLO-Parks Irish Hills Hamlet French Hospital Assoc. The Valencia Apartments Woodside Nursing Center

Water Use ( acre-feet)

56.2 41.3 32.1 30.9 30.2 27.5 25.5 22.6 19.5 16.6

(1) Does not include water users located outside SLO, including California Polytechnic State University, San Luis Obispo, the largest water customer.

Source: SLO.

SLO serves several customers located outside its city limits, including California Polytechnic State University (the "University"), the largest customer of the SLO Water System. Under the agreement with the University, SLO charges rates based on the actual consumption of water, in accordance with a formula established by SLO which is based on rates charged to commercial users generally as modified to reflect the part of the rate structure which is applicable to the University. For the fiscal year ended June 30, 2006, the University used 570 acre feet of water supplied by the SLO Water System, for which it paid $414,000, which was approximately 5.4% of total revenues derived from water sales in that year.

City of San Luis Obispo Water System Rates and Charges

SLO water rates are strictly commodity based on a unit charge for the amount of water used. SLO also charges for disconnections and reconnections to the SLO Water System. SLO also charges impact fees for new connections to the SLO Water System.

Unit Charge. SLO's unit charge is based on the number of 100 cubic feet ("HCF") used and calculated at the rate shown on the following schedule (as of July 2006).

Cost!HCF Quantity inside City

0-5 HCF $3.28 6-25 4.11

26 & ove/1l 5.14

(1) Third tier applies only to single-family residential customers. Source: SLO.

Cost!HCF Outside City

$6.56 8.22

10.28

Rate Increases. The SLO City Council reviews its water rate schedule on an annual basis, and adjusts water rates by resolution at a public meeting. For fiscal years beginning July I, 2004 and 2005,

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the SLO City Council adopted annual rate increases of 8%. On July I, 2006, the SLO City Council adopted a rate increase of 12%. In connection with this rate increase, the SLO City Council also established an additional tier of water rates for single-family residential customers using more than 25 units per month.

As part of a multi-year rate setting program, on June 19, 2007, the SLO City Council adopted a rate increase of 13% effective July I, 2007 and another 13% effective July I, 2008. Additional annual rate increases of9% to 12% are projected through July I, 2011. SLO complied with the requirements for noticing customers of the water rate increases per the requirements of Proposition 218. Notices were sent to all water customers on April 30, 2007 for the proposed water increases.

See "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES -Proposition 218" for information regarding a pending effort to qualify an initiative with respect to current rates.

The SLO Water System receives revenues from 3 primary sources: (i) monthly water rates and service charges, (ii) development impact fees and (iii) miscellaneous sources including interest income. SLO' s current rate structure imposes charges based solely on consumption, and does not include any fixed components. The following rates are expressed as the amount of water (per 100 cubic feet) used on a monthly basis.


Historic and Projected Water Sales Rates (tJ

As of July 1 2002 2003 2004 2005 2006 2007 2008

Monthly Consumption

0-5 cc( $2.51

2.51 2.71 2.93 3.28 3.71 4.19

(1) Rates are double for customers outside ofSLO's city limits. Source: SLO.

Water Services Charge

Monthly Consumption

6-25 cc( $3.15

3.15 3.40 3.67 4.11 4.64 5.81

Monthly Consumption

26 cc/ and above (Single Family Residential Only)

NIA NIA NIA NIA

$5.14 5.81 6.57

The following table sets forth a comparison of the average monthly water services charge of SLO and those of nearby water purveyors as of July 30, 2006.

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Table 32 SLO Water System Rate Comparison

As of Jnly 30, 2006 CENTRAL COAST SERVICE AREAS

Community AMWC Templeton CSD Paso Robles Pismo Beach Grover Beach SLO Cambria Morro Bay

Total Monthly Charge<1<2>

$39.40 39.78 43.25 50.97 54.20 62.20 98.60

146.54

(1) Total charge are calculated based on 18,700 gallons per month of metered water. Where several rates exist based on elevation or zone, the lowest rate is assumed.

C2

) Total monthly charge is the sum of monthly residential service charge and monthly commodity charge. Total monthly charges calculated using the inside city rate. Applicable base charges, service charges and surcharges are included in the calculation. The California Public Utilities Commission (PUC) Charge and taxes are not included.

Source: AMWC.

Collection Procedures. The SLO Water System is on a monthly billing cycle for water service. Payment is due by the 30th day after the billing date and is considered delinquent if not paid by that date. If payment is not received, a delinquency message appears on the next monthly water bill. After 30 days, delinquent customers are billed the greater of $10 or 1.5% as a late fee and have 26 days to bring the delinquent account current. All accounts not paid in full within 26 days after delinquency will be disconnected from service until full payment is made, including late penalties and a $49 reconnection fee.

Development Impact Fees. SLO charges development impact fees for improvement or expansion of water treatment and distribution facilities to meet the requirements of community growth. The current development impact fee for single family residences is $15,292. Non-residential projects are charged based on meter size and range between $15,292 (for a I" meter) to $688.140 (for a 6" meter). SLO is currently considering the need to increase development impact fees for new customers in order to support SLO' s need for capital improvements.

Assessed Valuations, Tax Collections and Tax Delinquencies

The following tables show the secured assessed valuation of taxable property (net of exemptions) within SLO during the five most recent fiscal years.

As a result of the implementation of the tax distribution system commonly referred to as the "Teeter Plan" by San Luis Obispo County, SLO began in the fiscal year ended June 30, 1994 to receive 100% of its share of the I% property tax levies without regard to delinquencies. There can be no assurance that the Teeter Plan or the participation of SLO therein will be continued indefinitely.

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Table 33 SLO

Secured Assessed Valuation Fiscal Years euded Juue 30, 2002 Through 2006

Fiscal Year Ended June 30

2002 2003 2004 2005 2006

Total Secured Assessed Valuation

$3, 197,697,527 3,462, 168,469 3,797,398,997 4,189,832,775 4,538,762,018

Source: San Luis Obispo County Auditor-Controller; HdL, Coren & Cone; San Luis Obispo County Assessor Combined Tax Rolls.

SLO' s allocation of 1 % property tax revenues in San Luis Obispo County for the fiscal year ended June 30, 2006 as reported by San Luis Obispo County is $14,306,100, a 13% increase over the pnoryear.


The following table shows the increase in the number of water connections to the SLO Water System projected by SLO for the cunent and next three fiscal years.

Source: SLO.


2007 2008 2009 2010



Connections 14,500 14,648 14,789 14,942

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Increase NIA 1.02% 0.96 1.04


SLO currently estimates that water deliveries for the current and next three fiscal years will be as set forth in the following table.


Projected Water Deliveries In Acre Feet Per Year

Source: SLO.


2007 2008 2009 2010


Total 6,500 6,565 6,630 6,700

Increase NIA 1.00% 1.01 0.95

The following table projects annual water sales revenues of the SLO Water System, which projections are based on the increases in projected water deliveries described under "THE WATER SYSTEM OF SLO - Projected Water Deliveries." SLO's most recent water fund analysis projects a 13% rate increase for fiscal year 2007-08 and fiscal year 2008-09, then 2 years of 12% rate increases, followed by a 9% rate increase for the fifth year.

Source: SLO.



Fiscul Yeur Ending Wuter June30

2007 2008 2009 2010 2011 2012

Su/es Revenues $ 9,810,000 10,884,500 12,299,500 13,775,400 15,428,500 16,817,000

Increase NIA

11.00% 13.00 12.00 12.00 9.00

FINANCIAL INFORMATION OF THE CITY OF SAN LUIS OBISPO

Budgetary Process

SLO has received national recognition for its use of a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. Significant features of SLO's two-year Financial Plan include the integration of Council goal-setting into the budgetary process and the extensive use of formal policies and measurable objectives. The Financial Plan includes operating budgets for two years and a Capital Improvement Plan ( the "CIP") covering four years.

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Under this multi-year approach, appropnat10ns continue to be made annually; however, the Financial Plan is the foundation for preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Administrative Officer ( the "CAO").

Management Policies. The overall goal of SLO's Financial Plan is to establish and maintain effective management of SLO's financial resources. Formal statements of budgetary policies and major objectives provide the foundation for achieving this goal. Key budget principles include: continuing basic services at current levels and adequately funding them; maintaining fund balances at levels which will protect SLO from future uncertainties; estimating revenues at realistic levels; making all current expenditures with current revenues; finding solutions to SLO' s financial challenges which maintain and promote a quality community; maintaining our traditional commitment to a strong General Fund; and complying with provisions of the State Constitution, City Charter, municipal code and sound fiscal policy. Key revenue policies include: maintaining a diversified and stable revenue base; setting enterprise fund rates at levels that fully recover the total cost of providing services; charging fees for General Fund programs in accordance with adopted user fee cost recovery goals; and ensuring that new development pays its fair share of the cost of constructing necessary community facilities.

Budget Process. The CAO is responsible for preparing the budget and submitting it to the Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under SLO's two-year budgetary process:

First Year. The Financial Plan process begins with a Council goal-setting session to determine major objectives to be accomplished over the next two years. These are incorporated into the budget instructions issued to the operating departments, who are responsible for submitting initial budget proposals. After these proposals are comprehensively reviewed and a detailed financial forecast is prepared, the CAO issues the Preliminary Financial Plan for public comment. A series of study sessions and public hearings are then held leading to Council adoption of the Budget by July 1.

Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, makes adjustments as necessary, and approves appropriations for the second fiscal year.

Mid-Year Reviews. The Council formally reviews SLO's financial condition and amends appropriations, if necessary, six months after the beginning of each fiscal year.

Status Reports. On-line access to "up-to-date" financial information is provided to staff throughout the organization. Additionally, comprehensive financial reports are prepared monthly to monitor SLO' s fiscal condition; more formal reports are issued to the City Council on a quarterly basis. The status of major program objectives including CIP projects is formally reported to the City Council on an ongoing basis.

Accounting. Budgets are prepared for each fund in accordance with its respective basis of accounting. All governmental funds have legally adopted budgets except capital project funds. While budgets are prepared for SLO' s capital project funds, the CIP projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented in the accompanying basic financial statements.

Administration. As provided under the City Charter, the City Council may amend or supplement the budget at any time after its adoption by majority vote of the Council. The CAO has the authority to make or approve administrative adjustments to the budget as long as those changes will not have a

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significant policy impact nor affect the budgeted year-end fund balances. The level for which expenditures are not to exceed appropriations is at the fund level.

Investment Management Plan

SLO' s investment management plan addresses a wide variety of investment practices, including primary investment objectives, investment authority, allowable invest vehicles, investment maturity terms eligible financial institutions, capital preservation and cash flow management. Under SLO' s policies, investments in its portfolio are intended to be held until maturity. Accordingly, investment terms are selected for consistency with SLO' s cash flow needs. SLO is authorized by its investment policy and the California Government Code to invest in securities issued or guaranteed by the federal government or its agencies, repurchase and reverse repurchase agreements, bankers' acceptances, commercial paper, corporate notes and mutual funds, negotiable certificates of deposit, financial futures and financial option contracts and State Local Agency Investment Fund.

Reports are issued monthly to the Council and Investment Oversight Committee by the Department of Finance & Information Technology, providing detailed information regarding SLO's investments and compliance with SLO policy. The Investment Oversight Committee, comprised of the CAO, Assistant CAO, Director of Finance and Information Technology/City Treasurer and Finance Manager, meet quarterly to review SLO's investment activities. At these meetings, SLO's independent auditor reports to the committee on compliance with the Investment Management Plan. Under SLO's investment policies, its primary investment objective is to achieve a reasonable rate of return on public funds while minimizing risk and preserving capital. In evaluating the performance of SLO's portfolio in achieving this objective, it is expected that yields on SLO's investments will regularly meet or exceed the average return on three month U.S. Treasury Bills.


Certain excerpts of the most recent comprehensive annual financial report of SLO prepared by Glenn, Burdette, Phillips & Bryson, independent certified public accountants, are included as Appendix B hereto. The independent auditor's letter concludes that the comprehensive annual financial report present fairly, in all material respects, the financial position of the business-type activities of SLO as of June 30, 2006, and the respective changes in financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The summary operating results contained under the caption Historic Operating Results and Debt Service Coverage" are derived from these financial statements ( excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto.


The following table is a sununary of operating results of the SLO Water System, for the last five fiscal years. These results have been derived from the Financial Statements of SLO but exclude certain receipts which are not included as Revenues under the Water Delivery Entitlement Contract and certain non-cash items and include certain other adjustments. See the caption "---Outstanding Long-Term Indebtedness" below under this heading.

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Historic Operating Resnlts Fiscal Year Ended J nne 30

2002 2003 2004 2005 2006 Revenues

Water sales $7,684,200 $7,427,400 $7,844,800 $8,139,300 $8,411,000 Development impact feei'l 1,581,400 2,702,400 988,900 820,200 1,822,200 Other revenue and income 313300 270 700 236,600 237 600 655 700

Total Revenues $9,578,900 $10,400,500 $9,070,300 $9,197,100 $10,888,900

Operation/Maintenance CostsC'l 4,970,900 5,111,100 6,024,500 5,788,600 6,044,700

Net Revenues $4,608,000 $5,289,400 $3,045,800 $3,408,500 $4,844,200

(1) Including development impact fees but excludes the value of physical facilities dedicated to SLO by developers. C2) Excludes depreciation/amortization and loss on disposal of assets. Source: SLO.

Gross Revenues. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period.

Operations and Maintenance Costs. The water fund accounts for the provision of water services to the residents of SLO as well as some customers in the County of San Luis Obispo. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, improvements and debt senrice.


Under a Second Amended and Restated Lease Agreement dated as of November 1, 2001 (the "2001 Lease Agreement"), SLO incurred certain lease obligations that are payable from the net revenues of its water system (the "2001 Lease Payments") for the purpose of providing funds to refund SLO's obligations with respect to the Certificates of Participation dated as of December 1, 1998, issued in the aggregate original principal amount of $5,000,000. The 2001 Lease Payments are secured by a lien on the net revenues of the water system. The 2001 Lease Payments are payable on May 15 and November 15 in each year to and including November 15, 2008.

In 2002, SLO issued $9,485,000 2002 Water Revenue Refunding Bonds under an Indenture of Trust (the "2002 Indenture"), dated as of December 1, 2002, between SLO and U.S. Bank National Association, as trustee. The proceeds of the 2002 Bonds were used to refund and defease SLO' s outstanding 1993 Water Revenue Bonds issued in the aggregate principal amount of $10,890,000.

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Insurance

The SLO City Council adopted a comprehensive risk management program in 1992, which is staffed by a full-time Risk Manager and includes systems for risk identification, evaluation and treatment and monitoring in the areas of tort liability, workers' compensation, property, contracts and safety. Some of the activities included in the program are maintaining an organized-wide Safety Committee and a wellness program, coordinating claims processing with workers' compensation and liability third-party administrators, reviewing contracts for proper insurance and evaluating the risks of proposed special events.

Pension and Post-Retirement Benefits

SLO contributes to Ca!PERS to provide retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Benefit provisions and all other requirements are established by State statute and city ordinance. The amount of SLO's required annual contribution is determined actuarially. It is the policy of SLO to fully fund the annual contribution to ensure that the plan will be able to fully meet its obligation to retired employees on a timely basis. For the fiscal year ended June 30, 2006, SLO's annual pension cost for Ca!PERS was $2,680,000 for safety employees and $2,583,300 for miscellaneous employees, which were equal to SLO's annual required contribution and actual contributions. The unfunded actuarial accrued liability in the fiscal year ended June 30, 2005 was $45,600,000.


SLO projects capital improvements to the SLO Water System of approximately $11.7 million over the next 5 years. Capital improvements will be financed by a combination of grants, loans and Revenues. SLO is working to provide water for present and future community needs, and for use in future possible emergencies. Two supply project options, Nacimiento Water Project and Water Reuse are being pursued to meet these goals. In addition, water conservation is a cornerstone of SLO' s water management strategy. When planning for future water needs, SLO estimates what level of conservation the community will achieve. When water conservation measures like low flow shower heads and toilets, and water-efficient landscaping are used, the demand for future water supplies is eased. While SLO residents have dramatically reduced water use, conservation alone cannot meet all the city's future water needs.


The estimated projected operating results and debt service coverage for the SLO Water System for the fiscal years ending June 30, 2007 through 2012 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents SLO' s estimate of projected financial results based on the assumptions set forth in the footnotes to the chart below. Such assumptions are material in the development of SLO' s financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material.

The following projections assume the rate increases currently subject to challenge by initiative, and that such rates will not be reduced by vote of the electorate or subsequent ordinance. See "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES -Proposition 218."

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Table 38 City of San Lnis Obispo Water System

Projected Operating Resnlts and Debt Service Coverage Fiscal Year Ending Jnne 30

2007 2008 2009 2010 2011 2012 Revenues

Water Sales $9,810,000 $10,884,500 $12,299,500 $13,775,400 $15,428,500 $16,817,000 Development lmpact Fees 1,351,900 1,582,200 1,463,100 1,522,000 1,781,300 1,853,100 Investment Earnings 800,000 268,000 227,000 218,200 299,000 212,400 Other Revenues 612,800 314,100 323,400 333,200 343,200 353,400

Total Revenues $12,574,700 $13,048,800 $14,313,000 $15,848,800 $17,852,000 $19,235,900

Expenses Operating and Maintenance 7,193,100 7,431,900 7,586,500 7,814,100 8,048,500 8,290,000 Nacimiento Operating and Maintenance 807,094 968,513

Total Expenses $7,193,100 $7,431,900 $7,586,500 $7,814,100 $8,855,594 $9,258,513

Net Revenues Available Cl) $5,381,600 $5,616,900 $6,726,500 $8,034,700 $8,996,406 $9,977,387

Nacimiento Debt ServiceC2) $ 147,091 $ 261,475 $1,913,665 $5,091,530

Projected Nacimiento Debt Service Coverage 4.70 1.96

Available Capital ReservesC3J 5,360,700 4,695,300 4,363,400 5,980,400 4,247,700 3,693,300

Other Existing Long-Term Debt Service $2,680,200 $2,958,900 $2,874,000 $2,346,900 $2,341,400 $2,343,800

Excludes available reserve balances that may be applied towards Nacimiento debt service for coverage purposes. (2J Reflective of net debt service figures which include capitalized interest through September 1, 2010, but for the period through December 1, 2008 during

which capitalized interest is limited to the extent allocable to the outstanding SLO BANs. C3

) Available capital reserves represent target balances on assumed operating results. Source: SLO.

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Article XIIIB

Article XIIIB of the California State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. SLO is of the opinion that charges for Water Service do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. SLO has covenanted in the Water Delivery Contract that it will establish, fix and collect rates and charges from the customers of its Water Enterprise at levels sufficient to produce revenue from the Water Enterprise which are at least equal to: the costs of operating and maintaining the Water Enterprise; plus the Contract Payments (as defmed herein). SLO is of the opinion that the water rates and use charges imposed by SLO do not exceed the costs SLO reasonably bears in providing such service.

Proposition 218

Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water or wastewater service is ultimately determined to be a "fee" or "charge" as defined in Article XIIID, the local government's ability to increase such fee or charge may be limited by a majority protest. See the discussion under "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS - Articles XIIIC and XIIID of the California Constitution" in this Official Statement.

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TEMPLETON COMMUNITY SERVICES DISTRICT

General

Templeton Community Services District ("Templeton CSD") operates an existing public water supply system, and is a party to a Delivery Contract with the District pursuant to which, inter aha, Templeton CSD has covenanted to pay its pro rata share (the "Templeton Share") of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Water Project.

For additional financial information regarding Templeton CSD, see the excerpts of the financial statements submitted by Templeton CSD in APPENDIX B - "PARTICIPANT AUDITED FINANCIAL INFORMATION."


Templeton CSD was organized under the authorization of the California Government Code for the purpose of providing all permissible services of a community services district, and is governed by an elected Board of Directors. Templeton CSD currently provides water services to approximately 6,500 people. Templeton CSD also provides wastewater disposal services, storm water drainage, fire protection, street lighting, park and recreation services and a community center within its boundaries.

Land and Land Use

Templeton CSD serves an approximately 3.5 square mile service area with water service, which included approximately 40 miles of water lines and 2,467 water connections for the fiscal year ended June 30, 2006.

Templeton CSD's Water Rights

Since 1959, the County of San Luis Obispo has held the rights to 17,500 acre-feet per year of water from Lake Nacimiento. Templeton CSD's Board of Directors has requested 250-acre feet from this amount, which is equivalent to supplying water to 500 residential units. Templeton CSD has its own surface water and groundwater rights which are more fully described in the Water System section below.

Litigation

Templeton CSD is not currently involved in, and is unaware of, any material litigation between any of the water users in the Templeton Basin.

THE WATER SYSTEM OF TEMPLETON COMMUNITY SERVICES DISTRICT

Service Area

Templeton CSD's service area is located in the central coast area of the State. Its average monthly bill for residential, commercial and industrial customers for the fiscal year ended July 30, 2006 was $39.78.

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Water Facilities

Templeton CSD currently operates 9 groundwater and 2 underflow wells. Most of its wells are equipped with sand separators. No sewers or sewage disposal facilities are located within I 00 feet of the wells sites. Templeton CSD's well water complies with primary and secondary drinking water standards.

As of December 2006, there were 2,467 active consumer connections, compared with 2,385 as of December 2005.


Templeton CSD possesses 2 permits and I license, which have been issued by the State Water Resources Control Board to pump water from the Salinas River. Permit 8964 authorizes Templeton CSD to directly divert from the Salinas River at a rate of 1.5 cubic feet per second ("cfs") from October I to April I with a maximum diversion of 500 acre-feet per year. Permit 20785 authorizes Templeton CSD to directly divert from the Salinas River at a rate of 1.5 cfs from April I to May 15 with a maximum diversion of 133.7 acre-feet, but the total combined diversion under both permits cannot exceed 500 acrefeet per year. Templeton CSD holds one license (License 4829) that authorizes it to divert from Paso Robles Creek at a rate of .26 cfs from April I to October 15.

Templeton CSD Water System and Water Supply

Templeton CSD's current water is supplied by local wells and upon completion of the Water Project, is expected to increase by 250-acre feet.

The Groundwater Basin. Templeton CSD has traditionally met its service area customer needs during the summer months from groundwater through Templeton CSD' s primary water wells. These wells pump from the Atascadero Sub Basin (the "Templeton Basin"). During winter months, the customer water needs are primarily met with water pumped from Salinas River wells under its permits and license.

Templeton CSD currently has 9 active and standby groundwater wells available for use. Templeton CSD's current pumping capacity is 1,875 gallons per minute (gpm) (does not include river wells). In calendar year 2006, 942.79 acre-feet were delivered to Templeton CSD customers from groundwater wells.

The quality of the currently pumped groundwater meets existing regulatory requirements, with average total dissolved solids of 671 mg/I in 2006.

Templeton CSD is not currently involved in, and is unaware of, any material litigation between any of the water users in the Templeton Basin. The water rights of individual water users within Templeton Basin have not been adjudicated.


The following table shows the growth in the number of water connections, excluding recycled water connections, to the Templeton CSD Water System for the four most recent fiscal years.

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Table 39 Templeton CSD


Fiscal Year Ending

Source: Templeton CSD.

June 30 2003 2004 2005 2006


Connections 2,202 2,330 2,385 2,467

Increase NIA 5.81% 2.36 3.44

The following table presents a summary of historic water deliveries, excluding recycled water deliveries, for the Templeton CSD Water System in acre-feet per year for the four most recent fiscal years.


Historic Water Deliveries In Acre Feet Per Year

Fiscal Year Ending


June 30 2003 2004 2005 2006


Total 1,483 1,713 1,362 1,395

lncrease/(Decrease) NIA 15.51 %

(20.04) 2.00

The following table shows annual water sales revenues from water sales, excluding recycled water sales, for the five most recent fiscal years.



Fiscal Year Ending


June 30 2002 2003 2004 2005 2006

Sales Revenues $1,033,183

1,078,027 1,215,473 1,127,642 1,221,849

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lncrease/(JJecrease) NIA

4.16% 11.30 (7.79) 7.71

Largest Customers

The ten largest customers of the Templeton CSD Water System accounted for approximately 1.73% of water sales from the Templeton CSD Water System, and less than 2% of total Templeton CSD revenues in the fiscal year ended June 30, 2006. The annual payments by these customers for the fiscal year ended June 30, 2006 ranged from $7,050 to $14,959.

Templeton CSD Water System Rates and Charges

Templeton CSD water rates are comprised of a monthly minimum charge and a unit charge based on the amount of water used. Templeton also charges for disconnections and reconnections to the Templeton Water System, and for construction meter rentals. Templeton currently charges connection fees for new connections to the Templeton Water System.

Monthly Minimum Charge. Templeton's monthly minimum charge is paid by all customer classes and, with the exception of multiple unit customers, is based on meter size. The monthly minimum charge is as follows:

Table 42 Templeton

Water Monthly Minimum Charge Fiscal Year Ended June 30, 2006

Meter Size (in inches) Up to 3/4

3/4 1

1-1/2 2 3 4 6

Monthly Service Minimum Charge(])

$12.19 12.19 19.71 28.72 36.36 57.12

112.65 147.22

(1) Multiple unit customers pay a monthly minimum charge for each additional unit Source: Templeton CSD.

Unit Charge. Templeton CSD unit charge is based on the number of cubic feet used and calculated at the rate shown on the following schedule.


Quantity 301 - 2,000 HCF

2,001 - 4,000 4,001 - 8,000 8,001 & over

Cost $1.17

1.54 2.00 2.62

Rate Increases. Templeton CSD imposed a $1.69 rate increase in February 2005 to accommodate increased costs and inflation. The rate increases for residential customers are set forth in the following table.

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2002 2003 2004 2005 2006


Historic Water Sales Rates

Rate per Hundred Cubic Feet

$10.50 10.50 10.50 12.19 12.19

Increase

NIA 0.00% 0.00

16.10 0.00


Wuter Service Charges. The table below sets forth a comparison of the average monthly water services charge of Templeton CSD with those of nearby water purveyors as of July 30, 2006.


Rate Comparison Fiscal Year Ended July 30, 2006


Community

AMWC Templeton CSD Paso Robles Pismo Beach Grover Beach SLO Cambria Morro Bay

Total Monthly Charge(l)(l)

$39.40 39.78 43.25 50.97 54.20 62.20 98.60

146.54

(1) Total charge is calculated based on 18,700 gallons per month of metered water. Where several rates exist based on elevation or zone, the lowest rate is assumed.

(2

) Total monthly charge is the sum of monthly residential service charge and monthly commodity charge. Total monthly charges calculated using the inside city rate. Applicable base charges, service charges and surcharges are included in the calculation. The California Public Utilities Commission (PUC) Charge and taxes are not included.

Source: AMWC.

Collection Procedures. Templeton CSD is on a monthly billing cycle for water service. Payment is due by the 20th day after the billing date and is considered delinquent if not paid by that date. If payment is not received, a delinquency message appears on the next monthly water bill. After 20 days, delinquent customers are billed a 10% late fee and have two weeks to bring the delinquent account current. After 30 days, interest at the monthly rate of0.5% accrues on any delinquent amount. Currently, delinquent payments account for approximately 2% of total revenues of the Templeton CSD Water System. All accounts not paid in full within 60 days of the billing date will be discontinued until full payment is made, including late penalties and a $50 reconnection fee.

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Connection Fees. Templeton CSD charges connection fees for improvement or expansion of water treatment and distribution facilities to meet the requirements of community growth. The current connection fee for single family residences and commercial and industrial units are $13.453 per water unit of use. Templeton CSD is currently considering the need to increase connection fees for new customers in order to support Templeton CSD's participation in the Water Project.

Future Templeton CSD Water System Improvements

Templeton CSD projects capital improvements to the Templeton CSD Water System for existing users of approximately $3,000,000 over the next 3 years. Future capital improvements will be financed by a combination of grants, loans and revenues. Templeton CSD projects capital improvements to the Templeton CSD Water System to accommodate future growth of approximately at total of 6% in the next 5 years. Templeton CSD expects that such capital improvements to accommodate new growth will be funded by connection fees, grants, loans and revenues.


The following table projects annual water sales revenues of the Templeton CSD Water System.



2007 2008 2009 2010 2011 2012



Water Sales Revenues

$1,241,000 1,361,000 1,401,830 1,443,885 1,487,202 1,531,818

Increase

NIA 9.67% 3.00 3.00 3.00 3.00

FINANCIAL INFORMATION OF TEMPLETON COMMUNITY SERVICES DISTRICT

Budgetary Process

Templeton CSD utilizes accounting principles appropriate for an Enterprise Fund to records its ac!Jv1!Jes. Accordingly, revenues and expenses are recognized on an accrual basis of accounting. Templeton CSD's books and records include a water fund, sewer fund, drainage fund, solid waste fund, fire fund, a parks and recreation fund, a street lighting fund, an administrative fund, and a community center fund.


Certain excerpts of the most recent audited financial statements of Templeton CSD, prepared by Moss, Levy & Hartzheim LLP, independent certified public accountants, are included as Appendix B hereto (the "Financial Statements"). The independent auditor's letter concludes that the audited financial statements present fairly, in all material respects, the financial position of the business-type activities of Templeton CSD as of June 30, 2006, and the respective changes in financial position and cash flows for

A-49

the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The summary operating results contained under the caption Historic Operating Results and Debt Service Coverage" are derived from these financial statements ( excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto.


The following table is a summary of operating results of the Templeton CSD Water System for the last five fiscal years. These results have been derived from the Financial Statements of Templeton CSD but exclude certain receipts which are not included as Revenues under the Delivery Contract and certain non-cash items and include certain other adjustments.

Table 46 Templeton CSD Water System

Historic Operating Results Fiscal Year Ended June 30

2002 2003 2004 2005 2006

Water sales $1,033,183 $1,057,921 $1,193,794 $1,105,376 $1,199,217 Service charges 18,192 20,106 21,679 22,266 22,632

Plant Operating Expenses 1,001,094 1,172,720 1,170,487 1,293,823 952,721 Non-Operating Revenue 107,669 120,384 92,532 203,192 421,102

Net revenue $157,950 $25,691 $137,518 $37,011 $690,230

Management's Discussion and Analysis.


Gross Revenues. Templeton CSD recognizes revenue from user fees, service charges, program fees and rental fees as they are earned. Taxes and assessments are recognized as revenue based upon amounts collected on behalf of Templeton CSD by the County of San Luis Obispo.

Operations and Maintenance Costs. As part of the operation and maintenance of its water system, Templeton CSD routinely repairs line breaks, installs new services, monitors and records: tank levels, line pressures, chlorine levels and water demand flows. In addition, Templeton CSD routinely maintains and repairs: natural gas engines and electric motors for well pumps, 5 vehicles, 1 dump truck, 1 backhoe, and other assorted equipment and machinery.


Templeton CSD has no current outstanding long-term indebtedness with respect to the Water System.

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Insurance

Templeton CSD is insured through Special District Risk Management Authority (SDRMA) for property, liability, and worker's compensation insurance, and maintains liability coverage at the $10,000,000 limit.

Employees and Employee Benefits

Templeton CSD employs 15 full-time employees and has an average head count of 41 employees per month including part-time/temporary employees. Employee agreements regarding wage and benefits are negotiated through MO Us.

Pension

Templeton CSD's defined benefit pension plan provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. This plan is part of the Public Agency portion of the California Public Employees Retirement System ("Ca!PERS"), an agent multiple-employer plan administered by Ca!PERS, which acts as a common investment and administrative agent for participating public employers within the State.

Post-Retirement Benefits

Templeton CSD provides postretirement health care benefits pursuant to a resolution passed by the Templeton CSD Board of Directors, providing for all employees who qualify for Templeton CSD's postretirement health care benefits.

Investment Policy

The California Government Code authorizes Templeton CSD to invest in obligations of the United States Treasury, and its agencies and instrumentalities. Templeton CSD may also invest in prime commercial paper record, bankers' acceptances, repurchase and reserve repurchase agreements, financial futures or financial option contracts, negotiable certificates of deposit, obligations of the State and obligations of local agencies thereof.


The estimated projected operating results and debt service coverage for the Templeton CSD Water System for the fiscal years ending June 30, 2007 through 2012 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents Templeton CSD's estimate of projected financial results based on the assumptions set forth in the footnotes to the chart below. Such assumptions are material in the development of Templeton CSD's financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material.

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Table 47 Templeton CSD Water System

Projected Operating Resnlts and Debt Service Coverage Fiscal Year Ending Jnne 30

2007 2008 2009 2010 Revenues

Water Sales $1,241,000 $1,361,000 $1,401,830 $1,443,885 Interest Income 623,000 309,000 318,270 327,818 Other Revenues and Income 20,000 20,600 21,218 21,855 Total Revenues $1,884,000 $1,690,600 $1,741,318 $1,793,558

Expenses Operation and Maintenance 1,130,000 1,163,900 1,198,817 1,234,782

Nacimiento Operation and Maintenance Total Expenses $1,130,000 $1,163,900 $1,198,817 $1,234,782

Net Revenues Available( 1) $754,000 $526,700 $542,501 $558,776

Nacimiento Debt Service(2)

Projected Nacimiento Debt Service Coverage

2011

$1,487,201 337,653

22,5 lO $1,847,364

1,271,825 133,145

$1,404,970

$442,394

$ !05,459

4.19

(1) Excludes available reserve balances that may be applied towards Nacimiento debt service for coverage purposes.

C2) Reflects net debt service figures which include capitalized interest through September 1, 2010. Source: Templeton CSD.

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2012

$1,531,817 347,782

23,185 $1,902,784

1,309,980 159,774

$1,469,754

$433,030

$279,518

l.55

APPENDIXB

PARTICIPANT AUDITED FINANCIAL INFORMATION

B-1



April 30, 2007 and 1006

[THIS PAGE JNTENTIONALL Y LEFT BLANK]

CONTENTS

Independent Auditors' Report on the Financial Statements

Financial StatemenJs

Balance sheets Statements of income Statements of shareholders' equity Statements of cash flows Notes to financial statements

Independent Auditors' &port on the Supplementary Information

Supplementary Jnformllfion

Schedules of other revenue Schedules ofpJ,int repairs Schedules of other plant expense Schedules of other non-plant expense Schedules of non-operating revenue

Pagefs>

1

2 3 4

5-6 7-12

13

14 14 14 15 15

@ &rbich

Longcrier Hoo.Per &King_ ~ Coqic.mnim1

Independent Auditors' Report on the Financial Statements

To the Shareholders Atascadero Mutual Water Company Atascadero, California

We have audited the accompanying balance sheets of Atascadero Mutual Water Company as of April 30, 2007 and 2006, and the related statements of income, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Atascadero Mutual Water Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with U.S. 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. 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 financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atascadero Mutual Water Company's operations as of April 30, 2007 and 2006, and the results of its operations and its cash flow for the years then ended in conformity with U.S. generally accepted accounting principles.

s~~ali~ ~~y June 5, 2007

500 I B {'.ommercmter Drive,. Suire 350 RO Bo> ll171

&kersfield,CAm@ Pho.rte: 6616~1.1171 ,u, 661 631 0244

- 1 -JOO Cr0$$ .sbm

SuHe 103

Son l.ul, 01,lspo, CA 95401 Phone: 805.541.2500 '"" 80554140'4

101, S Broadway Sw~l

s.nt. Malla, CA 93'154 l'hooe 805.J,19.770S m ilOS $4~ 7100

Atas~ero Mutuul Water Company

Balance Sheets April 30, 2007 and 2006

ASSETS Cu"ent Assets

Cash and cash equivalents Short-term investments, held to maturity Accounts receivable Inventory Prepaid expenses

Property and Equipment, net of accmnulated depreciation

Long-Term Investments, held to maturity

LlABILIDES AND SHAREHOLDERS' EQUITY Cu"ent LiabiliJies

Accounts payable Customer deposits Accrued vacation and sick pay Other accrued expenses

Commitments and Contingencies

Shareholders' Equity Common stock, par value $1 per share, 200,000 shares

authorized, shares issued and outstanding of 107,383 in 2007 and 107,447 in 2006

Contributed capital Retained earnings

See Notes to Fi11a11cial Suitemellis.

-2 -

2007

$ 3,846,415 2,347,000

638,349 423,132 68,226

7,323,122

33,272,181

82,016

$ 40,677,319

$ 162,459 135,350 156,408 381,894 836,111

107,383 2,419,886

37,313,939 39,841,208

$ 40,677,319

2006

$ 1,250,553 4,219,000

359,783 364,880 I 15,915

6,310,131

28,430,904

631 716

$ 35,372,751

$ 131,590 112,509 254,344 337,864 836,307

107,447 2,262,363

32,166,634 34,536,444

$ 35,372,751


Statements of Income Years Ended April 30, 1007 and 2006

1007 2006 Revenues

Water sales $ 5,458,649 $ 5,058,051 Meter installation and connection fees 3,698,887 I 2,947,595 Other revenue 130,817 92,552

9,288,353 8,098,198

Plant Operating Expenses Salaries and wages 617,665 677,613 Benefits 361,700 361,349 Electricity and gas 708,631 697,566 Insurance 113,023 147,805 Plant Repairs 359,721 393,641 Depreciation 686,761 647,930 Other plant expense 430,710 410,952

3,278,211 3,336,856

Non-Plant Opef'Rting Expenses Office salaries and wages 520,347 542,300 Benefits 151,544 159,042 Meter reading and servicing 123,865 113,151 Office 127,300 111,374 Professional fees 39,062 38,400 Insurance 26,234 34,282 Depreciation 51,212 48,846 Other non-plant expense 240,565 167,698

1,280,129 1,215,093

Operating income 4,730,013 3,546,249

Non-Operating Revenue 445,430 250,116

Net income before income taxes 5,175,443 3,796,365

Income Tax Expense 28,202 11,635

Net income $ 5,147,241 $ 3,784,730

See Notes to Financial Statements. - 3 -

Balance, April 30, 2005

Common stock · Contributed capital Net income


Common stock Contnouted capital Net income



Statements of Sh4reholders' Equity Years Ended April 30, 2007 and 2006

Common Contributed Stock Capital

Retailled Earnings

$ 107,461 $ 1,854,788 $ 28,381,890

(14) 14 407,575

3,784,730

107,447 2,262,363 32,166,634

(64) 64 157,523

5,147,241

$ 107,383 s 2,419,886 $ 37,313,939

See Notes to Financial Statements.

-4-

Total

$ 30,344,139

407,575 3,784,730

34,536,444

157,523 5,147,241

.$ 39,841,208


Statements of Cash Flows Years Ended April 30, 2007 and 2006

2007

Cash flows from operating ilctivities; Net income $ 5,147,241 Adjustments to reconcile net revenue to net cash

provided by operating activities: Depreciation 737,973 Loss (gain) on disposal of property and equipment 11,921

Change in operating assets and liabilities: Accounts receivable (278,566)

Inventory (58,252)

Prepaid expenses 47,689 Accounts payable 30,869 Customer deposits 22,841 Accrued vacation and sick pay (97,936) Other accrued expenses 44,030

Net cash provided by operating activities 5,607,810

Cash flows from investing activities: Proceeds from certificates of deposit and treasury bills 5,202,700 Investments in certificates of deposit and treasury bills (2,781,000) Proceeds from sale of property and equipment Purchase of property and equipment (5,433,648)

Net cash used in investing activities (3,0ll,948)

Net increase (decrease) ;n cash and cash equivalents 2,595,862 '

Cash and cash equivalents at beginning of year 1,250,553

Cash and cash equivalents at end of year $ 3,846,415

See Notes to Financial Statements.

- 5 -

1006

$ 3,784,730

696,776 (106,092)

65,240 (23,213) (13,452)

(149,345) (266,097)

95,836 (483,396)

3,600,987

4,322,773 (5,262,483)

205,373 (2,992,068)

(3, 726,405)

(125,418)

l,375,971

$ 1,250,553

2007 2006

Supplemental disdusures of cash j1uw information :

Income taxes paid $ 11,640 $ 5,432

Supplemenud disclosures of non-cash financing and investing actMties:

Contnouted capital, water mruns $ 157,523 $ 407,575

Redemption of common stock $ 64 $ (14}

-6-


Notes to Financial Statements

Note J. Nature 11/ Business and SignU,cant Acc1111nting P11licies

NU111Te of business:

Atascadero Mutual Water Company (the Company) was incorporated August 13, 1913 as a mutual water company. The Company provides water and water services to shareholders in the water service area. The water service area comprises the City of Atascadero and some of the SlllTOunding areas. The Company grants credit to its shareholders for water deliveries and water services.

SignU,cant accounting policies:

Basis 11/ acc11unting

The financial statements ore prepared on an accrual basis which recognizes income when earned and expenses when incuned

Use of estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles, requires management to make estimates and asswnptions that affect the reported amounts of assets and liabilities and discloSW"e of contingent assets and liabilities at the date of the financial statements and the reported ammmts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

R.eclassijications

Certain amounts in the 2006 financial statements have been reclassified for comparative purposes to conform with presentation in the 2007 financial statements.

CUBh ""4 CIISh eqllivalents

The Company considers cash equivalents to be all highly liquid debt instruments purchased with a maturity of three months or less. As of April 30, 2007 and 2006, the Company held cash in a financial institution in excess of federally insured limits.

lnwstments

Investments, which include treasury bills, notes and certificates of deposit, are classified as held-to-maturity. The Company has the intent and ability to hold these securities to maturity. Securities in this category are stated at cost, adjusted for amortization of premiums and accretion of discmmts over their remaining lives. Realized gains and losses on the disposition of securities and declines in value judged to be other than temporary are

. computed on the specific identification method and included in revenue.


Accounts receivable

Accounts receivable are stated at the amount management expects to oollect from balances outstanding at year-end. Based on management's assessment of the credit history with customers having outstanding balances and current relationships with them, it bas concluded that realization losses on balances outstanding at year-end will be immaterial. Accordingly, no allowance for doubtful accomits is required.

Inventory

Material and supplies inventory is stated at the lower of cost or market Valuation is determined under the first-in, first-out (FIFO) method.

Pruperty and e11uipment

Property and equipment are recorded at oost and depreciated over estimated useful lives on a straight-line basis. Repairs, maintenance and small equipment purchases are expensed when incurred. Expenditures which significantly increase asset values or extend useful lives are capitalized. Upon retirement, sale or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and the gain or loss is included in operations. Construction in process includes major capital projects, which are subc.ontracted by the Company. Estimated useful lives in years are as follows:

Buildings Water delivery system and equipment

Im:ume taxi!s

Year9 10-50 10-70

The Company is a non-profit corporation and is exempt from Federal income tax under Internal Revenue Code 50l(c)(12). California frsucbise taxes are paid on investment and rent inc.ome at the normal franchise tax rate of 8.84%.

Pension plan

The Company adopted a pension plan effective January !, 1974. The pension plan is a qualified defined contribution pension trust under Section 40 l of the Internal Revenue Code. The Company reserves the right to alter or terminate the trust at its discretion. Trustees of the pension trust are the Board ofDi:rectol:"S of the Company. All full-time employees with the exception ofleased employees and the chief executive officer, with one year of service who are 18 years old or older are eligible to join. Effective January 18, 1996, each participant is required to oontribute 4% of his/her pay. In addition, the employee may voluntarily contribute up to an additional 89"/o of his/her pay, for a total of 93o/o, not to exceed the maximum annual contribution limitation established under the IRS Regulations that are$15,500 for 2007 and $15,000 for 2006. Participants who are over age 50 are allowed to contribute an additional amount, $5,000 in 2007 and 2006, as a "catch up" contribution.

- 8 -

Notes to Financial StaJemenJs

The Company contributes 7"1o of the eligible employee's annual compensation. Employer contributions to the plan for the years ended April 30, 2007 and 2006 were $89,474 and $76,121, respectively.

Vesting of Company contributions is as follows:

Years of Service Less than 3 years 3 years 4 years 5 yeins 6 years 7 years or more

Note 1. Investments

Vested 0%

20"/o 40% 60% 80% 100%

At April 30, 2007 and 2006, all investments were classified as held-to-matmity and carried at amortized cost.

At April 30, 2007, investments were as follows:

US Treasury obligations Certificates of deposits Corporate bonds Mortgage bonded securities

Current $

2,347,000

$ 2,347,000

At April 30, 2006, investments were as follows:

US Treasury obligations Certificates of deposits Corporate bonds lvlortgagebondedsecurities

Current s

4,219,000

S 4,219,000

. 9.

Lonf!:Term $

44,450 32,213 5,353

s 82,016

Long-Term $ 15,037

$

578,450 32,213 6,016

631,716

Total $

2,391,450 32,213 5,353

s 2,429,016

Total $ 15,037

4,797,450 32,213 6,016

$ 4,850,716


The estimated fair value of these investments at April 30, 2007 and 2006 are as follows:

US Treasury obligations Certificates of deposits Corporate bonds Mortgage bonded securities

$

2007

2,393,384 31,010 4,016

$ 2006

12,143 4,789,904

30,565 4,689

2,428,410 =$~...,,,;4;;,;,8.;.3 7;,.•;..30;.;I=

The gross unrealized loss on investments for the years ended April 30, 2007 and 2006 was $606 and $13,415, respectively.

The amortized cost and estimated fair value of securities at April 30, 2007 by contractual matw'ity are shown below:

Due in one year or less Due after one through five years Due after five years through ten years Due after ten years

Note 3. Property llJld Equipn,.ent

Amortized Cost $ 2,347,000

76,663

5,353

Estimated Fair Value

$ 2,344,786 79,608

4016

$ 2,429,0 I 6 .. S ... ...,;.;2..;, 4,;;.28;,.;,4~1;,,;;0_

Major classes of property and equipment and accumulated depreciation at April 30, 2007 and 2006 are as follows:

Land Buildings Water delivery system and equipment Construction in proCCSll

Less accumulated depreciation

Note 4. Shareholder Payments for Main Exlensions

2007 $ 3,242,540

1,179,300 35,432,633 4,039,443

43,939,916 (10,621,735)

$ 33,272,181

2006 $ 1,362,928

1,159,408 33,718,789 2,236,784

38,477,909 (10,047,005)

$ 28,430,904

Shareholder contributions of new main extensions give the shareholder the right to recover from other shareholders a portion of their investment (plUB interest) for any new meters connected to these mains for a period often to fifteen years based on the year of agteement. These original contributions are accounted for as shareholder contributions in the year of receipt The interest rate paid to shareholders is based on the year the agreement is signed.

- 10-

Notes tD Financial Statements

The Company has installed certain mains at its own cost under the same type of recovery arrangement. The recovery of this cost and related interest is accounted for as nonoperating revenue on the statements of income.

Note 5. CommDn Stock

Shares in the Company are owned by the landowners in the Company's water service area and are appurtenant to the land in accordance with the provisions of California Corporations Code 14300. Shares are not transferable except as a part of the conveyance of the lot or parcel of real property for which such shares are issued and appurtenant. In the event that any shareholder transfers any lot or parcel ofland, such transfer acts as a transfer of the shares to its new owner.

The bylaws provide that each full acre ofland within the service area has five shares of stock appurtenant thereon, and each lot or parcel comprised of!ess than a full acre has one share of stock for each full one-fifth of acre, but not less than one share. The Company reviews the county assessor's records of land ownership at least annually to determine the shareholders of record for purposes of voting at the annual meeting. The nwnber of outstanding shares at April 30, 2007 and 2006 was 107,383 and 107,447, respectively.

Note 6. Contributed Capital, Water Mains

When water mains are constructed in new service areas, the general contractor is responsible for the engineering and installation. Upon completion, these mains are contributed to the Company for future maintenance. The value of the contractors' contributed mains is based on management's estimates of current costs at the time of construction. The amounts contributed fur the years ended April 30, 2007 and 2006 were $157,523 and $407,575, respectively.

Note 7. Contingencies

Regulalory Impact

In the past ten years, the Company has been impacted by significant additional regulations by the State Department of Health Services and Federal EPA regarding water treatment and testing. The new rules imposed have significantly increased the costs to deliver water. It is anticipated thls regulatory process will continue in future years and management is unable to evaluate the future impact on the operating and capital expenditures of the Company.

- 11 •

Notes Ill FitiU11cial Stutemenb

Note 8. Commitment

Nacintiento Project

On August 17, 2004, the Company entered as a participant into the Nacimiento Project Watel' Delivery Entitlement Contract (the Contract) regarding the financing. construction and operation of a water pipeline project intended to deliver Nacimiento Lake water for use and benefit of its participants. In connection with its participation under the Contract, the Company entered into a memorandum of understanding (first amendment to Nacimiento Project Water Delivery Entitlement Contract) on April 13, 2006 to establish a schedule with respect to the initial financing of the preliminary planning and design costs of the project. The Company's estimated total design phase cost was $3,923,075. All design phase payments have been made as of December 31, 2006. The next phase is the construction of the project. The cost of construction has not been determined and no contractual obligations have been entered into by the Company. Therefore, no amount has been accrued for any cost!; past the design phase.

- 12 -

Independent Audlto'rs' Report on the Supplementary Informatwn

To the Shareholders Atascadero Mutual Water Company Atascadero, California

Our audits were made for the pw:pose of forming an opinion on the basic financial statements taken as a whole. The supplementary information for the years ended April 30, 20C/7 and 2006 is presented for purposes of additional analysis and are not a required part of the basic financial statements. Snch information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

~~~~r~ San Luis Obispo, California June 5, 2007

5001 F. Commettenter Drive, Suire 350 eo. Box 11171

~CA9l389 Pbone: 661-651.1171 "-" 661.631.0244

- 13 -

100Cros,Sln,<

Sulte 103 Son 1'lb Obispo, CA 93401

!tiooe: 005.541.2500 Fa>:, 80$.5414-02'!

1010 S. lln>adw:,y s....r

Sonia Mm,, CA ~54 Plw"" 005.;49.7705

Fa,:; 005.;49. n02

Rental income Service charges Service repair

Reservoirs Water system Wells

Building maintenance Engineering fees Inventory adjustment Laboratory fees Master plan Materials and supplies Other Treatment chemicals Vehicle maintenance


Schedules of Other Revenue Years Ended April 30, 2007 and 2006

20(}7

$ 22,200 63,973 44,644

$ 130,817

Schedules of Plant Repairs Years Ended April 30, 2007 and 2006

$

$

Schedules of Other Plant Expense Years Ended April 30, 2007 and 2006

2007

11,428 189,453 158,840

359,721

2007

$ 44,009 4,748

12,441 15,612 11,431 71,741 79,840 65,128

125,760

$ 430,710

- 14 -

2006

$ 19,140 52,940 20,472

$ 92,552

2006

$ 14,221 267,281 112,139

$ 393,641

2006

$ 30,891 18,686 4,162

22,859 17,043 84,141 71,608 53,851

107,711

$ 410,952

Bad debt Conferences and meetings

Atascatlerq Mutual Water Company

Schedules of Other Non-Plant E;r;peme Years Ended April 30, 2007 and 2006

2()07

$ 2,520 25,479

Conservation and rebate program 53,460 Janitorial and landscape 11,697 Miscellaneous 66,215 Property tax.es 61,448 Retirement adroiaimation 2,193 Utilities and telephone 17,553

$ 240,565

Schedules of Non.()perating Revenue Yelm' Ended April 30, 2007 and 2006

Directors' fees Gain (loss) on disposal of property and equipment Interest income Miscellaneous income

- JS -

$

2007

(30,000) (11,921) 252,205 235,146

$ 445,430

2006

$ 1,803 30,125 32,461

7,275 32,185 43,945

2,135 17,769

$ 167,698

2006

$ (30,000) 106,092 124,780 49,244

$ 250,116

COMPREHENSIVE ANNUAL FINANCIAL REPORT

CITY OF EL PASO DE ROBLES

California

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Comprehensive Annual Financial Report

For The

Fiscal Year Ended June 30, 2006

City of El Paso de Robles

California

Frank Me-cham, Mayor Jim Heggarty, Mayor Pro Tempore

Gary Nemeth, Councilrnernb-e,r Ouane Ptcanco, counci1membe1

Fred Strong, Councilmemb-er

James L. App, City Manager

Prepared by Departmeni of Administrative Se1Y1ces 'Michael J. Comp(on, Direi;tor of Administrative Services

Jennifer Sore11son, Fin21nce Manager Jody Dautti, Administratl1,1e Coordinator

["l'f-iL'i l'AG-l::: [I\.TJ-i-1\TlONALLY Ll-!.FT J3Li1.NK]

CITY OF EL PASO DE ROBLES ORGANIZA TJON OF ClTY GOVERNMENT

(cxTY OF PASO ROBLES VOTERS)

[ ----------- ··"'"'"j· ··-·-------:;-=-=·=·-=·==-=-::i·,----~ c CITY TREASURER ) ( CITY COUNCIL ) ( ClTY CLERK )

~--------' '

Booed, & Ccmm~::n_, ,.. -1- _ ---· <.ltv Attorney \. CITY MANAG~R ~ ",.,.w,••••" •• ·--··1-~-~-~------~~/

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-----~~--·~·---------·--- -----~ California Society of

~unicipal :finance Officers Certificate of Award

Outstanding Financial Reporting 2004-05 Prese(lted to the

City of El Paso de Robles 17ii~ <'1:'rtifi,·,rtc ii i'.;.mo'd i11 u,·111;1tiit-,r11. 1o/ 11<'lrli~ J!tflfQ,fflmllI afimii,;,nl~ wtd «itorl11 i1< r,:p.Hrt1r1.x

lliflir.lt r,jJ.ut ll MgJ, lM<d ,if JJlldii!y JJl)IM,w~J'l'IJ" Ul'ld 111. ril.~ 1md,rlj1ng .11.N.'Att.,ir!rt:; J:}'stCII' /ro<11 i,,,hirh dti" UfJO.rf~ ti'>'r,;' 1l(>C{l11u;rf,

Febn,ary 24, 2006

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Dt>d-icateJ fo E..'Ccefleuc:e irr Municipul 1'1,,ancial /l,Jana_get11e1lt

2

Deceml:ter 1, 2006

TO

FROM:

SUBJECT·

Honorable Mayor and CFl:y Council City of El Paso-de Robles

Michael J_ Compton, Dfrector of Administrative Servi-c:es

Compre:hensive Am,uat FinancJal Report for Fiscal Year 2005-06

• lhe City of El Paso de Robles' Comprehensive An{lua! Financial Report (CAFR} for the fiscal year ended June 30, 2006 is hereby presented as prepared by the City's AdministreUve Services Department. Responsibility tor the accura~ of lhe presented data, lhe completeness, and fairriess of the plesentatlon rests with thi-s. depar:tment. The report has been prepared in conformance with the accounting principles generally accepted in the United States of America and the pri11dple$ and standards as prescribed by Governmental Accounting Standards Board (GASB). Staff believes that the d:aia, as presented, is a~uraie in all material respects; that its presentation fairly reflects the financiaf position and the results of the City's opetatio11s as measured by the financial activity of its various funds; and that all pertinent disclosvres contained herein will provide the reader with a complete understanding of the City's financi2I affairs_

FINANCIAL REPORTING and FORMATS

This repon Js. prepared uemig the reporting requirements as pras-cribe.tJ by GASB Statement No. 34, 8asic Financial Statements - and Man-agemenfs Discussion and Analysis- for S1ate and Local Governments. Government-wide financial staternenli3 ;;ire included in- order to provide th-a reader with a clear picture of the City .as a single, unified reportng entlty. Government-wide stat~ments are intended lo compliment rather than replace 1he tra<llhonal fund-based financial statements_ GASB Statenierii No. 34 also requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements. in the form of "Management's Discussion & Analysls" (MD&A).

This letter af transmittal is lntended to compliment tt,e MD&A and should be read ~n conjunction With it. The MD&A can be founO immediately following the independent audilors' report

GASB Statement Nos. 43 and 45 addresses the requirem-ent for governmental financial statements to provide information relating io other post employment benefits. The requirement becomes effective fur Paso Robles for tne f1sc;:al i:eriod ending June 30, 2009 but it is the City's i,ntenlion to implement early The actuar!al study necessary to determine the value of other post employment l:teneflts is currently underway.

The City's CAFR is dfvided into the following sections:

The lnt!'oductory SeGtion it1Gludes this trailsmittal letter. 1n,ormation about the organizational structure of the Ci:y including elected and appointed officials, 2nd other general information to provide the reader with a general understanding of the City.

The Financial Section !s prep.ared in accorda.nce with GASB Statement No. 34 requirements by includin-g the MD&A, the Basic Financial Statements induding notes, and Supplemental Information. The Basic Financial Statement!, lflclude the government-wide tinandal statements that present an overview of the -City's entire finan-c:ial operations, and the fund financi1c1I statements lhat present the financial information of each of the City's major funds, as well as non-majDr governmental and fiduciary funds. Also included in this seGtiOn is the Independent Auditors' Report on the financi[ll 5tatements and schedoles as prepared by Moss. Levy & Hartzheim. Their report contained herein provides an "unqualified" opinion that the financial statements coritai11ed herein are fairly pcesented in i::onformity with aocoJnting principles general1y accepted in the Uriited States of America.

Additionally, the Federal Single Audit Act cif 1896 requires the City to ur,dergo an annual usingle o1udit' in canto mity with the U_S_ Office of Management and Budget Clrcutar A-133, Audits of States, Locaf Governments, and Non-Pn:,fit Organizat~ons and Government Auditing Star.dards, issued by the Comptroller General of the United States. The "single audit" report is issued under separate- cover and iricludes a sGhedule of feder2I financial assistance. findings and rscomme11dations, and independent auditors' report on the internal control structure and compliance with applicable laws ani'.I regulations.

The Statistical Section includes various tables containiilg historical financi2I data< debt statistics, and miscelJaoeous soc:1al and economic data of the City that is of interest to potential investors and other readers. The date is generBlly presented on a multi-year basis.

4

THE REPORTING ENTl1Y

The City WES incorporated in 18S91;1r.d operates under the Council-M:;mager form of local government Four CQUncilmen are elected on a nori~partisan basts, at lar'ge for four-year tem1s with two councilmen elected every tw-o yBars. lhe Mayor is elected at large every l'NO years. The Council appoints the City Attorney and City Manager. The City Cieri< e.nd City Treasurer are bolh elected at large for four-yeo1r terms. The City provides a full range of services including polli;:e and fire protection, library and rectBat1on services, p~blic works inclw::ling maintenance of all City facilihes, stree,s, parks, airport, .and utiHty operalions (sewer, water, and landfill), transit, and development and planning services.

This CAFR includes the financial activities of the primary govornment, the City, and all the City's component units. Component units include legally separate entities for wt,~ch the primary go\lemm-ent is finencially accounteble ;::nd lhal have substantially the sam,e governing board as the City or provide services entirely to the City. For reporting purposes, operations of the Redevelopment Agency and the Joint Powers Financing Authority are blended with the City.

PASO ROBLES ECONOMY AND OUTLOOK

Paso Robles is strategically located at the confluence of State Highway I 01 and State Highway 46 and continues to be the fastest growing. City within San Luis Obispo County and has become the se-cond largest city with 28,969 residents. Travelers from !tie Central Valley on tfieir way to central coast beaches Of local lakes must pass through Paso Robles" 1he loca1 lakes and other community evenls attract a significant number of traveleffi from southern and northern Ccilifomla areas as well. The Highway 10"1/Highway 46/Nacimiento Road corridor has been a major contributor to the City's sales ta~ 1evenuas..

Paso Robles i:s home to a number of specie I events th al atlrtict visitors from all over the state. Such even ls include the Wine Festival, Paderswski Festival, West Coast Kustom Car Show (now held twice annually), -Pioneer Day, Vine Street Christmas Showcase, Western Region EHcyde Rally, Conce~s in the Park, Mid State Fair, and two high!y suc:csss.ful farmers markets. The crty is host of a champ!onshjp level 10 K run that attracts world~letss runners from all o-ver the world. The operations of the state fairgrounds and its re rated facilities ('lttract even1s nearly every weekend duri,ig the course of the year. The local wine industry has rnceived considerable .-ecogn_ition for its premium wines. There are over 40 wineries. and approxim.:itely 300 vineyards in the Paso Robles area. During the spring and summer months, many of the wineries and tasting rooms hold weekend concerts that attract numero1,.1:s visitors. The Paso Robles Event Cehter \formally known as the Mid State Fair) recently announced they will be sponsoring tne 2007-09 Pacific Coast Cutting T1orse Association Futurity - 1;:1 12 day cutting horse event thal anracts top competitors from across the count1y, the 2r,,c1 l.argesl show in the nal:ion.

Given the above events and attractions, tourism has become an important industry in Paso Robles. Trans.lent occupancy tax collections, viewed as an indicator of tour[sm succ:ess, i-ncreased by 11.6% over the prior fiscal year. The owns.rs of the Hampton l11n have begun construcUon for a new 61 room up~cale hotel called "La Beila Sera" and 70 room L.a Quinta Inn will open Fall 2006. Currently urrder construction are 1:he Marriott Hotel, a 130 room hotel and "The ~nn at the Stab!as", a 16 room hotel with retail space. There are a number of other hotel/resort projects in the pendbng and development stage 1ncl,1._11:!ing approved applications for Paso Rabies Hot Springs lo construct a 223 room resort hotel and conference facility, a Franch archilecture 80 room resort hotel/spa, .and another 80 room resort hotel as well .as a yet unnamed project with another SO rooms cltid the Black Ranch development which pfoposes 280 rooms and cottages with golf course

C-ontinued new residential home construction in .conjunction with po~nilation growth and tourism success, provided for a 14% increase in sales ts)( revenue collections. Opening their doors fo1 business this last year at Woodland Plaza II were The Dollar Store, Sub:way, Baskin Robbins ands rnu~jc: store_ The Target Center wiH !.lee the ~ornpletfon of E~ Polio Loco, Ch1li's Restaurant, Applsbee's Bar and Grifl, iaco Express and various retail stores. in the downlown core, {hEre were new resruurantlspecialty shops that opened in 2006. While most new retail -developments were no1 major retai=ers, the large number of small ret8il and dining establishments contribute to a sound, growing sales tax base th.al, on .a per capJta basis, puts Paso Robles clt'Tlong the top salas tax producers in th-a Stale.

Kennedy Nautilus. Heath Center is currently under constructio.r, and Includes a 41,000 square foot fitness center with 6, 100 square teet at retail space; relocalion of Idle.r's Appliance from the downtown core to a 27,500 squ1;:1re foot facility on Theatre Drive near the Target Center, a McDonald·s. and Chevron SeNice Sl:cltion with car welsh on Rei mad.a across from lhe Target Center; the Eagle Energy project on Hwy 4EiE has rebuilt the existing gas a-nd convenience store arid added a fast food restaurant and car wash; a car wash at the intersection of Golden Hill and Union Roads; Firestone Winery is unde1 construction for a 10,000 square foot winery .and visitor center an Hwy 46E; Big Br.and Tires constructed a new fclcillty on South River Road near the Albertson's Center; and Paso Robles Ford wm be relocating to an-aw 36,000 square foot facility on Hwy 46E.

Office space development is also on the rise. The Gateway Bu~1ness Park added 35,500 squ('lre feet including 8,500 square feet for restaurant use. Heritage Oaks Bank constructed a 6,800 square fool adm1ni:::.trative olflce building, The old ·'moving and storage" business on Pina Streel has been converted to office space; a small office project was constructed on 21 ~1 Street; Mee Meimori.31 Hospital 26,600 square foot oncology center is under construction at 4lh and Spring Stre-ets; and the I 0,000 square foot custom meat processing plant is under construction on north Riverside Avenue. o,e or the two Mastegn! buildings, both demoli~hed 10 !he San Simeon Quake, is complete and ready tor occupancy. The o!her replacement buildln9 Is under construction. Both wil1 be three stories in hel.ght.

Given the recent and continuing successe-5 ir1 both the retail and m:;:inufacturing areas, the economic ouUook ior Paso Robles continues 10 loofi. optimistic. The local housing construction market has slowed with tll!s last year. During calendar year 2005, :Paso Robles issued 287 residential buildiflg permits representing 371 new units with a total valuation of $66.9 million. The demand for housing remains strong. The median llame price of a home in tile County in 2006 wa::; $538,100 up 18.5% irom a year ago. Existing tiotne sales and new residential tmme construction has resulted in significant inc:::reas{;'s in property tax collections. Property tax co11ections for all catego-ries rose 21 % last year, $4,952.400 versus $.4,076,000 after adjusting 01,Jt for ERAF b.ackfHI for sales tax and motor vehicle Hcense revenue reductions.

While the passage of Proposilion iA [lenerally eliminate'S State raids on local government revenues. tile Slate continues to experience chronic budget deficits. In spile of record levels of tax collections ,;1nd phenomenal statewide prosperity, I.he State- legisla\:1,Jre has failed to .address Fts" chronic budget deficit al $4 to $6 Dillion and attempIB tiy the Governor to :c1ddress the structut'al budget imbalan<:e- by legislation and voter initfative have also failed.

MAJOR ACHEIVEMENTS AND INITIATIVES

The City's General Fund 1s the prima1y source of funding for most municipal se1vices such as police & fire protectio-fl, libfary & rscresition servrces, parks. streets, mainlenance & operation of governmental tJuildings/faciHties, planr,ing & building service5, and olher governmental activities such as city council, city manager, and admlnistrati';le serviGes. The City pddes itself on fiscsl responsitJility and control that has resulted in positive reoccurring General Fund resull~i_ With the exception of fiscal year 2004 due to the San Simeon Quake arid canlinued development of ths City's General Plan, eve,y 11::.cal year since 1998, the Clty has had pos~tlve- resulls (excess revenues and other sources over expenditui-es and other uses). Fiscal year 2006 results also -reflect positive year end results. In facl, the positive year end result is tile ~econd highest achieved since 199-8 (1998 being the highest). However, tile Comprehens!v,e Anriual Financbal Report Nill indicate trlat posit[ve 1·esults for the Genersl Fund were $806.422 due ta the post year-end adjustments to transfer out $1,400.000 to other special funds to be used during sub5equent fiscal years

The Council jusl adopted newly revised AB 1600-del/'elopment impact fees to reflect changes in the General Plan. lhe newly updated General Plan :also calls for "fisc:ol neutrality" relating to new development. A fiscal impact model has been developed lo measure the fi~cal frnpacl upon City services of ne-w develop merit. It is no- surpri;ie that the rnodei dearly illustrates tha1 new residential development does not generate sufficier,1 revenues to offset the cost of services provided. Thus, new develop men I is requt1ed to annex to a community services district. The community services district will assess an annual le-vy equal to ihe difference beWl'een the revenues gener.aled on the cost to provide City services. This amount has been d-ele1m1neel to be $657 per unit

W:c1ter and sewer development imp a cl fees (connection fees) are currently under ~;tudy and l:l)(pected to inct'Base doe lo ongoing new development needs.

The Ctty Council has authorized the City's p:c1rticipation ir. the Nacimien10 Water Project which wm assure a saf:;,, secure source of water for the City. User fee increases, phased ir, over time, have already been approved by the City Council to fund our f:)artic:::ipation 1n this: landmark project whos.e ult1mar:e cost ls estimated at $180 million. fifty percent oftne project cos.ts will be borr, by new developm-e-nt through tile City's waler 1mpact fees

Specific plans are undernay on three ,;--.aror develop.able properties. As l:hese three areas: deve1op, Ln addition lo specific plan fee$, these properties wilt pay normal City development fees and will be required io .participate in the community servk:es district noted previou5ly.

OIHER FINANC1AL INFORMATION

Internal Controls- In developing and evaluating tho City's accounting system, internal accounti11g controls are of utmost impor1;:;1nce. Kowever, internal cont1ols should be -clesigned to provJde reasonable, bu! not abso11,Jle, assurances regarding the safeguarding of 1;1ssets agaJnst loss from unau,horized use or disposition and reliability of financial records 'or preparing financ1aJ 5tatements :c1nd maintaifling accourit:3bility for assets. The concept of reason.able recogn!zes that tile cost of the control $hOuid not exceed lhe benefits. derived and that the evaluation of costs and benefits requires estimates: lcmd judgments by management. Management believes that the City's internal accounting controls adequately safeguard assets :c1nd provide reasonable asSLffance of the proper recording of financial transactions.

l::!udgelary Controls - Tile budget Ls a plan for 1h-e use of Crty resource!, cons15tent with specif1c-0bjectives developed and approved by U1e Coun.c1I. Tile budget is adopted by resolution by the Council and may be modm-ed from !\me to time as the Council sees fit or administratively tJy staff in .accordance with lhe CounCEl's approved Fiscal Policy. Ex-cep: for thE;! capJtal improvement projects IJ.udgel, all approprialions lapse at fiscal year--end. Given the mulli-year nature of tile capital improvement projeciS, unspent appropriations are automatically carried forwr;1rd_ Requests for csny--ove( of operating budg-el appropriations are generally restrk:led to operati11g capital and special 011-e-time appro-prialions, usur;11fy sli..11:lies by third party consultants. Cr;1rry-over appropriations a1e approved by resolution 'by the Council and added to the following fisc-el year's bud.get. Budgetary control !s mai11lained 1;1t tile departmsnt level. Line item variances within any given department/division are allowed so long a,,s Iha total departmental budget does not exceed total appropriations for the department/division except that supplies and seivices savings may not be used to hire staff withoul specmc City Manager approval The City Manager's office and AdminCstrative Services maintains a watchful eye for variances between actual and bud.geteel expehditures

Cash Management and Jnvestments - Tile City pools idle cash from all fUf1ds for the- purpose of its irweslm1;mt activitres in order to ir1axirnize investment income. Idle funds are invested in accordance with the Council's adopted investment polky which is reviewed annually by bolh the Council and Its inveslment polky review committee. Jn compliance W1th GASB Statement No. 31, the City's investmeni:s are stated at fa Lr value, except fur highly liquid market investments with

maturities of one year or less, which are stated at amortized cost and unrealized gain:s. or losses less liquid market in\lestments are recorded ea-ch June 30. The City gener1;1lly holds all investments unrn matul'lty or until fair values equal or exGeeds Gost::;. Additionally, induded herein is the- revised cash and investment nole as recommended by GASB Statement No. 40_ Disclosures require,d by tllis Statemen! are intended to provide users of governmental finenci.al statements with information to assess common risks ~nherenl in; deposi1 and mveslrnenl transactions. These ri=aks Jncluda credit risk, c-oncentrE1tior1 of ~re-dJt risk, interest rate risk, and foreign cu~rency risk.

Rist,; Management - The City uses a combination of the purchased lnsufQri.ce and se1f-ir.suranGe to protect the City from property, liability. :cmd workers' compensation risks. For workers' compensation and employer liability, the City is a member of the California Joint Powers Insurance Authority. Under this program, participal'lts risK share losses to $2 million. From $2 million to $5 million, excess coverage i5 provided by the California Pubjic Enl;ity Insurance Authority and from S5 mmion lo $150 million excess insurance is purchase-d. General liability risks are also cove1ed th:ro-ugh :he California Joint Powers Insurance Authority. The City i5 self-insured for the first $30,000. Losses 3re shared fmm :130,000 to $750,000 based on each member's. percentags o-f the total losses bet'Neen $1 and $30,000. Losses from $750,000 ta SS million are shared based upon percentage of total payroll. Excess coverage Ls purchased from $5 m1lhon to $50 million The City purch3s-es insurance for property damage (including newer fire apparatus equipment), boiler & machinery, airport liabilJty, pollution legal liabilily, landfill pollution. and publi-c employee dishonesty. The City is fully self-insured far auto damage except a~ oltierwise noted.

INDEPENDENT AUDIT

The accounting firm of Moss, Levy & Hartzheim, certified public (:3.ccountants, pertormed the annual independe1t audLt. They also, under separale co1,1er, prepared a report meeting the 1equirement5 of the Federal Single Audit Act ilnd related OMB CirculElr A-133. While the Redevelopment Agericy's financial transactions are included in lhis annual fin::.ncial report the auditors also isstJe an audit report under separate cover. The auditors· opinion letter on the bcisic financial state merits is included in the financial section of this report.

CERTIFICATE OF AWARD

The California Sociefy' of Municipal Finance Offic~rs awarded lts Ce,tlfic3le for Outstanding FJnancial Reporting to the City for tha 2005 CAFR. T'11s w;;is ?he seve-nth consecutive year that !he City -has schie11ed this prestigious statewide 8WElfd. To receive the awcird, the City mus! publish an easHy readable and efficiently organized CA~R that mL5t satisfy both accounting principles generally aocepted in the United States oi America and applicable legal requireme11ts.

'

ACKNOWLEDGMENTS

I would like to e>:press my appred3lion to !he entire Administrative Servlces for their work ethi-c:: and dsdication '.O "customer service" both internally and externally. Special ackriowledgm,ent goBs to Jer.nlfer Sorenson, Finance Manager, and Jody Dauth, Administrative Coordinstor, who were p1imarily respo11sibleforthe praparatLon of this CAFR. n addition, 1 would like to- thank Jim App, the City Man.ager, as well as the Clty Council for their-continued support and rnlerest in .plannlng and conducting the City's financial operations.

Re$pectfully submitted,

Micfiael J. Compton Director of Administrative Services Cily TH'!i:l~LIIEI

IQ

PARD-IE"'3; i,,;)llfRf M,MOS!,, C f'A !;;ONA'..? A.l.E.VY, C.J1A CR/l.lGA_~E:t.l.,C~A HAW.'n', l-1U. C,?,11,

Toi;; i-lohOrtil:k Mayor aml City Council City c-f1l Pa.s<J de Ro!J.lea, Califo111ia

MOSS, LEVY & HARTZHEIM L.LP CERTIFIED PUBLJC ACCOUNTANTS

11'\DF.rE:"IDENT AUDITORS' REPORT

Wl'M'IMAIN SM,ITAMi-.i;:iA.<;A~ P!-ICNE: C&'i) '?2:S-2-579 m·.(&6)92,,.ila, Ef,t,I\IL~i:m~p,;11,,;,;:,,n

We h.av,e amlirnd tbi'- acoomp,Mying finAodal s:tatcmcnu of the govemmett\.:111 <1tl1<1itlo::~. rhe bmrnr:.»-tyr.: actL'l'lli1C1, "ath tm.JDr fwid, aml lli~~gregatere.mimn_g fuod ir.fummt](lo of the C~ly ofEI P1t~D de Rllb-~e~ (City), ru: of~nd. l,:,r the ti~al y'<!;u ,md<:d him 30, 2(106, l''liLch ,;;ollc:~tivl'!),' cs1mpri~e the City'~ ba.~k financial i;ti.temenlll, as listead i:, rl-it !<lhl~ llfrn-ntents_ lhese finandaJ ~tater,'11:m~ nrc [I~ rellpcin~ib-ilrty ,;ifth11: City's rn11oa;,;;meol. Our 1:11:apDn~ibility i~ tQ expre:;.1 op,inioo~ O-"-th~ finar.cilU S@fill'lents ba.~d on oui audit

We wndacl~d our a1.:db1 Jn ~(ttdlltl(:I; w)U'! ~\li:llfal)1: O~ll<.l~rds gene-rally aKrepted in tli-e lJmtnl States of America and th .. ~tam:fards applicable to financial audlL~ contai!lc.:! in Go>·.irnm~nl A.~dif.illgt:ilr.mdrur.U, lsi11.;<! iJy th~ Comptroller Gerieral -ofth-e United Stateii. Tho>ll st.lui.danis req1:1irl.'! tliat we plan and perform !lie audil to ob~III renso.nabk 11-,~w;ana: about wh~therth~ finam;:ial ~ments me fret= ofmat~al misstatem~1t. An au.r!it (m;;]ul.le~ :ur.l.il1ing, on a te,.s:i ba.5-is, e,·iden~suppmting th,;; atm:i1:1n1:, a.'lt! dl~\os11re,; in Ille fm;m-dol 'i\mem~ll1>. At1 audi! also includes assB'l.'Jing th..:: m;rn.inllngpriru.ip-~ uM-0 and ~1gn.ifirnm ~llillRtc:i rndde ~ymanagemcn:.0

a, well a, eval11.1ting the overall tinam::illl ~u-.temllJII pri:'1Jll1atm~. We bell eve that D•ir arniit pn:wides a :~onab-le basis for our opmimis

In our op-inio~, rhe flnnnc.lal ~tall:lmenL~ rnferred to- above prc:sent fairly, in !Ill mllluial reiip-e,:,ti, the re~pectlv-e: financial posil:ior. c,fth~ governrnemal ad1vLtilll'l, the b•1dnes.s--type at:.Livjt.i~s, mah major fund, and Ilic aggregate re111ai11iti1:; fund info1rna1ion ,of;rle Crty of El Pll!'la de Robl.:~ ~ ofJunc JO, 2006, Md Lh0c: resp-ecti,,.edrn.!l_gBS i11 iim,ncial po~ition m)d ..:illil\ fl()W->, where -<1ppli(';;1.(\le thereof, ii.ti~ the re.!ipecfrYt <.Om~mt;,:,i; for the t.i~lleral fund fm the fiscal year tbe~ eri.d.cd in oonfurm..ity witb. ;"1¢<;.0UQtl~ pi 111.cLpk! g~~all:y a-i;<:g:i(-«l Irr th,; U11ited Stal-(;,, of AmcrLC-a.

As di~c11.5.1ed ir; m11.e l oft11e nut~ to l,(l,5j,;; tinilfl.:ial ,t~ti,m.;t1t5, 1b.~ Cit:,· of El Pilbu -di:: RDL1le,1 ad()J1ted Gnwmrmmlal Ac~:Jo.i.itmg S:tmdar-d> B-,11i-d S"Qtement No- 46, ."i~1 A~5<"ls 11.E.~r~icrnd by &ab/fog Wgis!a/i.rm - an Amo~iimoRI r,f No J4 1mii GASE Slatcrneiit :Ne,. 44, &,;;,mrmir: C1md1tir:m R~po1Ti11f;: Th,;: 51,;.!lrt,,;al $.:diM,,

eITt:,th'e .rut:, I, 2DCl:'i.

Tl:e Man~emi,m'~ Di!',C.JJ~i(1ll and Aoalyiis m1 page.s 13 througll 23, is 11Dta re,;iuirnd part ~flhs b~~l-c flnanciol :;tatement.s but i~ ~11ppicm~ntar)"' lllrom1ation regujred by lh~ Gu1·~mmenrul Acrnuntlllg Standard~ BoRrd. We hnve applie.d urtain limil~d proc~durB.S, .,,,tirnh 1;on~i~tffi pnmipolf)' o-f ing.Jiries ,;ifmaiiag~rn,;nl r,;;gardi~ tile metbad~ af me . .u.:ireme~~ 1:111.:! .rr_esentatlon ofL'ii~ infonnarion, bur we did ncrt nudit this irifo-tmm:ion and Wll: ~llpW>5 no- opirmm o-t1 it.

01J.r audit '-'I-ii~ madl.'! forth~ rurpo-,,;; offollilrni up,ni01"[!; on lhe li~:m<:i<1l ~tAlmir:n!S Lhllt .::c:,1lecti~ely rnmpri3t: lht: Ci:y of El P-:i.so de lwblec;' basic .llna11c1~I ~tatements. The ,;:(1rnb-iniog fund st.Jteme111s a:nd ~che.d.ulllll Llote.d. in tb-c la;II~ of c:onl11r.L1 are prforntcd for ).>\1'1)0~e.. of additio~al a~a!ysl~ and are .l"\Ol ll. requi~d ;iart Dfthe bA>i<.: fimnci~I ,tatem,:ni:,. 8111:h inform"'ti,;i11 ha~ Ileen ~llbje.;ie-d to ~1e .rod1ti11g pmc.edure.!i ap~lkd m o~r 11-udit nfthc bMic financial ~bltemenl3, ai1d iri om op1rno-[l LS fuirl;, SIH"'d (n all m.ilCt:rial m,pi,,·js m r<Jl.i.ii()ll tea the ba~11: financial ~t.ite,,1ent5 taken .i..1 a 1-'ll-mlc.

II

OFF1CiiS.. BF\lffiLY 1'1-'ll.8 • SANTA, MARIA

ln a1;c;.c,fdancc wit~1 (Jr;,aen,rr,rml A miirmg sr-,'Ulwi&, we h;i,ve also lo med a ~~por1 dmecl DeC11mbe, l 3, 2006, on Ollr co113idaatlon c)f(J-,~ C:lty of El P110 r;:,-. Rob-le>' mtcm~: c-ontxl O'fe!" Jin;inclal report in; :md 1J1Jr Wol~ ofit. ((lmpll~"ce wi!h .;e,tal11 provi..lt(llt'l -oflaws, reg,uiati,;im, "ont.3cts, and grant;,gm:mrnt~ lltld_(Jlher ITI~tter~. The purp,;is~ c1f-U1a.t report ii to Cl~s;;nh th.11: oc-0p~ of c;n,1r ttSt1r1!; c,j 1iit.e::-,1al ci;,11trol ov~1 \lmmr,ial rnpo1'l1ng nr Oil C\lllljllrnn~ -flll<.l the 1es1:1lt:!i oflhfil kill~!;. µr,6 ~ot to provlde an s1p1nicm on :h, internal \.CrJnlrol o~er tina11:::i~l r¢p,;,(lil)~ or 011 ccmpliann,. That report 1, al": 1nkgral p~rt ofon audi< perfurmt'll In ~~,:,ri;l.:u,ce wlth Gove, 11mrnl ,fodiJ!rig SJQ1-rr:ir:1riii WJd olJQukl b,;: r~--W 111 Cc)l\illllCtion wlrh this rep.in In can!liderlt'lg tl:ie n:o.iltB d mn Jud~t.

Thi:. intmdllctory ~ectkm and ~tati~tKal ~n-tio11 IL5ted in Ille rn~le of Cc)l\1-ent1 w,ere no! .audited by us, ha, not been ~L1bj1:cted l<J t~~ aud.ilmg pt,;,udmei applied iri. th~ d11Llll cfll10;: basic: fin~ncial stotement,. and &:oordill:\-IY, wr; o:.pt'i;iiS flO .c,pii1lon thcrt'On.

MO:S:S, LEVY&. HAJ-l'D::liEIM l L.1'

l)i,;;embcr lJ. :mot-

12

MANAGEMENT'S DISCUSSION AND ANALYSIS Fiscal Year Ended June 30, 2006

This: discussion and analys15 Of the City of El Paso de Roble:s' finc1ncial perfom1ance provide~ an overview of the Cify'$ flnanci"I ~ct1v1tilj5 for the fiscal yeE1r ended June 30, 201)6. Please 1ead ii in con Junction wilh the accompanying trnn:smittal letter, tte basic financia1 stalernents. and !tie accompanying notes to those fin;Jncii;il sUltemenls.

FINANCIAL HlGHLIGHTS

The assets of the City exceeded ils. liabilitie~ at the do$e of lhe 2006 fisceil yei'.tr by $227.3 million. Dfth1s amoLint, $65.7 million tnay be m;ed to meet the -City'5 ongoing obligat1on5 to citizens and cradilor:s The City's total net assels increased by $2G.6 million, primarily due lo the completion ol projects nnd elCQLll$ition. o'. ;J~sets from developerc.. At the close oJ the current fiscal year, the City's governmental fi.mds reported combined ending fUhd baleinces of $34.5 million, compared to $36.5 million m the prior fiscal yecr. A~proximc1tely 92% of the combined fund balances. $31.7 mtllion, is considered unreserved and is available fo; :spending al !:he Cits/s dis,:retion. Al the erid of the c1.1rrent fiscal year, t1nres:erved, undesigriated fund balance for 1he genera1 fund was .$6.3 milllori, or 30% eif total general l'und expenditllres.. The City's total govemmenlal activities debt decreased by $775.660 du;in-g the current fiscal year. Ttiis minimal decrease is lhe result of capital lee so, proceed~. The City's !oral business-1ype fvncls debt decreased by S622,20() due to normal amonizatron.

OVERVIEW OF THE FINANCIAL STATEMENTS

The financial s!:atements presented herein lndw:le all of ttie activities of trle City of El Paso de Robles usirig the integrated approach as pft,Scribed by GASB StEltsment No. 34

Government-wide Financial Statemellts

The Government-wide Financial Statements present the financial picture of lhe City from the economic::: resc,LI,ces meast1-eme-n.t focu8 1.JsJr,g tl1e BCcr1.Jal basis ol accounting. They presen! governmental activities a11d bus!n~!as·type i;ictiv1!:ies separately. These statements include all assets of t11e City (indudmg infrastructure) as well as all liabilities: (lncludtng long-term deb!). Addltioria11y, c:::ertain elim!nations have occurred as prescribed IJy Uie state merit in regards to lrtlerfund activity, payeibles. and receivables.

The Statement of Net Assets an.d the Statement of Activi1ies report information about !he City <1~ a whole and about its activities. ThesB sti'ltement.s include all as.set5 and lic1bilities of the City using lhe accmal basis of acco1.Jriting. whlch i.s similar to 1na acc:01.mtirig U5ed by most private-5eclor compsnles. Ali of the currenl {iscal year's re11enL1es end expenses. are t3ken inlO accc,unt regard1ess of wi,en c.ish is received or peid.

ClrY OF £L PASO DE ROBLES Management's DiscLJs.sian and A~.alysis, continLied F1scc1I YBilr Ended June 30, 2006

J'j

Ttiese two statemer.ts r-eport tne Ciw's net ascSeis. <1t1d -:tiariges iri ltiern. Net 1;1ssets are ihe difference between assets and liabilitie5, which Js one w.;y ta measLire lhe City's financial ti ea Ith, or financial posflion. Over time, increases or decreases In the City's. nei assets are one indicator of whether lts finE1nc:::iE1r heallh i~ imprnving or deteriorating. Otherfaclor.; to cor,$kler a.re changes. in the City's property tax base and the condition of the City's roads..

In the statement of net a:nsets and the stateme~t of activities, we di-st1nguish the Ctty's functions tllat are principa!ly supported by taxes and 1r-,tc,governmental revenues (governmental activities.) from other func:::1ions that cm intended to reuiver all or a pol"t1on of their costs lhrough U5er fees and chi;irges (business-type 1;1ctivJties) The activities of tllese two distinctions are as follows:

Governmental aClivilles-Mo:st of the City's basic services are reported in this category, inGILI-ding general government, pLiblic safety, public works, librc1ry and recre-<1tion, <1nd cornmunity development. Property ,1;1nd s1;1les taxes, user fees, interest lncoma, franchise fees, erid state encl feder.:il grants finance these aclivities.

BtJsihe$$-lype acif!Jilies-Tlle City cllargec; a 1ee to customers lo cover all or most of the wst of certoin services it pmvides. Ttie City's water system, sewer system, airport operc1tions, c1nd tr.,3r,!;,,it ~ervice~ .ire reported i11 this c,o1tegory

Fund FinanciaJ Siatements

The Fund financial stfltements include 5latemenfs for eacn of the ttiree categories of activi!:ies - governmental, buslne5s-type, and iid1.1d1;1.ry, The governmental activities are prep:;i.ed using th.e c:Lirrent financial r!?sourc!os meas1.rr,e,melll focus a11d modiflj;,d oi~crual basis of acceiunting. TtiEi bt1siriesc.-type activities eire pr-epared u-sirig the economfc resources measurement focus and th:! accrual basi:s of accounting. The fiduciary .a.c!ivlt1c5 are agency fund5, which orily report a balance sheet and do no: have a meaairen'lBnl foci.JS. Reconciliation of \he fund fineF1cial sw11:me'1IS to the gover.r,men1-wide financial state merits is 1Jro11fded to explain the differences created by the integraled :;ippmeich.

Trle fund firiar,ciel statements proviO!? del..:i!led informetion about the most significe:nt fm1ds-not lhe CLly as a whole. Sorr,e :undc; a1e required to i.)e established by State 1-aw and by bond covenants. However, management est.;blishes ml.:lny otherfLinds to help it control and menage money lor particular pur~oses or to show that i\ is meeting lega1 1cspm1c.ibil11ies for using certain taxes, grants. 1;1n.:I other rnoney.

Governmental funds - Mo51 of !he City's bel~Lc :;ervices are reported in governmei1tal fun els. whfch focLJs ori hriw mor,ey flows Into ar,d out of those funds ancl U1e balances lett at fiscal year-encl that are available for spending. lllese fi.mds are reported using an :;iccountirig mettiod c::alled modified clCCr\j<ll oi~cour,ting, wtiicti measure5 casl"'I and all other financlaf ass-els theit can 1eaaily be converted to cash. The governmental fLinds statements provide a detailed snon:-tenr, view of the City's general governmtmt OiJerations and the ba.siG :services i: provides. Govelnmenlill funds Lnformation helps delermine whether there <'Ire more oriewer finaridal reso1Jrces that can be spe.nl in the near future to firm nee the City's programs. T~e dtfferences ol results in the govemmenla1 fu,r,ds

1,

CITY OF EL PASO DE ROBLE$ Managemenl'.s Di.scussion arid Anafys-Fs, e-0ntfru1ed Fiscal Yeer Ended JLJr.e 30, 2006

fin;,inciaJ s.tatements to !:hose In thtc govemrnerit-wide financi-al .statements are ex~lained in a recot"lci1ration schedule following aach go\lemm-entl;ll funds fir,aricial state-men!,

Proprlet;;iry funds· Wlien the Clty charges cLJs1omers for the services it ptovides--wtiether to OL!lside cLJstomers or to other units of !he City-these services ere generally reported in propnatary fonds. Proprietary funds .:Jr-e reported ,ri the .same way t~at all activit1-es are repot1ed 'n the sl:atement of net assets and lh-, statem-ent of revenues, -ex_pens-es, and .:hanges i'1 fund riet assets, lri fl;lct, the CiW's enterprise fu11d_:S .;re the same as trie bLJs1ness-typ-e actiyities reporied ifF the govemmen1-wide st.alement:s bLJt provide mare detail and addil1ona1 mforma11on, such as cash flows, for proprietary fLJnds.

FidLI-ciary funds· Tt,e City is lhe tmstee, or fiduciary, for certain funds lield on behalf-of tri-e Senior Advisory Committee, W1Jr Mernorlal Hospital Schal;,ir;-;hip, and Customer Deposits. OU1.eracti.,ities reported in ttlis category include lhe receipt of special tax-es and a=:;ses5men.ts used t-o pay principcil 1;111d interest on rell'lted bonded deb! that has no direct City liability. The Cit{s nduc1ar1 activities are reporied in sl sep.irale statement af fiduciary riel assets. We e;io;Clud-e lhese i'lcl:ivihes fmm the City'='i other financia( stalemenls since ltie City cannot 1.Jse tliese .'lsset.s to finance its operations. The City is. respo11sEble for e11suri11g that the essets reported in these funds are u5ed for their int-ended purpo;i.es.

Notes tc the Finane:i~I Sratt!meliIB T~e notes pr-ov1de additional !riform.ition Iha! is essential 10 a full understanding of the data provided in the government-wide and f-Ulid firmnci.il srnte:merits.

GOVERNMENT-WIUE FINANCIAL ANALYSIS

As rioled earlier, the net assets tor tlie Ciiy as a whOl'E!' increc1sed 10% from $206.7 milliori c1tJune 30, 2005 to $227.3 mil~ori at June 30, 2006. The large5' .iortion of the City's nel assets reflects the investment in capital ass-els such as land, tJuildirigs, machinery, mid equipment, less any rnlal-ed d-ebt used to acq-uire those assets st111 outsuindirig. These assets aro LJsed 10 provide si:rvices to th~ dlizeris of the City of El Paso de RotJles; th<?rnfore, ttiey are not available for future s,:iending. Al!hoLJgh the City's investment in capital assels is reported 11et of rel.ated debt, 1t sh.otJld bl<! noted that the 1es.ourc[!S needed to ri,,pay this det:,t rnlJst be ~"OVided frolil Olher SOlJl"ces.. since ttie capital c1ssets themsel\les cannol be us-ed lo liquidate these liabilities.

An additional portion of the City's ne! assets represet\15 reso1.J,ces 5-1.JbJec, lo exrernal restrictioris on how they may be used. The remah>itig balance of urire5!r~cted net assets may be used lo meet the City's ongoing obligations to crtizens and credllors

Consistent with the prior fiscal year, as of !lie et\d of Iha .current fisc.;r year. the Cily is able to report positive ba1.a.nce-s in all thre€ catEJgor!es of nel assets, fo1- both tti-e government as a whole. as well as for its separate governmental an(J business-type c1ctivitfes._

CITY OF EL PASO DE ROBLES Manageme'11's Discu=:;.sion and AJ1;ilysis, c-ontinued Fisc;al YP.ar End-ed June 30, 2006

LS

CITY OF El PASO DE ROBLES' NET ASSETS

CurreI1t and otl1er !'lss,et;;

C.iprtal :;issets Tol.:11 <11>~t1t.=

long-term li<'!bilities outstanci:irig Olher lic1b1litie-o,

Tcital liabillllBi>

Nt:11 assets: ln~i,,shid in capital il.ssets, nel of re-Isled dP.tit Restricted Unro5tricied

TtJtal NEI A55-~l;i;

Govemmental ilctivlties 2005-06 2004-05

' 3'9,'194.759 ' 41,231).962 ' 151.759,113 138,429.83-7 191,253,872 179 660.lti'tl

45.025,050 45,952,3B7 5,922,•Hn 5,717,"384

51,947,541 51,6-69,771

107,693,g-36 g2,243,2.19 62$,674 B.452,1:,(13

30,782,721 27,295,006 $ 139,306.~31 l 127,'991,028

Business-type ilCLi~1tes Tolill 2005-06 2004---05 2005-06 2004-05 34,BiJ,098 ' 33,615,6-04 ' 74,307.,6$7 $ 7S,D..qS,S6$ 62,972,411 55.00i .265 214.731,524 1'.33,421.102 tl7.785,50fJ BS.816,8-69 2B9,039,381 268.4i7,668

8,3-56.75'.3 8,'991,415 53,381,819 54,943,,902 i,433.766 1,139906 8,356,2.57 6,8::07,290 9,790,535 10,131,321 61,738,1)76 61,.BC,i ,{)92

54,373,577 45,491,265 152,067,513 l:].7,734,484 479 175,597 830,153 8,8.2.8,500

33,620,9113, 32.81.S,585 64,403,53'9 60,1"3,592 87,9!34,974 78,685-,546 :$ 227,301,305 $ 206,576.576

The City's net assets increased $20.6 million ovef the prforTiscal year. Current and otr"ler assets decreased $738,709 wt-ile capital assel~ increased $21.3 million_ long-term liabilities decreased $1.6 rnill(on due to normal c1mort~zation while other liabili'.ie~ 1r.creased by $1.5 m!llion_

GOVERNMf=:NTAL ACllVITIES

The City's net assets from governmental ac~vities Ir.creased $11.3 million, aa:oLJnting for 55% aftt,e total growth in net es5ets of the CFly of El Paso de Robles. The cost of all governmenlal activitiss this ft$cal ye3r was $34 million. As shown ifl the state11"eJlt of act1\li11es, the amount that tlls taxpayers ultimately firiam::ed forth,c,se acti\lit1es was only $19.6 million because =:;om.i of !he cost was poid by ?hose wt,o directly benefited from the programs ($7 .2 million). Capital grnnls and coritribc..itior,s ($7.1 mimori) pr-oYided 1or $5.7 million capital asset inftastrLJcture provided by lluil<ling development. Ttie City paid for ttie remaining ··pLiblic beneiil" portion of go11emmer.tal acti'>'ilies with $24.8 million in taxes (some of which could only b-e used fol tt:rtain programs) and wit Ii other revenLJes, s.uch as iriterest and re11en-uEJs from olher agem::Jes.

The City's progrc1rns for govemmt:nral .'lclivitie:;-, llictude genera~ government. publk: safety, pLiblic works, libraiy a,n.d recrc:e.Uon services. and ,community development. The programs for the business type acti11ilies include the water .irid sewer utilitLe-s. the airport

Lo

CITY OF El PASO DE ROBLES M;,riagement's Discussion and Am:il-ysis, confamed Fiscal Year Ended June 30, 2006

operation.s, and transit ser.iices.

Total resour-ces available duri11g ttie year to finance governmentfll c1clivilie5 CTlnsisted of net <15:oels at July I, 2005 o: $128 milrinn, program re\Jenues of $14.4 million m1-d gener:;i~ revem,1es of $30.9 million, Tot:il e){pen$e~ forgovemmeriWI activitie!, d\ning ihe fisCcll year were $34 million.

BUSINESS TYPE ACTIVITIES

The City's net as.sets from busines.s-lype ac.tiv1t1e.s incre;-ised $9.3 million whic/1 ~,ccoui1t:'5 for 4S% of the tot<:1l 1ncre<:1se in the City of El P<:IS-0 Robles' ne!.;;,ssets_

Trle cost of ell Proprietary (busine.ss.type) ac:iivities this year was $9.1 million. A.s s-h-owri in the statement of activities. tr1e amounls paid by IJSers of the systems w-ern $7 .6 mill1an, and capital grants and cm1trib1Jtion.s were $7.3- million Revenues. from other agencies accounted for $2 million rmd earnings from uses of money and prnperty were $1.4 m(mon_

CITY OF EL PASO DE ROBLES Milnageme-nt's DiscLJs.slan aF1i::I Ar.alysis, continued Fis.car Year Ended Jtme 30, 2006

17

CITY OF EL PASO DE ROBLES CHANGES JN NET ASSETS.

R.t:!.-.,n~.,.~=

P,cgr,om "'"°'"""''

Oin•tating {lr,,nts and canln~\ll'!n:<

C.i~MI g(or1!.. ~ntf umlribulions

General re-ve,mes

Ta•es. f'rnpMly raseo

Sol.-is l.'l•

Omur tows Lic"n~~ c111d p'ClffilCs Fro,m 0111,., age,nci!,s

lm,;i~Cm~nl (!amings

Ml~cce~anaous

T~tal,e-v-sr,m,s

Esr,ienses

Gen,ir~l!ID"'E'mn,ent

Puh1ir. Sllff'C~

P11blic'\II0'1<5

Ub,,.ry ar.d MC(f'11i:1"'1 seoNIOIIS

Ceommunify deval:lr,,mien1

lnrurasl [)!1 lunsi l~rm dalll

W81ero;iefl!tions

Sa.war <1~E>rati<l~,~

P,lr~o~ ,:,p~1s1liV<1~ T ,~ ~,;, """'~11,:,p~

T~\.al "'~~r.:;es

lnc,a.;se, In net assl'lls. tlel-!lra u.an&r,..rs

Trnrsl-!"r;

lnc=ae (dE>CraaaeJ ,n net a~e-\,;

N,al ~SS'll1'i July 1

\I-et ~~&e-t:, Ju~e 3(1

r~o-rom..,n1;~l "'d"'it1 ... ~DOS.06 2004.0:i

J,2c,,!,ll9!1 7,895,781,

570,620

J,129,0:z;l 4,877,ll44

13.9'66,3':l(l lcl,W3987

6.183,527 ti,~14.~0~ 4,6~0,()..54 <1.249.21.l

M1.D."l4 3:<.IJ.. ~~a 3,958,811 2,975,R64

~71;,397 ~8!!-,853

911,5~0 9-14,8~7

~-5254,885 40,951,!!-gg

09.902 2,:!\0~.C>!!-9

11,715,!'.S.3 9.691,1!~4

8,347,J;:O 7,\l14,71\ll-

~ 5130.7115 4.a4:5.JB() 7 124,6Cl5. 3.tl'M.177

1.IOS.JIO 82-IJ.1125

~i,B~8,282 2S,!,c9,401

11 295.liO~ li.flQc2.49:!I 1~.i(J(I 1.:.c;,J.Bn

11.JIS_](J] 14,206-,41-9

1:J.7,99'1,0'.".S 1q,1110,eog B!l,W8,331 12"/,991,028

Elm;,noaaa·lyp@ac~vil.Ba ;;no&,-OS ,004-,05

7,ll()5,6Z!l

72,152

2:03t,Cl11

1.:J69.410 54,740-

:.i.n-4.0-l:l2 :},!P1.43.!l

Bl!.1,~D-1

\,088,576

':l,12'.:,,303

9,32!;.125

(18.700) H.JG9.42n

78,635,548

Bl,'\l9'1,'i'J~

7,0&8,55:2

6.912,363

5'9.00i

\,:!l3J.4i1 /39,332 2.;)3,!:1!',0

17.012.1155-

1,1t2,8W 3,400 T/'3

71)3,939

393,6fi4

.i,,.,_,,,fl.l

,l!.ij71.471 (1.W~.9211 i' 567.550

71.117,9q8

7B,695.S.l8 s

folfll 2.005-06 2004-05

14.0]8,5'2 t; 183-.521 4,641],0SJ

J,11,03~

5,191.~~2 2,l44,813

'\lG!,.296

63,iOE.3-14

'199.9()2 11,71!;,f:!!;:1

8-,3..17,72() 4,Sli0;/1.l& l,124.(i(l5 ·,,7~,:1~7

'.,,71-1,002

3.621,438 fi8!,2fl7

1.o-M.571.\

4:H:-83,5:35

:00.6;l4,n9

2C,GZ~.72ll

2Dt\5Jti.~i't; 221,301.~05

14%4.:i4S

Si'O.G20

\1,700.307

1J.W3-,981 5,414,505

4,~4a',2S4 1:.I0,12C

4.9~\:'l,0~1 1,2~!1.185

1,15.3.~27

:S,5(14,J~

6,01lUi¥ J.U14,7l':6-~.3-t5,~J,m

i,G64.177

828~5 :., 142,802 :.,400,179

rna.ilJ9 893,66'1-

36,190,086

2· _J')J 069

:2',TlJ.~./iJ

1~.9().2 6-Q7

CITY OF EL PASO DE ROBL!:S Manag.ernent's Di.scussion and Analys.is, continue-cl Fiscal Year Ended June 30, 200€;

FINANCIAL ANALYSIS OF THE CITY'S FUNDS

Th.e 1\md bale nee at riscal year-end for the City'~ genero.i f1.md of $8.4 mm1on is. an overall increase of ~-8.06.422 o'ler last year_

Tl1e Measure O GO bonds capita( projects fund shows a decre.is1s In 1llnd b<1lance of $6.3- million from the prior fiscal year, which is th-e result of tl.e con:struction on the 13'' Street Bridge.

The H1gl1wc':iy 1 [lj/46 West Community ~acil1ties 01str1c.: has a negative fund bala11ce as a result of property !icquisitions for the interchange and road re-alignments.

The Measure[) GO bonds debt se1Vlce fund .shows an increase of $750.267 in fund balance, dirE-clly attributable 10 funding of the bond measure by property tax assessments.

Th-e Redevelopment Agency debl .se-rvice fund shows an increase of $773,288 in fund be lance l'rom the prior fisc.il year resuHing from the 1rK .. r~c':15-1, 1n pt'o-perty !;:aiX:es .;md ~duced -expendilll!'e5.

DEBT ADMINISTRATION

Oeb! considered a liability of governmental activities decrnasGd in FY 2005-DIJ by only $775,660 dLEe to new capital lesse procee-ds, compens<3tecl absiences increased $1 27,043, i;in-cl dosure/poslc:lo-sum liability- 1r1crnased ~154, 126. Per capila debt OLI1Sta.nding deer-eased to 51 ,656 for FY 2005-06 down from $1,743 for FY 2004-05. While debt rem;;iined relatively unchar,ged, tha CLty's. increase in population redLJced per capita debt OLJ1s.tanding.

Debt considered a liability of business-type activities decreased in FY 2005-06 by $622,201 due to normal amortization Per capita del:il outstanding decreas.e-d to $312 for FY 2005-0-5 down from $345 for FY 2004-05.

CITY OF El PASO DE ROBLES Management's Discussion and An-o1lysis. continued fjscal Year Ended June 30. 2006

A sc:hedule of outsianding debt is presented below.

Balance July~. 2005

Governmer.ta1 Acti11i11es; -Le<l$EJ-o: p-c1y~bl~ 5,56-9,070 C()mpen:scitcid ab:ss-nces 1,66-1,545 Clo-~ure/postdosure llcbility 91~.'335 G1;1n;;r!'!I ob!l~atlor. b()nc:is pcry11ble "33.972,55() R-edevelocf)ment bonds payabl€ 6,645,()00

Toteil govemmemal a~ti11i1ies s dS,768,-;01

B~;;in-e-ss-type-Ac::ti"w"itles: CompEJ-n51:l!elr absences ' 1ol3,9-70 Re'!enue bmids p2,11~bl1:1 !l,510,0CJO

Total b1,Jsin~'!l:s-type- ac~v111es $ S,653,970

CASH MANAGEME;NT

$

' $

lncmred or Salb:ified or Bali!if1C9 Issued Mi!itured Jur,e 3,0, 2CJ06

1,739,00(] s 681,249 ' 6,676.821 127,043 1,788.58$ 154,126 1,074,06~

1,999,580 31,g72,97{J 165,ClOO 6.480,00{]

2,070,169 ; 2,M5.829 ; 47.992,441

32,7"99 ' ' 176,769 6.55,000 ,8,855,.000

32,79'9 ' 655,QIJ(l $ S,,031.769

To ob1;ci1n flmcibility in cash management. tr1e City employs a poole-d cash system (teference Nate 2 in lhe note5 to the basic financial statements), Und.erthe pooled c;;i~h concept. the City inve.sts the cash of .ill funds with rn;::iturit1es planned lo coincide witll cash needs. Idle cash is invested in certain el!g-ible s.ee:uriti€s as constrained by lc1w and further limited by lhe Cliy's ln11estme11: Policy, The go;,I:;; of the C1ty"s lr'1vestment Policy are safety, liquidity, and yield.

CirY OF EL PASO DE ROBLES Manageme:ri-t's Discussior, and Analysis, continued Hscal Yoar Ended June 30, 2006

CAPITAL ASSETS

Tlie c3pitaf assets af t,.,e City are thocSe ass.els, Which are used in the performance 1Jf t~e City's functions includmg lnfras:ructu,e assets. Al June 30, 2006, net-capital assets of tlie gove-mmenlal acHvlties toti,31ed !152 million end lhe net capitel assets of the bu:;iness·type actiilities totalecl $63 million. Depreclation on c;:ipil:al -c1ssets is recognized in the government-wide financial statements. The City loas elected 10 depreciate its infrastructure as.set-s. lr1 md;,ir to depreda:e lh<i infrastrncture as.seki, an estimated lJseful life for each type of asset w;,s determl~ed us trig engineering standards, as well as dis.cuss ions with City st1;1ff regarding the Crty's maintenance ~rogram for each asset lype. This allowed ttie estimated useful ~ife of each assel type to be !ailored io inch . .icle the unique attributecS of the Cily of El Paso Robles.

the following tc1ble p1esents s.t.Jmmary inform.ition on \tie City's c1;1pit;:i assets.

CcplC.:11 A~;:,~~ - GovernmertWI Activilies:

Orif.jinal Cvs.l

AecumuJ.:ited D&preciation

Land, B1,1itc;1mg~. Equ:D:rnent, CIP, arid lr.frastructt.ire 5 1S-2,Q51,922. $ '10.302,309 $ 151,7~9,113

Land, Building~, Eq\Jiprns>nt, CIP, i.nd lflfrnst.'ucrnre $ 100,3-63,211 .$ 37,39-(l)lOO $ 62,9"1Z.4H

CITY OF EL PASO DE ROBLES Management's D1s.cuss1on ,md Analysis, contmue-d Fis-cal Ye;;r Ended June 30, 200£

GENERAL FUND BUDGETARY HIGHLIGHTS

Comparing the FY 06 original budg-et (or adopted} ge-nernl flmd budget l.'lmount of $22.4 mbllion ta the final budget amourt of $25.5 mi111on stiaws a net increase af $3,:2 million, Included in this figure Is 274,800 in prior ye;'lr carry foiward, $125,000 in funcis for engine-ering services ,c1t the landfill, $197,200 in St'lerwood Park playground upgrades, $85,600 to reimburse the Paso Robles Public Schools for parking lot improveme,its, $2,00rJ,000 prop-erty .ac-quisitJon at the landfill, $40,00ll for Pioneer Skate Park staffing, :$80,000 far increased legal services, $47 ,500 for lhe development lmpact fee update, and $411.100 ln a variety of ope-rating bt1dget augmentations. City Cou11cil approved au budget supplemental chahges to the o-rlginal budget.

.;. Su.pplemental Change-3 Finat Burl-g~t

' 22,377,SOO -+ 3,261,20G $ 25:639,100

ECONOMIC FACTORS ANLJ Nt::X.T YEAR'S BUDGETS ANO RATES

The key assumptions in the general fund re11enue forecast for fiscal y.iar 2006-07 were: An ,n-cre;ase in pmperty hn: revenue5 of 8% due to ar, estimated rise in assessed val..iation and general growtl1. An in er-ease in sales tax rnverrnes of S.5% as a resull of anticipated grnwth in the retail bs1se. An increase in 8% annually far growlh in Transient OctUJJancy Tax.

The City continues to benefit from a sound fin:;1ncial b;;is,e and local economy. Positive results of the last six fiscal years aoo1 through 2006) have i11creased the general ful"ld's. fund :balance by nearly $5.7 million. The City's FY 07 budget im:::ludes Ille fol lawing newlexpande-d -budget request.,;:

Economic development study One full time sworn ufficer

CITY OF EL PASO DEROBLES Management's D1.scw,::;i-0n and AnalysEs, continued fiscal Ye.ar Ended June 30, 20[16

CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financi<!I report is designed to provide 01Jr citizens, taxpayers, c;ustorne~, irwesator~, and creditors wtt~ c1 gene.al ove'\liew of the City's finc,nce.s and to show lhe City's ;:iccountability for the money it recerve.s. If you have qLiestions :about tliis report, sei:arate reports of the City's compcment ,.mhs. or rieed any additlonal financial [nfarrnation. con.tact the Otfice of Admwllstralive S!Jr1ices at 1000 Spring S1ree1. Paso Robles, California. 93446, phone 305-237~3999 or e-mail [email protected].

Ghar~o.r;ro,

CITY OF' c'S ~ ASO DE ROBLES

STlri.TEM!CJITOP ,I.Cl[VITIES.

FOR THE FLSCAL YEii.i": e;~nEo JU~E 30, 2()06

U11cr.i~r.. Cch'\lribt11lon~.im.l <:eµllal

fl.i r,l~I Oiwe,nm .. nl.iJL BLJ~111t$S•lj1p&

E~r,e,r-dlrure~ S.sr.·,c.-, Graot.t; Cu11ult::-u1lo,1sand C,-ama ActWi~l,os "".:l1>i"ie1 Tot.I

G1:m.•1alg~wrn"'""l ftul:-llcs:0,1".v Put-11~,..,.""' LlbrAr;r ~ od r,,,:crta"tkir,. ,~,, ,c~a C-omm·an<I)" d ... clnpm•nt l~tt,ri,il on '9ng,ltrm cie\11

Wal.,ruµu,..,1ic,11s Sl'fW<Jro{lf!ra,rin111 A1rpmloparaiioos T,a.,$11.,pc-r,11,.,n;

~11-9.9~2 11,71S.15~) s.Jl\7 no 4,560)85 7 124,605 ,,,:i~.Ji;-1

:l3.~5~.~8,

J,734,002 3.1\21 ~;!.~

081,2{)7

IS88,STG-

\l,12S,!O~

4J.as:i.~t,

43,:!72. o-20,(lOJ

20.13,4 791,S!ij

S,777,45P

1.2:i-4 0$9

3.!i~~.654 ,.e~4.35J

Hl,544 13.2078

'1,60~il-29

1d,BS9,72g

1~.JO> 7,iU.718

7,l:2~.023

4,7i'5,16!,

2.5:l!,)10

1.~13,475

14,402,49~

G<aneral Re,mue~ .JN T1an.sWr~

l ~~"·" P<ar,,,"r1'j"'l3M•

8,al«I li,);c~

0th,,~·~· Frum ~!her a~,i,pcle,~ LIC<J-n~~~ am! permi~ 01hor

(4S6,0~U) 11·,,c~o.s,s1

(1,21:].~581 (l, l~~,955) (1.0H.155) 1 709.387

13.~66,39~ 6.lt!.5:i"l t.640 054 J.,95J,~11

3-11,034 911,SSO !?l,391

MJO~

~0.6~0403

11 ~15 ~03

121,;,91 u2a

1l~.305,JJ1

.1;.0J1n1 ~,l~t.225 [;61:,(,03) fl51l 495

72,\02

2:03.!l.:l11

54Ht;;

1 36~.ll~ 18,::'00

H1:i,bi5

9 30~.426

7~ 681,548

~T994 ~N '

(OM.030) [11,0B0,5lS)

11,Jl:J,O'.i~l (l,76~.~5U) \1,)H,15">) 1.7:lO.J.llT

~1 9 575 1CO)

46J1.731 ~.n1.ns {il~2,BOli

D!i&,SDI

~.lSJ.1}01

{1J.781,J59)

14,~38,S~~ -:i,18:!,-'>2] 4,640,0;4 :;_9~,.~u

J41 OJ4 <>66,296

2,244 813

34.40-6,-0U

20 624 H9

~06,6!0 576

2:!"7.:l(ll.:)OS

mailto:[email protected]

PROPRIETARY FUNDS FINANCIAL STATEMENTS

Prop-rietary fLJnds account for City operahans financed and operated in a m:anner s.Cmllar to a r,rivo1te business. enterprise_ Tt,e lntent of 1he City Is ttrnt tile oost of pmviding goods and services be fln;:inced primarily triraugr. user-cl'larges.

The canoopt of major funds establistiad by GASB $tatemen1 No. 34 e->lericts to Proprietary Funds. The- C1Ly tias. identi11~c the- funds t:Jelow as major pro::inetary funds 1ri the cmrent fi-scai year.

GASB Statement No. 34 does riot provide fo1 lhe disdosme of budget versus actual comparisons regarding proprietary funds.

Water Op&rations Fund

Thi';l furid i"a used to accoLml for U1e operation and malntem'lnce ot the City's wa1er produclion, lrnn~missiori, smd distnbuflon system, and includes accounting for water mnri.ectiori~. Nac1miento water prnjec:t, and Nacimienla waler treatment

This fund is used to account for the operation and mainleriance of the City's sewer co1i-ectio:n and treatment :system.

Airport Operations Fund

Tliis fund is used to accoun1 forttie opero1tlon and ma1nl1manoo of the City'~ airport.

Transit QO§!;ralions Fund

Thi.s fl.m-d is us.ed to accmmt far 11ie ope1ation and mainteriarice of the Cily's dial-.i-ride and fi.ii.ed route t1.:m.sit systElms funded

Imm Transportation D-e\lelopment Act fund:s.

ASSETS

C~,i, ci3lld ir.,,...•lment• wilh ~'5COl .agenl

Aewun!~ rec<eh,E>ble-

l1wemmy l ol-JI Curros1lAsscat..:a

GilpitalAssoe\~

l'"l~rH. p,up,arfy aml e~ul~ll'•tm

~ess ,ocLumuto~ ;j,,,p"',;:iO"b~~

Net l;\ilDk Vatue-

Tc.Lal LUn!,-ll'lr,,,Asse.ls

33

CITY OF EL PASO DE ROlllES PROPRIETARY FUNDS

STATEMENT Of" FUNDS N~T ,1,,SSETS JLJ!IIE.30, 2006

S..w~r Airp;.,,t Tr-1rn.1I

15,219,076

~L1.~7 64 04.3

16,105.466

:l-9,6\G,075 14,2Q4,955

2,..,J~1.1~u

41,425,586 I

Operntl~m Op1rnllim.s OperallOfls.

rn.s,:,.~31 m

434.400

17.001.l,'.J.19

40,'.l'.ll,1:l-1

IC,frS6, Hi1 d.f:74 9S&

~5l'i.1Ui ~:l<i.166

~0,939,4Sj

21.029

18,761,~71 6,103,%7

13-.657.704

l4.4f.2:.603 ;$

3/1,-%6

266.3.82

C':J6.2~

%~,334 J:'.,6,,7i5

318,619

956,S&7

The n(l!es ta the fiv,ncral swem,,nt 11re 11r, rntcya1 ~;t o,f th,~ smN-ms.m

:J2,948-,~43

"" 1,544167 6~.Ll'I~

i4,55!l,S,32

100,~(I~.:., 1

37 ,J!lll,80[}

62,912,411

2W"J 165 ~5.S \Ui

I 07.185,:SOll

LIAEHL.ITIES

Currem U.abili:i"!s· ~CC-1..11\5 payab-11!

Aoxrtmd ~a~roll El"~pemn AC<::ruecl ln1'lrest e~~erise

Cornp,ansatEJ<J a008nr:es CU!aloncs, c,le;,p~lh

ro1d p1inc:1pol paJ'atl<~ - t:l.irren: portion

Ti,Lail Curr'8-fll Li21biliu~s

[ i,ng·l~M Li~b1lit1~a

~ld princir.;l pa1·abl"=. Mt- lu,~ c,>.me;,ri\ porli\Jn Total Lor,g-t~m, Liabili•ifm

NET ASSETS

lnvesi'ad in capit:il ass9t,;., n~t <i1 reklted debt R~alricl,¢ for c;ipital prwoct..

CITY OF E.I. PASO OE ROBLES PROPRIETARY FUND3

$tP.IEMEITT OF FUND5 NET ASSETS JUNE: :m, 2lJ06

Eli,s1ness-trP'i' hti'l'iti~J.i - Fnwrp1ise Fends W~\oar Ss!v<~ Ai,11<1rt Tmnsil

Op,!,ratians 0-p,,ra.tioos i'.lpu,alic.ns 0[?';t.01i,:iris

521.1,(lijl;i 51,25'5 J.C>l>/ 47.llJ9 1{t8UJ 11.6\16 2.,019

30.1524 '19.S27 119,313 "/',929 68,666 3,970

E,75,000

657,962 &91.85"9 13,616 41 039

!'i.180.0[}Q

B.1Sll,Ql)O

25.321.12i.l 15.0l0,1~~ 13."357.7[).,I ~1.ll,1519 m

TO~~

s 630.84.S

24.M.ll

30.624 176,76\l

n.~3ti

Ui5 [)00 1,6-10,535

8,180.()1)0

8,180DOO

54.J.73,Sl? ~7g

Unrestt1<:led 15.447,5()4 1s.1e10 ng1 791,224 591,2G9 JJ.f..20,918

110.768.624 31.867,594 1.4,44&.928. 91}1],i,:Zl;I ij7_S,9'\,97ol

CIT'IOF ELPAfiDCICFtOElL[S P.ROPAIETAAY f'lJ'l,J~$

STA.TEk!Hll OF F<E\111NU~. EXPEr,ISES, A.ND CHANC;ES IN f'l.)Nti\s NIH MSEn; !'OR i~E F1Sis'J1~ Yi:P.R ist.l~ECl .llJt.E 30. 20[l£

t:;uc;,,,,,,..!l'rQc\c;ivilie~ Ems-,eri,e Fuod, wa~, So war J\lrpon

o,1o:a1;u,,~ Clperaiion~ •Jpe..,11nns llcirlMOw1atooM {)~rali,1,1R.-,,e,cw~,

t.:h•nJ .. , 1,,, ~,,rn,oLsQr.ii,e, 3,b9D.604 ' 3.W4,'.l53 1f.,54~ ' 1~,me Reo,~end """'8 m.au °'" S,!;07 ~~. ~41 s;~

folal r,no,;,11n~ "'""""~' 3.586.147 3 923 094 117 G'l!I 1nma

OparnM~ e~pe1sei· M~,nt,n.aric•. c~"':;HQ,.c, on~ ~dm!aiscration :\.04~.~M ,.n~.6~4 339.4DB 11611,ugl r:io.' <1ill1ion and a,1onl.:rnon o~~.nB , ,OlC l<O :Wl.7~~ 1am~

T-ct.al oee'>llo~ c•pcn:,c,:; :!,,'.l~.081 ;; .• ~,. 11~ 1)81.207 'e-12.60C

Op•,:-,1l"y ln<e,ne (l~s,) 'Wf90~J 63~,000 !30~.~69\ 1.11,~ ~~-1 No11-ooara110gce\'aM .. , (,-"'f'=nle>)

1"a1e5 72.152 R..-v~1""' -hos, .:,~io, ~~one;~, J&+,\}'I:'; 8"11,990 ll01,\ll'O 1.,1~,s,t,e"?nue aq,r:11.-s ~.!l5,8t,:} ,~.,M 10,nJ Wa'1i!•ooo,,..-.11u11 1"'11; 1.iis.= Nescim16n;o wntar •~es l01,%l Se,.-c, ~u,,noctionlos~ 1.~.1951 3•1~ vl,11,vl,,,~,"""W U'n~:~1m<:-ic, 10 <Jlr,-, agnncias (FG.i78i lm....-s,e.:pen,.e !-i!Urn

Tn,,,1 ·,-o.,,oerating '"""'"'""' 1,e,ne~s~s) :uou.tia 1.%4,$11~ %~.o~~ 67U1!

lr<:01rio b,-f,:,-i;, trs1·,;1e,~ '"" c.p1lal co,*,b.-!110.,s :J.162.M~ 1.1>47,•!S~ <eo.oo~ (13~.ol!OJ

T1an,IQco~•.I (9.:\50) (9.l..W) Cap1Lalco<J11Ln[)11L<;l<S 607 088 67~.l\1 C SOila I C.Ont'IDuMr, - Nsrnr,e1110. r•~ICtl 1.,~~-~, I aplr,.I Cw.,L,,bul"n - N,c,rr,iontowa1@,· t"9.alm•nt 281.~25

C:llan~• '" ,-~, ~'>Q'£ ~.410.950 J.JlB.416 M,.J.66~ 1na.ons1

1,,,a na,~s,...LS-J~')-1 3~.nJ.G!4 ~~-~'i1;,m 1~.7~0.<iJJ 1.0~S.UJ

Tot.a n•l3'"'""" lrn,.lQ ~Q.JM.~;,4 Jl.~OT.;;~+ s 1°.~15.',2.B s ~U8.B~~

11·.~ '<olos 1u 1he ;,a,eial ,1a:en,e,,1s ~,~ sn :a1~11t1F """ u•m,~ ,ia1eme~1

Tam

1.a~.e•~ J,'>c",M2

~.7'6

!.C·tii.;!67

li.~l.('.,~li7 :i.,-ru.96£

R.~~,(",17

;~l.8.700)

12,151 ~.~;·~.()('.

1.~10.H1 1,Tl5,~~

TL1.8bC

1.BC0.19~

(110\!II\) JEU1-0

ro.~r1, 15~

G.J<<.~95

r,s JOU)

',2!5. IQ~ 1.,19.SOI

iu.:m;

9 3[9 4~6

,8,$00,516

' n,~,~.91•

CITY Of' ELrA.81) DE Fl.OBLE3 OOMl31NIN~ STA,.'1'!'."1ENT Of CMH FLDWS

PROl''-:ll=TAl';Y FIJND$ FOR Tf-!EFISCAL YEAR. EN['Jc[) -'.!Ne: 30, 20CIG

E>L,c\lln••"'lll: .:.:m1t,er · l'"n~rl.,. l'~n~~

c~,h fl=~ h<;m OP!''~'lfJ ,",.,:iJ•iJi•• t•l!C•1pt;. l.rcrn ~LJ:!.!Qn~r~ ~ncl ,.o,, P~im~,·.t, k;, :;,.,w11~,,

l'~y.no,·,1s1,e;•1"~IO!'S<'~

Net oa,.sh prnv1c1n,1 fusl>!ll or ~1w,ati'tll artMIIM

<: ... h rlo...,~ -frcm CAplW ~,>'.I l'l•l~L~,J r; ''"~"'· ,\,;ct'c,~.s;

~rcc ... a, from1~d•r~I ~"~ "1~'• u1,,,,;, Acqul,.\lon, c>f~,<ipl~I ;),;:.~IS I .,_,,.rr,.,..,, u,~doaloai<1

la;e,.,1~i.lonlQnQterr1ooe1 Co~ic1~1..:ed cap1el rawr,eu

NP.lms>J n"""IWW (u:1<,,IJ r,,, Gapllal ~nd ,a woo nnanc"', a:t~llrecs

Ca,h Flo""' lrorn """"-"ldlal ;.c,J Rnl;,i,.J F=lro,,o,Jng m~Oies:

Opc,~l,"{l,,~n.i.r, o,/(oul) la,:s~

l.'oalr1hul,"" tn nlh~, ~

~e\ =I' ~,o'V'ad r, ... ~ b~ non--capiw( 1inencr,1Q sources

CJ~h n:,..; r,otn lm,,a:;i ·g ;.,::ti,,,ha~

lnl~ "'· '"""'1ma~t, No1 ca,h erov,do-d by lrr,••!lng 11,.,.eclnr:, ~c-Mc~,

Not ircr•a,• ;d•cr&a••) In ca'11 a.rc c,..h ••1ul.-sl@11L,

Cash .and"''" ~qull'lllants at begronl"il ol~e~r

Gas-- a,..; <-a~h 0Qui1S1lem, at end ol '{W•

R•n•re(:11181;:;,,, Qr"Ji::,irmlh:j 1:1001110 (Luss! I<> Na! C~sh "1CJ<rl{!<r(l1Re::lllll,;Jpn,c,1:flaJAe;li.iliW

Cl~e,,01,,,~r,,,x,h\eil,J$$j

1'dJ".lracnl> to ·~=cilc net apaoru1inR ,nro"1C (los,;) ~.dd ""~cec1a1Joo a,d .anorl-Zil!Jan

~ht1,\f ;,, ,,re,~,,.~ "'"""' ,.,~· 1101,;1,1,e~ (lr,c•=•! dc;(10<u~u ;" ·>CO"-'J~IS ,.,,~,.alJI•

(lr-.:rsa,•) deer•""•_,.., 1misnlo>)' In.-,~.,• [doc,.,., .. ) "'e.:o~.ril, F"}'•ble

!,,;,~~\~ In~,;,;,~ ~~io,11 ;,,p~n,oc

ln.:r~aso (,;Jr,,;;r~a,ol ~. conir,o,·~alO<J •='Y,o, 111cresse- (<lf:Cresse-11n o.1s1mner a~poall!a

N~, cash oru·,i:i,~ (Ysod) s>1 o~•r~l;n~ ,,,11,111~~

:,... rci~, lo 1h• <mm:lal sl~to01ants ~re ~n rc.'c,;,cal porl o'ICh" slol"""'"'

CITY OF EL PASO DE ROBLES Notes lo Irle B1;i5ic Fir-..iricioll Statements JLml? 30, 200~

w,~ OpE'ra•ion•

3J_;7,B,J~ (I.~' l,~,';li

11Yi,ua1 P~.10'

;!4,1,(1,15

10.wl.~~'.IJ

4,1G9,0TI

(2.065,lbl)

(~,.15D)

1s.,;,,l

i~.o,a 41!:!'<,075

(1,111'.185)

16.<Jr:1~61

1'i.,1g.c:,:,1,

(1H.9351

G88,J~8

(IS.Cl~)

895 XIIIOSS

:11») U,e6

10.~2'0 b?~.101

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. DesGription of the Reporting Entity

' s

'

8-a,,er Ai'P'Jn lranst Op,,r,il:.cns '-3p,:Atm.s Qp,a,Atlons

4,30:i,:!iei' s 0$M8i' ~ •. w; (J.~.J49) (17\1,ii:l<:f (fioo..:;m

IT11,004J (lla,S.ll'· (19,lA>) ~.1~n,;;·,, 13.~1' (7~3,<5T)

£'11.M Ml.~OS (1,u~4.;l'1<) l~]fi.~011) (114.~.ln)

(B~0.000)

(3~0,271)

1.f!IIC.lW

IH1\JAW1 j?'I\N1 &'IT 1.3g

1~.,501 i.i:, rn2

h~.~ro• 11;'.Cl~DI p:~, (1tf.,87G<

~~~ei,xr. t~.7F 1'.i,823 •e;.oo:: 1$,7.!T '~.~1

2,,1(17,01' CO,TS'l ;,:,?n,1:r1)

l~. IEl6.<96 T03,U71 599,D.37

1f.5T',~1D ' 7&1J\11l • .3:r1.a6f

632.a'b'i s ,J03.2Ga) ' lAla,022)

1,J1r,i..w :.ll,79~ ,s= i42.1rn (14,0111 (:B,Wl

p1.9[l4) l0,Ub6) (1\610) rG.?n,i (<.964) (252)

22,438 "' '~ 2,130,'514 ' IJ..!114 ' 1/80,25?:

lo1AI•

11-K1~926

M Hl.~b~ !1,69'1,U/4\

2.2~s.n2

~.OJ!i.-llll, 19,f)l\:14")/j)

16!%,o;:t;:) '.3&:.27,j

6.ll2~.27E f.!l.0<. 4~1

11~,i'OCI n.1~.

1•~.g1C 182,52'1

V,'.0,6!~ I c)i(,,6~~

1,1?0,~5:l

Jl,&<1,~6f.

' ~l.848.7<.2

' (::i;~.lo(;)

;,,11g,~5ll

OT0,S9l R,9;]0

202.4G5 (21.~8", JV8a 11.GJ6

' 2.2JGm

The ,;1c:companying compretiensive annual financial report ii1cludes the finar,dal activlties of the City of El Paso De Roble~. ;::ir,d its wmpanent units. the Paso Roble,; Rede=v~lopmenl Agency (Agency) cind 1tie El P;,iso dtl Robro.,; Public Financing Authority (Autrlority}. Ttie financifll ackiv1tLes of ttie fmegoing entities tiave bee11 aggregated and merged (termed "blending") wilt, those oftt,e City in t~e accompenying. 1inancial statements. as eact, meets the criterCa for inclusion as sel fortt, in Governmental Accouni:ing Standards Board (GASB) Statement No. 14, as amended by GASB Stalement No. 39.

Ttie City of Ei P,;1;:o de Robles was in<:orporated in t-8139. and operetes under ttie State of California C~ CouncilrM:;inolge· form of governme-rit. The governing body con-sists of a five member City Council elected at large by voters af the City. The City provides the following t>ervice.s'. Pubiic Safety (Police and Fire), Libr.:iry ,;1nd Recre<Jtion Services, Plcinning and Zoning, Public Works (Streets atid Roads). Public Improvements, Water, Sewer. Airport OperslUons. Public Transportation (Transit Services), and General Adrnirlistrotive SeNices.

Ttie City Council membefs, in separ.:ite session, serve as the governing board of !tit Agency d11U tile Autrlorily and, as su::;t,, ttiese erit1fa:s ~re presente-d as blerided component u11lls, Separate finericial ste1emems ,;1re produced only for \'he Redeveloi:im~nt AoeriC)I C1Jmpon1:nt unil ofttie City and may be obtai;ied from ttie City's Administrative Services office.

Tt,e Agency was organized tn August 1986, pur!;luarit to ttie State of California Heall:ti and Safety Code, Seclion 33000, e1titled "Commur,icy Redevelo~ment Law". At ttie same time, ttie City Council became the governing boerdc Tt,e Fir,.il Report, Redevelop men.I Plan. and Aget'l-cy boLmllar1'es were aelopled on November 19. HlB1. Althougt, it is. legally separate from the City, ttie Agency i.s reported as~ it were pa1t ol ~t,e primary gm1ernment because its sole pufpose is redevelopment, ,;,,t,abilitatioti, and !lie re1ritali:wtion of tile redevelopmer,1 project erea within ttie City's jurisdictio11oli boundaries. City staff provides. management assistance ta ttie Agency. The funds of ttie Ager,cy !1ave beer. included in ttie Government.al Activities in the fine1ncial sWtements

Ttie Authority was formed by !tie City ~5 a condllil for long-term debt financing and is governed by the City Council. Tt,e Autt,or1ty exists and acls as a separate public en:tily and tias 1t,e power lo acquire, l'.llffctiase. construct. finance, lease . .:indfor -sell public facilities and appurtenarice~ noce:a:aary or convenient for lhe pllblic purposes of the City. The Aultioaily hes no :;i~set~ of its own.. Ali capital assets ~c:::quired by the City under !tie A.LJthorlty are included in the finandal statements.

The financial statl'imC!lits af ltie City t,ave teen prepared 1n conformity w~t, ac:::couti11rig princil'.)les gene-rally accepted in trl9 United Sla~es of America as applied to qovemrnen.ta1 units. The Govemmemtal Accounting Stcindards Board is ttie :accepted stand:;ird setting body for gtJvemmento! accounting and 1inanci.il reporting pffrici~les Ttie m-ore sig.nifican: of the City':, a0Ci'.lt1ri11ng polideo are des,cnbed below.

CITY or EL PASO DE ROBLES Notes to the- Basic Finencial Statements (continued) June 30. 2006

B. Ba~is of Presentatlon

Ttie City's B.'lsic F1ni'lncial Stcitements are preparnd ifl conformity witll accounting princ1pies generally accepted In tile United States of America. 1 he Governmental Accounting Stc1m:l('lrrls B-o<lrd is the acknowledQed s.tanda,d settirig- body for esteblis.'1ing 11ccoLJ11tii;g and financial reporting sUlndards followDd by governmental entities in the U.SA.

Govemmelit-W1de Financial Statements: The Statement of Net Assets and a .Statement of Activit1-es. These stalement.s present summaries of Government.ii and Business-type Activities for the City accompanied" bye 101:al column. Fiduciary activities.of lhe Clly 1;1re not included in these stalemenls.

These statements are presented on an ~con-ornk resources measurement focus 1;1nd the accrual be sis of <1ccounting. Accord1t.gly, all ot th~ City's assets and liabflilies, ,nc:ILiding capit-a,I assets, as well as l.n.frastructure assets, and loog-term liabmlies, are incl~ded in the accompanying Statement of Nel A5sets. The Stateme.it of Activities preser1ts changes in net 1;1ssets. Under the accrual basis of accounting, revenues are recogniz-ed in :he per!od iri whicl'I they oire ea.me(.] wtitle expense~ are recoQ11i;ied i~ the .period in whi-ct1 the liability is lncLured. The types of transc1ctions reported as program feven.ues for the City are reported in Huee categories: 1) charges for services, 21 operating grants and cc,ntribution:;, ,:md 3) ca pit-a.I grants ar.d contril:Julions.

Certal11 eliminalio11s ha11e been made 1;1~ prescribed l,ly GASB Statement No. 34 in regards lo interfun-d octivities, p.iy1;1bl"C"s, oiriO receivables. All interrrnl Delence:s in the Statement of Net Assets r.ave been eliminated except those representing balances b-etween the governmental activities and business-type activities., which afe p.esenled c1s. in!.ernal balcinoo:a. and elimina1ed in th~ tJtai pr1mmy -govemme11t col limn. h1 the Statemenl of Actrv1ties, tllose trans1;1ctior,~ between go1tern.ment;,:il and business-type aclivities. have not been eliminated.

The City :Jp-pties 3ll applicable GASB ~r1;mou11cemef115 (if!duding all NCGA Statements and lnterprerations. curre11lly rn effect) a.swell as the foliLlWing pronoLincements issued on or before November 30, 1989, 10 the business type ecti11lties, unles,s those prnnmmcernen:s conflict w1tll or c;ontradict GASB pronoLincements.; F1n1JnCl<ll Accounting Sundards Board Statements an.d lnterpretc1tions, Accm.mting Prindp!es. Board Opimo.ns, and Acuounling Re.searc.r, Bu11etins of tile Comtnittec an ACCOlifllfng Pro,edure. The Cily applies all app!ic.al:lle FASB Slaternents and l11terpretations issued Eifter November 30, 1989, excep1 those thc1t conilict with or co11tradfct GASB prnno-uncements.

EJ.!!Jds. Fi!11;1ncial ~,c1teme_lllil~ Governmen.lQI Funds Financial Statements provide information about the City's fLilidS, inch.1di11g fiduciary funds and blended component units. Separate statemE-nts for eacl1 ft.Jnd category,-govemmental, proprietary, and fiduci1;1rya1e ~rcsenlod. Tile emprias1s of1Lmds ffli<lncial st;,temems is en major indfvldLial funds. eec.h of which ls OlsplQyed in El separate colL.mr.. A11 remaining governmental and enterprise funds are aggrega:ed and reporied as non-m.ajor funds.

Proprietaty funds Ojl-erating revenue.s. such as charges for services, result frorn exch1;1nge transactior,.s associated with the prim::lp.:il activity of the fLmd. Excrlange transactlons are tllose in which e<lC..h parry receives and gives LIP essentJ.e.lly eq1.1<1I values N-onoperelia1Q revenues.. su-c:h as sub-sidles 1;1.-,d irivestmenl; eamlngs, resLJ1t from non-tJxchange lransact1ons l)f anci11a1y acfa•ities.

CITY OF EL PASO 0£ ROBLES Note5 la tile Basic FFnancial Strllemen:ls (continued) June 30, 2006

C. Major Funds

43

Th1:1 C[ty reported the 1-ollowing major governmental fLinds in the acoompanying financ1al sta1ements:

~.enfil_alfLind is t11e 9ener.-,I operating lur1d of the City. It 1s used to account for all financial res.oLirces. except tllo.se req.ui,ed to be accounted for in another fund.

Meoi.sure D GO_Bqnds Caoital Projects Fund is uloed to account for the expendlture of general oblig1;1tion bond pro("eeds. for specific capital projects eis i'lLilhorized by the voters

Highway 101/46 West Community F~cilities District a,:counts for the improvements to the Highway 1-01145 West interchange and ro1;1d re-alignments.

M-eac,ure D GO Bond Debt S-e:rvica Fund is to account for ~roperty tax revenues generated from lhe gene..-al obl1gatlon bond tax override approved by the voters a~d the e>Cpl'!nditLire of said fu-nds for p1;1yment of bond principal and interest.

Redevelopment Agency Debi Seivice Futid is Lised !o :acoount fortrl,e collectron ,pr-operty tax increment and payment of debt authorized by lhe Agency's Board.

The City reported all ils enterprise furids as major proprietary funds rn 1r.e accompanying financial statements;

Water Opernt1ons F1,md 1~ used to 1;1ccount for the operntioi; end maintenence o1 the -City'.s water production, transmissiol1, and dis,tribution system necessary to -provide water service to the residents of tr.e City.

Sewer Operat10;1s Fund 15 LIS.ed to account for the operc1tior1 ;arid m1;1inte111;1n~e-of tile City's sewer coll-ection and trEo1lmerit sys.tern neces.smy to pro;ride s-ewer services !o the residents ot the Crty.

Airport Qperalio11s Fund is us.ed to ocoount for the ope-ration and maintenance act1v1ties of the City's airport.

Transit Operations ~und is used to accoimt tor the operatban and maintenance actlv111es of t11e City's transit system including bolh demand respo11se and fixed route ser.iccs as well as funding contribulions to the regional transit S}'Btem.

44

CITY OF EL PASO DE ROBLES Notes to the Basic Financial S~tements (contin1Jed) Jur1e JD, 20CJ6

The C!ty also reports the following lw-id tyl'.)-es:

Fiduci:ciry Funds· Fidudtiry FLinds f'inanci:al Stalemenre in dude a Statement of Net Assets. The- City's Fidudary Funds rE-preselit Agency Fl.Inds, whici1 ;;ire cuslodfc:.1 iri n;,turn (assets equal 1iabilihes) and do not involve me;,surement of results of operi3tions. They at~ used to account for assels. held by the City 1n a tlU'.:;tee -capacity or as an agent for individuals, private organizations, -0lher govemmenlal unit<;;, and ,'or -other funds" Included in lhis category are lhe following live funds: i) debt service trans.a-ctio1s of spe-cial c1ssessment l::11:md isst1e.s for which !:he City Is not oblig;;ited in any mariner. 2) to account for funds. received and expended by the Senior Advisory Commit11se, 3) !o account for funds to -p1ovide scholarships to gradtialed local high schov1 sttidents who Jndertake courses in the medical field, scholars.i'lips are aw1;1rded by the Peso Robles Kigh School Oi~trlct 4] to acco1.1nt for Ottier f'os( Employment Be~,e,fits., and 5) deposits from customers to tl-e ref1..mded when performance criteria is met or applied agail1&t fut1.1re amount-s due to the City from the cul:itomer.

D. Basis of Accmmting

The governmenr-wrde, prnprielary, and fiduciary furid fo1ancial statements are reported using the economic resources maas.urement focus and the tull 8(,C11Jal b.asis of accounting" Revenues ar.e recordecl when ea med ;,3nd expense-~ 1;1re recorded ;,3t the lime 11.ibili(ies :;ire- inc1,.1rred, regardless of when the related ca;c;h flows take place.

Governmental funds are repoRed us.ing the cu11erit f!nam;J;,31 reso1.nces mea~urement focus ~md the modified accrual basis. of ao;:ounting" 1Jnder lhis method, r-ev,e,nues are recognized when me:asurable and available. The City cot1siders i:111 revenues re-ported in the governmental f1..m.ds to be availaMe If tli1s revernJes ;;ire collected w1thlti sixly days atter fiscal year-end. E;'.xpend(ttJres are recorded when the relaled fund liability is incurred, except for principal and interest on general long-terrn debl, claims ancl judgments., a~d compensaled absences, which are recogt1ized as expenditures to 1he-1::xlef1t trley h,;1ve matured. Ca.r,il1;1I :;issel .1;1cqui~,1ion.s ;:ire reported as expelidllLH~s iii gov-e!r"nrliental fonds. Proceeds of general lo11g-1erm debt ~nd acq1.1isitions under capital lea.ses are reported as. other flnancinu sources.

Non-exchange trar1sactions, in which ihe City gives. or receives value without direclly recdving or giving equal v;,3!u-e in ex:change include pmperty taxes, grants, entitlements, and donations_ On an accn.Jal b21Sis, revenue from property taxes is recogniz:ed jn the fi.',lcal ye;,3r for which the 1l::IJ<e$ 1;1re le\lied. Revenue from gr1;1nt.';l, entitlements, and donations is recognized in the fiscc,I ye211 iii whicl-1 .all oi:!1igi!:Jility requirements have been satisfied.

Other revenues susceptible to accrunl include other lalCes, intergovernmental reveliues, interest, Slid cllarges for service,s. Gr:::int revenLies ar(J recognlzed in 1he fiscal year in whid1 ,;111 eligibility reqLJiremenls are rnel. Under lhe terms of grant agreements.. the City may ftJlid ce,tmti programs w111i ,1 combina1iol1 of cc,st-reimbursement grants, cate9oric;,3l l;ilock grants, ar.d general reveriues Thus, both restrkled and unrestricted net assets may be available to fini'lm::e progr.cim expenditures, The City's. policy is to first apply restricted nram 1es.nurces to sucll progri:im.s. followed by g-eneral re11enues 1f neces.saiy_ Certain indirnct oosts. are inchJded in program expenses reported for individual functions and tictivitios.

CITY OF EL PASO DE ROBLES Notes to the Ba~rc:: Flm>ncial Statements \contin1.1e-d) June JD, 2006

E. Budgeting and Budgetary Accounting

4!:-

The CHy IJr€-pt1res El four-year finar1Ci.91 plcm lhc:.t contair.s appropriations for two full fisca~ years. During the second year o-f ttie- twoyear budgeUfoLir year financial plan, a new two-year budget is developed .ind two addilional yei:lrs are addeid to the four-year finandal pl;,n. The process. for Lipdating Ifie two-ye,c1r budget/four yeiar firr.ancial p1at1 is generally described as 1ollows:

Administrative Services prepares bi3se budget schedules c;onsisllrr.g of maintenance and oper1;1tiorl!l, personnel selVfCe:'i, operating {:apitai, revenue estimating forms <31ld forms ior S\.lbl'T'lilting budgetary rnquests for new andfor expanded servioes. as w.-11 as reqLiests for operating ca-pilal nol already provided for on variou5 pre-:;J\Jthorized replacement schedLiles.. 1 hese scheidliles are dtstribute-d to all executive managers for afflrmat1on and/or completion. Upon aHirmation and return o1 new reque5t forms, Admini~trative Services com~Hes end publishes the drafl budget Executive managers meet to review the draft budget and prepare s.pttc1fic recommend.ations to b:arance the budgel .shoukl resources. not cov-Dr budg1stary requesls. The draft budget and executive manager recommerida.lions. are then reviewed Dy tile Council's "ad hoc budget commrtlee'" made up of two Cor.mdlperso11s. Final btJdgel recommencl;,31ions. :;ire develoDed and are presented to the fLIII CoLil"ICil at a pubilc work:srloD, followed by a public hearing, and then formal budget adoption at ti'le 1irst meetirig m JtJlie. The budget pret-"Jaration. review, and ;,pproval µmoess takes place in tile cont-ext of and with the objective of .'lddressEnq the ,::ioals m,tal:llished by Council during a goal settin;;i worl<;shop held just prior to tile process noted above.

This approved budget CO\IEll:'i SIJbstantially a.II City expenditw-es including re-budgeled ]terns. All appropriated Elmounts are as origmally adopled or as amended by the City Council ,;1nd lapse 1;11 fiscal ye.ir-enc.t The City M1Jm1ger is au1horized to 1ransfer bwdgeted amoLililS beflNoJen objects within departments.. Trar,sfers of appropriations betiNeen de-partment5 and Tulid:'i may be made only l:Jy the Cily Council. Total departmental ex1lenditures in excess ol the total dep.artmenllil budge led amounts are disroL1raged and executive manag-ers are held accountable accordingly, Form;;1I bsidge1ary integratio11 is emDloyed es e managemen: co.n.1rol to-ol during the- fiscal year for all funds inclL.:ding enterprise funds. A.II budgets are adopted Ot'1 a basis r-..ar1si.stent with accaunling principles ger;erally :Accepled in tne lJniled Stn.te:'i of A.merica.

F, Compens.c1ted Absences

1t is the CLtfs policy to record th.e cost of a;inual vacation, oompensatory time, and fringe benefits as earned in accordance with the Governm-snt31 AccounU[lg Standards Board St.iterne-nt No. 16. ~Accounting for Compensated Absence~·. Accumulatei::I unpald vacation leave is accrued when incurred in the proprietary funds. Only the current portion of !he unpaid vacation 1eavei Is :accrued in the govemme,ita.l fl.Inds. The long-term portion of I.he unJlclid vacatiori le;,ve is r1spo1ted in !lie Govemmenl-wide F1rianc1al Statements.. Employees may accurnulat-e -sick le::ive without limitation as to the number of hows of accumulation. Empioye-es are :poi id 100% ol their ,;1ccurnulated vaCTition p~y when tlioi:!y terminate their employrrie11t for <'fl\/" reason_ Accumulated sick pay under no circumstances is paid lD employoes. .'lt aliy time .'lnd th.11;;. i:'i nat recorded as a liabi~ity of the City

46

CITY OF EL PASO DE ROBLES Notes io the Ba.sic:: Financial S1a1ementS (continued) Jun.e 30, 2006

G. Cash a11d Cssh Eqviv.alents

For purposes of the :;;tatement l)f Ci'.JSh Flows, Uie City considered all highly liquid investme11ts with a ma!Lirlty of three months or IB:ss when purchased to be ca.sh equivalents All cash <111d Investments of !tie proprietary fund types are p-ooled with the City's pooled cash and investmenls.

H. !nv-entorie-s and Prepaid Items

Inventory is recorded using tile pur~rl;ases method and cost is reOJrded as an expenditure al the time individual inveritory items are purc:hased. 1nv-entory held in the Water Depall.tnent 15 valued al-ca.st using the firs! in, Tirs.t 01..1t (FIFO) inventory method Certairi payments to ver,dors m11ect costs applicable to future a-c.coLJntiflg penods and are recorded <'IS prepsid items.

I. PmpertyTr;ix.e-s

Prope_-rty t,ixe:;;. ;ore ass-essed, {:Ollected, and allocated by the Co~nty o1 Sari luis· Obispo Irlroughout the fi:;;.cal year :according to the folfowmg -property t<ilC c1;1lern;:lar:

Lien Date Levy Date Due Data - Secur-ed Taxes Collection Date - Secured Taxes Due Date-Unsecured Tcixes Collection Date - Unsecured Taxe:s

January I July 1 to June 30 November 1, 1~1 in~tallment, March 1., 2M installment December 10, 1'" ins.lallmenl, April HJ, 2nd in:;itsJltment June 30 AugrJst 31

Under Califomi;,3 law, property Wxes are assessed and co1lected by counties up to 1 percent of asses:;;.ed valt1e, plus o1her iricre,;ises ap,pr-oved by t-he voters. Under Proposition 13. adopted by the voters in a statewide ballot ln 1978, assessed va1uation is increased annually by a s:ost ol living index not to exceed 2% ex:cept for ttios.e properties Ulat changed ownership durihg th~ 'iVitl:!IIJe mcmth period since the 11-en do1te. In ttiese cas.es.. the property !.s re-.:issessed ;,3t ,;:urrent vall,le. The property lax-es go rnto a pool, and are then allocated to the cities based on a comptelC formula prescribed by state statute. Aooordlngly. lhe C1ty of Ei Paso de P.o~les recognizes property ta-x revenues when rt becomes both measmable and available to finance ~xpet1dilures 01 the c1.1rrentperiod.

Beginning wilh liscSI year 1993-94, the County of San Luis Obispo, for those !axing agencies desiroi.rs of p('lrticFP<Jting on a volunlBer basis, converted the property tax: colleGtion and distribution system to the "Teeter Plan". The City of El f>aso dP. Robles chose to part1c1pate in the "Teeter Plan" wherBin the City recBives 100% of the property tax levy during the ti.seal year without dedUClion for prope.rty tax payment delinquencies. Accordingly, the Cot1nty of San Luis ObJ:spo keeps s11 property lax p!!li8lties collected

CJTY OF El PASO DE ROBLES Note:.s to the Basie Financial Statements {contin-ued) June 30, 2GOG

J. Use of E$Umsies

47

lhe preparc1t1on of ttie tin;)-tidal statemerits in cunformtly with accounting pr1ndples generally accepted i~ th-e Uni!ed States-of America, as prescribed by lhe OASB an.d the American lnst1lvle ofC-ertified Pulllic Accountant.s, require mafla,gemen! to nof.e assumptions th<'lt affe,;:t the reri-oned ;,mo1ints of asse1s .and lii;1bilities ar,d disclosure of c;:011tirigent <'lssets ;,3nd liabilities at the dale of the financial statements and the r-eported amounts of revenues and expenses/expenditures during the reporiing period. P.ctual results could 6iMer from trlose estimates,

K. Receivables and Payables

Acti'lity between funds that is representative of lending/lJorrowing arrangeme.-its outstanding at fiscal year-end are ref~rfel:1 to ;;is ~due lo/due from oth.erfurids~. In same ca:ses, "due to/due from other funds" represent the short-term lratisfer of ctish resources al fiscal ye('lr-E;!t>d to elimintile negative c:ash balances that .ire temporary In nature. Cash resources have been loened from one fund to another to provide resD1.1rc:es to prep;,ir;,, a ":,,pecifis: pli'ln", a planninglde11elopment tool, until fees 9enerated from the specific plan orBa rnpay the loari.

Proprietary fund receivables are shown net of any allowance for LJr,collectible accour,ts. Utfiity ct1stomers are billed monthty, Tile V.'1111~ Llf ~f11\/lr::~s rnrn1ir-Jm-l, ~m--1 !lillm-1 ;;it fo;;r:;cir yR;;ir-Rnrl h;cis he!'!n lnr.l11rlf!rl in tti.i .'lr:i":Llmr.:iny1rio fini::iriccinl ~ralArrn,nt!>.

L. Use ofRe-strictediUnrestrictc-d Net Assets

When an -expense is incurred for purposes for wttk::ti both restm::ted end unrestricted net assets are availablB lhe City's p.;ilrcy is. lo app1y restricted net assets first

M. New Ao;:ountln:9 Pmnouncernent:s

Governmental Accour,ting S1andards Board Statemer.t_N,9~

For the fisc1;3I year erided June 30, 2006, the City implemented Governmental Acoou.-iting Sti'.indards Board (GASB) Statement No. 46, "Net Restricted by enabling Legislati-on - an smenctment of GASB Statemerit No. "3-4." This stalemerit is effectJve for f1~s:al peno6s bBgirining after June 15, 2005. This. Ste:1tement r~u1re-d lhat limitations on the u:;.e of nel assets imposed by enabling fegislatJon be reported as restricted n.et assets. A leg.:illy enforceable enal:Jlincg l~gi5l<1tion. restricliari is one 'that a party external 10 the City- sucti <3S dtiz.ens, public interest gr-ovps, ti,e judici<'lry- car, c:omr,el a government to lionor. Implementation of GASB State men IN,:,, 46 did no! have an Fm pact on the City's bask financial statements for the fiscal year ended Jurie 30, 2006.

48

CITY OF EL PASO DEROBLES Notes to the Ba:aic Financial Stc1teme11tfi (continLied) June 30, 2006

Governmenta~ Accounting S\anda~ds Board Stic!J~_ment No. 44

For ttie fiscal year ended June 30, 20-06, the City implementeO GASB Statement No. 44, ~Economic Condition ReportirEg· The Slfltist1cal Section.'; Lhis Stalement Is effective forth-e City for the fisc:at pefiocls beginning after June 15, 2005. This Statement .inhalices .:n1d u-pdates the sleiti~tical section that <1ccompar1ies a local government's basic financial steitemen1s to refJect 111e significant changes that llave taken place in lhe golfemment. Ttrn statistical ::;action =mprised schodu~s presents trend information about ~-evenues and exl)el'tses, trend information ~bo~t ttie goverriment's significant reven;_je sornces, ou1stand1ng debt, economic and demographics, and operating information. Implementation of GA.SO Statement No. 44 did not have en impact on lhe City's basic financ1e1l-statements forihe fi::;Gc1I year ended Jt..me 3D, 2006_

NOTE 2 - CASH AND INVESTMENTS

A. lrwestment Polk;y

Cash balaflces from all funds are combined and i:"111ested pursuant to the Com'lcfs adopled Investment Policy 1;1nd Siaw G-ovefnment Code Sectio.i 53647 Authorized investments in dude securities ot the United St~tes Govemment or its agencies. certificates of deposil, the Slate of California Local Agency Investment Fund (L.AIF), bankers' a,cceptances, negotiable oortlficaies of dep-0::;it, and repur<:h:ase agmements. The earnings f.rom ti'lese ifll/estments 1:1re allocated montt1ty to eo1c.h f•,md based upan the dosin;i balance of each 1und al mamh t!nd. AIJ en:erpfise fund investments are considered to be liquid investments (or cesh now and reporling purpos.es. FLmds held lly oulside fiscal ag-snts under the p1ovi5iom, of IJ011.d indentures thal aris maintained separately and ii;terest income earned on said funds \'ife credited directly to the bond fund or reported as ii the iriterest was credi'ted directly to sc.id funds.

The City u5e5 the yield on the Local Agency lnvestme11.t Ftlnd, a-n investment pool managed tiy the State o1 Califomia Trr;:;isurer's Office for evalu1;1ting investrnent performance. The yLe1d for LAIF durlng the l.a-sl quarter of fisc<ll year 2005106 was 4.53%. For the month ended June 30, 2006, the City recognized a weighted average daily rate of return of 4.51 %. At no time during the fiscal year di<l the City bo1row funds through the use of reverse pun;h<1:;e agreements.

Trle lab le below identlfies the investment types that are 5peci:ically authorized by lhe City's investment polit..y arid also identifies certain provisions of the City's inveslment policy that .'ld<lresses interest rate risk and concentro1tion of c::redil risk per GASB Statemenl No. 40. It does riot adclre~s in\lestments of dellt proceed5 rleld by boncl tru:;tee th:::it are governed by !:he provisiol'ts of the debt agreement betw&en ti'le City and trus1ee. Ar,y investmeni type not listed is either prohibited by C<1lif0m1a Government Code, prohibited lly the City's inv~stmelil policy. or r.ot specifically addressed Dy the Ctty's lnvestment policy.

CITY OF EL PASO DE ROBLES Notes to the BdSiC Financial St:ltements {conlinueO:) June 30, 2006

lmestmer.t iypes Mn~linUl"rl J\ut:trn~md by I tiw Mt1ti-rM~

-U.S. TreB5UI'( Obl1galion~ .5)'l:la~ U.S. Ag-ency Notes 1 yeiirs•• U.S. Ag-ency Mortg:ogW 6-ack'lld Sec.uril,es 7 yean;"' Bank11r':; Accept,:,nt;,,,~ 130 ,;l~ys {\J!llllle1dc1I i"oµer 180 i..l~yS Corpora\oa Notoas 5 years -C:e<1in~le5 ofOepo&it 5 ye-ars Collater:al1zed C-srt~f1(ates <:>f 0.-poc:,rt 5 yc.-ars N~tlable CertiflCT.11es of Deposil 5 yee,1i,. R~purc:;hase Agrneme11ts '.JO liay5 ~OC-<'11 AQency lrwe5lm1m! Fund (LAIF) Non-s

49

Mn~1mum % -N-1ne 30% 30% 40S N<:i11e ,0% l\lon-s rio;i.e '.30% None N,;ine

·•only 1;i,'l-f, 01 lhe a,ggr-egaal<' total of6[)% rn11y be-1fl~ested belween 5 and 7 years.

S. Collateral anel CategorizatKln Requirements

M~~1naim in

.Qna.J.:i~~e:r

Nllne None l\lon.i 30% No~e

511.iiilkm None Nune N<:>ne-None N{me

The C-<1lifornia Government Code requires California banks and :savings and lo:an assoCCations to secure lhe City's cash ceposits by pledging securilies as co(l.iteral. This Code stale5 that colJateral pledged in this manner shall ii ave the effect al perfectin1; a :;ecurity interns.I in such co!lateral 5l.lperior ta tllose of o1 general creditor. Thus collateral for c:1;1sh deposits Is consid-ered lo Ile held 1n the City's r,arne. The fair 11alue t:11 the pledged :securities m1.Jst equal at least 110% of the City's depDsits. Ceilfforn1s leiw alsa allaws iinaridal Fnstitutions to secure City depas11s by iJledglng first trust deed mortg;)ge not-es h.:::ivlng a value of 150% of..'! City's tot:al deposits. The collateral for certificates of deposit 1s generally held In scifekeeping lly the Federal Home Loan Garik i11 Sari Francis.co a~ lhe third· !)arty trustee. The securilies <1re physk.:illy held in an undivided pool for all CamomJa l)Ublic :;igEancy depositar:i. Tt,.e, Sta1e Pulllic Administ~ative Office I-or public agencies and th-e Federal Hotne L-o."ln Bank maintains detailed records of l~e security pocl that ;;ire coordiriated and updated weekry. The City Treasurer, at his discretfOn, may watve the coll~ter~liza11on requ:trement for deposits that are insured up to $10C,OOO lly the Federal Deposit lns1,Jmnce Cor:pomlion and in fac.! has wc1ived the oollateralization requiremenl for ;;ill deposits held by filiancial inslltutions at J1.me 30, 2006.

50

CITY OF £L PASO DE ROBLES Notes to the Basic: Fimmch:il Ste.temerits (c-ont!m.i-ed) J1.ine 30. 2006

C. Disclosures Relating to Interest Risk:

Per GASS Stateme<1t No. 4[], ir1tere.st rc1te risk is tt,e risk that chemges in market interest rntes will adversely aflect the fairva!ue of a11 Jn,..estment. Generally. !he longer the maturity of an investment, the greater the sen:-.ttlVity of its fair valui. to c:hangm, in mark.et ir.terest rates. One of lhe ways lhe City manages its exposure to interest rate rmK is by purchasing a combmat1on of .shortert-erm ancl ionger term iflvestments ancl Dy Urning cash flows irom maturiiies so lhal a ponion of the ~ortfolfo is m:aturing or comirig close to malur1Ly e11enly over tirne-<>s necessary to provide the ca:sh flow arid liq1.Jidity needed- for operations.

l11formalion at:mut the sensitivity of the fair values o1 the City's. irwestments to m1;1rket interest rnle fl1.Jctu1;1tions is provided t,y the following table thal: shows the dk>t~ibution of the City's investmenls by matLJrity. For pLirposes ofttie table snow below. any caHablo,i securities are .assLJmed to be held 10 maturity.

U.S. Agt!'ncy tiatBs ~I . .$, Age-ni;l' M11r1Q~(led B.as.klJ'd Soc.uriti.ii; Corpornte N-ote5 C,s11ificatt!-s of DeJ!G5it Lo"al AyenG,' lr.l'(J~Emern Fund (LAff) Hcl,::f tiy F)(l~d T11.11>t-ee.

MmlEly Msrke-1FunJa

11,270,508. ~6,852.359'

8,27J,\J45, 10,717,00() 20,216,257

-12!!~.:1];> s 66-,335,501

12 Month~ 01 Le!i5

3,27~.2!;,:,l 266,851

, ,ggc2.7Jo 7.447.0DO

2~.215.2!;,7

_ ,, __ !_,OD5,43::I

' 34.206 52.3

D. lliVl'!:Stfnents with Fair Values Highly Sensitive to lr.terest Rate FluclLJation.s

B.fr!llaini.n_g M.itrnit\' On mmJl.!J.fil

12, la 24 25 to 60 More Tl1~n l.1onth.a lii\omhs 50 Mornrs

7,410',5Q!;i ' 5-S1,750 J,457,302 12,128,206 4.384.12!1 1,891,09(] 3,072,000 198,00(]

19.323 932 14,805,046

Trie City's inveslments did not Ir.elude any investments lhat are highly sensllive to interest ra1e fluct1.Jations (to a degree than already indicated in the illlarmc1l1on prnvided above)

E. Disc-lo~ur~ Rtil;;itlng ta CredFI Risk

Generally, credit risk is the risk tllat an issLier of an investment wilr not fLilfJII its ablEgation ro lhei holder of lf1o investment This is measured by !he c>ssignment of cJ rating by a naliona11y recognized srati:slical mt1r1g org-1,miz:.ot1011. Presented below is !he miriimum

CITY OF EL PASO DE ROBLES Notes 10 the Ba.sic Fir.andal Statements \contin1.Jecl) June 3[], 2006

51

rating reqwred by (where applicaDle) the California Government Code. ths City's ir.veslment policy, or debt aqreemen~, ;,nd the actllal rating 85 of year er-.d !o.r th,e em;J1 investment type.

M1111ncum Exemp,C Rmings ;;m pi Yg;1.EmJ. L~gal Frc>ril

l:!illl!ill Disclosme AAA M

U.S. Age-11\:)' NG!Bi. 12,721,3G3 NIA ' 12,721.:86-3 LJ.S. Ag~m;y Mortg~9!!,;I 13-cir;l;E!d s~c.urili.is 15,4()1,004 NIA 15,401,0(1..l.. Corporate N-otes H.213,945 ' 1,425JlfiS 5,':14~,001) C,srtffi~R!ElE,: of Dep,:i~it 10,717,000 NIA 10,717,000 Lo"al A-gBnG,' lr.lo'E.l~mw111 Ftinl1 \U,.,1F) 20-.2,0.257 NiA H-eH:! by 80.nd T1vs1cee:

Not ~

20,216,2.57

Money M-erk.e1 Funds 1 005_4~~ ___ l_,Q!l_s.s.'.?c 6B..:ns,501 10.717.IJOO 29 541.1732 s l,,84:S,030 ' 21.:nl.!J.89

F. Cor.cent1sJtions of Credit Ris.K

The investmem policy ot thei City cm1tains limitations tilat .ire, 1r. some cas.es. more re~lrictive U-1c111 those stipul:;iied by U,e California Government Code. tn some cas.e.s. the investmenl ;:iDlicy of the Ci1y co11t:ains no limiti!ltior.s on lhe amoLJnl that can be invested in i:rny or-.e rs.suer beyond that shµLJlr:1tecl by the Ca1ifomia Government Code. lrivestmems in any one iSSlmf (olher than LJ.S. Treasury securities and external im1estment P=I.,;) t~at represent 5% or mare of the tol:al City lnYestments are as follows

Fede1~I Home Loan B~r.k. FeC-Bml Harne Loan MortgEli;te Assa,ciRtia,n Fcdsr.:il l:o.J.itKln"'I Murlgag-e A5:;o,:;ic1liCJn

G. Custodial Credit Risk:

ln,,.,ai.tm.i11I Type-

f'e-r:lc:ral ageric:11 secur111es Fe-dt!rt,il RQ<'l'IC\l 9li'CU!ilie.s Federal agen"y 5ecmitie.s

Re-portoo A.mm.ml

!i,:392,004 15,401.004 6,32<a.8[Jtl

Custodial crcdil risk for deposits i.s t-he rl.sk that, in the event of the filiture of :a depo.sil:Ory financial institution, a !JOvemme1t wil1 not l:Je able to recover ils depos11s or will not be i:lble lo r(o-CO'Je~ collateral securi1ies 1hat are i11 the pos:session of s,n oLJlsicle party. The ct15iod1al credil risk for m\lestmcmts is t1'1e risk that, in the event of the failure of the corn1terparty {e.g., brok:el--dealer) ta a ti<lli5-attion, e government wm not be able to recover the val1.1e of its invest merit or colletera1 sec;t.irities thal me In the possession of anoiher party. Tl1e California Govern men! Code and the City's investment policy do no1 con1ain lega[ or policy requirements ltiat wo1.Jld limit ttie

52

CITY OF EL PASO DE ROBLES Notes to the Basic Finandal Statements (continued) June 30, 2006

ex:posure to cu:stodi:al credit risk 1or deposits or investmenls., other 1han ttie fo(lowfng provision for deposrts: The Calif-ami<> Government Gade requires that a financial institution secL.Jre- depos.Cls made: by state or la-cal governmental units by pledg ng securities.man undivided coll.iter.,.I pool held by a depository regulated Lmder state law \•mles.s so waive<l by the governmental unit)_ The fa_ir 11.l;llue _of t~i:, pledged securities in the colk,tefal po-ol must equal at lem>I 110% of the tot1;1I i;irr,01.mt deposited by tne public .igenc1es. Cahfom1a law also .;(lows financial institutions to secure Cl~ deposits by pledging firs:t trust deed mortgage nctes havi11q a val1.Je of l 5D% of the secured public deposits. As of June 30, 2006, three different financial institotim1s held mare than $100,000 m City'.s deposits. Ttu..1-5, eacll financial institution was required to mllateralize all amounts in exce&E of $100,000 in ac:c:ordance wit!. CalJfornia law.

H. Casll and lnveslm-ents

Tll~ c:arrying amount of the City's c:::asll and deposits was $344,700 at June 30. 2006. cash ori hand was :54. 100 and bank balances, before rnconcmng items, were $566,8-26 at June 30, 2006. At June 30, 200-5, the ditterence between the City's bank ~c:::counts and the carrying amount F:'i due ta the normal deposit5 in transit and outslanding c~eck;s.

Tt,e City's 101al c:ash and in\lestmen.ts are repot1ed as follaw5;

Government1;1l -c1ciivities Business actJ\lities FldlJCl.!lfy funds Total Casll and lrwestmenis

$34,3,31,347 32,943,722

1 404 232 $68.684.301

Cash and irwestments are classified 1n th,;, financial .stitements as shown below, based on whether -or n-ot their use 1s. res:ricled under the !enns. ot City debt instn.iments or Agency a\jreements:

Available for ore rations With fiscal agent Fiduciary iunds Totcal Cash and Investments

L Marking Investments to Fal:rV;alu-e {GASS 31}

$65,284,637 1,005,432 1 404 232

$68,684,301

Governmental AcCOUl"lling Standalds Boi'lrd Statement No. 31 requires that the City's investments be carried at fair 11alLie instead of cost The City·must adjt151 the -carrying value (book) of its inveslmenls to reflec:;:t theif fair value at each fi~cal year end, and ii must include the l;'ffects of the:;,e -c>djustments it1 income for tll.il fis-cal year.

CITY OF EL PASO DE ROBLE$ Noles to the Basic Financiat Statements. (continued) June 30, 2006

53

GASS 31 applles to all the City's investmen.ls, even if tlley are held to maturity and re-deemed at full lace Yalue. S1nc:e tile City hold.s all 1nvestmen~ until m.itL.Jrity or urnil lair val1.1e eqLials or exceeds cost, t-he fair value adjustments req1.Jired by GASB 31 re:sull ir, -3CCl)1.Jnlin-g gains or losses (called •recognized or "w·ireatized" g:ain-s or losses) wliich do not rellec1 actual sales of the inves1ments (called "realized" gains or los!'ieSJ. Tl-11,s, rec:agnized gilins or losses on an im.iestment purchased al par will now reflect ch.cmges in value at each sLJcceedi.ig flscai year-end, buttllese recognized ga1t1s or losses. will net to zero If the 1nve5lmentis held to 11atunty. By following GASE 3-l, thlc City i:;i re~-orting the Qmount of available resources that woLJld act-ueilly ll.i\'e beer, avo1ilabfe if it llad been rec:i1.1,ired to UqLiidate ;;ill Its in\le:stments at ;:;ny lisc.Eil year-end. The lair ve1IL1e is. p,ovlde-d by Urn an Bank of Califolnla, tile City's safekeeping cLJstod1al ln.stitutio11

J_ State lnva:stment Pool

LAIF is ei 5pecial fund of t11e California State Treasury tl.rougl. which local government!il y;1n pool investments. Each gove·nrnerital agency may in11est up to $40,0Q0,1')0() for each acco1.1nt in the fond. Investments in LAIF are higllly liquid. a:s deposits can be con\'e'1ed to ca:sll within twen.ty-llours witrlout loss of interest or pr~ncipeil. lhe ILJII faith and c1edit oflhe State of Californi.o seGure lnves?ments in l.AIF.

At June 30. 2006, tile account in tile name of the City hi,ld $2(1,2~;\.(l[JO CJn !11,flO!.it wliilE'l tli~ RE':ir:l~v~ILll")m~nt AQ~l"ll:jl liiu'i nLI fLn.,r#; on deposit. D1.Je to GASB 31, the CFIY recorded a total fair value of $20,216.257 that included $36,743 in recognized ("unrealized') losses on investments in LAJF. The unrealized loss was based on a fair value adjustmenl factor of _gg818582i 1mlcula!Ed by the State of C1;11ifomia Treas-urer's Office.

NOTE 3" CAPITAL ASSETS

Tl1c Governmenlal Accounting Standafds Boafd (GASB) ~ssued Statement No. 3-4 that requires the inclusion of capital asset:s iriCIL1d1ng infrastructlJte c:apital assets in tile local governments· basic financial statements. Infrastructure assets ih.CILJd-e r:iads, bridges, curbs and gutters, slfeet:s and sidewalks, dminage systems, and lighting syst-ams

All capital assets incll:ding infrastrnctLJre are valued al htstorical c..ost or estimated historlcal cost if actual hislorical co.;;t is not available. Contributed capjtal i:l'ooSE'ls are vall!ed ::ii their e'oolimated fair value on tloe dale contributed. The City's policy is f(, capi1al1ze i;i!I <3~$ets with cos.ts exceeding cenair, minimum !llresholi:ts, $5,000 fo1 ma.clline1y and equipment and S25.000 for b1.1ildings, Jmprovements. and 1nfrasl:ructure, a~I witli use1ul lives exceeding mo years.

For al! 1nfmstruclure sys"tems, Ille City elected to use ihe 8i:i5ic Approacll as defined by GASS Statement No. 34 for 1.ifr'<'lstruc1L1r€reponing. T-he City commissioned ari appraisal of City owned ir,.frastn.1cture- and property ,as of J1.J11e 30, 2002 and has completed an internal update for June 30, 2006_ Tllis appraisal Getermined the original cost Which is defined as the actual cost to ::icquire new

54

CITY OF El PASO DE ROBLES Notes to ttie Bosic Financial Statements (continued) JJ.me 30, 2006

property in accardanr;e witti markel prices at tile 1ime of first constr1.1ctionfacqui8it1on. When actual co-st infarmatian was riot av;:iilabie, current replacement cost w;,s. ast1m;,ted arid trended back to lhe date of acqu1s1tion by using- either Ille Bureau Jf Labor Statistics, Cons1.1mer Price Ind ell for All Llrban Consumers, Los Angeles-Riverside-Orange Co1.1rlty, not seasonally adjusted for all it-ems, m lhe Cons-truct!on Cost Index compiJed by F.:l"lgineering News. Recofd (ENRJ, revised in June 2.002. The Consume, Prk;E! Index was used for traffic: !;lignals and streetlights. The Const1'Uciion Cost Index was t1sed for "'II otll~r infra.structure ai.::;els. The book vah.ie was then computed by deducting the ;;,ocumulated depreciation from the original cost

The purpose of depreciation is to spread the cost of .:apttal assets eqLJ:itably among all users. over the usefLII life of these ass-ets. The amount chsirged to deprnci.ition expense each y-ear represenls thal y.:mr's pro rara sllare of the cot>t Df capital assets. GASB S1m-ement No. 34 requires that all cap~tal ass.els with l1m1ted useful lives be depreci;3te(I over their es.timatOO 1.1seful lives. Deprecialion is prnvided uoino the straight line method which me.ins the cos1 of the assel is divided by its expected useful life in years arid "\he result Is charged to expense each year until the as.set is fully depreci;,ted. The Clly has al3Signed the useful lives listed below lo ~c1l)ital essets:


Pavement CurDs o1nd .gutter.. Sidew.ilks Medie:ins Bridges Tr:affic signals Stteetl19h!!; Storm drain sy!;ltern~ Off-roEJd trails Playground equipment Governmerital buiklings

Noles to t~e Basic Financial Statemenls (continued) J1.1n-e 30, 2006

55

25 years 50 ye-ars 50 years 25 years 75 yeo1rs 20 years 50. ye2ir5 50 y.:mrs 20 years 15 yea,s 50 years

Capita I Assets of the Clty for lhB fiscal ye,c,r ended Jun-e 30, 2006. consisted of the following:

B;ilan~~

G[Namm11ntal Activitlu~, Ju!J:: 1. 2:005 1.,, ... .,,,El'5 CtttGrensm;

~00 4,412,0t5 ,n2.s4; CJUl\d!,~s and tmpro~'<'m,::,11\s 42,9E-6,H8 El~4,70S Eqll1pmc111 G,1;;g,679 760.822 :l/0,370 (nfra~tructure ,1,r1~ -CiF' lril'l'~lr~(;iiare 11!1,!le.:J,2~6 14 \98,115 Ll14.547 CoMLruct11>n ,n progrt:~s %~)05 1.386,402 2G,g0(l less occ,JrnUEata<i rec:irec111Uon (s,;,oa;,154) \-l.51(1_8g81 ~265 2.5:J) GO'IElr<llllli!n\iill a(;111'1cy c:1~1ta• Sll;lilJtU, riet D7.Jlo.,o~ 15 761,998 1.349.S'94

Balarice

Ju11e :10 2~06

, tJ~.Bn 43 5'8(U87

6.SH.111 131 9o'5,E36-

2.288,177 (40 3-02,BO~) 101,759,113

CITY OF EL PASO OE ROBLES Notes to the Basic Fir1ancial Slelements (continued) June 30, 2006

Bc,IMceJul~ 1. 2no,,

Bl<einea"~l"l'"'•;llvrti,i,sa; w,w

iluil~1ng5

lrnpro....,,r,el'lt~ other rh.:ir. ~ullcb,hga

Eq1.;lprnen·.

L'-'~5 accumul~Lell -::l&p,ec.1a1ior. W.at(ar -ll'wli'l\tles ~aphal a~...e1.1;, "1llt

,-, ''"' El\Jil:J1r,g~ lmpn;,vernen~ otlwr tt,~n buik:ling,;

Equiprne~t

Lsaa "crnrnJ.Jl!'lted d,iµ1,;i~1JliY11

So!IW!l,r !'l~llis,,; CBJ>i\s,I ~~~,;,~, nel

Bu1kJ1n-,s lmprn,,.,,m-ents o-Therthan be 11di11g~ l'.qu,pm.,,nt C0Mtrl.JCl1on in p,ogr,ess

ie~s ocrnmu1nt"LI depr-e~ial1cn Aizyort Etdiviliils c:ap-lt.al asse~ nel

r,,iri:;;it Eq11l[>"fle-nt

LO!~• a-r.cLJmulamd ~erre-dl'illl-n

Transit aci:lwillE>li c.apllai! as,i;Qba. r,a-l

Net ca.pilnl asse1$, l(JU'il government

ClrY OP EL PASO OE ROBLES Notes to the Be sic Fin:1:1:ndal Slatements (continued) JLme 3-0, 2006

732,.:J!rl :25.047,D-BB

I.G-28.<17 ~.$03,1)4(!

1n.1>oe.1s1i

55,9,0SU

688,338

2':l,7%,993

1,1!.n,935

.,;_.12G,223

(15.1>40-.719) 22.974,820

1.::110.,;.15 ,.~'>6 ,i.18

8,(124.101

153,1\!j.5

6],:'.C-2

(5,!62,'.6-8) 13,\ln,liG3 S

G.37.401

2,102 i257.20S)

S4.7.l5,:t46 S

152.061,955 S

ll'lcr,,,ase.s

3,651,23"8 10E>,n1

l;i,J9g-,1ti1

(ij!:S,703)

'3,41>7,389

1,214.95J

45.409 674.TIS

11 .01\l.~~a1 925J'l3

[341,.19~)

654.~0:J S

:D\l.Jlm

5-46.l (i.S.50())

,1,083,986 S

D~c1.i~""

:l,!i~l.8>15

2.,551,345

2.25,-6:25

G9,352

69,352

-4,196,415

S• 7JZ,488

2:3.69EP.22?

1.D4.004 l.45LU56

(14.294.B551 25,321.120

S59.C-50 (lijJU-38

31.011).846 1,1!;17.404

6,.675,3'3

[16,fjS6, 16J)

i',BJIJ,415

1.9:56,948 9,82(),453

1.5~,85"

16, 103,96J)

13 657,10<1

'>·b.77() i,5E:~

i33ii.715)

31-ll.61>'

&<.97241"

2H.B1524

For the fisci:il YS<if ended J1.1ne 30, 2006, depreciation expense on capital assets wc1s cl1arger:l to the-gov1:Jrnmelntal functicns a:s follows:

General Govemmer11 Public Safelly Public Work:s Library arid Recreation Service:s

Community Development

Total De-preciation B::peti~e

Construction Commitme~

$ 'l66,408 534,542

3,,417,519 379,015

13,413

4,510,89!!

No of June 30, 2006, lhe City tlad a number of construction pmJects in progress. Ttie governmental activity projects t'tad a total work l;i progress amount of $2.286, 177. The business-type activity projects included various water, :sewer, arid airport infraslrncture improvomonts lol.:iltrig $15,3.33,203

NOTE 4 - INTERFUND TRANSACTIONS

A. Loans

With Council approlli;il reso1.ncecS were loaned to U,1:1 Chandler Ranch and Ols1ctn Bocchwcod Specific Plan Funds. The City Co1.1ncii adopted Resolulian No. 93-173 on November 2, 1993 which approved a re1mDursement agreement between the City and the R1,de,.-eloµment Agency_ The reimbursement agreement requires the Agency to re;mburse the City for lease payments made for the construclion of the City Halli'Ubr.(:lry facility, The amo{.lnt no1ed below re-pres.erilcS "life to do;1te" lease payments (debt servies) owed U1~ City for lease payments already made less prior payments from the Agency. This amo1.1nt does not inch;de future 1ease payments.. Fut urn lease pay merits will be 1eco1"ded when pald by the City.

56

CITY OF EL PASO DE ROBLES Notes !:o !tie Bc15ic Fi(l.ancial Statements \continLied) June 30, 2006

MaJor Fund.s: G,;neire-1 F\.md High\1/::W 101146 West Community Fadl1t1es D1stric! Fun-cl RDA Debt Service rund.

Non-major Funds: Publie Fat:ilitii;s Development Fund landscape ani;l lighling Dis1r1ct Fund Truffle MitigmiDn Developme-nl FLind Spec1fii:: Pla11 Fund A1rpmt Ro;.,d PSR Fund

Totals

B, Transfers Between Funds

$

Loans laans Rec:aiv~bla Payabl0

1,766,267 ' 1,420,067 6.965,402

6,965,402. flG,344

1,483.961 1,675.923.

63.894

10,215,6-30 $ 1-0,215.6-30

Witt, Cou11cij approv;,I, fe.'5ourcel:i may be transferred from one City fund to anottier. The major purpose of the transfers iE to relmburse a fund that has made an expenditure o-ri behalf of o1noth-er fund. Trans.fers are identified as follov.s:

CITY OF EL PASO DE ROBLES Notes to the Basic Finandaf Ststernents (continued) June 30, 2006

Major Funds· General Fund Mwsure D GO-Bor-.d~ C.apiral Proje.ct~ Fund ROA Debt Service Fund

Non-Me,j1;J1Fund1.: Geraeral Emerg~ncy a.rid Reserves Fimd C<lj:Jital Repl;:i=menl funcl City F.idlM.y Recpai( Fund G,;1~ To:w:: Fur,d Tr~nsporui1ion bevelopm-eht Fund Londfill CI0$1,1ri!!IF'ostc:lo:bl.J"re F-Jnd Commwnity Developmem.t Blo~k. Gr1mt F1.md Re(Jevel1,1ptn1:1nt Ag.incy Fund Landfill Contir.ger.cy F,1nd Capital Pmjec1s R~5,erve Fund Tmtfic MitigaliDn Devalopm,enl Fl.Ind Signa.~iz.atiDn Fund Parll De11'6lopment Fund Parkway .and Median De11el<iprnen1 F1,.1nd Public F.acmties DevelDpment Fund Specific Plan Fund Ul93 Public Faci1ities Debt SeN;ce F1,.1nd

~nterptise Furids: Sewer Fund W.ater Fund

Tol~li.

59

Tttu1~,;,11, In Transfers Out

1,3-20,067 2,236.555 ~,5S4,J63 3,D98,60{1

2.59,202

550,00D ~9,996 500,000 299,9S8

1,007,9;35 d25,05-8 13,300- 458.29-5 73,2\JO-

Hl3,208 25<'\,447 103,2(]8

5-00,00() 1:;;.R,Fif'i7 713-3,672 694,145-367,345 183,672. 124,[)0[) 51,613 122,915-

96-8,438. 73-8,498-2.215.000 3.594,363

554A14

'3,350-9,35G

12,mi:,.,201 $ 12,983,207

CITY OF EL PASO DE ROBLES Notes to the 8:asic Financial Stateme,aits (continued) June 30, 2006

NOTE 5 - RISK MANAGEMENT

The City (s cl mernlier ofl:he California Joint Powers Insurance AL.Jthority. a risk shcnirig, selfrfunded jDint powers authority Nhose membe-~h1p :31 last count included 113, p..iblic agencies. The, Joint Powers Aulhority pro11ide-s progr.im administration, cl1;1im seNicing, 1nv~s11g.:1tion S!'lrvices, legal co1.1.i-sel, c:.nd excess i:;overi9ge to 1tci members.. For general and auto liability, the Joint Powers Authority p1ovides coverage of $50 million per occurrence an<l $50 million. agg1egate. Foi·workers' compensation, the C(wemge is silltutory plus $10 million per occumonce tor employer·~ liability. The City o1lso pcirtkip.ite~ in 1he non-;;il.lto property pro-gram offered by the Joint Powers Authority which provide-s fLtlt replacement coverage for buildings and fadlrties. The City is self-insured for propeny damcige lo City owned equipme-nt and \lehides -except for major -equipmerit i.e. fire trucks for whicl. lhe City parti:;ipatas With other public r:igencies 1ri a sp-ecial Insurance pool. The Cit:,,, purchases speclalty policies to cover airporl l1abil1ty and landfol liabliity & poll.itii;rn coverage from other sources. Copies of the financiaf audit are av.iil:abl1:;1 llPOn requ,e-$1 from !he CitY or the Joint Power.s Authority, 8081 Moody Street, La Palma, Ca. 90523. or pnone 800-229-234:3.

With 1he dissoluhon of th-e Cen:ral Cc:iast Cities Self 1nsurance Fun.d, the Joint Power.s Authonty agreed lo manage the "tail" claims for general liability .ind worker..' compensation for the Self lrisurnnce Fund pariidpants on a volun1atily particip.ition l);;i!,,is. T1e Joint Powers A.uthority manages these "tail" claims separately from its regular programs. Paso Robles has agreed to allow the Joint Powe,s A.uthority to manage said "tail' claims for g-eneral liability and worker.s' compensation.

Trle last actuaria1 study undertaken for tail claims was during fiscal year 2005. This sludy fndicated thal the City hed general li.c1bility fund balance of $181,464 not including $70,000 for "l~cutre.d but not yet reponed 3 cleiims per trle actuary. It is not expected that another actuarial siuciy w11l be undertaken on liability cb:iims as their life expectancy is rather shori lived.

In the case of workers' compen.,;ation, the actuc:.ri.:il :study indicated thal the City had 11 fu11d balance of .$1,051,970. TMs amount does noi i11dw:le $925,00D presenl \lalue of liability for outslonding GI aims per the 'Actuarbal Review of the Workers' Compensation Program" as prepared by Richard Sherman & AscSociaies, Inc. during fisOcll year 2005. The "Ac:tuar1al Review" will be LI[)dated in fiscal year 201:rJ.

NOTE 6- GOVERNMENTAL ACTIVITIES LONG-TERM DEBT

A. Description

G!!!:!§.c,gJ_.O,!;!.li_ga_t,i.2.rrJ~_gri_d.s. - tn June 1998, the vot()rs passed e tax overritjl;! :;ii.i\ho<lzing the sale of $38,iJ-00,000 general obligc:.tion bc:inds. The bonads wel'e said In three ~tmes. On Jlln,e. 9, 1999, the----Gity'issued $22,999,598 i.n. Ge'1erQI Obligation Bonds, Series A Capital Appreciation and Term Bonds \1999) for the piJrpose of proiliding conslrnclillr'l fLJ'lldS for a variety of citywide projecls. The outstanding bonds bear -1;1 net interest cos.I of 5.36% and are due in annual inEl.dllments ranging fmm $297,970 to $615,806 tlirou.gh J~t\Ual)' ~, 2028. lhese tionds ~re payable from ad valorem taxe,s levied against al1 tcix1;1ble real property In Ille City (w1tt' the exception of certain classes of personal property).

CITY OF El PASO DE ROBLES Notes t-o the Basic Financial Saatements (continued) June 30, 2006

61

On S.optember 26, 2001, the City issl.led $£,999,603 in Ge11eral Obligation Bonds, Series B Capital Apµrecialion and Term Bonds (2001) for the purpO$e of pro\1'1<ling construction fun{is for a variety of citywide projects. The! outsti'lfld1ng bone.ls be.llr a net int11rest cos, of 5.D'il'% and a-re <lue 1n annual installments rnng1'1g from $297,970 to $615,806 througi'l January 1, 2028. These bonds are payable from ad valorern taxes levied ;;igciinst cill tci:xo11:lle real property in the City (with the exceptlon of certain classes of personal pro-perty).

On Apnl 17, 2002, the City issued $8,000,000 i11 General Obligation Bonds, Se1ies C {2002) for the purpose of providing .construction funds for a variety of Citywide projects. The m.1tstanding bonds bear a ri-et inlerest cosl Df 4.9-S% a11d are due ifl annual in!lillllmer1ts r:;ingiflg from $297.~70 to $615,806, lhrough January 1. 2028. These bonds are µcayi:lble from ad valorem taxes levied against all taxable real property in the City (with the exellpl1on of certain cla~scs. of pe,sonal prnperty).

Tax Allocation Bonds - On September 16 1996, $3,630,000 Tax Alloc.ition Ref1.mding Bonds were issued -by tlie Agency to re1und bonds originally i~s.ll~d in 1991 to repay advances and loans. received by the Agen.cy from the City. The outstandfng bonds bear a n.et interest CG:-.;t ur 5.50% and are due in anmial installments ranging from $70,000 to $255,000 through January 1, 2022. These t)Onds are p;iyahle from property lax Increment revenues

On Oclober 3, 2000, $4,090,000 Tax Allocation Bond:s were i:s~ued by th.e Agency to repay .a.dvenoes and loans received by the AgEncy from the City and provide funds for the widening of Nflllick Bridge from two to four lanes. The ouistanding bonds bear a net 1nt-erest oost of 5.25% and are due in 1;1nnual incSW.llrner-,1:s ranging fr-om S20,000 to $485,000 through Jcinuary 1, 2028, The~ bonds are payable from property li31X incremenl revenue:s.

Lease Purcha'3e Obl1galions - On November 15, 1993, the Paso RoiJ~es Public Fiflancing Authority sold $8,230,000 Certifie,ates of Pai1kip.iiion. $3,530,000 oftl"'oe ce-nificates was us.ed 10 refLJnd lhe 1988 Cenmi.;;:i.tes of P.irticipalion is,sued tc:i construct a cc:immunity park and recreational facility. This po1tion of the cenilicates ma1ures June 1, 2007. The balance of certificate::;;, $4.700,DOO, were used to construct a new municipal library and munidpal offices. This portion of the certif1cal11~ meitLJrEtS June 1, 2024. All thee 0L.1tstcindirig certifiC<'ltes be<>r 1;1 11-et interest cost of 5.15% c3nd are due in i:mnual installments ran{ling from $180,000 to $640,000 through January I, 2024. The library portion is reimbursable to tho General Fund from Redevelopment Agency proparty tax increment revenues.

The City E>ntered into a $428.162 lease purchase contract dated Deoomber 7, 19!'.J9, for the ;;icquisitior1 of i:in at":Jrial l.::1dder tru~'k for ti1e Fire Oepartment. Priflcipal and interesl paymsnts cire due st:Jmi·<:mr'lll;';lly in insta.llment:s b-eginning Jua1e 7, 2000, Willi Ille lei-st payment due December 7, 20013. The tc:ital anmml payments are $98,552.

Tli-ll City etile~d into .;i S17,41 D le;;se purcha~e contract dated August 24, 2000, for the .icquisition of a copy ma~hine for the Polico Department Principal ancl interest paymen{s are dt1e monthly beginning AugLJst 1 5, 1999, Willi the last payment due July 15, 2006. Total annu.af payrnents are $4,011.

62

CITY OF EL PASO DE RDBLES Notes 10 the Ba.sic Financial Statements (continued) Jur;e 30, 20Cl6

Trle City en1ered into a $193,571 lease pmchase contract dated Augu!at 20, 1999, for the ac:quisitian of a 911 phone ,sy~tem for the Police Department. Principal and interest payments c1re due monthly beginning December 1, 1999, with the last peymen1 duo November 1, 2006. Total armual pQyr,;ents .ire $45,941.

The City enternd inlo a $666,218 le;cioo purctiase contract dated October 25, 2002, for the acquisition of Mo fire engines for Uie Fire Department. Principal and interest pisymentsi are due monthly begirmbng November 25, 2[)02, with the la51 payment due October 25, 2007. Total anmml payments are- $144.471. The City emered into a $263,254 le.'lse pun:;hase contract dated September 7. 20CJ4, for the acq\Jtsition of two Mr'eel sweepers for the Public Works Del)al'l.ment Principal and Interest po1yrrients .are due monthly beginri1ng December 3, 2004, with the last payment du-e November 3, 200S_ Tolal annual p<'lyrnems ~ire $57 .299.

The City entcrnd into a $289,00D lease purchase contract dated AugList 15, 2005, for lht> acquisition of one heavy rescw•:1 vehrde for the Emergency Services d-epartment. Prim;:ip;,I and inlere:s.! paym(cnts are due monthly beginning September 30, 2005, with the las.I payment due August 30, 2010. Tole I an;iual paymefl.ts are $63,353.

Tile City entered into a $1,500,000 lease purchase agreement dated D-ecembsr 6, 2005, for the acquisition of 52 acres adjacent to the City<s. landfill. Principal and int-ere!at po1ymen1:; are due semi-annually beginn1rig June 30, 2006, with tile la5t payment due December :?.O, 2D20, Total annual paymerils are $138,598.02.

B. Changes in Long-Term Debt

!Js of J>.me 30, 200-$, tlis City h.id the follow1ng lang·term obrigalions oulstan-ding including the current portion:

GDYemme-ntal ActMlies: ~;,p11~l l~111;<>5 Pil~ilble GCJrtFfic~ti:s of Pilrlid-'i1lim1 Gsm;,ral Obligation Bo,,-ds Rer1evek',pme11t T.ixAl1a.cawn B,:inOs Comp!!-nsat,.(1 Al)$~,1s.':'o Cfo1>111e-lP<Jolclo~ur11 Liability

Tolaf G,o,,.ernmental Acti11ilie;5


Balanca-Ju')' 1, :1.oa5

559.(170

5,010,UOO

~~,;172,550

6.64~,DCIO 1,£61,046

91Q,,935

48,768,101

No(es to the Basic Financial Stal.e.ments (continued) June 30. 2006

C, AnnLia1 Repaymenl Requ1rame-nts oJ Long-Term Debt

Gov!:lwmE111Ull Actlvilies ln-eurred or $11tisfied ar B.lle,nel!!

ls:su~d Mil1ured JUii'!! 31}. 2006

1.7B9,0[)0 (21i6.2451) 2,081,1121 ' (415,000) <l,~05,0(10 (1,'3139,~SC)) :31,972,970

(165,000) (J,480,000 127 043 1,78R,589 154,12.B 1,-0/4,061

2,07;J, 11;:,\l t2,845,8~11) 47.-992.441

G3

cur1eM Portion

321,13&

'12:5,00(1

2,006,25::0 165,LlO(•

50,00[•

2,967,391

The annual req1,1irernents 10 amortize all debt aLitstanding (e:<cluding CQmpensated ab:s.c;nces and cto.sure/po51i::.:los.ire liability) as of June 30, 2006 are as. follows:

GCtYl>mmenllll Activiti@"s Yl:l;;if End Juna 30 Principal lnteffiil1

~()07 2,917/.l'81 ' 1,G51_357 2\lDH 2.848,!l-95 1,717}73 2(JQg 2,39t\7£G 1,711_;,5-60 2~10 2,409,221 1,~29,'il47 2()11 2,289,'il-91 1,871_731

2012·2016 \0,55J.301 10-, 172.']94 2017-2021 'J,88:),8'd3 lC:-,7:;17,2-131 2022-2~2G ll,G1T,ol7~ IC,El17,094 2QZ7·2Q?.8 -3,216,758 4.139.782

4S, 129,791 44.514.539

D. Ba-nd Requirements

At June 30, 2006, management believes the City and its component units are 1n compliance wrth all coven;ants. of lhe various. debt inderilures._

E. Defeared Obligations

The1e are no outsIBnding defeased obligations at June 30, 2006.

64

CITY OF EL PASO DE ROBL£S Not-as to the Basic Financia! Slatements (conlin1J1:1d) June, 30. 2006

NOTE 7 - BUSINESS-TYPE ACTIVITIES LONG-TERM DEBT

A. Description

Sewer lm>l~llment Sc1le Rev°'nue B.onds- On October 1, 2002, the Pub fie Financing Auttlority iss1Jed $1'1 ,55D,ODO ifl Sewer Reve11t1e ln~tallrr,-ent Bonds (2003) for the putpose of refunding the 1993 Sewer Refunding Bond!o (which :refunded Ihel987 Sewer Revenue Bonds) and 9rav1ded $8,000,000 for ::iewercollecfo;in .int:1 lreatment system improvements. The economic (:l.9in, net present IJalLie :savings, was $129,373. Tile outstendin,g- bonds be:ar a net interest cost of 5.30% and are d1Je in ac.nual install merits ranging from $522,438 to $1.046,201 through January 1, 2032. Trlese borids are payable from sewer user fees_

B. Change:s in Long-Term Obliget!oris

As. of June 30, 2006. lhe Cl1y ti<'.!d !he fnllowing long-term obligatim1:s outstu1ding including the current portion:

Batilnce Juli: 1, 2005

Busin,sss-typ,e. Ac::tivirles· Cc;,mp,;,nso1ted At:iseriU::s ' 143,g70 R e\11:m Ufl B{l nd;; 9.510.000

Total Busines5-Wl)8 Activ11ie~ $ 9.653,970

CITY OF El PASO DE ROBLES Noles to the B:asic Financial Slate merits (continued) Jt1F'le JO, 2006

C. Annual Repeyment Requirements cf Lcmg-Tem, Debt

lncu>red or Issue~

s 32,799

$ 32,799

Business ActivlUes Satisned or Balance

M;;,tu~d Jtme 30, 2006

s $ 176,759 !655,0l)OJ s,855,o-uo

$ (65-5.000) $ 9,031,769

c~rr1:1nt Pcirtls!li

$ 675,QOCJ

675,000

The annucil requi,emenl:s lo amortize .ill deb1s outstanding (excluding compensated abseflce-s) as. of June ::00, 2006 are a:; follows:

Business Activities Yeer Er.d Ju11e 3-0 Pri11cip;!I l11!Brasf

2.007 675,000 J(;f.i,389 2.D(l,I 695,GOO 351,201 2.0C)9 1~0.000 33:3,.926 :..010 195.(lOO 328,3G4 2011 205,0(10 322,319

2012-2016 I_ 125,000 1.4!:l!J,713 2017-2021 1 . .3~5.000 1.254;91~ 2022·2026 1 _730.000 !117,875 n:i:n.n,:-1 2_ 17'::,000 .\(iQ,263

2032 500,000 25.f.100

8_855.000 5-,858,;1363

D. Bond Requirements

At June 30, 2006, manaQemen1 believes the City and 1ls component units are in compliaric:e wit~ all cov6neints of ttie various debt indentures.

E. Defeased Obligations

Ther€ are ho autstariding defeas.ed obligi.ations at June 30, 2006.

66

CITY OF EL PASO DE ROBLES Notes. to the Besk Financial Statements {corirn'lLH:td) June 30, 2006

NOTE 8- !:MPLOYEE BENEFITS

A. Re't:iremant System SLibstanlially all City employees are eligfble to p,nticipate i11 pension plans offered by California Public:: Employees' Retfr-emenl System (PERS), an agent mulUpie employer defined be nerd pension plan wh-ic:::h acts ss. a cornmon investment and adminisiratiVB agent for its.-part1c1pating member employers. PERS pr-ovides relireml:!rit end disability benefils. annual cost of living <'.ldjustments, and death benefits to plan members who must be public employees and bene-ficiarie$. Tfle City's employees. participate l:'l the separate sefety (police and fire) and mlscelleitieotJs (all other) employ-ee plans. BenBfit provisions sirider both plan.s are establislie.rJ tiy state .statute and City resolution. Benefits. are ba~ed on yeats. of credited seNice, eqLJal lo one year of full lime employment. Funding contributions for botll ~lcms ::jre determined am1LJally on .;in actl.Jarial basi:.; as of June 3D by PERS, lh~ City ml.I~! cont1ib1.1te the.se oirnounts.

Active plan membens in PERS are required IQ contribute a perce11t of their annueil cov~red- salary. However, the Ciiy pays !he contributions required of all miscellaneous employees, all police safety employees, and fire .safely memt:Jers. Ttie rates .ire set by statute an.rJ therefore rema•n Uli.;flcmged from year to year. The City ls reqllired to contribute the actuariEJl!y determined amounts necessaty to fund !tie benef11 for Its members i)eyond the c:ontribution required of member employeas. Tbe actuarial methods andassumptions u~ed are tho~e adopted by !he PERS Board oF Admlnis.tration.

The plans' provlsioris, benefits and contribution rates In effect at June 3.0, 2006 1;1re s\Jrnma;ized as ro1,om:

M.i!i>.i;;.t!.fult1eous Police Fire Be11eftt vesting schedc.1le 5 years setvice 5 yeats EElrvice 5 year.s service Benefit payments maritf11y for life monthly For liie rncmthly far life Retirement age 55 50 5D Monthly bsnefits, as% of <1nnl-lal salary 2.5% 3.0% 2.0% ReqlJired employee conlributlori role 8% 9% 9% Required employer contribution rate 14.104% 26.085'% 1:3.908% Total current covered payroll $ 5,887 .846 I 2.483,231 $ 1,434,42"9 Reqwred employee cm1tributions made $ 470,926 $ 223.492 l 129',099 Required employer conlrlbu!lons rate madt:i $ 830,422 $ 647,7-5-1 $ 199,500

Total current payro11 for covered employees for !tie year ended June 3D, 2006 was $9,805,505 and !tie total payroll for all employees was 511.413,404.

CITY OF EL PASO DE ROBLES Notes to the Basic Financial Sll3teme.nts (continued} Ju11e 3.0, 2006

67

PERS determines contribution reqLJiramon!s using 1;1 modifiel3lion of the Emry Age Normal Method. Underthis method, the City's total normal benefit cost for e1;3d1 employee from d:ale of hire to date of retirement is expressed .;is a leve11. percehtage of the rel3ted total payroll oost. Normal benefit cost under tli1s. mettiod is the level amount the employer must pay annLJally to fumJ an emplo11ee'~ projected retlretmenl benefit. This level percentage of payrolf method i.s use-cl to ,;1mortli.e any t1rlfunded actu~rial liabiliti()s. The ;,iciuarial assumptions LJsed l.o compute ooritr-ibution re,quire-ments are also used to compute the pension benefa obligalion.

PERS uses. the market-related veiluei method of valuing tne plan's as.sets. An lnveslment rat-e of retllm af 7.75% i".o <'IS.Slimed, including itifl;,tion at 3.00%. Annual salary Increases are- <'lssume.rJ 10 1/<'lry by duration of service. The City's Lmfunded actuarial accrued liabllity 1.s. being 1;1mortizect as a lev-eil percentage of payroll on ,i closed t,as.i:s. The rern.;in1ng amortization periods. for the City's pl;i.ns. are es follows:

Police Safety Fire Safety MISt-ellarie-ou:.;

June 30, 2022 June 30, 2020 June 3,0, 2034

A ttiree--year smoo1n1ng tec:::hriique i& 1.1sed for Asset Valu:ation. ror 2005-06 the a.inual rate components were a.s foHom;i

Mi=-=~H,,mei:;ius Police Fire Total Nomia1 Cost $ 389,531 $ 293,326 $ 139,917 $ 822,774 Unfunded Liability (Surplus) 216,485 117,903 29.147 363,535 Total Cify Portion Paid $ 606,016 $ 411,229 $ 169,054 $ 1, 186,309

Notmeil-CoEt Rate 7.44:3% 11.-510% 11.510% Unfunded Liability {Surpiu.s) Ri;ite 4,137% 4.626% 2.398% Totat 11.51l[)% 16.136% 13.908%

68

CITY OF El PASO DE ROBLES Note:s IC the Ba.sic Fimmcia~ Statements (-ccmtlnued) June 30, 2006

Tt,e pl:ans' actuarial val LI cl \Whicti differs. fmm fair value] and funding progress ovsrlhe three most recently available year~ is set fortti below at their aGtuariai valuation d,1te-

U!lderi1.111decl Entry Age (Overfunded)

Actuarial ACIUal Actu;,rlal Actuanal Valuation Ass.et Accrued Accrued Funded Covered

Date V-c1lue liability U1;3bili~ Ro1tio Payroll Mis.cel1aneow~ Plc1n 6/30/2003 18,718,357 20,686,401 1,968,044 90.5% 4,754,706

6130/2004 20.085,080 24,657.599 4,572,519 81.5% 5,414,685 6130/2005 21,S4-9,69D 27 ,966,498 6,016,808 73.5% 5,657,410

Pali.ca Safely Plan 6/3012003~ 1 ,083,BEJO, 137 1,218,082,935 134,392,798 89.00::·~ 184,098.257 Gl30f2004 .. 4,424,586,845 5,383,921,942 959,335,096 82.2% 575,296,434 6130f2005" 5,295.150,375 6.3137 .049,264 1,071.898,889 63.2'% 664, 147,79i3

Fire Safety Plan 6J30f2003' 1,083,690,137 1,218,082,935 134,392. 798 :S.9.0% 184,09-2,,257 6130/2004" 885,549,650 996,203,370 110,653,720 88.9% 149,407,703 6130/2005" 646,358,708 742,247,338 95,SBS,630 671% 1 T 5,062,820

"Since the plen ha-d less lt1an 100 .:1ctive members in at least on-evaluation .sir,ce June 30, 2003, l1 fs req1,Jirecl

lo participate in a risk pool.

Jun-e "J.O, 2005 reports. are ti1e latest year availal:Jte.

CITY OF El PASO DE ROBLES Notes to the Basic Fim;mci1;1I Statements (continLied) June! 30, 2006

Underfunded :overfunded)

.A(;:tuo1ri;:il

Liability i:IS Percenragl't of

Covered

Pa~roll 41.4% 84.4%

HJ0.4%

73.0% Hi6.S% 161.4%

73.0% 74.1% 83.3%

PERS l'las rnprnled that the value ofU1e 11et assets- in the Pl1;1n held for pension benefrt~ ch:;1nged o1s follows. durbng ihe year enrjed J1,Jr,e 30, 2005. the mosl recer;t availab1e:

Beginning Ba.lance 6J3GIG4 CDntribl.tl.k:ms. Re~lved Benefits .1na R-efuncis Pa1d lllv~o,lment Retum Tra11sfers lnlOLJI and Mi8cs-llans-l)US AcljLJstments Exrected Actuar!al V;cilue of Msets 13130105

Market Valufl' at A:ssel3 6130105

Actuarial ValLJe of Asset..'> 61301-05

M_j_5_i::~l_§_~O.!!!?_

$ 19.736,1340-,811,685

(565,746) 2,514,246,

12, 16[1 $ 22,510,994

$ 22,510,'3'34 $ 21,949,690

.P .. ~JJc_<, S4,357,765,127

2.52.543,655 (2.26,21.3,447) 566,747,478-468,941,724

$.5,449,784.537 $.5,44'3,784.537 S.5,2fl5,151),375

FJT§l $867,719,242

41.394,180 (4Q, 103,236) 111.'il64.'632

(310,806,iJ98) .$670,108.720 $670,108,720 hl46,3-58,708

Since tile Poll~e and Fire pl.ms rlad le,i:$ tll,111100 .icti11e members Jn .ii 1eao-s1 one v~iuactio,1 ;,;I rice Jslne- :'.1-0, 2-0C(I, It i:; r-eq1,.1lred ti) p;1rticipait-e-1ri :s ri:s-K p,:i<JI.

Audited annLJal financic1! st<11eme111s and t€n-yea; trend information for the fi:sct1I ye-i:'lr en.clod June 30, 2005. lhe mo.st recenl avei~i:'ible, f'!re avaJl.ablc fn::im PERS at P.O Box 942709. Sacram'"°ntci, CA 94229-2709.

B. Post Empfoyment Benefits

In addition to the pension benefit:, deocrJbed <tbCNs. the:! City Council tia~ c1dopled resoluiiCH'I& maKi11g tieahh care insuranoe ber.efils 21vailal:Jle for all retired lull lime City employees regerdless of bergain1ng affilietirn1 1fihey so <les.1re. Pr-ovi<ling hea"h care benefits. under !he Clty'!a gro1.1p heelth pl.all may provide ber,efits ate substeritially lower cost th,m if the re!irees pm~hasecl their own individual benefit Tl1i.s ol)lig-ation to make oovernge c1vc1ilable unde( the City's group healtl1 p[an i.s discontinued at s.uch time as the retiree:: reaches age sixty-li•,e or receives health insurance coverage from another employer. In accordaEiai With ;adopted W-;)ge and benefit agreements. the City Wfltrib1.1tes towc1rd retiree '1.ealtl1 ins1,Jronce prerriiLJm:;i as fottow~: 1) Managament, Police, Fire, and SEIU employe~s receive u.p to $500 per m-onth. The City contriblltions may be used to defrny premiurn cost for eilher the City provided pli'lll(s) Of other plan(s.) s1:Jcured by retiree. Each retire-e dmosing to receive City pmvided health care i11surance must reimburse tho City the lull premium cost that e.xc:eed the City"s contfil:mt1-on as detailed Rbove.

The City con1ri-butlor'! toward l'etiree healtn care insurano..e benefits iil- recognized as an exi:,enditure in the f-un<l which raid the employee's. wage a( the time of 1etirement. For !he fiscal year ended Jurie 30, 2006, lhese OOt.tS totaled $82,855. For fiscal year 2005 lhcise cos.ls totcJled $50,20[), 2004 tl.ese c:ost:s toillled $45,094, 2003 ti1e total amount was $29,800, cincl fiY:ic!I year 2D02 the emolJnt was $21,4DO. Tl'lc b:alDnct'! of the retiree health ceire- be:f'lefits Is riot recogni.ze<l as .an expenclitLJrn. Paym1:1111B for health il'l$lll,,mce premiums c11t': recorded a~ .eceiwi.ble& c1nd are billed for reimb-u-rs.ement to the re-lirees. At JLinc 3D, 2006, 22 re1!rees were sub-5cril:Jir,g to the City's group hee[lh plan.

CITY OF EL PASO OE ROBLES Notes to the Basi-c Ffnancial Stalements (.:;ontin1..1-ed) JLJne 30, 2D06

C. De~errad Compensatlo11 Plans

City employees may <le fer;,. poniori of their compensation under two separate. optional City-sponsored defene-d mmpensatian plans created. in accord~nce 'With Internal Revem.Je Cod..; Section 457 Under these plans, pariicipanls are not taxed on the deferred portion of their comper,::;atiori until di5lributed to-ttiem; d1:Stributions ma:y be made only at termino1ti-on, retirement, dea1h, or in an emergency as defined by the ph:ms.

Effectlve January 1, 199:S, tl-.e law governing deferred compensation plan assets now r-cquirn plan a:Ssets to be held for the t;!'Ju::lustve benefit of plan participani5 a11d their beneficiaries. Since tile as;;ets held under triese new pl.ins are not tt,e: City's propen.·, e11d are not subject to daims by genernl creditors. of lhe City. they heive been excluded from lhese fina11ciel statemenis.

lri accordance with ado pied w.,ge and benefit agreemen15, the City makes mnlribut1ons lo optional City-sponsored deferred compensation ~I ans for mar;agement. For 1;ill mi:,n.igers., the Cily coniributes $4,200 anr.ually. Iii addltlon to the $4,200, :he City will match up to $2,500 in .addiiionE'II contributions for executive manager$. For tl'le fisc1,I year ended JLJhl:l 30, 2006, tlle tote:.! City cor.tribmion on behalf of eligible emplDyees ms S139.063_

D. Section 125 Benefit Plan

rne City has a 125 bene1it plan established pursuant to Section 125 of the IRS c;:ode, Under ti.ls pl;:in, eligible employee~ may elect to conlribute pre-ill:,:: dollar., into ,;1ny combinatfon of the: following three benefit categories:

1. Urueimbursed Mad1CTJI Spending Account 2. Dependent Day Care Spending Account

Under no c1rcumsteinces may an employee diract more than $5,000 annually in1o the Dependent Day Care Spi:mdi.-i[J A=unl and the Unreim~ursed Medi-cal Spendir;g Account. All regular lull-time employees employed 011 a regular and wnt1nuous basis, including certain contr.iclu.;11 employees., ore eligible 10 panic[pate in this plan. Temporary and c.i~u:;il employees are not eligible. The pl;:in ye;:ir adopted by the Clty begins on July -i arid ends JLir.e 30. To obtair. reimbursement of expense.s incurred w1th1-n a plan yeerwithin th,cspendino accounts (011ly items 1 Of 2 above), emptoyees musl sul:Jmit claims within 90 days of 11.e end of the plan year or sepeiration of !Jervk:e from the Clty. wl'licnever occurs first. Funds unclaimed after 90 days ,of the close of the pian year are then remi:ted to the City.

E. Compensated Absences

Thi;, City's policy rnlat1ng lo compensated abs.enoss is de:Scribed 1n Nole 1. Trie long-term portion of this debt, amounling to $1,738,5139 for governmental ;:ictlv1ties and $176,769 for busliless-type activities at June 30, 2006, is B}.'.;Jected to tie p<lld 111 future years from future resources. In prior yeers, compe11s.:it€d absenct'~ t1c1vt' lleen liquidated prlmarily by lhe general fu~d afd the pm-ptietc'lr'jl funds.

CITY OF EL PASO OE ROBLES Notes to tha Basic Financial St:a-temer.ts (con.tlnu-ed) June 30, 2006

NOTE 9- NET ASSETS AND FUND BALANCES

A. Net Assets

)1

GASB Statemerit No. 34 adds the concept of Net Assets, which is measured Dn the full accrual 1:Jas1s, to the con:cept of Fund Balance, Which 1s meas.ured on ihe modified accr\Jal basis. In the Govemme11t-wide F1r1ancio1I Statements, net asset:s are classi1led in tile followir,g catego;ies:

lnveste-d In Capital Asset~ Net of Re~ated Deb!- This cMegory groups. all capflal assels, including infrasirLicture, irito one romponent of net ass.ets. Accum1.Jlet1t1d depreciation ancl the out!.ltmiding balances of debt that are attr1tiut,ble! to t1e acquisition, CC>nstrnci.ion, or impro11eme11t of these- assets reduce this category.

Restricted Net Assets· This categmy presents external rnsJtrictions imposed by creditors, grantors, contributors, O' law.s or regulations of other go-11ernmenls and mstr1ctio11s Imposed by law lhrot1gh const1tutionai prov1s1ons er enabling legislation.

Unreslricted Ne-tJ\~sel!o- This category represents tile net assets of the City, w!lict, are not res.tricied for any project or other purpose.

B. Fund Balances

In th~ Funds Financial Statements, reserves and de.signalioris. segregate pcrtJons of fund balance that are eit!itir not available or h,;1ve been e~rrn.arked for specifk purposes. The various re.serves and -designations are est;:ibiis.rled by actions of tt,e City Council and Management 8(1.d can be increased, reduced, or eliminated by similar ec1ion.s {see pages 28, 75, and 76). N, a1 JUn!'l 30, 2006, resarvations of fund b,;1lar,c;e are described below:

Fiscal Agreements 1.-i the case of the Redevelopment Agency, I.ax increment rever,ues are held by the Agency u11til sLJch lime as projects are mutual, agreed benefit are ide.-ntified and undertaken. 111\erfund Receivables - These reserves. were esletblish.ed to provide for receivable due by one fund to another, W1He expected to be fully repaid, 11 is not currently available for use by tile fund wl.ere the receivable is recorded. Capital .Projects - Ttiese reserves repres.ent spedfic projects and programs for which lhe City has made, a commilment towards. completion ttlrough adoptior; ot the City Budget or C;cipital lmprovemi:mt Projects Pian.

72

c,rv OF EL PASO DE ROBLES Notes lo 1he Basic Financial Statements (continued) June 30, 20-06

Low ~ncome Housing- Purs.Liant to California Hl'lal!.h i"!nd Satety Code, 20%- of propt'lrt}' tax increment received by th-e Redevi::lopmentAgency must be 2,et 02,ide and u::.ed e:xdusi\lely for projecl5 relaled lo low and mo.Jernte iricome lmusing purpose5.

The Crty has de:signated fund bateinct'ls in the funds FinarLcial StatemEmts for specifo::: purpose 5.

As of June 30, 2006 the Measure D GO Bo.nds. Capital Projecls Fllnd trnd a defic:CI fur.d balance of ($671,028), the Highmy 1Cl114(i West Community Facilities Distrlct Fund deficit fund balance of ($1.439,991). the Redevelopment Agency Debt Service Fund deficit lurid ll-c1lance of ($6,676,630), the Tran~portation Development Acl Fund had a deficit fund balance of ($358), the lands-cape and Lighting District defleil fund balance of ($93, 133), and lhe Airport Road PSR Fund of ($75,019).

NOTE 10- FUNDS WITH EXPENDfTURES EXCEEDING APPROPRIATONS

Ttm follow)l)g indivldua1 fund and department expenditurl'Js exet!eded appropriations during the fiscal year

Maajor Funds; Hlghw.iy 101146 Wes! Cummumly Facilitii.::s District Fun.J Redeve-iapment Agency Dehl ServicE'l Fu=-id

Non·M~]o, Fur-.d~: Bu1k!i~g Educ~ti(m Furid Lan<Js.caj:Je smd !.ig!iling 01:stricl L.an<JfiH CIO$Ul'l:1Posldo·,:.urc Special Re-...enuc Fund- Pllblic Wmk:s R,e,develu'PmentAgern;;y Sp!lciail Rev1tnt1~ Fund- Comm D1,-,.• C-ommt.mily Develllpment Spe~i.:i,I F~~is EC<Jn~mk: inc.enliv~ Ft.il"ld'

NOTE 11 - LITIGATION AND CONTINGENCIES

I ~-409.3g1 19J.,3;8

7,5r18 S"98.549 154,D.6 15-1.638 3-5.242 19,306

The City generally follows 1t1e pmclioe of reco1ding 1iab1lifo'.ls- 1csuhing from cMims and legal actions only When they become fixed or determined in amount Wtiile the City 1s a defendant in a number of lawsuim arising out of the normal course of business their outcome can r-.ot be predicted_ jn ttie opiriion 0111,e Cily At10H1E;'Y lllese <'!ctions wller-. Jinalfy adjudicated wil1 no! have a malef[al °'dversc.1 lmp8ct on the financial po:sition of ttia City.

CITY OF EL PASO DE ROBLES Noles to 1t,e Basic Fh,eincial Statements (conlinued) June 30, 2006

NOTE 12- PRIOR PERIOD ADJUSTMENTS

73

The prior period ad1u.stment$ pre releted to correctly accolmtirig for deferrt'ld r,i,,v~nues lhat were previow;ly rncognized Tile accounting ch.in-ge is reponed in ttie Redevelopment Ag~ncy special revenue fund in tile i'lrnount oJ $236,740.

)4

E);p9n~e,; G"""rnment,,l sct,-it1M·

llen-eralgl>Vo!,m,,..,ril Publicsr,fety Pu>.illcwarkli L1bra,y Md ,errearson $e-rv1ces C::1m1m1"n1t)I deV'Clc,pm"?m Interest °"' 1on[l--1MM de'l,l

T-,tal g<>~arnm'?ntal sc1i~i1i .... el!pan-ma Bu~ine_,~-r,,pe actMUes

Wa.lerowra.ti<J~., Sew,.r<ip,ers"li<ins Airw,1 up,,,r.1WN-T,.,n;:it opa,sticms

Tot.I bu~ine"3-t.:p~ ~ctiv,tie• ~,r,,n•~•

'o~I p~1,-,a') gwe•nmo:al eApon:.eo PmgramR'3'1"@flU81<

GO'fflmme11tal ac1,~ltle11 Cha1-g~ fp, ~=qa~

Ge<1ecal g.o~ernment P11hl1<;:;~!ef\i Public works Ll~~ry si11d ,~m,~110.-, tewlce, Communrrir de~eiop1'1en\

(.lpe-rJU,ig cun~lbvl,0111 ~.,,I yr-11rW Cap Ml Mnlributjc,ns r,n'1-:irants

Busino3M-lj''°""c1i,i11e,·

C::118,g\!~ for ~e.,,lce~ 1·111tt,r oparnli!ln-s S"''""''"P"nation• Ai1oon op~miions Tr.ans ii apcr~l,ac,

O~e-rnli"9 GOnTI ibu1..,n~ Rr.d Qrnnm C~pl•al cuhhit-u'Jun, ~mf gra nh

T,;,11r,I bu•in\!!;-.'l-1'\'PP. accl·,iii~J l}m~rsm 1eve,.ue-s Tol.,I pronary qo,s•nms-nl prn;,ram 10,·s-nu€>

cm OF fL PASO OE ROBLES C:HANGES IN N'ET ASSETS

BY FISCAL YEAR

lOOJ

1..2n,OOil l.~21',,BlO

5,U0,02~ 4,2311.,771 3,oil&0-,35-! 121146-3

24,12~.13!

2.031,71'11 l.Brn,J40

604.4JO 1H.li2D

7,202,490 !l.32G,n5

50,JM-425,"/\0 21ii,764 :'21 1"-ll

4,Jti~.~j\l 1,~14_H5 ~~4 , .. ~

l.7'.1.1854

2.-462,984 i,421,E,4J

2>S.T5'.

"!:4.'63

B.635.:;G;, H.441,;!)0 ?I 1;:9 6&.;

""


~004

1.04l:i$4 0_1 ... 2.n6

li.!>84,!0J 4.74~.5(1!'..

3.-!61,G!~ I 10C.50~

26.6S2.5-B~

3.420,000 <.8'ii1 -~[·~

l19.J-S8 B-56.210

J,B"/4.281 :i-4.5~6.~e6

44 514 512 13T '.l00,125 737,15~

1.225,3~1 I.J8J,~4J

10,128,9"12

1-5,JJ~,634

2.n.2.04:i. 3.027 3~6

n.:J(lij 1DJ.9G7

0,901.189 1 c.~~'. ,CQ1 2~.11'1i.1',35

TAX REVENUE BY SOLiRCE" GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS

200)

t504,jG9 9.691_~44

7.014,71!,6 ~_J46.~80

-l.li·O~, 177 ~23_~2,

2-!.D4S,401

'.l.142.!(l) J.400,179

703.-~J .. ~SJ.M4

1',,111.185 :l6, l~CJ',S~~

4l,52S ~'96.J 14

G7.!41 ~02,166

6.4%,65,J

510.620 i.sn.nt

1},364.350

~.Jn.Ge~ J.iM.\171

18,-1132

110.s:r3

.... ~12)6J-1 ~.980,:3:zs

27.J~5.21S

Fiscal Year Property~ Sriles 6 U:ie b Oeeuptmcy Frandii:ie Prapercy Transfar

1!;!~7 ' 1.73().15c\ ' 1, 12.2.15'1 5:.!B,046 ' 303,2(Hl 104,-669' s 199-8 1,741.663 3.,688,:295- 570,593 331,4~3 59.779 1999 2, !J.4,996 3,920,607 629,27~ 156,.880 88,113 2000 2,2&7,l:;4-<l ~.~:313,"210 759,2(:;4 377,41}4 93,468 :.:001 2,520.254 5. 141J:l21 976,618 391),862 141,379 2002 2,82.:uiiS 5,408,9-97 1.040.692 1.543-,510 159.474 2003 .3.2.57,0..:l"l 5.821,~56 1.1.23,814 1.740.49-9 16$.59(l

"'" 3.5-13,445 6,2:2s,.2se 1 .29'6.972 2,D20.347 239,065 2005 4.076,025 :5,414,51)6 1 ,446,059 1,999,715 340.-630 2006 4,952,372 6,18:J.,52:7 1.614,347 2,1$7,661 33-2,074

Peoce-11\IJije Chsng.i 1997-2006 Hl6.L% '.l.8.1% 2()5-7% f;i7.4,i% 217_1%

Notes:

2006

4~9,9-ll2 11_71,;_~II.J B,:J,1.J,7:lll ~.:;~o.n~ J,1:N.QO'i

1.709.IJBf

:n.~n.2e-2

,.,:M,on J.G21.4Jt

6B1_W1

1.08~ ~jt,

9_125,303 4'.J.061 ~e,

43.~"12 020,00J

20,-~44 ~111.~JO

'$,77"/,450-

·1.12s.o.n 14.M3122

J,:;i90,65~ 3,1M-,:J53

18.50 Ul.078

7,3U.475 14.91~,104 ,~.]~2.22'5

Otrl@r Tc!ell

4,032,813-6 'iJ.821,186 d.517,~48 10,939.212 5,484,594 1_2.,614,483 6,-633-,]JJ 1~.EiSi'.723 7,782;,518 16,953.453 6,389, 167 17,375,8-2.6 7,391.208 19.512,508 6,72.5.350 20,024,998 9,590.830 22,867,7G5 -9,50~.791 24.789,972

135.1;1% 15L4%

"Due fo pa55EliJEl of Pr-opoc,(tic:m -1 ~. the- maximlJm tmr: rnto is s-EJl at 1 % {JI aaaeased YaliJ~l1u-r1 unless all1er,•r1GA appr-0vGd t:<)' ro~ of GlGd'[)riJtl.'. E.-\ce~t for

11e,ie,al c;,b1ig,111on \J,011ci o•-erri4e -c1µi:,rove<J IJy tM v,:,~,-s ,~ 1998, 1here:, .iie 11c;, g~ner;:il uH property t11x 011erride.s aud,orlled_ Tl,e wowtti in prol)!lll)' 1a~

fll'<tint.ms i& due to s1un1f1csr1L gr-owth in c1a~es.sed valuat10ns a1is111g fwni n.iw resid'ilnlial ;md ~ommerci;,[ de'<el'[)pmen! <mU 1-'r,;,IJ,ert~ ,:,W,1e,t:<ihlp lllms>l'li!f,

'lho growth in sa1£-s. ra~ r-ov-rmui:is is s.Dloly anrlb11rabla lo grnwth in mtsil ::;alss

Source: Cily o1 Paso Robl,es Flmmce Depl

124

Rc!Sidenlia1 Fi:s,:;~ Year Pr.operty

CITY Of'" EL PASU DE ROBLES ASSESSED VALl.JEANO ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY

LAST TEN FISCAL YEARS

Total

Less: Tnt.- Dtrecr. Cornmerclal lr,duslrial Exempt T(llBI Trumble Ta>

l'.>ropsi"Y Property Prup@ity As..e,;:s,3d Valu-e Rate

E~imated Atlt.JalTax.:.ble

ValuB

1997 ' 663.0Jij.276 1E:9.554,51l5 s 63,206.314 ' (9,.382.6.52) SB6,417/;i33 1.0DOOO $ 1,1)1.7,:32.8,3'19 1998 578.-387,945 118,136,10$ -66-,510.9.36 (9.711..3-U7) 1999 i"rn~,47'.t-,3'.36 192,431.23\:1 71,261.277 (11,15-9 . .303) :2000 767,-94:J.,350 206,374.795 74,461.203 (11,53-4,799) 20{)1 832.482.817 232,468,535 7S_(;st;i,34J (12,146,-304) 200, 951,4b9,31l3 146.2-37,959 85.451;1.~09" \lJ,31~,28-5) .:Z003, 1,095,D~0.424 268.132., 765 9S.605,24ll. (13.6-[)6,226) 2004 1.JH,88.3.360 284.034,088 103,030,SJI;, (14,156,2R:l') 2005 1.4~1.86:l',012 .J()l ,\;124,082 105.570,399 (15,227,842) 2001;, 1.65<3.~50.22.J J3S,()56-,8l5 111.044.371 (17.35"9.rnS)

SQuli;<": Som LI.li-o Obi~po CoLJr,fy Assesso(s Off~ a5 1€porled lJy H:JLCmB'I & Cc-r,e

Fl.cal Y'a/ilr 9..,_.,,rw'

6'61,DJ.ll.2i6 5i,!1,3!J.l.945

,o.a.2n.ne 761,~43.,360 832.41\Z.~li '9S1:41,\l,J~3

1,095.0JO,o.?.4 1.JH,-B83,360 1.431,.862,0-12 1,656.5.50.z23

Nul-.~:

CITY OF EL PASO DE. FIOBLES

A-SSES-SED VALUE: OF Ti\XM!LE PROPERTY lASTTEI-.IFISCAL YEARS

IJ'llsocu•-ed ' Unitary'

10~.554,595 ' 03,206.~14 ln 1Jf.,1U6 bb,510.936 192.431,239 71,261.277 WG,374,7~5 ~~,4~1.2\1'.l. nZ.468.535 7G,G80.J~l

2.45,217,ll69 36.455,1109 268,1l2,J65 96.605,24~ 2B~,-:i3~.c,sa 103,IJ-30,536 l01,0:N,082 1~5,C,,70,3\lg 3J5,D.5a,3Z5 111.D.\4,Jll

913-,J23,682: 1.00000 1,078,250,605 900,BO!i,549 1.00000 1,153,909.641

1,037,244,£3\cl 1.00000 l,24!;i,:~36.932 1,129,505,391 1.00000 1,JEIS,:;i35,51S 1,270.945.975 ,.ooaoa 1,601.2.82,485 1,-1146,072,211 1.00000 1,!!1(;,055,597 1,R13,7,7(31,71J2 1.00000 2.,070,3-80, 257 1,82:4,"\2,B,651 1.000(][1 2,3J6Jl44,:1.2J 2, 121l.012.G14 1JJOl}l]0 2.744, 186, 720

T-.iul Ts,Bbie ~aaoad ~mpi 1'1-opony ' \111lu~

(Q,332,052.) $ UO,<Hi.5'.J.3 (9,111,307) 913,323.682

(1",,159.lO'.J.) 9110,805 54g. 111,sJ:.n11) 1,(l~T,04:,';l~\I (12,126,304] 1,1~9,5;)6.391 (I i.318,285) 1,270,31S,i1S-fl ~.696,226) 1,4~6.0-72,211 I

(14,156,-'32) 1,'6~7,191,i02 .' (15,Z,:7,~4i\ 1.~24.in,O!.i1 (n.:i.1rn,1115i 2,12U.D12,-GH

'S-ecL•re<:I properly Is g,:,MrU'( la~I pmpE'C:)', d,.finl'd .as. land, mini'~. rmn~r~I~, 1if"llber ~fl(l iruDCQ•,;,me,nlo ,uc;h ,o~ b~11o.l1~gii, •[email protected],,ps. tr•I'~, arKI vines.

'U~•P,~UnJrl pmrierr,' Is (1'€mrmll)' pcr:;<mal i,mpnM)' 1r1clud1ng m,ich1ner,. "'luipmnnt. offi<.e '!nols and suppl1i,s.

"Unrl.3ry proper1ie• •rf ra~rc,~i;li ~niJ ulrlrt.<,$ crO$$I~~ 1tlQ ~LIPlr ~~d ar<! .-~.,,;,..,d t,y lho, s1.,11, Sc,a11J c,,I E.qu~ll..at1un.

Ta:GJDleAss.e-ssrid Vall.le as :a

Percentage (lf Actual aJraDle VElue

84.64% ll-4.70% a.:t2/% B.3.22% 6-1.21)% 79.36% 79.6:;1% tll.~2%-78.06%-77.25%

Toial Dil"WTM

""" 1.00000 1.00000 1.~0000 1,~0000 1.<KKIOO 1.0'J.OOO 1.friJOOO 1,{)0000 1.-00000 1.00000

,. E~ampi pn:,pe-rc,~s include- n.wmerous lull Md p&nial ,c~cl'i.1~101,c;,,c,~e111pltrlns [H'(J>iUml ty 11..:: Hille- C(J"i~t1tu~c1n. a11d me, l~(ilsl.s!U<,c that roeliev-e .::erta,,., \cl~p.11'(€10 'Ir-om the biJl\'.leri of -ll"'l''n,;i pmr,e!Ty ,,.~es

Suu '.~: :;;.,r, Lui~ OUi .. pu -Coun.11 Ass~sso-r's Office,

EHnn'onlErnomm_

,'ol~e oepacin~r.1 Pt.%1C'olar1e-s·, Ft.,k"'li~"'la!,ona Trs~~"1o1,1,.,"'

EmeJga-"'~~•Mr."s Emar-,~ncy ros~oos~, F~ a-~11ngutsh•d

w..i • .-N..., ,:rnn•dl~ffi Water rr,aln nr-eaks Avara~a- dn1ly r,'<.'1, ,.1,o"

(011lllo"'ofg•ll,,n,1 Pe~k d,~ oroducw,:,r.

L,:r.,,,, oml ,~-co;:,l,c" ..,w,c., u1,,.,~ ,.,,,.,,,~

vol1J1rns1,,~o,J..c.:iun 1ol1alvclbr,i<,s ,,.,,,,,~AJ

R•cres\lon••""'°"'

nc1i.·iL,·1>0n-.is~1uns

""""n1lyOC'ldOpn..-nl B11ilJi,.,, ~e,nni,, i,~c,ed

bul10,,;ii•1apecL"'"'-~'''""'~d

fo1sl

buurca· r;i~':IIK>,M

w, NIA

WI\

'.!.OIB

'" ~'A WA

N'A.

1.55:31

w, w,

"" uo.J

"'" 4.91~

10.G87

-CITY OF EL FAf>Q ()E RODU.ti OPEAATIN{311"Jl}lc:ATOR:S llY FlJNGTION.ll'ROGRAM

Lkll la. H<;.CAL Yl"'Alol:$

1998 1949

NIA ,., Me NII\

"" ,., ~· "'' NIA "'' "' "" l,OG9 .,:.~e~ 1,W1 2,300

"'' "' NI,\ "" w, "" '" "" "' N;A "' NiA •.• "' "' "' ,=, ;, 66Jli l.814(: ? ~58•

Niii ~IA "" MIA

N.'I< ~1-" NI,\ ''" ls'IA '" "" "' 5,0~2 5,634 0-.186 ~.21~

5-13 '"' '" m ~.~18 ~.J% f.64? 7_03~

-,2.s.is ];!,t,~~ 1~.Ei•U ,~.q:;,i

NII\ i,241 1.4+J. 1,-486 NIA 1.1"60 lrl.'A :2,5!,l<I 3,751 ~.·o~

2,J-5S 2.JJO 2.~J(, < 6-67

NIA N::A "" ,.,

"' l',;(A tJ."A '" WI:.. r·;m "" "' "' r,,i.-A N.',\ w,

2.7%3 "Z.J871 2_1',5% 2\IS~

"' "" 54,L\44 56_,_n

"' N.'/c 1411.,)10 l~Q ... 23

WA. "" 1.4 ·.~ 1.47~ 22,443 n,Gn 24,050 2~.S0-1

"' 952 1.10·., "' 7,4.34 J,l"/2 t,387 9,2-03

:l~QOl J.M5,;t 7qq,!;',A i,,.~,1

h,ar,, I> rai.1-"c m:pbye~ ,~ sc:h~c-ul~d 10 ·..,orlo:~ ~.()F\~ 1to,J1, p~, y,,, 11w1,,o;"Q •J<:~:; 0,. , .. ,J ,.,~ w,~) r,,1'-Hmo·•~cdv~l~n' ~m,,lur~1em i,; c~lc~l•"N ~Y ~1,1~1nr11,1t:ai l•hw r,01J1-.. ur :i rn·

""

\;ITT 01" fcl P.A5i,) [lla RO!ll.~8

C.l._"DITAL .0-S6ET ,~Ti\Tll:JTIC:S BY FI.JNCTIOOIPROGR."IM LA:n ,-EN FISCJ,.L VEARS

Femsl ·ear -~ ,~, 1998 ,- = ,oo, ,= ,- = ,= Cie-ei!!1al gosQmm9nl

rer,onal c~rr~b'l..er,; w, NI,\ "" "' w, NI,>, .~I(, "' '" P-uliw Ue~allm~cl

t;la1iun, "' N."1' '" w, w, '" ' ' Pal,<.alu"\:; "'" "' ' " " " " '" " Er,,-1r~n()"Je,....ll:'l"• f11~~1~11on~

Pul,!..,,1,11k;

$.r••ts{.-.1""1 "' "' N.',O, N.',0,, t<II, Nil' w·, N.'I\ w, Traffic~i;inal~ "' "" "' "" N-'"' "' ,!IA NIA ''" D,t.;Bs ]',j,",', "" "' "' Nil' '" "" tJ/P. WA

'°'"1-"''l ' ' ' Wa;er

Wa1a1nia<1>a(111,,,,_1) N.',O,, "' NI.A I'll,~ 'I-II.A "' 130.0 1:)5.0 1'1-00 rn~1,¥1M,n1, "' "' NIA NIM '" "'"-~- '" '" aoo '.'ibrsg~t,mls w, "' "' "'' NIA NIA

:Si~rage eaj.'a<:it'f (mili~ns olge!kons\ "' '-Iii', '" Nil< "' NIA '" "' 12.1 WMerwells IJII' w, WA "' "' N,"", '" "' 125

l'le•tewater

s .. nrta~~ewara(mile•) "' "' ;,J,"f!.. ~· ~· N.'I, "'" "'' NIA

St<r,m~""'"" (m11a,1 '' ,s " 1S " " 1S 1S " T "'alrrnnl wOOCty (m1ll1on, of g~llon•I '" " '" ,., " " " ,, .t.~

t,t,,-,'l' and '«";,.,110 .. wr,ic•• .Ar.;mPo;e M.n9a ~.-ll~O O"-.US~ t,q_,!)i(i -54.c«. 10·,.oq~ IOL{r\10 IU1 095 101_::r:;,5

Pu,,r, ' ' ' 4 l·'letamund, " " " " "

., '" ., " ~aseoalllsoilball olerr,;,r.co • ' • " rn rn rn

• so~cer,foorball ft•ld~ • ' Con-r:ianityvSnter, ' 1-,1,1 "' 11~ -.20 127 "' m ,~1g 1 .~38 ,_cox,

So,rc• ("it,.· Budge'.

flu I~> A '1.111-:irw efTlolor,~ ;~ ,~CeadLIIQd IQ Wi'rl<.,; 2,080 hou•~ QQ' Y""'' (inclYdie~ sac-a~o~ ao;J sic, lwva). l'"oll•1;~,v--.,•;:,i-,~l~c1., '"plCl-)'~nl I, ,~.:Yla'.~d b,· d ,•id·n\j lolal liJl,:;,1 l1ours ~) i':080

1,6:n

'" :i..n,

me

J28

C.C

12.~

w,

5Q.OJO l6d,~~{

2.50~ 23_9!,].

"" mo

~49.1~0

,=

lo4

' " 1~0.Q

"

l40_0 ,oo

4 12., ,~.,

198.0

" ,., l01.fl9':

' " " '

\.8~0

c1ty o~ san lu1s 0B1spo, cal1~0Rt11.,

Abo.u( the Cover: Celebrating 150 Year.i;

Po1mc.kd l11 1772 by Father Ju11ir:,er0 Serra a.c; thi: fifth n1i~~iN1 irt C~l~forni..1',: .:hain 11ft\Vi::nlya:me- mic;~ior1:i from San Dk_1!0 10 -Som.Jlllll, S:an Luis Obispo is one ofCaliforni.1·s ol<lest communilie!>.

V.'ithin a fow yi:ms aficr a~(mi:<J.'JionofCal!fon1ia u, a ,tak in 1850. lht: Cit} o[ San Luis Obispo w.1s formally incorporaled uJ1der the "general laws" ot C11lifomia rni Febru.ar:v 19, l-ll56, whld1 mak~~ us (111e nfthe ol<lesl .:itie~ in lhl': Slate, as we-11. (I lie Cily sl1bs..:qm::ntly bt:1,,;iim~ t-i charter i.:.ity on M..i.~ 1. 1-ll76.)

In 1·ecog1.1itir:,n ciftl1is \SO-year mile atone in the CCty's history, the- Se-squicento-iriial logo w.a$ r;ri;;1ii;J b_y loc11l designer Pk"TrC Rl1o:km11kct. Thro\lgho1-1t tl1e year, several -cele\Jrations of our loc!ll h('.;tory krnk rlace, including a Victorian (fames; Day al Ihle' J.ac.k House aml GMO.ens; 1111 '"Oki Fashioncll 4L of Ju.ly CelcbrntiL.m" .at Mitehdl Park; and a community w1d,e efforl t,1 rcslon.: the Ciry's first fil'e er1gine, (hi': "Seagl'aVI': ,. The sesqulc.entl':nnial ~lt:~r.1.lion~ c11lmi11.;ited with a 15-0Lh birthday p.;:i1t~ at the l'hL!fsdc1J Night hinuer~' M~rkct on Oct,~hi:r 12, 2()0fi.

COMPREHENSIVE ANNUAL FINANCIAL REPORT Fbc::tl Ye::tr Ended June 30, 20(}6

DAVID RO.M..ERO. t,,1..a\ YUR CHRISTINE MULHOLLAND, VICE-MAYOR

PAUL BROWN, COUNCIL N!'EMBER

ANDRE\V CAR1ER, COUNCIL M"EJ\1BER ALLEN SETI1..E, COUNCTL 1VfE~JEi:;J~

KEN H.A.'.>r1PIA.1\, ClTY AD)ll}NlS IRA Tl VE OFt--iCER

Preirnrnd by tl1e. Deparrmem of Finance & Informat1c:m Teclmology Bill Statler, Dire-:torlCi!yTre;nsurer

Carolyn Domin&m::z, Frnanc,e M.JJ1ager Dehh,e MaltcQal, Accoun(mg S!JpervcsDr

city of san Luis omspo, caLJf01m1a

V.'\VW .sloclty .org

[THIS PAG£ llifrEmIONALLY LEFT BLA1'.i"K.]

http://www.slocity.org

.& ~1ty o~ san ~UIS OBlSpo _______ _ --- 990 Palm Slreel • Sim Luis Obispc1, CA 93401

D,,.c:e:mbc. 12, 20Cl6

TO:

l'ROM:

Si.'RJF.C'T:

Citv O.J-um:11 __ _ (),,.,.

Bill Statler, D1rectorofhlliln~e& Ir,fom1al1011T<:<.:h.ur, UirQlyn Domingue-z. FCnance :-.fanag-er c:,-a;l.

COMPRl!HF:.:l\:SlVB ANNUAL i"E'JA.t.lClAL REPORT I·'OR FIS-CAL YEAR 2005-0G

F~NANCIAL CONDITION OVF.RVIE"\\'

Fin;1a11cilll ~~ulLo (r;,r the year ~omp.ll.re l'avmahly with budg,er esnmaIBo ill virl1ia(ly Jll area;; of tl:e City'~ operatisins. The Gc:ncral Fund bi;;, illl ending 1.rnrc~en•,:,;d ant.l ur1de~l1c,m:J.tcd fund b~lan.:e of $116 m1ll1cm, whii;:Ji is $2.9 m1lhon l1i,g_her than pr1Jje,kd rn Lh,;; 1-006-07 FL1i.:111cial Pl.1n Supplement_ Tl1i:, is con~istelll wit'.1 tl1e int,cirim r~sulta r-epGn~d Lo the. COJuLicil 111 September 2006. It .il~IJ i., CQTlO~~hint with LI~ City';. policy of mil-iTJtil-ining a minimum <;cneral 1:m1d balance rhm 1s .i; l~sL 20% .-if oper.atirig i:::,:-pentliture~; at Jurm )D, 2006, thio rati(l wa~ 31 %.

Revt"nu~s; mid Expenditures Contribu1£d 1<:q1mll;r• lo Improved financhd Result,,,, Tl1i5 filvo,o.able \·.:.ri<11KC in. tl1e Gene1ii;I FLiml result, rrom f'in1111cial opcrnlkms tJia, were bt',mir ihun esiimated Dri boLh Lai.: re,cmie ~nJ e'i.~nditurc ~ilk. \~Jth ea,·11 <=untributing ahsHJl the same ammmt tc th~ !Jocwm line A~ discLisii-e-d itl gre,tloer do:t.~i~ bd1Jw, r:ve.L1\l-e~ e:;,;ceeded our pn>j~ctiout by about ~%; nnd expenditure~ w"°1"° undi:::r b,x'get by ,,bm1t 3%.

l'l1ese- expenditure sHvin;~ mlkct the succcssfol effort~ or Ll11::- ;,ip\."1itillf dc"[lartmc:11ts to fo.11he1 lighten their Odis i11 Egltt cif the fis.:al ci.n;um<;1a11i:es fac(nr, a~. It ~ltc shows lhat we do rmt have i1 '\1oe or lr,is~ it'. 1:,ud_g.e.t mentality 1n 1he CiLy· gDOO sBwHrrlshir i~ ~ sln:mg

Transmittal Memo,andum - ---·-- ··--

the foll<Jwing i:omrnuuity _p-r)(Jritles •h~t h.t'f~ ~urf.acei.1 over- ch.e last eighteen ml'.mth; i~ likdy lO be a maj.ir l'~us of lhe 2001-09 ;;;-onl-Sf,tting Jud 1-mdget p1oc:-e~~;

J. Rcpairirig .:1.nd moiritairiing City ~trr.d~. ps)lhote.,. parks an<l stom1 drnins.

1 ('011Linui11g (IT!"lfl"""ms 1hul rednt:E and effenively manage trnffic ca;1gesti-m1.

J. lrnpmving levels of p'J(ii:e, fire .and -p-ar,lnlelli, ~er-rices.

4. Preservin.g open space_

5. Prutc:Cling ~c11i1.1r oen-·Jcc1 aml. prc:.grn.mo.

8tnwtJuT!.l Badget BllkHW-C

With the e,:,.penditure n1L~ we have made be:gmomg in 2tl03, we 11<1\l<e ad1ieved "structural bm:lg.et bi!lancc'" for the Jong-Lercn 111 shon, tllis ~ans 1hai had M~asure Y not "[la~scd. we wouM not ll,we, been (¥:in_g anotli<::r c111l,~ck n,odC" . .Howo,:vet, ,1.1j1ho'.LI the ~"'"- r,e,s:,:,urces prc.vid.,d hy Meaourn Y, m1iorin;g ~er~1ee cut.s or lamlfhing new iniliafrveo woul;J h-llvr:: t¢e1a ve-ry dlffo:ult 011 the other liand. wi1h the pass.age cf Meusurl.', Y, rh1s n1eam Lhai Lhes~ HJdcd reveuues will not 1:ie requnell i:irt'lp1y to forestall c.vc11 ,gi:e:MeL· o:uu, b111 c~n be u.ed fo-. ~ervic~ re~toratio1Js and uew 111ilLM1Yc:i.. 00.~crl on the gcmls lb~t emergi:: during the City'~ 2007-09 l,'.IJ~l-,i::tting 111'1J budg('t proce~~-

Tough ro!i,;y De<.:i~i1ms Remi1.i11. \.\-"hile 1hi:: i!cl.ded revenw.':s from Measure Y will go a long lli'a)' rn improving our Jbility to fliud commur,j;y poonli~o. 101.1gh policy Jec:i~iOLl~ will rem.aio1. On one. lrnud, we cerrni11ly lrnve rncire: LCSOLIICCS w ~ddres~ conum111ily !lee.!,; (m the alher hand, c1ur rc~ou,ces a,e 1'101 i.iniimited. J?(rn::t"'.d in con:1ext, Mensure. Y 1·ep1·csents all increase of ahout 10% in Gener.ti F11m;l·re,oun:es. Obvi1m~ly. Lhis 1m"[lW\/tS OU! ftmding ,;:;i,pacily, but we still have (o i-demify o.ir lli_ghest pri(Jritie> Em<l make wise n",OIJU1".-!.' d1oice~ a,;corJLn_gly.

/

2

,:,rgm1i1.ati0m11 cll1ic, bt1!h in WOl'd an.d deed. On 1he cther itand, most c:if Lhese savings ~Je Olle·timc in n,;.tyr(; -11Li.i.l will not l>e ongoing 1--ior e::i:.;imple, staffing s:i.1,1ings accoum for over 90% Df 1hc 1-o-tal fav<JraUle C':J.l)C:ndltuu~ variance. This w.:1;;; l.irgdy· dJ.C to \"acan: posifoJns - TT1anr of wli(d1 ,vcre rr~•·i<'.lualy fro,.en as :i.11. interim c:ci~t savi.:i{l m~a~ur~ -whicl1 are n<Jw filled.

For the Future: Ile:sl Fi5nd O\IUwk in l'dariy Yl':ars. W,e emkd ZOO'.:-· 06 in 1.,,ett(',1. ;h~~ 1han- wee projected - a11d 1his is ccrtai11ty goOO news. t'fow~YL'r, thia is lc11g_el)-' due to 01te..tirne n:vcni.1-es Mid c:cst savings in 2.()05-0c:i. On its 0WTI, th.Li doe, nm fundamemally cho11ge t!ic: 11ndcrlying_ (nng-Lerm Jsdp between pro,1e,;ted Gellcral Fimd revenue~ ;i.nd 1he s'.s'IJ1)11111Tl,jty'; neeC~ t(>r thl'; future that ex.isled before thi:: passJ._gc of Meao>urn Yin l°'<u'leml,er 200G. hi l">ilurt, the otr(.>llgci'!CC~lllts fol' 2005-\)6 improv,es QLir abilit'{ t.o ckal with (ulme dow111m11s and one-iimt: needs; \ll}wcvcr, ~bsenl ct[1er factors. ~lone thi~ d~, not affect our abilit;r' to .-'l,elh1er 11.ei::cled ~ervkc:~ in tl1e lo1tg-term.

Oil ihe ,:,.th~r hand, combined w·1th 1he followin:g IW<J foe.ors, tbi~ s1ru11ger ernling positior, co;Jntribu.tc~ cu ti~ Ci1(s bes( Joni::-tcm1 fhci!.l outlook in mnny yeJ.Jr.,:

f.aM.ag<.: r:;J ,!,.f~asL1.re Y

Tot l)aSsage of M-fil'iLIT\" Y tn NovemOOr 2006 with ~5% ~L:ilel' approv~I ~comp~red wilh a simple m.1.j1Jrity· ti;qnlrem~m) will pr~wide 1l1e City's Ge1ternl Fund wich $4_5 rnllllon .annually lr. m:w re~t:1iue,s for the ue;o;t eighl y.!llrs. This will sigm[icJUII)'" il'llprcve O\lr fi~l;'.:i.1 c-apacity m rest01e O:\ltS in }:ey ~er11icee> and illfrnstruclm~ meLintena.11ce as well ~, ..::onti<:ler new irri(i.i..tive~.

The .\dded h·coi!-nt ~Rks L,;,: ll~der Meamrt: Y will lie.come e:ffeLtil't: <:111 Aprll I, 2007, whk:h n1ca11s thc.se adde<:i revenue~ will be iri pl:i,~e in. 2.GIJ"l-09. A.n<:l for tbis rea1sori, 11.,~ of tl:es-e aCdod 1eve11ues in meeLio~

REPORT l"UIU'OSE t,.'.'ffi ORc.;ANJZATION

Slj{,tion SlO nf lhe City's C!1arter reg1.1ire-, ~TI amrn~! a!ldll by nil i-nUl'perid"m certlfied publi~ ll.ccounill[]l 11 ,~<Jmplianvt with lbi~ requi1ement, Lhi., C<impruh,;;11Si\•e Annllel FillllnciaJ l-1:ep,m (CAFI{} fol' lfie ye~r ended June 3(), 2.fJOG- i~ hereby SLibmittL-d,

Purprn;e ~ml. Management Respo-nsib-ility. n1i.s :e!)Ort 1:0C1si6l6 cir man.i.g_ernenl· s repre~entatiom csmcerlli11g tl\c:: finn.n,:,e~ -of 1ti,~ City (l.f San luis Obi~p<I {Ci1:y). Conse!]uemly, mar,.a_ge.mml ass11mes foll rei;pDll~ibility for lhe ,:c,mpleleoes~ a~d rdi::,,hility of ~11 af the infom1.Mion pi~-sent,:,.,-1 iTI tlil5 report. TD -p-rovide. ii rea6ciri.abk bm,is for making tl1ese repre~ntati<Jns, 1n.i11.11;\',rrn:cnj 1Jf lb~ Cit:, lias e~rnbll~ho:l 1 ,tr,mprl!hcn~i.-e inte:mlll co111rol fra1!1ewor'k tt-ml is de~igned OOtli ts1 pro\e>Ct the go\·emment's .i.o~o:ts Frum \us.;, 1hefl: or f\'Usi,se and m cDmp1le ~.iffic1e11t reli.1hl~ infor1lllilion for the pre.p:m,Licn of tile CL!y'~ fin~ncial sla~,rt'li!cnts

in confom1ily w(th IJ.~. genc.-.ill~ :accep-ted ~,c.:;01..mii.:ig r,rir.ciples (GAAJ'} Dern\\Sf. t.he cc:~• c:if ir1temal commls shnu!d nut <JUlWei,gh tl1eir l,enefito, ltic City's ,orn"[lrehenoive framcwoi'k of intcrna! comml~ h;u: bee11 di:::;igocd ID provide l'easor.abl-e mthilr than absolute a~suram;e: thJt llic financiJI ~talenxmtt will lie free. frc:i11.1 111:11.lcri.al misstaternem. .\a m:11..:iage1ne11L, we: assetT thcli, 10 !lie be;;t cif our knowlcd_ge. ;;iml belid. liii~ frnam:1~1 rep(nt i~ C1mipkte mid [l;'[iabk i.:i all inaterfal 1espe~ts

Audiltd Financi.;.tl Sh1l~t1lC1Jts, Th,e City'~ finam:ial ~L1t-Bments have b,c,tn audited by G(enn, Emdc:11~. Philliµ-s & Bt)'iillfl, ~ fii:m of lic:-=n~ed certified TJUb!ic ,ii,;((}l.mli\l'IIS, The goal of tl,c lndepemlerit audit wat l<:i provide rea,onnble aaaurJncc (lmt tile firr.i.nl:ial i.~1el"lle1ltS of tile ('ity for the f1sc~i , 1.:at <:n<:led J1ine. 30, '.l:ClO(;,, arc froo cf ITTlt~[l.al miasiatenient. The im:le_pelld~rn aurli• J~v,ilvl:{) e.l\alllinillg. ~ll a ttot b;,,si~, evid~nce ~upp-arlirig the am(Junt~ .:1.11d disdO'i-urc.s in the fi11nr.eial ~tBJ.cn.ent=,; .i.oseo~ing the ovemll accmrnting _p-dn.ciple-o uatd and ti,g11ifirnn1 e~timate~ made b_v manage,1Let1t: <1nd i::valLiati11g tJ1e o~·er.i.ll finani.:.ia! statement pri::~cnl..ali(ln.

"l'ht i1tdep,en1..knl a,1ditor rondudcd, ~.-dc;.i,,J llpon I.be awLii(, that tliere w;i,a .i. reaB<Jflll~l-e ba~i~ lor 1'1::1JJei:i11g nri um:iuulified opinio~ th.LI t~ Ci((~

fmancial ,rn.te:menl!. for lh~ fiscri.l year cnd~d June ].[), 2006, .am fdirly priot('ollted in cOnformity wl(h GAA.P. The J11dqx."Tldcnl auditors' report i-> _pre~ented as Lhe first <:Dm;'.)Ol'lL-nl of the fi1Latlc.i.il s~ction of tilis repmt.

Or-p;uni~Atfon. T11is repon i~ pn";se.ire-d in thr<.:C :;CdLOJlii: introductory. fimmdi!.l and s1ari~1icaL

L Tha !111Md11c1111'_1' sectkll1 lridud~~ thJs tra.o.smitWI Tllllmornmlum and Olho.:r i11Lorn1ation lo familiu1ize the rcad~r with tile City: a dltcck!ry ,if offo"'.i,1ls flnd w,·i'Kll)' bodies. Lbe C1[y"s organiz.atim1 -cho.rt [lllrl 1JrganiT..ational values

2. The Ffo.i.mcwl section consisB of fi,,e p.;il1s: the ini:kpcmknt auditor;;;' rep<Jrt: man:;igemclll'~ disc1.J.ssiGLl and analysis; the basic finm1eial ,,latement~; t"elJUire-d ~up_p-k:uteMary infomla1io11: addlti<.)rlal ~lalcmi.:nta for 11(.lr.-T,:1;i;jo:· go11ci:nment.1\ funds and ngcmcy fund1;._

J_ l..i\.Sdy, the Sti!/.islical :;ecticrn inchide.s select~d fma11.:;ial a11d dE':mogrnphic infoTTflation, genct'a[ly pr~~ented rni a multi-yea, La~i.,.

T mnsmittal M~m11rand1.J:m, GA.'U' ~quite th~t lllil.ll<JEemem prrw1de a 1'1.srr-"li,..i:, iurroduc1ioo, ov~n1ew ond m1a.l:ysis w ~r:omp~ny· 11"ie 00.si~ fmancial .>tatecme11t~ in trle form of Mar.al!ir.:nJl!;nt':; Dlscus.sion and Ar1.alysi~ fMD&A). ru 11oted abuve, Che MD&A arp,e.i1T:", in tbc Finnnci;d Secti0t1. ThJs le:uer of t..M~mittrcl i~ deslg1ied to (;\'lm~lcrm:nl l-1DJ:A .:m6 si10nld be r(:~d ]~ Cllr1.JUflClio11 with it

"SfNGLE A Lorr· FOR FEDERAL Gl{AJ\IT l'ROGRAi\-lS

The i11depe11deri1 ~\idil of th~ fir1auci~l ;;t:ileme11ts of the City was ran of a broo.der, foi.lcra!l) m::mdate.d. "Single A1tdit" dc..signcd Ir, ~t the ~11.-,;i~l 11ecds <Jl fodera] gramot ag,.:11.:;i<,;o, The ot~rid;,.rd~ g_ol'i:',ming SiHgle Am.ht l!:n~.igtmE-Dt.s require Iii~ ir1de:pern:lent ~uditor to report. 1101-otJI)" nn tJie fo:ir presenrncion cf Lhe fo1and.t.l stat~ment.s, hut .ul~o Qri the aud]t!!;d .go\'<:mmc~c·~ intemaJ totitrols aml c-:imrlifince witli legal mquiremet1ts, wttlJ sped.&! ernp!i:i.~i~ Qll iulet'tial Cotilruls and legal rr..qumomia:nls

An<Jther ~ej' fo;i.rnre conlribu.ti11g to the Clt:(s gre.~L qLio.lity of lifo is 011r d~l1gbtful do\\-nlow11. Tlte: henr.t ot' do,vnmwn (~ Missil)tl Plata. \\'lt!1 ils wc:inderfoi tree::k...ide ~etTCIJg arid beJutiflllly 1~storc-d mi~sim1 (l·hat CCl1\linu.,1,. Lo serve ,is .i parish church m tlJis day), Missic:m Pl:iz~ is tile CD1nrnu11i1y·, c11l1ur~l and ~ocia.1 c.-.:aler.

Thi> !ustork pla;::a ls .::m11pklr.c11le.d hy a bu~tlio_g cl<Jwntown <Jfforing grt"..at shopping, autd,,or anrl indoor dinlo_g, nigl1[life and its ramous TbuE,day Night Fanner~· Mark¢t.

Furm 1.1f Gm-·crnmei:i.t __

The City \If Sao Luis Obi.spo is a Charte1· Ci1y. This meuns Wt'. ha11e more "ki~a, horne r1.Jlc" ai;thslrify rhan ci(ks tl1&L rnC()rpsirate ,1.:ider tile: "genernl \11w.," uflhe :,Jtate of Califomia. T11e Oi.arter is tlic Cily"s "C'..(lnsi[rnL)on," and MY d1a111;:es must be ~pptu,.,e;1 by th<', voteri;. While the Cil~ wn first in~0rporat.-:d iii l856, we did nm becrnne. .a Chart.er City 11t1til 1876. Thf'; City', (:ho.tier lrni; bece1! .Jml!;nd~d &E!l'eral time~ si11ce its atlu[X1011.

Ar, set fonh in Lile City Clrnt1cr. !ht City op-.:ra~.s u11<:ler the ·•caum:ilM<1)rnr·Admiriist1",1ti ve Officer" kimi of gove.mmeril 'l".hr:: (:OLir.cil ~~ the amfmril)' io ri.1.<1ke :a.110. 1:t1f1JLC:C:: all la= alld regulatioo.s with respect Lu municlpal affair:;, aubJ&t olll'J' co 1hc limitlllir,,n~ r,,[ the City Ch-1:rter ru-i.d the S1.!l.te- Cotl~litutlern. Com;cil membe10 .i.re e:eci~t.i ~l-lflrgC': and sene <J~erla.ppm~. fou1-yea1· terms. The M.nrc,r is also ekc1ed at-latgf'; fm a !W<J·)'eal' ~rm, an-d 1".en'es a.~ all G[Jual 1m:mher of the C'o11nc1\ T(1e C-uu11c1\ appoints th.e Ci1y Ai:lmi11i3t1~tivc Offic(;I (CAO) .;n1d City . .!.,Llm,1ey. All other dep.art1rumt btrnd~ 11re 3[1pointed by the CAO.

The City provides a will': rnr.gr:: ofmimicipal ~er,:ice~. i11cl11i.llt1g police and fire p1·otec1km, w.i.Lcr ~11d sewer utilitle~, street maint.e:nance, pub-lie trampurra(irni, park111-g. pnrks and recreation, planning, b11lldiC"1g .:1~d safrty, .a~d other ge:otl<'-l'il.l ,go\lcrnmcnl ~cr\'icl"~s.

4

mvolvl11~ the adminislr~tion r:,f fede-a,J award, Thio- report Js availai:ile from the: Fi11<1nce Divi:.ion u.pun rcquesl

PRO FIL.Li: OF THR OTY OF SAN LUIS OBISPO

111~ Cit~ of San Lui, Otii~p<J ,erve~ a~ thr:: i::t1mrrer::ial, gov~rnm.e.L1~l am] cultural hub s1f C.:i.llfor1tia<s f:enlral Coa~i. Or.e of Cslilarni;,.'~ t'llde&t ,;;ommunitie5. il began with tbe follnt.ling ~f' Mis~i.:m S;,ll L11I~ Ob-l~po de Tolo~a in J77l b}' Father lu11lpcrn Serra a.i the fifth mi1,~im1 in lhe C;i.\1fomia thilln of 2.1 mis~ions.

The mi;;sio[] WJb nitmci.l after 5111111 Louis, a 13th rc:ntury Bi.;h,r.,p of ToLIICLise, Frnnc-f';. (Sal\ L11i.s Obi~trn 1.1 Spanish fu1 "St Lnui~, LEic .tli5hop.") It was firM lncOIJ-lOlated i11 185-6 a, a Gt:ncral Law ('i1y. jlnd bua~ ~ Orn.rterCity in lS.76.

With a populatioti of appro;,;lmatc]y 44,500, the Cit)· i~ lui;alecl Clglit mile~ from the: Pac16~ O,;;aa11 and is midway nNwecn SJJn Ftancis~o ntid l..(JS Al.1,gel:;;s at the ju.m:tloo afHigl1v.,~y 101 a11d ,>,::e11(r Hig~w~y L .':>au Lui~ Obispo- is ths CcLITll)' seitt, aml a numbc:r ol' fockrul pnd at;i:te rq3ionaJ offices and facilitko an:. lm::.:lcd he-r~. 11ld11ding CaliforL1ia Polyteclmlc Stare lJnivc,i;;tr (Cal Poly], Citliforni~ Men'~ CciJooy, C11e~t11 Cc.imrn1mity College, Recglo~l \Valer Quafo;, 1:-:m1lr,;,I Board anct Ca!]fom1~ Depariment ufTrdn~p<Jrtalion (Cal Traus) Di,nict 5 office.s.

--:-he City'.s ideal weather .and narnral be-o.u1y pmvJ<:le 1111me.roL1s oppt'tr1:llTiities for cutdoo!' 1ec-n:.;1.L'.o~ at n<:-c1.,b:, City .illd State parb. rakes. beaches am] wildemcso are~s

While San Lltis Obisp\J grew mbtlve:]y ~kiwly durint moM of 1lw 19(ii cc;ntury, the cr:,mi11J:J of So11the111 P:11.citic R,1ilro.t.d in 1894 <Jpen«l up Lile: .1r-E:a in tl1e r,e.st of Califomia. Tbe City'~ di~rancC': frum ma_ior metropolitan area~ to tl1c n<Jrlh (San Prenciscci HHy Area) and .so11crl {Lo~ A~gdc~J h.l.'-'C- alJow>,cJ our ;,.,c;a tri retain its histo11c .:Di acenic quafai~s. Tbs~e qu11lities cefltrtbme- W the. superb lfUallty• llf life ciur rtca.Lill:n1s enjoy. and ~ttra.d vi~ilon. from m;n1y Olber arr:~s

Fim111ci~l dar;i fot' ull fond$ ihrough whi~h service~ arc pRwid-ed by the City l1a ve been induded in tbis l'eport b.a.o;.cd rm the cri1eria .',-dOpled by the. Go11emme!l1..:i[ Ace:mmtili_g ::itandllrd:; Buard (GASH). wl'.ie:'1 1s lhe: .l.uthoriCali\'e boJy itl C::S~'lbhohin_g U.S. g~nerally atte!)l.erl nc-i:-c:irn1ting pri.nclplcs for lcic:<11 go~·etn111.el'll$.

As rctJ.llirt':d b)' U.S. ,gc1tt1";tll;, accepted accCluntillf priaL!ipie.s. tb~ss fltlall..:i.11 $t.J.temea1ts pr~scr.t the City (rhe. rrillIBr)" _gm'Cmment) and (Is 1:(]mpo11et1t utlits (er.lit(¢~ [,Jr which Ill¢ !l,011¢tfl.t'Ilc1'lt i~ ~onsidered tu b:1 fti1an~ia.llx <1ccCl1111t.1ble). BleTldeJ cmnpone-m 1.mi1s tahhm1_gJ1 l~g.ally SL!parntc emiu~J are in Sllh-Sllince pQrt of tlie gover11mec:1i:'t Q_f)erali,m,;, arid so daw. from Ltit:~e umls are cmnbincd w1ttl datl of l~e prinwry govcmrncri.t. The San lui.1: Obi~po C:11.pita\ Im~rove:o111.C.hl 1300.rd provides l:ill.!lncli:i,g for d1¢ tm1Slruction ilfl.d acquisitlm1 ofOty facilitlss. Ti1c: Horntl is oompriwd S{Jlely of 1~t11ben tlf tbf'; G1r CoiJnciL Actlvitie~ (lf the B%rJ .li1-C a<;i::01.mlo';l for in the applie:1tJ!e City gn,crm_lE.".mal or enkrprise Forni

Serv!i;e Pro~·ftied. by Other A.gt'llcits. Sevr.:r.11 mur1icipal ser-1icl'S are pi,;i>tidc.J t11IQugl1 Cll:l1er govemrnernal al_!encte~ ;:ir pri.va1c militr -i:;11mpn11ie..., iadudin_g, Lh(" l'ollowi:ig:

M#i\@ i Coor1,_ H,olth and: Srt<,al ~c<>k>Ol ' lile,noncci,r ,,vJ :,:.,,=,d.,,Cf Sch,;iols

C:nrni,,.ni,7(:(:-ll~ia"' Srllld Woi;e C<illi:cunn ~,d Ua>pn,ai L~,. E.loclncacndTul: bone

.13.g;, C:o,my of ifar. L•i: 01JisL,o

:,~n tu<S cu.,m: Uni~,d .S~l>Ml [)i,:;ic: 5>d L11is Ob;~c,{'.ct1n,~ C;nnnw,il:J Cull~~ Di,lrict 1

So. 1-~'+ lle,b;,3< Cr.,'°1"!r,) )

Pt':•ai:elJtjjj['(C-ompoeie, I

13\id_g_e~ a~ \e;g~ll}' adorted annually by lhe C-..uuncil bf re~olulicm, ~C"lrl arc prcpan:cE for each foml in accordam:e witb ils liasis -:ir accmmtir.g_ A; provi-ckd rntder City Omrtu, tbs: CAO It re-,por1&ihle for rri,rariug the bu<:lget ,1nd for it, impleroor1lation afteL :.idoplion

Sine.: the City usr.s a iwl'-ye:ar hud'gel, {)perntill_g appwprimioa!!. Itel{

cxpert,dc:d dur(ng the firt( yen.r mav k (;:lnitd fofl.'..>urtl .Ut,1 ;tic ~ecoml ;-c..i;r

Transmittal Memorandum

fix ~pe,;Jfi,;: p11rp1J5,cs with the ;i.ppmval of the CAO" [\Vhe11 upplicubk, llie~c amoutl(S ure aho\\-al as des;gnatOO for SLibSi':'JUlcJll j'ear c~penditmi:a~ in lhe fin,mci-1.1 ~Lat.i.:.mtnto.) At tll1;; ent'.l of the fin;i.l year of tile two-year plan, orrerutmt; ar,jlropiiatian~ lapse i.mle~s the:,c are encumber~ by cl)aln1.c! s)l purcb<1S<: Oi'd.er. l-'roje<:1-leri.,i::th budget..,\ arc a<lopte<l for carltal pro.1ects

lhl;" Couacil bas Hie legal ;rnthority ;IJ an1ec1d Lh':l b-u(!get lit :;i.ny ti.me Juii1:g the ii~r-i\l y~~r- Tht: CAO has tl1e amhor1ty w make admirnstrdlive w.Jjustments to ;be hndg:et .:i.s \.:mi 3~ th0oe dtm1ges will i:o-t have .1 ~igt1ifk<1nt polky i1;11"'JlCl r.(lr affecr budgeted yeur-e.r,d fond b.1lanr.--s The C1t)"s budget.:iry policies are more fulty d~H·rihcd l,1 Note l ,1r th-.; m,Lcs lo tile firt."t!Kic1.l .sLMe111.et1I~.

.l:i;,;[1¢ml.1tute .ancl b11dg_ctir1g Jernil i~ m~int,1inetl hy lhi:: City for e.ac:h lund and rlep3nmem bj' pmgrnm urea Jl the: line item level. Bi;dgctiuy corttrol 1s e:;,;:erc1~td ltu:r>i.igll a1\ 011-li21e co111p111eri~ ;.yi;tcm. wluch 1L1terf:1-L'e~ wilt,, t!,e Cicy's _general ledger The sy~tem m&intain~ c1n rn1-,g1Jill-lf rr;r;O(d of brn:ige:t l;c1.lan..:-es lhroughm.it tht: y~r based 0,1 acmal ex.pc,uditums rmd 1111fillcd p11rdm~c Drders. Ope.a encurnf-mmc~a at )'"'.ar-e11d an:. report.oo .is

reservatioll> (1\" fUlld OOJ,mce.

It i.s the: City'~ policy to mail'll-i.!in all 11m·cserve,:i, 1Jndc$ign1J.Led fnnd b3lum.:e: in 1h~ Crt"_;ic~al l:'ll11d of:1.1 leas1 20% of operating e.xper1dit11re,. As 110led .ll.ho"l'e, tb.i.s p1Jli,;y obJe-ctiv~ h.:1~ liti:l'I a.chieve-d for l(JO_i-06. l'he City mti.ir.tain, a sirn'lar ;iohcy for working cnpifal bala[lce;; ir, (he wa1.er, i,r;v.'CL ~nd parkln,i;: i:,;1lerpria~ tunda, a!ld iL 1!<1s been ~t for these funds in 2005-06 as wdL

FACTORS AF'FEC1"1NG FINANC[AL CUNU[TlON

Ti1e mfor1n3\ioo t1r1:-Se1t.<::tl ill the finm:idal staternems i~ perhaps bfa.al \Jnder.;ltKXl when it is coosiderr·d from the br1J;:i.di:r pc1·tpe::tive: or lht>, ~pe..1fi~ ~mirnJ:mti\C wit(1j11 which 1he. Cit)' r,j' San L.ui~ Oili::.po operate~.


Fi~Cill Health Conl.i(lg;-ncy Plan. Prepnrerl in Octob-e.r 2001, 1lm;. "'siK s1ep" lcoc1tinge.ocy pl.Jin. 5.et-, ro:rth spedfo:: activn,; for b0th short and lt111gccr ~enn bl!dgttary iasue~. Step~ frorr, this plUJJ v.e.\'e implemented ..:lnrtng L'1c 20[13-0.5 t'il'l;i.m;i.al Plan ptrLod a~ we bt"C,m1e uwme of fis-2.t:1! lrnnd~ thai JJnt-cntially could b~ve- <L

n.tcgat!~·e imp.net c:,n tht: City·s ctbility to prnvide serv1"°es And it wa~ ag11i11 LI~~"1 duriilg the 2-Cl0~--07 Frnari,;;ial Phm in helpi11g b.ring ITT. t.o !011g-t~rn li,.;~<11 bal.1.LJCC.

l·i~·e Ye.1r Fis<:al F-0reG1-rt, Defore the Lwo-:,eur ITc1dget proccs..:: ~gin~, Cm:incil revie1~S a Pive-Yca, G1111ern! Fwui. f'frcai Fcwci;ar1 rs1

h~lp set the ~tage for k111g-tcnn decision mat::ing. The purpo;':e of th(', fol"(',:;ns( is LU ideollfy !he General

'

fic$C~I Hn.lll ConUng1mr::y l'lan

mi11ir,1um rda:y lewal.

Foll()W <:1lho-r key budgol .i~ci 11ec~1 po,lid(;~.

3-. t,kmilo,r fiscal he.ilth ~n

d, A:,:,,;,o-o- tf,~ o;ha1'en,;i~. sh,:,,t m lcny Lerm protilwn?

5_ rrnpam a.,.cJ ir:wl~me:1t act1-on rfc1n.

Flmd's 3bility 01-·L!r ihc 11e,q ii,ve J"ears - 011 <IJl Onli:r 0fm-.griitude basis -to coc1tim1c c1arreut &~ovices, maintain e.,;:ist111g asse.B a!ld fund new iniri.;itlvt"s rn· acquire new rn~i,ol assets.

lvlajor City Go.fl ls. ,\loo a:;. p<1it of the City's two-year bi.id get pru:=, \he: Onmdl ild()pi~ Mojar Ciri, (,';-mis us Oil imegml p11rl of the Fimmdal Pl.an. Tht"se goals !iddre~s th-e hig.he~t prio,:ity i,~ueo, C\1mmu.riity-w1de c1Jncems aflod needs. The: Fi11m1cial Pl3r1 ls the City's m11i11 tool for prngrn.mrning lmplement.alion t1f the~e go,ils, f)lil.1'1-£ antl [10l1i::i,e,-,, by ~llo;atia," the reuiurces 11t".c;:essary ll1 do sci.

'llar; followm;&: is a brief summury iii lhe ,eight 111.ijar City goals ~ck1ptOO L,y the Coun.cil ~s part of t!ie l(XJ.5-07 Fir.im,;inl l-'lm:i:

lrifraslructurt Mairiunance. Cot1ti1me to mai11tair1. CiLy il'lfr.:i.,t.ru.c:luri:-,, ~I.lei! as toad.s, iidewalk,, wa,er, 5-e>'<e:r, slDrm drn.i113ge an.i..l pnrk., al li m()dcrnre: !eve:I

6

Loca1Eco-nom0,0·~~~~

H1U1Jri1:ally th,;; City of S:m Luis Obispo has ~nJopci u sralJic e\:ClllQO.l}', l3r_geJ]" imulatcd fron.l e,;om:i-m.ic dllwnlu.rns ili <Jtli<;;c p~1,o cif the ~I.ate cir

the ,1a1ion .Jue lO majur staIB and federal employers sudi il~ the California P(llj·l~lrnic St;i.t~ Univeroity (CRI Poly), C'.i1lifomi1 Mer,'5 Colony, California Dep3rm.i-e11t ol Trnll~purtalion (Cal Tr.;;ms) Di~L,Kl 5 office:~, R<:'gional 'i~iati::r Conlrul l:J.o~rd +1nd C3mp San Luis.

Empl.Jym,mt Emrlu}'Tli\':l'll ill 1he S<1n Lui~ Ob.l~im Conmy regi1m i, .t.nbllizM by a large govemmern preac-nce. As 1mtoe..:J .ib:we, thc Stale: hns <1

01:1jor uoiversin', \;Qti:-e~ti(lnal 1:.dli1y :u.td other re:&>i(md offices loc:nBO ir1 the (Otll11tt:nity Th~ County ~rwerni.1ent arid schad districts ;ire 3J.O majoremplorers .

i?evmrne Saiin:es-. Salt~ tax 1~ t\11;; Otj"i; lnrt,rt:lt revt"n.ue ~aurc:c., ac:CCUuti1tg for .about 3-0% of GenRrnl Fund reverrne~. N1:w ,erni[ busine~se.s hil.ve Qpened and this activity, ;,long with 11ew ~r SDle~, have K,u.ll<xl ill ill\ 2% increase over tile prior year sales ta;,; ·:i::v-enm:~.

~iUl. Luis Ohiar,~ and tlm C'.emml C-..oa&t rcgiQn ia ldsu .a uqji:,c t(luri,1 -de:stinn.lion. Transii::nl occ11pancy m;a; rroTJ is our tllird l~(gc1,t revenue M}IJJCC. mid de:~pi1e ~ignifk.ant manlhly flllcl.ial1ons, ~w by abc:,m 11% in 2005--06_

As with m3Tl\' olhe.r ,;1tii::~ 1n Ca..l[fot';l\1.(1, lio11sing prices in San lam~ Obispo b3>'C els.en r:iriU.ly, with tl1e meriian pric:e: l)f-. h()f;l'! n(JI-" ~1 $683,50'l, an inc.re.asc of 13-% fmm Cl'te ys:ar ;i.g0 Under Propmiiitrn IJ, howiwer, ~~iess-e<l value in<:reases 3re gcm-:rnll)' limited lo '2-% 11.11mmlly, exctcpt for thc v.alue (]f 11npmverru::t1ts a~d ;v.ij1.Hlmcnts CC' w~lkel value: \1ase<l 011

cl1~t"IJ'.!,¢ irr ownerslilr.

Tbs; Cily L~ ::ngaged in 0, numbBr of actJ,,iLies fc,:u~ed ,m l011g-RrDl fmancial µ-lm1:iirig, in.dllding:

2. Traffic ('(mg-.!-~tfrm R-elkj Cominue effo1U lo lmJ!rnv~ lraffi-c tl\.ffi·. safely aod l'educe lralfic 1:onges1iori throughcim the Ci1y_

3. llllwway [mpnJl'IJm~nts. Cllllimue l"lffons to Lmpro,..e bicycling in t!le City, including completion of 111e Rii.il,:oo.d iiakty Trail, Floh J,um::~ Cit}'·t-i-Sea Trail and Lile Bill Roal man F:ic;ccle floule>'itr-cL

4. CQOlJllt.rttivu [ht" r,J Sp11rl-> Facililie.r. Suppcrl !lie Joim F~e: Cammicme in further redevtlopin_i,: ;c::h1;1,:,,l rli~tric\ :;pons fadljlits.

Op,er: Spact l'reu,rvatim1 Corilij)l,1<:' fundi!lg opt.c "Ela<:1;; acgi.ii~itirm and th~ LJ3tur.il resources pmgram; mair.larn a~d enhmire ope.n space, creek.~ 3nrl 1·iparian h;,.bim1: ~ii,:l COl'llillUc "SLO St~w.lrd.s" program -.nd csiliJbmation wilh CQn.SuYati(]fl or~n.riwnci11s

\1 fic1111.11mic Dtvelopm1ml1 Sale.1 und 1',mu.ilJ.rr.t Oreupancy Tax Revnme.f. nncaLIT";l_gc :11ncl prom-Ote project;, a111.l pmgr~ma th.3t witl incre.i:;e S<llM tax and traJ:1~ienl u~~up311c~· rn:-1. rel'OOU5S

Downtown. Comimm the City's 1rndi1i<Jnnlly s1rc::11g.support for tb.c il<")wnmwn in ,irnltif)!e ac'l;:.as, such as m.1.i11lm3nce, ecmwmic de>'e:lopmem, rublic .,;3fo[y. parki11g mid touri.im prc:imoLian_ inc.h1di11g pr('.g_rs;s.; ori 6e ln~tnllaliDll of p~1.k:~lri3n lighting, -.nd other irnprovemerns a~ reM1urce, 3llow

6. Loug·Term Fl~cal l{ealih. C1mti11u~ <l1'1•i::lc,plr.g ,1[111 impl.imemlng 3 l(mJ!:~tern1 l1for. th.:it will ,;!elivec d~sb-ed te,:vis"i: kvd~ ~tll."q-u~Le!_I' mainl.i.ifl cxiHi[]g infra.'.lrn'l:luru 8Tl!I facil11le-s, nnd p[('ser,.e !lie City's long term fi~cal !i.e11.hh_

Ca,;h Mar.agemo1c11l Poli;;ie,; l'lll-d Prn('l;:icr,s

Thi: tit}'~ im1e.,;Lm!:I1l rn;mageme:nt plan ilddresses ~ wide varle:ty of hive.,mrern prnc:1in1s, lnrluding: pd=ry investment ob_j~cti,·es, im·c.sLmcnl amhority, allowable in'-·Cslm::ul vdii~k,, im'C-slmc:cl mntunty temTo-, i::ligibk fi118nc:i3l institut1nns, capital p1e.se~·mkin at1d -C,f\Sh fl(lw 1ll<lll~gs:n.e11t U11Je, [;I':" City"~ p<..>Lkico, lnv-:st1I11..'Tlll; rntheCilj-'a pQrtlohlJ

Transmittal Memorandum -----~----------------------------"-r-e it1tertd6d to L,e hdd uJjlil m.aturily, and ,i'",;:rutliog-ly, iav,estmo:11l tem1~ ar~ seJe~L(:G for (:llf161Slell(:)" w11h the City's cash flow need:'!.

R-ep:irt'i ct1-e is~u~ monthly t(J lhE~ Cc11mc.(\ aru:l lnve:otrn~ol Overs1g!JI Cmnrniucc by 1he Dep~1~m~n1 of Finnuc:~ & ll\fo1matlo11 Technolo~ prnv1ding det~lled lnfunu;uiun regarding the City'~ i.rwt:1tmc11ts and compJiam:-e wit!! C'ity 111)licy Thi:- Tnve":~tment Q',·etsight Cor11ml1t.ee--, e(m1pri~&I oft he CAO, Assist.flllt CAO. Director ofFii1ance & lnformation T~lrnologylCity Tr~asurer and Fhiaru:-e 1\fan.ager. mee1s quai:terly tt1 r1:-vkv. the City's in,i-estment activities.. At these meetings, the City's 111dcpeadern auditor 1epo-ri:s W lhe crunmiLtee on cDmplial'l~I\ wlLh. th~ lriv<:SIIT\Ctll M,ma:g<irm:nt. PlJn.

Urid,;1· tl1e City't inveolrw.1.l p0licic.o, Lhe Cit}"o- primary invc~t1"n.elll Dhj-tJcti-..e is lO achiew 11 reasoT1ahl,e rn~ of re.L1Jr:1 an pLiblic funds wl1ilt' 111inimi.;it1_g riob and prescrY1ng c.:.piiJl. In evaluati11g the perfo·mlil.J!Ce of the Cn}'s pol'lfolio ln ucl-.ie~·ing Lilio ohj~nive.., it ia expci.;ted Lh.aL :l'icld~ oo City irivcsllll<onts will 1egubrly meet or e1.=d !he average re.mm on lln-ee mom!i U.S. Trea~u.ry Bill. Th1~ i,\:ijecLh·e w;is nchicv.ed for lhe 2()(J.S--(J6

fiscal yectr: duti.ng Llils pe.-iod th~ CiLy expcrien.r:e<l ~n average wei.ghted annual yi~ld tif 3.S4% ~on1pared with 11.n .iw.rnge reli.m.) 011 thrl'.e 1nonth. U.S. Tre;.sury Bllls Df 3.65%.

D-cbt Adru:i='"'='='='="="'='--- ------

AL .11,rne 30, 2.()1.""\(,, 1h~ City ti;1.d out~rrinlhn:g revenoc hCinds of $4.5.6 milllon, loam frum the ~tal-tJ of Callfomla of i27.3 millio~ and a leai;e pl1rcha;~. f1mmcing liability ori-2-?. ni'111ion

TI1e City's d"C.l>t mM1.agcme111 poli-cies are ,:-0111pTs":hi:-nsi,·ely st-uLC.d in Lb(: 1'\il1dcs .and Objectives ~cclion of ,he Firian,.,ial Ptan. Key .:ompommls a[ tllis poli,ry Cnd1.1ck ti.-. ()1y', commltmE";nL Lo l'Tlt")nitr,c· all fot'ms of de:bt i\Jlllll~ll)-' crnncide11t wilh •lie C1ty's. fin.:mc-ial Pfan rm",Jl!iraliOll and review prc•L"-~Ss. Al~a. tlic CCty wlll ~enernlly txmduc:1 f111andng cm u c.c:irnpetifr.1-tJ b.11,-i~ .11'1d wi!l Se-;;J... ao in\l\.'cSLment grad<: J"a!ing (DM ot gi"i:<'ller) o-n any dire.cl debt,. .:ind will ~ec:k cre..ri1\ e:nh.ancc:menc..~ ~och a:; il::tter.:, of credit or iJH1JTil11CO:: Wil\.':n ri<X<eStilry f01· mnrke1(11.g ptirpo~e:.;., :i.vailabiliLy anJ c.ost-

Sorn.hem C'alifoniia Ri~k Ma:irngcmenl A~oodmes (SCRMA) b ..adniini.\-terlng tlmoe "111nc,fr' \Uihilitie~ tl\ro11g;h <1 'l,e.riking'' pmgr.im 111 which lhe City almres admiaisl1ol11vt costs a11d in~urnnca plnce.meut efforls l''ilh other meml\er .ar:encie!l. b-ut dlle$ nnt aha.l'e i:isk

Mditi(111.1l iaformatiun c,o die Clty", ri,k rrun~gemem ~ctivJcy ca11 k LoLind 111 Note hi in 1tte :noies to the finJ11c-ial slateme11ts.

fhi.;. 'Cily contribu:c:, lo tlie. California 'Publk Employ<:i.:~' Rctircm;;.11! Sy,stem (CalPERS\ i'll1 ilg,...--rit multiple-employer public emplc,yee de:finOO bt-.n<:llt. pe11~io[l plao. CalPFRS pro,·ide:~ relirem~nt and dis<1bilil) hcnefil~. irnmrnl CO.Sl--<Jf-livin.g ~dju~tmenL5 a1ad de.:ith benefit~ U) plrm mt'mbers and b;:-.neticiaries. C~lJJFTI.,'..; acts as a common iLJ\'<eSlill<'.;.rlt <1.td <1.<lmini,1.rativ-e ~gem for p:i.rtidp~ting pub[(c e-nllties within thG Slate of California Bca<:fit pmvis1on aml :ill <:Jtl-.e.r R"i.j_1Jirecmc11L~ ,IUe": eslalillshed hy Stale staillle. and City or<hll<IJl(<c-. The amci1,rnt of th~ City'~ uquired annual i::unttibution i~ r1.e!<",nnine:d a~rnarially. IL is ti-.ec '[lOlicy ol' the City of San Luis Obiap(,) lo fully f1.mJ thi.;. ~n1111.il co11tri.bmion to cn~llru tl"lllt rlm plan Will be able lo fully m~et its cbllpLkm LI.) re':•ire:d i::n1p]OJU'S Oll ;1 ti1t1t!:,' basi&.

Iii .additit.1n tn the Cit!PERS pem;ion benefits Je-!;~rihc:d ahovc, the. Cit)' l}.~(abli~hed certa.in po~t-re.ti.rem~nt health cn.r,r. benefits a~·aibibk: LI) execu{i,·e man;1ge-meol 1:mpl,oyees appolnt.e<l priDr lo Augu~t 2[)(}{)_ For :hace, fo'.1-· ~mpi1Jyee.s, one-ltalf of the ~-mployee he.alth [n.sur<11\~e premiums nre p~id by lhe C1ty if they elect lo remain memh,m; of the, City's g.roup hcallh pla~- Thi!l pn:wision c~asea LiflOn tbe de.1til of tile employLce or upc,11 thf retir'J.':d trnpl(1)'C-C- rcacilmg agt', 65. Tl1ls beL1etit [~ fillaJKui on ;i J-'J}'-BC-j"Ol\·);O hRSL~. CA.lu' do tlol c,.irrl':nlly reqLiire g1:1vemrner,ts 10 r~pott rt liobility in the financial ~t.aternellts in i;:om1edio11 with dl1 employer's ot>ltgation w pro\-ide: L11e.se. be~efit~.

AdditionaJJ~. the Cit)- ~a~ clc,;;ted Lo parti~1p.'llc. i11 the CaJPFRS Ilenl(h Rcnefit Prog;·.um. For rNire-e": coverage, th..: -City's contrihutil'.m i;simca;~ from the .lmr1i.rnt tl1e. City currc:nl.lj· 1xintnbute:s LO e.mployr:ei .as part of

effo..:tlveae~,. The Cily \\.·ill nat ()blig.1~ lh-e Gcr1.cr.al l~u!ld l() st:Cl.i~ lungit'rm fi1Jaoc:in.1;, except when rT]llTkeiabilitr Call be ~ignificamly ~nhanC"e,d_

Pmjens may ~ Cllnsidered for lcmg-ltmn fman<..ing when; ii is inunF..rlLately req11irOO lo rr.e,i::1 or relieve capacity ):l~ds nnd ,;:,.rrrent 80uroe; art wmv.ailabli;, or is mandated by state or fedeml requil'emenls> current i:evenLie-~ afld [1111d b~lan-xo il-t"e in~11fiic.ie11l; and tlr Lif<..' ot' Lbe prr,ij<.:cl is ten years m lon.g~r. /1..11 internal feasibllity .:in~lysis le prep~ted fol' each lnng,temJ linancing, which l'!n.aly;;e,~ lh<c impacl rm current arid ftil1Jre bu.:1gets for debt se1dce, orer~Lio115 a11d \he reliability of re>":",n.ues le, suppon debl ser,.ir:e. In evaluating debt cap~cily. ~neral--purp<:ne rmm1al debl service p.1ymenL~ ohould IJeYet ~x;;eed !~% af \'ipt:;rJtm.!l ~\-'~nu.:.~. F11rther, dire.c:t d~bt will nm e.1::ea"d :.!. % (lf a~ses-.erl vah,m.!on; i1ml no moTe tliati tiU% of (;apilat impruv,;:.merit OLlLlay~ will be furided fn111L lo11g-tetm fi1mncl11gs.

Allditio11.1J l11furrna!iun mi 11'.e Clty'& oms1and-1ng debt i5~ue~ and 01her tong"tem1 [j~bil1tie~ i:; pmvi;J~ Ill Nolf, 1 in tilt note~ lo ll11:: fma~dii:.l statements

:Risk 11,fanagrmen!

The- Cs11Jn~1I ad[Jpl.ed a c1~hcm1 ,,~ riok managc;rr1.ea1 p1.'0gJ.'M1) in Mar.:]1 of 1~192.. The pro.grain is Rillffc:d by .:i foll-time Rid. Manage-[ ii.lid i11d11deo ~yslem~ t'-:ir ri.sk i-d<..'t1tlfica1i011, ~\1<1li.1-i1.Lio11 and l~l'!,lment a11d mon\1mi11g 111 tbe iirens of mn fo:bility, vmr~cn;' G!1m~n~alioo, pro;ierty. cantr.:,cts and Mil:Ly. Su1ht -1Jftb<: actiYitie1 i~lucted in th~ proJ,!;Tam are mainlainiag CTll organil~tLon-v.•ide Snfely Crnnmiltee 1111d a wel11Jeiss pr::igr.i.m; coon.lill.i.lirtg claim> pruce,si,1g wirb worters' ,;:s1mr~n'>atir,:m an<l llability Ltlird-pany admlnislrnEOrs; T!:':~·iewi11g {_,-('nlract~ for proper im;11rai:ice, ~r,d <'.:valuating the rhl.:o or propo5ed spoci:i.l ev,r.nl';

On July J, 2111)3 the City joi1ted a ri">k shariag poo(. the CatifomiJ Joint l'owers I.ns11ranr:e Aulhs'rrlty (CJP!A), for fumrc liability daims ml.ministr.alioi1. On J11]y l, 2004, lurnre workers' wmpe~satio~ daim;;; llf lh~ Cily":i were added to rl1e OPIA. thk aharing pool. During 2005--06 th-s City wn5 oelf-imurc:d for d,1ims l11~urred p,ior to _aining CJ'PIA. Tl1e

the C'c!ty's Cafdcm.i: Pfan, ,rnct ~s ~llcll, any fuiure cosT inC"reases will be borne ily ths employ~1. nOl tbe Cily

Addiliullal information Oit Lhe Cit)"~ retirllTTlen.t and pott...Clll}Jl11yrncnl ben,efi.10 qn be fo1,1rid ill Nok 6 in thr: nole~ to the fm:anc.~l .stalt'.rnenl">

FlNANCIAL 1-IIGI-IUGHTS

Ttie following pn::scflts supple1Tbcatal informati1m tr. the :i..ID&A, poovidi,ig a;im(l,lrl~on.s fol' tilt Gtll~ral an,1 Eut.e-rprise i-11rnl'> be:Lweerr ~1ooums e::.1irn.i.tcd for 2005-06 and it.et1111l rtau)!~-

Gcm'lral fulld

The fo!l,,·1ving ~umn1Jri= c~anges in fund hlilance in lltl': (Jtnc:rnl F11J1d comparnd with pmjel·te<l r.e:;u)ts in lh<e 1006,-0/ fiml.l'lcial Pl.1n Supplemeut Im:- the fi$Cal yea!' ,i;:ndcd J 1Jne- ]0, 2006.

~ Cfian5.100 In """"" """"' Varianoo ~"'!"111 Fund 13;:il~r,o,s Elilli""""' ,,.,~,

""""' Re,w:n~ $41,81\i,700 $43, 164,400 $1.344.700 El<p,lr.dilLI~' ~9,000.~ 37,705.900 1,382.600 ar:erMJjJ~(,)se:;J \3,~1,<'c<J) (3,576,500) ,,.,,= i=..>1.li">~ er ."'!,~e-5 llrtd 001Jrc.s.

-CO.~!(U"de,r)~::titure.s&..,~E;!!; (r,08Q,OOO) 1,61l2.000 2,9,';2,'IJOO Fund baf= n,,-i"mlna al ....,.,.r 9,743. 1 00 9- 7"13,100 A.voilable 1und OOlanos S8'6163100 li1162'i 100 S2,M~;OI)',

• lod,:,da. eslirmled:m~d$78l.tio:), =1,rn'J,~~!$311,'5(}(}.am c.'.lll}'<Jll!i'~ af$1,(3?J,500_

% ,~ 0%

"

As i"E.tlected ab;w1::, aft11,r adj11sung for year-e.n-d enc11111bronce'i and carryo~er~. ~,·:i.j].;.bli:: yi::.11·-e11d fond bala.i1c-e w.1,1- 52.!:l rnillmn highcar th~~ ~,11rnare:d ~Lid ~c,misleot W1lfl lhll CiLy's p,olicy c,fmailn1imng a m~nlrnum fund balance lhat i~ at lea~t "20% of o~·t'ltiil.;!, cc,sts. t'II J~11e 30, 200ti, t.hli, lillisJ w.10 JI%.

TI1cb-c e8umat~s v..iry sli_ghtly fo:m1 lhe fin:il ln1ll.g~l ~moulll~ t'tfle.:tc<l in t.h(': ~~'.'-\lmpanymg fma1Jdal allilC"11"ie1lCt. Thii i~ due lo chan~a th.al OCc.LJrmd between wl1¢1l th~ 20[1,:5--07 Fir1a11cial Pl~n Siippk:mcnt wa,>

prep~red a.id :i'e.i.r--end fina( budge( approv,1is

U"nual Fuhd Renrnues. Om top Len rev(':11= ;ID:Qlllll for OVllf 90% of L11tul rev~rml"s. By fo<::u~ill_g on th~sc, we tan ~ret .llJl (;Xtclle.111 umlersll!ndij11g L'f uu:r re\oet1uc p.isirl~n. A~ -shown below, ,:iverall our Qr~iecliom fo: tbesc k~y ,evenuc.s we-c,;. v,ich1n J<;;, {lf mn- estimat.es

"T"Oµ Ten F\eYenu@s S1.1-dgel Mill.al Var,a.,t~ :~ S~IMT!J); [1) 112,2t5.500 $12,f,~5.000 .S-400.:JOO ~-=%

Prc-perlyT.=.~ s,9~1.C,oo 7,5-19,,!JOlJ c!i31.l.100 7,7% TOT .ci:m.ooo 4.5JU."20~ ,c- 0 1% L'MTilH~r,-T~x 3,96$,500 3,P-<17,3'JQ (21~) -0 'l'J< VI.FN~F $\'laµ 2,3:lei.200 ~,IIR6,4(J[; lf'tJ.200 7.8',;; Fr~r,;ch,f:G l'-ll<l~ .2,lt!;L4l)O 2,101,;;,,'JO (i<.100;, ·1 3~ B'J'5;CJc"55 T.i!x 1_t;R:,POO 1,576,000 9.10u Q,5""'c Ce~lopmBnl R,moew C<Ma 1'.l) "2.f,!lfi.~ ~,777,40() 251:00 9.0% f'.e~"N"W'lF<ais"S 1.rnnooo 1, rn,,mo 24.i'OO ~3% l,,·.·e-'<lm<cnl lea:~,,...,,:. J50,(i(]0 261,300 1£~)00) ·lQti"" 'fol~I $37,724.000 5J9,0U,100 $1,291).100 ~.4"%

I. f:J;d1..sl"'9 c;/ P,cpc-cirM1 172 a.alesM~ f!llli"ntlM ,~r,;c!CT!lorpubU\C s~c.>(r' o! $JC'l,JOJ. 2. Jocw.,. bttild,r,g-J!f.imi:S, {Jiarueng re..~, eni,m...i.ri,l(J '--• "11'.'cl f,'ru ~" r;frer;fl" leSJ~.

Thoe follGwmg 1-.igh.lighl:;: key t'Cv.,;tlue v,1rian~s:

L ~ales Tax. Snk~ ta;,;; rev,:m1es were hJg;he.r 1frn1J uur proj-;:cti<JM by 11.bout 3-%. Tl1rc£ factors acc::our.t l'i:rr most of thio:

Gelleral co11s1m1cr i.::c:iod.5 perf!)mlcli well, largel.J clue to (ite 11el'< CoM,;u, On moe hand, gro~, s~lc;s fer U'.istcu are Gtl lll.rgc[ wir'1 1J1ir c~(im,11:-:s. How~ver, rramfors fru111 e:xl~ting $lO(es ~ppca, to OC lower than we. projE"cle<l (whid1 [s _gooli new.\). Tl1is rdlect.~ a positi,•e lrt;:nd fot tho:: fu~1f1"., with a liJwer '1mpac1 Oil e;,:'1~ti~g L,.1~i11e~5e,s tha11 our ini<ia! ussumpli,or.5-_

h. l{evelluas from fof.l saks a.r~ llfl sha1ply. H11wever, gil'r:n lhe .!l.dw·.rse -.1m~eqU<"JJces cif hghe.r fuel cr,i.st. en lbc e,.;.ollmny.

_l)t=1nsmittal Memorandum

Cfi,ier. the flowdown i11 n.ew fic::rnie Mies cornbine,i wall modemli,;,11 in nrnrkn V..ili..e growth rn1e~, we d(l not e"<[)ect t-O set: this type llf in(~Lllll-y~ar gro,,,,th ir. thee wppl,,:;melll.l.l roll ~nmue.s in the future_

3_ 'l'i:-;1nsl!!llt Oet,:up,u1.c.:,· Tax (TOT). As lndic~ted in the: monthly 101' m .. w.,letters, T"e8Ult~ foi: the :,ceJ.r 1-1crn right [)tl largel ,,,:ith our budget estimates.

4 L:tilily IJ:;.crs 'ra;,;,. Thi& revi:\nue st1urc~ is dowu sli_ghllt frurn our c~tima!e, primmily due to !<ewer collei::1mns ;"n_irn che tele-commt1T1(ca(iDm induMry.

5_ \'ehide LicenM! F~s!VLF Swap. The S1<1<e'.,. budgf:'lt for 2UU5-06 iQclLLde.,. the. "VLI' Sw:ir:' u11der wbid1 :m equal amuimt of "VLF Uad::fLll'" {ifl Qur case. almut $1.S millio.11 ;i,r1nu.1Uy) was "~wappcrl" fo1- .111 equai arrwmtl of l'eV<:cm1cS tQ be collcx:1Grl with the prnpe1-;y t.-"J.A 1-i-iH. While tbis owap was con-ceptu~ll_y reY,:,nue 11.c.>ulr;;il, actual wv-ermeii wew higher tii;;i.11 p1·\)j-i::cte:d due (o gmw6 in a~$t~;.f.d vnlue tha( it re[at'n·dy higher than the pi'ior b<1.~e.

Ci Fra11chi,;e Fees. The 1% varianC'e in frar.chL-:e fee tt-v<.:-m.ie re,sults from Cl!y wa1e.r ur,d sewer revenue~ Alightly lowi::r than amidpa!cli

7. lh1sincss Tux, 'l11e.sc rn,ienu1c, we~ right cm target

8. Developm.e(1t Rctiew Feci;. These 11.1"1.l rlri.veil by the timing ul puvate se~tor permit applL<::ations, 1'.·l1i.-J1 art:: liiffi-cult w project. lri Jhort. re11s=Tiu€c we re:c:~!ved this i--1car muy ;;.impl:,c mean l<Jwear n:~·cnull~ ne:'U year

I)_ H~reati.--m Foes. H.eveLiues from =r,.atim1 activiLie~ performed slight(y btttn than pmj{;c;L&I for the year

HJ Jnw'.stment F:2rnings. Cie.i-e1c1.ll:,-- accqmirl accounling pririciple.s (GAAP) TE:(11..llre- a rt::Sllil£meJlt to marl{,,t v~ilJe at I~ end of tlte fiscal y-cnr. Fl11ctu.ali(ln~ irt the m-&.rkctpl.ice lim·e: ILttl~-effect 011 om longL~rm i1t1.·e~tmenl y1e,]d !Jccau~P, il is our polky to hold inve5tmems to .111Ml1tity. However aJj1.1.;iici:g to market v.1l11u as required by GAAP re._aulterl in. a (k.1.-rca:,-e: 111 re.::on.Jed im1estm<"nl CT1mir1g$ of '$!~8,001).

hopi::fully this will rl'lit he a cominumg 1rn1.1d. Jn Laci, ,11i:: h<1Ye re,;ently sec!l ~I gnifirntll dtccf'<',n8.es i.i _ga~uli11e pri,;;es.

New ~a,r 811.les rt1mal11ed strong - bm given downward sak.1 ~enUs by Foni .:ind G~!lcral Mcrors (13.liCmully (which arc maJOl phy,:'!rs i11 Sl'tn L11h Ubisp0). we do TIOt l':Xpe.ct this LC) co~tinllc.

Ill 51.J.mrnary, wbilc we s.aw better sa,les ta.x l'coults this year t.h.:in we projec1Ni, c.::,t'h. the t111.d~:rlyi~g base dnd ycwtl1 rn:c~ arco likely to be lciwi..T in the futum_

2. l'r.op(rty Tax. Pr-1perty t.'l.x~~ performc.d mu,;ti betcti: than C;,;pe~ted, S'1lely clue 10 supplcmecnt~l a.%c.:.5omento dnrlng the year lha,1 Wei'(;'

much. '1igt1c.:., trl.111 e;\pectOO, tocalJng $750,(H)} a11d ac..cm1ritlng fot ,1bout Hr% of toial pr(lr,eri:y ta>: colkcwms.

WFral drin,.> this? Th~, properly ta1., levy it "1J;,;r.;,j" for !i1~ Ii.seal ymi.r [)II JtJ\J' I b.t~c:-J Oil property value5 as ~f the. pri,:ir Jmruacy. How<:v~r. supplemcnrni a,sessrnent(". arc mack liy the Co1111ty Lhrougllm.1L the ye,.f!r based rJTI !hree .key fac,or(".'

a. Property ~ale~ <:l11r:1lf the yc11.r, wh.i,;:h lri_g~er a ~-atsco~mem t-o

current market val11c.1 This io the large.st p-mlion which wecstimale tG bc 31:,our $S61J.00() ill 200:5-06 (ab1Ju( 75% -,f s11pplemecn1al roll l'e•·ec111ki;).

be New const:rnctCun anrt impro"'emer.ls during l:11;' year. Tb1,1 iii ii.

rdati\·ely small portlon of the ,upplemeJJtal rull fr~1.m1med m about $7.5,000 in 1J.lll5~fl6. <:lr El% l)f rnppleme~irnl toll n:wcnuas)

c, -~~ di.,cu.5sed bcluw, m1r w:hlde 1icepse fee (VLFJ "~w.:ir" revenues t10W grow by itKn:ll.,~• i11 asses~ea~ valuaurJn, i·ather tl1.ut1 pttplll~til)lJ and whiclc valumion.>. !:las~ (In j1;1f,:1tmatiun from the 0JUJll;r', this clmri.ge also .affc(l.!- th!! ~uiiplerncnlal roll, ~nd v,:e estimati.: thia to a~(;mint r,1r ab{llli $12.5.()tlO in ·2005-06 (or Jbuul 15% of supplemental r01l revem1c.1) .

Gomeral Fu11tf li.xpeud!wre.~. Tt,,.-, following ~umm~ri,es Gencr.-il 1--'tlJld operaiing p,o_gr.11lL <:.,;pend1tures for 2005-llG by foncriun, ~om(lll.red with ~tlma.tes rdlcctcd in 1he 2006--07 Fir.~rid.ii1 Pl~11 !:iupplE=:uL;

"""""""' - v,......,, m= e.,= ...... ""'"" "

Pt.hl1c refeiy ~,1c;d,J;JXI $19,2~7,0CIJ ~,800 ' T,~rt.il:i;xi :2,253,,~ 1,967,&X "5.700 '"' l,;,1$111@, C~l!R &SOO!I Wr.10'!8 5.673,00l 5,2EO,~ SS,,,W '"' C:::rnn_mny rleM:[Oj:ITI:ru 5.12.'.l-.500 4,309.40C 815,100 1&'; Genera.\;'Cl"JC=t i,616.700 S,.5.5i\40C 1,l'.69,;3o;'.l ,,, TGlal FJl"~ell:puncirl~ '2,971JOO 3:9,3e1,100 3,.S10,41J'.1 " lrdr-6d cmt re;lll)Llr3ewe,t (.'.:l,';i!:14,700) 0,500.0C<J (4,700) "' Tobi operating ~ures "'"'"" 55,771,100 J,;,05,700 " Bl:l~ed ~.dl!ure (salifl!i8) 1..tsE:Et (::.'.lti,cOJ) ; [J:J3.3W) - i,te.:!..3Cl.'. (1,62':l,'.lOO) -- 311,&X: r:)1•.EUJ

TOl"AL ' "" "' ..,

Sl ""'"'

Alo rt:!1e,;led above, 3fler adjusti11g, for ec;tim,1ted exp,;;r.dilurc. 1iavi11g~ and cn-cumbrnnces, e:.:r,er.dl!lltC~ w(:n: J% less than buJ.r,ernd amount~. reflecti11g consci"OU~ "'belt-ti1Jh1.e11iE1}( eff1Jrt5. by all d~p:irtmtnts.

E.11e,,endl11Jre,,; B~ T,m~ E~t.ma1-<,a" Ac tu.ii" \l.a.riom= % Staff,.·1,;J T' ID,7!M,EOO $:3<.-4.91.-..M $2,31<:,900 '% Contra~! SenilccG 4,649-,E,C[) 4,6'39,700 (20,100) 0% Tel,:,cc,m~l'lui\ic'lb~~~ ~ lll1li1,<:'1 1,517c>,JIJO 1.3-"IAOO W8,900 ,S%

L,aL,ilily t. Pmpe-11y lrisurc1ne~ 007, 100 9(]1,0(]0 6, 100 1% Othc-r oi:,:orMl.-.9 2.,:!-S.!l,,100 l.7~"9.:ll,;10 (~51.700) -'~%

'.4inGc Caphal 151,000 152,3(]0 EJ:,700 " Toli!.I {Jy Type!- 4,'.l.~C'D,700 4'.,295.!J(l(l 2,15{Mll G'l..

l'\oimbLi~ed E,r:p,mdilwe-s 13-.C>B.i,700) (3.590.000) [ol.,?00) OS E:::srlm;de.:l S1tv11111s [7(17,5(1-J- (7Bi",$()0

~- _S-S~,06B,~O $J7,705,'3(l0 l;,1 ~2,?.00 ~ • /,1~ii1d,;.~ ,;;JJ,;curnt.q,riws o,• :,.311.5ro ~n:1 c.ar,yG'..-ers a/ 9.i ,oZ,,3ftf,

•• l=l~ries e.i;Jima,.,d MOA .a~'-'~/me"m~ or $4'?5',200

Ttw folluwmg table highliglus changes between tbt: e-st1rnalcd 201)5--06 budg~t iri the 2.CKJ0-07 Fma11ci.i.l f'lao Suprleme:n• uod 1]1e. fi11al budget pre:sl':niccl l~ the accompunring ftmmci-il.l ~nnemelltt.

-·--CM~nges in Oenernl FuM ,00;.;J' 200S:OO voo,mce Bud~& EstimM~ i:.!;li . Fl™I Buil ""'°"" % Fl<"":!rJU':i~ ;f41,El19,l00

.. $41.867,?W (i!i452,000) -11%

E.,pcmdllurre' 39,QBIJ.:;oo J9',1i-5.0CO (1Di',300) -0.3% Other OQ~rc;:ce, \~11•] (J,1}31.20\'.J) (C..&"A,-,001 1IB,c500 <0% E~fll'~ at r,..,.~,,t-"''l M<:I ~c,u.rcw .-,...., iun,,-ier] 'J4"1'CJdil11r.i. B,. U&e=i (1,05!'.l,OOIJ) (1,462,800) (a~ 800)

l"\JMIJaJ.:in:;e,,rn'qinr,1.rrC:'"MI" ll,7,1(,,100 5',:'43,100 Av;;iil~1lc fund balance ~ll i!ti:J., 100 $8 280,::300 ~!,12,1)(11.l 4.4%

TJ1c rnrnkot 4% variam.·c m cndi11g. fund halancc i~ due: t<J al.l.tltorl.!.ru arp1eopm1ti,m~ 21fler rreparu;ion of th,: 200lJ-07 Fillanciul Plan .~upplcmcnt

E11t.e111ri~e Ope~"tio~u~s._ __ _

The CiLy'.s cntc:l}llse c,permim1s arc: comrri:;ed c,f tbe follcl,1'ing five fu11d~: w.1l~r. sewer, p<u"kfog. ti1m~il ar.d golf. Til~ following f.1Lmm;i1'iMlS the f.n~ncial qie1alion~ and d1.;inges i11 fomncial posiLi<Jn for ertch cf the: Cit/s e.r.tery,rise- fund~:

',fmet Fimd. ilui wat!':r fund accounts for providing wmer scrvicec lu

cu~tome1s i11::idc- itL~ City :i.s wel! ~• sc,me \.':u~t<Jmc11, in Lhe C(l1111IJ-'· DI.iring_ 2005-0fJ. l,95G million gRlluns (IJ.,J40 acre feet} were cle.livercd IO arp1T1i,,im'.ltelr 14,400 r_,ust(1mers This compare~ with. a c.llrn:nt ~ilf~ a111h.w.l yield ul 7,llU .~-e1e--f~L The followrng sunllmnzes d-ia[lge~ i11 v..orkmgcapical io th1c .... ru~r fon;i:

wen': 4.5 million gaH,n11~ pcl' -d/1.)' (MGD). sl:'!ovl<;:ii1~ approximately [4,4{]0 cusl(J111~rs Th.:& compJ1e:; w11h a pbnt Cllp.adty of 5. i MGD. The. following ~11mm.;iri:zes worki11g s:apit.al 1n t~ ~i::wer fond comrarod w arnldpatecd reco-ults for th~ fi:;c.il yeai- ~mkd Jun~ 30, '2006'

~Furrd """" """" v~1= Changes: in "Worw:in~ "•· Ila I ~lnlli""' AI.WB1 .... ,~ %

'-= ~.\erser..i-oe~f'.i,,i..._ '""'"" M.f"iTUnOO

~IMl~r ,,,

lrJW":'1 loo& ""'""' ~,C..D) 271,100 '" are,r=r.~~ 17,0Cl.'l 1()?00 (&OCO) ·~ l1'vrolrrw.il:e'lfllin;is 100,IX)!; 162,00D """ TtJli.l~ 9,!167,60(1 lll,198,IIOO """" '" ~JllHPS

(p,;1'.i.tir.;i prc,yr.:= 6,460,tlOll ~.71C,,:ClGll 7~,xo ,r. clPP'01,.,-,5 11,:317,8('() l.'ilS.:.,Ero 9.362,C'C(I BSo/ Debl ~<l,V.JI! 2,8:).1,2{:(l 2,371,7-00 """"' 15~ Tdalexp('lhillu,-,;,,: 2ll.~.600

~rM1,-.:;...,iu=I 10,M2,ooc W,539,300 ''"

P,-ccoo;l:J lro.,i dffit 1iMJ"JC-,>t; 7,1374.~00 (7,~74.50!)) Ol~r,r5QUrw:!\USEl'iS) IB..1,700 [:le.3,7vt 'Tora/ ort,e,r~oorces (u~•:J i',95B,200 {7,9M,2ll'.IJ

<i~=Q\.\lr(L.fl<),e(') e',p,:";,:jllllre5 (2:,6.'i!i,S,'XI) &o=I J.,ll12,(l{)(l

BaiaicP.,l>a:'ilimin~otyi,11' 4,25!1,700 4,2:;il;l,100 Blllllllrcll;~ol~r 1,'601,900 4,61J,OCAJ 3,(112/JOO ('.a,pit:J.lpmj~L:nrr\JO'IE'IS

(""1 ci <;1e;,1;11;r-.!!r.i1,;i) (1,697,500) (il:7~;1 En;;u."11Cf8~C,B::'a/'Jjf'Ar"-<J\.e"S l'.(.!2-·· Au..iliil>I~ ,~~ c.,elt.ll I 1,601,00l'.l ' ''"'""" 931.~T

Ao re:fle:ck:d abcw-f', ending uvaibhk w(rr'kir.R capCtal bRlance is appro:i;imate[y ~I rt1il[iun hlgh,ia,r tli;m ptujc:ct~d- \,Vl1ik service charge revenues wer-c 011 tmget with proj~c.iot1s, in.1pncc fee~ oolkctci.l wen: 95% higilei: than J11ticipated. Operating am.I mai111.c~ance eHpenditurts were 12% l~s:; than budgewd tiLie 10 heh-1igh1ei\ing 1neai::t1.c->. A:itidp.:itcd debt -&tf\·i,;;c pa:ymcnt.1 fo1 !lie tauk fanTI Jifl uatioo were [101 requ(red this fi~rnl year resul1irii iT1 (Jnl::·tirne s~ving3 of :S~32,00}. the !.:to milll(>n m1nilabk er.ding bal:mce: comµ1tes favtJrnlJI_;· W3th the City's mimm-um wotkingc.apital policy of20% ofllr,::.rntCr.g e..>:p('nrl.)11Jt'f;'cS.

II

12

~-·-•>" W;1er Fund 200~·06 2005-06 lliiil~n.ce IJhBn.-e" In ';Vorklr,- C;,; 1111 '!;11tlm.J!~-d Aclual Am<Jun. ' llevenue

Wai er ~erv1ce chftri:Je$ $9,\86,7(),;l $5,$1'~.l'l')O (S515,-0~0J •Cl'.', ln,~111;t 1 ... u~ 9i'4,1'(li; 1,~.-.-,an;:, a4r,aoo ,= ln>rtOlf'l8'1lt ~~.rnLn~s 250,,:JQO 238,4.G(', \11,600) ·5°1. Sul,\lenilon~ !ti'rd glltnh r;eri,,:ioo 1:i~.cicci \742,00::ii -l34% Ol~ti'r r,;,venu<.is 15,5\JQ 'c;,5(Kl 1,10(; 7% 'Tpr11/ uwe1ar11 111:JQB,f!OO IG,888,eDD (420,<l<lO) 4%

E~ponGlture~ o.,,rratlng prog,am, ti.411.000 15,(1-1-4,JCO .;26.,2.()0 '% CIP p1oj,0.01~ 24,%5,rno i,7c5,rno 21,2.83,()()[, e5% D•l>t ~srv,~• 1.606,9CC 1.641,ella 180,.1(1() 8' rol11/exp<ai!d'iluf"{ls ;JJ,266,fl.ll.l 11,3Bl,7DD 21,874,400 0,%

O\her Sources [Uses) Pmc••d'i fmm ,;J,i,~t 15,S94,~00 340 ,S(lr,:i (15,JM.100) Olhs-r ~Ml~M (us,;,i) IJ.2,lOO) 32,700 Toral orhe-r .so11reo1" (use"! 15,682,2()() 34'1,91'0 (16,321,40-ll')

FIB~l,l'r~H Ol'•r \Undsr)

s-.,;11~ndllure-1i 10.wc-_occ) (H.2,\J{]O) 6,1~.ClClO i'.;ala1t:s-, t"l"'iJ'nn.,ng 01 year ,~.2~2..:,cc rn,2B2,.3CO s ... unc@, "'lld ofy,.., ~.se;,Joo 10,120,30" C,IS-3",1:lt:IO Car?;tol pr-Qje~t ,:;1myove1s

(net of d~DI flr,11;r,clng, G~r,1,:

-~~ Qlh~C~Ol,IIC:\'~) (S,1e~,90Cf (d,1-CG,8\JC) ~,-,,oum~~_l'l'B~ ,11'1d ~orr"{)Vern '231.4001 1,234 4-0D A,..a,is~I• wo,11,n~ 011"1111! Sl,907,~00 $4,699,000 ' 711 700

After ~CCl)tmtin~ ]O{ eocumbrunces ~rid ca!'l)Col'etS, enclin_g al'ailublc, workillg c-.tpit~l boh11ce l~ $/H,700 b.igllc, th:!n pr::ij~lecd leve:.~ Jad compan::~ favmalily wlLb the: City'~ mimm11m W(lrk.Jn~ capita.I polky c,f 20% of opeJ:11.ling e:oxpendJt\lres. \Vl;i!<'.;,.-evem.1<:ls frum Si:JVi~ 1'hargc~ weri: 6% le~s th.ar1 rroJe.c.ti-011s. impau fee:s exceeded pruj,cctio~s b:r· 87% Thi~ fa11omlil~ babmcc re~lllla from c(lrrenl yl':ar de\lelc,pmen; aciivit;r-

OpcraLin.:,,: and mainler,im(;c exper.dilurcs we~ :'% le~~ lh~n hudgeLerl dlle m belMightc[li~g mea~u.re5. Anticipated deht ~t-rvice p.1y1n;rnt;; Qll <he WEiier treatmem plam upgr,1de, were rim required this fl~cal yem rtwlti11g lki <1 011e-tbme s11vi11gs of $16:i.OOO.

S&wer F1md. The sewcr fond u.ci:uunLo for pmv1iling wastewJter c-c,!lec11011, tre,atrnelll and redm1m1ic,n ien,ices to cuslOmcra in~idc ihe City -rli, ,,,.,di~• o-01r.<.: C'll-unt:, .::u~tollll:n. Fw 2005-Q6, aver.:,ge daiiy plJ.it flows

,.atki.11g F1md. The CiLy's three: parking ~tructure.:; (a lh1rd slruNl,lre opened in Se:plsrnlier :i.006), 1.,50.S meters in p;r,rkittg IJ!S 1md on ~treets. and seven r<:cside.t1tial p.i.rki:rig di.'itricls are: operated i11 3CC{lJ'daace wiLh the An:ess .and Pm-fd11g M.wu.,gem,·m Plm1. Wbik tbe p[an adJrttae,s par.king i~sue~ thNugl1U\ll th~ City, It focu1,es primarilj- cm tb8 dowuwwn wl'.e.-e the City provide~ 1]1~, highesr l~vel of pn.rhng 111n.t1.il.gerntril. the followiri_g ~umm~ri;:e:, c-h<ll'lget ill l"urking capital in tl1e parking fond compared to anticipated. re1;11lt~·

~rkJ~rund """"" """°' v~,r~OO!l Chan- In W<lrki-- "'--'tal s.1--· ""'" -' " ae-

flillkir,;i ~ri.ae ~r~ t.2.412,400 ~2.894,3'.J[J IS\ll, 100) -,e Flnesarc:.::.-1 .. 1u= ~5.100 714000 t'r,500 ~

fl.Jmngnt:Uu'-. 1;[.3,{:0() C«JOO 1.137,700 ';';' lnate.51mert ~=,~(}', '60700 2-c:3,&!0 ~.s«t Cth..- ....... = ''-'"" ""' l1$,1(Xl) ·94% Tot/'1/n,~ ;;,;"~1,200 -3,M2,4{XJ 121,200 '" ~ltures ~rclln;J-Pf(>Jr..-n> .2,210..3)J 1,~7!.700 ""·"" 1.0'\', CIP pro_ecis 'l,229,700 6,48:2,400 2.,~,.= ~L'r\, Oeb'l5eMcc !i'J'J,0:,0 w..coo "'·"" "· rO'la!~Ju,-.,.i; M,:lro,00'.I H,2315; 100 3,J33/W = OllerOOLrCm(usoo) Pu--1, Jn;,m ;leb\ l1ra'Clng 0.471,::i:D 6.471.~ Olhor ro..rDBS (IB!S) (8,40) 8.<W T&1li61Ml'~(µ,,,i,Ji) 6,46:1.100 S,471,5{1(! """ f'll:,,...-,ui,,; ;:!/lJ sc;i~= =r iurti.,rj ~xpaYJiiLXC~ 12,325, ?CO) 907.&:u 3,28.;l,!;QO.

B;ii;rdl, b,a_:,J n,-j"l r;f ~'i'llf 6,35121Xr ,;,m200 BiJ!an~, ~ r11,- ""'-"" 7,291,tQ! '""'""' C;;pilalf)rujed,;.,;i~

(nel r:rf OObl fflimnk'/ f.2,747,20),1 \:2,747,XO] lcn:;Ltn':'r~l',aj ----~ '223&0) Im:·· Available worij·· m·ital ' 4,027,51'..lO ' 4,.319,900 ' "'·"" -~-, Avmlal-i]e wwking ~:ipiml is 7% high~r than proj~Led and re:;1,t\Ls from a 1·cmbirtati<J11 ur revenue..~ ~lroll.i:;~ than e~tim~t.ed ,1ml e(pe11..:Ht11re savi[]gs. The'. 12.9% i11creMe Cn prklng it1-lieu fre~ relll"cls cu;rent de\le]opme111

(r.1·ii11(1y Tl1e .$'1J m1ll1un av~Ll.11Jle cudin,g: b.i.lan~e rnmpares favorabl)' willi the Cilj"s mrnin11tm working capital policy uf 20% oi operating ~xpc.nditurc.;

Trr.1m,·il F111Jd. Tiie trurrsll fu11d ac~ou:its for thi:: Opo;i.tioa and mairm:u1anee. of lhe ('Cty trm1sit !y!t(:m. The prillllI)' re:vem1e. SQUOC.es are fe:detal 4nd ~tale grams rJth~r tlwn user f~•- The follvwiflg ->1Jmm.,.rj7,es <.,L.tmgeo in working ,rnpii;.I ill tlic lTanli!l hmd c11mp.arcd lO itmicipated rr~ul1,: for tl1e fl>-Lul year e,1d,ed hme 30, 2006:

Tr'ans,t FLJn~ ;200$-{JC 70Cl5-0E V~riarwe-Gt".a,igr--'i; fr, W~(klng C3nltal E,..lim:il•eC R,,,,"S~ul!

,IU::!Ual A.1'11-0Unt ., TD/l.suanl $1,347,000 S1,3G:;l,7(J0 $Hl.700 ··.2% FT/\ g1"'11 ai:.e.,GOO 514,9(J(l (57.3,7(10) -42,1"% 01hargran11; 1,111() 1.100 t'~r9 r,;il'\anu~ 505,200 451,M(l (.!l.'l.&JO) -10.6% lmeslr:>o)f'J1.:C~r11 '" 4,eoc 11,(00 ll,000 1c7A% Olher rnl"'.lr.Ull~ .:,ooc s:o \1.!KIO) 75 0% TdiaJ ,~vwn.re 2.~47,400 2,343,Z(){) (#1,2.Jilj ·14.7%

E>l;><"r.~lturc-s ~~P.ra(ing p,<:gmm~ ~.1,i,,200 2.15ii,QOO 35,3~() 1 ~% CIP >'fC:-,IQC~ 619,0UO tC·B,SOO 02\1,G::Q 75-.!l% Tei al e!lp.:;11lfiru,...~ .3,010,100 2135/f,,fLJO 655,800 i, 6%

Otta?, S-OIJ"1BO (ia5,'IS,I llJ 100 lt9,1Wl A~"""'"" mF,- (J~d~rJ

a1:peodi1u""s [243 700) (11.2o;;j n2,srn Bf'.:~~t,:,. be,gtnnin', oi ].'llllr 625.&IJO 62';,~0C B.!larn:e_ Md <'JI ,..,_.., 38;',100 IH4,51X1 232,500 C.ipilRI pmj~ol Oa"1"!>'el5 (11N ol

•n•nl~ ~n~ .,:11~, w,m-,,,s) f24G,BOq (>'=46.~0(l) Er,cum'1rances n,1d ~a.rrym.,,,~

A.voil~ble wefkin~ eapiL'll -S:382,1(1-0 $~57,BC/O {$14.300)

The, Cily amidpates 11tilizi1ig available Tt.iu,porta:io11 lJt:velo[Jmcrd A~1 [TDA). F,:a,.-1~.tal ant.l ulher grant fum:l> to firian~e rnpit;i,1 proje-.cc <:Mryu\.tn. Other capital grams u.•Cll b¢ applletl fQr ~s expt:ndu-ures fur Li:e prnj&-ts ,ue. incurred. The available wQrk.ir,g capit.tl balaT1ce: nr Jwie }0, 200G i~ c.in,istenl wil.h pmjcc1iom.

C1Jlf Fund. The j;(llf fund nccounlS Frn I tie ope:ratio11s and mainle,nm1ce: of tbot nir.c;-hale L~gUllil Lake Golr Ccilu:<e. 1"he following 'i\1111Jtl"'.ri;,;.,::~ ,.;.lmnge:s in working i.::a:;,itat in tili:: golf futld -:1=pllred tG Jttticipalt:J te;,u]1 s for 2005-06:

Transmittal l'v\emorandum

I

"

-Ci,11 FLlr"oCI ~ '°""" \lll~Ba;:13 Chon- In w-..ld"" Capl~ E;tlmalP<1 ""~ ~- % Re..-,,\'!()~~

Grn<intooo ' """'"" ' Z46.700 ' 7,100 as· CtW ~L"rk9 cha11._;a. "·"" n.= (13..5al) -1ffi'. ill11'll lnn'!Fl ~."') """ IIWGlalrnflrt ea'ri"V3 1,5[X) '""' SW w Total~ mm "'·"" (5,000) "" E.>p,n;lib.n1s Cperaiir11-J ~= 57.J,-oo:".I t.2'iJ,8:D 44,1((; 0% CIPp~5 ,·,o,?OO 80,<0) 30,cOO '" Tot.I expe,ridlrures "'·"" oltUDJ 1MW 11%

RolfmJBs rJ.Jer (urldcr) o,µJilll:ura,; (:ill.700) {25!i,2CU) "1500

(:pereJ,n(ltr:i.rol~ lrm11Clil '3En6r.31 Fur.ti ""·"" "'·"" \42.300)

Olh,;,r~{··~C-&J (4.100) &IJ[nla, 1-,,q;,n·r-.;i ct~= """ 4C\:.0::: &/;JJ'ICI!, l!fld "',._. "'·"" 3'),,00 Girtlt;,l..,,,..,_l,d.-J,;....= /30,:!,0;'.;· i31J.3'.Xl AVllil9ble M:Jrld'"'!I capl~I ' ' ' Fur the year ended June J(I, 2.(i(l(i, greer, fee ri:vcnuc~ 'NeL-e generall) 011-t~LJ?;<:I wilb 1:~l1malu. Heccmse cf v;pe,ndituni savl11gs 11· staffing costs nr.d <Jlhl"r O(lllrntlng expenditure,, lhe: amOLl!II of Gern':ral Fuml Slljlj)Grt was 13% kss tliat1 projtc;.e.d, redu;:iug operating ira,1~for> by $42,300

O~oi21~ Gcn,cral Fantl Suppi;.rt Likely. On April 15. 2003, the. Cciunctl re:vkwe<l a e:amprehensi,,,e srndy on 1h~ fi:;:al ~ll1-t\l$ u1d ou1locik of th<! Bolf c,:i11~e:. which i11dlliltU ltli=memhltons to ma;,;imize S()UK~s o[ mc:rnne, rromoIB lhe c:rnm;e .:mrl. reduce cperaiini cc:;t:;. Til~ study cmiduJ.ed !hilt Genefal Fut1d ~uppmi. Will h<; ne-0000 fo1 ihe fore~ee-able future, aJtltou_gh we. witl GOJJltnl.le (lffort~ ID nmrow tbc: gap bttw.ccn r:osl;

and revi::nue~- A~ !'¢flec1td above, wc W\o[ll; ,uccc;ooful Jn acliieving this go.r.1 m 2005-0G.

The ~tu<ly further .:ottdudcd, .aml tl.e: Council conc.utTe..!, dim tl1is General Funrl support is crmsislEcDL wilh 11,,i:: City'<; u~er foe ("-0£1 .coi:r-vc::ry 1m1i6e~. RS thr: ro::u! of Lhe- co111se is on recreat!mrnl iicLlYt!ie-, fo1· yomh and semors

---- -------

A,VARDS

GFOA .. ___ ·----- _

Th.r,; Goverr,.m,e11t H~aooe Officers As~ocrntion of the. Uuice.d States m1d C,mad.:i (OFOAJ ha, awarue.d 2. C'i::rti'fi<:aie e;f Athiev~ment for Ex.c:ellem:e ln FitiaocLal R\apOLimg le the Cllj• ol S.:in Luis 01::-i~~o frn- its

C1m1prehe11she Annual financial Rcp.-iri: (CAFR) foT LhC fi~cal year e.rided JLme 3D, 100:'i- "ft11:: Certlfi.;:~le of Achievement i:; a presligious r.alic,u~l ~ward re{;ugni;o;iog ,;onformunc(" with tile highest sta11danl:o; fix [lrnrara(ion of slalc; .1nd local gove-rnme:nt fLni\nL-ial repmU;_

ill crdet to ti.'.'. aworde(l J Cr:rtific.tle Qf i\chie.nirncm, a gol'E-CTHllOOI unit

mu~l puhl1~h :illl e.aoil}' re11di1ble :.mil dlkicn.tly org~nired compr,,;hi!ctL,;ive arinual finll.nc.bl rep<.ii:[ '.1•h;"1t,:: ;:00Jle11t~ "rn1frmn w pmgram srand,1rds. Tliis reJJort mll.'it .,misf:,· bmli US. gcni;rnlly accepled ai;.:1.JunLiog pric,ciples and ;1pplkablc kg.al l'o-'quireme11t1:..

A Ci;rtd'ic..tltl of Adoie:\'i;menl i~ VJ.lid for a periOO of c:mc y~T '1tlly The Ci1y of San L11is Obisp,:i l1as 1·-,;c~i ~i::d 11. Ce:rtifir.ale of Achievemeut for (lie lat;t twenty-two clJr.Se.cLmve yF::UG \Vi; belicw: our c-11n-en1 CAFR

r.011tinues 111 co-nf1lrm re:, th<: Ctrtiti.:ale sll Ad1iel'e-me11t proi;r.im

l''a:qairt-m~n(~. ,md we m~ .s11bmitting il lo GFOA to d~te.nnine its digibility fur anothBr certifkule.

C.S~1FO _______ _

T!1e Ca.lifrmila s,1-:iety QfMunidpal fltmncc Olfu::cn, (CSMFOJ Imo> ,1lso awdn.le.d a (\irnfo:!He of Awnrcl for Out:5,tnnding Fi11a11dal R,:porting 1l'.I (he City fo, uw- CA.FR for the fiscal }'C.iir i;mk.rl J11ne 10, 2005_ Hov,.i;v'llr, .iffective this ye[ll", lh~ CSM.fO hMs <:hanged tlie focut af iii; .i,wal"<I poogi:<1.11: ~nd will no lrn1ge.r acc:~pt .i.pplir.atiuns from agencie,~ lha1 hal'll rnc:e:iw.::l lhe corr,[larabk GFOA ::iw.iOO and tbat ~l.111 to cuotimic their p~r1icip<1tio1L in the:. Ol'OA. progr.1r.1. A;xordingly, w~ arn no lon~er ~ligilik: for pa.rtL.:ipmion io the CSfs-1FO prq,;rnrn

14

Valut t;j Pr-ngr,im Pu11icfpru.itl1r.. ThE:re are ~ 111m1beT of bem,.fit:; i11 p.trtk:ipatiug in tlic.c;c PfOb'Ulms OOynnd simply te.:~.11'fog rei.::ogoi!im1 l'or our ~rrnrn. For~rnpk, l>y :.lriving Lo ITl:'cf'L pr.-.£Tan1 sl:..lmfan:ls and gcals, WC'! produce helteT re.pon~- Additionally, as part of tht r-,,,kw ;proc~s:5-, we recdve c,:,mmei11s foi: iffi[Jrnverri.e-111 from other nuuicip,al financ.E':

profos~i{mal~ who review QUt reptJru (rnm !b "fre.<.l1" perspecfr-'e. \Vt be!ii;;,.,s: that 1his resu.il~ in conlinurnL~ improvem~cnls iu repmiing our finilllcidl re:solis m e.l&ted uffidals, srnff an.:1 cth~r intc.-c~ted p,,nies rnd1 t1.~ bo-ndboldets, Cr'M\1 .1g-1encic~ and lhe l)Uhlk at-larg_e.

ACJQ.O\VLEDGt.:lEN1'S

Thi: p1.epa1·~tLGl'l and developmen1 or this repon would not lm,.,e be:~11 p(l~.sibk without the yeru:-rOul\d <:ff1<:IC:.nc) 0[ lhc ri11.m~~ Di,.,1siL:1D staff aud th~ir special dfurt,, v,.odJ.ng io conjlln<.:tion wilh th(,, City's ind~pendc'.nt au6itors, !() pto<lu(:~ Lhs:; do.:1mi.enl.

\Ve would lilw lo t.ulw this Gppnnunlty to complin-.em olll those ~Ul.ff mi::mOCrs of b~h tile City a.nd our ii1Utpui&cnt aiJditsJrs- who wo<:re associated with the pr..:pur.1ticio ofth1s re:rion. We wot11ci also like to lbZDk tbe Co1mdl for t!l<";ir -coti1im1,;,;l hlkrc.!,\ ;IJJJ Slipp.irt Ill plil.rmmg and ,cc:,mluding. llie 6na11cial o~raim11s of 11.e: City io ~ msronsibl,B ao<l pwgressi~e manner

DIA~CTORY OF OFFICIALS AND ADVISORY aoOIES

CITY COUNCIL

IJa,,Jd Rumero. Mc1.yur Chrislhlc; Mulh,i,lland. V1cc-Ma_vor

r,1.11 Brnwn. Cou1x:il Member A.J;drecw ('.:i.n~r. Cou11dl Me11·,oc, Allt:ll Selllc. Council Member

ADVISORY BODLE~ "' .:~: -.:.; ,''" ,.

Ar-.h1to..lL1rJl Review Commia~ion Blcyclc Crnnmim:c liwru 1if Ar[""alcc: [)1:1wm,:rn?11 Asso..:llition

C11liLJr~I Heril~f,ic- C\i111mjt[{'C

HDuoibl~ .'\mltu!'lty l-11Jrt1;:;n l{cla!m11~ Co11,mis.si0Ll ]He" Re~i(!cncc Ad 1·i~ory ('mnrni1ree )oinl Rccr,:;atio11al Lise C.ommitle"'.

Ma~s Tram1~rlc1.t\un Comrnitl'C'C Park;-1rnd Ro.:crnati-o-LJ Com1nission Pc.rsGnne:l Boord P-l.inr.lc1g C1J1;imis~io11 T0ro1m1Lional C1.1(1rdirrn1i11gCom1t1iu~c Tr~-r: Com11;itt,;:,;,.

Appoirited Offi~ials

Ken HaL11?ia.i IL•nath~11P. Lowell

Drpanmerd !l!!ad.~

John Callahan Audre)-' Hoopl:':r t.fonk-;i. lro11s ll\."tsyKl~e:r Debr,irnh Llnden. Joho !>fandel'ille. John Mm~ Shelly SL:mw)ck lJiH:StRtkr Ja::; Wal~r

Cit)· Adm111.islr~l]ye{)ffii;;e1

City Atcome:::,

Fire Chief C!tyCle:rk Dire-ctor ,:if H1Jmac1 Ro:MJWrct:~ Din:ctmuf Pai-ks & Rcl(;rea1101J r',:ilk~01ie:f Dm:dl'r nrO:immunily Develo"lme-m Oi~tmofllli[itie-s As::.:~tant Cily Admi~islr.tll~e Offii:JCr D"1rect<lr aFFL1m11,;:e & lrcfom:.iiti.:i11 Te(';lmolcgy Di1ecloL of Publk 'l,\,'orks

ORGANIZATION OF THE CITY OF SAN LUIS OBISPO

r-.-~ el•nnl~g

Ron,,c~,..,rnco,

G.-1

CITIZENS

MAYOR AJ>fD CITY COUNCJL

r,.....,n"erran.ages,en1

rrt,,ITT~\f;,,,1..,;·nol"llf °'"FFart,a.-.lce,

V-lni•r

Se-na,

s,111i1;~, '~"'"r-=swoie,va1ilJ1 !.a1idw~1a1ernanac,a.-.,eo1

E,;cnoc,O,de·,elaa=m 0,.1:u,al,;;hlll~•

(l•norAI oc}nin~e,_.1,on

... App,;,inl.,dbyll,.,l;AO

_:c.-;,~r1<1f11t'I' C:,h·~; OJ•~ ~HJ

LM9 range pl~ooin;:

Dal'>llcarMnt re-i,aw

B"l~cqt.so.JeLy k,;~,;·,;i ,I.. CDIJG ~ono;;.1-~;lon

ll'l•ab,~

.i·,do,,.c1il,nl}'

MISSION STATEMENT

\YHO AllF- \\'E?

SAN LUIS OBISPO STYLE

Quality With Vision

WHERE AHi-: \VF. GOr~G?

lntG the Future with .a De£15a ¥& • RF

IIJ A le.1rn thal puts !ugh \'Allltl un -each c1t1z~i1 i[ serv-es_ • Plcmning c1nd m<Ulaging for levd~ of service COatii~tent witll the ryecJs o( the dtiz.ens.

• Provide-1:; of prograins that m~t basic uo:rvice nee.ds. CJ[ each c:iti7,J,,:rt, • Offrcin_g. :skills development and org,mizatiooa.l dl...eL'=tlOfl for

cmp:oyc,es in order to improve the:: deliv~ry of muni(:ipai servkcs. • Eniia11ce1~ of the qu111ity of ltie for tile com:nuni,y .J'i il whole,

WHAL DO WE STAND FOR?

Quality in 11ll Bnd,:mvon- - Pride in Results

• Deve]op,i11g s.rn.1.r,ce:,. nf funding .an.J eslnblishing a soLmd f111ari.i::1al 111~n.agement progr.am whieh will result in fis-cal i11rlcpe11dr.::r1ce rm.d flexibiliiy Jo ih-:: <ldivery 1.1f Ci1y Servkei:..

• Service to tl".e com.ni\lnity- the b<'.asl - c1t illl times. • Providiag tile residents of the Ci1y wilh accuuite and timely infomation on is:mes which uffocL them, and encouragjng the full utHization or Ci1y .servkes. • Rcsp:::cl- for each other a11d for tho;e;e we .5CNt.

• V;iJ1,1e - ensuring deli>·r.::ry of scrvico WiLh v:.Juc for cost. • Promoting the City M ;i r<:gion!U tr.Id{'., rerrs::c.tionat ilncl tcmisT cemer .aad improviag the qurtlity oi lifo for re.sidenls ::m<l 11isi((1IS. • CcrnJ11ut1.ity invc.ilvement -· the opportu11i1y to p.1rti,:ipatc ia

at1:aini1,g the gouls of the City.

i7

Certificate of Achievement

for Excellence in Financial Reporting

Prcso11lcd '.u

City of San Luis Obispo

California 1'01' It~ COJ11ptch,:c11~ivc Anmial

F:r1anci11i Rcp.:Jrl

fo1 11n:: Pihcol YL::aT f'.nrhid

Junec JIJ, 2flM

A c~,i, I ,ml.c "r Ac 111 cscrric 111 fr,.r Excc]l~r,;·, iii O Lp~r,,;:i~!

ni[l<i,li:.~ fa r,~~Cll<~n,.b lo

~c,w1H111cc.1 'J11i1s onrl ?U!.ili~ •~11,loyec 1eli1~mrn: oy,•~•\'15 "l'Oi<.'cCOn\:.otthcu,ivc a.mual lu,m,n,l

,~µum (CAflt~) .chie,•e 1h~ L,i~i.-aal ~1a11dard5 i11 ic:i•·cn>1nc111 ru:t"""'"'"

m<:: fi11,111c\d ,er.01 ting

18

California 8ociety of :Jvlunicipal :finance Officers

Certificate of Award

Outstanding Financial Reporting 2004-05 Presented to the

City of San Luis Obispo 'fl1i1 r~.r1ijica:/« i~ ~u.eri irr ren•xniliwr "'f t11crti'IJt pn,,f~.$:i;f.,1rnf if.,,,lf",-d;, 4/n!. nil~ri<i fir h'J!drii!lff

ti,hich uj1<1c1 a 111g111.1·d .ilf qua mp in lllo! a11.1rnalftn111<cia/ ~llllo?me11(l'

rrnd' ii! the undtrfyin,: au,rnMiHJI SJ'~·u·"' Jr.om wfrk/! rf1c rcpolrf'i! h'tre prep~r.-J_

February 24, 2006

l!O• '1b•~1~,,1:b~•c !', ~f,oiion~J & T~ilLnlc,I Si~n,,or<J, C•rnmlmo

Dedicated to Exc.eile,ice i11 M"niclpal Fi,iancial ,~I.anage111eut

I'ri11,ip-als: D.t"id ,\ 11,y-o.,,c;J'.\ c,;,,-, ,\. Wm1cr11:c1·c,_Cll,I, lk,;lhd ,\-1 11,,i-, Cl'.\ _lunn.,,I ''<>I" ;,(!'A Ds111dJ. ()'I Im·, :::I\\ Kathi Kffltil<M'"·c·1',\ 1-,,-d W. lln~~Lt. ( ]',\ .\11,nl. 1.,..1,,,,(,acli,(.I',\ M1clrn<:l'l'.i.::10:·.11kl C•/1 JI l,;incc (nce~cl, [ I',\

n,,,.IW.I' ,1=,":a,'c'c','c• _____ _

The ll:inornblt City Coum:il oftht' City 11C-.~an Luis ObJ.spo, Cal,fomi.a !i,;i.11 Lui, Obhpu, i:..:aJ;fom1~

CER1'[f11l.D Pull UC AccoUNT ANTS -----

T>.x AND B1.1s1:,;r.8i,S A..ov1SORS

fnde(lendent Amllt-ur~' Rcrort

1-in,crim~l hnl I •. Glu,.,

Stt,rben ,\. ilwime

We hDl'l.l audited L.be accC1m1><11Jj'iLlg lili.z111.;ial stak:1:K11L<;. {lt the govcmmental activities, the bu:;iiiess·l)p= ac:tivL!J.es, e2.cl1 majo-r fund, aJd the ;iggregate J-er.1aini11g fond i11fonn.i1Lrn1 nf [h~ \ [!}' w· S.a11 Luis ObiS]1(), Califrn':'li.n. a:<. of ancl lor the yi:,.!11" ended Ju.ne Ji), 20U6, which CQ]kdn'ciy conpri:se the C:rty's ITT!stc fmanc1al stll.tcrnent~ a~ li:<.re\'1 ill tl10:- :i\<",(()!llj!~nrmg Uihle of coJ1te11ts. These fmancial Elakments ~re thc rn811onHibiilty oft he City's n,aruigc::mcrll_ Orn re::s~,::,Jisil>ilL:y 1~ to c.,p, css an opmlo11 or. lho:sc fimmci~l ~t:i<Bmems based o:n om· a•.1<liL

We: c011d1.Kted ,;,us 8·.J.d11 in a~cordaace with Jmlitin,g starnhnli. 1,~1c1allj' as::oe,Jt,;'rl Lil The Umied Stales of Amciimi .and the ~;;ind-arcl.~ clpp[ic;,,b]r:: 10 finand;:11 audils ~nnlained Ill G1wem1.'le1rl Audilil!g Stcmdai·d.,, iis11ed by the C<.!..iplrollc:r GcncL.il of thc 1;nikd Sta«;:5. Those stm;fards require .hat we pin, anti ps:1."IC~m die a1.1dit tu 11btam rc;1.so11ahle as~urnnce .;bolit whethei the financi~l stntcments. Dre fret- of r.-.merial misst.awmc:il An audit i11c'rn;lo;:; ~mintn:i::, i"l-11 il lcsl b~s1s. evidence SUPJJlll'ling L.be illl1ilUll1S clnd disdOS-1.11'('~ ill 6c fman~cia[ atll.(i;m~n\t;. An aJ,J"i:h\ ~lso mdudes assessmg, the .i1::i;OJ11ting pnnciple:s. t~sed il1:J signific.,ml c~i-:rnatr:s m.ide l:ty lllilD~ern~nl. as w~II ii~ ev~luallng the ovt'.rnll tln,111c.ial s1Rtemem presentt1im1 We bcliev.:: lrrn.\ (.))\" ;iudit prc:ivides ~ 1caso11Jbk basis for ()Ut" ripinicm,_

In 0111 opllimu, the fllla,,cfal ~tai~mc::nts rcforr~d to ~bove p1-.:."6-..-:nl fairly, in al; mateiia1 rec,re1:1~, Eli~ reopectiv,c fin,mcial po~it1un of tile ~'Oli~mm~rrllil RCtiviLict, Llic lJ"..1smes;,-1ype ac:ivitil':s, ~lld1 majrn luml, :>.mi tli.i .riggl'eg~_te w~r."lllinrng fund mfmmmion ofthc-Cicy of San l.ui~ Ohi~po,, C11lifomi~ as ofJllJl"° 31

), 2JIOG, a:i'Ld th~ re3Jltttiv.e tli1111_[le; in lina:ic:i;i] po~itlun ruid .:;:isl1 !lu,.,..:;, wfincc 11pplii:;:ihle. lllcn:of for th~ }'CH thcJJ ended m co11fo1rnlty will1 m::c:ounti11~ p; im.:iplct generally a.:cepted in the UniteC. S;;:i\e~ of Aml'llL~-

[·~2 :;:,L,,hV·,1,0 ~LLC'<:L,,C,,,,1-:: :\ 1> 0 ,, 1,,,e1,,.r;,1 9~~o,:,

P!J -1,_;;/snw.'1 • _r~;,;: l\'l',l21·,-s;_1,

21

l·'\o.lP:l,»1-<.c"l io.n 1 ·.-,, ilb,pc.1:~. ~1 l'I

PH l'IIS(~<l-l<~l • E',H ~n .'>l4-Hil

!~22 '- l!,,.,J..,;,)··"'-- II s,_,H, r,-:ac,o. r:.1 ~-l+i\

PH 801 '_i;'J,.('i~S • E'IU: IVJ",/\l~-9.

The Hcm,:,mble Cltv Cuuncil <Jfthe Ci Ly ofSa1t Lui,; Obi~po. Calirorn.ja Sa!\ Lui.s Obispo, C'olifonn.'I ra.g.ec 2

ln ai}cl}E"<fance witb G!?v~1·11111&1ri Atiditing S{(lilrf~rdc;, w~ have also is~med our r~porl@ie<l Nov,;;mbcr (i, 2-()()(), (Jon our c;onsideration oftne.City of San t\1is OMs.po'~ mlernal ountm] over finnn.c-ial 1·eportirig mid en our test:, ,:if ils co,npfomcc: with c.ertain previsions olbW$. reg1Jk1tion,, s:011tiacc.~ -llml ~ranl agrcr:mc:ms and olher rnaw.':H. Th,;; puTJl,:is,e Gf Iha! report is to d<c.stiibc: the ~cope (tf O\;l" 1estir1g of inlern::11 ;;on.trol over fir..in~ial rnporti11g sn.d t'umplia11cc i'ltld lh.-' results of:hal kstin~, and llQ.f lo pn:widc ~tl -opittiOn on the i11toe111a: .;:,:mliol {)Vo..-i- financ121\ reports lJJ' c:mnµliancc. Th~t repoi-:: 1s ~n

l11Legrnl µarl of :in flUcit perfonnecl iJl il.-:,;uJ-J:;.mt:--' with Go~.en11nr::11i Auiliiir1's S111m/11nfr ~11d i;hrmkl be cocuidctx:d in ~s,<;,;::ssing tl1e J e3Ulls of CH..1,- o.u<l1 L

The rn;m.igemerit's disc:us5ion and an.~lys!s ;:111d budgefary cm11pa1·i~on inl1Jm1at1011 on pages 2j Lhmu;gi. :n n11c"l (i.9 !hl'ough 7~. ~n:- not a 1 e,pn-ed p~11 of the b:il.si-c :l11andal stnte:mettb- hLJI ~r,; 5llJJplcmr:mary iriform:iltmn rcqllircd br ~cc011!1tittg pTi11c1plcs genc:l'illly ae-GCp~J in th~ Umt.:d Si8tes of Amcric.n_ We b,h~ ;;ipptioe<l .:ertllio hmit-ed p1·cccdULoc.s, whic·.'.la cottsisted pL1nc:ipally of in-q_ui.-ics ofmanagemeril reg,m·<lbg ,h~ methr)ds o-fme;;smemenl ilJJJ ;:m.::.1,;entatio11 of t!ie supplc-1111;11tB~y i11format1m1. Eki1'-~>-L-"l, w.: J1t.l mit audit Hice i11fon:t1:iltion arid cXprc5~ nr,, ll]llLli<Jn on ti.

Oui' 3ll(Jit w~~ condt,;;L_,d for the- purpose oC fonrnug an op;ni<,1-11 Q\l the fo-imici.:1.I f\.l..:llcmc11!~ !h;it -cLJ-l!ect1vely \cmnpJise the Dry of Se1 Lu;s Ohisr,c,, C'i1l1forrn~ basic finrnic:ial SL'l.!Cmer.ts. The itl!J"si<lLLL'tOiy ~-=t10,1, cmnbin:ng an<l Lndiv1dual nrnnnajor fum:l fiium:.jaj statemems and schedule:., z11d !;.';at1stiL::al ~eectim1, i\l'e pr,:-~¢111e,l fur purµcisef. D~ E:dd1[i{l112Jl analysis Md .arc 1101 :i1 req_1.1:tl",;;J part 1;f tin: ))a,;:Lr;: finam::itd sta1cr,ieti1s l'l.c: C[}m}11,1lng ~nd indivi<'.iuil 11mm;nj"r fund frrn1i.:iaJ slatL1Ticnt~ ~11(1 schedult:i baYI.: hi;;c:n :SllbJected to Lht .!il'd1ting µ10L:.edu1·es li!)plic:d in the aur1il ,:if t:'le basic:: fo1ancl~l ~la1c111'"nt:s ~ml, :n our ~inion, 21'e fau-ly s-tate<l Ill all ma1.crial 1~spect5 in rclat1-on to tbe btsk fo1<1t1cial M.l.lcmrnt:s takoen JS a whole. Tht: intror'htc:T(lry s,,cti{lr. End l,latisli<::al sectio11 ]1mce not bt:t:n O-LJ1:ijccti::c:l :o the au<liLing pi or;:c,lmes ~ppl1ed in fac audit of the basic financLal ~lalCTll<:nt~ Hnd, accm·(ii11g]~,. we e,-p,-c:,., mi opirii()11111tlhem.

G~, Bu,vd.dtc, f'r.Jlips" ~,wn__ Gleim, Bu1·<lc-Lle, Phillips & B1)-;;;1.m Co.:rlifo:d Pl.lblic Acoo1.m1.m11"s A Pi ofe~stunlll Corporarlor, Sa:c Luis Obil,JJ(l" Caljfot1:JB

Manai;;tement's Discusslo11 & Analysis

l~RODUCTlOI\"

Thb ~ectiuu pr1wiJes <1 nan:n1jve o~·e1'VLCW and ~Tlalyii~ ,:i[ the fin;rn,;;ial ,Ls:livi(in, of the C\iy of .~all L1ii-> OblSjll.) (City) for the ll~r-al year ended June 30. 21XJ6. Ii &'1011ld he !'end in coojunctinn with thi:c .:i.:.:omp~oyir,g sran~rnittul kilcr 11,nd tlie ba~k fhrn11d.o.l St.;LcmCril~

FINANCIAL HIGHLIGHTS

The 11sse1s of the (:ily-a-f s~11 Lm~ Obispo e~cccd-ed i,~ hahllitics at June lfl, 2()(1(J b}' $262.H rnJll1011 (uet aa.:oets). Of this amou111, $3-9-'.l rnilllon (ur,re~tfi~t-ed tlet -lloi;<:LO~ may OE 1Jse<l ta meet !lie g<:ivernmc~t'& 011going obllgatlo11s Lo ,·i11~00 ar.d n~litors

"2 Tcirni m1te~trk1.ed n?t n;:~~~ are .$/.57 ,801) high~r lhall lil~C [fai;:al :,'e.ir, le~, tha:i .a l % v.ariance.

Th~ City"s gQ\ltrr1rr\CnLal lu11cis reprnt.:d. ;L}mbl1100 .:tlllmg fond b.~l.im:~.:, of S"29_J milli,m Appm-.;:imately 11 % of tltis IOOtl amoun1. (5:3 3 millinr.) is ~;:,-yyed 10 i\1i!i,;.ace lhJt LI ~& rlal av,:;:llable for J1ew ::.pcm.ling bc..:.;,u&fl it ha:s alre:ady l:,ee1; cmnmitlcd eilher to liquidate umtrLJrt~ (12.I million) (lr pay debt ,er..-ic~ ($l-2 million). Of th<:" n:.maining b.nlance, $7.'J t1,illi-0n t.10%} i~ unre~flrv~d b11( h.~s bee11 tk:.igu.;,Ll.ru for a >'ariety a( spetifi..; fmurc use:;_ lillt2 milliou is fund rulm:;.:e th.m ls ll11desigr,al.C<l a.nd o. ..-ililabiec f,x sl-"e:11din_g in hm111:;

4. T1:1tat clty-wi<le li.;,bClities i11,, .. rnascd :S[J-_2 (19%). LiQb-]1ries iri the _gov-emmi:,m~l uc1h•i1.ic~ incre-;irod by $7 millio11 {29%) ai1d ill tl,e bu~ioes~-l)"pc a.r.::tivil1e.1- b_v $6.2. million (13%).

."i Af(P1' a<lJ11stit1i for j'c~r-end ~nc1.1mt.ir,trto:'CS and cart')'Own., Lhc ~v11.Ll,,bk Ocoeral FuLid of$1 J.6 milliL}rl is consirnc.m wlth 1:1e City'o poliq· nf mLl!lllnining u11re5-e1v-ed, un.dc~ignn1.eti funci l:;lllan~,e, tbat Mc! ai lecc1.s1. 211% 0f op~r;i.1i11g exp¢nJi(1.1cr;s, ~L Ju1J-e 30. 2lJU6, th1~ tilli(i\a,,il,; :11%.

13

OVERVIEW OF THE FH1-ANCIAL STATE:P,,IE~TS

Tbe b[[Si.r:. fma,1cia\ s::.Ut<:mcnl$ an::: tl"lmpri~<:d {lftbrce rnmpuncn1.1·

1. Govemmenl-wide financiai s\a:tmnc1JIE 2 Ft1nd finan.t:iil ;:latemcnl;: ac11:l 3. N."l!U \(c lbe fm~nc:ial ~1..i.l.:mellt.,.

This rep,:.:i-11 ~1,0 ccmmi:ris required s1.1pplemenmry infoLmR.ti(lll (RSI) ii$

well,% 11ther ~upploen1eot.1I fillans.ial mfonmtion.

Thi5 set rif s1~terne11t,,; L~ des1gried iu !)K>Vi<lc reader& ,,,Ltli a broarl overvi,Bw [Jf tbe CirJ·'~ fmai1ce-s, in ,l manne1 ~illlilu:· to priv.alec-Scl·tor bu~h1e,:;

The .i·/alr:mc~I r'Jj n.et a:;.l'ef5 pre~t1t:; informal(O!I i:,n all (h~ Cit~':; a;aels atld liablliti.t:,. wltb lhc clLffcn:.m;c re.ported a., 110!/ ru.1o;"t11. Ov,;;, tim..:, mcre.ast:s or -d.e:t:mrn,es Ln net a~,,cts m~'t' serve; .'I" an indicator of wliether Llie financial pcisilion of the Cit}' ,:if Sa:n Luis Obi~ro i5 impro,·)r,g. c:ir de,;:linlng.

T~ie ~,m~1,,~1!! of ,i,criviJi"1.· prescats in.fo1mati(lLI ~howi11g bow lite gove-rament's net as~ets ,;:hanged during the most re..:ei1t fisc:a[ year. All changes in net assets nre reported us soon as the. unG~ilrlng evem glvirig ris~- 10 the c-hC:tnge rn:eiir.-;.. 1111-ls, '°"'"O:n1Je~ ~r,rl. exp('n;~s i\l'e rerortoed in tliv;. sCaternerit for some lrems tl;al w1ll -011\y re~11lt m ca,,li flows iri futLJri;; ft~cal 11criods.

Holt! of Lt1c gu~t-rnmern-wiJt= finJnd.il ;stalt=m~.nts dfatingHi&h fu11dion5 of the Cily ih.lll nre principally SLippLl!"lod by laxc.s iln<l int<:rg,civ~mm<:ntal l'l!-V::riu,.;~ (g11vr:•wmmir:i:I m:lii:ili~.i-) fr(llcl 1rl!J(:L filll(l~G.cS thJl an: i11ttnde-O to rec::ove.r all or a ~i_gnllic.rnl p11ni1m l)f th-cir C[J'ili, r.l1nmgh user fees or arr; rc.:qltircd by grant.or 11.g~ndc~ or Ci1.y pollcir:s Lv re &ccotm{~d for itl II Li~ fashiott (lnum~~•-lyp~ a,;:11:v,lirr~).

The govcmmentaJ ru.:t1viiie.s i11clu<le public :";afoty, iram:por(~tio~, le1~ufe',, ,;ulturnl & scidnl ;<;er11ic.es, det•elopmc11t 1cv1t:w, natural res.uun:::e~ in.-1.na,ge.men(, e,;'()1i-011J1C de,e-k1pmem .1md g~.ieral ,govemmem sup]'lort $¢!'vices 1,u,;h as legal servk~.s, dcction.a, h\1111.ilt'I rcruul\;,,;.1,, rl~k m.i.nag_emema llnance and i11form;1.li('IJ1 cechmilogy. Tb<', bu.sin.e,;s-typ(: acri11ides I)!' l~e City iucludc l"Jll',T, .'iewcr, parkirig, trnn::;Jl iim:1 golf.

As rnq,Jired by U_S. ,ge11eraliy .accq,Led .wcrnmtiug prim.:iple~. Lh.e~e

fina\lci,il Sl<lkmc.cnto p'lesem 1be Ci1y [lhe. primary .E;Ovemn~m) atld Lt~ ,;ornp,otl~n[ urnls, e:mitic.s for whkh !ht g<ivemmenl 1~ -coniiide.red to be fi1rnm::iall::,· ac.:<ium~Lik. F.lhmded ,;:mnponenl llnits. ~l1hm1gh legally ~cparale c:cn.(ities, .::u~ in s11b~1ance, p.art ul the gov~rnm-=n.t'~ OpCTali\'.lns and si;:i darn from t.hc.<c 1111it$ art tombine<l w1t)1 da.c.i:t -0f die primary govcmn,,s,mc

The Sm, LlLis Obi.~po C'ar,itai foipn:iverrnml Bo~L'J (Iloan:IJ is reporlOO as a blcnd,xl. ,;<imp1J11ent :unit in t!i= ~rn;crncms._ The Ilm1.rd pm>'ldc~ linaru:Jng for the, constt'Uctim1 Jmd. acq1.1isiti<,u of City fa.;iiitie5. The 111.l~rd. ronsL~t~ o( member~ of the Ci ly Cm1ucil. Ac(ivitie5 rtf tbe Bo,1rd .11re ~c,;ountDLI for in th!.' appllcabk: City govemmenrnl orcnlerrriI,e foud, Separate tinanei1il s1~te1.neng a.re nQI 11rep~[l;',:I fo:r the s~a L11is Obis.po Capitnl fm!)rnvemem B-1,.rd TIK City ba~ n,;:, i;:-:impo11e11t urtit5 that require dlKr(;lc.c psc..<oit.i.11011 i11 acv.1,Jao~c wi1ll Govcn1mtr1lal Accrrurit1ng S(andards Hoaul S1ate-nte111 14

'fur.id fimu1.cial Staleme11t, --- - ------

A fu11d is a grnuping of related .a~·conM.~ that is 11sed to 1lli1imai11 cor1tml Over re~11urc~.l; that Ila\·~ beEJ.n ?;.egrega1ed for ~peclfic activitie~ or ub]~nivca Tbe Cil~ ul' San L1.1i~ O~isp<i. llke othe.!' ;:w.tc .1nd lo,;a] governments., \JSes fund .i1:L'IJJJTiti11g to ensme and demon.strate compliam:e with finam;c rn:a1erl l,9f,ill ,·e-quircmenta. All of t!I,:, ruads of t!1e c1ly can he dj~,jd<',d lmo three c.at.eg.-,1·ies; govc.rnm~rll;;.! fund:,, pr<Jpriel8ry tunds and fLd·;ci.1ry forn.h.

Gc,vert1h1e11Ui.l Fcuid,f, G\.J','(:mm~ntal funds are used t<) acc,::i1,tnl fol es1ie11tially the ~11111~ f1J11ctio11s reported. ns g<ivemme11.tal .:tcliY1tie~ in the ,go11euJ1ni:nt-wi1le frnan~iaJ staLcme:nt5 Hc,,,•.:evcr. m1hke dw. gc:,\'-c111nli:n'.·w!.le frnm1ual Slalemerits, i,o.Yenuncmal fond fo1m1ci<1l stal~Jnc:n:s focus l?ll 11c:ilr-t,ern,. in('\Qw, .._11d outtl11w;. cif spend~bJe

Management's Oiscussion & Analysis

Fiduciary Fu.mh.. Agency film}; are ,h~ only type of fidudary fonds maintained i.,y 1.he City ThtS<: ar-e ui;ed tu ~ccoum for re.sou1-ce~ :~ld l'or <h~ ~C11f,fit of [l<lllle:~ ·.Jntside Ll1~. g,wer:-111ie:il. riducia•y fond~ iii'(; t'.11/l rdki;:t<'.d in th~ grwe11imen1.0 wCtl,e firrn.ncial ~1.;J.tem~:1t becauM: Lh~

n:u1u1ces of tho;_e fi.rnJi .'Ir<,; 11,0,t avaEl;;lJ.te tu 5uppon 1lle Cily's llwn j)r<iglilmli. T!le ac.c-ounling use(' for lc11Lici:irv funds It !'m.1ch like that U5ed fr1r p;,;:ip-1.·ieLary fund:';- The Agency Frn~rfa ar~ pre~l.'llted with lhc

fuJ1d linn11d:t1l >l.;tcnient5 1ri ll1e ouppJ.emernal ic~(l.lmmtion secti<i11..

_/Votes fQ Ilic Ji'imrncUl/ StMemrml.~. The not~s p1ovicte addi[ional infonn<1<i(!r1 tlL,lt 10 Cfsential t(l the 1-eader for a full u116~csm11din:g \JI the J;;,la [)fOll!-ded ill the /'.01'E"~-11mea1-widE": ac,d fond !il1.~nciai statements.

No";! as~eL.:; may ~erve ovc:r tin~ ns <1.;1 indic.;.t[}r oJf a go~crmnern's faiancinl po~iti.:,1). Ai, rnlloo <',Mlicr, for the C11y i)f Sr.1I:' l.ui5 Obispo. ilSSel5 cx,:,;,;.,:kd lla.h1li1'e,s by $262.:S c,1illion Ill lLirlc 3(), ZIJOri (a ·1% i,wre,111:fl from the, pric:,L· fit,0 .;.l y,:a:r) tumrna11zeC:: us follows·

Cc:rrs11t ~ridm-1eras.s~ls Capi:~I R~SUIS

Cucmn1 ;,au~i11.g~

~lor,cur,snl li~t,il;lisa Tcala.11;,w,1,1;.,,

lr·,~c.'tM in t.lpilRI c1sreis. llOl ol ,~1~11,r:1 cfcbt ll>1~t1dc<J llitt,•$trcl•d

T31al ~lei A~sc·o

8{;1.ollM,~1r1.;,1 Act,si1<.,,

3'1.91.5.41)11 22,41)5,clJO

1:J.7,2il1,:?00 L~,lj.HfJ.&JQ

15s-,22'l,<ma 1%,:J7'5.YJO

4,f>S4,'!l00 0 .432,2130

,'6,451,4_~~ 1~.711.c':ll! :'11.l.1fi,3C-O 24,14<,,100

11~.GJC.9C(I 107,\lN.eDO

g.~«Ji3ColJ G,27g,€';:1Q ,. ~~1,1:ilXJ 10,2m_ooo.

1J.C.Olfl.:Jt(I 12B.~~~ :>110

A( tl.~ -:end ,if l~rn Cllrrent Ji,cnl y1;:fl.r, tbe Cil? (~ ahle ti) reJmrt psisilL~·e l)rlla1:c:os iii a]; lliTtoc" ca,~gotil!~ of net .i~~e:t~. l:,oth for the gc11 ornmen: a~ a

resrn..1TCC5, 8h well as [}n 1::ialauees (Jr· s~nd.ll.b,le re~o11rc:~s .flV8.ilil.bk al the errd of lhe li;.;a[ ye,1r. S1tcl\ ilifotm.ati1)n m;i;y he usef.11 in ev~!llaLm,g a ,govenuntm·~ ni::caT-tcm1 l'in~n;;ing require=nts.

FleGD.use Ille focu~ t1f gcwemrnem.il funds is 21~rrowcr lhllll that of the ~Cl\',em1t'I.Ct'.ll-w!d-e fin;;,n,;j~I otatements, Lt h u~e(ul I\J C'[}fl'lpare lhc information pr~sented fo1 ,go11emmen1al fu11d~ with simihc infonnal~<JI, r,rcscnl.00 i's"r govemmema.l adivitCc.\ [n the ga\·emmem-wide finam::i1il statements. Uy dciing a[), n:.:iders may heller llmler~Lanrl rt,:,, long-rerm impact of 1b~ g.:wemmcnr's l\ear-te,111 fi~aa,:;illg clo;;:i,,io.is. Both Ille gc11e.rnmeJ1tal fond ba(ar,;;e 51,eet ~nd tlle govenimentlll fom:1 staiemem of ~vet11J~o. CJ;~ndL1ures um:l diange~ in fut1d ~l.1nce~ provide a recl)nl·marion to fodlit<11e 11,)$ comparison b<;tv,eerl g-cvernrne.11tal fu11d~ an.d goverttmerital ~cth1ties.

Tbe City malnt~in~ follrteen indl\··idu:.11 govemm>:nlal f11nds. f11formatisJn i$ p11::ttllto.:cd !,,;;.paralcly in the governmental f1md bJ.lan~e sh~EJ.t and ia 1he gt•vernmc:mal lund .,ta11."mem sJf re...-eriue&, cx.pcndirnres and cll/1.!l,ges 111

fond balanc:e.,~ for 11,e Gen(',1'<11 rucld a.nd lire C.ipital Outlay F1111d, bo(h of whith MC coJJw.lereii lo be major tu.ids_ D2rn from the ochel' g(ll'(:ffimDnlal funds aui i:omb!.nOO inll) a single, .ll.ggrei;;.1e.;t pri:osenr~Li~iu_ lndividu~l lut1d data for c.ach .::if ih.e~e n<i11-1n.1jo1· go~CIL1mc11tal fund:, ii; p.rovidi:d it: th-e fonl'l of combi1Ji.ig statement~ ill the :.t1pplemcmal informatim1 se,;(isin in lhi~ report

Of che (Jl.ajc>r J'urnls, the Ct!)' -inly adopts an annlJ.111.ar,propriu(ei.l budgel for 1hD Oen~ral Fm1d_ A blld_gernr:,• compari£-on ~laternenl ha~ b~n provid(',:I r.~ i"equir,;;cl Sl!ppl\.':mCnt.!.ry l11formatio11 to demm1stra.te ccmpliance with lhe budglll. B11dgeta[}' informatiou for the t1on.-m11.jor io11erm11cnrnl fund, ha~ heen provided with 1h¢ fond fin.i.ncial o1,;,temel11o in th~ auppl!ome.111.~l inform~tioo s.e.:.lion in !hi~ report

Proprierruy Ji'und.s. TI1e 011ly !ype of 1xop1ielary fomb the City cil San L1,1is Obisp('I (llili!'.t--.iut an; cnt_-:rpl'l:,,e fo11d;;. The V1o'alei, Sewer, Parking, Tr~11~it a11d Golf hmds a1c prcscmcd 3..f; hu~ill~'i~-tyfe acti\'iliea in lhl.' govcmmem-w11:fo fina11c::i:1l statem~TII.S. .1-'r,oprietan· 1\111di p.rovide th<: sanie lypc: 11l in[11rn1~ti,;:,ll as the gove.ntocnt-wid8 ti11a1'ld.1: st~temeuts, (!lily ~11 m~.t det~il. The City C'LillSiders all 61·,: \.Jf it~ cnmrprise fonds t(l

be majm fu11ds_

Tol~I 2005-01: 2004-(l 200:5-05 2W4·05

s 3fl,731,,900 2:l,807,200 6::,;'14,3C·ll 62.217,iOO '46,781 ,20J 135,";lS:!,900 t~4.C,32,40t ~• ... ~:,no l"f"/,.S;Al,10~ 113'1.761.lW 34~. 746, 70(l 3H, 14(),c.ili,i

6,552.,l(Y.] ~.730,700 ll,<4J,000 10,lf:2,000 46.2Q'1,Ao<J 40,R4!1,600 72,G59,.201} C05~'.'i00 $2,70,5,300 46,5:!(l,~lloJ.' DJ,5'\l2.20C 70,724,¥10

98,18~,,oJ 91,Rl39,5IYI- 212.~~.00C· \SB 5:13)1-ilO 1 • .551\,700 1,568,TOJ 11,509 "'8C )',,il47.'.l00

'.::~.001,4C,:l 24,14.;;!,<IC,;i 33.203 20() 3'3,tl$,4{]0 ·r 124,?5d,2(}J 118,lim,i:ioo 262,5~4 . .SOO ~.\tl.415.00D

wl,oll.'. as well a~ for it, <:.:rnmt~ ~c:,ve, 1\mc;c!ltal aml bminc.c~s-t_,,:1Je acti1,ilie~- The ;Jill::: sirs1mi<in h.dd true f1.1r tb-c prior f1:,c,1J y~.i·.

Managom,~nt's Discussi_o_n &'"-'A~n~a~l~y~s~;s,_ _______________ ~~----------------

The IHgt~t porliC:m of tl1e City'5 ne:, 35Sets (8-0%) re-fleets its in.\•e•1ment in r,apilcil as~ets, le.ss att)' relatod debt 11J~r is still 011tstandh1g u.oe-i..l L11 m::quir~ Lhua~ a~.lf,t~. Tb~ Ci1y uae-a th~cse ,;apital a1c-se~ lo provide: ~er\li,;;~a to dtiv:as; co11se:qusnl: y, these asscl.S are nm available for Lururs:c ~pending. Altl10ugl1 tl1c CiLy'~ invest111.erit ill its capil.al asi;eis b~ reported net -Qf rcl.ite.::l d-ebt. ll ahQu]d be nuted that Lbc rcsrnm~ss n~ded to repuy thi~ debt ITill~t be providEU from other &ourccr. aince 1he r~Jlital l'l~$¢f~

tl1emsel vcr, cLlnn<Jf bA uSl'.d 10 liquidrite thoC,.se l.abili1ie~.

Fll>u~nLI~~

Frc.gram Po:wnuu"

ChmQY8 lor ~ir,e~ C,:;<Jraijn\l 8'an10 and con'ril:rnllors

l;:ar,I~l ,;n111~~ and ,;c,pl,ibu!\:Jr.1a

Gi'n .. ,a.1 ili'VMUe~

5aJos 1ro;,-.,s Propart,-1.il,..,~

Tr11r1~, .. ,..,1 <;:c;>;\.;,~r.:;,o l~r l.Jllll\' LJ~NS I~>

',/a-Jlclo llcsnsei fNs.'\ILF o~rdr 011•~1 la..111a Jnd IEfi!la

~r>u•:<lm,;,nt 'fflffllf1Q~

Mis(XJll~n-c,:,u:..nntl .in ... ,

Tnwl IGVGn'J"-S

Program c.::l)cnu; ruDI•,; ~lif"IY F'uQI" ~lilil;es, Tr;sr,sf>"'r'--"1171

lclc:!UloJ. C-UIIUl.iil & ~~c.ial Sacv1~1i'O Cr;mmuri11·; oe,·~l,ipment

fnluros1 on loo~~~rm debt To1;11.,,p,,m,;,:<

ln.c,w~:&e :n 101 .9t&N8 lllltlllr; tra.risl~rs T,~n~l~r, lri,:1e-as1'1·1,n~t.%:!.a-b rJ0llll\8P,l8 oe~nn,,g N-ol ;,,~sGlia • <alYJ:ny

9,98-4.000 2,071,.'ir:(I

2,907,200

12.~75,DOD 7,~96,7l,lll

41,38,200

~,~7,300

2,4B~ . .t.(J(l 4.~~.9·:m

~2-6.rno 6e4.80C

51,cilll-,100

22,r.i1e.,eoo

5,142,2(X]

7.97:\,00J 5.50"), iOO

~~~.<oo 41.JM,iOU

\l.'l.110 ~00 (255.3':JQ)

i.'855.100 1'.:'8'23.',,,2.flQ

1.'38.Q00.2-JO

'

'

A ~mall p-r>ttlcin (I%) oftl:e Clty's net :as~cts -repre&ei'lton::~our;;i:i; lhat ~re ~ub.iecl to e-,_t,e1n.il rest.ictio11s 011 how they may be uoed.. Thi': re:rnuining ba_lance of ume-stt'Jcted net asaet~ ($48 mJ.llion) may b~ used. tCl meet ti)<;'.

_govert11J1C:nl'o 011goiflg o!Jligatn:,n.s IQ citi;,-..::ns .:m.i ,;ro:dltDn.

Informaiirn1 ab()m drnngecs in net aa~et, fOr 2005-0:i a.nd :W0<1-US Is S11ll1Jllilri.t&'<l b<..ck1l\l. Ge-11ccr~I government rrogr.tm 1e,enue-, hav~ bee11 nelt.ftd with imlirect expense: allm::alious.

0:,425.10J 1,234,?0C 4,626,101)

11,745,,W(l 6,709,~,J(l

4.C,79,&JO

j,$70.NC 2.rn,.ll'.lo 3.IJ3El,500

52-6-,400 0,3-,t\w

.ol:;i,~17,100

~c.001.soo

4.541!,~00

7,i*i2,i'UO

5.119/:tQO

1,365.700 40,216.1GO

c,o~.o:xJ

(116.900)

4.-822.100 12~,Jl3,100

1?8,'235,2['[1 .,

8Js,.ncss-Ty::r1iAcrivlt1~B T,'.,till

200:,.oc< 2004·C-0c,_ _ __,sx="c're0·+----''c"c'c"c'~

25-.211.illXI 1,005,COOO

332,'2C,J

667 ,400

'.,l'l,(ls,5,900

1:S.7.1.1,71;{]

,G.2'17.000

SJ:i,300

c1,:';7D.~OO

0,310,100 2~5.2,00

f,,-57'.!.400

11~,m:J.&:JO -,~4, ~5<.,(';J(J '

Z'.,55-{;.5(1[}

1,737.000

>':,034,000

6$8,201.'l

'.il;,\11::6,00()

15.3!J3,700

4,e76,~0·J

5(14,600

c'IJ.TT4.70CI

~.'211,WIJ

17~,900 O,:?BS,900

111,792,000 i 18, 100.'&lf'' s

3-o.1%,HJO ' 2e,9s2.:2ca

3,757.,:00 2,Gn.6IXI ~.2~.400 c',860,'.00

12..CTil."900 l1.74E,400 7.!i%.~IXI i:i,70G,4Cli 4539,WO cl_ 079,800 J,Nl,301, 3/'.70,200

2.488,WO 2.197,00C ,1.,i;,i:;,9_900 3.1!!'.l!l,000 l,~'C-3,fiOO 1Yil4,6CO ~.JJ'] 63-.600

1~.:.i1c.0::-:i 1:.,:.ic.>:J:,700

22.1.118-,SJ-:1 2C.001,!iOC lc'l.7ci1,i'QO 15,3-93,700 10.44[',•)00 "9,-1-24,POO

-it613.100 -t11;;'r:;,:,O -5.500,IOO -5.739.500

7:J0.101) 1 365.700

62.s-l-'.l\oOO i>'J.W2,MC•

t-:l,d21J.c,{]0 11,310.,-()0

t-:l.-42B5CO 11.31~.ooo ~4<1,416,:,:JQ 23,,l(l!:i.100

262,-844,'inO ' 24~,4 I E,0[1(1

Management's J;)is~ussion & A~alysi~ ______________ . ----·-----

Go-...crnmental Acti.0',0,;0<10"~--

(lcw,:,:n:::11.1<::ntal actil'itie, inc.eased ihe: C11y's t.el assets by .$10 I millioo <\<..--\:1.nmting. for 62% of the, growth in net a <,~ets. $1. 7 milli,;in nf 11el assets «~fable itl the rnp1t.i:I prc,Je(tO fu1Jdf; 1-ve-re 11(11 expended m the' c-urrem ye r but ~re des1gn.:.ted k11 [IIOJe~ts m sub~eql1flll \cars

T Govllrnme,mrl Aclivcfy Re-vem,e 'i,oi:1n:1;s "'.s sbown m 1he sh:i<led ur .!l$ below OLJT lop five tax 11.:.vcrn.>c:~ accourite.d fo, .11.pprcn;mm.tely 60% o tolal re\enuec; with st-T\."i,;:~ chrirgt~ imd JcvdC1lJille-[1t imp-act le.es "'f rn..1t1!in.g for r1.notllcr 21)% Ge11e1allr, rcve:m1es for 200'.i Ot1 tc;,;ct:ede.d th r,-.; ot tne p1wr fi.sc::il ye-11r CapHnl gr.;im reven11es l1owe,er, de~1e.i:~ed u~ l2 (I rntll1ci11

. ---

I nev1:mue&b~ Source· GolV9-Mt't'lli'!D1~1Acti11111e~

O S,:,rvi,;;,, C11arge:i

13'

• VLFNI..F Swim o l!t:1i1y tJ,;,,.s

',% Ip

8%

• T1a11siMt OVi"P-i'""I' ,~

0%

Tl\::' fol11JWi11g d1sr.usses significam variance~ in k.e.y rcveoue8 from lheprior fi~c:al ye,u-·

Sall'-'> T~~ Annual r«:t1Jpt~ ,11c 8% highl;'J" Lh.:in lile _p-rior fiscal year <lu.,-. lo 11~.w Erlatl esrubli>l11uenls, higher frd prk.es. co1tsl11ue-d

dem.111d fer bu.iHill.fl and C{lll!'..lruction m<1tcrinlf> ard u ~!ea<ly tt1trkcl fo1 new car sales.

2.. l'r,;1pert,·Ta11:. D(1eioco111lnued strong 1m:ren.ses n prnµcrly \'aiue<., rrvenue,s iricreased by D% llvc.r laar fiscal :yeur.

! Tn1m;i.erit 0~-CU(Hmcy Ta..: (TOT). As iridical£d in OUT mDlllilly TOT newoletiers, revemJc.<, are 6l1owh1g s'lfong gr,.1wlh, ending 11 % higlw-r than last year.

4. Vchide Lkem;i. foeeYYLF Swap. The: Swte's h1dge1 for 2DCl5-'16 iodudc~ the "VLP Swap,"' uoder whid1 ~I\ equal nmou111 of "VLF Backfill'' (i11 Oul' C:.J.::ie, about 11.8 m1Lmn a11mially) WEIS "Rwarpoed" for an egual amount of ii"lcrca.1ed prC1pe1ty rnx re\.:nue~. \Vhil~ rhla swnr w.-s concepLUallv r~venoe nemrai, 1<:0ceipl~ f1Jr 21J05-0\I wer,,; l4% higber tJ1ar1 21)04-0.~ due tr,i growth i11 atsc~scd value that ~s refatively higher than the p.riClr ba~~

Dl'v.elopmer:r,l Review Fl':1':S, R,,vc:riucs reilecl ~11 rnu<m~t" of J·]% frnm lh1c- prior :;cea.r a.s a ru~ulL ol cummue<l \h-on,g d~vek1pm~nt ac,ivity, pamcularl_v in 1l1e ai~a 01· infr.:i~1ruc111re rbn d\-eck and Ln$pection foes Thes~ arc U.rivc:n h-y the liming of p1ivme. ~nor i-Jerrrnt ,,ppli(atioos, whl-ch are diffic11lt 10 project. ill sl1on, rev~nuf" we n;cei~·e-d 11\is year may >imply mc.:i.n lower re\l<e.JltlCS liC~L year.

6 Retreatfon Fees. 1-1~ 12% in(n::il.M> in r~lfl:.ilti'1ll fees 1e~nlls trum a :":i7% in-creas~ in reveoues from lac.ility rn11tal act1.,-il}', aod miXlc~ace illc1·eases iH a ~·ariely tjf ot~r prc:igrnms

7. ln-...ll.~tmeat E;3.rll.iug,,. U.S. ~t:nt'rall~· .Gasptc<l al:'1:'0Unllng principles {GAAPJ req11ire a rc~Lal.C.mcnl Lil murkc.t v11lue <II rh~ encl of the fis~ol yea1·- fluc111atio11~ m -the ml.rl,;.,-,t(II-Me have lirtle ~ffect Qn 11ur lon~-1-!llnl 11nestme11I yleld be.cau5.t: ii ls our p-o-!icy LO :iold invc:strns11!~ to maturity lfowe1•e1· . .11.dju.tin_g m marb:q 1·all,l-;;:; .!'I> required. l-;rj< GAAi' rernlt.:<l in a decrease ir1 rc::m.:k-d invi:.otment (::lll'lliiLgs of $210,iiOO. L~sl rear the City 1ecorded a ro~itive .i:djustmenl lCI marke! VJ.!ti~s.

Managem~_n_l_'-~~l?iscussfon & Analysis

PrfJgnrm t.:xprJnse;,. Prngram e:,,;11B11ses grew [}y a rno<leol 2:% from the. prior fiscal :,c.1r. Thea folkiw:ng d1.11.1t comp-ares program revenue., c1n,;l c:,,;petises:

3-i:1% of tl1<c lul.i.l gmwch in n~t a.55e.1.i; 10 mrriburnble tu current ye.Qr busi11caa-t1pei a.:1ivities.

R11"1mm1 SollrcrJs: Br1~·i1ws.~-1'ype !lcti11itif'.'i_ Charge~ for ~ervic,es reflt<:t rm 1m:re./lse of 12% (il.1 m11h<Jl1) ovi:-t tlLC prinr fiac;il ye~r- Grn11f re\'er.ue!; li.:ive. dt.:-rtcit~cd 4-fi'M [$1.S rntllilln) du~ m U1~ tlmfng c,r reimbu.r-&ement fore,;.pendilur~b . .Significam variance~ arc ua foJ\iw,,s·

L Wnter ser'\'il;e <'hargl'!s:. Ar. illcre;ise 1:Jf l:4%, ruoulls from a rate ln.crea,,e dfect1ve iLi 2005--06-_

2. Sew€r ~~nire cbnr!l:cs. An i11ue~so:". of 15% rcs11lt, Lrom it rnre im:r-e~e.e eff1~:tivc i o 21105-06-.

As sJt Jt.;ne 31}, 2006. ihe City's :govemmenlJI fl.Jm;ls reported combined endmg furn:': b-nla11cs:.s of :l,29.1 million, HTl rnnease of $3.4 million ~011.1partLI to the prior t1'£al yi:-'lL- ApprQ'<:]m.iti::ly 11% of Lh1., tot.j;I ~mount ($3.3 miilio11) is. =~~rvi::d lsJ ir1di~aLe that LI is not avail;,.bk t{)r r::ew !.pending ~il\1SC it h~s alreaci;i' bc,~n commmed ellh~r rn Jiqujdat~ co111l'a<:ts arid p110:J1itse urdcn, 1J[ thE.l JJrlc,r perio,,-l ($'.!. I million) sJi: to p.i}· deht scrvln·.(Si 2million)

Tilt IT111~iniag ~9% (!Z5 ~ million) c-cim1t1.utr!..<. ur.~~s-e1·vOO forn..l b;,.la.ice, whid1 i~ Hvailable for ,:pe-nding ill the !:'PV~rnment'.s d]r,cretion. HsJWE.'ll'er, S 7.6 111il!iot1 of the unresenrt:d bal<11tL'~ has been design.a1ed for s. V-itiiety o[ ~pe~cfo; futu~ u~es

~~j;;r G;;,·,;;rll.Jllfnbll Fund:s. Th~re are two rnajsJr ~r,,vcmm~,JJ.l<ll fonds: General f-um! .mrl Capital Ouefoy P11n.d~. The fo!lowi~g highlight., fllnd change!. fr.-im l~st fiscal ycll.r

G,mem.i Fund. The Ge:oci;;i.J F1,1nd i.s t.he chid 1Jpuatrng fur,d ,of Ltlc City. At Ju,ie 30, 2006, !Iii:. lr:i!al fun<l balar,ce wn. f,13.6 miHk1r,_ Th~ 1111n:~i!n·e:d fond lrnlun,;,-c Wll!"> '),8% c,f the tot,11 ($,13.2 1ll~llJ..:i1J). i\~ ii

rnea>llr€ cf 1he Genernl F1.1t1d'~ !iquidcty, Lt may he use:fol w comp;i,re. borh 1.1111e-,.,:-n-eU Fund ba.larn::c and weal fund b.aJance (,:; 1,:itaJ fund t:xJJe.orliLu~~- The. unrc.acrv~d, u11desig11ated fur1d hafa11.1;e of $ll.l:> rnill'.:rn re:prea,;:11t~ 31% of Ge!leral Fund upCT[lilng E.li.pe11dltm·es (im:l1Ldi11~ encumlirn11cc:o and carl)'(]\'er~), Cl'rLl{l.l:\[~ witb the City's policy millirnum of'"20%.

~·· F1~I E'·1~;je~ Aclu_.l G...-,,aral F~nO

r:lic\'1:11Li0.!l S41,3117.7~1 $40,,64.~I ExF~nd1lw~· jB 1'.i"5.ellO 35.T/1,100 Olh<a,s.i,1r~•~ (iJ:i;l!si (3.654,?GO) p.57!J,5,00)

F!"',(:nnlnglurid Mla.n,-a '...7~:l,1GO <3,"/'.C).100 Ending iu,id ~f.15rtCo!

Rc-S~rve<:1 311.t-OO De,s1gn~1"'~. 1,62],3:JO

IJnr_,:;~rv-.L! $B,200,300 $11,<l25,10C

• l1;dW~s ,ucla.ssil rnticn 01 "SS!lmalBd umar.dilurn ~ellir"Jgs an(I MOA

adju3Jmcmrs Imm ~thnr ~u;c,;5 (uses)

·--V,11rianco

$1.79\i.7{;0

:J.404,70()

1~.2.:io

2.11.500

1.D2~,3'JO

P,344,C-O<J

l'ragrmn £;;p11nses; Busines.,: Type A1cti~itit1., .Ptugr~m €X.peJ13€5 incr~as~d by 4% fr.:im the prior fhcal year. T!ie Cr,il)owl11g ,::li~lt .:-mnparu pmgran, revernre5 a11(1 e.xpe.i~e,.

810,~00,(>'.:(' ;-·· I

=:::::"::'='~='='":::::'"c"::":::~"'====="='~="="=""="::'c"=='I I Fl;\IA:"tfCIAL ,,NALYSISOF THE CITY'S FUNDS

&!&li&ii. i.& I ~ f!WffWitFj~ Ao ,m1e.d e.mher, lite: City u,c~ fond acc.rnmting: CCI e,11sure R11d dcmo115trate co1n~(ia11cc v,,itli fin,111.ce-,el8led lcg-.1.I requir'flment~- Tho:",Se fond.\ ba1-'c hc:cn cl~~>ified a~ go,,.ernnren(al m- prnprie[1,_y.

(;o~·erament:i.l F1,111ds

Tlic f<x:.u~ <il' t~,; C(ly'5 !J01'eru1ne.ntal fun<ls i.s to rruvid~ lnforTm1tion rm tl-CHr-lcnn inf!ow~, omfl{lw~ aod L,alanc-es <.>f sptndahk r-c~r.urc.ca, Snc;h inforntalic.n 1s u;d'\JI in il8Jessing ttl<:: Cit_l-''g finam:ing rcquinnnent5. In p8rtlcul8r, 1mre5erved food balance may SC(1-'e as J useful measurn of a guve.mmem'.s net tBR{IUtces avml11ble. for S'[)C.mlir.g al lh.e end of ,11e tl$c::;,: }'enr_

Tbe un~!.:~Vs'd, 1-1n.de:sigt1aled 01:meral Fuod balam:c i11.cre~6€<l l,1.9 million dunni;; th~ ri~~al -,.e-ar endc-<l June :m, lUOC:i. A~ nt;ited pi:i-:vi-o-isly, il 'larit:l)' of v.ari.:mces. frorn the pfinr yi::a~ \'sJlllribut<:: k1 ll1e increa~e fl!"> foEows:

l. Reserrnes rc:tle.::1 a net i11crt:3.;;!'. of $4 S 111illion C\otr the prisJr fiical ye!lrprim~rily from:

a. 8ales Tllh.. Annual rec~i[.11$ ~R 8% hi.ghtr lh:l.n U-,c p-rior ft~cal y~ar and ~;,;coocled prajcctisJM by a.ho-ut Jit. Thr-se factOL"ll ~<:;eounL ror most of tl1i~~

J) Genearal coo~UITlE.lr gsJods perfol'l.ncd wi-:ll, l.,ri::ely d11~ to tbo.: new CoJ1..:c,_ On. 01k ha!ld, g:ro5s .sal-es ~or Cosli;O are lJJ\

l .. uget with OU[' t:stimares. How,en1r, lramftr~ fnin, o:,hti11g Mores appear lo be liJwi::r 1hnr, wt projected [which ls good news). Thi> reflects a po~i(iw (rentl l(.lr the future, with a lsJwer im[->act 011. e.Ki:s.tmg busitiesses than our i.ii1L~11 assumptillll~-

2.) Reve!lues from fo,;I .sal~s m:e lip ~ba.ply. H.:iwcver, giveo 11,e <1.ctvtrse COl'ISc,gu.:1Jc-1"o\ sJf higner fue.l c1:ol:, on tl:Jc economy, hopefully thio will nor tie [I conlinuln_g trend_ 11, iac:1, we have re;cenlly ~e~n $ig"C1(fk<1nt de~t~-i:lS~-S ii\ gas,;:ihilt prices.

3) Ne-w c;i,r ~.i.le.s ,emai~ed sltl'mg !:nit given do"l'rnward s<iles trend~ by Fmd and GM n-11!0.-iolly (whlch are n:UJ.jor playera it: Sat1 Luis ()'Ji~p,:i), we dQn'[ e:o:.p~t this ro comim..1e.

ti Jl-rf)pCrt)' Tax. Due tc, Conlmi,ed strong im::re.ase-s in prnperlv valt1eb and supplemem.:il .uasa~s111ento-, re-.,e1.11es increasi;d h:,$~S9JJ{JG (13%) over last tl~<1J yi::ar.

1"11111sieut Occupflu(;y T;,.;\. (TOT). Aa lndlca(ed in rn1r momhly TOT newsletters, monl.hl_y m~·~nues u1irpe.rformed the same periods u year ago, er1ding II% rli_gh~r (S459,400)

d Vehkk Lkcn~e F,e,e..efVL!<' :O,wup. The State's budget for 2005-()G rndudt:s the "VLF Swnp," unrlE.lr which a~ -equaJ amount Qf "VLF Bad:fd["' (:-n t;.ur ca,~ ~bc11t $1.8- m..illlon anm1aliy] w.i.o

ManaQ_e~i::.1:1.t's Discussion & An~a~l~y~s~ls,_ _______________________________ _

·•swapreC" k1-1 a11 e:q11al amounl of incKase,.:i propoC-rty ta:<: revenue~- R.ec-eipts we1,e 14%- hi_gh(:r than iii!, rrior fiscal year due k• gmwth 111 asies.seG \'.alue.

e. D.-.velopm~ut R-rvicw l'ees. Ro".vc.1111es exceeded ptoje<"1lc:in; h!· 10% and refle-cc c111 lucrcaoe of 11 % frnm the prior rea1 ns a re1,uJt of c011imued slrong Li.i::H.~lopmem ncti\'ll.Y, pani.::ularly in Tlrn urea of rnfrastruclurc plan c;:\J-xk i\tl,i inspec-tio11 fee~.

Reereaei-011 1"1:les. Tli~ 12% ir1;rease iu rocremicm foe:s results from ;m inu-ca~e in n:wenues from facility renrnl actil'ily, a11d modernte mc:reJ~~• in .1 v;i,riely r.,f c:ithel' p!'ogram:s.

g- Inv-estm1ml Ean1ings. -rhe \.lecr~ah~ m inveotment emTlings prlmurily n~uit~ from a S.168.,00Cl ne_g.ll.live ;idjm.tn1c.n1 fQ rellect niarket ;·µJue os requiri::d b~ Ciovemrnentnl fu:u11.rntir.g S\i'mclurtl:, Board SWremerll No. 31 {OASE ]I) di~c:us~e:d nbove. Lai;t y-1!.:.lr 1he C1t)" rocord.ed a po~jtive adjwstment t(I mnrk-et ;'1!.Lue Cll ~boot tht tii.me amouut.

2. General Fuml o~::al'atl1ig <:,._p,::riJitun=r grew hy a m<J,;:est 4.0% from 2004-0~.

O~ernting tta~~ft:r:S 01..1 l"ere \(}% higt1er ($~73.700) th~11 tile prior Y-ll~r. refletting .'In mc~a5e in Genernl Fund suppon LO the capita! 1111pruve:mer.t progrnm a~ p;i.r1 o{ the Clty"g budget ~.:1.larn:Lng ~trate_gy.

Capital 0.1.ullis Pmui, Tl1i~ fo11d w.i.s establi~htd LO a(-count far oil of the City'.> cOn:ilruct\Qr, pmjecis and <.,RpitH-1 purc:lia~~s in e:xce,~ or $!5,(100, with the e~.:eptioJ1 of 1l1rnc fomkt.l thr(lugh l\Jc P~rklm1d Dev<;".lopmeU1 Fund, Tt·ansfl{'natio11 It'.L1pac1 flee Fu.ml, Op~n Space Protectim1 FLmd, Airpmt A.ea lmpac( Fee l·um..l, Fle{;L Re11laceme,nt F11nd, Affordable Housing Fund, Leis Osoo Valk:cy Rmtd Sub A,.rea FE:c F1md and Enterpri~e Funds_ FinnnciDg i~ provided prittLRrily through operating tran~ferli in from th.e (]~~rnl Fund and from Stale 8-[ltl Federal gnml~

:;11

At J\lltt 30, 21)0(1, the Capital Outlay fumi h3.d a total fund b~lance of .$3.5 million. The cmirn nrnount .if th.e, fond bolo.nee h~s bc".eil cithct comrnlll~ m liquidate cori1.mcl; aml purd11J.se orrl~ro 11( ttJ~ prior petiod or desig11:ated for ~ub>equenl year a;o.1_Je-ri.dilure-s.

The funcl balar.cc increued b-y 25% (S707Jl)0) dur(u:g Chi': fiscal year. fl'o111 yeM to y<:a,. ;;idlvily in the C;ii.pilal Outlay Fund m,-i.y show slg.nlfic.a11t fluclu.11.linn~ t.ll-'f!Cnding on tlie, phaoe of mmple:•lori 11( lbe varioi:.~ eJJ.pital rrnJ~ct; in r,rngi~..;s,

I. Gram revc.nue> Wt',Te $1.D millicu (32%) !ewer than tl1e prior ~ell.r (jranla 11rc.1.ypi,;ally expefldirnl'e relit'lb'lltS<;".m.emo ar.d rt:fltct the IL<Yl:ll or a-clivity in the grarit funded prnj~ts.

2 Capit.al e;-:;~nditmes of $11.3 millil)n retlcc1 1 49% iricrense from tl1e -pnor ye;,r.

J. Operming tramfcrs lrom 1.he Gcne.ral Fimd ICI suppOrl: -c-apil~I ex.pendirnrcs r<;".flect i\ $62.2,00Q {36%) i1t!.':i'ei\f:C: ~umpuei.1 Lt) lh~ ririol yeaL

Other Go-verrtmt11tal F1md1t. Thc..sc = noo·1n1jor fur11fa of the Ci1r am:! are p.rcM':JJtccL i[l the ha.sic Gnanciul statcn1en1S ill 1.le nggrngarn A 01gnificlllll pt1rLio11 01· these fimd~ are l'or capital proje,r:ts At J1111e 30, 20l)(i, th~~i; fun.d~ had a,, ..i,g.g.r-egale fond tialarn:e (lf ~12..0 mL11Lo11. Of thl~ total. 15riz, ($1 8 n11ifam) iR reserved for pa_rmem of debr sel'VJCe or en~urnbrlil1t:(':~ from 1.11~, pl'ic:,r !isc~l yeH 1md $3"7 million (31%) is (l,e,:ign~lc.1.1 for ~~,:i[i,;. fuLLue ;::.ipll•J p1oje;ls.

Tile re1wirii11g hnl~11ce: of $6.5 cn:illioD ls ~v,dhbk fo: s.~endi11_g. Mo.I! informal1on about tl1flse nggtegated IW[1-major funds Cin L,e: found in the rombinmg aud lmilv1dual fUE1d swtemc.ms l1:r.111erliately following tbe requii·e,:l s.upple1ne111My l11fotu1<1ti011

Fropridury Fi.md~, Tbe C1ty'o five enterpl.'ise funds p-ro\·ide Llie ~a.me type Gf i11f.::m:r:.a1i,m fc:mn.d in lhe gover:t1ment-wide flra11cln[ s1ac~mems. but 1n more ,de(nll. Highllf;hl~ -o( t!le :111m.1nl nctiv1ty fcr tl1ese f11nds hav,e .;ilread.y b~en pre6<lllt.e.d m the dlsc11ss10[1 o( The b11si11ess-1ype nc-nvitiP,S

Management's.Pisc .. us,.s .. i,,_o .. n_-&'--'-'A .. n .. ol'-'v"'s .. lsc_ ___________________________ _

GE:-iEH.1\.L ~·ur-..'D Ill;DGETARY HIGHLIGHTS

A detailed bw.lgeLary ClllJl~•arison sc:lie<lule for the j'l!ar end~cL June JD_ 100<J is pre.s;enlcd as .cquirc:d ~upplernem~ry io.formntl011 fo]ll)1~'ing tlw: n01es t0 the financial stall:lrr.Emls. A~ Hnloed in. the: inmsm1-:url M.ffmc,n111rh.1m, Lite fin:11 budge1. am{Jums twhkh ~l-e tlie focu~ of 1hi1 di~cuio~im1 a11d a,xomp1u1ying Ein;1n(;ial ~1..ate:rnc.111:s) ll\'~, i:liffere111 from rhose pre~emcd 111 the 21)(16-(17 Fmal[lc:ial Plan Suppleme:nt. Tbi;s l, t:ue tcJ du11ge1, that l)(,{,UITed betw.-en when tlie 2006-07 Pl11.a.t1dal Plan Surplcmcnt wa:; pre.pmd afld year-<:ud final budget .1pprn .. .ils.

The following ,ournmarize~ th-e ol'iglni\l b11dget tO(l'.ijl~red 1,>.·ith lhe: fin;;il bnd.g<:t for 20Li5·0().

fomer~I ~1,111cj Ori.,;nal Budgel Final fludQe Re·,anu~, ~40-,47'3.0,:\I $ol.:ltl7,70C E>n1JrirJ1l11r~s· j7,70:l,'J[}'.) ll.9_175,&0G Otlo•r ~ou=• (u~ .. ,I

~'.~~~:~~~:I {-3.Sl:l<,700) l'.!ey,nri~g_1_Yne'Ml~oce -·-~;i_,,_oo i;:1,,·,,,. lu,n:ts,';;psc~

u.or.er.orvl'~ $5,830,40C I $8,200;300

• ncl,,,d.-, radoa,1l1c,it1on nf ••11m~;~,;I ~·P~•1,;lil~<,e ~l<"'llSI(; ~l";I MM

nU1uscm~1,1s rmm mh~r souros-s 1u~e-9)

Vlliar.e,· sgeg,,3co

1,461l,8C,O

:.61,F,Qn 2,ns.e-00

~,60?,JOO

lJdforenlcs bc1wr.e11 tOO migirtol b-udget an-d tile final amettdc:G budget rd1ecl modest d1a11gc., in rcvcmic i::~tim.1Les of 2%; ~nd a11 im:rc~,,;: Qf 4% i11a~prv_µL';J.liuna.

:n

I. The ,<;;tatc maLk: an ciir]y repayment of l75c\(i.(l(I 011 1he VLF gap 1-oan 1..1ri;gi[lally anticipated for receipt ii:1 2006--07.

2.. Rc,enue c.slimalc:<1 for inYestme:nt ~mings w.-re incl'ea:;ed by $125,000 to rctlec1 improved l':aminJ;:~ oo. ;i i~ri;:er flmd bi\lmJCe.

3_ Dperdting !'mgn1.m incrc-ases re~ult primarily fr::im canyciver of 10(14-0.'i enc\Jmbr<1nces ($3-15 000). b:1crea~<;".S to fite department -O\'flrrime (S,J:82,200) partiJlly offsci by gnml re1a-enue, ($270,300), fm1di11g for public i::ducaLicn ($132.:S(JO) anci u 1,,rraw.fun<led ~11tdy for th~ Bro;ii..l !1tre-F.t Oimdor (513-0,1)f){]}.

4 The inc,:e.;se iD hegim1lll..: fu,td bala,ic,.. resuhs from 011,..-ri1t:1e 5,1\"lng.s .1nd ow:r-:1ll belH1ghieL1i11g in tbe pl'ior fiscal ye.u.

5 T~e 6% decrease from the: origlm1l bu-d.g<:t in OLii°"' S\'iurcn f,Ui>Cs) prjrna,ily r~ult~ from a rein1bun,en,enl from l~Je Airport Aten F1111d of $323,8(10 for a<lYi>n<rnd expc:ndilllTU~-

CAPlTAL ASSETS A~'DDEBT ADMINISTRATION

The Clty 0f Sa11 Luis Obispo'.s irwestrnellt ln capital M;er:; for its gol't:rt1me111.il.l and bu~i11ess type .i...::tivities a.5 of J11(le :iO, 2006, arr.01,mt:J ta $234.0 11tillicn {net cf 2c:c:umufated depreci.mion)_ The lll~e.:'il:TL<'Dl in -:aplt.11 umt~ includeg JnC!d, park imp11;1ve~ie:1;1LS, imildings ,md improvrnnems_ vi::bicles and equipment, 5l«",ets, bikew,1,y~. w~kt, Vc'aatewater and !l.lllrrn. drai1, S)'Slems, a.c1d ~·a bile aiL

A summny ul 1.he City's capital ass!:'u nt June 30, "20(X foll.;J1n:

20().5--06 <IJ04--C6 ~1}0-0~ i:'·J04·1J5 2oos.m ZXJ4.o:, la,iri

1ri!r;a.~t~l!ie lir'1 oubl,~ a.rt

-Sulldiilg~ a.'lrl bµ:~menls E.qulpm.,rit Cc,r1~\•uclion ,,-, P'"'ll"l'"~

TOI.JI

29,278,200

85,426,70() 1,,2~6,('(:(1

•,5::J?,900

2..70~,;,ro

28,"9.22,100 S u3,2;'.!1.~CI

9,-50$,700

3,9'1J7,00IJ

3,3"24,-'00

8,435,9l".J

U2.B3!;.2W

21.55i.1QC,

~.2eu:iao 19,57G,OOO

7,524,(){]0 s :JJ,714,to:J C,0,446,\UO

82,'.it'.J.~[}f] HD.i2Ul,'SOO 1ss,so:,ooo 22.,1n,,c,o ~.s'S-7,000 31,li-85.bl'.1t

4,211!,';iO'., (1,918-,&C<J 0.276.-500 1g,;'.!.e9.000 22.27S,600 22,co14,2o:m

---- 1::JJ,2.51,200

M~jor capLrnl asset ~xpc:11ditures durir,g tbe fis.:;:r.l year il'l~I ude-·

SM.(i milJim, fot the acq_uisiLiu.r. ofa p.ark.1Tlg su11ctmc" ancl City offices $405,300- for watt-'T Jim~ mplac!.':rneots

$ i .6 mil]iDn lff ~.reel paYiJig seati,ig, t,wcrl.:ir ~ 11.:l recon~IJlicticn S 1.:3 mJ llion fol" tlie waler r~us~ i:,rojtct

S418.DOO for wmtr lre:!ltmer.t pla1ii Lmrr•.n•emcnts

$929-.000 fot stl'.·er liri.e i~1pmvements

14&,1M,200 1J-5.9.'i::J.SOO 2.'l.1.032.,400 213',92:7,7~

Additional iJ1fom1ation <JI' the Clty"s capilli.l ~~~"-IS .:an be found in Note 5 to the u~sk ti.nJ.J1c~at stat.tment;;.

At :lllne '10, 2.00G. !ht City of S;:r.11 Luis Obisp<J l1as 579.3 rnillirn1 in long-leon .!eh, out.1landi!lg a.1 ~ummarizOO br:lflW"

Long·T~m, OMil

(k..-srnmootal kir-11~9~ 911olrn~c·Tw11 Aci"llllu:. fo!u1 2mJM)

R~•l:!flsl• !:>Qci<,;1~ • :24,i)s'1,0[M) L<1a.r:s

Lease-m,ra,t,3.;~ ll1rmclng 341\,S(\v Cl;Ur'm and lish,lil1e~ ; ,&,sl,300 Com~nsa.ted abal'"rir.e,; 2,136,!IOO

T<J'.;i.l ., 2~.IU(>,100

During the y11;ir, the City finaru::ed the. an1uisition of a parldng ~,rurtur-e and dry off1c-e:~ at f)l!J Palm S11-.:•e,t wit!. $16.1 11Lillkm uf it"ase rev~nue b,-..nds_

The Cal1lomia Gov-crnmem Code i::-io•·ide.s for a leial deb! limLI Df 1.5% ot grua-> .assq~C'.d ,•a\uuti<Jn. b.;i;ed i;in 25% ofm:!lrket \•all.].e:, Qr a iegal debt li11.1lt of J.i":5% 00.~~ (rn m.irket Yal11e. Th~ Cit)·'s debt rn~!lagement roti~~.-. how~ver, ,i::ls a lower deh1 limit of 2% of ;,1,sesserl vuluatmn At June 30, 2006, ttie Ci1~· -did n<Jc hnv:;, ~ny general obli_gt1ti<J11 de:bt subject lo Lr!<:: liarnl. AU.d1ti1Jllill informafo:m about tb-c Ci1~- of San LlLis Ubispo's lo11g-tem1 debt c~n be found in Nole 7 ta lh~ h.naic financial ::;LaLemcT1ts_

ECO~OMIC FACTORS, NEXT YEAR'S Bl)D(;~T A.l\'D RA.TE..,;;.

On Ju~c 2[). 200G, 1f1e Co1.mcil adopted the 2006-(]7 Finaoci.al Plan Surrlcmcnt and Appro-..·bd 2006-07 B11d;get, with l\,Lni :apprcprtillio1is of $l:IIJ.2 m1ll1on in "200G-ff7. Adequ.ate resomces are JVai!J.ble to fo[1d the pnipose:d expen<lLturcs. Ttle Uudget racflect, a ~ar-cful cours~ of a.ction ,!!:l""II 01,r ,\,rl'c;Jlt fiKal c;nvi,·o,1Ja.::C1\t aud 11,c; s:.1,o.H~,,i;,.,:;~ tl,at ,e,1.aL,1

ahec_li nf us, C.:;Jnc,1alcn.l wilh the Ci1y':, halm1ced budget polii:;_v, Bem~ral FLJn<l tlperaling re·--~n\!<'-> ("Lilly ~(wc;r operatir.g ,:;ost~; 11.n<l !':Tiding f1md b~lan.:e me-f';C~ clae Cily's polLcy minlt:mm of 20% n.[ operasing e~pem:li1ures

Prospects for the -~-~ui'e: Bei;t Fis.cal Outlook in Jl,.,lany Years.

F0r lh.e fir~! 1lme in a long Lime, we 8.Je loc.klng DI a favorable ti~i:;al oi.iilOO.ik .:ia w(; be.~rn prup.J.ri~g the 2007-09 r,"i1\.uri..:i.tl Pl.s.11 \Vhile lh~ C,m:i.cil will ocill have. tough ITHrnrceo 11llncation dcdsioris lo m~k:e iu fur.ding~ numba ,1f .:llmpc.,lng '[1riorities n11d n.eeds, we will not bE.l in the c-utbac:k mW..: rl..J.t h.io r.:h.ir.i.:L~n..i::.d mi. hurJgc:l p1·occs~ for the": IVit frv(': years Ao t.li,1·1;<,:;~I m •he lnmsmimil Mcmou,~d11m, lhi~ fa,·orabl'°' c:,11tlor,,k is d11~ t0 thr-.e: k<',)' fucti:iro

~frasur~ Y, The. l}FlS>U!',e' of Mern;ure Y in Nrw~mbcr 2000, wh1.d1 wil[ i11-~reose 011i· ('ity s.elf,S tH r.ate hy ~2-cl-'nl dfce1ive Aprll l. 2i)-()7. w:~l pruv,de the Cily -,,.,ith ~F.5 1LLLllic.it1 <ll".irn::i.lly in new cevenu~s for 111.- m·At eighL ycc,r<,_

200-1,..c-1, 2'JOO-D6 :."DQ4-0[; 2(][15-~ alO'i-0-5

17~~3,100 21.4.-9.000 1:J.,846,'100 45.500,000 31,3M.OO('I 2f,25-B,:NO :;,~,\Q&,700 V,25!il-200 :C!,,1i;,g-,J\l(l

391.3GD l,llf\f\SQ.J <",1'1,-fi('(l 2,237.~0 2.,500,200

1,:2,s(l.:!JO 1,61:11.:,00 1,:!aC,200

2,125,ol.(]{) -1:;,g-,IHXJ 3~,clJO 2,500.7{)0 2,5:."4,3M

:21 ,Jl0,00:l 51,0JO-.~~ __ :1_~,47J.,;(JC n.2,;:>.4o·i_ ---~-7~C-,4C>'J

This will slgnlfi,:,;mtl:,- imprnve our fo;~;;.I l.'.~Jl;:r.r.:ity .11 reat\lrc CLJ.~ in kt-y service~ n11d infr.:i,1mcture mai11lerumc-c a5 wcil as i:;011Mder new initi<ltlV(\l, witho;,t rulvin_g !d mala:t c.m~ :n oth~r ir:tpn-t1a!'II ~ervkes to dQ w.

2_ St:rudural lludgel. llalanre. \",'illi tl1e e:{pemlin;re ems we !Jaye m.1d11 bcgin~ing ill .2.003, WI! liive. a1:Jilevtd "s<t1Kt11cal budget balan.c-e-· for Lb-c long,tenn. In shon.:, tliL~ me.ilans ti1al tiad M~asme Y not p~ss~--d, we. woul_! not have been (.acing at1otha CllLback -r.i.ode. However, wtll:onl ll1e ad.d11d re.sourr;:eo p1<Jvided by ,IVJ:ea,11~ Y. re~1orit1:,,; .1crvit.e CLIB or loundiing new initia1ive~ would rlave be.ell v11ry c:Liffi~11lt. 011 clie <Jt~t La11d, wL1h the pa~say,e of l\.feM-ure Y. this rnenll~ rhm tlie~e :u..l~l':d revernieo will aot h~ r-~qllir~<l ~imply- tv fo1es1;:ll e:ven gre.arE':r cut,. h1it -rnn he: used fur aervke. ~~toruLlLlll.> and Ul'IW initiati,~. ba:;ed m1 lh-i:: g;J4b that cmcrg-:; Ji..rin;g tlic Ci1y'o budge• process

3 Strong-er EeginWng Financial Ca11dl,ion. As delaLlcd ill thi.1 rtp(lrt. w·e will g\J inlc Lhe 2001-09 Fimmcial Plari '[lr<JCC-SS wiih n ~:mn.~<:r h<'r;irmill!"; Gr:nr,rn] Fm,rl h~l:rnce ill;m we<: h.:i<l 11r-eavlo11~\y pmjccll':d b)' t2.9 miliio11. White chis ls u ··o~e.-1i ne" SCIU(C£, Jt -cur <1p;,.o~ri.i1-ely be u~e.d foL· cmc~timc purpoo.cs lit<e l'.li<:ilLly t\i,d.

min1..1.rruc1·.1ri: 1m~rov~rr,.e,tr!S T<J OIU street.;. otmm drain, imd parks.

REQl:.ESTS FOR ADOlTlO:-,fAL INFORMATION

Tliis finandal report c~ dc~i_g-ned 10 provide a genernl uvcrvi-cw of the LiL~·'s finom:e~ f<J .;,11 lh(!oe wLth a,1 iut-ere~t in our finance,;. Questions c-o~<:en1iog Rily of Tl'e infmrualiou provid~.-d ill t.hi:; r11r.<Jrl OL Lc-quests for <1dditl<Jt1al f:r,nnciol infonn~li(m sJ,onld be addrn~aerl :o 11.~ D<".p,1rl1nent of l'"i1rnm;~ & Informat,on Ti!O:ht1olcgy. 990 Palm S1reel., San Luis Obiapo,CA93401

Funclion,IT'rugr;11rns

G'r,vf1w,.,,,mr/ ncriv111cs

l'ublu::,;~fely

Tr111L11,on.:mur. Lc.is'.Jr~, c,,lu.,rnl & ~ocl:ril ~t':r'>'IC<;~ C,\mm1•~1Sy :;'.<;vdo11,m:.,11

lieller:;I g\J,'\!:m~~m

lntucsL c,r; lonz-1e,-,;i il<:-b\

To~I g0n,·nmo:1m~l a~tLvitJ-e~

IJ11ii11~.1.r -i:,p~ .icr/l'ilw.r \V.ater

S["-'tr

Parkint Tr•n>il

w1r Tau.I busi,1e,1 type ~ct1>1ll,;:o

CITY OF SAN LUIS03JSPO, CAL1FORNTA STATEMENT OF ACTIVITIES

FOR. THli. j'll;:i('AL YfAR l;J'liJJWJIJNEJO J.0%

<'ru~arn l{n1'mli'.I lndirt.l~ Optralin~ E~r~mt C"horge~ for GrruL(~ l!Jt-d

Allo•~1ion iier\itfs Com1·lh-c.U11110

$19,827.300 4,Cl61,400 t'.i,31(J,71JCI 4,&19,WO C,,:BU,IQO

730,100 42,048,&00

~.3"38.{)(rl) 7.<ISJJ,700 :Z,741.~00 2.556_000

5,1.9',}()(l

21,57~.EQO

2,191.500 1,Q.80,~J(J

1.603..IOCI 67<!,600

('.i"~~CJ,,000}

J,H•,'JOO J.781,10•:) l5G2.IOO 5.i(J~.&00

~00.000

10,.1s,1.ooo

l(l.~1::"..'.i{10 10,236,LloO ]J,('8,200

452,lOJ 343,000

2-1,2ll.~OO

(:;~['.ie1 >JI [<;'J<;c!UO,

Sol~s t.i~~,

Pro pert}' mxe~ Tr;i_rn;io::111 occupancy l.n (Tll l) UdHty users 'L.Jl

Vthicle lit¢,l!t tt"ce;i\-J .I' !"'ill'

1/L:" i;.op k:an r~1ml::mrn.:mcm Fr.ai,.::t>isc f.u,;.

l:!L~,r,e,11 fa,~

t lm,islfi~1d ,,,,,.,~;,1,1,rir earniri!_':5

Reol ;r,·,::,, . .eny tror.<fo" i.,.~

Cl(her ,1(ijus1mi;rn~

L:i,i u11 lii1pus1t'. of,115tl

Tr11n,frro T '-'WI ,:~m::1al rcsenueo .md trari&fcn;

Drni,gc in riN.L5;('\~ Nrt o:,~c.to · bcg1n~rng

Net ass.et;· ending

92iJOO I.J);,Jl.,80(.1 201.41)()

l(,8,000

2,239,~00

1,6.85,500

l,&&5_500

Capital Grunta.and

Conlrihution.i

206,)(JO

2,2:i~.-<J(J{)

340,51i0

1%,700 12,100

2,919.300

ns.r:icxi

194,l(JO

~32,2(1()

ClTV 01< 8~!',- LUIS Ol31SPO, CAl,[P'O~N"IABALANCE SHEET

G(J.Vl!kNMl!:.NT,lL FONDS

JUNE JO, '2006

Na!'! (Exf"':~el Revenue and Cl!al'lf!;t> in i\'tt A_1~el~

Go'\l~l'l\lt\.1'llLl!l ~ll~; ... ,~.i:yp<: ,\til;ille:s Ac1i¥ili6 'T"t.:.I

119,S 19,~00J (l9,Sl?,500J ('.118,300) (218,JOOJ

(5,.S0~,8.0C) l'i,H09.~(X)\ (128.2-0(:J ClE,:.!O,,J)

(730,;l.()(' [730.200) ('.:!6,4116JJO()) (U,4Clf/JOO)

2.,'.H2.51JO l,.;111 ':iOO 2-,Z32.~IK) 2.:H2JOO

9:!fi,411() 92(,,400

r:n.1,200) CZ:CJ.200) (191\~00) (l9ti.300)

5,ri5Q,'i00 .S,65i\700

12.615,9'{)0 ~2,675,900 7,59/;i,700 '?,.5'%.700 ,1,539,-:rno 4,539.200 3,947.300 3.<;)~7.300

2,'1.S<i.400 '2,4S(,.4(l0 75-Ci.SIJ[) iSC,,'.JGO

2,J(Jl,3011 ~,Wl)OO l,Y/8,QUO J,J?E,000

:'i~6,l0Ct 667,400 l,2Ct'.l,6()0 ;190,,Q()(J 39(),,SOO (7~,&00) (':3.800) (11,900) (11,900)

(2S5.:',0(.IJ 25~.J()O 36,261,][}G 9'12,~<)(I <7J83,3QG •J,8.'l\l(J(J r,,.'i7~,4fJIJ- 16,,4:;'::1,500

12:>l,'DS.WV I !8.l80.~0CJ, '.M6,~ 16,00G

13S,il91l.300 124,7~4,~(lO ;,6;>.,.8cld,5(l0

O~ber Capital ?rnje,:t Go-vfnnnelltal

C.Gh aud cru;h ~qllivulclll~

lo\i~~lcc_cnl,

ri:i:,c,eh-QIJ-lc, n ... ~1 t'tCci,~blc

AcC()'~LlLO "~'~; ,able

Ac~nJ~ol l;Mresi ,~cc1sihle OLlw-r rc;cci~o~lc~

Du~ frnm -01l1~1 i:avc-ra,c:.e1111

[lu~ !lorn 'liher rund~

R,;,,1r1c1.0-dw,c.e1s

C;1;1', nnai mw;1m~m1 h~ld by fo(;,.I il~c-;:,t,

i.JALtli..1':"113~

Ar,s:<J111111 p~yalJ-le t\'XruM inlu1t~

L}i,, to Qlim hinQ:,

Unwm?.<:J re1f.nu~ Oll,tt 1<n~ililit1

T01;Lll1,hlmc,

l,966.,'.>00 \(J,780,900

1..383,800 100,500 12.1,200

!,14,000 7(,8,000

2-90,600

J3S'J{)I)

15,641,fillO

602,900 l,430J()0

d3.7('(l

11,ll(:{1

2.(}n.100

fu1td Fund~

T,:,1..9,I

~56,.iQO l,-655500 4,078,lO[I

2-,445.9(10 9,(153500 2.2.280,301)

l,.3~3.80(1 ~)C.l,l)(JIJ l{r!,~C.:,:)

M)OO 11}'.i,400 9'~.0()0

99.400 867.400 52,00CI ~70,-800 1,2l),40(J

1,064,3():J 1,lt5,001) 2,384,600

4a111Hl00 13,548,400 .33-,114,5(10

J~4.400 343,000 i.300,JOO

7.7llll 1.4.37 ,800 gli,.~ill: ;,ICILJ,600 l,239,JOCl L0,11U(l S3,{)00 104.600

~2_._i~-- 1q JOO

471,301} J,540,:mo il,101),;.0(J

CITY OF SAN LllIS OIJ.ISPO, CALIFOR;.;JA

IJ.ALANCESHEET, o.mtinued GOVEUNMl<'.NTAL F'IJNDS

FUND lkLLANCE-',

R~aM\•d

e:n~umL1,ulCe>

[lcbt ,S,rv,~i:

ti,,,,,,er,m.l

DcHg1m~<l fa, e9ea.di(WT~5 i"I iubs~q~e:'.t y,-ar

Creucrol T'un<l C;ip,iul 1'rcjcc~ hrnd~

SreciJI kr.v~nll~ Fund>

\Jn.J~~1g:i.atciJ

l;c;nc,.il F~"d Cupirnl Pmject Fun(1s

S~,aJ Revc~u.:- F1md1

T<i,•I hind 'lal:rnc~

TOTAL I.JII.DlUTlE:i:,UITJ J'UE\D LIALI\K{;ES

Arnc-1.L,,t, ,c1,o,te.J for ~r,vcr.irr.enml i,;::11vi1ico i11 \J,~ strr:e110,"t "r "'" es'4-Ls a:,e .:l,rfrrcn1 b<'(.auic

C.1~·1,11 ,,,;,;ct, LISD~ .c. ~<l>~rnmee1~l .a..L,v(1ks ~,c [IN lin~o~i:.l r~:ou,= flild.

d1cH[orn, nm 11111 rq,mttcl i-- th.e fi.lncs.

Lung-terrn [iiL01liL1c;, incl11J.in~ Mn<J~ r.,;i~;i~lt, ;1.re 11,;,t ,;he .lr.Jl l';iyahl..: i:: th~

c\Jrren1 pi,,-lu~ ~..i the~[c;,,e ar.:: ,im re;pott~i:: ill r'1e [umJ,

jl:INF. J(.l,21JI.I(,

311,500

l.6:B,300

]J,(,15,100

1S,{>41,61)0

CIT\' OF $A~ LUIS OIHSPO, CALH'ORNIA

0th¢(

l:flpit11l Proj,ed Gmemmental Fund ~lrnr1s

1,1%1.000

l.'.!46.200

4,l.lJ8,5UO

617,100 1.lS.S,000

3,319,900 354.JCil

6.2~9-,600 2G1,ilon

12.0()1,:rno

13,548,400

STATEMl!:NT Oft' REVE.'lllliS, EXPENDITllRES, A;-..'D CHA;\:GES IN l'"LIN!J BA.LANC::tc~

GO\'ERNMENl'I\L l•'UNDS

RF.VEl\"UF:S TH~~a

SJle, ;.v; lilem,, JI Sal~s ta~ - l'mp i72 (ckdic.11100 ta public mfo~yi l'mpUt)'lilX

TrJn1i .. m", UCCLJ[}~r\~:f L;l/\.

UUlil:,' users 1u~

Fnm:hi.s!:: f«~ Jius'.ne.1s ta,

PT()p,;c(j lr;,.11,:[~, l;i~

Fi~r~. forfoirnr.:s a~d p,malti,.,~ [ i.1c of nmii.:y .llnd prvpe,·t~

.S:nb•~mion~ Jnd gTJnl~

[_'lnrgo,a for 3CI ,kco

Other rcvcrn1,;;o TOTALRRVF.Jl."l:Ec::

l~XPE1'.'IH'Hi'RES:

CLJ!TCD.t

Puillk ~.:,.fety Tr,1:,~;m1ts(k1,i Lc:Lourn. ,;:ultu,al a!ld ,,xial ~~L vi.::n

Cmnm1rnil)' dBsebpmer,t G.:'11crol !c',<'hC111 :11:,1(

Ikbt So,n1c~. Princi~cJI [nTr:ri;~(

Debt i~o1JliTI<-1:: s::ooE Ciipit.nl

l'ulllic sa:et~ J·rm1sr,ortmk1n

L;;iour.e, 1,~l1ci,~I ~nci wc1~l s.:,~ic~o

CommurnL')' c.on·11:loprr.B11t l.i~11enl !(l,ernm1:,,1

'fO"IAL J,;Xl'i':t~IJfl'ljlIBS

FOR TIIE Fl::iCAL Yl!:AR END~DJUNE: 30, ;!-006

Gener.al

J:!,61~.91)1) :1,01,200

7,519,(i.{)0 4j39.200

3.94:1.-100 ,,101.:mo 1,57~,000

390,600 2JJ.900 J.L9,1lXl

J,119.:S08 5,157,lXlll l.091.401)

43,164.AUO

IS},14/,()[l(J

1:%7.8,00

:5,280.SCO 4.306,400 4,%7.400

}5,??1,100

Capital Project Fu11d

Ca il~I Oul!ay

2,114.400

:i.29,9",)I)

l,444.JUll

2JT,J(](J

l4t,:i00 3,92.5,~00

f.liCJOO

r,J,Oi.4JO 11,SSl,<J{IO

Ofher Guveromenlld

Fuud.,

2i2,TO(J L.824,700 4,31V,.OOO

17~,500

6,579,9()f)

261.400 4()1,lOCl

20,SOO

918.l(J{l 702,20..'J

350.50(] 4.::.J,600

2JT,70{) t09;7e:l ;:.:,,1)00

.3,51}2,U1"

2.Jl1.60fl 1,JS.'i,(Jf:{l

l,623J(10

5.tiG!',Lllll 354,101)

ll,ii2.5.HX! 6,1G'),600

2ii1,800 2.9,l :3,COO

IYl,25J,2f)O

(18.274,SOOf

UH.090,J(lfl

Total

12,G/5,900 }lll,108

7,J.l'.l,60!1

45;'11.i.2011 3,5147,301: ;::,uJi,300 J,518,0()0

j<J'~,~00

213.90() •.:-Ol,S'OLl

7,356.?00 9.460.000 I.50:),800

.'i2,ISS,611C

l'),241.000 J,961,801}

J,:'i4l:91hl

4,19')500 .{,9~8,:ill[J

~l~,lOO 10:.:wc: ill JOO

~11:1.CXXi 4,36J.4CXJ

89f:..mJO I0'?,780

{'.,,024,400

50,8S5,101.l

CITY Of" SAN LUIS OBISPO, CALIFORNTA STATEMEN'T OF ilEVl!~lJil:S, EXPEND[TURES, Al',T.I CHAKGES IN ~"UND BALANCFS, contim1W

CQV.t,:llNMENTA l, FUNDS FOR THE FJSCAL YEAR 1::<:NDED JUI\F,JU, 2:DOb

Othel'" Cap!lal Pl'"oj~ct Guni.rnm~lltu.l

ftur,d f.tmds

G1in~rnl Ca II.al 011H11v

C:XCI:-;,~ l)f 11:EVEl':UE.S OVUR cl)NDEJ,:i P.Xl-'l'.NDl'l'lmf"$ 7,:l'J:1,,J(Kl (9. IC7,(,()0; ].on.soo

DTlffR l;JNA.N('l"'O ::;uvRCE::l (IJSES):

l1,1,11~n<.:e 0l ~(:bt Trnrulero ln 'l ra11if~i&out

Tc;Lal or.se, tioaod11rc ,~u_c~, 1~1ts)

NE'l' CHANGE lN ~L'ND BALANCF.S

f'IJND BALAl\'C..S. [l.EOINNING

l.il:l.~i)(l' \1.739,000) (!.Si6,500)

3,811:i,8-00

t;,743.HKl

; lJ,55':1,~00

7,433/iOO 2,1St.f(l0 ?,2.04,6()0

(1,264.~001 9,8i 4 ,100 ~,10,l(Jil

707,lOCl J,957,9-0U

2.l;S39.iO(l 8,049,~00

:3,54~,2:0(1 12 Go-7,500

Hec,:mcili&tiol'I of lh~ Sl~l¢ffi<:J1t (I'[ R¢\'tcn11c:;, Exp<:11.:Eitm-~, and Chan,g;e;,; in Fond Bal~nces o:>f G'-"""'rnni~nrn! Funds 10 the Stnteru~m {If Aclhili,a5

Net ch,rng,c in fund balam::c..; ml..lll go"crnm~n1ai fun.Oa L.:.:.pi,.il cn1tlJ)' 11cl c;f deprc'l:Lati,11; ~~prn~f

Princir,al raid on kmi:-Ltirrn delJt PfillCipiL] [ln)ceeJs fr11rTJ,dcJ;,( i$Su~11ce

A,icrntd inter .... s1 rm dtb•.

[...()Ii! on .:lfapo.ml i'.lf n~set :: .. .'hJnge m r~lLmated l1;il.>dit,e~

CliangEl in ;::[Jmrer.~mild .ahmn.::Els (hangf In net assets of g.:i~ernmental nctivitiec,

A.SSl',TS

(:rn r.:.nt A~se1s. -C;,.~t, :i.m! cail. ~qui,·.;ik,11~ ln~·,:,.~tm,:,.ms ,\.cLf.'Un.l~ L~u,ii-abl.., Accr1.1,.d iT.l!:rc;ol r~~ci~~l;,]~ Dm, fwm "thPr (unJ, Due:: rr~•rn v1h~1 :i;11v~rr.mo:nl1

T0tol Cur1cnt A,5,.l~

Kont111rent ,'s~sel1. l.<c::olri<.=l<'<I ~:,iii

C.l~h elm.I 1nYc::bi1nerLls 1,elLl h-)' focal ~grn\ U11~1lll\rtizOO bond dianmn1 nn-:.' Lc;maiice G~l(S

Cn[Jilui :,s~o:1~ [.;111,j

lnl,~~tructLirG I-JLi1ldi11~, Jnd Lmp;-c,~·,rnt;"l'lCS Eqi.i[Jrn~n1 C(11l~L1'u,·1,m1 in rrogrcs~

Ttol c11piLal ~s:cet::. Ln~ ~c.:,:CJ,m1la1M dq:-reci~ti1Jn

C~p1l1>,I ;l.','<'lt M:; t1f nccumulatcd. (kplX'cintilln

'l'uml ~foncurr-crn A~~.,10

TuLll A~aets

CITY OF SAN LU[~ {1BISPO, CALIFORNIA

STA. TltMENT OF' ruND NF.T >\.SSIITS

DlJSll'.)!..55 TYl;'lt. ACTIVITIES. ENTFRPRTsr: FUNDS

.. ll1N'liJO, :!{)Ori

WATER

' 1,t.42,900 9'2.'.i:_::iOO 1,260.300, &.986,-uor. 5,046.:'00 (,.88:,\100 l.~'l7,'Jil0 IJ9L..200 10,00()

~\20{) .'.iO.HJII 70,500 44.E'>OO 23,200

12..'56,SOO 7,6LC,30L) ,~,?.46 .. TOO

8.2"1,J{lil :85.300 J:Z.'l00 JQ8,81)() 256,-4011

9lQ,OOQ 2.,1":G,LOO 3/t'i4JOrJ 52.0Ctl,600 45 .. 854.~D(} 29,220,JOC lE.i:i'2,1ii'OO 4.214)111) 8{)2,200 1 .. T2'\.7tJU 2.8':ltl,tlfJ(.1 183,$l1l

t::.7'1J.Jl)O :l}l~,800 101.-1-00

IJG.1114,500 :i\R.:i9..3-C!O 34,261,500

(23.791',.l{)[l.l j 14,19],9(:t.l) (5,(,,5-(-.200)

{,6,218.10() 44,GGS,400 28J,LJSJOU

67..J54,500 ,i.,;,950,700 2&,894.~0[)

19,;,n,.1,00 52,561,(lfkl Ji,141,300

r.ou

[:3.'i,OOl) 17,'i,(t;J 13-!J,OOO ~1.5il0

~.soo goo

15,7,4(1()

94~ ,900 110,&flll

)JP.'cl,~00

'1/ISfJ,5ClU D6,'J00 jJ<cH,IXJO 1:,1:,,ou

ICL51JQ 9.D90,91Jil 1:121.soo

f],9Cltilil0) (2:3,:0[J) 5,781,3Qf) LS,Jl,WC: ~,78~.300 l,.:i07 .. ~0(l

ii,"13{),21)0 1,r.U,riOll

Total

l.)03.500

7,433.600 .5,798.200

(l,,05],500)

8,48l,-8UO

:2-0,631,800

l'i,!B61l0

P,~111)\(lO

S,2.'!:i,'.!{10 91S,i01)

o.~:n,<'001 [:!8,0IK))

(17,9!)0) (349,IOC::J (l 1.5PC:1

'1,855 mu

TOTM.

'.\.')7-8.200 2.1,74,6,/QO

3,19-!J,lQ[J 211,JOO

Gh,00() G/ .400

21,270,5()0

1.1 .. 15 .~n11 lfr'i.~00

~..435,90() 127 ,081,100 28,263 .. T(Xl l ;,[~') ,uuo l9,5]r),(l00

M4,54'.1,7Gil (47Jflii.5110) !4ti,7Sl,1<l0 14&,29i.9r.O

117,5152,~ll!.I

Ll/\.l!IIXl1Ff,

Currec,t l ,•abi]m(:5, .l\cc,,11JIIS J)~~·<li.,l<;-

Accrue.d. ~niarie.~ a,u.b C:ampensatc:d all~e.ric"~S Depo,,t, f,"J:,·JiJle Due ta llthcr foods Du.e. t<.> othc1· &O>'CrTilllCnt! J .. tc,e~l ~~)';J~I<'.

Currcm fllJtllon of l1mg-term debt

Tola! currcm liabJl:tie::o

N.:m.::,uwri.tl,iobili1ics Lc;i~e.r'<l,,,,enu.-el,,_1J1do D,:-ferrcd amoullt a,1 ,tf,in<:lng r1nJncmi. h.:3se payable Stn1r 0¢1<c.11,·1n.~ l,)m1ln<Jte P'"'i"'bl.:

Toml ooricurrcl'll l,ar<.Ji t,to

'l'()UI Ll!iblliliec;

Nll.T A.~SIIT~·

Im·cstcd in c~pirnl a,;iccc;, 1121 ot re~mo,cJ Lld.Jt R,;e,.lJ"iclcd fo; ckb( :;cnJc'il Uorc:-,mic:00

Toial Net ..\.ssl't5

CfTY OJ! Stt..N" lll'lS OJ;HSPO, {\~llf:'ORNIA STATli:MENf OF FUND NET ASSETS, ~(lr.ilinu.~d

R.USfNE'iS T~'PE ACl'IV!l'IF..S - ENTEl-tl'"Rl~E FUNTl.~ JUNJl:j0,20C.16

WATER

37"9.100 ,i.og,s,;:ic, ~5,900 ;121,.100 271),300 58,JO(J :?.S-0,300

.51,IJC::(l I 71),700 372JOO 15~,<100

1.03"-.JOO 1.945.00(1 ~9'2.700 :l.236,5C)Q Z,996.400 9-55,700

e,s&o.ooo ll..691JOO (449,JilO-) (317,8()0-)

J-i:4JOO 1,49.'i.OOO Uaei?E.300 11.315,500 7 ,054,.501)

l'i-,%3,~IIQ 12,8!0.~00 38,434,l)(J()

H,l,~J.~OC, l!',~1.16,900 1,.:~i:1:J,7QC,l

'.i L,075,900 2').537,.601) 10,228,500 916,800 {,5S,L)00

Jll,318,8~ J.216,.'iOO ti,H71.]:0;'J

' 61,:31 l,SOG .V.,754,100 17,751,600

CITY OF SAN LU[S OBISPO, l'/ll.ll10L{!'HA

315,400 U,900

J.31,~00

-1~1,3011

.S,lr\4,300

6 J 4,600 <i,J98,9~()

GOLi'

7JC-O 30.\lO}

:!J,'.'i{I)

TOTAL~

l,l.%,5[JIJ (,.97,100 2-!)Cl.3rJO ~2.:300 -~L.l'{)O

101.400 ------~3cJi7 l,801}

(,.fill0,4[)0

Xi),Sm)

l,5CJl,-'00

}:JJ80

11~33,MO

2.{),'.'.Tl,300 (767,lOO)

:_64.,.,_;oo 2:5,048.300

46,2-0, JOO

52,-S0l'.,20(l

\l~.l:i4, l00 1.56-8,7();)

i'.i,051,4'.Xl ['l~.754,200

STATEM~l\'.T OF Jlf.VENUES, nxr1t~SES AND- CHANGli:S IN F'UND t','lff A,5SE1'S BUSINESS· Tl'PE: AC rrVITIES-EJ',,'fF:Hl'PJSE FUNDS

F(l-R THE FISC.'\L l'li.AR ENDED JUNl-;JO, 2006

W,1.Tlill SFWER PAl.<.B;!l>IG IRAN>l'l' GOU, TOTAL

Ol'Elvl.ll~G IIFVFNJl~r~

Chnrt:;Co fur ~alo:~ & ~tor1·,c,e f.,44'.'.,[,;JI} 9,1'.-'/0JOO 2/i13,7QU d5"i.000 :\16,000 2<.493,'.JO!J lmp~cl f~~ l,l!21.'200 ~%)[)[) '2,J1'.',51,0 O;hu re,·(:m1c;:; :n1.60tl 3.1'2.100 '°" '.:M,800 Fin~ 11nd forfenurei 712.900 '111,CiOO

l'O'J'ALOJ'li:RA1'U,.(; llJ!.'l!fNUli-', 10,495,900 10.2:is,soo J,O-S9~0(1 452,JO(l 3Hi,ml0 15,149,100

c.""lf'ERATINCi EXPEKSt'S

~JIJri~ and WJ.8,1:CO ~.'2.5-4,300 2.317,4()0 /37,500 172,300 259,500 S,741,100 Suppla~~ ;md moime.n..i.1eee 53),4(]~ l:2S6,8QO Ll-8,71}(.l llj(l(J 127,100 2,079,J()O ContriLL:, ,;,:,n-ace~ !,93g.6(J0 897,7[11_) '.>9-6,C"<)Cl i,G9J500 26,LOO ,'i,150,5{)1) GcncJTlf gl!~~mr.i~nl l/,46,71Jl) 1,:1.13.400 418,8-0() 180,800 11'1.WO 3,476,~00 Dc~rcc::imioJr, 1.5~4. ~no !).ITT.HOO 43d2L)0 400,lQO 'l.}00 )/i0'5,l00

T'i)'l'AL OPl!:RA'IING l!:Kl'L~S!cO 7,729.50\l 6,923,100 :2,305,900 l,SSll.-000 539,30.0 20,ffSJ,&O(l

(ll•~-~,\ TIOI<', !N(.'O~!ll (:LQSS' 7 '.:'l,~.400 3,300..700 1,.1">.i.4(H) (l.l03,0ClDJ (Z:JJ-00) :i,lfl.\)Cll

C'i0rJO~l:-\l.l•."flf',c;J !l.EVPNL!E~ (E;o[t'[NSB)

lnteri;:;t ?.JS,400 ](12.000 ::~.\600 I i.4CJO ;i,,ooo 667,40-0 Gren If 13-6.00,:) L879,700 2,tll?,7,;J(} MisL.-e.lli1;1ec111~ mlll\l[lerJ.till,e" n,v,;r1c,e.; 16.iiOO 10,?QQ 8,".J-00 27,000- 6!,100 [mer.est i:::q:ie11~,c (608,-'iOOJ \4-8Q,60Cll (435,'i[){l) ll,5!5,1]00)

Tomi numip~1JtLng ,~ve1,~e (1:ea:pi;n~o) (215 500) [308,400) (I :.-3.4001 l.BS:l,I~ 29,l)()fJ ,.'.'.21,80[1

r11<:l.li'I"' (k,s~f O~forn tram,l"~ro 2,550,'JOO Z,994,3C)O J,tP.U.000 ·'.212.80()) (E',14,300] (j 318,100 Tn,r.Rr~r-~ 2.'.)5,300 '155,300

('ll31C~C io. nc[ ,_.,d; 1,550,900 2,9"94,.100 l,l!:l<l,000 (2D.,!CO(IJ M,O{liJ 6,571,400

Tot~l mot ~s:;CI~ . t,c:&irmu1~ of '..'<'.:./Ir .'i"9,"i6Cl,60Q 3~.159,800- Jri,511,600 (,.61 l,70C J,477.l(){l 11s.H:o,imo

Total m~i aa',~t;;" ~ud ;if ;i,eaj· $ 62 :.111,500 36,?54,100 F,'i51,6Clll 6,3518,90fl l,:>38 lOU l2.i.,?54aJ01)

1'1r<' 11Nco,, 1~ iltc fl"a,,d,d "1'1/Bll'B/Jil" Ol1' wr ,1arrcgrn/ 1Nrl Qf tlnr ~lafrrrt.-11r

CI'fY OF SA'.11" LUIS OBISPO, CALIFORNIA

STATEME:,;r OF CASH ~'LO\'i-'S B'ij$T('.t-'.i';1:i-TVPE A.CTIVl'flf!:S. 1!:NTF..RPRISE lr{Jr."OS

b'OR THli. FISCAL Yl::AJ.t E;>.'DFnJON<C 1-0, 2006

Wi\TER. SE'<''ER rAllli:lll.fG

C~sh flow& rb:im llpcr;uing ru::[hi(i~o:

Cash ,,,.,eive,L f1nm rustumen ll.i,79"1,900 IU,05"2,70(1 C:.•sl1 p~)'IIICl1ll tu ;i:ppli~rs fr,--r !(Dn\is •-~~ ~n~i.-:ri /3,~,S~.8,;Jr.i) ('3,243,200)

Czl(l p3yf1",~;il~ tc:, c;.ipl<J,v~e• for ~,,·,c~, ,2,]82.0C(l) (2.,30'l.80DI K~[ L~;h. [l'T"!Vi~c<l by (u1cd 1n) ap~,ru,n,11 ilcu.iL,c, 4 153.100 4,5{t-1,7UO

l~sr. ~aw; f,.:,m 11(meup11a: J'iqm:.,ng p~Ci~iti~,

()reTJtiµ~ r,T~TJ~ r.;:.:;cm·e-U j,Cl()Q

Ollie, 11.m-u~,a1<ini,; ,~~cm,cs 11>,GIJO 10,100 Cle:ocr~I l'uml imn,fo,

Nd ~a,h p,,,,.;~~d h (u:;~d ia) rmm:.:pitJl fin~:icmg :ic11,·i1i~s 21_cjt)[) 10,200

Ca,11 Fi\>W> from c,1p.i.J Jn<! ,e:&cd fin.sn~illf ~,1i,itie1.. Ac"401miun and O<."n5lmct'or. u[ capi:;'J.[ essel~ (3,Tl9,Ql)0) \l,96},300) ~~k of s1;1pl~~ 1111,f>f.rty (e:pii,[ gr~nts 1cctivcll 83.WO J'J 1,1c1p,'1 p~ld. c,n debt i-tn;mslng (L,U(l'i,T(H)J (l,~H4.21'.l01 lnl~l~ll lhlJ-d <JII <i~ht lia~ncm.i: (~ti4.6ll0) \.:'i2B.'IOO) "Prn·-~cal5 fr.Jill '1ebr :linm~i11g 14-0.,600

::-,,,1 nih uie<l i:i c~r,,rnl o:iii r.::llttcC fiL,~ncing il.Ct,v.i,e; (4,'.(':62,]0fl) <4,3'15,400)

Casi! rl-ow1 fmn1 iiwc~ii11~ ocl:JC'i-:,;:, lnl<TC~L ,,., ia,,.,,5tJr.~at•

Ntl ca,J1 rrm·,Jc,;j t,y iavco:iag :i.ci1v1lie~

N-el ;"'.,·,~a::,- ('tec1c'Ls.::) in c:,,.,h. and 1r,Hstr1.1.rni;

c~,h .and , .. v~mnc.,1.s oL I-J,:_gim11n.,: or yc~r

Ca.~h and iri~·c5tmcnL, at end (11 )'e~r

211 2()(] !3'l.200

2-11,200 137,WiJ

123,600 t11,,oo

11,3-:,·.t.GOU 5.1)8-J,6/JO

11,.:15!>,200 6,254,JUO

4.5

CITY Of :SAN LtlI;S OBIBPD, CALlFORNL"I.

STATEMENT OF CASH FLOWS. wniimi~,:J

BL:SINESS-TYrE ACTIVITIE-.s • ENTERPRI~E-FUND,'.; FOR THF; ~-,scAL YEAR ENDRn JUNE-~, 2.006

3,G33,'.l0(l ,J, lJO./OIJ)

,723.':00)

].ll9,3lrJ

6.0-JO

6.DOO

\~,T42,{10fl) 2,910

lS-04,tfKJ)

\lti.5-100) HJ2G.4(l[)

\94~.BOlJ~.

233 100

133,1-00

1Jn5.r,on 7.100,300

6,175,900

Wr..TEB: SE'<''ER l'A.RKlNG

R~con<:;l;3liQn C!l Q!,"CJILLLg lnco,11~ (l0Jss) 11J nee c;i;.h

i,,ov,tl.,,J b~- (uoed in) <.J;:,r.rn1inr. ~ctivi'i~1·

O'poruh\!', mCOmc /I.:,;.,:,

lidj1Jmoce11n m wco11~ile r:,rrratin,• irw.:llmc (~c.ss) 1,:i net c,'15h ~rm Id,;,.; l,,y (111c,;i in) 01~1~ting ..cl1vlii~~

T'J~p,~cia1i~n

Cl;.~ns~ rn 'l..<J;.CI> ~od lialidil.L~s:

(locri,Jsel ik~n,asc b s<.c\lu.nts TCCL'.is~tle (Jne,=c) d€~1-fl;J.S~ in cLu.c from mh.cr ,onmm~r,Ls

[,.crcas.e (J~t,c;,ic-) i11 ;v;·w<1n!1 p>~obJ,;

lncrea:,,, 10 .iccn,c,J s~:afL~~ nn-r.l COlllpl!=[LIW:;,.d ub!Bn~8

( I o.·r,·as~) ;,. :luc (r,:,m ,:,1;,,e r fonds

1'01.al ~dJUstlll~ccts

Ni,( ca~h JJml'lcl•d b,,· (use('! in) oµemtin~ ~c!Mties

-r~s~ '11.,d c,sh rquh.,,.knti

ln,·c,rm~r.t:;

Ca,n a::ici L,,,qtmc;nl, hclcl ~y Ci1cai u.!l~"'

·rotal ~;,,s'JJ all<'! inv-l!lllm~.nC5

N,mu~rL Ennslfog, ~:111il•l, .:md iim,t1ein)l. deti,ilil~:

Nc.ri~

' '2,706.~

'. .~~4.,500

l.100 ~1.()(11)

]49,900

S7,ll()O

'.'2_]00

l,\l8ti,'ilJO

s 4,7~3,IM

l.ti42.91JiJ

B,9%,000

81T,3Cil)

' ll,456.W(la ~

3,302,100 U~\40r:l

l,WJ,&00 41~,20]

(173-.JOOi r).4M\

1~4,700 3,~f,LJ

'l,600 13,900 (7J,7(l(r)

1,IW,OOrJ 4:!S.9(:{J

4,.501;;i(l(I I,1'19.)(l(J

92.2.500 1,:~l),:J{,:J

S,(141,,500 6,882,700

2~~ ·,oo ]i.900

9,1...~4,)(l{) R,17S:,90U

TRA:iSIT OOL> TOTALS

4~(1,l;JO :,1\{i,O(•CI zs.2:;o,411n 4,700) iLM,s~m (.5,H5.('J00l

Ll,G93.~0:J) l"Z'J\l,JijO) 9. lJ 1,)00

J,cv:, soo 1.690.~00 ~;,oo'J s9mm

2lfi,500 :lhi,."UO

1.6&5,5(}1] 243.S~(l l.966:8M

(i98,51JO\ (~0,4LIO) (14,703,200)

2,"00

l94.:l-08 162.400 0.4%,700) {1.~~·B.800)

'1,(161,200

14.~0J) (80,4JGI ( I 0.26{d00)

6,900 L.9~0 59·;)_3,C',C)

<5,\l(:,l.l r.9~0 ~'Jl).){10

\j,6()(]) \-4.100) i.421.200

8/9,6\JO i,s.t,LOO 2~,44~,zon

~74,~00 110.000 26.-lii0,4i10

TRANSIT GOLF TOTALS

11,Jf!..l,~OOJ (.!2),.if-Oi :'i,f/',15,((',I}

400,LOO ~-s~o 3,606,J(l(I

Oi4,40'l'.· ,2,0l)(l) ~~ 000

749,91}1J

4,SOO ,:soo,, J!9,7M

'i'J',00 5.~i)lt l l)~,900

410,200 14,l,JU 4,(:1].(,/)lJ(l

(1,-r/13,700) (209,1,JO) 11,131,300

P,~.000 ~7.5~'(1 3.~/\,i,2.llll

739.00J ~1,~00 21,'l-l-ri,100

l.145,50()

SJ4,lli){) 110.,00(1 lr\S]0,4()0

CITY OF SAN LUIS OBISPO, CALIFORN[A S~"A'"fEMENL Ol• fTi)IJCJARt N~T A.S.SEIS

AGEf'iCY FUNDS .Jt:'NE ~1), 21lQ6

ASSETS· c:'•->h imJ c~~t • .:q;11i ,·al-=nrs l:Jv"=5(1,U:rl(5

OUiu 11.~acta

Ac:~med i~ICii':51 re.:-c:l 1•aH" Du,:c fror11 ,:,rk~T ¥'-'Ycrnmcm~

10TALA5SETS

LIABILITIES Ac:coams p~:,-:r.t,le A.:-cr :.ioed sala1 ,e, 01krlilk:\1lit1es Di.e «1 aser,cy pani<:arpams

1'0TAl. LL\tHLlIIE..'i

4/.J,100 1.514,00.1

3'.!,100 15.100 1:n,1;00

2-,070,.500

' B8,100 (,"2,901.)

:!15,JOO 1,~.5),ij{)I]

2,070,500

CITY OF SAN LUIS OBISPO, CALlFOR~L). N(ltl':S frl. the Fitrnm."ial SUltcm~aL',

Junl':31),2006

~UTE: I: SIJMMARY Of SIG.Nlli!CANT fl.CCOl'1'TlNG POJ...ICIF.~ rm 2 &£&ELSI~ "J'lte. ac:-eoullliLl];;; polidcJ of Lbe Cily t)f Silll LLJi~ Dbiapo (City) ccmform to l.'.::i. g~~c-rillly ,,~·cepl.ci.l a(;C:-<JUl'llilig pSili-'lpic~. T:-ie l-0-ll<Jwlug Is ii

summary ul tlri'.: mu~ Mgnlfic:Elnl polici-ca

The Cit} i~ <1 California chnrtcreity h wus mco-1pvrati::d nn Fcbrua1y 19, I 85ri ;m<i ch;1ne(<;"sl Oli May ], l:&76 le is O(~nLli-?-<"rl. in ~u:,;rrlance with the f:o\lncii-Mc1yor-,ll,d111i1115trJtiv~" Offo;:er fom1 '1f _[:.01-'<mimeni. \Villi J

po~11la1Jm1 rJf appio;<.imat-ely '1-4500, Ll1e Ci1y ll"Wl'ides a bwad range -if murncipJl service.~. indu<lfn_g p1il1L·~ a1iJ fire pS<ilccti0[1. pnrks and ffCtcmio-r., wa{cr am! ~•~c.i. miliLies, streci mamlcnam:;~, publi" lt'<lnspormt1on, r,lc1:mil1g.. buikhr1.g ~t1il s,1kty, an.:nl) -',rn:l. ilS c.rn1L[J()11tm u11it.s. cntlt:es for whJch tile gcvemrne-[1t io consiJerL.'1.l to be fm,mually :ic::C::0UlH.J1bk. [llem:led C<JITlpo;ient nn\t:;, al1h1.mglt le-gally se:parmc 1mtitic.s, me in t-ul:ist,1nce, part of the go,,.emnie:nl's (1pci:a 1.lo11s ;lJl,J ~c, dnm fr<Jm 1l1e~e LIDiL~ arc cumbi11cd with da1FI. tif 1hc p~1macy ?CVcrnrneLal. The City ha~ no ~omp;ine-111 \J1llts (hnt icqtLi1~ diacr,•,lC'_ prs-senlil\i~ll iCl ~~cciri.!.ancr wilil Gc·~~rnmeuwl A~coumins Sl.1nt.lard~ llcarct (GASIJ) SWte;nent 14.

Dfr/l(kJ Cv1rtp(!11,;m i}11if_ The ':,nri Lui, Obisp<J C"'arirnl lmpn.J'-'cmcnt lfr•,1c{l provide~ fma1;c;ng for l;ic c01utr1.1~ii,.:,n nr.d n.:::i:wi-~itinr. ()I' C1l}' foc:litie.s. Tile 13oJ.J'd ~01isls1s of members 1Jf tltea Cit:, C.:i1.11ce:il. 1\ll1V;tics of ;J;i;; BCJ-:1..l'd arc nccounced for in ihc: ttpplicab[e City go1·e:rnm~mal ,:,,, cnil"'Tfn5c: fuild. Sepa[.ite- fo1a(lc1.il i.L~Lc1acat~ ii.re IIN prerarc.cl. for the San Luis Obisp{J Cap:cr.] hnprovemenl Board,

'"

Government-Wide and Fund .Financial Stab;:me11Ls; --· - -·---The. _sovermr,Ll11l-w1dc financJal ~totelll{lnrn {i_c,. the ~tatcme11t of 11ei .r.Hoel, ~nd Ho!: tli!O:mc:rll of ~ctivitiH) rerort inf,:;rrnnti<Jn. on 1111 of 1he mmriduc·1ary ac;tivitieas of the- primary giJVe:m:ru:~t arJ it~ ,omponent \lfliL. Gr:ive11m1e11wl m:ti·,.i1ie.s, wllicil m:,nrui\lJ' .ire- auppurlt:cl l>y tax:e~ and irlL!!cr_(lc'.>vernml'.:1lta! 1·evcm.:es, ure reror:~a -Sl'.'.pnr3,u;II rr,)m h1n-i11css-1ype 11.:rivities, whi,.;h rd:,• lO ;i slgnific-a11i eeli.:lent '111 foeo and 1'.:hugcs foL Sllp[)Oft:-

The :.Lill:::cmem r:if acrivi(ies .:!emon,Lrnte., !ht: dtpt:e t<:1 which the: diro=ct 1;;~p<;"1lS<eS of 8 i;:i,•cn fuoeticm c:,r s:cgmcut are offael by prcign:rn1 rc,e.nueo. Direct eJi{1e,Ml"J .ll<" thc:i-.~c: th.i.t .;i,r.: dci:u:ly ideLltifi:tibl~ wich n ~~cjlk fllTic.t\o,ri ilr ~~gme.m. Tlte butil'ecr r,>;pe11w 111ineu.lim1 tiam.fers gen~i:al ~u11pLY•1 M:1vls.~i, Iv Op1:,atjL1g:_ pro-11rnms b~s"'d <>t1 th<: l'TLD31 CUl"fr,m Cosl Alloeatiorl i'lan. 1-'mgmm re1·111w1<s i[1ch1dc 1) ch3Jge:; l<J (11s1ome.c:s c:ir n.~plkanta l'1ho pt:reh~s.e .. me, or d1rectlj' bc:iclit lrnm !'.OCd~. senicecs. or L1nv1le:ges prn~iC<e-d by,, _gCw:n (unctioo or ~:eg~11t and 'l/ grnoto aml c:ontribution~ 1hJt ar~. reast1is1ed IQ m:,r:;Lirl~ l11\: 0~C-L<11k11:nl 01· cnliiul r.cquirc1r.c11ls (lf i pininLla,:- l1.rnc1i1m Dr aegm<~III. Tc1;.e~ n.n.d 0th.er itclll$ nl•t ilrop<.:rly i,1d11;i(,.d .~11ion;,, prog~ctrn rt:-\-t'Jl<ies. arc 1cpcincd ins(carl as gPnernl r-evermeJ.

:S"p.nsi~ foi~11ei<1I s1.iteme-0L; arc rrnvirie,d fo~ go~cmmeaciial fomls. pwp!'ie:tary fonds, am.l liduc:i.aT)' f1m;Js, ew;:n though ihe lo'.ter o.c~ c~dudtd from clle :gcwer:une.m w1lk: ftna1,c1.1l &.1.tco11cnt~. }fajor 1n!'.i,·i.l1.1aJ gcvernmental fu~ds and rnnjor ;11t.livldual eMerpnse. fonds are repl.)rlt.."<l ,1s sepnraie ccibm11s irl lhe fu~d rL~ar.cLt\l sprer.1e11t~

The go>euimern-v.ide fo1anci;il U.:l.t¢11lents n.re rcyoi1ecl. LE-int', the" cc:011011tL¢ r~s,:1urccs mennremc.nl focu~ ~nd ths: ,Ls'UlJa] IJ.aoia cf Jt't.cu11trni;, ;i.a; ~re ,lie proprielliry t\111d~- Re.vr-Tlue~ ~re tt:CDL-rlcd -,,...hrn

ernne-d arrd cxpcn'ies lir.e r~cc,rdOO ,,·hen a liabllity io ln~urred, regardle~s u.f L~t tlmin_g \If r,:;J.i.ti:d c..1.oh fkiws. Pm11e.ty taxi:a .i.ru rr.:c<:rgni.::ed ii~

~cv.erums le (he ysur f{)r which they are. kYierl Grnm~ .lmd s1miiiu i1~rns ~\"I;' IB('."<1~11i,,e.d :1s rceve.,me as ~0011 <I~ :all o;;liglbility i"1C-q11iremerit, imfll)acd by the rrnvidec 11.i.ve beer. met.

A$ <1 general ri;le ih~ eff~t of i111eif11nd Mtivity hn.s been elimi11,~1f..d frr.rn lh~ go~1m1N11t-w:dt. finandal st.i.temeu(s. EA~>:::ptions tc:i d1is _gcm:r..J ruk mce drnrg<.'s betwttn the gtJvermnem':, enlerprise fo.r.ct~ an-d vmious ('lthcr f1.1,1<."ti('l11, (Jf ll\¢ go~·ernmi:M. [lim~Jj~L'.u~ of Llitse s'.hi1L~t-> w.;,1ld cli'>tart Ill<'- <lLre~t co,;.t~ wnl pmtr<tm revenues rcporu~d for the v~1-IQUS iunctil"m& cor.cemed

Go~emmcnlal fund fornnc1al ~mt~menl~ llrn r~pone-.U using the cune.~l linand.al r~~ourccs mc:2:sur~rnent focw; and the modifil'd ac:c:rn~1 b,;,510- ol Jccmmling. Revenm::~ Jre recogni,:;:oU .;ii; ooon ii> they <11"¢ l:,,:ith meamrallle: and uvailuhle.. R~vcnue~ .are con~idc:r-ed to he available wli~n th,;y are .:;cillectit,k wi1hin die currs'Dt period r.r ooc)n ermugh lhcreafle1 to pay liabifaies nf !lie. current pedod. for th:s p,nposo:",, lile i;llVcmmcnl consitkrs r-ev~nLIL-S 10 he uvaib.ble \f !hey .ii.It° L'Ollected witlli11 r.n days nf lh~ end 11f Lrn'. c1JrTent riacJI 11crlmJ. f.;,;pemlitL1rci- _gtLle(ally <1re re.i::orded wh2.n u li2hility is incurred. a~ und~r au:rua.l dcumnti11g. HQw·e1'1.'T, dcht ~eJYice expe~dirnres, as well ;i.s cxrendi:ure~ rd.aLed lo .:o:npeL1~med abse11,es and daims aJld j11d,gmc11t~. ~re r,ecnrdc;d only ,1•h.:11 fiW(\1eN h ,Jue..

P\"l}pc~ty Llill~s, c,aies tll~es. frJ11cb1s~ ta.~:.~, :ic::n~s::~, :;,.nd ittci:re~t as~~1ciatl':d with the currc11L f1~cal period 3re all cons1d~red l<J be Sl..lsceptible tu ~,:-crn.i.1 an<l >a h<L,J~ t>cc:n rec:ogd<»:i 11s re~·e1,u~ of l!1e -current fiscal period. AH ntiiec ~vcnut: ilerns .ire ,:-ons11l~1.ed lC1 bi: rOCllSiJ1.:bie and. il.\l ,Liiable ('lilly ~vhBJ1 c:ii.~fi i~ rcc-ei\•eJ by lhe ,govemrne.nt

Till' Clty rep-on:s lhc foll('lwing L11,cjor grwe:mrn~nl.,1.I rLLmb.

G,cnc:ral Fuud. Tlii.~ fond•~ the g11vcm1l1tut'!; p1i1J1a1y ('ljlC-1"::lting l'unc.J h accoums for Ell fin~LlCi81 .cs,1ur~c, of Ll1e genr.rcti g<J\"<'OITllllC~t, c~ccp1 thos~. req11i1·ed tc be acco1)n1(',d for in 1molher ft.end

i;y,tem, rcqllin:c th11t l1lC::ti tmn$il sralcrn~ be :iccounled fm· l.)IJ an c11te1·pri>e fond basis

G,:,lf F1111.d. Thl.s 11.CC-OOlll~ for tlie opea~tion and 111aintenance ot th-e m1..a1k:ipal golf course

Privace-seL.tui slam.Janis uf accounilllg a11d fi11c1nci~l reportill~ i~sui:d prit1r lo De.-:ember 1, 19S9 generally ate fo!iowerl in lx1th the. g1lvem1~cnt-widc aml propriela.J'Y fond flnR11cial s1a,eme:11ts 10 the e~ie11l thlll 1hcN'l Mandan:b d.i not c,.mil.1c, wilh m corttradi-ct guitla:1,;;e o( the Gov(',l"T!me:ntnl Acc,01,1nting St1111<l~rds l;',rJaril. G0vcmrr,E:IllS al~() hnve. the option of folk1win.2: suil:'iequenl pri1r.i.le-sectQr guida;icc for lilcir l.lusincss-ty!)~ act,vilics an<l e!'lte.111r1se fund-:;, s11bject 10 this aamc limi~Llon. 'fhe g,1-,·C:rll1ll'~1l! ha.s dectt<:I m'.!C ro fo!low sttbseq11e.m pri.vM~~<c-clm guid~tl~e.

l'topriet.;ty fond~ d~~!JC1g11lsh O["eL'<Hing reve111.1e~ and cirperi~e:.a from urnop~1.itl11,g Jt,~ms_ Opt:l'Jtillg revenue:, and e;,;pemes generally rt:eoull from pro11it.ling ~enicecs ant.l prodtidng ;md deliw'irt11,g good:, in con110:d10n with ~ fl'<'lpru:-c.:uy fu.m:l',: prim:1pal Or1.€'-'-'l11g o,:,ei:Mio~S- T~ princLp.ul operating revt:r.u~s of !.he e:-uc,.ir(:;e funds are ,:;haige:; to Ct.Jston1er:; [',:ir s~)e; ~ntl <;e1-vice~. Oper.11ring: e.;sr,~n3e$ for tl'ltcrpl'i.se funds Jnd11de tile cos1 of s.r.de:s an-cl sr,rviccs, ;,dm.;nii.trallvc i;i:.pcrn\es, :;,.nd dep1ecia1im1 (lll C.qJital as5.e.ts. A!I re\·e.1i1ie:; arid e.,rpensefi nut rn~c[ing llli~ Udlt1i1ioJ1 are repo1ted as no11operrttin; reve,nues an.l e:(re.n~c:_.,,_

The Cil)' of Sail Luis Obisl)(l has ealabl1ohe.d 3eveml A.,~rncy F'imds, whicil RrC us,:d to .a,,::cou!L1 for fo11d~ held by the City :il:'i <1n agent for [lri.,..ale mlli\•i{.lud:;, orE'an1zations or 01:1er government~! agei1,;ies. Agem;y fonil.o ure :a-ccourlll'd for u..\in_g. the modified accrual l.lasts [}f 8tt[Jllllling

Assets, Liabilitles, :rnrl Net Assets_m:_Eqnlly --------

D(l)o,uit~ an,d ln\·e.ati:ncnt~. Th~ Cil}"~ i:.ash m1cl cmh e.quil'aklll~ nc co11s1der.-.-O tn be cJsh .in \J4nd, d~m~ml di:po~;1.3 ill:d slion-te:nn inYcMn1ento with r-..clginal mJturitics of three mo11ths or less from tr.e U.it.c ,:i( acquiaiLion. Emcrprise. Fund in ,·e~lrri.e.ms that are ill the. CJty' 5 inl~f'l.il.! lnvtitm,;11\ -pool anJ o!&h and '11\'(;.Stme111s b"CJ~ l,y fi;c.al a;;tn,s ~l'e

CupLWl Outlay Furn:l.. Thi:, fund was est~biisbffi fQ ;n;~·;m1ll for ..1.ll 11f Lb"C Cit)''~ c,:,n~1ro,::tirm project; c:ind capjliil purchase: hi e{c~, of 11:'i.llOO with ,he ex~<"ptinll cl tho~e fondOO Lht'l.1uglL the Pa1kh11<"l [JB\•-dnpmcnt Fund, Transpo,rnucn lmpan FE.'[' fund, Op~r. Space Prute.ctloH Fund, Airpm-t Air:'"- hti?,iS:I Fee F1md, Flef'l Rc:ploccmcnL Pund. Affordable. HDLIEing Fund, Los Osos Valley Road S.ub,Arca Pct Pwid inJ,;l E111e.1pr~~ Punc:l:i. Financing is p~ovideci prirnar.ly thruuzh [Jp<.,'Tllling tL"an.sfet~ 111 frnm the G(:rJeral F11nd, ;,nd from Stn:e: a,1d Fc<lcral gmnrs.

The onl_y propnetruy funds the ('ity rep,:im;. me Lhe £11icr1riw Fmldo, ~11 of -...,·!1.i.:h art ir'lajo. f1111ds, iocl11djn~ tbe -C-_r01f Furu:I, which Lhe City hJs ci-.c..~en to present as a fllit}o-r fii11d. I'1>Jrri~Lary Fund> a.i: ,1ccoun1ed for on rhE': tlow of el:(ll\Omlc 1esomces mea1urnmzm tocus an-cl u~e the .:iocmal h.1oia l'f Jccountlo~. (;nder 1his 1t1¢thod, rrvemie$ ;;re rl":Ccm.ic:d wh.e.LJ ecLme.d a11ci e~pcnse, are: recorde.d at tile tim~ l L.i.bilLLi~"i ari.:. i111.W1td.

Wal~r Fu.11<l.1.his fo!ld JC(Ol.ltl1S for lhe pnwi~km of waler services tn lhe reh1rlems {lj rl;e Clly liO well as :'iOlll~ ,;u~t<Jnir.:ro 111 lii·~ G.:il.l!Lty. All acti,·i1ies Liec;s:~san' t(l pro,·itk such servic:1;":o iire ai::crnml~d for i11 l11is fund, i11dudint, but 1101 limitW to, Jdlili11LttRli('ln, cpe:rn.Ll:;ms, 111Bin1cn~ac:e, i:nprove.mems and ctsb• ~crvi~c-

,.,;cwc.r l•lmd. Tllis a-:-:ou11t~ for the rro~·lsio11 of \l'a~1 ... ,1.,nler colle<ction aL1d Lrca1menl servic-i,s to th~ re:aLdcnts nt tbe Cit}' as well .;n ~~1mc' (ui.K•(llle.S in truo C01AJjty

0 All :11c1lvitie:~ 11ccci;sary to provide such s;c-.r1·]t;~S ;ire. acc:o1111ted

foe m ohi, fond, including. bul mlt limitC:d to, OOmini~_r.J.tim1, D[>e.rations, mainLcn.a:11ce., imµmvemer.ts am.i ll~bl u.rvice

Parkin~ Fund. Thi~ fond a~counto tor <Kfr1i1ies rielnted lU implcmt't1trlti(l11 Clr 1t,e A1Tes, u11d t'arlcing Mam1gcme:nt Pl.in. in~lutling ch<: uperatic:,11 i:il mm1i,:;1pa] parl;:ing- 111\~. p<lt'kin_g ~o,:1qurc~. pt1iklng me:ero anrl resideatia! pmking. dLatriu~. "iII activ1tie:; nc,:;ca!;llry 10 p,o,·Lde ~ud1 s<'.r11k~ are 3.(:1'0Ullto;'J for Cn th.ii fo.id, i11clud1ng, but not llmited t<J, admini.,tr~tlo~. opeL-~ion,, m.:1inlC:11<1nce, imp!o11e:men•~- :rnd d~bl servi.::e

'fr.nnsit Fund. Tl1is fund ac.c.ou11la for the op,:ration ~11d mai11r~na11cs:- r,J' fae City$ l:'I111sit sy~ie:m. AllhOL1gh use.1 fee., ar~, nul tilt prin11.[}' fur.ding soucee tor di<c O?""rati<Jn cil the s)'sti::.i1,. tilt St,ite cif C.:a!ifomia o.ml ,he Fc:dcral _g,O\/l'lTiment, which p1,:J','ide 1.lie. rna.ior fum.Jin.g .1ource'> for 1he

trB311;':d af.. ,:,a:,h cquivalcrns for p1.1rpo~e~ of lh,e ~laleml!lll of s=a~b tlows. I,ivi;stmenn :11re $1.l\ted ~1. fair ~iilu-e INol::'. 2).

Rcc,cnables and. Pa.~ables. Activit}' betwi;-,er:i fund, th~t Me repres~tati11e of lr.nding.lbmro,,,..irig arrar.ge.ment1,. ou[.',tancling at the end of the fi~c.:1.I yt-l!r at¢ rcfcmd. to ii~ "Jue to,lfrc:,m Mhe:r fllTlcl~".

All tl"ll<le 1m<l property laA recei'lable.s 0.1-.; ,howr, net[)( my al[<JWillKe fr1r 1mcoll~-et1i::le ac.:'11lnl$ lf mate-rial. Property 1ax. il.S~C-~S.ft1';on1 e,nd eollectkm is admiI1isrnro:l by the Counly ot SJ.11 Luis Obi1po. Kote J ~ . .i.5 it'IOL'! dctail~d ir1forn1a1icn 011 p1-0-perty 111.~e~

l'tepaidi; and lir•.cutocy. The Cit)' has no ,ignilicam pr~p~ids or in~es1tor1e5. The c~C of .iiny p,,;p~Ld c,,· it'IV<entoriit-]e ite.111 h.110 be,m rncmdl;':d as an e:i;:-p-e:nditu.re Ol' e:xven~e at Lhon liTTll.' of pu~ha,1:

R~~lridtd Assets. Ce.tn.l1: p-c,ci;-.eds of tlcb-t fb1areing5, .as well :1_, r1;":sourc:e1 ~cl aaide for lhelr repaym<lnl, ari;.1:la~s1tioJ. ~ Jo;'Sll"ic(ed <1-S:reL> 011 tll(' b;i.l~nce sh.e:c:I hecJJ.use ilucy are main1n1n~d in ocparnte brtak M.-cmmt~ .;md tbe1r u~c i~ Lim1tot.l boy ilJ)J)ILs=ablc debt ooven:irits Note~ 2 .R1Ld S [lavs additil}aa l 1nfonnatmn 011 fond~ he.Id by fiscal a_genl1,.

Caplt~I Assets. Capital rts.sets. wli1d1 im:ludc pror:,.ty, ploim, eqolpment iinrl infras~u-cture. I\Sil;':IS (sllcil as :,1reeL<;, sillewalls ~lid bndg,;::.,;), an:. .cr[Jrkd ir. the i1.pp(ic"1ble f;c:i11emrnent:ll or bu.slL1.ccss-1yp-e: acti11iLLet. "nll.imns i11 1:1e government-wid1: llr • .<.1iclal .S(nttflif.l"ciS, .:;nd in th~ E.nt-crpris~ Funds staten1ent of r.et ao11.:lS. Capital Jsse!s Me d~.fin~d by (ht CiLy .llh .:i.sstts ,.,_.ilh .fl:t initial. individual ccisc of rmre Lhall $15.rnlll Ikmilsd informatlm1 <J[l tlie City'" capil~l .i.~SCH (an bee fou11,:I: in K,ntc 5.

Nole5 to th-e Financial Sta\emen:s

Pmpcrty, rlarlt .i11LI e:,111ir.ml:'.m of thll Ciiy is ilepreciat-r.d using ti.ea r;tra1gh: !ine. merhoJ ove.r Lhe l'l.lllow\n.r. e.stirnot~rl 11-;.e.ful ]i\'t;'S'.

lrlfrasnuc:tu1r f111ildi11.gs ii.lid ~(rl.ls;tu.cs Improvements olher than bmld111gs F..quirmem

Year, 20-:00 2.0-S.O Hl-100 3-2.l

Compemtalcd Ahwn~[c,. City E':lllployees .a~ grnr.tOO vacatioi1 und !'.ic'k le.an: in ~arying ~1riot1nts. In tile eVc::rll uf te,minati<Jn, cmpl0yEle~ .l.l"~

~Lmbun;.e=d for tL!:': total \•aim~ qt l!Jl'lir ru;l:'.umulate.\:l vnc81ioo da_vs RrnployE".e~ a,e rdrnb1J;sed for U}% to 3()% of tl1~ a,:-,c11,111lmed sick k;i. ve 011ly i.lp-Ot'J J'eti1(·:n.;1!t Jn;l cmly ;;rfter a.( Jeilst LO year1. Gf ~enice. In sele-.:tc":d cases, simifar accumuia!e,d .sick le.ive re.1mbc11·seme11ts rrray lJE\ :wall.able after 10 y~m·5 of .;ontl1111011s -CillployttK'lll. All tmployet'i t:Hatc:: io ~lmt11.J.1,,:id for 30% 1Jf the employee', Jcu.1rnulat.cd okk leHve 1n the c,..enl 11f dcarl1 while, in the C:lty':c: t'.mploy. A fo1.biliLy for c-omr,e:n;al.C.d .nbse(i<:'.l"S Js RCCL11ed in the g(111c;rnm~11.1-wld,<'; and prop1 ii:t.i.r)' fomli;.

Loll.g-Ten11 Obligations. In L~ govemm~nt-wicle fl11-:m::-i<"1I i.tntcmer.ts, n11d f)r.Jpaietary forn.B in tht f"u.nd tj~am:i~I ~tatements, krng-lerm di;"J•t a!ld Llll1.ec long-tem1 olllifJi{iOrlS are repone.d as liabilities in tile applk:alJli::: _guveT1Jme:111:il ;icti•·i11i;'S, b1.1si11i;"s;-1ype actil'itli'.'~. or pmpricl~ry full.ls slc1.(em'°'nt Gf net as~ets. Brn1d premium~ .:md -discou.ils, w, wAll ns i~~uance .:csts, are de:fe1rW a:id am()[tized O',IN rl:e life of the bonds. DoLJds payahlc:: arc reportci.i n,:;1 c'lf the af)r;llcab1i.;. ha-LJd t1l'<.:t'l'l.iu.m or dlscoum. Bond 1ss11an;;e casts si.e r~poned as deferre:d ch.arge:sc am.! amol'tizeJ ,;,ve1· tlit: (-Crl'rl. of tl1e J"<:lakd deLt.

In the fund l"in;i11ci;il ~t.ilLCIT}Cr,t~, 1):0\'CfTimcnlal fund type~ r~ognl:t·..e ba11-d ptc::1n11:m:, a11d d1Kolirtt~. ~s wc:ll .a> b1!r.d 1Ht1~r1cc L·o~,~. \.lurlng lite currrm pe~W The fu~c amount ut dcht 1ssrn:d. 1., ,-eprni.t.t:l. c1~ other frn.a11ci11g S()[m:es. P1-einiurns re~elv~.d on debt jssllil!'1Ce$ arl• repDrte.:l as ,Jttiu flil-iHlr-i1l~ ~011r¢e~ 1J,!bilc discount~ ..:,11 dd~ is£1.1<"11t,·.es •\tE": 1-epo:ted a~ otl1er fo1.111c1L1g us~s. Issuam::e costs. whetller a, rlOI w1thhE:J,:l f1om lh~ ac111al dohl r,mc~..eds I cce,1 \'~, are mporte:d a~ debt s,r,rv1ce ~::<.rcnrliturc~.

Note;. to the r'inanclal Sta"t0e0m0,0".e'''-------~ Net dia.n.(le 1r. fund ~C.li\"-.-"llS - t<Jial \p~tnln-'r'tl!ll !1.J1\d~ i.:a..,J~ail uullay

P1111Gi~~1 pny1lM1{ll"\ 1Mg-ter'f1 c.e-;t

•~su~11e~ or l~u.:;,;i '..Wm,e bc.~,ci

Clwng-B i'l wtim,itac:: ll~tiilflies.

Cl1~11g~ in r,o,ni,on~ .. Lad .oSJ!i<lr>.m,s

Lo~s on ,:1;~f,Osa1 of a.;sct ~lal ,;:h~n!!e in nel .1ss1m1, C1-t "Dvemmem:al acmrltle:s

8_401 ,&JO

12.1:)5_2.00 13,io'.!"OO<:l)

':JIB,100

(.<8,00()) [7,<l:,$,ijtx))

13~9, 100) 111.~] (17,'.JDO)

'lheie Me no dilforerl.;~h hclwl'.en 1ie1 nssNs - Wiiii nl/PfJlris~_fimdi nnd 11<'"1,1sr.:.t.~ ,ifbu.,in<:"r.,-ly/1<:' ,;ic1JoI1J,,, as re~tk.;l i11 the gl)ven11n(':1i1-wid¢ Sliilcml::rlt of t'lcl a~o-\.'l~.

l~ud;gt't.'> atid_~_d~e'!'!_Y_ Ac.,,00,00,>t0i0n,g ___________ _

Ov(!.rvie-w. The City hJ,I recei,•ed 1;ahG11al 1e,ogJ1ilion fur its USt:: of a twu·y(:ar l-'lnm1cial Plau and budgetary ~ru<:¢S!l Lltac cmpltasi.:es l()[1gmng~ pl~1.1riing ~nd ('ffocdv-e prcgr.1.111 lli<lm1.gemc11L. S;gri~fic<ml fo.1LLlJ'et of tht: CJty'i. tw.-i-y~~r Finnnci nl Plan irl~lmi~ ih,·. in1r.::;rnli,m nf (\1,rnci f guc1l-oc.tl1llg into the bu-:iget:::tl)' pr(lcess ,.md. rite e1::L~11siY¢ LlSC of formaI

p1.>licis=~ .111d me:'l.sm<.ble cbjtcli\ltt. J'l-it: firlnnci.al 1-'l.J.a rncll.J.dt:i. O(lt'.rnti11g ;:rndgt:L> for LwG yeaffi :;ind u capital !mpr<Jve,rncnt pJan (C!P) a:::c,\•erirlg four ye-nr~

ISntlcr this mult1.-yE'_ar :ipprcmch, approprisrlons comm11e w be mE1de urmuall-y; l1owe1,'el', Lite fl11n1tcial f'laLJ lo die foundltio11 for pre]1ad11g the \JuJgd for tt1c ht;Lond yc.:rr_ At!<liticnally, ilr.e.>:.pended operating uppnspriati,111~ rrorn lh(': tir~I ye:ir ma}' t,.;,,. c.1rri1;d c,v~r for ~pcr:ifia::: r,urrK11,-ca into 1he ~e.:Q1,rl :,-·<'~1r with Lhf, apprn,•al nl th·~ C~ly

a\dmini~lrnt1'1~ Officer (CAQJ_

,'.fa11aJlcmi:1iJ fa!icirs. Th(', oveL.iH _goill ofthi;", City'~ Flrl~nci41 PI.J.11 io- lL' li11k wh~L <ilc City want~ w .accompl,sli over lhe nc,::t lwn year& with Liu:: re-;N111;es ri;'qtii,:o;'rl 1-C do S'l- Po1'Jlli'l.l sm1emen1s ofh1tdi.Ptarr pl,lkica and m~.1Qr ,-,b_j.P..:Live~ pronde the foundailan for achieving Lhi~ go~I. Key budge.I prir.c1.pie.s Include· nminmimng fu1id ha'.ances ai lcv~ls wh1cl1 will pmi~ct th~ City frol";'I f\WJr:;' un.cen:iinti.P~: ca ti mating rl!'v'~llu~~ at rc.alhtlc: levds: moik.1.11,g illl c11n-elll ei.pendlturc., \l'ilh ~!J.rrc11L re,·e11uc:S'.

Fund Equity. In 1he fo11d fi~andol srnternems, gmeuunernal funcis repoLI l'i;'S-e:YlHio11s uf fond bal~1Kt fol' il.11101,lllt~ iliat are not ~vail.i.blt for apprnj.Jri,uio1t er a.c legally ~uridei.:I by OUL5i,:k pitrlies for use: for a specific purpoc'>C_ Dedg11atiun~ (lf font! bala11ce ri:.pre~em ltn<ativc 111,wagernek'!( pl-i!~S LliJ.1 aE"! s1.J.bj..:d to .:-bang,;..

Rec(.nciliali1,1n __ ol" Governm,er.t-Wirl,e-_~~und Financial Statem~~

Th"" g,:i11,cnmt:nt;,.I fu11d~ b,datice tht:et iJ1cli.1Je-s a rec0i1cillati'lr. l.,c:twcei1 fimd balmier - !oral r.iver111rll.'11fal fa11ds and. md c.ssl'l5 - govemmem.a:I

.:irtivifin a~ ttJ:,<Jrl-ed in Lh~ gc)\'~rnmerl'. .. wide allltemcnt c,f m~t assci~. The t>vo elem~nls of lhc1.t reco11i;:iJi.iti1Jll tefalf,, 10 ,;~pll~I a~~E:t,; ~ud ]Qn~-f~nll Ji,i.b-illties il'i foJ;-ow~:

Cnpi'al ~s~,.t~ """',:i ;,, '<l'l~rn,1~:~, ,ic-1.·,·11;1~~ a,~ 1\c.t lii1a11c:c..il r=ursg~ ,mJ aria' rio: 1<1(Kln"1J 1·111,.. Juqcl~

L<;n!J·harr, :,~h,l,h•~ "-"' rml .:Ju,. am ~ayacbl• 111 tfc• ~-,,,:~'11 fl"~d

ar,;J ar<1 m,s raP<J<tod ir. lti• l~nd:ii.

L~a~o r@''Msl'l' Wl,;i~

tee.se pu,ct>cis~ i1ri.nc111r, Ac~ruad lnte,e:,t p~yablfl' Comp~.n~"to,d ~i;,s~r>:F"je

E~l,mnle-o clain-1~ .;nd L"'1:lil1l1M Tc:i1.:l l(mn·t~,rn liJbll•llm.

1'1.5;('1'1.a"t\O

'3-B.!.i~sl.[)OOJ 'cfl,251,200-

24 Q-li1,000

a,;-BJ3W

aB,-400 t, 13A,'.JOO

1,009.Jvi)

The gm•crnm~ntal fo1"1ds Sl.J.ttlllem r.,f (e,veritte-', e~pcptHturc~ and cbrmies m fllrn..1 bnl,mccs im::lrnks a re(:011ciJiatio11 Uetween m:t ,;/J.rn,:r. in fimd balw1~~J - rot(l/ /?Q,·,;rnmf'1!MI fi.111J:; .iilld di1111i;<'" il1' li<'I 11ssn6 nf

gow1mmu1/rrl ac/n·ili-t'S as r~port.PAl ]rl th:: g\Jvs;rnr.ie~c-wi,Je ~l.lte-1111"11.t of activitk~ RP-.:::m,tillng itE\ms are as follnws

maintaining the Cit.y'., lrad1LiQnal ~ummitmerll lO ~ Slmng Gt:rteral nmd, .:md .:C1mplyi11g wcth pw,,is1cms of 1h-e ala.~ con~lituL'Clrl, city d,Llrle1, 1tmnici_pal cod(', il.n,;l 1Q1J!ld ftKal ~11cy_ Kq• revellu.e polide~ illdude: maintaln1o_g a di.,.ei:sified •rnd atal.Jle rev-enur. ru,e; selling crll~rp.i.~ foi.d ra1e~ at le~els dmt fully recover 1he mwl cnr;1 OJf pmvidlag ,ervll'e.o irl lhe. Vi/aLcr, St:v.·er and P-atking Fl1l1ds: nn.d at policy 1:-:veJo for rost re~overy in Lh-e Transit am.i Golf tu11G~: charging fee5 for General F11nil program., in .oaDrt.lance wil~ ;srlDpte.<l us.er fee cost 1-e.cove-rj' g<Jal~; ari-d enM!ll.ng thJt new d~,·c::Jopm-erit p,;.y~ il~ fair >hilit: of tbt: cost ol' c011s(r1,J.::t'.11g nec-es.sary comm1cn1ty fa~iiitieo

Bt1dget Pnx-ess. Tile CAO I~ u:.,p<J'llMhk l.ir prcpuic1g !he l:iudg.cl and subrtilllittg it 10 the Cou[tcil for appni~al .a\lthough :;pGJ.:iti(: Rlep~ will vur:y fror;; yeM 10 yenr, the foll'l\'•i11g li ria overvi~w of the g~ncral apfirOa.ch used urrder the City's lWQ-yeilr bud,ietary prc:;ce~~:

• fin,1 Yl'!al', The Virtand~l Pliln pf()o;Cn !);'gin~ ""ilh Council goalsell1ng m dele1mi1lt major objectlves to be a.::,Qnph1J1eci 1Jver the ~~xi tw,::i yEcars As parl of tbis process, c<Jmmunhy ,grours, imare:sted -mdividu.s.k '.1.rlJ Co,111dl :1dvi.N,)" l>v<l1~P m·,._pent 1l1ei1 rc:(_'()mm~11daliom Ill lilt: CaunciJ. Gual, apprnved !Jy tbsc. Cm111cil ct1e inrorp(lritloi..l. into'.l the. budg~t insLr~cLions isswad to the op,c.rntlng departrne!lt~. who ~re ri;;&~onsifik for ~ll.Tirt1ilting i~lLial budget pmp()~als. Afte:l these proposals nrr, crm1prchca~ivcl:r -rcviewl."U and J

di::t.1il(':d f111ancl~l foreca~t is pr-eptired, tlie CAO is~11eo the. Prelimina1y fin~ncial Pl~n !or ptibli-L C<:HIIJ\rC-lll. A series of ~t11ciy sesswns anci pubhc h(',srings. me Lhc[\ held leadii1_g l\J Council adQptii'm of tile. Fi11ancii':I Pl,0.11. MJ,:l BLW~e1 hy J1Jnc 30.

• Secllnd Year. Before the N'gi11~i11g of 1hc .s,;;cond ye;:ir uf Ille: twQ· ~ear cycle. the Co1mcil re11iews the pri:iwc~.s duri11g 1l1e. fil'st yenr, mLlke~ ailiuslments i\.S necl:':~'inry and ap1)r11vc:t a11~'0j)J'ia1iu1-S for tl:e ~1;:c:om.l fiscal ~ear. Unspent npernti[\g apprnpri.alion~ from Lhe fiLst y.:~r 1\J.1.j lie ; .. n;ed c,-...·er for sp-cc.ific purpo'.l~c.s l11.10 the sec:ami ::.-·e~r with 1he 2..ppmv.il of the CAO. Ua.sp;:rll ~pprc'.l;f)riali0ns lap~ nt Lh~ end vf the s~0t1ci year. Tlie [L,o;;:;a] 'r'eur ended Jun~ 30, 2.GDli- WJS the firSL :,-i::<1r cf 1]1e cwo-year cys'.ic

'N.ol-es 10 the Financial Statements

• :;,,,ud-Y~1.u· Rcvi~w~. The Com1cil formally ,~views tlie City';; fi!1~r.cial c,:,11di1io:i llnd ~me:ri.;ls :11ppropriatkm~. ff necessary. sLx months ~fter the beginnm_g sif E:'ach fiscal ye,'lI.

• S1:i11:1s lli;p,;,rts. Flmincial .¢JX>rtS Ml: pr¢Pilred mc,nthly tti rn<Jr.itor tbe City's ftscal nmd1tio,1; mrne form,11 rep.:irt:. a.e io~u<!J l<l 1he C.:,1111.;il and DE.ipanrnern Head., on a [!uuncd~ basis. A<ldiiiom1.lly. mc,r;: focused Tep<l"rt.s are i~.suet.l on k~y rew~.11ues, suc.h as sales lax, tr.m~Jenl Qc~up.incy tax ~ml munlhly rcpurt:;: on LLl\1Csi1\1¢nts. The ~rntu.~ o[ maj()r goah ond [m)grnm 0bj-c~1ivs.o, i:idudini OP prn,ject5, ilrt;': ~is() fo,tt1t1tly 1-e~rt('.d to tile C01.1Jici! on an ongning haais

• On-Li:11,e Arces.s. 1n arl<lition to moMhly and quanerly rc,(KlrtS, Online wmpuler .~CQfla.s c.i ""up-(() d.i.Le" financiii:I i11form.11io-n is prn,·ided to st~ff >hrntighQ11! the -orguni,aliorr via tl1r.: Ciiy' s wiJe ar·M 11e1work.

Accounting a11d Budget Admi~istratfon. R11dg~Ls are pmJ1EtTeG for ead1

l"und In .i.r;;:r;;:on!J.rn:;i; with its rtsri::ail'1: b:i.sis cf "cc<JulltCn~ consi;;tet1t wW1 U.S _generally aeceptl;':d acc()Lmtlng priCTc1r-Ie., . .Afl gol'emmencal hmd.s J1.:tV¢ ltg"HY adopted budgets i1nn.11:11lly e:.:cerl ~upirnl TJWJCcCTS fund~ Vl-'hile budg-et5. are prup.u-e,;l for the Cit_y's i.;apila.l pi:<J:ici:1s f1.md~, rtie .;apital prn}ects. gi.,-n~rally span !l'lOte 1han mie y.:1ar irnd are eff&tive-ly co11:rolled ..ll Lhe pRlJCct l~•'cl. <LccordiJ1gty, t11dg('o!ory ('.'(>mpari.>ons Bl\'3 no; p1e,er,ted ir. the accompanying basic fiEJanctal st,ctemerit~-

A~ p,ovEded 1.mder thoe City ChMtr.:r, <h~ C(JLmcil 1li.&y ~rn.e.nrl or q1pple-m1;col !he budg~l ill any lime after jr5, aduplirn1 by 1n.1jotit~ ""IJk uf lh~ Coum:11 mc:ml;,crS. The legal kvel 0Chudgeiill)' C<:lllll'ol - the. k>'·~i at whlch el.p-c11dllure.s m-e rioi to ~;o,;:s:f:ed uppr<rrc:atic,ns - is ctie (und lclo'el.

Fnr mar,:Jgcrnenl t(Jl\l!Ul pmp<Jses, the CAO has tile ~uthority en make or appwve admJni~trn11v.: adjListrnetlts t-a thr.:i bLLdgd ao lo1ig Vi ll.o.sc chari~es will nN ha\'e a signific-1m1 p-alicy impuct no; ~ffe~t budgeted year-e:nd fuml h~l.i.nces. lJcpaitment heacis ),aw'. >he i!:lltl1mi1)' w rran.sfor line-item budgets within tbt: J.epartmeut w1tl11n.;, (und. D11ring fiscal yeca.r 2.0US-O(i ~e~·e.ral :;upplc!l'lenml budge.c a"[lprupriation:s were mack; however, lmlivid11.iJ amendn'Ltr.ts '\J/e~t not maLeri.al in 1r.:mirn1 hJ 1he original app[(lpria\Jons. Both the (Jl"igLt<al .~:i.d fim,i a.mem.l-ei:l b-1.1dgi:c• :.re

Notes l,o lhe Fir.anc~I St,1lem,e-riti;;

NOTE 2: CASH AND IN\.-ESTMEN'IS

Tl-,e. Ci1y foll(JW:i. ,he prJwtice -o-f poolm.g ~a~h ,md ~nvQtlJ'le11B for all fonds uuder its dire~l daily C()lllrClL Fund5. held JJy {)UlsHJe fi~-:al agenls umlcr pi:o,•isloc1* of bond i11denture~ are maintai11ed separate!)".

1mel'e.st earned oci poolf'.d ca5h aml inve.stment~ is allor;;:at-ed qll:Jft':lt'ly l<l tl1<:: vc1.d..:,1Js flL!ll'.lS b&.;:;d Oil tlie respi::s=tivf;' fur.d's uvcrn.ge q11aneil)' c.ash halam::c. lnlCTCM earn.ed frum cash a11d mvest11¥n.1~ wi(il 11,cal <1gellls i.,~ creLliLed <lirrcLly LO such. fund~.

Cash [IDd im·cotm~rib; d1 hme 30. 2006 c;oM,5.l~d rif th~ followim:r; i,"(}G1mJ Cash and lnY('.:Sllllori;,;

Ca oil acid- cMIJ c,qu1nlon~ s1a1.i LocaJ .Aoo-ncy lnoc,;.tmerrt Fund l1wo-~1111onls Tc\'11 Pa;,l•d (,a,,;C. and lm·~st~\i:l"JtS

F11mfa ~,i1h Fi>.r.a1 Ag;ar,I,; IJ.5 llu,~,,·.,,,.,.,1;.,o,..~,

Total Ca~n 11,.d 11womm~n1.a

Ga~., and 11wMln1er,ls li,;tet.E alJOVEl are "reser,1-,ar! ir. Urn ,.,cr.arr.p:;m)','"19 lin~nLia.l ~,a,~'1"1.-nl~ .fl"I tollcws·

ff; R477,00C

M.Tio.;;oo 11,170,000

54,l;l(!,400

57,540,5({[

KtoIT.~00

~'5.54 1 ,Cl()O

Cash. ,mri ][l'l-~.<;tmenLs a~ rdlected iri the CA&'R +L-s_.f,00110,w:c_cs ___ _

Ga,1, ~ ~.,,i,-· E>q~C\'a1~n1,

ln>.,.t"Tlonl~

G~W'rnrrit'nlll Fu,1d~

1,079.100

2e.2&1.JOO

Erirn-cr,rio-e f'unds l\gt'lr.c,' Funds

'\,97e,200 21. '46,700

11-21.1.:0

1.s·~,000, f'.,47l,400

IS,5~1,000

:!.O.:J0.1iJ(l

pt'e-Sel\ted u L",eq\1ired ~upple~nrnry iJ1formoLion follov.in_g the r,o1e5 L-o•hc financial statement:;.

Eru:11.mbrnrr.Ce~·. Er1.cun1bra11ce ~cc.minting, under wbich purcha~e mder:;, cQ:i.lrac.t~, artd otJ1er ~ormul,menl~ for the c;o:,;.pe11dimre r,f monies are r~c<:lrd~rl in order m Ll"Sef\'e that prnimn of il1e al)[llic.abk appropri111Jon, is (':Jl1p11Jyed a5, an cxLen~ion of fomial budg~"l~•Y integrati1J11 m tbe Crovernme111~1 F11rids. £ncumbi:anleS out.standing at the r.nd of the year arc repone.d a8 =ervatimis of fi.md bal.:mce., oim::e they do JIOt con~titul-e e:spenditure.s IJr ii+1t,iliLics. Amm:in,s er.(:umbcred at year-~,nd an::. re.appropriated iii :h~, foll(Jwing ycJ.r.

lndir~,e (;r,.1·t fleimb1Jr.ume,1t. All c;1f thee City"s general gove.mment .cmd e11giurering prCJgrams an:: initially accouTJtetl aml huJgcte<! for ill the Ge11ernl Fund. H(lwc;.vc;,r, 1.hr':s~ :mpfXlff servke, pro,grami als-o benefit Hie C1Ly\ er,lerprl~e and ngerit:r fond t:rperi11ions, 31l<l ;icc.ortlingly, iramfo1·s nre made from these fundo lo reimba,.se ihe G~11o:ra. Fund fm these serY)l~~. Tlie 1rai1s.for.s arc t,;i:;.ed on a Cost Allo.:a1ioo Pla11 fl.l::pard for tl1i~ purpose, whid1 dlsLribmc~ these 5hartJ ~11.,ts ill a u11ifom1, c;onsiMent m<111r.e1· in ac-tor<lancc wi1!1 U.S gcn~mlly accepted a<;:~Qunlillg pri.nciple.s.

_C.i$h a11d Cash Equi','_aleJJ.cc'c' ------

Al fi~s·al :,"tar-end, -i1g§i;TCjate dep<Jsm. with fina~clal n1utuimm were $8,470,100 ;ind had a corr~S])Qading l.ianla: b.ilanc~ of$3,2~J,100 The hank bnlm1c.P, wa.s cnll.ate;~liz.ed with ->ecuritLei; held by the pl-edging fi11u11cial i11~titu[icm·~ [rtJ>i ciepartme.m or a.genl in tl:e City":; uame.

For cllotodial crctlit risk ~,oociat.xl will-. deposils, the City f:,11li:iv.'s Lh.e Callfou1ia Govemme.nl Ccxle whicb requires Cal.fomLil (inanclal im,tiiutions to ->ecure t~ Clty"s ctepO$ils by pl~<li:;in_g g()vemme.Tit ,ecurl1ies as collalsral. The 1.narket value Qf the pledged ~C(:~ritie~ m1i:;i ~y_u"l 110% of t(le;'. Cit/i; dcpm:i[s. California law aloo nlk1w~ finJrir;;:i,~l m.stilutirn1s to M'ecure City dcp1Joits by ;:,ledgi[lg rint 1n1i;r deed m~rtg.ag~ nnt~,, aiual to 150% of the Cit/a dt:posits.

lu~·estments

Tile City is aull.CJrited by i1s rnve.stm~t poli~·. Ln acc:Q!'Ja11,:e wi1l1 St:t:li1J11 53{-01 of the Cii.lifomi" G1J••ernmc11t Code. lo inv~~, ln the r(lllowini,: ln->[runiem.s

• S~Guritit":.o issued .:i:r :@LJ&M,teed by the. ft.i.leral _government llf it~ :1gencies

• lkputd1a.se :;i11d reverse rel)"urcha.sl'l agroome:EJIS • llankeH' ~cc:~plam,;1:S • Commercial papH • Curpcr:i.te ncii-e:; and mmual [und.s • K<1~Dtiable certific~l~ ,;,f Jepo~ii Ill Fi~a:icial fmures and fin~11dal option c(mtr<ictS • Stc1t':l [.()~I Ag,e11.:y Jn\·c~im.en! FuCld (LAlf<)

lnve&tmem~ MC stato-.d at fair va!s1e, b~~oo (Ill qum&I mar"kcl price;, In ncc.c:,rdan{'.e with GASB r-.·o. 31. 1nl"estmenl l11.s=o1ne lJ(JS bcc11 adju6te.d rn r<::tktl a11y llllT~ii7.od i,:alns nrid loose~ re~ull)n~ from th¢ GASB No. :31 fair l'a]uc a.djLJStn"Lent. \Vhile U.S. gen.:1rally ac.ceplt.d accoo.Jilting, prlnc1ple.s r~uire:. reconling :JII)' incre"~e~ Qr <l~c.re.11,es iri the mu,k.et va]ui:: c,f ,:,ur inve.atment6. this. ha~ ,he potenli.al for !kewin~ ll,ec City', a.c;tu~: 1m·,,;.almL[1I.S res11lc~, 5(nce lt ls our p11licy lu [ntk~, ,,I~ irn'd,tme111 (lf,eis1cins b.1oe-d QI\ l-.olrlinfl_ lbl:m tbro11gl1 nmturity. As ,nch. ,,h,mgc~ la

N~fllti. to Ui.e Financi.;il Statements

•llar!;;ct ,·11h1t" do m.it ;;Jfect the long-tel'm results of \Jut pan[ollu, bm they can result in ::.igrnftcam fln~rnmicms frolll )Car-to-ye~r-

lrni::.stmclll> for lhc City a1e anrnma,iu:J below-

l11,.,!rim1m1i U 3. T,,.,.~c,,ry 3,;,c~:·1tl,e~

Ls S. G.cwa,r.m-Bnl Ace1cy los"MCc-1\lr·-:<'.lQSOI Dwc,s.l Stal~ Lil.IF Ter1al lnv~~1ma1c~ ~1..'lnLl9aJ i:J~ (;11y

ln~oslmanto ~elll e,, Fi~~•I A\l'llrll=

1

:1.\on,a~ ~to,k91 T(90su,y PoJilc'io u.:::. Qovernrnem Aeency l~sua:; U-S, Tr~~,;<,ry S;,<,0ucit1os

•c-rnl l-rwcsl."l£nl~ Hel-:1 by Fi'scal A1J"'ril~

b.~-;;;;;;;;;- ""ali-V~lue

U 3 T"•"'-l)"S'.-ec;urO,~\ 1;,05,-00C 11.,;.. Go•a1nrMnl ~;;snoy

111!<1"'" 5.flOd/ilO r ... rn',,,,,t,>,~I nsrcc-,1 ,.000.000 iiLO·~ LAii' ;'.,4,~10,%<1

'"" "',.."""'"' M>M~~b)Wl ·15,54 1 ,000

',, o1Pcrt'ol,c '"'

Lo,•• Th:;,c

Ore. M,;,nlh

J.'1-,37\l,WC

:J.'--,~7(1.:i!()[)

iS.5%

Pc,11:;c-nt o

F<1i• \'al,rn f'cx1;fct10

1.~.a_:'{;(I

6.6~6,!',~ 3.rog_orn

V-,37D,"201l iJ; 115,541,000

,., 1-5%

" 7-5')!:

:J.97.1(10 sn; 8~5 MO 28%

~'f;}S.OOJ~ _ tl6% $ ~.",'.',-'.), ",08 100~

On,-, MQnr, l)r-9 le> 1'"1·.·Q ~~~r~j 1c;Or,f! 'l"{)a 'tM-m 'tQRIS

1 ,305,300

5,88~,3:xl 972,2CC•

3,009,000

--!l,S.93 30(: .:in,2(lt 1,3[',[;,,30(l

1g.s•,1,. 2.i% 2.il""I<

The City's i11\l(;~tmemt poli-t;' uidude..~ rcirtfoll-.::- maturity tar_;r(;t~ Jrid lirn1t~ HP1cs1m~nt1,. wiLh maturinea -11'er une year w 110 morn ti.an 30% uf die lotal portfolit1.

The f.ln value of lhe: City's po.sitio11 i11 tl1e Slate LAII7 p,ml is the same as ti:e 1mlu~ of the pc,ol sh.ares. Tb::'. St.me LAIF pool crcc!i1 quiility is U;\r,\ti:J,

"'ote~ ic, the Pln.nn.cial St~tements

(1-1:nodi(!I cr,:dir ri,1L The. City'> investrne.m ]\fomigemenl Plan 011tli~e:o ilte fJllowmg ~ritt:ri.:r: ~l,:1~ L0 portfolrn dlw,rsif1c11,;i-on:

No more: than::!'.':% of tb1; City', p-Ortfolio (ic:xch1;.i~e ,:.f governmeru agency i~sL1es) >illtll 00 pliicr.:d with at1r fman~i,d i11~IJL1.1ti0n.

NLI mare 1lian 25% of the: City's p~rtfolio st.~li h-.o io-ve~ted iri cl.lllatt1·a1i:z.::d ,·c.r,ifi::.ates 0f deposit i~sut!ll by ,avmgs arn-J Imm in:stitu11ono

l'ertifo::;a1eo of defl'C'Sil (oegotiilble and colbte:ralized) p]Rced rly tl1c Cltv ~hall J;Jot constitute more t\1an 15% of the iota] as.c,ets (Jf tbc: inslitulioa; ,rn<l negoiiable c<::rtificale> of deposit will (m!y ~t: placed wiLh i11ScinitiDas with 10tal a~scls in e,;ress cif $'200 mlll10ll iind (hat miilt1taiJ1 o. rati-0 of eq11Lty to total ~5ets of at least 5%

The City hao 111\)me~ bd.l by t1·u .. te~ ~1r n~c&.l age.ms p-ledge.d iu Lite payme~, 11r 1,ccun1y Df ce1taia bond~ u!ld c~tlif:Gates of particlp-1i.tion. ·n,e Californ.i,1 Gc,.Ye!'.Timen.1 Ct.1de pmvide-5. that tbese fond~. in abi:Ct'I.:<:" of specifo: srntutmy prn>'isiQn~ .!fOVemi11g the i-'>~~a11ci:: of bonds or e-e.ctifirnte~. m;iy he i11vesl00 in acLurih.rn:.e wilh Iii¢ urJinanc~, resolu1ions, or indemut~, apcc"1fyi11g the typeo~ ul' invcslmt'nts its trnM-ces or fi;cd ~genLs may make l'hcsc md[nar;..r.&, .csolutio11s, or inde,111ures ~re gt,ri.er.;iliy !"fl.lire r¢StticliY~ tha11 the City's g-em::rnl inv-estment pol~sy. h1 no iri.stan<:'e h~,-(:; adLlitio11~l type~ qfJ11..-e:stm~11ls not j)ermi11ed by lite Cit::"~ investment polky b~n authcmz.c.d_

57

LAIF i~ o~er.seen by the Local A,gem::y lllvestmellt '\dvL&OI)" Ho.:i.s<l, wh\ch com.isl~ of fi.-e m-c1i1bers. i:n Rc~ordam::e with .".rnt-e srntme. Tbi State Tr'¢..-l~U!"t(' t Ofti<..=e au(liu the fuo<l 1it'i1llliilly.

At ri.o time (Jurin~ the fiscal yeRr did the City bom:i-w funds through the 11se cf 1-ev,:,rse-rq.11J1d1il.S<: agretme1tt~. ~ltbo11gh t1.1d1 lrausac(ion.s a1e ilUlhoriz.e.d by the City\ iovesimcnt []oli~y. The: City b~s the abilil}" LlDd me in~m w b(l[d lhc inYest.menL~ to maturity.

hl/e,-csr r,,rl' l"lsk This i~ the ri1;k that tht' marl.et vah1e of se.c.urilies in the ponfolio will fall d1,1e 10 d1artg:es iu gi:-21etS1] ir1tcresi: J'Rtet" In accorda11~e with 1L~ Iovestment l'1•mageme-ot Pfat1, il,e City mitigates i11te:1sest rate. risk by

Su-u('.rnri.11_g lh-c' in~·t>tme11t pmHolio ~o that securi.ti,~ maL11re t.-:i i:r,ecl ~a,h t(;q-ulremcrit., f"u, ,m_g-Ltlri.g operati-:im;, therel1y avoiding <hea need to sell se~mitics cm 1J1e i"lpcn markel !Jcfor~ malunty

JnveMing opeuting fonds prima.ily ill shQrtcr-renn iecurihes

-Crl'dil R,sic This is the ri.5k of Josi:. due to the failn:e of the eecurity i3SUt't or baL::k.er. '!'he Cily mirigntes cre.diL dsk by·

Limniog inve~tment> to tllt' safr.st 1ypc:s of sc:cmitie~. As nm('{l ahuve, Lb;:; Ciilifornla Go~em1rn:11L Co.-.k limilt tltc it1\·~stme111 v-chidc.s availarll-c to Local li~ncies.

The City h~;;; i11vcttm<.;11t~ i1t UcS T1-eawry .s-ec1tl'itis',S and U-S Qm,cmmcTI1 ~gencies ~11c1L ,15 E:der.il lfomt' Loan Mortgage CO[Jl, ~nd FNJ\1.A.

l:-'re-qL111lifying the fin(ln<::i~I m~11tulil'm brok:c../dealel't, i11te1"Jocdlaries R1td .a<::h-i.sor~ 1,,-,itli wMich the City wi'I do business.

Cm-rcenntrtW-n rredi1 ri.sk The Cic;(R fnveslmcnt :.t11ncq:;emsnt Plan provide.s guideliLl~ (by 1ypeo or i11"•i(':5-Lrn~r,, .-ehidc, LhaL limit~ eitbe, ttm !loll~r -Ii.mount. Lire per1;ea1il of ctie pQrtfol10 Qr tlio1 :r;.c1.t-uri1y temi) for diYcrsifying tbt< ir:,esm1em portfolio so 1hm P,TBI111al los:sc~ un i11diviclllal ->i:,;;ui-ities will be minimized_

1"0TE 3: PROPERTY TAXF,S

Property rnx.eR rn the Stale of CJlifornia (Siate) ar~ ad:ninisMred for all lccal a:gende.s at the coumy level. and cm1sist of" aecm·cd. un.se\"1Jt(':d and mi~ily tax. rolls. T11e following h a summary (lf m1jm j]d1cieo and practice.. rt'latillg to prnperl~ rn::,;es

• Fr(lperly Vi:.tu.uti""· \laluatlor.& ~rt'. csruiilishcid by thi:: AssG.%0l ',J{

tile County of s~11 Lui~ Obio11si (County) for the s-ecmed and 1111:,-,.;~u1ecl pr,:iperty La;t rolls; 1he utilil}' prort'rl:y tn roll i~ il-Rlu~d by [he: Sm.le Ilc,md of f.gualit.alion. Unde-r the pro·,cisionR [Jf Article XJJIA t1f Lr,c Srnre Con~t1tuiicm (Prorc:i~Won 13 adqr-100 by tne ,·nter~ on Ju11e 6, l97S), jlt'Operti~\ are ass-e~>t'd at HlJC,,, of full vc1l11~. Propositioll n also modifL~ I.he vohie of t:11-.1J.bk real property fm fi~c.al 197'9 bv .-c\lim~ b:i.:k valu~s lQ fiocill !'976 levd~. from 'thi., base of JHi:~mel\l, -wl:,,<equenl annual iricre~se, in va]uJl.ioll a1'<: Hmite-d m ~ rnaximum of 2%. However, i11cre;11.s~ to fu(I value are allowed for pr("lperLr imprnv.sutilTllb or u.pon dJ.111.g<: i1t owni::rship_ P?.r.,r,n~I 11' <1pearty :, t;o;el1.1ded from thc~e Bmilatl-cn~ a11d is snbject l,;:i arinual re.:lppraisaL

• Tax Uri1c,1·. Cu<l~c,tht: "f!l'()Vbiom cf Prup-osilion 13, tIB (}~llnty-wide U\X ]E':vy l'or genera! revenue p1,HpQSe.> i~ li111ited Csl l % of foll llUJL'kBl l'alue, whicb rcs11h.s in ~ rnx. rnle of $1.0() po:r ~HJ(J ,:,,.s~e~5ed ,..aJua1lor1. Tai'. 1ates for ,•,;,ter-approved illdebtedn-e1,~ lite ,sx.c:l11d&l from tlUs Ii rni 1.ati c-n_

• 'fax Ulry Daier. Al, !iCll darea attflch [ltJJJually. 011 Jam.1ary L prcet<lin_g th.e fi.>cal ;'tar fo, which ihe 1axe& ~re kv1ed. The fi,cal yea, hc:gin~ .lul_:,: l 11L1d ends llll1e '.'iO ofth-e followlllg ye~i' .. Toxeo~ are lecYied on bmh n:ill and 1.1me1cur,:,d per:,;unal prorc-rty iiS 1t ex1~1, ~l th;,1,( tillle- The lier. ag,aimt real estote ~s well ~s :he lax un per~on~l property 10 not reli.c,·eJ 'n~ ~.ib.st'qucm reoe,val cir shnnge ill owner,sh1~.

• Tc:u Culkctio/lS- Tt,e CmmtyTreasure11Ta~ Colketor i~ re,pcnaibl~ for all property t.1:0: S1)lki::tion~ Ta::,;es and ~ss~ssmo:onL~ uo Lbe s('c11r~d 11ml u11li1;c rulL,. wJiich constilute a lien 11g.aim.t the pmpi..,-rty,

Noles to the Fimmcia.1 'Stntements

may be. p.;11d in two in,tallr,1cnta: the ilrst insLa)lm<1rn is d11e Oil Nc. ... cmb~r I of tl1c fisqi] ye.ar ,in.d io cielin(lllent if nol p<1id by D<.;,;<.;1'.Ill>tr 10. and the .sr.::,;,1:md in~tallmcnL i5 da~ ["Ill Marcil I CJf Lile f1ss.al year a[ld io delillquer,t 1! not p-aid hj' April W lln5l,C'un:d personal property tax~~ do nlll constit~tc n ]iEr. :![~inst rr.111 propEny Hu,..,cvcr. if lhc ta;,;cs W.:ome delrncp1~c[ll Che Ile[] 1s all.i.s:hed again~t a:i.yd1i11g il1c mdi~idual (lwns, wh:ch oould indude real prop~rt:r. Payment must))~ made ill olle ins;..lllnii::m, wh'.d1 i~ delii1q11e11t if 1101 pai,:J by Augusl Jl of the fis<...al year. ~ignifirnnl penalties are imposed by the County for ]ale pllym~nls

• 'f'cu{cr !'l.a.11 ln 199]·94 the Clcy elected the TeeteL Plari med1cid of pmperty t;i,;,.: c.olknicn wheL'd)y tlie Co11r1ty ,·1•f11it.s 100% cf tn.>:c:"S ]e\·lell ami vw1,ues collecllon. remi~in,g an~ lldiny_111~nl luJ\.t:~ lllld 1elm,;.d pe1mltles nod ir1t.-resc

• Tr,x Lel'J' ApparliorrnumJs. Due Lu llte mi.lure 1Jl. the Coumy-widt, 11rn:cimum le11y, lt i; net po.;:sibic (() lde11tifr b!eLll;';Pl] p1,1rpc-Ss'. tn-1". rate:; !or 5p<".i;:ifo: ent:t1es. Cnder Staie legislmJ1Jn adopted st.tb~equeni to 1:10 rms&:lg~ of Pwros1tion 13, ripp-0J1i(l[1me1:w to l-ocal agencL~ are mads". by the Coumy A11ditor-Ccntl'oller based p1imarily on two fact-oae lite ratio that each .agen,;:) represented l)f Ille- total -Cc,unty-w!de ll'1-·y fur tfie th1ce ycirrs prior to fiscal 197'); and subs.eque[lt ;i:djustlncr,t;; t.u Ll1cse il.pporti<Jr'n't1~11c,; ll!'ld transfe,s t<J tl1e "Ed11c:atlo11~I l<.cve1rne. AugmcntJtlon runt!" (ERAF,I as determine,:J b)· tlw Swte.

• Cil:y Fn,pcrty Hu: Disln-b111irm Pnlic·J: F'Tripcriy Laxes nre .re,;orlled Ln tbc Generi1] FLmd as g<'.TIC[':ili (lll!JIO&tc rc.Yc.nuc_ Operating trar,sfer~ .i.r~ rn.1de from the G~11eral Fund J~ nced«l to i;uppor1 cxvc,iJitur~~ i:i the C:1p1tal OndD.y. OpeH Sl)t1Cc' Pwtect10~1, Fket Rcpl:iccmcnl iim.l Debt Sei"vi,·e F1mds. Ptop,el'l)' t~x<:'.~ r<:'--~~i~able iJ.l hme. 30-, 2{106- nrc: gcm:rnlly 1;-ioignili-cum but h3VC bee[] .accrued sins.t"" they will be c:oll~cicU. within 60 da_v., ,-;ubseq11c::1t Lil \.-tcSJ:-emL

Ii-oles io the Finl'1ncial $tenements

if av~ilable, or 2) the in.:orpot<1ti0:i1 date or thf, City. Ec1~h asset w11.~ r,;;v:Ewed t.-i de1-e1min,;; th~ Jdequocy (Jf Lhc data to VB]ue !he asset pri().r 1-c, J U.~J-· l. I 9'30 u,;iug h1,mrical cci~t ur e~timlltcd hist()rk.11 C::Oiil.

C~rital :l~&N~ a-:11\"ity for the tlocal ye~r e-nded Jun1c 30, 21Jill', Wil.$ a~ follows.

f>~::~~ lnc~.is-ej ~eme~J" r::,,o,- Elalar·.c G~rnrne1>ml ~~lhllllss (•'.'

~

'.·-,:;,.,,:,.:n,-1-:~-·,·,cc• c,i~rar a~oero oar f:J~'.•..; cre;,~,.,c,J.

I L~nd s <8.922,1CG 3~~ IX 2~.2~$.200 c..,.,,tru:'~" ,n p,09r.-~o :l,<'24.~CC I.J.l~,I~ ,.650,~00 I 2.:'tl!;,,800 t'U~II( ~,, ~21:1.6-::0 c-1,-p; •5T,80tl Cll,Mara.s:wsoa1r1.9e1t,1'ce.:ia10 1~·,,~1,u,;,iur, 103.3'1,1r.c ~ S-1·1.-0C•J IOi.00~.~(IQ

~-""""' D•pr<'.'ia•e,~ ;<"O.~CUJ'iel i~.1~9.{J:xl; (~.B."17,1(:\1-) Bt1;u,ni;:,~c·d·"T1pro·,omeni1 H.f41l,9o:;. ~ti HOO ~i.2~5.~~o

l'.cru,r, De~1<,elol.C".A) ;1.~10,11:.n

.<.c~um. l!e CF.-CIOl:O:o rc;,m•::()i ~~o . .icc1 G,93~.~ lln,~'''""!P\a' accrl•iOSo.

ca-llal "~I. nel 1•0.1.1-;,3_~ ~ ilOZ.200 11,7~.= 131.:'11,.''.>:l BLI~l~l'"-"acH-.ltkaEC ,:-:_,,-, .. • • ,,_·.·y r7cioi1a,,,,,,,m;.'10lbil,n.9,M,,l""-'"1c-,J_ L~nd ' 7,52.4JH):) c,1 · .~uu r,41.BO::, '...:o·"trncl;onl,ip.~,ess ' l'i,28\l,flll~ 3.153.BCO 2 ITT:J..700 1~-~rti.UO!l P·Jbl,~Art i•.rno i'4.1DIJ Ga,:,"a.'.,,;s.elswJ/"rg'1€i.-•ci•"'o 1n1ro,!11.<.:lu·u 1'4,386,000 1c.crn,,~a 1~1.Mi".CO~

Ac,;um.O"i'fe~ion (31.·,n.ioo) (2,~~A.CCG) (3!,2'1-5.700) s .. w;ns~ ..-.:! lrrs:m,.n,..ni l6,220.~~o 37.4,;;a 2b,283.i'OU

J\oou,, J<'<.TC(a\1;011 (!\,.U9.0l"IIJ) :61J,., • .-..li (M;Ja,,ooi F.q.1um,-··1 10,033.00J ~ta ~w ,;;~:~:, 1(197.-:{;(I

".C.-::ur,;.r_;,-,aJe1Sllu11 6,5S&.4'JO, f':-8.1':,:y,I 10917.!".cr': e-v,;n~\,a-"fl'~ aoii,\:il's.

,:__."0•1 ~s.•l~. nol 1;15.~!0.!K.'J 1J.f.:oS.!l,7.) ?800C'VI 140,/81 <Lll T~~ G~••mm~o_t_ 'mc'lr> s 26cl,'!l~7.7·~ ::J.~.'.,~~ <.~e~i;,:;v "3",0:W.~,"".Q

53

NOTE 4~ OUF. F'J;I.OM OTHER GOVER~~IENTS

The: following i> a rnmmary (Jf amounB liue r-o- the City frmn Glh..;r govemwo:nt.il agCllcics

General Fs111<.J

FRclB-ml Govur.mori\ $12,400

Cs>1,.1:1ty.,f S!lJl '_LJIS Ob-1spo 45~.CH)(l

Slate uf CalilmrM. 263,3,0Q

Other l'lgcm:,cs -~<l,~0(1

Olh-er Gov1a1:nmer.tal Funds County el Sar lt.h ODispa 40,600 $\;lite c-r ca1,1c,rni;;,, 55,900

O:t11:11 AlJencles 2,SOO

Ent,erpris.l! Funds. - 1"ra.ns1L e'und S1al.ro of Cal1form:1 6?,400

SlJbToWI 9;31,1100

A9<:1ncy FupiJ:,, Courily u1 San luio ~J1.!a;x, 1,:300

Slate ot C1rllorn1~ 2",.300

Other /"-.cncic5 .... ~. --~ SIJ.bml11/ Si'.{iOO

Total *1,022-,t(lO --NO"fE5: CAPJTALASSETS

GASB 34 require.<. thut thr:: City 1-eµort j[l t11c r,ov~mmcm-wldt "tatemeu1s the vJlue [Jr all c~rital M:~c~ lltt of Bccumul~tE:d d.e-prccLat"lon, indudinf! infr,i.s1rucwr~ a~~e,~. Ln un:nrdance "Aith GAAP. lnfr~stnu:lun: a.,,eH ar; defcned a~ lot1~-lii.:1;-d cupit;i,l a~ir:ts ilm.L ure srntio:imy in natmc aml rwrm::dlJ-' ca[] be presen-'e.J for a signifi~antly _grc.!ll.r.:.r ~u1J1GCJ c,i re;i,,s chm1 most capit.!U as.1,cLs

Tlie lllinimu:n requirement for ,Qrnpl]Jll~e with GA.S.E .Si.at~mtnl N<J. 34 !~ in pruvide lnfrG~tmi::ture •1al11afo,ri~ 1m all aa~d~ c<:instn1cted, J.cgui~s.:, or phu:c.J. i[lto o~rvice 011 er nfiel' Ju::y 1, I 9H(J_ RcJc,anl .i.isel'> for the Cily were v::Llt1ed at (lilt of tw{l elates. r: th<.; uri_gln<1I da,,' of c::0ns1111<::tion,

~~ -·~--~~~~~~~~~~~~~~

G<'.o~ernm .. tUa.l acln,lli..._,

P·.tliO -sa1c-ty

Tr~llSl}O~al;C<l

I o;,i~ur~, C',llur.:11 & &-Octal 1a,ar,ic~

-·-·-55-0.t.lOC

t,g3(],400

67~.f-CID

C~~tnunityd.....-..:,,prr.,~I 2;;;,00L)

~!.E:!:::,.~_er,t 6-16..400 ToMI dr:Jprooi1J-'Jrn - g~&irnm,i,11 ao:,i·v111e-s J,83g,wo

BilB1r'llO§a-lrµ<! ~<,l;i>,i~'oS'

Wa.t,;r l.554,-4t"{l S<'>"flr ,.w7,.fU~ p9.rJ<1rig: 4:'A,30il

na11sit 41:0.11);) G,ill 9.500 TW\I d,;,p-•e<::;~tioo t:.J~lriBM-l~pll- octlw,,,.s 3.~i;t'l. ,oc·

1",0TE .fi; El\fPLOYEE RETIREMENT 11El\1El-'IT8 !:lil,-?I n:l Ti mli

Plm1 Descriptit.m. The ('11:,.- C(Jllllib11cea to tbe Calil"orniu Puhi1t: Empl0rtae1' Rc.liocmi;:nt :System (ClllPF..RS), an ag~11r multipli::-ta1plo;r1:r publk ,:;mpJoyee dcllrn:tl bcne.!Jt pen5ion IJl..in. C:tlPER.S pt1Jv1.lei; retir.imcm 11.mi ,l1a.abilily he11eFl1,, anm.ial ~mt-of-living adjustmen~. and death bene!it<: tr., pl;rn 111~rnl-.e1·~ .;ind C>:'.'11diciiirCt~- C.a.JPERS act, <10 ;i, common iJJvcotmen1 ,10,I adrninistrat1Ye q~etll for ?,11ticipati11g publk .:mti111:"~ \\--1thlr. the. Srnre. Qf Caliiomia. Beuefit provi1Jon ,~nil aJI ciliter ,·c'.l'J~Lr~Li~ent, ilre l::$t<lbli~hed by Sti\1¢ stDtljte- and City ordi11.--1.1i-r:;e. CopJes ,')f Ca[PERS' m111ua) fillJ.TI-:ial report m~y be (Ji:,tJ.ioed frDrn lhei1 E.11:ecull\"C Qtfii;::e, '1Cl0 P S.rse!, Sacra11ie11to. CA 95814.

Frmding Policy. Mi1Le]laneou~ pactidpa11ts are req1 irecl IQ ,011lril.,ut<o 8% -o-~ thcrr annual c(Jvered s:1lary, Bn.1 '.l.i'.fety Nlll}10)CCS 'J%. Tlic C1lj' nmi:.es the c,:,ntrjb~_c:on; requCrecl of Clty empluye--es UL thtk bclialf ,md for their .i.ci:0~1it (e;,;c~11t for !lie Fir,; Bcittafo:in Ct1:d~ and all Pl}licu UlficE'n;, wh-o- pny the;r owu 9% m1,:ler tl1c. CalPERS pk.k.-up pl.an; mu:l

Notes to !he Fin011ci.a! St.atemen0t='---------------------------------------~

>Orne mi~,;;..;l:a11-s1Jus employees in th-s Police Department who ray 1hd1· owtl 8% contnbmi[)tJ). D1.uing f1a.:::1l ye::n.r 2006. tbic C1cy·t ii.(;l"uc1..ia!ly decer,ninc.d 1:ontri.b-1tion 1·a1es v.ere 17. HJc:;% <Jf annual co\·e,ed l)ayruil lor ;gcrn:r.J.l ~mpl0yee~ ,mG 3 L330% for safely employ~cs. The. conlrilmtiur1 =iuiri::men.ts of plim rne:mbe~ mid sile Clty a1"c" e~1al!lishc-r.i am.I m:1y be am.erided 1:'iy C.:IPERS.

Aimrw/ P,m~frm Cost. }'c,r lhe ye:ar ended June )0, 1006, clie CLi;/~ .anriirnl pc11.siot1 c0st for Calf'l::R.'i wa~ S2,C>fl0,000 for ~afety ~mploye:es ~nd $2,581.300 for miseello11c1Ju~ eml)lu)'ees. whieh were e:gual to tf-ic C1cy's annual requirerl coC1tributio11 (ARC) and ai:!L1.i.l cont1ibu(1on.s. The ARC w.us 1kte1mmed as part()[ the ucLuarial v11,[uati<:rn clal~cl June 30, 2003 USltl_!! tl:1c entry .a_gc. lll)ITJ.lll:I JCWai'i.i'.\I C0Sl illctbtOO. C'...alPLtR-:i- rt ports Lhat tll\.' fag time is 11=ssill)' due (D the iimoum of 1rn1i:- ni:-i:-do:d for th~m lei sJ\.tro.C"I 011.d te.st tlie membership an.d firi~11ci:i1I d;1,rn, a11J dne- t0 the- nes"d rc:i l'l'cwid<;' !Jllb[i~ ag1:1J<:ics with their empl0yer co11t1ibuliGn rat(:& wetl in ~dv,mce 0[ <lie start 11! the Ilse.al year.

The actu.ali<1.l .;i,1.om11ptmns iucludell: (a) 7, 75% in.vcotmcnt rate of Telurn (net o,f ~drni11isua11ve '~J\.pem;~s); (b) Ol'ernll payroll gruwlh factor of 3.1}% c-cimpuunllcd arm1111.lly; a11d (,;) i'.\l\ intlaticm faclor of 3.00% com,:,01..mdecl lln.rn1ally. No oil.er !)OSl-1el1rcmenl a.&ournplimis arc. indmled_

In ,;_ird~r to dam~Jl the. cffed of short term rr,1.JTl::et viil1.1c [1uclLI.ations 011 i:-rnploy~r coml'il:utiun rnlc."S:, ti, three-rear ~1i1o~lled 1ntu'ket asut v,,luatioll metlio<l J1, u:,ed. Thi; a ver,"ljie re-o1iait1i11g period fo1· am1:1rtizJti<:111 is 3J rears lrum lh~ valua1i1J11 dmc for OOL11 tile r.1isct:llo.necus mid Safety Plans The t:ffcct ol' chm:i,ges iri li~l.,ilLty J11~ to ~Jan .:i.men,.fo1c11tt o. i::h~[lf!c8 ia1 :J(;t11,1nal val1JJtio11 will ~ amortntd. st:puraidy LJSing .1. k,·d perc,:11tags c1f pay ovo:r a dosed 20-yc2.1· pcriOO.

6G

%olAPC • ~et Contrlt,uted Per,!l;lor,

01.)tL i.tlor,

6./~0101. $1,!;',,i1,W'J I 1(J(l'X,.l ,, 1113{]/Q!i Vl~~.OOQ IOO'k. j 0 6/3{1/QI;\ :,:,i.:;oo,r:ioo l{il)"i,

lF-'30iil4 i!-1,'liS4,7(HJ ''" ' G./JQl·J5 2.134,000 mo;. ' (lf:J:,}'C!"j ----· ~.cm.w.Q_ __ ,_up% _ ______ _Q_

P.e LJirtedSu Jementc.. lnformEilion lnl\io~n<Jcs,oclsD<el,aac,cl_~-----

LJntuoood A~b~riail

l.Jrcfu,,d-91 li.ib",lilv.i.!i Ac'.L.:Bma,I Adl.lf3rll'I % ·Utiu•l1on Acc1usd cul'ldg(j Ccws,~d Cowr..:I

""' Llabi:,1 Rl!l.11 Pl!I. rc,11 -Pa ·r'<lll

t,:30/!J3 1;:,,,co .,.(; ;!'4i ],~QC ~-4% iEr3fV\J4 25,W"J n.1"\ !:1,:.lOC\ 3(l2J%

ilj/J(lfC5 25.100 73.+% ::ll).1.1';"(,,

'51~0/C':J l!'l/!\I~ n.s% 11€.4o/

;;1301[)~ 111.2001 ;;:;,:;~ 12:.l.7"1 -613flll)?_ _ _j 20.5~01 _7'3 Q 1395~

In. adi.li1io11 to L11c CalPEkS pc11sil)II be11dit~ Je..s~L"il>ed ~bo•·e, Cit't' Rsaul1tlirn1 No. 360!, <Hlopted in. llJ34 ,mU .i.m~nde-d -'Y Resolut1on t,;o,, 9088 August LS 2000, esrnbllshed .;enam p(1st-re.cir~melll heal1!1 cam

bcndllo ava1l.iblc lo ~J\.cu1LiYt mllllHgcmcnl c1\qlll.ly(:,;£.arpoio~ pdor to A1JgLJst 2000. One-half of the (".ml)loye:e i.taJl~l insure.nee pre:m1LJm.s are paid l.,y th~ CJt}" fol' relirctl e1npl0yees wlic eltt.l to ct1mli11 lTL~ml.,er~ ()f (h-c Cily'i; r:r01Jp hcallh pl.a11. lJ1Lt pNvisl1)n ccat(;~ l1]1')n the Jcc.atfL 1)1' !he employee: or llruu 1hc employ(:.; reachin,g age '55. Dming 111~ fisc<.l year

Note~ tot!'l,e Finan,cial Sta1sm1!nl!:.,_ _______________________________________ _

emlci.l June JO, 100'5 ,;:~pcndL1u1~~ of ar;pro!\.imatd:,· $34.100 w~rc Tccog[li1.ed b)· the Ciiy for p[J~t-retire.me11t henlt!, ii:isuranc~ for seven JJLJrl1c.lpunts, 11~c-oua1ci.l for ond fin~nced oo a p;J.y-o.s-yull-g(l hai;i~.

TJ1e Cily h..:io el-ec[ed to pHnicip~lf', in tile CalPJ:;:RS Heil.Ith Ben1::fit Program with the '·nneqn~l coflirlb11tio11 or,tio1f' aL ttlc (LJIPF.RS minimum c:.cmlributio11 1'-ilt.e, \.Cl.JTT~~tly $64.60 pE':r monll1 for a.dive eml'lo.~ee, LJnd S16.:1.6 per munih for pamc.ipatiug 1(;L]ree..a. Tl1c. C;l_y's conlributim1 ;ow11rd retir~~ ahnll he inerei'.\sed by tiv~ (5%) pen;~nl ~ach year of1he City's -cc,11t1"]b111:on. lor the a-:11,,e employees un(il i;Lich time .as tlic ,;;1mlribu.tio,n~ fo, employees and retire~-, arc eg11i'.\L The City's curnrlbmi.,in will come Dill of rrtu amo11nt lhc Cil, cUJT(';nflv contributes t:J e.mployees ,1S ilarl of tlie City's Cafcteri:,1 J:>lun .• The CIJSt

0

Gf Lhe Ci1y'~ participaliOil in CalPERS will nlll req11i~ the. City 10 e~pend adc!1Li,;_inal hrnds townri.1 he~lih i11su,nrn:.c bi>}'rind what i.s alread;,, prov1dei.l for The ~(l~l of LJTIY io;:rectses. wil I he burne by Lll~ err,pioyec.~-

.'fOTll 7: LONG-TERM ot,;BT

Thf.!' followiug 1~ a summil.ry of t~1e Clty's long-t~nn deh-r rrnn,actiou~ fot the yemr !.':[lderl J rn1e 3-CJ, :J.OOC,·

~--~~~~~---~--~---~--~-----

""~ End I ~u~irrlml ~~

_,, ~t.,:II llal~o C...Y•~

~tnliloll•IIIM,''_. ' .. ,. ·u, ~e.-.n,.e~ufll, s "J:,Jj.1-:;,J t.43.9.&w 87~.?U.J 2'1.GB'.ll l,Dl8,'.0J L......,-!Afrn.,..,r,n.,r,cirr,, .JEl.~::ll ~-= 3-18.0CU "4.irn i..1.,lm~r,,.i,,;,,..,. ,,"C,0):-( ~:~.!;/.1) =.4w 1JEC-..JID C,Je;,700 Rir,r:<,"'-'lc,'.J oM,,a,., 2 ·~~."()) •.•::J,,oo 1.4116'.l!l ~.,~

1

1.08.r.'.,J Go"",,.,."'m"1ttC11m1

?1 C1100[1): ~e,m IO~il;,.,-, 08!1 200 2.185,100 201t.i.1o:J 1.73'1,?W

""' ~;,.;1i= ". ,' ' ' R.,-~,..,uoBar,:±:; d,il,liJ.~U) B_T;.s,.IW 1Pl~,n; :?1f,:,.OC<) 1.<.21.100 - 2D,\C13.7ID 3il<'.'.l:0 ~.152,fW W,2"cJ..a<J :!,211,200 L<!ssa--pur-::ruse1r>~r.c:wJ ~.nl,R[J;) ~.JJ.G:JJ ,.~ ,33."ID'.J '.:o"'?"n""lf,~"1,,e,,-. L.....-;~%' ~.1."'- -.•:);) ~.l!l,WLl ~=

B~~o.cl1'11)· lo=tennli.s.',IIIIH ~~ ~,.,~f'fl ,-- 3 {l:l,,~o::, 51 0070,XO 3S!H,400

r~1a1 Gz:'.."""1'1"1""" \'oitl.:> ' l,l,,1lli,,1W 19CW!XIO 6.6~1.GOJ "-~ 547';1(}(1

Cl~L1L1~ ;:;m! lial;dit1eo- and cCJrn~m,,ted absem:.es iu th,;: govemmcn.w.l fu11da art' ganerully Jlqu1d3,1eC lly the Ge;nernl Fuud

NOIOs to tlw f"inaflc;ial S~ternenl!.

:l2,4-:i.;:J.00() c,f 200\ r1ef111dir,g ltias~ •eYem,,:, brnc~ - S<1ri,,s A, duoa in annual imala11111~n'I:. ,w,g,n\J tr~m $:1-U.8()-J 1G S3BG.175 lhmugh Dec 1, 2COB: >n1eresr ra.113 c,t 3 2..'i%

~,7rr::l,OC() c,I WQ1 r<,ivru.J1ng\"'1~e re~~uc, bor>.Jc,, Serl~ 8, du.i In ann~I >ns1:.allrne~lg •anc;rin~ 1mri S34S',7S4 '.,:, $35-8 ~1::J thmugh l.lEJ::. 1. :>Jill: ~;BrnBt ranglnG iw.11 J,250", :c-3_fiJ~

S:t,e~5,000 of 200'. rolundlng 1-eaM> w,Br1•Jo bM~~ - S<iries c. t:euH u, a"1nu~l ;r,~1t,11mom~ ro.ng,,1g il'Dm $4.S::S ~71 l<l $~70,81 2 ihr,;:u¢, O..,;c. , , 20~-g; inl!'r=1 r.a<igir,;;i !roni '.;L25'\6 k:

~.!50"r>

$!1.48.5,000 Qf 2002 Warr,, r'l'¥enue ,clur.dl<l(l OOr,aG, lluB in ~nr,ucJl ,ns1all1nc1m: mnefn(l Iron, S2'.l5.[)l]\J to 5650.NO th·c.igr. Junoo 1, ~J~3. 1n1,~ri1SI rar11<n~ lr001 S.5% \o ~.6%.

$6,70[•,000 o' ~004 c;::;,p,!~l lm[""'f~m~n, l;lo,,~rrl T~\Jnd1ng r~~~ fe'/Q'lU~ Ql)n~~- rlu~ ,n .anr>ua:r;I :n":a.llmo,ms ran~ir-11 ~,crm S57C,00r; 1_. !i.Ti'-0,(XtQ 1hr-'J~h June- J, 2(114, inl .. r.a1 ra11ging r"i>.'11 2'l0% l11cl5%

S-6,'55·),00,J o1200il' Caplt.:il lr.11,ri,Y.-mGnl 8aard relundillg rG~enu~ bori.ds. dug In a,mc'JI l11s:a11r,11in1~ @1y11"1!j 1rnr·: t19c om:r to S565,000 1hrnugh Jun~ 1. 2021,, cater~~- r-ln~i1'\) lron1 34%1\l4.5'l",

,1 P, 100,0:,'(1 Qi 20.1$ l~M~ ,~10,~~-e bond.s. d1",i; In ~~n1.1al 1n~t1'J1rn<J'lt~ rar,,:;,<ig fr,;,m t~l!ti 1 00 cc 11 ,000.:sw :hn:H."illl Jur.e 1, 2W!:i: lntla'~:81 mng,1n-g trom 4_1)0

,. tu 4 7'k,

T01.;J Flewmu1' 6or1G'o 61,ate R~1i;:iving ~dr>d lo~n

$.Jl .221.4CI[) IOOl'l lrum !rm S1ato-W11\l'l1 AesJurocs Co11110l ll<,a1d for inipny.•,i;ments IO ~" G,tfs wast,i,i,at-r,, ~te.otm,;,nc r:··~nt, du,;, In :mnu.i,111:J~mllm,;,nis u, s: ~ m1·Eon to $2 \ mili1m

tflrou.,ol"i BOl 1; r1:Grasl al i.n:.. Ca1,bnia lnlmo~ri.Je1,n,a.nc E.oos,amic Do~e1apmon1 Ban~ Loan:

li7, 705:GOC• le-in, duoa in d1,nual l"s'.all.:1"'11::; ,a11gln~ lrvr.-, S1 o,·, ,C/00 t,:; $3!!-~.!:".J(l tbrov,ih 2CJ31. ,:i181-l8t at 3 37•.-"-

SCDte W019r f-'.l!SOu~~ c,Jr11rN bc-.trd L08~

$e,B8-3,2>C0 aulhori!<ad, $3,262,:3()~ d,-_,,.-.,, dus ;., annuail in~:allm(llll:. ran~ing fmr;i $31\3.~00 l·O $t.G2,GOO ~lMU!J'1 2031, ,nte·es1 ~I 2.15%_

L9.!i~e purch~s rl~anc-ng :n:3,02:.1, 11):) l<,e,~e pup;oh:a.~~ f1f>!'lr-..lrig fQI ,enarw ,;:,;::ri~~rv::•fa•n ~,r;-..l~II'~~. rl~@ in ~n,~•L ·ns.tal'msms ran,oin\l fm01 $:l~.l,iLC'.LD ro $~!;8,1CJ() throi,~h ,JJn~ 2,1::i, in1er.al r.ale c,; :u.x

C!a•ro, am, k,bil,1..,,.

G'.,;,,pc-i1uii.w .i_lx,; • .,,ce,,

Notes lo lhe Financial Slatemen13 ---------·

Tl:e follciwmg 1ir~sc:.r1l5 tile 8'1'.nual r-equ-1rement to amc:iniz-e all debt 01n~rn11Ui11g as \Jf Junac JO. 2006, (e,:,~ert ~ompe:i.s~te,;l .ibsence_; mi.-d duimh & llahiiiHe~)

Cl.:i·"Drr.mG~kll Acllvltl,1,s Bc.i;lr,(1->>-TW\e Acfr,~les ! 'fear eidins I

rro.;i~~1l !nt,m,) ' J<Jril'3C Frin;,,r,\O, lmereal TQlal ~---- :Sl.002/,00 1.021,00D 3,071,1·:LO 1,732.0.00 7,537,700 '2(Wl 1,1'4,~0C %~.oor:i 3,0IJ,100 1,'5:~,QOO 7,526,700 W::8 1,1~9,W[, sris.~ 3,B3~,C'OO l,Ol!a/>00 7/J'3.SW

"'" 1,19·1-~00 870,7-00 3,ll(i7,JOO 1,'.,9!!,it;,f; 7,1;J.G.~·JO 2011 1,245,100 835,300 3,781,?ill 1,a2.~oo 1.,~~.100

"2•]12-20'6 ~.:24:3,~00 3,00-1,7-c-O 11,cfj5~1) 4 7E-l,100 24,62•.,uu 2il\7-:2{;?1 ~.01~.300 2,870,5[-{J /

0274.10(' 3,2&1.~CIO 17,441,900

2022-202~ 5,113,BfXJ 1,~l(),50[ 6,1U~,00(l 1,~01.4;)0 l5,02B,i'OO

2D27-20J1 3/76,5()0 1159,300 Jj',C-7,000 1,046,6"...0 ll,li-11,400 2-:J2-2Q36 2 005,600 :2~1.401J 2,7$0-,&\JO 349,400 5.:397,ZOO rulal $24,4ag,wc, 14,IAS,rno 5t,~4D,5C,J _1C-,56G,300 .. , ca,:::~2.rou

Them arc a rmmbcr of '.imirntkim nm! r>.:.strktLQ:'\~ co.11.airic.d in the. vnri,:,iu~ lx,r,,rl L11deL1t11,e~. City m;1.J1agc;:ill¢:\I bdie\'t.S tlm( 1l1¢ City hils cumpliect w1Lb the b1deniut~ requirements. ~o.:cLJrioy fol· re.venue boru:is is

paid fro111 re.ce.ipts or 11et inc-ome and .RIW)lllll.S iu fo11d!'o or acco1mts

~~1ahli:;l1cd undi;-,· lx,l)d itide1tc111·s:s

New Debt Fimua-ing

:200-6 L..:a,~ Ril'<'~flll~ Buudo Dunn_g !he- fi.1cal )'~<Lr the City lau.1el.J tho.: Uao>t: Rt:•,o.:;itt~ Hmulr; w partiallj' fund The purcha,e {Ji· 11 paTkrng

.sln.i<.lm'C anJ C1ly 1Jl1ic~~ .11 919 Pal[ll Street. Debt ::.ervL-:e obligatiolls Oil

the bc.ncts will ti'-" lhe s,uue as the _p-topllrtic.natt: s!1an: tif tl1e. pwceeds

rs::i.li:i:E"..-: by 1l1~ Pack.i,ig. a11<:l Geri<cc=~I Hirn.ls, Tho: S,m Lui~ Ol>kpo Capit.i.l [rnproveme:1t IlDctr;:I (ficaid) io~u,~d Lhc brnub 1 u i;ccurc [I,~ bun1J repoyme[ln, the Iloord leaseli lhe 9!-9 .Palm ~tructure Le, the Cit)' f.-ir the

s.!lms, arinual an101.1.1:t <1o che noarcl'~ Jeb1 ~trvlce paymc11la. ln lum. Lhc

-Cit:,, com1mis that ti will Jn11uail,:,: budget for Lhe lease paym1:n'>,

'

Gn\1'81"T1i Bu,..im:toaa-Typa .A<>tr.;ti,as mer>U.I Wate S,w.., l'.ar1<1'1[ Tran.el

Aclilllll;,~ FU~/ Fund Ft10-d Fun, ··-

1.110,0QC

1,60000(

0,000,0C,

B.1'"'5.QD:

2.,']42.400

0,:155,0\JC

7,4:\E,~ ,= .. , 24,091,1)00 9,2.95,000 12.2.{}-l,[}(J(J

1'.3,J43,7[l;

7,240,:lO(

8,~7ii,OO

348,BOC 17'5.00 1./11.~(lr;

l,G09,'10~

2, 13G.W~ 21.5:,0 1135,30 .2:2,:io S,20

W.18G.10t 1G.bb"2.!5~ 1 4,820.50 19,4-t',S,50 , 8.20

Lcflse,Purcbas-c Fiuan~~~

G-el f'-und

I

18,<IOO

,e.'6oc

1.110,~oc

1.60G,0Cr.

!l,800.000

fl,18.u,OC!o

G,:365,000

10,HO,OOC

l:l.()d3,70

?,241.l,W:

<l,'i':'5[,Jl

2,237,21}:)

1.00~.JC,:: 2,-061$,70

78,262.,,1.!),

Ill April ?.003-, tbe City e111el'e.:! 11)t\1 ,;i $3 milli1)n ctgr~ement with Muni,;ipal Finan~e Cm-pm·.iii1Jn l\J finJ11~e e11e1_gy c0n~Cr\';itl0n impro~tcrnenB al sc,,crd Clty facilities through a leasll-i:mrchaoe nrt'imgert'.ltnt ow;r LO ye-a,i; m lG% ii11e-r,.,s,. The gr~ss aD"1ou11t or a~,et. und{)r this lE.'la.SE.'l l1, $:.'1.D millio-11. n1e IQtal amcmnl ad1al1c.:ed uml-n lhi,

ag1·eeme11t l~ $2;9 111illion .lll JiinE.'l 30, 2006 and i, i11oluded in the lable ll.bnvc.

'.'IOTE 8: BONO RESERVE FUND~

Pur,ui1n1 lo indei:mre~ o[trust between l'. . .':i_ .l:l.ank (Tnalte) and 1he City {)f S:.111 Luis Obispo C~pil;il lmpHlV~clIBITit Bo-.rd, an ar.rtnml <c-qu.;,l \I) lf.e 1Jtaidmum dc:bt s~r,ice. iu nuy pa1t1cular year mu& be hsld in Tim Truoi.ce\ reKJ'v"" fund~. !he b<J111J i11J::11t1Jfie.s Si'.'¢'::if~ 1h:i.1 the 1";$¢f\lE.'l

fund h{) \'alued at mu,k1:t., which equall.':S iri fair value. At June 30, 20Q6, re,;c;:rvs requirem~nts and armrnnts bdcl by lhc fisr.al .a_gems me ~, tollaws.

~···

Reserve Raqv~amer,1 F,,;.tal llg~nt C:e,h

[lol',I Se-n-100 Furl-:l C:::;w.1aL Oull~t Fun~ Gen.-"al F~l!d

w .. ro, r,nd ~~rj\1n~ F~<>-i

Tol.;,I

2ur;1 F"-...,f\.Jndir~

L-ea,s-e fl.sV@CLIJE

;.,nds

ss.s:-.:..,oo

l:flJJ.UO

152.100

~a;,;,_500

..i~ww .. ia,

R~~ama R•lunw11

s-~rid~ Wt(-00

Ai'O,FL{L

6r0.NO

-~ ,oo

~l,.mtlm 20Gt. L~3ilc Fl~er.u~ -~,

Sonci. ~m:"5 ,,, !',.'.\7,000 1,r111,100 ii,[)10,000

:;, 1,'900 1.18-5,(00 1 DC4,%J 1,CD4,'cll~I

f2C>,l'JJ ;co 1~6.6rJCi 1;12:,,;J(!(l

'&.,FU.J ~~.6~L·

537,3Jl'.r 1,P&l,4JO 3,171,iCO

!a additiou to '11.ll.l'ket val11e:, th-c lflJSl-3-e con5irl1;:.r~ (he "G1alurect ,Jiu~ uf tile inv~stmem, t!\c:: ,;:stim"l;ei ,inri1i.1I earning~, a11d the ~ost fm~is 10 dde:nni11~ the ~dc:q_1m;.y of the- reserve ,l,;~ount. L.:'J l'lar.k ha~

C-eLe.ntli11e.d thut by llling ih{) ,lbovc fac.loVi, the .om{)u11ts l1i the n~serve

f\11J<:l~ ~r(" ~de:si\J~te

Ncte5 tc i:n,e Fi11.i.ncia1 Siut.,m..,.,0et0,._ __________________ ~---------------------

NOTE 9: INTEi;RFUND TRANSACTlONS

lm-s~fimd rcieE.'iv~hle antl p:iyabk b<1lnnce$ ~s of Il:111c 30. 200fi cons1;;t Qf the following:

lnler1uru:o lnlcrmnd

Ru~El-lv~ble~ l'~bJo,

-G&rl€(AI Fun,:1 29(),000 -4'3,7LXl

C-a.,l1.:ilOu!l .. 1F,md 5.? WO 08,:SW

Nc,nmajot lc\ct,,~rnrn-11nlal F11n~s

(OBCI Func;I n= ~5.70Q

T~1si;orlalior, lrnpm;,t F~e Funci 8~,7((1 ~15,600

Ai<e<]fl Arn~ •rrp,:,ct F'!" Feno 158,000

L"~ o~i,~ '!all~,· RM-1 Sub-J\rri-a F~~ Fund /R~,-60'.I 86,700

l:nWr~rl>s Fcmds wa1crrund 44,llQO :P~;J,;in!I Funci 23,c'OO

Gair Fu"~ ~2.300

ro1H1 1.281.400 1,W1.401l

lr.[erfuml reccivable.s autl pn.yable~ include ter:1po,r<1ry ne,g_ath'e .:'.~Sh

hal~ncc~ :hn.t result from cl1t liJ.-1.Lng ()r cd;;I\ llr,w~ al ~-1:'.:ir end ;rnd the ti= l.i.g between ih~ tlat~1> that lra11s:i.ctio11s fl(B recorded iu 11.e

accoulllLH); !!.ystem ~nd i-,:i.ymenl helwttn lu11ds i'lre- rMrli:'- l-Lquidiiticn of intc'.rfimd r,:.ce,ivalJIC':S ati,d p~;rablu typicully occu.i; in ttie firM quarter of the ;subae.qu-sr., fisc,ll ;,r.ar. lrit~rfuml bal:i.m;es huwecn ~01•ernmE.'nml fo11ds ~re t101 inclutlccl rn 1l1sc: govem~r.1-wide: Smtem¢t1l cf Net AHe:ts.

Notes to ths Fim'lnda.l Sta.t,amsnt$

Roc'c Re1>cirvcilr. The Commi%iOll. is compo.scrl l.'f si;,; voting members ai1d two no11-i·oti1i_g_ mcm~e-Q;: thr~e vl)ting rnemlx.ro are app{}lnwd by the Cit:,- ,;if S.r:n l.i1ls UlJ-L~1JO, 1mP, is ap]JQime-tl by C;i.lit'omia Po\y1tch11k Stak Univc,si1y; m1e hy Caljfomiil Meri's Cvluriy; imd oae by the Director of Fina(il'.:r:, ,'i(al~ 1Jf California. Tht:' Lwo mm-voting: rnembe1'!! ilro pQ;;1til)t1 ap1:min,me.nls: the DCreelor of ',l,'a1°Jr ~~>"1\il'Ce-s. Stiii:e of C11l[l"omia; an-cl 1hec Wat~r ,S1,1pe\irl!enden1. City of !i~u Lui~ Obisp1J. Tlte Cr,mnri~~ion i~ ~ulhc)n,.ed by their n-1,pedive izy_encies w establi,h p1Jl1CEes for lhe op-e:rmio11 ~f the R~se.-voir, tu COnlra<:t for the-, a~le ol e~c~~., w;,,1el', .rmd rn approve th,;,. J11ou.i.l bud gel

The CiLy l,lf Sari Luis Obi.tp(i, iu ~,,ordance with e~Lahli~hed p1Jlicie.s o[ th~ Commis~iGCT. op,ora.tes aad mait11.arns 1:1ec Rcacrv,:iir: prep~ls'~ :imd TE.'comrne.o.:1s lfic an.1111~[ bud_ge-L; am:1 malnc.11110 lhe- fis,al re.:ords .;md fonds of tb-:: tornmi.s~ion. The Wh.mG R11ck Agency Fun<l 1s used Lu

.i.;~01rnt for LhB C'omrn.issi"1n's (ln-goin.E; op,3ra1i~J; Klb~·icit~. 'n1c Cornmi.>sion tia.'. no lcmg-t~m, debt. 01-1,11tnhCp in tJ-i-s R~.,eTVQtr I& J.S

follow~· '55-05%, C.'ily ur Sari Luis OIJi.;;pl); 33.71 %, Crrhfornia Polyte-dmlc State: ~iniv~r~iT)''; a11d 11.24%-. Calffc,mia Men\ ColOLiy. Th~ ('tty'~ 1>'.'!arn of 1ht, Comrnis;i,:,11't S->.pe,1H;t ~c<: r~c·s.>nlo:d a~ ""l)t!M~ -.i(

th:". \Y+iter Fu11d. All r;:.-=eipto ~nd disl1un,~~ot.t, 11[ L;-1~ (\m1rnis~iim are im;:lt1doed iri ao Agrncy Fund

Fi1w.,1~W.( hi.formation and [n.Jl)/11'.,.uirwss. ID 1959, the City i~aued geneml o,bligmien brn1-1b to s~-c~ ~ fornrt Willtl' .>upply to City re:sidems. Scme. oftbe rrl'r-.a:i;:d~ from the bonds w.:re used !o t1anici11ate witll the StJte or CaEfoml~ in (he: develcipmcnt of the .l-k.$Cr'>'oir. Particip.i.tlon. whi.:h i~ in proportlo11 to ttle ,.:,ri.girnl.l m-v(lJ:;[rn~ut, iDclude~ conii.ou.ed op:,tatiOll <md m.a.inteflJru;e of the faciliti~. Such inddm~rlr.eta 15 rlit'\',.;tl;r· ~ttriburnble w pwvi81on cif w:i1cr .>er\•ice, arid a.~ such, 1111 L·e]ated imlecb1edncss is recor,:-l~d i111l1~ City's W~lLtr Eritcrpri~-s Fund. The Ci1y's 01·i:gi11al in\·c~tment in tlle Re~T1-'l)n prnj~t aggrcg:'.Le' $3.90D0000, antl is lidn_g a11iorrii'.E.'d 011 a .>traigf1t-lioc basis cw-er thinsri.,.c year~. Se.par:J.tl:'. fin.a.ncial :;l.tllem:;.rns ~ie il.\'i1[;,,ble froiJ1 Lbc Whal~ Rc:i,;:k Ccmmissio11. 879 ;0o!To Slre:et, San Luis ObispQ, ('A 93401

Tha following sq;.i,~nt iin1111dol i11fo,mation for the \Vhak RCJc.k Cof111:1i,.sicn io preo;,nt-e-d as of and for th~ )'C:Hr c:ntlc.d Ju11,:. 3l], 2006·

6S

Inoe-IT110J-d t1ansfers for d1-e ye.n ended lune 30, '20:)6 consisl of the folk1w111,g·

Tr~n$ler~ In TranGfur~ Ou\

General F..in.d 1,212,C'O} 4JBII.C:IOD

Ca.lit.ii ~11-.iy 2,::l61,1D)

\'il•l<riaiJOI' G<lY"'"lr'mOr\t.l.l Fvr.-1 ..

Do\'11111'.l'Ml Ms:;da.tion Furi-d 25,C)C))

Ga~ 1-.:ix Fu~d t!:'i5.2;XI

TOA FcJn~ caJ,!;00 Cr,.,,rnur.lr,. a;J-,;;·,el,:,prn~r,t Elle-ck Gr,,rit Fund w= Dll~l'.:,;J,'>I~ Fund 1.tiZ'u,300

'i"r;,r>~portall!Oi, l'Tlf;11'10 Fa.@ Fu~o -!l.2,(l(l~

Op<in 8pa,:,n 1-'rolHOtitin Fun~ 25.-~00

Ak~<Jrt Area Jmi:,a~t Fils! Furd 323,BO{]

Fl••I R~;,l~i;'!m•ml Fvnc;I 4lJ3,60'.l

E:,iler.~rlm, FUr>"a GuliFU~d 2.o6.3C'u

T<ltal $ 003,5C~ S.!X,3 6C.;J

Imerf1111d tr::111~fers ru.:o u~t.d to rriov,e nc':Ytnui:~ fr(lm Lbi: funtl wilh oo[[,e,;li011 authoJriz~tio11 tlJ tile debt SCl'\'ic-e fund as deL,s aervi-LC piin-Lipal .:md i11lerec;t paymellt~ hE.'come due aml lO move t1nc·(!.S1rfo1ed fond re•1s:~.ie~ le) flr.ance ,,..ruio:i\1; progr:t1n.is tlLaC the govem.:1ieJ1t must il.~.:'l)Ullt for 111 ,;ililer fund;; i11 ;:;_-:corda11ce- w1l~ b11d._lleta1y a1JthQ:iZJtiono, indu-dillz amounrn rimvided ns rnmd1ing /i.Jm:ls for ~ai·io11s grum prognrn1~

NOTE _!(J; JOINT VENTURt.S Ar-.-U JOlr-.-TJ.Y oov:rnr-.'ED ORGANIZATIONS

Tl1e Ci(y j.l-.'.l.rllciplla'~ in ihree mult!-g(Jvemm.P,llfal organizal1(1ns: 1hE.' \Vl1a(e Rock Conmlis,;ioLl, th¢ Sa.11 LuLs Obispo Rtgio11al TL<1J1sit A11thoJtity, and li1e SJn Luis Obis_llo Coun.cil (If :::iovernme11ts. Tl1e following provides a gE.'neral de5triptlou cf ear h (lf these. agencies al011g ...,.Jth .o su11L11:i<ll1' of fi11at.ci<1l i11founati.011 <1.~d iu<lcb1ed(itss:

W!rn.l.t: ROl'k Cm=u=m="=~="="~---------------

G,.n,.ral De.s.,riptic>n. The \\'1iale Rock Co,nunhsio,11 ((01ami~!101l.) w-4-,

eslatili~boed mi Decembn 12. l9(10 le, gQvern tile Qpt'!1atiQ,1s of tl1e- l.Vli.i.l,;,

JaintVeTTt\lPr Clt11Fo.rtio11

To,to;I ersa-<:::tt ' 911.00[ :502",000

To,tal lial:iill1i,es \cl6,20C· 54.100

Furtd b::il::ince 813,7G{• -44709()0

iota! ~evenue-s BSQ;:31)(: 457;,oo

T0t21I e;,.µendiluroe. 800-200 4.:.0,5(10

Ero:::l:l~e. of re~enueeo over e:,:pend'ture, ' W.100 16,600

Sao Luis Obispu RegirmHI Tr~nsit Authority

G1merul Dc.1·criptim1. The City is i rne,nr>c'r r;f Lhe -'i.!lll LLiis Obispo Regi,mi!l Trilnsi\ Auihoricy (Authodty), which w~1, E:5tablish-ed 011 ft1bn.t,U)' 27, 19-9'0. to Qpcrall': a jr1im 11ublic tmnsponation system. The. Au1hori(y is eumpo~e.d. of the Citi:;ci; of Arroyo Gm11(ie, Aca.scadero, G1ovei Bea<J1, Mum:t Hay, P.i.so Roblto5, PisnJ<J Bead1, .fltld Stm Luis Obispo. ~s well JS th~ Cu-uoty uf Sall Luu, Obispo_ T11e Am.lmrity i~ gove.med hv a Ii08rd (Jf Director~ -cornpr-beJ. uf rc.prc~cntatives .::rf e.1-ch i:if the s~\'<'.'11: citits, ill additiL1t1 w !he tv~ mc111b,;.ris of th,;, BCJard of Surervi.sQrs. E.ich rnem-bcr of the lioan.!. hdo llflC ,-me_ The Boord ha5 lh.E.' aurh(lrity 10 esrnbhslt po!icieo for the opernrion ,;,f t!lsc trn11s(1 systc:;m aJ1d ko arlop! rin ;11i-nu2:I budget. Dr.dt 1t11.·mb,T m.:1.kcs un aimual o;:oJntrib11ti-o,a ;o the ;:;gericy for fimding ;Ile adl)pted budget

Finan.,;:Ml Infcr1l1-Mi.Q11. lht Cit}' allo,;:;:;~~ a "Portion 1;fits Tr.111sport.i.Ci1JCT Developrnc:al Ac! f1111t.i1> .Jirectl:r lo Ltle Authority During fisc:al 2006, che City contl'ibuk<l a.pproxim.a.Lcl)" $31)7, [i)(J t1f thc1;1: l'llnck 1,1 the A11tl1oriry Tile City's tbare:c c.,( as~t.,, l1.1hiht1~"'' a11d fo!ld i:']11ily l1~1 not bl:'.en calcul.fl.te-d by t;ie Autlio,ity a.nd illcrefmc io m:it lcmwri iO the City; howe,er, l..ase.d 01'1 the City's l'1m 0Llt'.d finar,dal plrticipalio11 in tli,;: Amh\.lllt}', aa:r ~uo;:h Jooc:1£. habi\ilie~. or cqmt:r are .mt behe.,.erl to lie siguitic:om .o the: ba5ic llnan-cml ~lalBments rn.ken as a w!1olc. SE.'p.i.mte fin.undal ~t.i~ment.~ are n,·ailnbk from the Autboritr, 1150 Osos SCrC':C:t. S,1ilC 20Ci, Siio Lu.L~ OhLapo. CA 9}4(]J.

(.ienef"{,J/ D-,u;criplirm. Tl1c: San LILis Obispc, Couru;:il of Gol'emmenis (SLOCOG) wa~ forn1ccl 111 19G8 1hro11gh a joim ;io.,.i,rs iigtt:c:n1c:111

~':'cl:es: to 1he F'infln¢i;d Statemen~

among iluo iru.:orpornrnd cities a:td Lrle Cmmly of S~11 L1Jis Obi>[.'O. LL aL.Ct~ as 1he regic.nal tramportali-cm pl-1rr1c1ing ai;l_c:ncy for the {COumr am.l is Ll1e metrop1..1bt.m plam1l11g organl,,aticm am:i th<l conge>licin 1tran11g~m-cn.t

agency for the r-egion. The- !!0\"eming board COLJ~i~ts of I-We-Ive dde~ate5, Mch witil Ot!e ViJLe: L.bal indude-s lhe- five 111~mbcrs .i[' 1h~ County Board of :iupenrison, :m<l one. re.prn6-ellinliYc frnrn each or th~ sc.ve11 c~lles i11 thc County.

fii1ia11cial lr,Janmr.tfrm A portion of ll1e City'~ Trm1,portatioa Develr,pmenl Act rundJ nr~ direc-1l~ 11lhxuOO t.u the SLOCOG. TbeCii~':, oliiln::. uf ;i:,i;e-ls, 11.iililities, and fond cqui(~ h:is mil bee:n C3lclllnterl by S"'.".OCOG 1rnd 1harnfore b 1101 K.lmw11 w 1J1e City; h[.)we;1.1cr, ba~ed on Lhe Cit:,''$ lhX'-hed filrn11ei:t1l po.,cicii:,atioc1 in SLOCOG, nny s·xh .asseis. (i..i.b(litie;s, or equity are nut h.E;i[evOO to he sLgoif1canl to lhe basic fina1Jcial sLaLemenLo 1a~n ns a whole-. Scpau.t.c finarn;:i~l alllLemf,TlL"> ,u~ iivailabic kom SLOCOG, 1150 Uso~ SlJ~~l. Suirn 202, Sn11 J,111s Obhpo, CA lJ"34l)l_

NOT~ IJ: KLSK !1.L.\i"lACEl\-HSNT

CaliforD..!!:_Joint P,v,.,ers [n,;urani:e Authorit~·

The Cily 11f Sun Luis O'DispG i~ a member of lhe California Jaim Powen ln~up.\1(:e Anthority {Authodt}'), The Authority io cort1p0s«l uf 109 C~lifc.mia put-lie e!ltlties and is organized um1~r a joint ,mwers ,1gro!-emem p-msu;i_m w California Gtwen1met1l Code * (1500 e:t •~tJ.- The purpo..: t:1f th(' Authorit}' i,, l\l .irrarcgi: ar1d .:LU.mi1110Lcr pTop;r.;amo t0T tbepsiolin~ uf self-lnour~ lnsses, m p11rcha~e e;,::ce>s iriouram:e or rcinsurnnc~, and m m:rnn,~ for gr1;111r ~11rdrns-::d t11rnrm1ce fOI proy.erty and Olhe:r c,n(;.,ap,ea. Tile A11tbr1rit(~ pool l1egan coverlng chim.1 of its meril.bera 1r1 1978. Each member gcwernmenc IL11~ JD e.lecled offic1nl as it~ r<:presemaii.•i; 011 ti1t Do,u:J of Director~. The l3oard op¢.ate-s through.:, ~-mcinllerf);e,;;:utive Committee-.

Notes to the Financ0ia010S0ta0t0,0m0,0n0tsc_ __________ _

IVhich i> .;.vallabl-e tlirougb lhe Autl1orlry. The policv c.:ov1;-r.; :;udden and grnduo.1 r0Hm100 of scheduled 1•,·opc;,..-iy, &trc:cl~. n!ld,nonii drnins owned b-y th<', C'il}' of Sart Lui~ Obl51Xl- C1Jvernge: L~ on a clmms-111i,,de b:isis_ The1e 10 ~ lSU,000 dalucr1ble. The Aolrlority h.,~ ._ llmit ,o.f S50,000,000 for tile 3-year period frs1m J11!y J, l(l(J~ through July I. 2008. Each me1hbcr of L~1c A.utboritr l1~s a jj lOJl(JO,CIOO limit <:lurln,g the :3-ye.u term of t:ie pt•liey

1'1."0Jl'"rty lnsuram.:e, Thi.' City cif San l.1Ji5 Obispo ?rl.rticlpi!.ICS in the all-risk pmpeny ~rot-xtio11 ~r0gr.1.m or tlie Autllr,irity. Ti1is insurJ.rn::e pmti;,::tmn i.s 11;1de:rwritten b:ie seve,ral im.urance comp.11nlc::~- Cify rif ,5aTJ

L11is Obisp,o. pruperty i~ corwntly i1lSll1ed wxordin_g lll a ~chedulc oC co11,er1".('i pruptrty ;;ubmitte,rl by the Cit)· uf :.:;ao L11i~ Ok1;~pl} IO thl" Authoril)i. Toial all-ris"k property inournnce ct1,.1ernge is !,J4{i,.'i80.81)i_ Tllt>r-c' i:; a ;i;;s:,Ot:(J per lo;.~ dcduc:tll.,k-, .Premium~ for the coverage ar,; p:ti.-i amrnaUy <Lml are mJt subject I\J rdroactlvc ll.GjuRtmenls_

FiGelit.,· Bont.1~. Tbe City of Sim f.u15 Obi~pc. purd1a,;e-.s \J1:mket fidelity bon.d -ec.verctge Lil th~ ~mounl cif'.bl,DOD,OO[l with $2,5()() Gc<luttihl.:. The fiddil:,' c:ovcr;;_tle i~ provicle,;I 1J11·0ugh tltc Aut1Lu,,1y. F',>.c11L1u11•, .. ,,._ 11a:iLl ~rnlu:i.lly and are, !lot subJec:t tsi retrnm:;tive aJ.justmems_

Sp('dal E,·i::nl ·rt'11ant tls~r Liability Jusunm«' .• Tl1e City uf s~11 Luis ObL~f'O fu11her pruk.c.t.~ a3~mn ]l~hi1iry dama~es hy requirh1g tenatll nsers of cenain properly m p-urcha;.e lciw-«isl tem1J1t \1scr iiabllit,' i11,111·,111ce fo1· ,;:,;ri:aln acli\'i1Lc5 011 City property. l'h-e insurance ~mium is p.a1d br the t.eoarn u~l;':r a:i.d i.s paLd w lhe Cky of San Luis Obb;po acc,m.ling t.1 a s-ched1,1le. The Cil~ of SaJ1 Luis Ubi~p;i then pny~ tur the i11rnra11C¢. J'hc inauranC"i; i;; oirrcriged b:.,, the Auttmrity.

Duiiog tb,:,. pi!St t'1:rc.e fiu:a] (d.aim.s} ye~rs 11oue of the abovL': program~ ~1f prolec:iJc.n ha11['c had ~Ltkrn,;;nto or jt1Jgm-e11\.S (ho.t e ... ~~ro TJCmlcd or jTlw!'ed ,;:o,·erngc. ThctK have been oo s1g11ilicani redocti\JIJ:S Ill p0nle.d or 111smed liability co,·erag~, from cmrerag,e Jn th.e. prfor y~ar

Sl';p<!rntc !"ill<l1Ki~LI ~tnlcrnenl5 ;ue av~Ll.i!.lJle frrnn ih(: C:~lifomia Joim Po1-<1ers ln~urnncc Au1hcinty, 8(181 Mood}' Slrl"et, La P.alm.11. CA 91)623

(i.l

Selflt1sura111;e Pr1J_grams 1Jj th.1J A11thoriJy

GenfcraJ Li~bility, Each mc111ber _guvemmcal pays J prim.i.rr depoi;it tn csiv-er es[imaled kl-Sb.:., for 3 f"iocul ye.ar (-claims ye,e,_r), Slx 111c.ntl1s afier the dose uf a fisral year, rnd~L1ndi~;, d~trn,; are ,;11\t1e.d. A 1etro:ip.:tivc. Ji:po~1! cr1rr1.pul.:lliOi1. is lbe-n 1n.1clt, for each open clalma year_ Claims. an~ poolei.l sep.arat~I)' bt:twe.eo police und 11on-police. Lllsa development reser\/c~ .arc: allo::-alcd br p.-,ol .and by lo~~ l~re.r. Costs Mc spread 10 rntmtlers :is follows: the fi,~t .$30,[)Q(l or e...i.efl m:curre-nci, is clurged directly to the member; -CL'Sto from S:3["!.(]{10 lo $750,0[)(1 .11111.1 l~ los~ d<'velopmem reserves aso1.1Cia1et.l wilb lc,~sc.o ur, Lo $750,(l(l() ;i,rc. pooled b;is-e,d or1 a member's than; <.'>f lo~~" under $30,0.JG. Costs f10m $750,000 w :b!0,000,000 ar-e poolc-d baoed on p~rrn-lL Costs of covered i::IHirna abov~ $10.000JJOQ nre curremly pai-d by e~::-css i11~t1i11.nc~. The proteclic.n fot each me.mb:c:r is $50,000,000 pu 1lGcuu-cn(:c: 11.ml £50,0DO,m:m anuual a,ggr~gule At!mirii.:Lrnl!ve .-,~p<'.n~~ are paid from the i'illthotity'o. i11ve~tnt:.:-c1l eo.rni11g,. ltie {'.it;r· jr,iinE':d lli::: liability pool lln July 1. 2GO].

W,,rt:.en.' U'lmpem;;atloD. Thea Cicy of Sari Lu-1s Ob1syo also piirticiparni; m the workers' compell.saticiri pool ad.t:iinisLere.d by tlie ;\ot.liority_ Claims :!lre pooled oepMntdy between publii;- s~fety a11-d m.m-public -,afe!y. L.:iS5 i.leve-lcip1m:nl ri;~en't,1 ~r~ all,-,;:at<::d tiy TJ•l'.ll and b}' lu~:, layer, McmbeTJJ rnrnm ih(: fir.st ~S:0,l)(X] -o-{ c.1.1.;h dairn. l...osse~ fmm S50,001) m $11)0,UO(J amJ Lhc lo.,:~ development :e,erw: tbsoda1ecL with IL1s~e~ 11p to S100.0oO a.c pook-d based m1 t!1e i11cmber'~ slta1-.,o Df lmses under ~50.(JGO. Losses frnrn S.100.000 tu $2.m:m.aoo and lnss del!dfl[)mem res~r1•es associalcl with 105.sea frurn $1[1[1,GOG lo $2.000.(KIO ~rt: po.:ilcd ba~cd ur1 payrull. C(l,,(S fr(,rn $1.000,000 ro :bi50,0UO,(HJIJ arc trnnaferred to aa excess ircsunmce pc.li-cy. Coslb Lil

ex-ce-ss of $150,()00,0QO ari:'- pooled ~mong lbi.:- r.'kmb-s-ro l:i~:;e.<l on payrnll. r\dministr~Live e;,.p[;n;se5 ~re p.i.id rrom the Aut!i<1rily"ii inYestmcnt earnings The Cit} joi:100 tbe wark<ln' compe11~ntic-o pool on Ji.ily L, i01)4.

Purdia.•,;f'd lr1.mranN

Ew,·irunrncntal lm,;uran<:~. ThL' City of S11r1 Ltli$ Oili.&p-o p~1·tici11.11es i1,1 jhe pnllu'.itln legal liability and re:medlatiotl leg,1l iab1ll1y Ln~i.ir-:mce

TI1e Cit)' retilim the ri~k fn1 losses inc11rrerl priol' to jc.i~it1g L!1e California Joint P-uwer:!. ln~llrn.nce A\1t\1orit)'- Sevn-itl 1ltel'r1t>er agcrt.:i<::~ o( the nQ1~ diai.1.1li_.~d Cenlr,~I Cw.st Cltie~ :S.e:lf-Jn~uram_;c FJnd c:cintirrni:': [Q

particirnte 10 :i 11011-rL~k sharing .arrRnge~~ot for cla!rna m11nagemel)t a11d th\'. p1.Jrc::h~se of -exc<::s, iri~uraLJte. The p.i.rtii;:i[P.:l-tini;:; ai;encie~ ~h;m, a ~et of c:ammofi guiddinc, ~!lli annuall:i,- ae.t .:l.SJtle prem'ums. t<J pay 1lleir lni..tividual lo.,~e• wirliin their self it1SU!'('d ru~11tlo:iio, Los~<::~ ~,,; dd:iitcJ d.ml mve5l.me-nt ITK(lflle is cre<llted m spe,Lfic membc, accoonlli_ The CTI) has !lot incurred a11_y losse~ in e.~c-es~ of in.,ur.ancc t(Wc.r.azc_

Tl1e Jast actuarial study LO i.letmmlne; l},e urn.lE&-cciunmrl Jlllstanrlillg-dai,ns IJabi!iLy was cornpletet.l a~ or June ?,I), 2QIJ5- The !i~bilitl' a,1 J1.Jne 3U, 20()6 was esti111;,.ted basci..t un th-u lt::::L actu.J.ri~I Sludy ~mi con:;ldered cb1ms a5sert':"-0 a11d paid . .and Lhe time limit.aliurv; fur filing c.lain1~- The es.olmittod liuili1i1y at June. 30, 201)6 is c~lqilated che ;i,sfc:,lln'l'v:i'

_!:ll;lte'5 ti;! the Flmrncial sii:i.!-e,m,..,,o0t0,._ _______________________________________ _

$(!1f-insL,rnnc~ oc1i'fiiy •• ,-,f Ar,:i ii;Jr !ho(! Y,."<lr ""rl"d .h,,. :in. ~(lor; i> ~urrm.ari,e,;j 1>0 !a'IU'""·

lnlere~• asJmin,;ro Cfe.rrr, ~,r..,.,sg EGtlmatmJ r,at,rli1·;;-c, ·.i~oil!r,O cla,1'11~ sn,;J icn1;,,r1~ril "xp,,r;:,_e~

Estim,iwct 1i~tr11r1y 1-ru ;n~unc.j b·~t ~°" , .. por1i,<;1 \l[INR)Gl,olm, A~~i.11 c;in d-.ro~I~

C!inngas Ir. IM ba-lanc.-1 Ill <;lai•n ,,A~1lil1e~

durrri<J th .. r•~1 tw:;, Ase..: yQ.lls "'°" "" 11,,llM':l Dcf1~1s ,:~11).'.lld cli,;ma liRbilllf'I JJno 3D, <"()(l4

Cl;iim pA\'mC.'!11~ Ond ·ala.led o,xpanJllur'fl~ •,ln::reasel ,~ eJ:rmMcd s111.1111a 1,~~i:rty J~,:, 3~ 2Co:JS

Cepo~rls <.11d inla,rnsi ,mmirrgs Cnr,o~,1~ (unpJIJ c'-aim5 liabilit\l) JLing w ~j()5

C1airn ray'l\cnt~ uce. relal..d •~i;~n,f~ure1a {lntr~ase) dc<:re.'1~9 ,1 ;,s1,,1,~l•i;i ,.~rn~

;.a,1r1v Jo·ne 30, ~00~ li-ap;,~ila arid irite,<}GI <Jarnlrigs l>op-,~11> (\ln~id \:'lair.-,a li:r.bll:tyJ June JO.

'""

\'l,;,rfl!,r~'

C<Jm.f)llnsatior

1,r,,100

511,DN

J.?~J,5011

S 11,92-1.200)

(~7;J,,71.11Jl

il,,IJ3,300)

11,:-105,BOOJ

~.~$ol..i00

11, 34~.1 00)

\511.ffi!J]

j236.30C}

11s.1oa

(1.9~1.:t<JOc

G,m(lorai LLa<lilit,,

<-3,J.."()

::JIJ:2,600

oo.m;,,

~51.~C>:l

tV1 ~00

Z15.200

(l ~3.600)

(85~,50~)1 ~0,·1.800

~,-~J (&Jd,COO)

~.m,:J(lfl

2fl.,:,.;J(t

3!1,000

NOTE 12.: C()MMl"J'MENTS Ar>i"O CONTINGENCIES

""'

138,400 01~.500

:J,(l?:J-,!:IIJ(l

~e.801J ::!,130,~00

11,13~51.~nil)

(757.t<DQ]

[',.b&3.IIOO)

(2.~.ol6,'.;00)

J,3\l(i,500

(1.200.200)

101,1_50JJ

;;~f.008

1:l,\4;);"1

(1.6C'J.Wfi~

Lltlg:i.tim1, . ________ ---------------

Thee ()t_y i~ pre.semly in1•olved 111 ,e.rtaLn malt-er~ of litig11tior_ r\ia1 :13v,e ariso,:;n m the. m1m1ol cou1"Se. Df condt:cting Ci!'/ \Ju~iness. CiL}'

tiS

management beJie~es, based upon ~onsullatlon wuh the Clt_y Anrm1c.I,

llllll tliecsc .:a~c.s, in th~ ag~~.i:;:n~, nre ~deq1.1.aleli-· C()\"CrCtl by rn~uram:e <1ncl n,:it (':,.:perteJ to result in .i. maierial advi,fse finandill impan {m the Cir;r.

Granl Awa.rd,

Under the t,:,rms ol F&lcral and Siale gram.>, midi~ mqy be required u.00 certaln .:0~1~ m11.y be q11('~1i.::,11e,d as 1101 being -&.ppmF•iati; i,i.pem:faures under ih~ tt,nns cl the grant;; S11di aui..lith Clmki ]('lid co reque~L~ for reimh11rn;imc1m t<:l 1be grantor 11gcm:ics City m;rna.gemt11L :b~li~,~G di:si1.llowil.11ces, if auy, will he immat1m~l.

NOTE 1:3~ CONSTRUCTION AND OTHER SIGJ\IFICANT COMMITME.NTS

Cc:inialru~tlon and other sl_gnific1ml cornmihmmt.s a~ of J11ne 30, 2006 ln-clrn:l.ir.g en, umhrnnces ou.tsta11di11g 31 yc.ar-end, are o,i follow~:

Ge:ier,;I Fund

Sp!'!~ilal Rewenue !'1md~ C:;;1,>it~I Prc;r1en:. l'um:l~ Enl~rpri~c Fund~·

W.s1,:,·

!oew~r P.:iikirig lr=~i,

Tc;rlal

NOTE 14; SlJBSEQUENT EVENT

:ti 1,500 125,b'JU

1.!Kl1.200

16,~:J5,1~ l.ll4l,20Q

133.1JO ,-nn

l!e.62,I_E,[}{]

D-el,t r~~u;:i.m;~. On ,"\ug11st 17, 2DD6, tile, C'.ty issuul :Stl'i_9 milh'1n rn \Vnter R~,·enuc Bond1; for an 11pgrnde of the Wn.t,:,r Tre;ilmenL Pl~nl Ptindpnl payments are due in Jll)Jual i11sr;i.llme111s !'<111f_iJLg fr0m ,tZ]~JJO(} ID S'.lS5,(llY.J throurh 2036, 1111-ei;e~t ra11gi11g from 3.7Yn lo ~r.{i2S%.

CITY OF SAN LUIS OBISPO, f:ALIFORNlA CHANGES IN NET ASSETS

E.1,p~nse~ GovemmentaJ .icti ,. i Ii~~

l'ublk ~o.foly

·rr.rmsp:_,flo.Lion I ,di11r~. cullural & .cc,:r,.J it,,·1~,.,

C'nmrnunily dcvelo11m~11, lril<"r.::c-;t~l1 l,111[\"ttl"m1l,;,l,I

Total iM·et11n-1e~t~l 11.i:t],·i11cs cxpe1i.1e, Bu~mt~~-lYJ'>:' a.c,;Llvilic;:;;

W.:itcr

Sewtt

!'[lrl..,in~ Trµmil

Gulf I ,1tJI l,.,~111i;s1-1n·~ ~cuvitis1 e:.:pen~tc~

rotal J\l"Lll•i•rs ,::u,·~;nmei1t eiqJemes

J'rlli:rsirn Rn·enu,ri G<J>~mmcn,~I a-eti•·i:k~:

C'hnrgN for _.,rn:icc;: l'ubl1c ~::,.fi"r,· I J"il.Jl.ll\urU.lr<.>n

Cumm·J111L~- .:icvd(,prntnl Grneral .Jil,ernm..,lli

Oper,1ti11g g, anl~ and co11jribt..t1011c; l ;.,1111,1.I ~u11ls ru:;d a::ontributlon~

Tllh•l .i;<:'vcrnmcrnal acti,·iLies pmgr.im ""stm,c,

LAST FOUR FISf:AL YEARS (a~cnml basis of accm:mtin J

IOI

2fl(1l-(1_\~

18.J-13,700

5.~3"'; .200 7.'.iG~.GOO 6.ClD,40•}

l.(ll'.l.40\j

:3-~.1~7 1111)

7,124.10,)

l',,.Si2,200

1.4\16,(100

2,442,200 497.80[)

1:-1,nlJIH) 57,14Q,l;,(l{l

909.2DO L.11)7,0()(1 tJ20.JDO \.:!~U (,1)0

2 ;fig J(l(J

J.~1)2 JO(\

1?,2S9.DOO

Flsc1lY-ern 2t)()JT()4

21),1~6.10!1 4,J 1:'i,4{)11

J,'JMIJ,700

~J,77,800

:1::11 IOU ,W,l.t7,IOO

~.035,800 G,\11;2_;,u11 2.50'.!.21),,J

2.497,Hllil

41i7.IJIJI)

W_435AOO S>'.(,3J.Jr)I}

l.lJ'lY 81111

J~1,31Jl)

l,[ij,JUO 2,75.',~IH)

JJ<,J,!mf)

2,471,71~f)

l,1(18 61)[)

9,l;!-;16,60[)

1()Q4-Q5

10,~0],5(lf)

4J4!\,4Q\I

7,C.ti2.70(J

5,739.70(! J.JC,5.70()

4U,2-l!U)OO

7.':<42.000

7.451,700

2.491.'100 2.:it.:cl.5~0

5CJ4,6Q0 2~}74)00 r,11.1,<i2,70~1

6H,,1m1 (jJ(,,1{111

l,131,5011 J,2(,7,2()()

564.21111

l,2~4,7011

r!- \>26 1-00

ll,.J.86,.5(10

2UIJ5-(J(,

22.0IR.M)() 5.142-,2.()1)

7,n3,son

s,s11~,:-m1

"10.200 •11.368.7(•0

8.33&,0CJO 7,403,7(10 2,741,8CJU 2,556,0(10

5.W,10()

~l,57&.800 <'il,O 1:',SOll

l)Jljl01)

1,n1,2n,)

\Jt,,".,1(10

5.1f;,l;s,~flll

c f,\17150•) 2.9"D7.20•J

14,9.:.2..71)0

Buo1ncss-1ype ~c1ivitks: Ch~~,ge.~ frn \.t',1·•,i(•e;·

Wi1'.er Sewer f•o.rl1l~~ Trar,s1t Unlf

Op1~.rn .. tirg irn:1t1 nod c.onnibmio~,

C~pilill gmn•~ ;:,.nd <,:tJJ1lrib1Jtmmc Toru) l)uSi~<:~o· l}'p<: .1ct1vit:=a pru:a:r.im revcJlu<:~ 1'r:it.al prlmary g.ow:rnr)1<:1II p;-i:)gram 1-cv-rnLJe:, Net (e.,,1,cr.oe)frcv-c,:uB

Gmcmlililmal nc1ivi1ic~ Btisi11e15·t~i'" ~c.:Lh·i11cs

1 ve;,,J pnn:at )' g.nvcrnmc:m tltlt (e~prn:;c)!r<':ve:1me l,;,-ner;,I Rf-n•m..1e~ i:i11d Ot~1cr Cha,igr~ in Ket Ai;.~,..,~ Go""< 1Lrnem,1l 11~ll vi tics·

.',,i]~s lU~CI

Prqiel"L)"' l<lXCS

Tr.llnli('nt-0CCLJpUr1q- t~~

Utility ui,<;ni~,;

V.:;-b1clc lkrn~c teoes

Other l,1s~~ and f~~ Jovc:allllen: e~rninga MisedlnnrotJ~ :i.,1d ,)lhcr

8ptoei~I it<'=1l, - ~JI~ c:,fh,,d

Ts1!al :g_l:lvc1111J1<:rn11I n-ctiscl1ie.1 Bu.1Ln .. ,o-ly.i= ;K:tivitieo

l,w~,.tmcm carnir.~s .Sb'ccial it~m - i~k of land Trarn;fsr~

Tornl :,,,sinni-l)'pe ~CL1V1Liq Ts1tal prim;,.<)' t:OVCTl\~telll

Ch~n~e in Ne1 A=ts (kl,·e,nrn,-ntal activit,e~ l:\.,~;ll,;~:·type a1:Civ1111,:,

loml prCmmy govc-rllmc~I

CCTV OF SAN LUIS OBlSPO, (',.ALfFORNJA Cll<\.~GES IN NF.T ASSETS, contitilied

LAST FOUR FISCAL YEARS (accnrnl ba~i~ flf a-ccounliog)

J0,400500 ~.26:i.~(XJ :l,\102-.700

362.~0ll 27'.1,EOO

2,02},cll.)(J 802,2(.111

2..5,1}4J.JOO ~7.300.300

(25,90SJO-O) 0,1.1-'lg.ool.l

(liJ,&49,300)

10, l T'J,3QQ :i,065,:iOO 3,8-40,800 3,066.200 2,621,600 3,002.100

904,400 l;IJ,800

;252,000l 2~,f<:21,700

Sffl,'.100

25:2_0()[\ l,lZL'lll(l

~l"t9,P,600

$ 3 ~JD,-~00-7.JS0.900

' ll.lJSl4,JUI)

102

CITY OF SAi\ LUIS OBlSJ:'."0, CALIF'OHNIA

11,JD3,JOO 9/214,~M 8,240.JCltl i'.,872,400 .3,Jil),400 l119,~00

331.400 .q35JJOO 3111),gf)Q 314,8,:)(J

1.RSL,.700 ,.737.900 1,330,300 2,0J4,000

24,333,300 26,321t,400 3-'1,237.,100 38.814,900

(-Z~.2-<l~.900) (27.IJ.J . ..500} 3,847.900 5.J5:\700

(25,MJJHJ..l) (22,!7"!,800)

11.2-94.J.OO l \,7~5.4(1(:, ~,l~()J(J() G,709.400 3,9ll_200 4,()79,SOO \M,'J)()fl 3,670.200 2,013.300 2,Hl?Jloil .1 73'.l,".)(.HI J,8-JE.800

1)4,[(MJ 032500 (iJJiOO

1S2JIOO 111L10D) \l7ti.'JOO)

3;,1gi,.40r, ,2,149,:-:00-

,59,1-00 r,:,3,zo1J l,~,7(],!IJO

Pl,700 J76,9ilU l.701,100 ~~5.l.fll}

32:.~00,~CJiJ 13.~H,901}

i.95U . ..500 5.0l~,300-5.'5119,000- ri_%~.~oo ],499,500 J l,4(11,!00

GOVERNi\IB:\"'TALACTlVITIES TAX Al\"""D FRANCHISE RF,\'£NlJF.S HY SOUllCE LAST FOUR FISCAL YEARS ( accrulll bll.'lls of acc.ountin )

]',.)11_ 172 Rc-.ul fl:iC:Al. :::.Jl~[ l'L.,b[J,:; Prcp,:;,t~ Tr!n.,iem Ctil1tv Fr..1.nd1isi:: B1.1.rn1.Qla. Pr<J1,<.:rl}" ,CAA ilJl-d lJ.1,ii Safotv (Nme Q Ocru~allc}' U.>effl Fe.cs "' Tr1msl"cr

?.002-03 (N1Jic 2) \0,t?o'.J.300 2'.'.10_600 5 'll4,ii){J ~,i>40_WC? 3,666,200 l,356;200 l,,129,900 llf,000

10i)J.-(),i

200c!-05

2.IJOj_l.)6

l L,J9,q,10CJ "2~6.:iOO 5,069.600 3,92-2-.200 Jh'i9,?QO 1,9~7,S{l(l 1,47.\100 i~n [)()(I

J ,,745,400 'J..76,200 6,63{),6-00 4,019,8tl'J J,670,2QG 1,0Q.'i.(;,[)'.) 1,51~.l>(Xl ]l4.400

:2,{,75,900 301)00 7,:519,60(l ,1,139.200 ~,')-'1i,}()[l 2, ll)J,30() L,.57R,OO!l J90/J00

l'mpe, [)' tll\ c..i,·~i,= ~re pr.,,,~med ntil ,if SH2 ~:ii O:iLLnly actmi~istmtive foe., (spp'.o,;im.mcl;1 J% Q[ rn1al rropen:, tm; ,~vc11uefi).

Tbc;: Clt:, ha~ ~lccli;\l ;c:, r,;,;c:i•.:; 11.! i)fq;,.:;rly 1-M r,vs:-rwc;.:, b~~ ,;,~ th.~ Teele, Pllfl 111ethC'ld ofconecfran whereby th~

Cnmny IBmi•,; l00% of mxe,~ le'fied, purous, r"lloc1ic.i1 ai1d rn[oim; ~ny cldi::igu~~t UIA~b J.TI .;.m! intere>L

H:l5I2,50Cl J0,236,00() J,fjt8,2-00

452,1()()

'.l-'13,000 L(,85 .'iOO

:,32,;.oo 27,229,~C)() 42,192,200

(16,-'106,0001 .5,U51J.700

[20,755,31)11)

l2,U75.900 75~6,700 4,~:39,2UO ::.~4},~()()

2,4~6.'-00 4.D~,9.900:1

53(-,,200 6M,SOO

1255,:000) 3G,2L,J.l0-U

(,(,7,,100

25;i,300 922_700

31,15-3.800

9.~5:i.L(lO

6.573.dOO 16 .;.]:8,:'iOO

TOTr,"L

26,:i03,21>0

2H,'ol47)0G

30,"241,000

33,D5J,;_r,o

CITY oi,·· SAN LL'lS OBISPO, CALIFORNIA ASSESSED AND ESTIMATED ACTUAL VALUE OI•' TAXABLE PBOPERTY

LAST TEN FISCAL YEARS

Gr,;,~:, A..s~Hsed Val:..i1111u!l Ntllc 2) At>t:;;,td V11!1J~ .Secured

"' Umcc~recl [l5 0J>c-, .. :en1agr·

fi~cal Y.ia1 Timi:l E:rnmpLiTln~ ljtil11y EM111ptio11~ T01~I TOTAL Vloi·ki,.t Value

IC/\16-97 $41,"IU.i.(i',2 2,378,8-48,739 2,45llAM i.000 141,(-117,8.62 2.523.,447.06:i L,:>2.!,,l<,7Jl6~

1'1'97-98 44.92&,49(, 2,456A'.H,4j9 3,l08.092 7,U•JG [.!.S,(13~.~g l 2,60-:',580.{]'1-2 2,(,1)7 ,580,042

l?9H-~<f 4j,G00.ll0 2,550,:,.-1:'.1,.'584 4,B4,0.87 7,00C 11,6,-668.lTI 2,72.1,080,84& '2,721,0SG,8~~

1999-00 .J-\124,7-8"1 l,721,SS:<;,617 3,£-S?.'.H9 7,000 Hi6.99'5,.1.l.S 2.9-JJJ;\41,2S4 J,?D,:'.IH.l.54

20C0°0l (f\l,i'"' JJ 4'1.33::'-,.:":37 2,-IJ32,8J6,375 2 :597,2;3~ 7,{]00 20--\.3t.~.JO~ 3,J..19,7'1':.I,~ 1(1 J.lJ'!i;''/jl,916

20(JI-C2 ..4,07.\,142 J,\97,697.527 2-.(,62.555 '1.00ll 7.0.8.467,126 3.4ags27.20B 3_4Qg_827 20S

20Q2 CJ.(Nr,te.4) ,1,1,003.817 3,4Cil,16-il,4!1'1 3ii93,793 7.001.l :n-5.,ro1o,os~ 'J/:iSl,'168,J.26 3.6&1,'l{,8 32:G

~f)C3·04 43,5\19.411 3,79'7,39;8.997 1,94fi,2M 1,000 226,'166.Li9 4,028,ll!,'.,tO ~.tl2il,l I 1.16()

2.0{i,1-()~ -'l~, 170,3?1 ..:!,lE/l,tiJ'.i,77~ '1-,145,666 l,OOCl 219-.~81,343 4.413565.804 4.4L3.5UJ.8Cl4

200-'i-06 42),'Jl,1~7 4,53J:l,'lli2,0J6 4.0L~.7~8 7,000 l.38.IM,~11 4,7:S{),91S,69•J ~.1:S0,94J.CJ9{J

NO'IT':S I. V {]1r,111on~ ore: eornhli~h.P,tl J::.y \It~ 0:illnty Aase~sor of tr.c. C11.1.t,1:y of ~;lll l...u,<. Ol)i~1~0, excepl l(lr 111·:;,r<"alf s''":n.ic,I J::.y _ptiv~1e ,1ul1Cy <'.0m;\,m-c;c, whirl:. j, ~·;:,,lued by the, ~tnl~ (>i C~.liforn111. Ttic City a,:,1,1.m,:;.1 tb.oJ M.i.rk,:.l V.1lu-e.~ .:u-e e-qu~l 10 1-.Jl;,I Ao><'.c;s"d V,th1oi:lH".

ol'Markr..t

trnJ,0%

100.09,

lOG.0%

1(10.0%

IOOQ%

100.0%

11)0.0%

[Q(l.()%

!00.0%

]CX)_{)%

? .. Fcir ,cr1mpnri&o11 pmpa~8, g.r,1.~s n_ss,,~s,:d VJL]uatjDns i~clmlc, l1orncowne,~: ,i,:emptLC":"~- Al\l,c,11o1!:i lbto~C e,t,11.pLi<,;1$ 11::cluc<o P,-s•pr,Tty !fl~ cc,Ji::cci,)n>, lh<= T~Cc;.p

lm~ i, reirnburaOO t-,· the :Stole. Llt Cr1- ,fr.rn1~- 1\1 :,,,~h, _gro~~ '-'~=ocd 'fal"at1on 10 tb.c rcvemx b~~c med 10 esl:lbl,,;h1El!, prnr,;rt~· t.i~-re:.ued r,;~c11u.e.~.

3_ ·11,t dC".c'.H·,,~c ,n ,ith1<: vl ut.il1ty luJbl-e pmre1;l' in 2{)00-0 J ia <lu~ w tbt reduc.,1irn1 in v:i.luc of PGE'~ Di.ah lo C.an:,0n propertr,

4 The in,;;.ea~ i,1 1·•l,ie Gt ut:li1y1n~,1blc pLOpcny in 2002-0.1 •~ d,rn LIJ 1h-e in,:re,a5e i~ ,·du~ (1J'lhion ?:il'itk Rallrnod pare,:,]~

SOlJRCE. Sall L1.:i~ OiiisLm Cc111111y All~ir<Jr-Controller I !l9~-20U6 d~til frnm HdL. Coren & O)nec; S~n .'.....uis OJ::.i;po -County As,.::aaor Com tined T~~ !lo.ls

H)7

CITY OF SAN UIIS OBISPO, CALIFORNIA PROPERTY TAX RATES

LAST TES FISCAL YEARS

199t-97 1997 98 l99l!-·99' !999-r.O 2-000-0J 1001-1)2 1002-03 '.:!003-04 J'wp(l~irinri 13 J,.-!i.ximum T:ix RU,~ fN,,te 2)

Voter Approvl"d IMdt,b1edrces~

i:11~1~ 'i\'atu Pmj-e-cl

~iemenld<;' aml. Hizh Sc.rum[

8i1;1d5 onrl L,:,a<,e A.~re.<:"me,1ts

T[)rA.1.(Nv:c 3,)

L.000%

n.006

0.10$

i.ll4%

LOOI) l.()00

II 0(.)4 0.004

l)l(lil 0 10~ J.112 1.112.

1.000 ~.ooo- 1.00!1 1.000 l.CJOl.l

l)JJ<J~ 000'.c (] 00~ 0.002 Q.(HJ~

I) IU8. O Jl)c\ o.ws. G,000 Cl.000 l 112 l l !O I.I lO 1.002 ~.IJ02

Pmp~ny t:i.;:: i"~Le• ~Tt 1¢,.,itsl pc:c, S!OO of J,,;e,,.11::d -,.:ih,Jl1un. Tl,,e 1•~ oil.!<:: iJ"1formatiu11 pmYidd 10 fur Tl!)I; Rml': Area !Jo:l'i-(KM), 'il-hkb 1., th~ ta,g~"t IJX 1alo:: areJ 111 (tie City.

Tf1c. ~11saa:;;e of 1°1c,pcl;,1Li(Jn 13 (Jn June 6. l-\178. ea1Jhllcil1ed R m~K1rnur.1. f":0LJll1y-wit~~ k,·} f(lr gl':ner./U rnvi:0111": ;,mpoF£~ (If l '.i: llf rrrnriu>.'. \'aluR Voi<:r·;t.pi;rcni:d in ,-a(t'.~ for 1bt rctm::ml':nt of'.rn:~-te,n li~.blliti-!'S .,,.i,r.: .ix..-JuMcl fmm this limit

As nn~d 01,01 f, ii 1-> ritl poo:;itic to identify t.1;, ral,;s :'o~ 1nd,vitlua! .1;g~m1es. Huwt1·~r. lh-c followfog La a Bllmrnal)' of derived pr.-,Lle.11,, lah aiil<Jc~lJo:i~ W>(~i~ T.i~ R;1(1: .'I.Ju 003·0011 fo, r;scbl i't'.»1 2(r;J~-Oc5.

ola.ii-c El!A..1..' NB! ltate r\ll,;,cca1,oll- Ae:£;:~<1ion111.e1tt

,5,,n a ,Llis C'o.<15(.[I Urnf,ecl &hor.1 Di~nic; ~-6.I 00 ]6 l ~,,,, Lui~ -Obispo Co11Llt)' • Ge,1eml 1-'J1td :u J (IJ ~) 22.1 Ci1:r ~r £,11:1 Lui~ 01Ji..pc.o 18.4 (3.5) l4.9 ~·atl Luis D~1opG Cc.mm,mit~i College DJ>ll'icL 6" U,1 " CollnLrSd,ool Scr~·ice.s J.~ QO 3.6 C'1t~·tCounl}' Libra.--y :.a (-0.3) 11 Fon San Lui~ Horb.-ir l.6 ({) 4) l.2 Otbcr l\_genci.e,, j_._:, (0 J) l J Ed11.::Jtl(MJ Rc1'e11i.e Ai.:tmeni•t,00 Fuml (ERAf) -------1..D_ ~

Tomi !00.0% 0.1)% 100 IJ'f'c.

Th~ County fuTrhc:T a,ljl'>I~ tMc 18..4% ba.,i: rate. for re,·emJe ,tiifls ,() schilol dinm:-(~ .!.', dir<:c(ed hy ih~ St;1.te a, ~·,t ui" Lneir -a:ul., IQ lu~JI .1g,·~c1c:,, r~oultitig 1n ~n eft'<:,;t1,·~ rn11: for th~ City Gf ap;irnximately 14%

SOURCE: P,ep~.c':cJ 1:>1-· H<IL, c,,rrn & C'oi:~ D;;..t.1 u,u1 ,:;,e; S"r. Lt,Jc Ob1sp<J (<Jun Ly .\.1.1.isonr 200'if('U Anm:a; Ta~ l11-c1<",ITIBL11 T1ble1

103

2004-05 20ll.~-(]C,

UILJO 1.000

0002 ().00~

0,000 G,000 1.002 l 002

CITY OF SAN L\JlS OmSPO, CALIFORNIA SECUREO PROPERl'Y TAX ROLL LEVIES Al'iD COLLECTIONS

LAST TEN FIS.CAL YEARS

Fi~cnl Year r ntal S ocufui. Cu.m:n.tYc;:i., Pei-cu: C'.111~11! Ye.11

J'axJ.u:v Coll~ctlJn.1 Co-lk:".cd D,slinq·JendB& P,:,rcent

~~~~~ '-~~~~~--"""'"'""'~~~~~-"'"""""'-~~~-"""""""""-~~~~~"'Dell~q,~nt l<Y.1(,-')7 S},S1\:.i.<125 ~Ji8.C,'l-l') 1()1}%

1997-98 3,9-:'6.0'.15 :\,9.:,r,,[.fT5 JOI)%

L"90S-'l'J .'.885.387 J,88':i,:J.8-;' JU:)%

1999-00 4.150,.>C,R 4.150.368 IOLJ%

?000-(J[ ~.44?:241 4.44'/,24? ]00%

2001-()2 4,!ll'.;.(,4-1) 4,315,MO 100%

201)2-t"ll ~.172.71(, _\172.116 100"%

5,62'(),7(;,,2 _\(,2:6,/(,2 J(l0%

!'d45,S'!(, 6,145,89(:. UJQ'io

2.00:5-0(: li.l::JH.91~ u.c~,c:.~n. l~iJ'li.

NOT"'.....S: !. Tiu: r.ecurcd ~r,•p<"=rt:, ilu roll 1~ co-mposm'. of [,Li. v~krcm taxe.s ,c~ we.LI a~ s;,ecial as8e1Rn1cnrn. :.Jhl i8 cakulRLCG by :tic Sao Lui5

{Jh1spo C:N,;1ry il.1J1l.t1.1r-CuntJoll.c;1 Tile SJn Luis 01:.i~jXl CoLLm)' T.11, -Colleac.tc,r i~ rci;prm~1bk for ;dl propC-11)' t:i."- 1oll c:ollect1on~ within tile C11~ uf San L\Jio Obi8pO 'l'li.e, ~11,ouot reported is lJcfor-c tne ,C:B:2557 C;:,unly o.dminiotrntivc fee;; of npproximatdy J-1 of total p.opcrt)' t;tx !cclic.rJLJccO

'fl1,; oc,;;ur~<! kl'y does; not im;:hJcJe iil.l[lplerneriml ;'ffis,:,~smcnt.t o, 1m~ccurcrl rn, fl::\'~llll{:~. which un be ~igr.ifi(:.,mt. T-u, cMmpl1:, ,n 200:i-QC,, rnve:c,1re IO rhe Cily from ~upplcm-CJ1Lll r,.~ses1,i1cJ1t1=. wai '!,15ll,"'l()U ~nJ. $ L '.'.~ ~:rn fo,11t L1rif.~;Jred. for MUJ ~rn11c,ty ta:i: rcvc:1uc: of i, 7 519,i:iOO

The Ci,v l1ns tob:t1;,,I th~ J,o:;kr P],m ;-mt~c>d Qf propcrcy l.J:i: c:,lioct,r..J, v,betcb;: the CounL~ remit: 100% o[ la"-c' ksicd .ur.d pw ~uc:1 colle.ct11'11 a11J re>,tai,1~ 8L: y ddinqLL~nt ui:ci Ltrr.d relucd pcnnifc~ :i.nd int Ere~:

:tOURCE: 5ttr. Lua Ob-Lo~c Cmmty Au<litrn -(0111rn;Je1

110

ClTV IJii' SAN l.UTS ORISPO, CALIFORNIA REVENUf HOND COVERAGE- Vir'ATER FUND

r .AST TE~ F[SCAL \' EARS t.;;eLRcvenLie

GLa.~ QperJlirLg A•mifa.bie for Debi Servi~e Re..1ui1'Btn8M'.S

?Jl(J0-01

2:CXii-02

200"-0l

.!003-ll4

2004-05

:!005-06

NOTES:_

R,;vcm.ie~ I::x1a::n.i.:~ !.)elil S1:n1.;e Pnm::,pal [ntClB'il Tmal

3;!18,900 J,204,200 4,:574)lll) ,'.i7l1,()00 87.5,200 J,44.5.700

s.:W,5QIJ 4,183,"300 4,59J.200 (:,(1i),l)fK) ~4"2.900 J ,44/..900

8.157,;'ll'{) '1-,24J,?.{]I} 3;913,500 635.000 SOG.700 i.44l.70(J

\l,0'?3.700 5,{i:i:'i,lOO :3,4!8,tiOO J?5,000 625,000 900,000

8,.'i5,!."301} 4.~52,800 4,201.~on j{l5,00(l .s-95,000 l,200.0GO

ii,:>41,7{]0 4,97();900 3,510,8()0 SJ.'i,000 154~.:i.oo LU8.:mtJ

8.28./,Q1]0 5.1 I J.;OG \ 17:i,9()0 GI0,000 5i9Jt00 l.12'1.000

9,lf2 I ,~00 (i,QJ.4,500 2,997,001) Qc,g,')0\1 489,700 1.li9,6UQ

&."l'.l'.i.~00 1,7M/J00 2,9rH)OO GJl.'J.000 ~,J~,:ll~I ),fJJt.YlJlJ

s.~:zs.,oo 6,044,100 '.l,3:<l4.000 09C,OOO 4:J.7.900 I,n7.9QO

Del,! w,vic~ reciuircmcnto 11\l l~L'l¢ 1.1)01 Rrrllmling R.eve:rn-!l Bon<l~. Se,l-e.; A wti1-ci1 rEcftJ,111.,i.J r:1e: l ~()9 LeR~ Ru-~n.uc Bomia and

rlic ?OG-2 Refunding Reve11u~ l.lomll 1,h:~~ refin~uce-rl tE.e J 993 W,i1e:r Re .. er.ur:: Ronde.

Gr(•ot r;;v-c;nuH e:i:cl:.icJ,;; d-ev-elop111ent lmp-~cl le<:~

J (Jper~l1'1g:;:;,;reri~c, e,dude dEcf-'redatJ,.,n .Ln'fra~t

:in~

31()%

:!7l%

)3()%

3_5()~{c

"3Q3%

J8['l:.,

25R%

il6'1o

25(1%

crrY OF SA:.--T LIBS onISPO, CACfFORNIA OPERA TISG INDICA. TORS ny FUNCTIO!\T, continued

LAST TEN FISCAL YEAR • .;;

F1r.i:J.l Ye~r L99C,.-9i 1991_9s l'JqB-99 1999,0[J 1000-01 1.001-QJ. ;wc12-03 20-83-04 20()4-05 2Co.5-06

l'u~lkUlililie!a Watrr/Sewrr ccs1stome1 tlc\-<'>ur,1-t 13,:2.GS 13-348 !3.51)0 135llil 13500 13,8@ 14,~f, 14,208 14.270 M.42~ Mileo ,:it ~e\l'erline 12(, 1,0 12-t, 12' ,3() no .3{) lYl 130 1:>J. Mik.s(_>fw;;.tC\l'l!llc': 1~0 :90 [')[] 20C ,oc 2GC ,oo JOO '"' '1()5 Wilie. ~,;,vii:= Im:: r-c:pairs and c,m.-,·.,-·~13 '00 259 150 284 230 2C7 171) 175 [J5 Ji';() So,wer mnir, stopp~:t!"~ 23 1l 12 " 20 25 25 " u ,.!\,;;re f-e,,t of wa1.;:, Gc;;h•,;:(ed - Salin81 4,5l;!O 5.181J 5.TJ.Q 5,422 .5,:1<1~ :J.,67-:i 4.1)6.9- J.,3,1(j LMO l,(,5'.l ,l,.c·re i~t of wJ.:~r c\di \'-:o,-,,~ - Whs-i.k R.ocJ; J,800 941 l,OCTl !,173 l,t3:i 2.{)J(J ~J88- 3-,317 5,IOD i,,c'i3'.S

'l'rnnsporrntfon

Esiimatul 1;:riie~ of iJavcd ~cr-cet., :,v il8 !20 120 120 1.0 12.[J l:2() 122 "' f.avern-ient r:onditioi1 iJ1de.i.: ?~ " " 72 73 " " 75 J5 75 Numt,:;T c;,f :;treoe-l h_ghl.s 1,s:io 2,1,1 Z,151 2,165 2.lf,.'i '.!,1(,5 2._](i5 '.:',l{i5 2,2.;s 2,L'i8 frnlfo:- tullisk•n.s '" 1,025 1,1.!.l t.'5.5 ~,092 1.2.Uc'i '.,0:8-Q Piu-hng .1pace~ prc,llLc,L (lot. garng,s 21.11'1 s1re~L) 2,-03~ 2,J4l 1.3-:iS 2,4~5 2,4'}4 2,381 i._(i(i9 2,<'l3C, 2,8.19 2,8·t;9 r11rb:..ini dtatlmis w,11t~~ 43.000 J.tl.il3 J.CJ,SO(l 30,233. ~;,800 n,{i:21) !,fl,.5(10 ,{:i,195 Jll-,800 4'.i.068 T~;.,11'.:rari~;t pa:;s-:-.~-1:~s !119,04'.2. 711,466- Ci-77,35) c'i&0,"901'.J. ~75.J.54 963,415

Lei.s1,rc, C.1ll11n.! & So~la.l Scti\·cc~· Orc11 sp;1ce ~c:-e~ miliJllJir.:-ci ~ ,0 :4 l.i22 l.122; 1,2.4(, 1,ii?2 2,468 2,468 L,49'.l '.'..49:il 2,<,H<; Op~,, .>raci:: <:i.oc.-n.cnt 11c:rn~ l,59-J 1,-'59'5 1,.5? .. 1,59-.5 1,92:.5 1.9~5 L92:i L,~25 i.on: ?.08s' Tra:l rnilcoit;,:e 2J 23 " 2S 32 Tm~l ,!,l0 1! 1011mfa pfay~ci 45,00[] 4:i,'.)00 t.4,001) ..\4 (-{lo 4~/)00 J.5,J~4 3(,,0Q•J 41,;'3,J 4VJG\.I 42.GOJ. AL-re'.. ol plllk lancisrnre ,1t~i11!:llim:d 1:..,1 "' 129 12.'1 129 !2.9 12"9 l29 1-56 [j7

T11+1. ,11 ,;it;· ;;.ir:~<lacl1u11 ?.fJ.(,50 20;900 21.201) 21,800 22_100 12,filS 2],7,:i,;:l 2;,~Qr) .'1,&00 J8,(l)C) Ch'.1-r,nm'o Servi~o,; rn,-oLlmcnt totill~ 5.S4S 6,2S9 '.\1&'.i TnJthlo1i pJr1icipJ,11s 65"0 L,05[] 1,07.'i 1.200 l.Z5U 4,00(] ,\,5{)-;J 4,600 4.'300 4,ll-00 Anr.~cJ ~n:or a11cnd.a"uo(t,,-,L1I) 11.t,~? t!.GQJ L L.304 lOJ,;o 1051:'i 10,3-00 ll.lDD 13.450 14,200 14J1'.i Fae.ILiy p~1 mil,; ,iri1;::00E.Cd 1,1.B& ],-807 ~.009 ATin'J'.11 oci;1>-1k~ r,!tei1dt1J1o;:e itot;:1.l) /: ,5\:J -G5.4JJ :56,S78 5J.66j 4';'.C)iL li~.~27 51,-bi~ 03,91:) d.6,069 4G.S:21 Adult Ai~lctLc pani.~1;1~nt~ r,::510~.n.=U 2:l.i5 '"" 197 Y-:::,uili Atli:elic· [l:!llicip,_n[!!. ;(';!!:i>tcrcd '74 '" &66 .'.;if,c-,·,al c:,-ent ~wliss:i.tiom p,-,.,ceo~e.d. " " .57 Bmi:il!r 1mrn1ic~ 1:wc,:,sscci 61 i4 '9 lnolru~•.ioL;aL ;:-la,-,.,, {;ffi\lllme~l.l 1.:,1-l[ [..l2J l,J.t9

i23

lTHIS J)AGE L1>.,JT.EJ\1TIONALLY LEFT BL~'\ NKJ

TEMPLETON COMMUNITY SERVICES DISTRICT FINANCIAL STATEMENTS

June 30, 2006

TEMPLETON COMMUNITY SERVICES DISTRICT TABLE OF CONTENTS June 30, 2006

FINANCIAL SECTION

Independent Auditors' Report .. . ................................................................................. 1

Management's Discussion and Analysis ............................................ . . .. 3

Basic Financial Statements: Government-wide Financial S1atements:

Statement of Net Assets ............................................... . . ......................................................................... 6 Statement of Activities ..................................................... . .. ............................................................... 8

Fund Financial Statements: Governmentat Funds:

Balance Sheet ....... . ........................................................................................................................ 10 Reconciliation of the Governmental Funds Balance Sheet

to the Statement of Net Assets ........................................... . .. ................................................... 12 Statement of Revenues, Expenditures, .and Changes in

Fund Balances .......................................................................... . .. ........................ 14 Reconciliation of the Statement of Revenues, Expenditures,

and Changes in Fund Balances of Governmental Funds to the Statement of Activities ...... , .......... ,. .18

Proprietary Funds: Statement of Net Assets ............................. . .. ............................................. 20 Statement of Revenues, Expenses, and Changes in Net Assets ........................... . .. ................................... 22 Stalement of Cash Flows .................................................................................................... . .. ........... 26

Fiduciary Fund: Statement of Fiduciary Net Assets ..... . .. ..... 30

Notes to the Baslc Financial Statements ................... 31

REQUIRED SUPPLEMENTARY INFORMATION

Budgetary Comparison Schedule - General Fund ................................................................................................... .. .45

SUPPLEMENTARY INFORMATION SECTION

Combining Balance Sheet - Nonmajor Governmental Funds ...... ,., .. Combining Statement of Revenues, Expenditures, and Changes in Fund

Balances - Nonmajor Governmental Funds ....................................... .

.. .................................................................. 47

. ...................................................................... 48

[THIS PAGE TNTENTIONALL Y LEFT BLANK]

FINANCIAL SECTION

MOSS, LEVY & HARTZHEIM L.L.P.

PA-ERS: RoBE.RT M MOSS. C.P.A. RONAlD A. LEVY. CPA. CRAIG A. HARTZHEIM, C.~A. HADLEY Y. HUI. C.PA.

Board of Directors Templeton Community Services District Templeton, California

CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT AUDITORS' REPORT

802 EAST MAIN SANTA MARIA CA 93454 PHONE: (805) 925-2579 FAX; (805) 925-2147 EMAIL: mlhsm@m!hcpos.com

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each majorfund, and the aggregate remaining fund information of the Templeton Community Ser1ices District (District), as of and for the fiscal year ended June 30, 2006, which collectively comprise the District's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audft also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audrt provides a reasonable basis for our opinions.

In our opinion, the financial statements referred lo above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Templeton Community Services District as of June 30, 2006, and the respective changes in financial position and cash flows, where applicable, thereof for the fiscal year then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in note 1 of the notes to basic financial statements, the Templeton Community Services District adopted Governmental Accounting Standards Board Statement No. 46, Net Assets Restricted by Enabling Legislation - an Amendment of GASB Statement No. 34, effective July 1, 2005.

The Management's Discussion and Analysis on pages 3 through 5, and the budgetary information on pages 45 and 46, are not a required part of the basic"financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited -procedures, consisting principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

OFFICES: BEVERLY HIU.S • SANTA MARIA

MfM&ER AMERICAN INSlllUfE OF C.PA'.s • CALIFQRJ\ll!.i. SOC./fTY Cf C.PA:~ • CJ,.LJFQRNIA SOC!ETY OF MuN~l¥.L FINANCE OFFICEk'S • CA.UCORNIAA2DCATION OF SCHOO!. 6lJS1NESS OFFICLALS

mailto:[email protected]

Our audit was made for the purpose of forming opinions on the basic financial statements of the Templeton Community SeNices District. taken as a whole. The accompanying combining fund financial statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audit of the basic statements, and in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

MOSS, LEVY AND HARTZHEIM LLP

August 23, 2006

2

MANAGEMENT'S DISCUSSION AND ANALYSIS

Our discussion and analysis of the District's financial performance provides an overview of the District's financial activities for the fiscal year ended June 30, 2006. Please read it in conjunction with the District's audited financial statements that follow.

Using This Annual Report

This annual report contains independently audited financial statements. The statement of net assets and the statement of activities provide information about the activities of the District as a whole. For governmental activities, these statements exhibit how these services were financed in the short-term, as well as what's in reserve for future spending. Business-type activities are reported in the same manner using the statement of net assets and the statement of activities. Fund financial statements provide information about our major funds individually and non major funds in the aggregate for the govenunental and enterprise funds.

Reporting the District as a Whole

Financial Highlights

One of the most important questions asked about the District's finances; "[s the District as a whole better off as a result of this fiscal year's activities?" The financials are one very important way to evaluate the outcome.

The District reports al I assets and liabilities using the accrual basis of accounting. Accrual accounting recognizes all of the current fiscal year's revenues and expenses regardless of when cash is received or paid. This is in conformance with generally accepted accounting principles.

3

The District's total net assets increased by $1,831,698 from $21,551,166 a year ago to $23,382,864_ at fiscal year-end June 30, 2006, as shown on the comparative Net Assets statement below:

DISTRICT NET ASSETS 2006 vs. 2005

Net Assets

Business· Type District

Governmental Activities Activities Total

2006 2005 2006 2005 2006

Current and other a<isets $2,619,372 $2,392,961 $13,777,363 $12,923,463 $16,396,735

Capita.I assets 3,230,752 3,175,113 16,886,861 l 5,577,750 20,117,6!3

Total Assets $5,850,124 $5,568,074 $30,664,224 $28,501,213 $36,514,348

Long-term debt outstanding 138,508 l ,720,l 75 l,807,284 l,858,683

Other liabilities 109,972 307,090 ll,162,829 10,402,847 11,272,801

Total Liabilities $248,480 $307,990 $12,883,004 $12,210,131 13,131,484

N-et Assets:

Invested in capital a.5Sets,

net of related debts 3,230,752 3,040,289 15,089,310 lJ,576,788 18,320,062

Unrestricted 2,370,892 2,219,795 2,691,910 2,714,294 5,062,802

Total Net Assets $5,601,64-4 $5,260,084 $17,731,220 $16,291,082 $23,382,864

Change $341,560 $1,490,138 $1,831,698

4

2005

$15,316,42'

18,752,863

$34,069,28~

l,807,284

I0,7!0,837

$12,518,121

16,617,077

4,934,089

$21,551,166

Some of the fiscal year June 30, 2006 year-end highlights include:

o Appointed a full-time Assistant Fire Chief. o Contracted for oversight responsibilities for the Templeton Cemetery. o Completed updates to the water and sewer master plan. o Completed acquisition of the SANI tank easement. o Commenced design on the Youth Center expansion project. o Completed 2, 1 + acre percolation ponds.

Templeton Community Services District Fiscal Year 2006-2007 Goals

The District is committed to preserving the integrity of services, as well as planning for the long-term growth of the District. The fiscal year 2006-2007 budget was done, and on file at the District's office. The fiscal year budget is a comprehensive budget and addresses all the District's goals and plans for the fiscal year 2006-2007.

Contacting the District's Financial Management

This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with an overview of the District's finances and to demonstrate the District's accountability for the money it receives and investments it makes. If you have questions about this report, contact the District's office at (805) 434-4900.

5


STATEMENT OF NET ASSETS June 30, 2006

Governmental Activities

ASSETS Cash and investments $ 2,519,546 Accounts receivable, net 72,201 Interest receivable 27,625 Deposits

Inventory Capital assets:

Non depreciable:

Land 633,429 Construction in progress 157,941

Depreciable: Buildings and improvements 2,549,928 Equipment 608,843 Vehicles 469,809 Accumulated depreciation (1,189,198)

Total assets 5,850,124

LIABILITIES Accounts payable 49,329

Accrued wages 23,666

Accrued interest payable 206 Customer deposits 2,580

Prepaid capacity fess

Def-erred revenue 32,547

Noncurre11t liabilities:

Due within one year 1,644 Due in more than one year 138,508

Total liabilities 248,480

NET ASSETS Invested in capital assets, net of related debt 3,230,752

Unrestricted 2,370,892

Total net assels $ 5,601,644 $

The notes to the basic financial statements are an integral part of this statement.

6

Bus1ness-type

Activities Total

$ 13,268,519 $ 15,788,065 338,847 411 ,048 144,477 172,102

5,000 5,000 20,520 20,520

2,056,820 2,690,249 1,335, 122 1,493,063

19,558,231 22,108,159 332,530 941,373 197,855 667,664

(6,593,697) (7. 782,895)

30,664,224 36,514,348

109,014 158,343 12, 151 35,817 15,579 15,785

129,809 132,389 10,804,248 10,804,248

32,547

92,028 93,672 1,720,175 1,858,663

12,883,004 13,131,484

15,089,310 18,320,062 2,691,910 5,062,802

17,781 ,220 $ 23,382,864

TEMPLETON COMMUNITY SERVICES DISTRICT STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2006

Expenses Charges for

Services

Governmental activities:

Administrative

Fire protection

Parks and recreation

Street lighting Interest on long-term debt

Total goven1mental activities

Business-type activities:

Water

Sewer

Drainage Solld waste

Total business-type activities

Total

$ 648,755

435,712

422,842 27,316

6,483

1,541,108

952,721 529,922

4,503

49,098

1,536,244

$ 3,077,352

General Revenues

Taxes and assessments Franchise fees

Investment income

Other general revenues Transfers

$

$

17,399

213,216

230,615

1,221,849 625,973

7,972

1,855,794

2,086,409

Total general revenues and transfers

Change in net assets

Net assets at beginning of fiscar year

Net assets at end of fiscal year


8

Program Revenues

$

$

Operating Contributions

and Grants

$

$

Capita I Contribut!ons

and Grants

140,559

73.430

213,989

758,759

308,325 2,777

1,069,861

1,283,850

$

$

Net (Expenses) Revenue and Changes In Net Assets

GovernmentaJ ActiVitles

(648,755) (277,754) (136, 196)

(27,316)

(6,483)

(1,096,504)

(1,096,504)

641,920

87,938 138,333 569,873

1,438,064

341,560

5,260,084

5,601,644

$

$

Business-type Activities

1,027,887

404,376 6,246

(49,098)

1,389,411

1,389,411

84,478

505,295 80,827

(569,873)

100,727

1,490,138

16,291,082

17,781,220

9

Total

$ (648,755) (277,754) (136, 196)

(27,316)

(6,483)

(1,096,504)

1,027,867 404,376

6,246 (49,098)

1,389,411

292,907

641,920

64,478 593,233 219,160

1,538,791

1,831,698

21,551,166

$ 23,382,864

TEMPLETON COMMUNITY SERVICES DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET June 30, 2006

ASSETS

Cash and investments

Accounts receivable

Interest receivable

T otaJ assets

LIABILITIES AND FUND BALANCES

Liabilities: Accounts payable Accrued wages Customer deposits Deferred revenue

Total liabilities

Fund Balances: Unreseived; reported In:

General Fund Fire Protection Fund Parks and Recreation Fund

Nonmajor Special Revenue Funds

Total fund balances

Total Habilitles and fund balances

General

$ 41,940

3,229

269

$ 45,438

$ 14,097 10,848

24,945

20,493

20,493

$ 45,438

The notes to the basic financial statements are an integral pan ol this statement.

10

Fire Protection

Fund

$ 1,394,049

42,653 15,205

$ 1,451,907

$ 15,701

3,640 2,000

21,341

1,430,566

1,430,566

$ 1,451,907

$

$

$

$

Parks and Recreation

Fund

1,004,845 24,979 11,290

1,041,114

16,730 9,178

32,547

58,455

982,659

982,659

1,041,114

$

$

$

$

Other Governmental

Funds

78,712 1,340

861

80,913

2,801

580

3,381

77,532

77,532

80,913

$

$

$

$

11

Totals

2,519,546 72,201 27,625

2,619,372

49,329 23,666

2,580

32,547

108, 122

20,493

1,430,566 982,659

77,532

2,511,250

2,619,372

TEMPLETON COMMUNITY SERVICES DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30, 2006

Total fund balances - governmental funds

In governmental funds, only current assets are reported. In the statement of net assets.

afl assets are reported, including capital assets and accumulated depreciation.

Capital assets at historical cost $ 4,419,950

Accumulated depreciation (1,189,198)

Net

In governmental funds, interest on long-term debt ls not recognized until the period in

which it matures and is paid. In government-wide statement of activities, it is recognized in the period that lt is incurred.

In governmental funds, only current liabilities are reported. In the s1atement of net assets,

all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to goverrimBntal activities consist of:

Loan payable Campensaled absences payable

Total net assets, governmenlal activities

$

Total

110,130

30,022

The notes to the basic financial statements are an tntegral part of this statement.

12

$ 2,511,250

3,230,752

(206)

(140, 152)

$ 5,601,644

This page intentionally left blank.

TEMPLETON COMMUNITY SERVICES DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For the Fiscal Year Ended June 30, 2006

Revenues: Taxes and assessments

Contributions

Program fees

Interest income

Rental income

Other

Total revenues

Expenditures: Current:

Salaries and wages

Directors fees

Payroll taxes Workers' compensation

Employee benefits

Professional fees

Dues and fees

Education

Vehicle operation and maintenance

Liability insurance

Legal fees

Miscellaneous

Rent Purchased services

Postage Repairs and maintenance

Supplies

Travel

Utilities

Program expenses

Capital outlay f1e::bt service:

Principal

Interest

Total expenditures

Excess of revenues over {under) expenditures

$

The notes to the basic financial statemen1s are an integral part of this statement

14

General

Fund

762

28,434

29,196

271,736 17,600 21,409

5,636 98,103 28,805

18,384 1,870

1,896

49,399 21 ,772

795

8,340 25,303

17,220 1,861

23,840 2,070

13,086

14, 114

8,545 2,294

654,078

(624,882)

$

Fire Protection

Fund

437,931 140,559

46,947

17,399

50.166

693,002

162,295

8,772

17,922 128,704 10,464

1,435 5,449

9,723

1,205

8,105

2,746

6,454

7,978

397 6,257

42,785

15.872 4,260

440,823

252,179

Parks and Other Recreation Governmental

Fund Funds Totals

$ 171,364 $ 32,625 $ 641,920 73,430 213,989

196,766 196,766 37,466 2,763 87,938 6,438 10,012 33,849

59,733 138,333

545,197 45,400 1,312,795

168,462 602,493

17,600 16,149 46,330 8,650 32,208

37,957 264,764 70 39,339

850 20,669 1,397 8.716

342 11,961

49,399 1,585 24,562

323 387 9,610

8,340 20,294 48,343

17,220 8, 131 5,090 21,536 5,561 965 38,344 1,273 3,740 9,917 31,024 60,284

58,212 58,212 143,233 2,557 202,689

24,417

6,554

482,406 40,023 1,617,330

62,791 5,377 (304,535)

continued

15

TEMPLETON COMMUNITY SERVICES DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For the Fiscal Year Ended June 30, 2006

Other Financing Sources (Uses): Transfers in $ Transfers out

Total other financing sources (uses)

Excess of revenues and other sources

over (under) expenditures and other uses

Fund balances - July 1, 2005

Prior period adjustments

Fund balances - July 1, 2005, restated

Fund balances - June 30, 2006 $

The notes to !he basic financial statements are an in1egral part of this statement.

16

General Fund

626,234

626,234

1,352

1,830

17,311

19,141

20,493

Fire Protection

Fund

$ (31,312)

(31,312)

220,867

1,200,893

8,806

1,209,699

$ 1,430,566

Parks and Other Recreation Governmental

Fund Funds Totals

$ $ $ 626,234

(25,049) (56,361)

(25,049) 569,873

37,742 s,an 265,338

944,917 72,155 2,219,795

26,117

944,917 72,155 2,245,912

$ 982,659 $ 77,532 $ 2,511,250

17

TEMPLETON COMMUNITY SERVICES DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Fiscal Year Ended June 30, 2006

Total net change in fund balances - governmental funds

Capital outlays are reported in governmental funds as expenditures. However, in the

statement of activities, the cost of those assets is allocated over their estimaled useful

lives as depreciation expense. This is the amount by which addftions to capital

outlay of $191,042 is greater than depreciation expense ${14 l ,403) in the period.

tn governmental funds, repayments of iong-terrn debt are reported as expenditures. In the government-wide statements, repayments of long-term debt are reported

as reductions of tiabilities.

ln governmenta.l funds, interest an long-term debt is recognized in the period tha1

ii becomes due, In the government-wide statement of activities, ft is recognized

in the period that ii ls incurred. Un matured interest owing at the end of the period, Jess matured interest paid during the period but owing from the prior

period was:

l.n the stateme11t.of activities, compensated absences are measured by the amounts

earned during the fiscal year. ln governmental funds, however, expendrtures for

these items are measured by the amount of financial resources used (essentially

the amourits paid). This fiscal year, vacation earned exceeded the amounts used

by $30,022.

Changes in ne1 assets of governmental activities

The notes to the basic financial statements are an ir\tegral part of this statement.

18

$ 265,338

55,639

24,417

71

(3,905)

$ 341,560

TEMPLETON COMMUNJlY SERVICES DISTRICT

PROPRIETARY FUNDS STATEMENT OF NET ASSETS

June 30, 2006

Water

Fund ASSETS Current assets:

Cash and investments $ 9,814,286 Accounts receivable 195,197 Accrued interest receivable 107,225 Deposit

Inventory at costs 20,520 T eta! current assets 10, 137,228

Capital assets:

Non Depreciable:

Land 273,950 Construction in progress 892,205

Depreciable: Buildings and Improvements 10,208,976 Equipment 221,205 Vehicles 143,336

11,739,672 Less accumulated depreciation (4,446,331) Total capital assets (net of accumulated depreciation) 7,293,341

Total assets 17,430,569

LIABILITIES Current liabilities:

Accounts payable 51,382 Accrued payroll 10,244 Accrued interest payable Customer deposits 129,809 Prepaid capacity fees 6,199,409 Current portion of long-term liabilities

Total current liabilities 6,390,844

Noncurrent liabilities: Compensated absences 10,933 Loans payable

Total noncurrent liabilities 10,933 Total liabilities 6,401,777

NET ASSETS Invested in capital assets, net of related debt 7,293,341 Unrestricted 3,735,451

Total net assets $ 11,028,792

The notes lo the basic financial statements are an integral part of this statement.

20

Sewer Drainage Fund Fund

$ 3, 117,381 $ 172,179 135,067 805 33,599 1,868

5,000

3 291,047 174,852

1,633,469 149,401 442,342 575

9,157,895 191,360 110,019 1,306 54, 120 399

11,397,845 343,041 (2, 113,635) (33,731) 9,284,210 309,310

12,575,257 464,162

57,221 1,907

15,579

4,604,839 92,028

4,771,574

2,639 1,705,523 1,708,162

6,479,736

7,486,659 309,310 (1,391, 138) 174,852

$ 6,095,521 $ 484,162

Solid Waste

Fund

$ 164,673 $ 7,778 1,785

174,236

174,236

411

411

1,080

1,080 1,491

172,745

$ 172,745 $

Totals

13,268,519 338,847

144,477 5,000

20,520 13,777,363

2,056,820 1,335,122

19,558,231 332,530

197,855

23,480,558 (6,593,697)

16,886,861 30,664,224

109,014

12,151 15,579

129,809 10,804,248

92,028

11,162,829

14,652 1,705,523

1,720,175 12,883,004

15,089,310 2,691,910

17,781,220

21


PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Fiscal Year Ended June 30, 2006

Water

Fund

Operating Revenues: Charges for services $ 1,221.849

Franchise fees

Total operating revenues 1,221,849

Operating Expenses: Salaries and wages 225,679

Payroll \8)(es 18,104

Workers 1 compensation 13,772

Employee benefits 87,125

Professional fees 20,946

Dues and I ees 19,910

Education 2,490

Vehicle operation and maintenance 18,817

Repairs and maintenance 53,534

Interceptor main1enance

Treatment and disposal

Legal fees 10,651

Mfscenaneous 4,493

Purchased ser,.,ices 10,394

Supplies 23,571

Utilities 94,556

Travel 986 Water analysis 6,617

Amortization

Deprecia1ion 341,076

Total operating expenses 952.721

Operating income 269,128

Non-Operating Revenues (Expenses): Interest income 361,367

Other income 59,735

Interest expense

Total non-operaUng revenues (expenses) 421,102

Income before transfers and capital contributions 690,230

The notes to the basic financial statements are an integral part of this statement. 22

Sewer Drainage Fund Fund

$ 625,973 $ 7,972

625,973 7,972

48,165 3,993

1,992 20,029

1,910 4,268

1,282 9,293

10,210 24,814

64,262

956 353

1,428

2,932 35,281

544 4,775

3,823

240,533 4,503

480,843 4,503

145,130 3,469

131,647 6,218 20,917

(49,079)

103,485 6,218

248,615 9,687

Solid Waste

Fund Totals

$ $ 1,855,794 84,478 84,478

84,478 1,940,272

25,967 299,811 2, 110 24,207

571 16,335 7,413 114,567

22,856 24,178

3,772 28, 11 O

63,744

24,814 64,262

5,768 17,375 6,524 11,370

694 12,516 51 26,554

129,837

1,530

11,392

3.823 586,112

49,098 1,487,165

35,380 453,107

6,063 505,295 175 80,827

(49,079)

6,238 537,043

41,618 990, 150

continued

23

TEMPLETON COMMUNITY SERVICES DISTRICT PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Fiscal Year Ended June 30, 2006

Water

Fund

Transfers and Capital Contributions:

Capital contributions $ 758,759

Transfers out (363,216)

Total transfers and capital contributions 395,543

Change in net assets 1,085,773

Net assets at July 1, 2005 9,943,019

Net assets at June 30, 2006 $ 11,028,792

The notes to the basic financial statements are an integral part of !his statement 24

Sewer Drainage

Fund Fund·

$ 308,325 $ 2,777

(169,083) (6,262)

139,242 (3,485)

387,857 6,202

5,707,664 477,960

$ 6,095,521 $ 484, 162

Solid Was1B

Fund Totals

$ 1,069,861

(31,312) (569,873)

(31,312) 499,988

10,30G 1,490, 138

162.439 16,291 ,082

$ 172,745 $ 17,781,220

25

TEMPLETON COMMUNITY SERVICES DISTR!CT

PROPRIETARY FUNDS

STATEMENT OF CASH FLOWS

For !he Fiscal Year Ended June 30, 2006

Water Fund

Cash Flows From Operating Activitles:

Receipts frorn customers $ 1,220,384

Payments to supp tiers and wages (621,399)

Net cash provided by operating

activities 598,985

Cash Flows From Capital and Related Financing Activities:

Capital contributions 758,759

Acquisition and construction of property, plant, and

equipment (593,111)

Capacity fees 848,533

Principal payments on long-term debt

Interest paid on long-term debt Net cash provided (used) by capital and related

financing activities 1,014,181

Cash Flows from Noncapttal Financing Activities:

Other income 59,735

Transfers to 01her funds (363,216)

Ne! cash provided (used) by noncapital

financing activities (303,481)

Cash Flows From Investing Activities:

Interest income 303,821

Net cash provided by

investing activities 303,821

Net increase (decrease} in

cash and cash equtvalents 1,613,506

Cash and cash equivalents - July 1, 2005 8,200,780

Cash and cash equivalents - June 30, 2006 $ 9,814,286


26

Wastewater Drainage

Fund Fund

$ 620,005 $ 7,963

(507,703)

112,3C2 7,963

308,325 2,777

(1,338,6C1) (575)

279,3C3

(153,3S2)

(49,573)

(953,928) 2,202

20,917

(169,063) (6,262)

(148,166) (6,262)

123,304 5.411

123,304 5,411

(866.498) 9,314

3,983,879 162,865

$ 3, 117,381 $ 172,179

$

$

Solid Waste

Fund

84,898 (48.432)

36.466

175

(31,312)

(31,137)

5,285

5,285

10,614

154,059

164,673

$

Tota,s

1,933,250 (1, 177,534)

755,716

1,069,861

(1,932,287)

1,127,836

(153,392) (49,573)

62,445

80,827

(569,873)

(489,046)

437,821

437,821

766,936

12,501,583

$ 13,268,519

continued

27


PROPRIETARY FUNDS

STATEMENT OF CASH FLOWS

For the Fiscal Year Ended June 30, 2006

Reconciliation of operating income to

net cash provided by operating

activities:

Operating income Adjustments to reconcile operating income to

net cash provided by operating activities

Depreciation expense Amortization expense

Change in assets and liabilities:

Accounts receivable

Deposits

Inventories Accounts payable

Accrued payroll

Customer deposits

Compensated absences

Net cash provided by operating

activitJes

Water

Fund

$ 269, 128

341,076

(6,968)

(2,831)

(8,411)

2,125

5,503

(637)

$ 598,985

The notes to the basic financial statements are an integral pa11 of this statement.

28

W astewate-r Drainage

Fund Fund

$ 145,130 $ 3,469

240,533 4,503

3,623

(5,966) (9)

(5,000)

(264,681)

(1,383)

(152)

$ 112,302 $ 7,963

$

$

Solid Waste

Fund

35,380

420

411

(825)

1,080

36,466

$

$

Totals

453, 107

586, 112

3,823

(12,525)

(5,000)

(2,831)

(272,681)

(83)

5,503

291

755,716

29

TEMPLETON COMMUNITY SERVICES DISTRICT STATEMENT OF FIDUCIARY NET ASSETS AGENCY FUND June 30, 2006

Assets

Cash ahd cash equivalents

Total assets

Liabilities

Accounts payable Refundable deposits and accruals

Tola! liabilities

Net Assets

Unrestricted

Total net assets

The notes to the basic financial statements are an integral part of !his statement.

30

$

$

42,825

42,825

3,008

39,817

42,825

TEMPLETON COMMUNITY SERVICES DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2006

NOTE 1 - REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Report;ng Entity

The Templeton Community Services District (the ''District") was organized under the authorization of Section 61,000 et. seq., of the Government Code of the State of Cafifornia, for the purpose of providing al1 permissible services of a community services district. The District currently provides water, sewer, drainage, solid waste disposar1 fire protection, street lighting, park and recreation services, and a community center. The District is governed by an elected Board of Directors,

There are no component units included in this report;which meet the criteria of Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, as amended by GASB Statement No. 39.

B, Basis of Accounting, Measurement Focus, and Financial Statements Presentation

The basic financial statements of the District are composed of the following:

• Government-wide flnancraf statements

• Fund financial statements

• Notes to the basic financial statements

Government-wide Financial Statements

Government-wide financlal statements display information about the reporting government as a whole. These statements tnciude separate columns for the governmen1al activiti-es and business-type activities of the primary government. E!iminatlons have been made in the Statement of ActivitJes so that certain allocated expenses are recorded only once (by the function to which they were a/localed}. However, general goverflment expenses have no1 been allocated as indirect expenses to the various functions of the District.

Government-wide financfal statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, ali (both current and long-term) economic resources and obligations of the reporting government are reported. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the flnancfal statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilfties resulting from exchange and exchange-like transactions are recognized when the exchange takes pface. Revenues, expenses, gains. losses, assets, and liabilities resulting from nonexchange transaction are recognized in accordance with the requir-emen1s of GASB Statement No. 33.

Program revenues include charges for services. special assessments, and payments made by parties outside of the reporting government's citizenry jf that money is restrjcted to a particular program. Program revenues are nened with program expenses in the statement of activities to present the net cost of each program.

Fund FinanciaJ Statements

The underlying accounting system of the District is organized and operated on the basis of separate funds, each of which is considered to be a separate accountrng entity. The operations of each fund are accounted for with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses. as appropriate. Governmental resources are alfocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.

Fund financial statements for the primary government are presented after the government-wide financial statements. These statements display in,ormation about major funds individually and nonmajorfunds in the aggregate for governmental and

enterprise funds.

Fiduciary funds are used to account tor assets held by the District in a truslee capacity or as an agent for individuals, private

organization, other governmental units, and/or other funds.

31

TEMPLETON COMMUNllY SERVICES DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2006

NOTE 1 - REPORTING ENTITY ANO SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

B. Basis of Accounting, Measurement Focus, and Financial Statements Presentation (Continued)

Private-sector standards of accounting and fin.ancial reporting issued prior to December 1, 1989, general1y are followed in both the government-wide and proprJetary fund fJnancial statements to the extent that those standards do not conflict with or

contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business4ype activities and enterprise funds, sLbject to this same limitation_ The District has elected not to follow subsequent private-sector guidance.

As a general rule, the effect of interfund activity has been eliminated from the govarnmentrwide financial statements.

Exceptions to this general rule are payments-in-lieu of taxes.

Proprietary funds distinguish operating revenues and expenses from nonoperating i1ems. Operatlng revenues and expenses generafly result from providing services, and producing and delivering goods in connection wl1h proprietary

funds' principal ongoing operations. The principal operating revenues of the Water and Sewer Funds are charges to customers. Operating expenses for the Water and Sewer funds include non-capital expenses and depreciation on capita! assets. All revenues arid expenses not meeting this definition are reported as nonoperating revenues and expenses

When both restricted and unrestricted resources are combined in a fund, expendftures/expenses are considered to be paid

first from restricted resources, and then from unrestricted resources.

Governmental Funds

In the fund financial statements, governmental funds are presented using the modified accrue.I basis of accounting. Their

revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Ava1Jable means that the amounts were collected during the reporting period or soon er,.ough thereafter to be available to finance the expenditures accrued for the reporting perlod. Revenue

recognition is subject to the measurable and availabifity criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place. imposed nonexchange transactions a.re recognized as

revenues In the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable fegal claim to the revenues arises or when they are received, whlchevar occurs first Governmentmandated and voluntary nonexchange transactions are recognized as revenues when all applicable eliglbility requiremerits

have been met

In the fund financial statements, governmental funds are presented using th-e current fina.ncie.l resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance {net curr-ent asse1s) is considered to be a measure of "avalla:!le spendable resources." Governmental funds operating statements present increases {revenues and other financing sources) and decreases {expenditures and other financing uses) in ne1 current assets. Accordingiy, they are said to present a summary of .sources and uses of ''available spendable resource~" during a period.

Non,current 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 indlcatej however, that they should not be considered "available spendable resources," since they do not represent net current assets. Recognition of governmental fund type revenue represented by non-current receivables are deferred until they become current receivables. Non-current portions of oth-er long-term receivables are offset by fund balance reserve accounts. Because of their spending measurement focus, expendrture recognition for governmental fund types excludes amounts represented by non-current liabilities. Since they do not affect net current assets, such long-term amounts are riot recognized as governmental fund type expenditures or fund liabilities.

Amounts expertded to acquire capital assets are recorded as expenditures in the fiscal year that resources were expended, rather than as capital assets. The proceeds of long-term .debt are recorded as an other financing sources rather than as a fund liability. Amounts paid to reduce long·term indebtedness are reported as fund expenditures.

The District reports the General Fund, Fire Protection Fund, and Parks and RecreatJon Fund as major governmental funds.


NOTE 1 - REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

B. Basis of Accounting, Measurement Focus, and Financial Statements Presentation (Continued)

Enterprise Funds

Enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that the costs {expenses, including depreciation) of providing goods or services to the general public on a continuing basis- be financed or recovered primarily through user charges: or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, andjor net income is appropriate for capital maintenance, public poHcy, management control, accountability, or other purposes,

The District reported its enterprise funds as major funds in the accompanying basic financial sta1ements.

C. Investments

Investments are stated at fair vafue,

D. Capltal Assets

Capital assets (including infrastructure) are recorded at cost where historical records are available and at estimated original cost where no historical records exist Contributed capital assets are valued at their estimated fair value at the date of the contribution. Capital assets are defined by the Distrlct as assets with an initial, individual cost of more than $1,000 and estimated useful life ir1 excess ot two years.

Capital assets include public domain {infrastructure) capital assets consisting of certain improvements including roads, streets, sidewalks, medians, and storm drains.

Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method in the applicable governmental or business-type activity column in the- government-wide financial statements. Depreciation ts charged as an expense against operations and accumulated depreciation is reported on the respective statement of net assels. The estimated useful lives are as follows:

E. Prepaid llems

Water system Sanitation system Drainage Fire department Parks and recreation Administration Community center

5 to 75 years 1 Oto 50 years 5 to 50 years 5 to 40 years 5 to 1 O years 5 to 40 years

40 years

Certain payments to vendors reflect costs applicable to future accountrng periods and are recorded as pre-paid items in both government-wide and fund financial statements.

F. Inventory

Inventory is valued at !he lower of cost (first-in, first-out basis) or market.

G. Long-term Obllgat!ons

In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other Jong-term obligations are reported as liabilities in the applicable governmental activities or business-type activities fund type statement of net assets. In the fund financial statements, governmental fund types report the face amount of debt issued as other finan-cing sources,

33

TEMPLETON COMMUN!lY SERVICES DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2006

NOTE 1 - REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLI Ct ES (Continued)

H Compensated Absences

It Is the Oistdct's policy to permit employees to accumulate earned but unused vacation and sick pay benefits.

Sick and vacation pay is accrued w-hen incurred in the government-wide and proprietary fund statements. A liability for these amounts is reported in the governmental funds only it they have matured, for example, as a result of employee resignations and retirements_

L Fund Balances:

Reserved Fund Balance indicates that portion of fund balance which has been legally segregated for

specific purposes;

Designated Fund Balance indicates that portion of fund balance for which the Board of Directors has made tentative plans for trnancial resource utilization in a future period; and

Undesignated Fund Balance indicates that pol1ion of fund balance which Is available for budgeling in future periods.

J. lnte11und Transactions

Quasl~external transactions are accounted for as revenues and expenditures. Transactions that conS111ute reimbursements to a fund for expenditures initially made from it !hat are properly applicable to another fund, are recorded as expenses/expenditures in the reimbursing fund and as reductions of expenses/expenditures rn the fund 1hat is reimbursed.

All other interfund transactions except quasi-external transactions and reimbursements, are reported as transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity transfers. Ail other interlund transfers are reported as operating transfers.

K. Use of Estimates

The preparation of financial statements in conlormity with accounting principles generally accepted in the United Stales of America, as prescribed by the GASB and the AICPA, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

L Cash Equivalents

For purposes of the statement of cash flows, the District considers all highfy liquid investment instruments purchased with a maturity of three months o:r less to be cash equivalents.

Mc New Accounting Pronouncements

Governmental Accounting Standards Board Statement No. 46

for the ffscal year ended June 30, 2006, the District implemented Governmental Accounting Standards Board (GASB) Statement No. 46, "Net Assets Restricted by Enabling Leg;slation - an amendment of GASB Statement No. 34". This statement is effective for fiscal periods beginning after June 15, 2005. This Statement requires that limitations on the use of net assets imposed by enabling legislation be reported as restricted net assets. A legally enforceable enabling legislation restriction is one that a party external to !he District - such as citizens. public interest groups, or the Judiciary- can compel a government to honor. Implementation of GASS Statement No. 46 did not have an impact on the District's basic financial statements for the fiscal year ended June 30, 2006.

34


NOTE 2 • CASH AND INVESTMENTS

On June 30, 2006, the District had the following cash and investments on hand:

Cash on hand Pooled cash Pooled investments

Total cash and investments

$ 650 561,065

15 269 175

Cash and investments listed above are presented on th-e accompanying basic financial statements as follows·

Cash and investments, statement of net assets Cash and inveslmBnts, statement of fiduciary net assets

Investments Authorized by the Ca~ifornia Government Code

$ 15,788,065 42 825

i___1!i 830 890

The table b-elow identifies the investment types that are authorized for the District by the California Government Code. The table also identifies certain provisions of the California Government Code that address interest rate risk, credit risk, and concentration of credit risk.

Maximum Maximum Authorized Maximum Percentage Investment

Investment Type Maturity Of Portfolio in One lssu~r

U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years 10% 5% Bankers' Acceptances 180 days 40'0/o 30°k Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20~'o of base value None Medium-Term Notes 5 years 30°~ None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass·Through Securities 5 years 20% None Local Agency Investment Fund (LAIF) N/A None None

Disclosures Relating to Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment. the greater the sensitivity of its fair value to changes in market interest rates. One of the ways tha1 th.e District manages its exposure ta interest rate risk Is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturlties so that a portron of the portfolio is maturfng or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.

Information about the sensitivity of the fair values of the District's investments (including investments held by bond trustees) to market interest rate fluctua1ions is provided by the following table, that shows the distribution of 1he District's investments by maturi1y:

Investment Type

LAIF

Total

Carrying Amount

$ 15,269,175

$ 15 269175

12 Months Or less

$ 15,269,175

$ 15 269175

35

Remaining Maturity (in Mon\hsl

Months Mooths More 1han 60 Months


NOTE 2 - CASH AND INVESTMENTS (Continued)

D1sclosures ReratJ'ng to Credit Risk

Generally, credft risk is the risk that an issuer of an investment will not fulfill its obligation to the hotder of the investrnent. This is measured by the assignment of rating by a nation.ally recognized statrsfical rating organization_ Presented below is the minimum rating required by the CaHfornia Government Code, the District's lnvestment poHcy, or debt agreements, and the actual rating as of fiscat year end for each investment type.

Investment Type

LAIF

Total

Concentration of Credit Risk

Carrying Amount

$15,269, 175

$1_;i 2691L5

Minimum Legal Rating-

NIA

Exempt From

Disclosure Rating as of Fiscal Year End

MA Aa Not Rated

$ $15 269,175

$ $15269175

The investment policy of the District contains no limitations on the amount that can be invested in any one (ssuer beyond that stipulated by the California Government Code. There are no investments in any 'one issuer that represent So/o or more of total Distdct lnvestments.

Custodial Credit Risk

Custodial credit risk for deposits is the risk that, In the event of the fallur€ of a depository financial ins1itutlon, the District will not be able to recover its deposits or will not be able to recover collateral securiHes that are in 1he possession of an outside party. The California Government Code and the District's investment policy do not contain legal or policy requirements that would timit the exposure ta custodial credit risk for deposits, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposi1s made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The fair value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. Calllorrna law also allows financial institutions to secure the District's deposits by pledging first trust deed mortgage rio1es havlng a value of 150o/o of the secured public deposits.

None of the District's deposits with financial institutions in excess of federal depository Insurance limits were held in uncollateralized accounts

The custodial credit risk for investments is the risk that, in the event ol the failure of the coun1erparty (e.g .. broker-dealer) to a transaction, a government will not be able to recover the value of its investment or coflateral securities that are in the possession of another party. The Californra Government Code and the District's investment policy do not contain legal or policy requirements that would limit the exposure 10 custodial credit risk for investments. With respect to investments, custodial credit risk generally applies only to direct investments jn marketable securitie::;. Custodial credit risk does not apply to a local government's indirect investment in securities through the use of mutua! funds or government investment pools (such as LAfF).

Investment in State Investment Pool

The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by1he California Government Code under the oversight of the Treasurer of the Sta!e of California. The fair value of the District's investmen: in this pool is reported in the accompanying basic financial statements at the amounts based upon the District's pro-rata share of the fair value provided by LA!F for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis.

36


NOTE 3 - PROPERTY TAXES

Property taxes in the State ot California are admir'listered for all local agencies at the county level, and consist of secured, unsecured1

and utHity tax rolls. The following is a summary of major policies and practices relating ta property taxes:

Tax CoUectlons - are the responsib"1ty of 1he county tax collector. Taxes and assessments on secured and utility rolls which constitute a lien against the property, may be paid in two installments; the first is due on November 1 of the fiscal ye-ar and is delinquent jf not paid by December 10; and the second is due on March 1 of the fiscal year and is delinquent if not paid by April 10. Unsecured personal property taxes do not constitute a lien against real property unless the taxes become delinquent. Payment must be made in one installment, which is delinquent if not paid by August 31 of the !iscal year. Significant penalties are imposed by the county for late payments.

Tax Levy Apportionments - Due to the nature of the District-wide maximum levy, it is not possible to identify general purpose tax rates for specific entfties. Under state legislation adopted subsequent to the passage of Proposition 13, apportionments to local agencies are made by the county auditor-controller based primarily on the ratio that each agency represented of the total District-wide levy for the three years prior to fiscal year 1979.

Property Tax Administration Fees - The State of California FY 90-91 Budget Act, authorized counties to collect an administrative fee tor collection and distribution of property taxes. Property 1axes are recorded as net of administrative fees withheld durlng the fiscal year.

Tax Le-vfes, are limited to 1 °k of full market vaJuewhich results in a tax rate of $1.00 per $100 assessed valuation, under the provisions of Proposition 13. Tax rates for voter~approved indebtedness are excluded from 1his limitation.

Tax Levy Dates - are attached annually on January 1 preceding the fiscal year for which the taxes are levied. The fiscal year begins July 1 and ends June 30 of the following year. Taxes are levied on both real and unsecured personal property as it exists at that time. Liens against real estate, as well as the tax on personal property, are not relieved by subsequen1 renewal or change in ownership.

Property Valuations - are established by the Assessor of the County at San Luis Obispo for the secured and unsecured property tax rolls; the utility property tax roll is valued by the State Board of Equalization. Under the provisions of Article XIIIA of the State Constitution (Proposition 13 adopted by the voters on June 6, 1976), properties are assessed at 100% of full value. From the base- assessment, subsequent annual increases in valuation are limited to a maximum of 2%. However, increases to full value are allowed for property improvements or upon change in ownership. Personal property is excluded from these limitations, and ts subject to annual reappraisal.

NOTE 4 - CAPITAL ASSETS

Capital assets activity for the fiscal year ended June 30, 2006, was as foHows:

Balance Balance July 1, 2005 Increases Decreases June 30, 2006

Governmental activities Nandepreciable capital assets

Land $ 633,429 $ $ $ 633,429 Construction in progress 41 666 154 794 38 519 157 941

Total nondepreciable capital assets 675,095 154 794 38519 791 370

Oepreclab(e capital assets; Buirdings and improvements $ 2,543,423 $ 6,505 $ $ 2,549,928 Equipment 547,824 61,019 608,843 Vehicles 456 566 13 243 469 809

Total depreciable capital assets 3,547,813 80,767 3,628,580 Less accumulated depreciation (1 047,795) (141,403) (1, 189, 198)

Net depreciable capital assets 2 500 018 (60,636) 2,439,382 Net capital assets $ 31Z5 113 $ 941~8 $ 38 519 $ 3 23Q Z52

37


NOTE 4 - CAPITAL ASSETS (Continued)

Business-type activity Nondepreciable capital assets

Land Construction in progress

Total nondepreciabfe capital assets

Depreciable capita( assets: Plant and facHities Machinery and equipment Ve hie res

Total depreciable capital assets Less accumulated depreciation

Net depreciable capftal assets Net capital asse1s

NOTE 5-LONG·TERM DEBT

City of El Paso de Robles

Balance July 1, 2005

$ 2,056,820 909.208

2 966 028

1 B,055,559 329,070 197 855

18,582,484 (6,007 585) 12.574.899

$15 540 927

Increases Decreases

$ $ ____fill7 852 461 938

887 852 461 938

1,502,672 3,460

1,506, 132 (586, 112) 920 020

$ 1 807 812 $ 461 !,38

Balance June 30. 2006

$ 2,056,820 1,335.122

3 391 942

19,558,231 332,530 197 855

20,388,616 [6,593.697) 13 494 919

$_ 16 886 861

The District entered into an agreement in the amount of $100,383 to finance the cost to upgrade lift stations. The loan accrues interest at 3.52o/11 with semi-annual payments of principal and interest in the amount of $9,904. The loa.n was paid in full on

September 12, 2005.

Mid-State Bank

The District entered into an agreement with Mid-State Bank in the amount of $221,479, to re-finance the existing loan payable on the

fire/administration building. The note matured on June 15, 2006.

On June 15, 2006. the District renewed the loan with Mid-State Bank in the amount ot $110, 130. Monthly payments are $606 including interest of 5.15%, with one final payment estimated at $106,272. The loan matures June 15, 2011, and is secured by a cleed ol trust. At June 30, 2006, the loan principal outstanding was $110.130.

Future minimum payment obligations for the loan payable as of June 30, 2006, are as follows:

Fiscal Year Ending

June 30 Principal Interest Total

2007 $ 1,644 $ 5,634 $ 7,278

2008 1,731 5,547 7,278

2009 1,822 5,456 7,278

2010 1,919 5.359 7,278

2011 103 014 5258 108 272

Totals $ 110 130 $ 2L2.5'1 $_ 1~7 361

38


NOTE 5 ~ LONG-TERM DEBT (Continued)

1997 Certificales of Participation

· 1n March, 1997, the California Special Distric1s Association Finance Corporation issued $330,000 of new Certificates of Participation on behalf of the District to advance refund the 1990 Certificates. The 1997 Certificates have interest rates from 4.1% to 5.4°/o with maturities through 2005.

The net proceeds of $315,971 (after $11,056 of issuance cost plus additional amounts in restricted accounts) were used to purchase direct obligations of the United States of America_ Those securities were deposited in an irrevocable trust with an escrow agent to provide for alf future debt service payments on the i 990 Certificates of Participation. As a result, these bonds were con-sidered to be defeased and liability for the bonds have been removed from long-term debt.

The advance refunding resulted in a difterence between the re-acquisition price and the net carrying amount of the ofd debt of $20,209. This difference, reported in the acccmpanying financial statements as a deduction from Certificates of Participation, is being charged against amortization expense through the fiscal year 2006_ The District completed the advance refunding ta reduce its total debt service over the next 9 years by approximately $72,000, and to obtain an economic gain (difference between the present values of the old and new debt service payments) of approximately $13,000.

The 1997 Certificates of Participation were paid in full on Decembef 1, 2005.

Loans Payable

State of California, Water Resources Control Board

The District entered into a contract with the State of California, Water Resources Control Board, for a loan in the amount of $2, 144,073 10 increase the wastewater treatment capacity of the Meadowbrook Wastewater Treatment Plant. The loan accrues interest at 2.6% with annual payments of principal and interest in the amount of $138,764_ The loan matures March 4, 2022_ The District shall maintain a dedicated source of revenue sufficient to provide reasonable assurance of repayment of this loan. At June 30, 2006, the loan principal balance outstanding was $1, 797,551.

The loan matures on March 4th of the following fiscal years through 2022, as follows:

Fiscal Year Ending

June 30 Principal Interest Total

2007 $ 92,028 $ 46,736 $ 138,764 2008 94,421 44,343 138,764 2009 96,876 41,888 138,764 2010 99,395 39,369 138,764 2011 101,979 36,785 138,764

2011-2016 551,072 142.748 693,820 2017-2021 626,534 67,286 693,820

2022 135 246 3 518 138 764

Totals $ 1 lf!_l ~~l $ '122 §1'.~ $ 2 22Q,224

39


NOTE 5 - LONG-TERM DEBT (Continued)

Total Long-term Debt

Fiscal Year Governmental Activities Ending

June 30, Principal Interest

2007 $ 1,644 $ 5,634

2008 1,731 5,547

2009 1,822 5,456

2010 1,919 5,359

2011 103,014 5,258

2012-2016

2017-2021

2022

Total $ 110,130 $ 27,254

Changes In long-term liabilities

Business~type Activities

Prlncipa1 Interest

$ 92,028 $ 46,736

94,421 44,343

96,876 41,886

99,395 39,369

101,979 36,785

551,072 142,748

626,534 67,286

135,246 3,518

$1,797,551 $ 422,673

The following is a summary of long-term liabilities activity far the fiscal year ended June 30, 2006:

Governme11tal activities:

Loan payable Compensated absences

Governmental activity long-term liabilitfes

Business-type activities:

Loan payable Certificates of Participation Compensated absences

Business-type activity long-term liabilities

$

Balance July 1, 2005

134,547

$____ 134 54,Z

$ 1,915,943 35,000

$ 1 950 943

NOTE 6 - PREPAID CAPACITY FEES

$

$

$

$

Additions

$ 30022

30022 $

$

14 652

14 652 $

Reductions

24,417

24417

118,392 35,000

153 392

Balance June 30, 2005

$

$

$

110,130 30022

140 152

1,797,551

14 652

1 812 203

$

$

$

$

Due Within One Year

1,644

1 644

92,028

92 028

The District records capacity fees collected as a liabHity untfl its duty to perform has been completed and service has begun at which time these fees are recorded as contributed capital. Following is a summary of the prepaid capacity fees liability at June 30, 2006:

Balance a1 beginning of fiscal year Add: Capacity fees received Less: Water and sewer corinections

Balance at end of fiscal year

40

$ 9,676,412 2, 138,365 (1,010,529)

$ 10 804 248


NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2006

NOTE 7 • DISTRICT EMPLOYEES' RETIRMENT PLAN/DEFINED BENEFIT PENSION PLAN (FULL TIME EMPLOYEES)

Plan Description

The Templeton Community Services District's (the District) defined benefit pension plan, Public Employees' Retirement System (PERS), provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan membefs and beneficiaries. The PERS is part the Public Agency portion of the California Public Employees' Retirement System, {Cal PERS), an agent multiple-employer pran administered by CalPERS, which acts as a common investment ard administrative agent for participating public employers within the State of California, A menu of benefit provisions as well as other requirements are established by State statutes with the Public Employees' Retirement Law. The District selects optional benefit provisions from the benefit menu by contract with Cal PERS and adopts those benefits through local ordinance (other local methods). CalPERS issues a separate comprehensive annual financial report. Copies of the CafPERS' arinual financial report may be obtained tram the Cal PERS Executive Office - 400 P Street - Sacramento, CA 95814.

Funding Policy

Active plan members in the PERS are required to contribute 7'%, for miscellaneous members or 9%for safety members of their annual covered salary. The Distdct makes the contributions required of District employees on theif behalf and for their account. The District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits fa~ its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate of fiscal 2005/2006, was 15.831 % for miscellaneous employees and 80 978%for safety employees. The contribution requirements of the plan members are estabHshed by State statute and employer contrtbution rate established may be amended by Cal PERS.

Annual Pension Cost

For fiscal year 2005/2006, the District's annual pension cost was $175,531, and the District actually contributed $175,531. The required contribulion for fiscal year 2005/2006 was determined as part of the June 30, 2003 actuarial valuation using the entry age normal actuariat cost method with the contributions determined as a percent of pay. The actuarial assumptions included (a) 7.75% investment rate of return (net of administrative expenses); (b) projected salary increases that vary by duration of seivlce, and (c) no cost-of-riving adjustment. Both (a) and (b) include an inflation component ot 3.5%. The actuarial value of the District's assets was determined using a technique that smoothes the effect of short-term volatility in the market value o1 investments over a two to five year period depending on the size of investment gains and/or losses. The Templeton Community Services District's unfunded actuada1 accrued liabHity (or excess assets) is being amortized as a level percentage of projected payron on a closed basis. The remaining amortization pedod at June 30, 2004, was 1 O years.

Th.ree Year Trend Information for the Templeton Community Services District Public Employees' Retirement Plan

Fiscal Year Ending

6/30/04 6/30/05 6/30/06

Valuation Entry Age Date Normal

Accrued Liability

(al 6130103 $335,029,580 6130104 $426,958,282 6/30/05 $499,323,280

Annual Percentage Nel Pension ofAPC Pension

Cost (APC) Contribution Oblloatlon $ 62,390 100% $ 0 $102,602 100% $ 0 $ 175,531 100""/o. $ o

Required Supplementary Information

Funded Status of Miscellaneous Plan {Pool)

Actuarial Unfunded Funded Value of Liability Status Assets (Excess

Assets) (t,) (a)-fb) (b\/fa)

$270,886, 705 $64, 142,875 80.9% $ $324,956,019 $92,002,263 78.5% $

Annual Covered Payroll

(c}

75,357,937 90,667,029

$405,480,805 $93,842,475 81.2% $108,618,321

41

UAALAsof %of

Payroll

lla\-lb\\/(c) 85.1%

l0L5% 86.4%


NOTE 7 - DISTRICT EMPLOYEES' RETIRMENT PLAN/DEFINED BENEFIT PENSION PLAN (FULL TIME EMPLOYEES) (ConUnued)

\'aluation Entry Age Date Normal

Accrued Liability

la) ~,

6130/03 $4,270,573,982 6/30104 $5,383,921,942 6/30105 $6,367,049,264

Required Supplementary Information

Fonded Status of Safety Plan (Pool)

Actuarial Unfunded Funded Value of Liability Status Assets (Excess

Assets) (b) (a) -lb) lb)/la)

$3,577,742, 166 $ 692,83!,816 83.8% $4,424,586,846 $ 959,335,096 82.2% $5,295, 150,375 $1,071,898,889 83.2%

NOTE S - JOINT POWERS AGENCIES

Annual UAAL As of C,overed 0/o of Payroll Payroll

le) lla)-{b)l/fc) $476,089,674 145.5% $575,296,434 166.8% $664,147,796 161.4%

The Templeton Community Services District participates in a joint venture under a Joint Power Agency (JPA), the Special District Risk Management Authority (SDRMA}. The SDRMA was created in -i 986, for the purpose of providing risk financing and risk management services for California's special districts. SDRMA was formed under Section 6500 e1 seq. of the CaHfornia Government Code. Since merging with Special District Workers' Compensation Authority (SDWCA) on July 1, 2003, SDRAM has two "programs" which provide property, auto and liability protection and workers' compensation coverage for its members In addrtior, SORMA provides "in-house" claims administration for the property, auto and liabifity program, loss prevention services and training for its members.

SDRMA is governed by a 9-member Board of Directors. Five directors are e,ected at-large from the membership and four of the directors were appointed under the Fifth Amendment and Restated Joint Powers Agreement when SDRMA merged with SDWCA.

Coverage under current policies includes property loss, general liability, auto liability and comprehensive/colnsion, and public officiars· and employees' errors and omissions, and workers' compensation. Claims over the self-insured amounts are covered by the SDRMA within the limits of the policy. Each member district is assessed a premium in accordance with tt:le JPA agreement creating the agency.

Condensed financial information for the SDRMA for the fiscal year ended June 30, 2005', is as fallows:

Total assets Total liabilities

Fund equity

Total operating reve.nues Total operating expenditures

Net increase

• Latest fiscal year available

NOTE 9 - NET ASSETS

$ 42,332,61 B 24 871 468

$ 17 461 150

$ 19,383,296 15937 747

:Ii__ 2H5549

The government-wide activity proprietary fund and fiduciary fund financial statements utilize a net assets presentation. Net assets are categorized as invested capital assets (net of related debt), restricted, and unrestricted.

Invested In Capita/Assets, Neto! Related Debt- This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation and the outstanding balances of debt that are attributable to the acquisition. construction, or improvement of these assets reduce the balance in this category.

Restricted Net Assets - This category presents external restrictions imposed by creditors, grantors, contributors. and laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation,

Unrestricted Net Assets - This category represents net assets of the District, not restricted for any project or other purpose,

42


NOTE 10 - CONTINGENCIES

According to the Oistrici's staff and attorney, no contingent liabilities are outstanding and no lawsuits are pending of any real financial consequence.

NOTE 11 - PRIOR PERIOD ADJUSTMENTS

A prior period adjustments of $17.311 in the General Fund and $8,806 in the Fire Protection Fund, represents the long-term portion of accrued comp-ensatfon absences on Lhe fund statements in the previous fiscal year,

43

REQUIRED SUPPLEMENTARY INFORMATION SECTION

TEMPLETON COMMUNITY SERVICES DISTRICT GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2006

Budgeted Amounts Variance with

Fina! Budget Original FfnaJ Actual Amounts Positive (Negative)

Revenues:

Interest Income

Other

Total revenues

Expenditures;

Current·

Salaries and wages

Directors fees

Payroll taxes Workers' compensation

Employee benefits

Professional fees

Dues and fees

Educatio11

V-ehicle operation and maintenance

Liability insurance

Legal fees

Miscellaneous

Rent

Purchased services

Postage

Repairs and maintenance

Supplies

Travel

Utilities Capital outlay

Debt service:

Principal

Interest

Total expenditures

Excess of revenues over (under)

expenditures

$ 200 $

7,500

7,700

268,142

21,000

21,898

7,160

97,435

25,640

17,500

4,000

1,000

45,000

10,000

4,350

B,340

20,000

19,000

2,500

20,000

2,500

13,250

8,545

2,294

619,554

(611,854)

45

200

7,500

7,700

268,142

21,000

21,898

7,160

97,435

25,640

17,500

4,000

1,000

45,000

10,000

4,350

8,340

20,000

19,000

2,500

20,000

2,500

13,250

8,545

2,294

619,554

(611,854)

$ 762 $ 28,434

29,196

271,736

17,600

21,409

5,636

98, 103

28,805

18,384

1,870

1,896

49,399

21,772

795

B,340

25,303

17,220

1,861

23,840

2,070

13,086

14, 114

8,545

2,294

654,078

(624,882)

562

20,934

21,496

(3,594)

3,400

489

1,524

(868)

(3, 165)

(884}

2,130

(896)

(4,399)

(11,772)

3,555

(5,303)

1,780

639

(3,840)

430

164

(14,114)

(34,524)

(13,028)

TEMPLETON COMMUNITY SERVICES DISTRICT GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL For the Fiscal Year Ended June 30, 2006

Budgeted Amounts Variance with Final Budget

Original Final Actual Amounts Positive (Negative) Other Financing Sources (Uses):

Transfers in $ 613,901 $ 613,901 $ 626,234 $ 12,333

Total other financJng sources (uses} 613,901 613,901 626,234 12,333

Excess of revenues and other sources

(under) over expenditures and other uses 2,047 2,047 1,352 (695)

Fund balances - July 1 , 2005 1,830 1,830 1,830

Prior period adjustments 17,311 17,311

Fund balance - July 1, 2005, restated 1,830 1,830 19,141 17,311

Fund balance - June 30, 2006 $ 3,877 $ 3,877 $ 20,493 $ 16h16

46

SUPPLEMENTARY INFORMATION SECTION

TEMPLETON COMMUNITY SERVICES DISTRICT NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET June 30, 2006

ASSETS

Cash and Jnvestments

Accounts receivable-

Interest receivable

Total assets

LIABILITIES AND FUND BALANCES

Liabllhies:

Accounts payable Customer deposits

Total liabilities

Fund Balances:

Unreserved

Un-designated

Total fund balances

Total liabilities and fund balances

$

$

$

$

47

Special Revenue Funds

Street Community Lights Center Fund Fund Total

33,228 $ 45,484 $ 78,712 1,035 305 1,340

372 489 861

34,635 $ 46,278 $ 80,913

2,098 $ 703 $ 2,801 580 580

2,098 1,283 3,381

32,537 44,995 77,532

32,537 44,995 77,532

34,635 $ 46,278 $ B0,913


NONMAJOR GOVERNMENTAL FUNDS

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES For the Fiscal Year Ended June 30, 2006

Special Revenue Funds

Street Community

L;ghts Cen1er Fund Fund Total

Revenues: Property taxes and assessments $ 26,278 $ 6,347 $ 32,625 Ren1al income 10,012 10,012 ln1erest income 1,143 1,620 2,763

Total revenues 27,421 17,979 45,400

Expenditures: Miscellaneous 387 387 Repairs and matntenance 5,090 5,090 Supplies 965 965 Utilities 27,316 3,708 31 ,024 Capital outlay 2,557 2,557

Tota! expendftures 27,316 12,707 40,023

Excess of revenues over (under) expenditures 105 5,272 5,377

Fund balances - July 1 , 2005 32,432 39,723 72, 155

Fund balances - June 30, 2006 $ 32,537 $ 44,995 $ 77,532

48

APPENDIXC

BOOK-ENTRY ONLY SYSTEM

The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the 2007 Bonds, payment of the principal or interest on, the 2007 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the 2007 Bonds, and other 2007 Bond-related transactions by and between DTC, DTC Participants and Beneficial Owners, is based on information furnished by DTC which the Authority believes to be reliable, but the Authority takes no responsibility for the completeness or accuracy thereof The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC.

General

The Depository Trust Company ("OTC"), New York, NY, will act as securities depository for the securities ( the "2007 Bonds"). The 2007 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of OTC. One fully-registered certificate will be issued for the 2007 Bonds, in the aggregate principal amount of such issue, and will be deposited with OTC.

OTC, the world's largest depository, is a limited-purpose trust company organized under the New Yark 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. OTC holds and provides asset servicing for over 2.2 million issues of U.S. and non-U.S. equity, corporate and municipal debt issues, and money market instrument from over 100 countries that DTC's participants ("Direct Participants") deposit with OTC. OTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. OTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of OTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the OTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). OTC has Standard & Poor's highest rating: AAA. The OTC Rules applicable to its OTC Participants are on file with the Securities and Exchange Commission. More information about OTC can be found at www.dtcc.com and www.dtc.org.

Purchases of 2007 Bonds under the OTC system must be made by or through Direct Participants, which will receive a credit for the 2007 Bonds on DTC's records. The ownership interest of each actual purchaser of each 2007 Bond ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from OTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the

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http://www.dtcc.com

http://www.dtc.org

2007 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in 2007 Bonds, except in the event that use of the book-entry system for the 2007 Bonds is discontinued.

To facilitate subsequent transfers, all 2007 Bonds deposited by Direct Participants with OTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of OTC. The deposit of 2007 Bonds with OTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. OTC has no knowledge of the actual Beneficial Owners of the 2007 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such 2007 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by OTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2007 Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the 2007 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of 2007 Bonds may wish to ascertain that the nominee holding the 2007 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners, in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to OTC. If less than all of the 2007 Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither OTC nor Cede & Co. (nor such other OTC nominee) will consent or vote with respect to the 2007 Bonds unless authorized by a Direct Participant in accordance with OTC' s Procedures. Under its usual procedures, OTC 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 Direct Participants to whose accounts the 2007 Bonds are credited on the record date ( identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the 2007 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of OTC. OTC' s practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the Authority or the Trustee on payable date in accordance with their respective holdings shown on OTC' s records. Payments by OTC 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 OTC Participant and not of OTC nor its nominee, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. ( or such other nominee as may be requested by an authorized representative of OTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of OTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

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OTC may discontinue providing its services as securities depository with respect to the 2007 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, certificates are required to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry-only transfers through OTC ( or a successor securities depository). In that event, certificates will be printed and delivered to OTC.

The information in this section concerning OTC and OTC's book-entry system has been obtained from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the accuracy thereof.

Discontinuance of OTC Book-Entry System

OTC may discontinue providing its services as depository with respect to the 2007 Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, the Authority will discontinue the book-entry system with OTC. If the Authority determines to replace OTC with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate, fully registered 2007 Bond, per maturity, registered in the name of such successor or substitute qualified securities depository or its nominee. If the Authority fails to identify another qualified securities depository to replace OTC then the 2007 Bonds shall no longer be restricted to being registered in the Bond Register in the name of the Nominee, but shall be registered in whatever name or names owners of the 2007 Bonds transferring or exchanging 2007 Bonds shall designate in accordance with the Indenture, and the Authority shall prepare and deliver 2007 Bonds to the owners thereof for such purpose.

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APPENDIXD

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following is a summary of certain provisions of the Indenture, Pledge Agreement and Escrow Agreement, and is supplemental to the summary of other provisions of such documents described elsewhere in this Official Statement. This summary does not purport to be comprehensive or definitive and reference should be made to such documents for full and complete statements of their respective provisions. All capitalized terms used but not otherwise defined in this Appendix shall have the meanings assigned to such terms in the Indenture, the Pledge Agreement or the Escrow Agreement.

DEFINITIONS

"Act" means Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California.

"Additional Bonds" means those bonds authorized and issued under the Indenture on a parity with the 2007 Bonds, subsequent to the issuance of the 2007 Bonds, in accordance with the Indenture.

"Annual Debt Service" means, for each Bond Year, the sum of (a) the interest payable on the Outstanding Bonds in any Bond Year and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year, whether at maturity or pursuant to mandatory sinking fund redemption.

"Authorized Denomination" means, as to any Bond, a principal amount of $5,000 or any integral multiple thereof.

"Authorized Representative" means: (a) with respect to the Authority, its Chairman, Vice Chairman, Executive Director or Secretary, or any other Person designated as an Authorized Representative of the Authority by a certificate of the Authority signed by its Chairman and filed with each Participant, the Authority and the Trustee; (b) with respect to the County, the Chairman of the Board of Supervisors (the "County Chairman"), its Auditor or Treasurer, or any other Person designated as an Authorized Representative of the County by a certificate signed on behalf of the County by the County Chairman and filed with the Authority and the Trustee; ( c) with respect to the District, the Director of Public Works, the Authorized Representative of the County, or any other Person designated as an Authorized Representative of the County by a certificate signed on behalf of the District by the County Chairman and filed with the Authority and the Trustee; and ( d) with respect to the Trustee, the President, any Vice President, any Assistant Vice President, any Senior Authorized Officer or any Trust Officer of the Trustee, and when used with reference to any act or document also means any other Person authorized to perform such act or sign any document by or pursuant to a resolution of the Board of Directors of the Trustee or the by-laws of the Trustee. An Authorized Representative may by written instrument designate any Person to act on his or her behalf.

"Blended Treasury Yield" means, with respect to the Series B Bonds, the yield computed by the linear interpolation of two Market Treasury Yields, such that the theoretical maturity that corresponds to the interpolated Market Treasury Yield equals the date that corresponds to the remaining average life of the Series B Bonds to be redeemed. The first Market Treasury Yield will be based on an actively traded U.S. Treasury security or U.S. Treasury index whose maturity is closest to, but no later than, the date corresponding to the remaining average life of the Series B Bonds to be redeemed; the second Market

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Treasury Yield will be based on an actively traded U.S. Treasury security or U.S. Treasury index whose maturity is closest to, but no earlier than, the date corresponding the remaining average life of the Series B Bonds to be redeemed.

"Bond Counsel" means the law firm of Fulbright & Jaworski L.L.P., Los Angeles, California, and any successor firm or any other firm of nationally recognized bond counsel acceptable to the Authority.

"Bond Law" means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act (commencing with Section 6584), as amended from time to time.

"Bond Purchase Contract" means an agreement to purchase the Bonds by and between the Authority and the Original Purchaser of the Bonds.

"Bond Year" means each twelve-month period beginning on July I of each year and ending on June 30 of the following year, except that the first such Bond Year shall begin on the Closing Date and end on June 30, 2008.

"Bonds" means the Nacimiento Water Project Revenue Bonds, 2007 Series A (the "Series A Bonds") and the Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable) (the "Series B Bonds"), and any Additional Bonds at any time Outstanding pursuant to the Indenture. "2007 Bonds" means the Series A Bonds and the Series B Bonds.

"Business Day" means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State of California, or in any state in which the Principal Office of the Trustee is located, or the New York Stock Exchange are closed. If any payment is due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such previous day.

"Capital Projects Installment Debt Service" means payments to be made by each Participant on debt or similar obligations incurred by the District for the Project consisting of, in the aggregate, (a) principal and interest ( or mandatory sinking fund payments, installments or lease or similar payments due) with respect to all Bonds at the time Outstanding in accordance with their terms, provided that capitalized interest funded from the proceeds of the Bonds need not be taken into account, (b) annual costs of administering the Bonds, including the annual fees of the Trustee, and ( c) the costs, if any, of annual credit enhancement for the Bonds, whether or not based on a derivative structure as provided in Section 5922(a) of the Government Code.

"Closing Date" means the date upon which a Series is or more than one Series of Bonds simultaneously are issued and delivered under the Indenture; "2007 Closing Date" means September 26, 2007, the date upon which the 2007 Bonds are issued and delivered.

"Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the Authority, the District or any Participant relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to underwriter's discount, printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges and first annual administrative fee of the Trustee and fees of its counsel, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds, and any other cost, charge or fee in connection with the original issuance of the Bonds.

"Costs of Issuance Fund" means the fund by that name established by the Trustee pursuant to the Indenture.

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"County" means the County of San Luis Obispo, California.

"Debt Service Shortfall" means the aggregate amount of delinquent debt service payments due from Delinquent Participants on the due date in question.

"Defeasance Obligations" means

I. Cash.

2. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series - "SLGs").

3. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities.

4. Resolution Funding Corp. (REFCORP). Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable.

5. Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or "AAA" rated pre-refunded municipals to satisfy this condition.

6. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.:

a. U.S. Export-Import Bank (Exirnbank)

Direct obligations or fully guaranteed certificates of beneficial ownership

b. Farmers Horne Administration (FrnHA)

Certificates of beneficial ownership

c. Federal Financing Bank

d. General Services Administration

Participation certificates

e. U.S. Maritime Administration

Guaranteed Title XI financing

f. U.S. Department of Housing and Urban Development (HUD)

Project Notes

Local Authority Bonds

New Communities Debentures - U.S. government guaranteed debentures

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U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds

"Delinquent Debt Service Payments" means those payments of Capital Projects Instalhnent Debt Service due under any Delivery Contract that are not, in fact, paid on their Due Date.

"Delinquent Participants" mean those Participants who are delinquent in payments due under their respective Delivery Contracts for Capital Projects Installment Debt Service.

"Delivery Contracts" means, collectively, the Water Delivery Entitlement Contracts by and between the District and (i) the Atascadero Mutual Water Company, with an effective date of August 17, 2004, as amended; (ii) the City of Paso Robles, dated with an effective date of August 17, 2004, as amended; (iii) the City of San Luis Obispo, with an effective date of August 17, 2004, as amended; and (iv) the Templeton Community Services District, with an effective date of August 17, 2004, as amended.

"Discounted Value" means, with respect to the Series B Bonds to be redeemed, the sum of the amounts obtained by discounting all remaining scheduled payments of principal and interest ( exclusive of interest accrued to the date of redemption) from their respective scheduled payment dates to the applicable redemption date, at a yield ( computed on a semiannual basis, assuming a 360-day year, consisting of twelve 30-day months) equal to the applicable Discount Yield.

"Discount Yield" means, with respect to the Series B Bonds to be redeemed on a particular date, the Blended Treasury Yield determined with respect to such Series B Bonds, plus 0.125% per annum. The Discount Yield will be calculated assuming semiannual compounding based upon a 360-day year, consisting of twelve 30-day months.

"Escrow Account" means the trust fund by that name established under the Escrow Agreement.

"Escrow Agent" means U.S. Bank National Association, in its capacity as escrow agent under the Escrow Agreement.

"Escrow Agreement" means that certain Escrow Deposit and Trust Agreement, dated as of September I, 2007, by and between the Authority and the Escrow Agent, respecting the defeasance of the Notes.

"Event of Bankruptcy" means, with respect to any Person, the filing of a petition in bankruptcy or the commencement of a proceeding under the United States Bankruptcy Code or any other applicable law concerning insolvency, reorganization or bankruptcy by or against such Person as debtor, other than any involuntary proceeding which has been finally dismissed without entry of an order for relief or similar order as to which all appeal periods have expired.

"Event of Default" means any of the events of default specified in the Indenture.

"Financial Guaranty Agreement" means that certain Financial Guaranty Agreement, dated as of September 26, 2007, by and between the District and the Insurer, respecting the Reserve Surety.

"Fiscal Year" means the period beginning on July I of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Authority and certified to the Trustee in writing by an Authorized Representative of the Authority.

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"Fitch" means Fitch Ratings, its successors and assigns.

"Independent Accountant" means any nationally recognized firm of certified public accountants or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State, appointed by the Authority, and who, or each of whom: (a) is in fact independent and not under domination of the Authority or the District; (b) does not have any substantial interest, direct or indirect, with the Authority or the District; and ( c) is not connected with the Authority or the District as an officer or employee of the Authority or the District, but who may be regularly retained to make reports to the Authority or the District.

"Independent Financial Consultant" means any financial consultant or firm of such financial consultants appointed by the Authority and who, or each of whom: (a) is judged by the Authority to have experience with respect to the financing of public capital improvement projects; (b) is in fact independent and not under the domination of the Authority or the District; (c) does not have any substantial interest, direct or indirect, with the Authority or the District; and (d) is not connected with the Authority or the District as an officer or employee of the Authority or the District, but who may be regularly retained to make reports to the Authority or the District.

"Information Services" means Financial Information, Inc.'s "Daily Called Special Service." 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Mergent/FIS, Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; or, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the Authority may designate in a request of the Authority delivered to the Trustee.

"Insurer" means MBIA Insurance Corporation or any successors or assigns thereof.

"Interest Account" means the account by that name established with the Trustee with respect to the Bonds to be administered as prescribed in the Indenture.

"Interest Payment Date" means March I and September I, commencing March I, 2008.

"JPA Agreement" means that certain Joint Exercise of Powers Agreement, dated August 15, 2000, by and between the County and the District, and as it may be duly amended and supplemented from time to time, creating the Authority for the purposes, among other things, of assisting the County and the District in the financing and refinancing of Public Capital Improvements, as such term is defined in California Government Code Section 6500 et seq.

"Market Treasury Yield" means that yield, assuming semiannual compounding, based upon a 360-day year, consisting of twelve 30-day months, which is equal to:

(i) the yield for the applicable maturity of an actively traded U.S. Treasury security, reported, as of 11:00 a.rn., New York City time, on the Valuation Date on the display designated as "Page PX!" of the Bloomberg Financial Markets Services Screen (or, if not available, a similar display on any other nationally recognized trading screen reporting on-line intraday trading in U.S. Treasury securities); or

(ii) if the yield described in clause (i) above is not reported as of such time, or the yield reported as of such time is not ascertainable, the most recent yield data for the applicable U.S. Treasury maturity index from the Federal Reserve Statistical Release H.15 Daily Update ( or any

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comparable or successor publication) report, as of 11:00 a.rn., New York City time, on the Valuation Date; or

(iii) if the yields described in clauses (i) and (ii) above are not reported as of such time, or the yields reported as of such time are not ascertainable, the yield for the applicable maturity of any actively traded U.S. Treasury security will be based upon the average of yield quotations for such security (after excluding the highest and lowest quotations) as of 3:30 p.m., New York City time, on the Valuation Date, received from no less than five (5) primary dealers in U.S. Government securities selected by the Authority.

Each yield quotation for each actively traded U.S. Treasury security required in clauses (i) or (iii) above will be determined using the average of the bid and ask prices for that security.

"Maximum Annual Debt Service" means, as of any date of calculation, the largest Annual Debt Service during the current or any future Bond Year.

"Moody's" means Moody's Investors Service, its successors and assigns.

"Municipal Bond Insurance Policy" or "Insurance Policy" means the municipal bond insurance policy issued by MBIA Insurance Corporation, insuring the payment when due of the principal of and interest on the Bonds as provided therein.

"Nacimiento Water Fund" means the separate fund established and maintained by the District within the County Treasury Pool, into which the District shall deposit all Net Revenues and all payments of Capital Projects Installment Debt Service received by the District under each Delivery Contract.

"Notes" means those certain SLO County Financing Authority Subordinate Bond Anticipation Notes (Nacimiento Pipeline Project), 2005 Series A, issued for the purpose of financing certain Design Phase costs of the Project for the City of San Luis Obispo, outstanding in the aggregate principal amount of $6,555,000, refunded with a portion of the proceeds of the Series A Bonds.

"Original Purchaser" means UBS Securities LLC, and its successors and assigns.

"Outstanding" when used as of any particular time with reference to Bonds, means ( subject to the Indenture) all Bonds of a Series of the Bonds, authenticated and delivered by the Trustee under the Indenture except (a) Bonds cancelled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the Indenture, including particular Bonds ( or portions of Bonds) described in the Indenture; and ( c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture.

"Owner" or "Bond Owner," whenever used in the Indenture with respect to a Bond, means the Person in whose name the ownership of such Bond is registered on the Registration Books.

"Participants" means, collectively, the Atascadero Mutual Water Company, a California mutual water company; the City of Paso Robles, a municipal corporation; the City of San Luis Obispo, a chartered city and municipal corporation of the State of California; and the Templeton Community Services District, a community services district located within the County of San Luis Obispo. In the event of the execution of a Like-Contract ( as defined in the Delivery Contracts) with another public agency, corporation, water company or other entity, the term "Participants" shall thereafter be deemed to include such Person as well.

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"Permitted Investments" means any of the investments listed in the Indenture which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein.

"Person" means an individual, corporation, firm, assoc1ahon, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

"Pledge Agreement" means that certain Pledge Agreement, dated as of September I, 2007, by and between the District and the Authority, pledging the Capital Projects Installment Debt Service and the Net Revenues due under the Delivery Contracts for payment of debt service due on the Bonds.

"Principal Account" means the account by that name established with the Trustee to be administered as provided in the Indenture.

"Principal Office" means such corporate trust office of the Trustee as may be designated from time to time by written notice from the Trustee to the Authority, initially being in Los Angeles, California, or at such other location as the Trustee shall designate in writing to the Authority.

"Principal Repayments" means any amounts received by the Trustee representing a repayment of principal of the Bonds, whether at maturity or upon the prior redemption or acceleration thereof.

"Proceeds" when used with respect to the Bonds, means the face amount of the Bonds, plus accrued interest and original issue premium, if any, less original issue discount, if any.

"Project" means the Nacimiento Water Project, including but not limited to the design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building of such Project, including the Project described in the Nacimiento Water Project Environmental Impact Report SCH #2001061022, certified January 2004, and specifically including Required Capital Projects, Approved Capital Projects and Emergency Capital Projects, as defined in the Delivery Contracts.

"Project Costs" means all costs, fees and expenses incurred in connection with the design, planning, acquisition, installation, construction and improvement of the Project.

"Project Fund" means the fund by that name established with the Trustee to be administered as provided in the Indenture.

"Proportionate Share" means the Proportionate Share of Capital Projects Installment Debt Service of a particular Participant, as such term is defined in the respective Water Contract.

"Rebate Fund" means the fund by that name established with the Trustee pursuant to the Indenture.

"Record Date" means the fifteenth (15th) day (whether or not such day 1s a Business Day) preceding each Interest Payment Date.

"Redemption Account" means the account by that name established with the Trustee with respect to the Bonds pursuant to the Indenture.

"Registration Books" means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to the Indenture.

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"Requisition" means a written requisition substantially in the form attached to the Indenture.

"Reserve Surety" means the letter of credit, surety bond or other instrument available to the Reserve Fund or an Account therein, as described in the Indenture.

"Reserve Fund" means the fund by that name established and held by the Trustee with respect to the Bonds pursuant to the Indenture, including a "Tax-Exempt Reserve Account;" and a "Taxable Reserve Account."

"Reserve Requirement" means, as of any date of calculation, the combined total of (i) an amount equal to the least of (a) 125% of the average annual debt service on the Tax-Exempt Bonds for that and any subsequent Bond Year, (b) 100% of the maximum annual debt service on the Tax-Exempt Bonds for that or any subsequent Bond Year, or (c) 10% of the issue price of the Tax-Exempt Bonds (within the meaning of section 148 of the Code), and (ii) an amount required by the Insurer as a reserve for the Series B Bonds.

"Revenue Fund" means the fund by that name established and held by the Trustee with respect to the Bonds.

"Revenues" means, with respect to the Bonds: (a) all amounts derived from the Pledge Agreement, and (b) investment income with respect to the funds and accounts established under the Indenture except for investment earnings on the Rebate Fund, which will be allocated as provided in the Indenture.

"S&P" means Standard & Poor's, a Division of the McGraw-Hill Companies, Inc., its successors and assigns.

"Securities Depository" means The Depository Trust Company, 55 Water Street, New York, New York 10041, Fax-(212) 855-1000 or 7320; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in a certificate of the Authority delivered to the Trustee.

"Series" means those Bonds issued under the Indenture on a single Closing Date of the same tenor.

"Special Record Date" means the date established by the Trustee pursuant to the Indenture as a record date for the payment of defaulted interest on the Bonds, if any.

"Supplemental Indenture" means a Supplemental Indenture of Trust providing for any matter authorized in the Indenture, entered into by and between the Authority and the Trustee pursuant to the provisions of the Indenture.

"Tax Certificate" means the certificate regarding compliance with the Tax Code entered into on a Closing Date by the Authority and the District with respect to the Tax-Exempt Bonds.

"Tax Code" means the Internal Revenue Code of 1986, as amended from time to time. Any reference to a provision of the Tax Code shall include the applicable Regulations promulgated with respect to such provision.

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"Tax-Exempt Bonds" means those Bonds issued under the Indenture, the interest upon which is excluded from gross income for purposes of federal income taxation, and shall initially mean the Series A Bonds.

"Taxable Participants" means those Participants whose Proportionate Share of Capital Projects Instalhnent Debt Service is applied to the payment of debt service on Bonds that are not Tax-Exempt Bonds, and shall initially mean only the Atascadero Mutual Water Company.

"Tax-Exempt Participants" means those Participants whose Proportionate Share of Capital Projects Instalhnent Debt Service is applied to the payment of debt service on Tax-Exempt Bonds under the Indenture, and shall initially mean the City of Paso Robles, the City of San Luis Obispo and the Templeton Community Services District.

"Tax Regulations" means temporary and permanent regulations promulgated under Section 103 and related sections of the Tax Code.

"Trustee" means U.S. Bank National Association, or its successor as Trustee under and as provided in the Indenture, or such other trustee as shall be named, provided such other trustee shall meet the requirements of the Indenture.

"Valuation Date" means the third Business Day preceding the redemption date of any Taxable Bond.

"Written Certificate" and "Written Request" of the Authority or the District, mean, respectively, a written certificate or written request signed in the name of the Authority by its Authorized Representative or in the name of the District by its Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. If and to the extent required by the Indenture, each such certificate or request shall include the statements provided for in the Indenture.

THE INDENTURE

Revenues; Funds and Accounts

Pledge and Assignment. Subject only to the prov1s1ons of the Indenture pernuttmg the application thereof for the purposes and on the terms and conditions set forth therein, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in any fund or account established pursuant to the Indenture ( excepting the Rebate Fund) are pledged by the Authority to secure the full and timely payment of the principal of and interest and premium, if any, of the Bonds in accordance with their terms and the provisions of the Indenture. Said pledge shall constitute a lien on and security interest in such assets and shall attach, be perfected and be valid and binding from and after delivery of the Bonds by the Trustee and the Revenues and other items pledged shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act.

Subject to the provisions of the Indenture, the Authority pledges and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds and the Insurer, as their interests may appear, all of the Revenues, all of the monies and securities in the funds and accounts created under the Indenture, as their interests appear and other amounts pledged under the Indenture and all of the right, title and interest of the Authority in the Pledge Agreement. The Authority shall collect and receive, or cause to be collected

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and received by the Trustee, all such Revenues, and Revenues collected or received by the Authority, or collected and received by the Trustee on behalf of the Authority, shall be deemed to be held, and to have been collected or received, by the Authority, in trust, and shall be paid to the Trustee as set forth in the Indenture. The Trustee also shall be entitled to and may take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, by itself, all of the rights of the Authority and all of the obligations of the District under and with respect to the Delivery Contracts.

Establishment of Revenue Fund; Allocation of Revenues. The Authority shall establish with the Trustee a special fund designated the "Revenue Fund" which the Trustee shall maintain and hold in trust. Within the Revenue Fund, the Trustee shall establish special accounts designated as the "Principal Account" and the "Interest Account." Such fund and accounts shall be held and maintained as separate and distinct funds and accounts. All Revenues, except for investment earnings on the Reserve Fund which shall be applied according to the Indenture shall be promptly transferred to the Trustee by the Authority and deposited by the Trustee upon receipt thereof into the "Revenue Fund." All Revenues deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. On each Interest Payment Date, the Trustee shall transfer all Revenues then in the Revenue Fund into the following funds and accounts in the following amounts and 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 sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any account subsequent in priority: (a) the Trustee shall deposit into the Interest Account an amount which, together with the amounts then on deposit therein including amounts available in the Capitalized Interest Subaccounts described below and amounts, if any, transferred by the Trustee from the Reserve Fund pursuant to the Indenture, is sufficient to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest corning due and payable on the Bonds on such Interest Payment Date and any amount of interest previously due and unpaid; (b) the Trustee shall deposit into the Principal Account, if necessary, an amount which, together with the amounts then on deposit therein, including amounts, if any, transferred from the Reserve Fund pursuant to the Indenture, shall be sufficient to cause the aggregate amount on deposit in the Principal Account to equal the amount of principal or mandatory sinking account payment corning due and payable on the Bonds within the Bond Year and any amount of principal previously due and unpaid.

Application of Interest Account. Within the Interest Account, the Trustee shall establish a separate "Tax-Exempt Capitalized Interest Subaccount" and a "Taxable Capitalized Interest Subaccount" ( each, a "Capitalized Interest Subaccount"), into which the Trustee shall deposit from the portion of Bond proceeds identified in the Indenture the amounts indicated in the Indenture.

For so long as a Capitalized Interest Subaccount contains a balance, such balance shall be applied as a credit to the interest due on the related Series of Bonds ( each, an "Interest Share") due and payable on each Interest Payment Date. From the first Interest Payment Date following the Closing Date until such balance is exhausted, the Trustee shall withdraw an amount from the Taxable Capitalized Interest Subaccount to pay the interest amount due and payable on the Series B Bonds.

From the first Interest Payment Date following the Closing Date until such balance is exhausted, the Trustee shall withdraw an amount from the Tax-Exempt Capitalized Interest Subaccount to pay the interest due and payable on the Series A Bonds, taking into account the amounts to be paid under the Pledge Agreement on the Interest Payment Dates listed in the Indenture.

Interest earnings on money held in the Tax-Exempt Capitalized Interest Subaccount shall remain in such subaccount, unless otherwise directed in the Indenture. Interest earnings on money held in the

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Taxable Capitalized Interest Subaccount shall remain in such Subaccount, unless otherwise directed in the Indenture.

The District's payments of Revenues under the Pledge Agreement shall be applied to make up any shortfall in interest due and payable on any Interest Payment Date, following the application of amounts from the Capitalized Interest Subaccounts as aforesaid.

Subject to the provisions of the Indenture, all amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it shall become due and payable or, at the Written Request of the Authority filed with the Trustee, for the payment of accrued interest on any Bonds purchased by the Authority pursuant to and in lieu of redemption pursuant to the Indenture.

Commencing with the Interest Payment Date on March I, 2011 and on any Interest Payment Date thereafter, any amounts on deposit in the Interest Account following the payment of interest on the Bonds which are not required to pay interest then due and payable on the Bonds shall be returned to the District.

Application of Principal Account. Subject to the provisions of the Indenture, all amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal or redemption price, as applicable, of the Bonds upon the stated maturity thereof or upon any prior redemption of the Bonds with the proceeds of mandatory sinking payments. Any amounts on deposit in the Principal Account on any Interest Payment Date which are not required to pay the principal amount or redemption price, as applicable, then due and payable on the Bonds shall be transferred to the Revenue Fund.

Establishment and Application of Rebate Fund. The Authority shall establish a special fund designated as the "Rebate Fund," which fund the Trustee shall maintain and hold in trust as a separate and distinct trust fund. The Trustee shall deposit in the Rebate Fund any amounts required to be deposited therein pursuant to the Indenture. There shall be deposited in the Rebate Fund monies required to pay rebate in accordance with Section 148(f) of the Code and the Tax Regulations in order to comply with the provisions thereof and the Indenture. Interest earnings on amounts held in the Rebate Fund shall remain in such Fund unless otherwise directed by the Authority, upon the advice of Bond Counsel.

Establishment and Application of Redemption Account. The Authority shall establish a special account within the Revenue Fund designated as the "Redemption Account," which account the Trustee shall maintain and hold in trust as a separate and distinct trust account within such fund. The Trustee shall deposit in the Redemption Account any amounts required or permitted to be applied to the redemption of Bonds pursuant to the Indenture. Subject to the provisions of the Indenture, all amounts deposited in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of redeeming the Bonds in the manner and upon the terms and conditions specified in the Indenture, at the next succeeding date of redemption for which notice has been given and at the redemption prices then applicable. At any time prior to selection of Bonds for such notice of redemption, the Trustee may, at the Written Request of the Authority, apply amounts on deposit in the Redemption Account to the purchase of the Bonds, for cancellation, at public or private sale, as and when and at prices not exceeding the par amount thereof (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account).

Establishment and Application of Reserve Fund. The Authority shall establish a special fund, which fund the Trustee shall maintain and hold in trust as a separate trust fund designated as the "Reserve Fund," including the Tax-Exempt Reserve Account and the Taxable Reserve Account. The Reserve Accounts are separated solely for purposes of funding and compliance with the Tax Code and are equally available as security for the 2007 Bonds. In the event that on any Interest Payment Date, the full amount

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of the interest of or principal or redemption price of the Bonds required to be deposited on such Interest Payment Date pursuant to the Indenture, in the Interest Account, Principal Account or Redemption Account, as applicable, is not then on deposit therein, the Trustee shall on such Interest Payment Date withdraw from the Reserve Fund an amount equal to any such deficiency and shall notify the Authority and the District of any such withdrawal. All money in or available under the Reserve Fund shall be used and withdrawn by the Trustee solely for the purpose of making transfers to the Interest Account and the Principal Account, in such order of priority, in the event of any deficiency at any time in any such Account or for the retirement of all the Bonds then Outstanding, except that so long as the Authority is not in default under the Indenture, any amount in the Reserve Fund in excess of the Reserve Requirement shall be withdrawn from the Reserve Fund semiannually at least two (2) Business Days prior to each Interest Payment Date and be deposited in the Interest Account and credited to the obligations of the District under the Pledge Agreement. The Trustee shall notify the Authority of the amount of any such transfer not later than the second Business Day prior to the applicable Interest Payment Date. So long as the Reserve Fund includes both cash/investments and a Reserve Surety, the Trustee shall, in the event of a Delinquent Debt Service Payment under the Pledge Agreement, apply all cash or the proceeds of investments to the payment of principal of and interest on the Bonds under the Indenture, prior to making a drawing against the Reserve Surety. Upon a draw on the Reserve Fund, the Trustee shall accept Delinquent Debt Service Payments received from the District for purposes of replenishing the Reserve Fund or reimbursing the provider of the Reserve Surety, or both. Notwithstanding anything in the Indenture to the contrary, investment earnings on funds held within the Reserve Fund and Delinquent Debt Service Payments shall first be applied to restore the Reserve Fund to the Reserve Requirement if a deficit exists. Investment earnings on amounts in the Reserve Fund and Delinquent Debt Service Payments shall be deposited to the following funds and accounts and transferred in the following order:

FIRST:

SECOND:

THIRD:

FOURTH:

Reimbursement to tbe Insurer for drawings under tbe Reserve Surety;

The Reserve Fund to the level of the Reserve Requirement;

The Interest Account, up to an amount sufficient to make payment on the Bonds on the next Interest Payment Date; and

The Principal Account.

Notwithstanding any provision of the Indenture to the contrary, all or any portion of the Reserve Requirement may be satisfied by the provision of a qualified surety bond, being a surety bond issued by an insurance company rated in the highest category by S&P and Moody's and, if rated by A.M. Best & Company, also rated in the highest rating category by A.M. Best & Company (a "Reserve Surety"), that, together with moneys on deposit in the Reserve Fund, provides an aggregate amount equal to the Reserve Requirement; in the event of replacement of cash and investments in the Tax-Exempt Reserve Account with a Reserve Surety, the Trustee shall transfer any excess amounts then on deposit in the Tax-Exempt Reserve Account into a segregated account of the Revenue Fund, which monies shall be applied either (i) to the payment within one year of the date of transfer of capital expenditures of the Authority or the District permitted by law, or (ii) to the redemption of Bonds on the earliest succeeding date on which such redemption is permitted hereby, and pending such application shall be held either not invested in investment property (as defined in section 148(b) of the Code), or invested in such property to produce a yield that is not in excess of the yield on the Bonds; provided, however, that the Authority may by written direction to the Trustee cause an alternative use of such amounts if the Authority shall first have obtained a written opinion of nationally recognized bond counsel substantially to the effect that such alternative use will not adversely affect the exclusion pursuant to section 103 of the Code of interest on the Tax-Exempt Bonds from the gross income of the owners thereof for federal income tax purposes.

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Investment of Moneys. Except as otherwise provided in the Indenture, all moneys in any of the Funds or Accounts established pursuant to the Indenture shall be invested solely in Permitted Investments, or, if any Fund or Account is held by the Trustee solely in Permitted Investments, as directed in writing by an Authorized Representative of the District two (2) Business Days prior to the making of such investment. Such investment instructions shall certify that the investment is a Permitted Investment. Permitted Investments may be purchased at such prices as the Authorized Representative of the District shall determine. All Permitted Investments shall be acquired subject to any restrictive instructions given to the Trustee pursuant to the Indenture and such additional limitations or requirements consistent with the foregoing as may be established by the Written Request of the Authorized Representative of the District. Moneys in any funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Indenture. Absent timely written direction from the District, the Trustee shall invest any funds held by it in money market funds as permitted under the Permitted Investments set forth in the Indenture. The Trustee will furnish the Authority periodic cash transactions statements which include detail for all investment transactions made by the Trustee.

Prior to September 1, 2010, all interest, profits and other income received from the investment of moneys in the Interest Account and any subaccounts therein shall remain in such Account. Except as provided in the Indenture, all interest, profits and other income received from the investment of moneys in any other fund or account established pursuant to the Indenture shall be deposited in the Project Fund until such date as the Completion Certificate is delivered to the Trustee, and then investment earnings shall be deposited, first, to the Reserve Fund to the extent necessary to increase the balance therein to the Reserve Requirement, and, thereafter, to the Interest Account. Notwithstanding anything to the contrary contained in this paragraph, an amount of interest received with respect to any Permitted Investments equal to the amount of accrued interest, if, any, paid as part of the purchase price of such Permitted Investments shall be credited to the fund from which such accrued interest was paid. Permitted Investments acquired as an investment of moneys in any fund established under the Indenture shall be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at the lesser of cost or market value exclusive of accrued interest, if any, paid as part of the purchase price thereof. The Trustee or an affiliate may act as principal or agent in the making or disposing of any investment and shall be entitled to its customary fee therefor. Upon the Written Request of the Authority, or as required for the purposes of the provisions of the Indenture, the Trustee shall sell or present for redemption, any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to the Indenture. Investments purchased with funds on deposit in the Reserve Fund shall have an average aggregate weighted term to maturity, except in the case of Permitted Investments qualifying as guaranteed investment contracts, of not greater than five years.

Project Fund and Costs of Issuance Fund. The Trustee shall establish and maintain a separate fund to be held by the Trustee known as the "Project Fund" into which shall be deposited the amount set forth in the Indenture comprising the remainder of the proceeds of the Bonds; within the Project Fund, the Trustee shall establish a separate "Tax-Exempt Project Account" and a "Taxable Project Account." Moneys in the Project Fund shall be applied to the acquisition or improvement of the Project, or reimbursement to Participants of Design Phase Costs, upon receipt of Requisitions of the District on behalf of the Authority in the form attached to the Indenture. Further, however, payments of Project Costs and reimbursements of Design Phase Costs for the Tax-Exempt Participants shall be paid from the Tax-Exempt Project Account and such payments for the Taxable Participants shall be paid from the Taxable Project Account. The Authority designates the District as its agent in connection with the acquisition and construction of the Project and the payment of such reimbursements.

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Upon completion of the Project, the District will deliver a certificate reflecting such fact to the Trustee ( the "Completion Certificate"), whereupon any remaining balance in the Project Fund shall be transferred to the Revenue Fund.

The Trustee shall establish and maintain a separate fund to be held by the Trustee known as the "Costs of Issuance Fund" into which shall be deposited the amount set forth in the Indenture. The moneys in the Costs of Issuance Fund shall be used to pay Costs of Issuance from time to time upon receipt of a Requisition from the Authority. On the date which is one hundred eighty (180) days following the Closing Date, or upon the earlier receipt by the Trustee of a Written Request of the Authority stating that all Costs of Issuance have been paid, the Trustee shall transfer all remaining amounts in the Costs of Issuance Fund to the Project Fund.

Additional Bonds. In addition to the Bonds, the Trustee shall, upon Written Request of the Authority, by a supplement to the Indenture, establish one or more other Series of Bonds secured by the pledge made under the Indenture equally and ratably with any Bonds previously issued and delivered, in such principal amount as shall be determined by the Authority, but only upon compliance with the provisions of the Indenture and any additional requirements set forth in the applicable Supplemental Indenture, which are conditions precedent to the execution and delivery of Additional Bonds: (a) no Event of Default shall have occurred and be then continuing; (b) the Supplemental Indenture providing for the execution and delivery of such Additional Bonds shall specify the purposes for which such Additional Bonds are then proposed to be delivered, which shall be one or more of the following: (i) to provide moneys needed to provide for Project Costs by depositing into the Proceeds Fund the proceeds of such Additional Bonds to be so applied; ( ii) to provide for the payment or redemption of Bonds Outstanding under the Indenture, by depositing with the Trustee moneys and/or investments required for such purpose under the defeasance provisions set forth in the Indenture; or (iii) to provide moneys needed to refund or refinance all or part of any other current or future obligations of the District or any Participant with respect to the funding of the Project. Such Supplemental Indenture may, but shall not be required to, provide for the payment of expenses incidental to such purposes, including the Costs of Issuance of such Additional Bonds, capitalized interest with respect thereto for any period authorized under the Code (in the case of Tax-Exempt Bonds) and, in the case of any Additional Bonds intended to provide for the payment or redemption of existing Bonds, or other obligations of the District or any Participant, expenses incident to calling, redeeming, paying or otherwise discharging the amounts to be paid off with the proceeds of the Additional Bonds; ( c) the Authority shall deliver or cause to be delivered to the Trustee, from the proceeds of such Additional Bonds or from any other lawfully available source of moneys, an amount ( or a Reserve Surety in an amount) sufficient to increase the balance in the Reserve Fund to the Reserve Fund Requirement for all Bonds and Additional Bonds to be then Outstanding; ( d) the Additional Bonds shall be payable as to principal on September I and as to interest on March I and September I of each year during their term, except that the first interest payment due with respect thereto may be for a period of not longer than twelve (12) months; (e) fixed serial maturities or mandatory sinking account payments, or any combination thereof, shall be established in amounts sufficient to provide for the retirement of all of the Additional Bonds of such Series on or before their respective maturity dates; (f) the aggregate principal amount of Bonds and Additional Bonds executed and delivered under the Indenture shall not exceed any limitation imposed by law or by any Supplemental Indenture; and (g) the Trustee shall be the Trustee for the Additional Bonds.

Whenever the Authority shall determine to file its Written Request with the Trustee for the execution and delivery of Additional Bonds, the Authority shall authorize the execution and delivery of a Supplemental Indenture, specifying the aggregate principal amount and describing the forms of Bonds and providing the terms, conditions, distinctive designation, denominations, date, maturity date or dates, interest rate or rates ( or the manner of determining same), Interest Payments and payment dates, redemption provisions and place or places of payment of principal or redemption price, if any, and interest

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represented by such Additional Bonds not inconsistent with the terms of the Indenture. Before any Series of Additional Bonds may be executed and delivered by the Trustee, the Authority shall file the following documents with the Trustee: (a) an executed copy of the applicable Supplemental Indenture, together with the written consent of the Insurer; (b) a statement of the Authority to the effect that the requirements of the Indenture have been met; (c) in the case of a Series of Additional Bonds delivered for the purpose described in the Indenture, irrevocable instructions to the Trustee to give notice of redemption of all Bonds to be redeemed in connection therewith; and (d) an opinion or opinions of Bond Counsel, to the effect that the execution and delivery of the Additional Bonds, the supplement to the Indenture and related supplements or amendments have been duly authorized by the Authority and meet the requirements of the Indenture; and that the execution and delivery of such Additional Bonds will not, in and of themselves, cause the interest on the Tax-Exempt Bonds to become included within gross income for purposes of Federal income taxation. The Authority shall also provide a copy of the disclosure document respecting the Additional Bonds to the Insurer.

Particular Covenants

Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture and received by the Authority or the Trustee.

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal, of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the Indenture shall be deemed to limit the right of the Authority to issue Additional Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Against Encumbrances. The Authority shall 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 Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Bond Law, and reserves the right to issue other obligations for such purposes.

Power to Issue Bonds and Make Pledge Assignment. The Authority is duly authorized pursuant to the Bond Law to issue the Bonds and to enter into the Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee, subject to the provisions of the Indenture, shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under the Indenture against all claims and demands of all Persons whomsoever.

Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which

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complete and accurate entries shall be made of all transactions made by it relating to the Bond proceeds, the Revenues and all funds and accounts established with the Trustee pursuant to the Indenture. Such books of record and account shall be available for inspection by the Authority, the District and the Insurer, during regular business hours and upon reasonable notice and under reasonable circumstances as agreed to by the Trustee. The Authority shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with generally accepted accounting principles, in which complete and accurate entries shall be made of all transactions relating to the Bond proceeds, the Revenues and all funds and accounts established pursuant to the Indenture ( other than those records and accounts kept by the Trustee). Such books of record and account shall be available for inspection by the Trustee, the District and the Insurer, during regular business hours and upon twenty-four (24) hours, notice and under reasonable circumstances as agreed to by the Authority.

Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time hereafter in force that may affect the covenants and agreements contained in the Indenture or in the Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the Authority to the extent permitted by law.

Tax Covenants. The following terms have the following meanings: "Code" means the Internal Revenue Code of 1986, as amended. "Computation Date" has the meaning set forth in section 1.148-1 (b) of the Tax Regulations. "Gross Proceeds" has the meaning stated in Section 1.148-1 (b) of the Tax Regulations, with respect to the Tax-Exempt Bonds. "Investment" has the meaning set forth in section 1.148-l(b) of the Tax Regulations. "Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of any series of Tax-Exempt Bonds are invested and that is not acquired to carry out the governmental purposes of that series of Tax-Exempt Bonds. "Rebate Amount" has the meaning set forth in section 1.148-1 (b) of the Tax Regulations, with respect to the Tax-Exempt Bonds. "Tax Regulations" means the United States Treasury Regulations promulgated pursuant to sections 103 and 141 through 150 of the Code, or section 103 of the 1954 Code, as applicable. "Yield" (i) of any Investment is calculated in accordance with section 1.148-5 of the Tax Regulations; and (ii)of any series of Tax-Exempt Bonds is calculated in accordance with section 1.148-4 of the Tax Regulations.

The Authority shall not use, permit the use of, or omit to use Gross Proceeds of the Tax-Exempt Bonds or any other amounts ( or any property the acquisition, construction or improvement of which was or is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, would cause the interest on any Tax-Exempt Bond to become includible in the gross income, as defined in section 61 of the Code, of the Owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Authority receives a written opinion of Bond Counsel to the effect that failure to comply with such covenant will not adversely affect the exclusion of the interest on any Tax-Exempt Bond from the gross income of the Owner thereof for federal income tax purposes, the Authority shall comply with each of the specific covenants in the Indenture.

Except as permitted by section 141 of the Code and the Tax Regulations and rulings thereunder, the Authority shall assure that the District shall, at all times prior to the final cancellation of the last of the Tax-Exempt Bonds to be retired: (i) exclusively own, operate and possess all property the acquisition, construction or improvement of which was or is to be financed or refinanced directly or indirectly with Gross Proceeds of the Tax-Exempt Bonds, and not use or permit the use of such Gross Proceeds (including through any contractual arrangement with terms different than those applicable to the general public) or of any property acquired, constructed or improved with such Gross Proceeds, in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and

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(ii) not directly or indirectly impose or accept any charge or other payment by any person or entity who was or is treated as using Gross Proceeds of the Tax-Exempt Bonds or any property acquired, constructed or improved with such Gross Proceeds, other than taxes of general application within its jurisdiction.

Except as permitted by section 141 of the Code and the Tax Regulations and rulings thereunder, neither the District nor the Authority will use Gross Proceeds of the Tax-Exempt Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be "loaned" to a person or entity if: (a) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (b) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or ( c) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan.

Except as permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, neither the District nor the Authority shall, at any time prior to the final cancellation of the last TaxExempt Bond of that series to be retired, directly or indirectly invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, would materially exceed the Yield of the Tax-Exempt Bonds to which such Gross Proceeds are allocated pursuant to the Tax Regulations.

Except as permitted by section l 49(b) of the Code and the Tax Regulations and rulings thereunder, neither the District nor the Authority shall take or omit to take, any action that would cause any Tax-Exempt Bond to be "federally guaranteed" within the meaning of section 149(b) of the Code and the Tax Regulations and rulings thereunder.

The Authority shall timely file any information required by section 149(e) of the Code with respect to the Tax-Exempt Bonds with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe. Except to the extent otherwise provided in section 148( f) of the Code and the Tax Regulations and rulings under the Indenture:

(i) The District or the Authority, as the case may be, shall account for all Gross Proceeds of the Tax-Exempt Bonds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds ( and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Tax-Exempt Bond of the Series is discharged. However, to the extent permitted by law and not otherwise restricted by covenant, each of the District and the Authority may commingle Gross Proceeds of Tax-Exempt Bonds with its other monies, provided that it separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith;

(ii) Not less frequently than each Computation Date, the District shall calculate the Rebate Amount with respect to each series of the Tax-Exempt Bonds, in accordance with rules set forth in section 148(f) of the Code and the Tax Regulations and rulings thereunder. The District promptly shall report to the Authority the results of such calculation, including the basis therefor, in sufficient detail and on a timely basis in order that the Authority be able to comply with its covenants in the Indenture. The Authority shall maintain a copy of the calculation with its official transcript of proceedings relating to the issuance of the Tax-Exempt Bonds until six years after the final Computation Date;

(iii) As additional consideration for the purchase of the Tax-Exempt Bonds by the initial purchase and the loan of the money represented thereby, and in order to induce such purchase by

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measures designed to ensure the excludability of the interest on the Tax-Exempt Bonds from the gross income of the owners thereof for federal income tax purposes, the Authority timely shall make such payments to the United States as are required under section 148(f).

In order to facilitate the ability of the Authority to make such payments, the District shall pay to the Authority monies in amounts and at times sufficient to permit the Authority timely to pay to the United States the amount that when added to the future value of previous rebate payments made for the Tax-Exempt Bonds of the Series equals (i) in the case of a Final Computation Date as defined in section l.148-3(e)(2) of the Tax Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such rebate payments shall be made by the Authority at the times and in the amounts as are or may be required by section 148(f) of the Code and the Tax Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by section 148( f) of the Code and the Tax Regulations and rulings thereunder for execution and filing by the Authority; and (iv) the District and the Authority shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (ii) and (iii), and if an error is made, to discover, report to the Authority and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under section l. l 48-3(h) or other provision of the Tax Regulations.

Except to the extent permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, neither the District nor the Authority shall, at any time prior to the final cancellation of the last of the Tax-Exempt Bonds to be retired, enter into any transaction that reduces the amount required to be paid to the United States with respect to such Tax-Exempt Bonds pursuant to the Indenture because such transaction resulted or results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and had the Yield on the Tax-Exempt Bonds not been relevant to either party.

The Authority reasonably expects and believes (upon appropriate investigation) that (i) the District expects that at least 85% of the spendable proceeds of the Tax-Exempt Bonds will be expended within the three-year period commencing on the date of issuance of the Tax-Exempt Bonds, and (ii) not more than 50% of the proceeds of the Tax-Exempt Bonds will be invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more.

Collection of Revenues. The Authority shall cause to be collected and paid to it all Revenues payable under the Pledge Agreement promptly as such Revenues become due and payable, and shall vigorously enforce and cause to be enforced all rights of the Authority and the Trustee under and with respect to the Pledge Agreement. Upon any failure of the Authority to perform as required by the Indenture, the Trustee shall, subject to the provisions of the Indenture, take appropriate actions to collect and cause the Revenues to be paid to the Trustee.

Events of Default and Remedies of Owners

The following events shall be Events of Default: (a) if default by the Authority shall be made in the due and punctual payment of the principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for sinking fund redemption, by acceleration, or otherwise; (b) if default shall be made in the due and punctual payment of any instalhnent of interest on any Bonds when and as the same shall become due and payable; ( c) if default shall be made by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of thirty (30) days after written notice thereof which grace period shall not be extended beyond sixty (60) days, Trustee or the

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Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding pursuant to the Indenture; provided, however, if the failure stated in the notice can be corrected, but not within the applicable period, the Authority, the Trustee and such Owners shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Authority within the applicable period and diligently pursued until the default is corrected; ( d) the occurrence of an Event of Bankruptcy with respect to the Authority; and ( e) the occurrence of a default under the Pledge Agreement.

Acceleration. The Bonds are subject to acceleration prior to their maturity, subject to the prior written consent of the Insurer. If an Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding shall be entitled, upon notice in writing to the Authority, to declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding.

Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of moneys due shall have been obtained or entered, the Authority shall deposit with the Trustee a sum sufficient to pay all the principal or redemption price of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds, and the reasonable charges and expenses of the Trustee, and any and all other defaults known to the Trustee ( other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority and the Trustee, or the Trustee if such declaration was made by the Trustee other than upon direction of the Bond Owners, may, on behalf of the Owners of all of the Bonds rescind and annul such declaration and its consequences and waive such default; but no such rescission and annuhnent shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Remedies of Owners. Subject to the provisions of the Indenture, any Owner shall have the right, for the equal benefit and protection of all Owners similarly situated: (a) by mandamus, suit, action or proceeding, to compel the Authority and its members, officers, agents or employees to perform each and every term, provision and covenant contained in the Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the Authority and the fulfilhnent of all duties imposed upon it by the Bond Law; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Owners, rights; or ( c) upon the occurrence of any Event of Default, by suit, action or proceeding in any court of competent jurisdiction, to require the Authority and its members and employees to account as if it and they were the trustees of an express trust.

Application of Revenues and other Funds After Default. If an Event of Default shall occur and be continuing, all Revenues and any other funds then held or thereafter received by the Authority shall immediately upon receipt by the Authority be transferred by the Authority to the Trustee and be deposited by the Trustee into the Revenue Fund and all amounts held in the Revenue Fund by the Trustee and all Revenues and any other funds then held or thereafter received by the Authority or the Trustee under any of the provisions of the Indenture shall be applied by the Trustee as follows and in the following order:

(a) To the payment of any fees and expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and payment of reasonable charges and expenses of the Trustee

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(including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under, the Indenture; and

(b) To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of the Indenture, as follows:

First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference.

Trustee to Represent Bond Owners. The Trustee is irrevocably appointed ( and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to the Bond Owners under the provisions of the Bonds, the Indenture, the Bond Law and applicable provisions of any other law; provided, however, that so long as the Insurer is not in default in its payment obligations under the Insurance Policy, the Insurer, acting alone, shall have the right to direct all remedies upon an Event of Default, and shall have the right to institute any suit, action or proceeding at law or in equity under the same terms as an Owner in accordance with the Indenture. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the Owners, the Trustee in its discretion may, and upon the written request of the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, as determined pursuant to the Indenture, and upon being indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power granted in the Indenture, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee and such Owners under the Bonds, the Indenture, the applicable Supplemental Indenture, the Bond Law or any other law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture, or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners of such Bonds, subject to the provisions of the Indenture. So long as the Insurer is not in default in its payment obligations under the Insurance Policy, the Trustee shall not waive any default or breach of duty or contract without the prior written consent of the Insurer.

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Owners' Direction of Proceedings. The Insurer (so long as the Insurer is not in default in its payment obligations under the Insurance Policy) or the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, as determined pursuant to the Indenture, shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee thereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction.

Limitation on Owners' Right to Sue. No Owner of any Bonds shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Agreement, the Bond Law or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default; (b) the owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, as determined pursuant to the Indenture, shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name; ( c) such Owner or said Owners shall have tendered to the Trustee indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture or under law; it being understood and intended that not one or more Owners of Bonds shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of Bonds, or to enforce any right under the Bonds, the Indenture, the Bond Law or other applicable law, with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of the Indenture.

Absolute Obligation of Authority. Nothing in the Indenture or in the Bonds contained shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only out of the Revenues and other assets pledged therefor and received by the Authority or the Trustee, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.

Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Bond Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Bond Owners, then in every such case the Authority, the Trustee, the Insurer and the Bond Owners, object to any determination in such proceedings, shall be restored to their former positions and rights thereunder, severally and respectively, and all rights, remedies, powers and duties of the Authority, the Trustee and the Bond Owners shall continue as though no such proceedings had been taken.

Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and each and every such

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remedy, to the extent permitted by law, shall be cwnulative and in addition to any other remedy given under the Indenture or now or hereafter existing at law or in equity or otherwise.

No Waiver of Default. No delay or omission of the Trustee, the Insurer or of any Owner of the Bonds to exercise any right or power arising upon the occurrence of 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 given by the Indenture to the Trustee, the Insurer or to the Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient.

Modification or Amendment of the Indenture

Amendments Permitted. The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental hereto, which the Authority and the Trustee may enter into with the written consent of the Insurer and the Owners of a majority in aggregate principal amount of all Bonds then Outstanding which shall have been filed with the Trustee; provided, however, that so long as the Insurer is not in default in its payment obligations under the Insurance Policy, the Insurer will be deemed to be the Owner of all of the Bonds for purposes of this Section, and provided further, that if the Insurer is in default in its payment obligations under the Insurance Policy, its consent shall not be required under the Indenture. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof, or extend the time of payment, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, or (iii) permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture or deprive the Owners of the Bonds of the lien created by the Indenture on such Revenues and other assets ( except as expressly provided in the Indenture), without the consent of the Insurer and the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Insurer or the Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Authority and the Trustee of any Supplemental Indenture pursuant to this subsection (a), the Trustee shall cause to be mailed a notice (the form of which shall be furnished to the Trustee by the Authority), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Insurer and the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture.

The Indenture and any Supplemental Indenture and the rights and obligations of the Authority, the Trustee, and the Owners of the Bonds may also be modified or amended from time to time and at any time by an indenture or indentures supplemental hereto, which the Authority and the Trustee may enter into without the consent of any Owners, but following written notice thereof being provided to the Insurer, for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority in the Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds ( or any portion thereof), or to surrender any right or power reserved to or conferred upon the Authority; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Indenture, or as to any other provisions of the Indenture as the Authority may deem necessary or desirable, in any case which do not have a material and adverse affect on the security for the Bonds granted under the Indenture; (iii) to modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (iv) to modify, amend or supplement the Indenture in such manner as to cause interest on

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the Bonds to be excludable, or remain excludable, from gross income for purposes of federal income taxation by the United States of America; and (v) to modify or amend any provision of the Indenture with any effect and to any extent whatsoever permissible by law, provided that any such modification or amendment shall apply only to series of the Bonds issued and delivered subsequent to the execution and delivery of the applicable Supplemental Indenture.

Defeasance

Discharge of Indenture. The Bonds or any portion thereof may be paid by the Authority in any of the following ways, provided that the Authority also pays or causes to be paid any other sums payable by the Authority: (a) by paying or causing to be paid the principal of and interest and premium, if any, on the Series of the Bonds or any portion thereof, as and when the same become due and payable; (b) by irrevocably depositing with the Trustee, in trust (pursuant to an escrow agreement), at or before maturity, money or Defeasance Obligations in the necessary amount ( as provided in the Indenture) to pay or redeem all or any portion of the Bonds of the Series of the Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all or any portion of the Bonds of the Series then Outstanding.

If the Authority shall also pay or cause to be paid all other sums payable under the Indenture by the Authority including without limitation any compensation or other amounts due and owing the Trustee thereunder and to the Insurer under the Insurance Policy and the Financial Guaranty Agreement, then and in that case, at the election of the Authority ( evidenced by a Written Certificate of the Authority, filed with the Trustee, signifying the intention of the Authority to discharge all such indebtedness and the Indenture), and notwithstanding that any Bonds shall not have been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the Authority under the Indenture shall cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the Authority, and upon receipt of a Written Certificate of an Authorized Representative of the Authority and an opinion of Bond Counsel, each to the effect that all conditions precedent relating to the discharge and satisfaction of the obligations of the Authority have been satisfied, the Trustee shall cause an accounting for such period or periods as may be requested by the Authority to be prepared and filed with the Authority and shall execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture and the applicable Supplemental Indenture, which are not required for the payment or redemption of Bonds not theretofore surrendered for such payment or redemption, to the Authority.

Discharge of Liability on Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount ( as provided in the Indenture) to pay or redeem any Outstanding Bonds (whether upon or prior to the maturity or the redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the Authority in respect of such Bonds shall cease, terminate and be completely discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject, however, to the provisions of the Indenture. The Authority may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the Authority may have acquired in any manner whatsoever, and such Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.

Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and

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accounts established pursuant to the Indenture and shall be: (a) lawful money of the United States of America, in an amount equal to the principal amount of such Bonds and all unpaid interest thereon to maturity, except that, in the case of Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such Bonds, premium, if any, and all unpaid interest thereon to the redemption date; or (b) noncallable Defeasance Obligations described in clause (a) of the definition thereof, the principal of, premium, if any, and interest on which when due will provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the redemption date, as the case may be, on the Bonds to be paid or redeemed, as such principal and interest become due, provided that in the case of Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the Authority) to apply such funds to the payment of such principal and interest with respect to such Bonds.

Payment of Bonds after Discharge of Indenture. Notwithstanding any prov1s10ns of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of or interest on any Bonds and remaining unclaimed for two (2) years, after the principal of all of the Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two (2) years after the date of deposit of such moneys if deposited after said date when all of the Bonds became due and payable, shall be repaid to the Authority free from the trusts created by the Indenture and the applicable Supplemental Indenture, and all liability of the Trustee, as applicable, with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Authority as aforesaid, the Trustee shall at the Written Request of the Authority and at the cost of the Authority, mail, by first class mail, postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee, as applicable, with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Authority of the moneys held for the payment thereof.

Payment Provisions Under the Insurance Policy.

(a) In the event that, on the second Business Day, and again on the Business Day, prior to an Interest Payment Date on the Bonds, the Trustee has not received sufficient moneys to pay all principal of and interest on the Bonds due on the second following or following, as the case may be, Business Day, the Trustee shall immediately notify the Insurer or its designee on the same Business Day by telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency.

(b) If the deficiency is made up in whole or in part prior to or on the Interest Payment Date, the Trustee shall so notify the Insurer or its designee.

( c) In addition, if the Trustee has notice that any Owner has been required to disgorge payments of principal of or interest on the Bonds to a trustee in bankruptcy or creditors or others 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 laws, then the Trustee shall notify the Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail.

(d) The Trustee is irrevocably designated, appointed, directed and authorized to act as attomey-infact for the Owners of the Bonds as follows: (1) If and to the extent there is a deficiency in amounts

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required to pay interest on the Bonds, the Trustee shall (i) execute and deliver to U.S. Bank Trust National Association, or its successors under the Policy ( the "Insurance Trustee"), in form satisfactory to the Insurance Trustee, an instrument appointing the Insurer as agent for such Owners in any legal proceeding related to the payment of such interest and an assignment to the Insurer of the claims for interest to which such deficiency relates and which are paid by the Insurer, (ii) receive as designee of the respective Owners ( and not as Trustee) in accordance with the tenor of the Insurance Policy payment from the Insurance Trustee with respect to the claims for interest so assigned, and (iii) disburse the same to such respective Owners; and (2) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Trustee shall (i) execute and deliver to the Insurance Trustee in form satisfactory to the Insurance Trustee an instrument appointing the Insurer as agent for such Owner in any legal proceeding relating to the payment of such principal and an assignment to the Insurer of any of the Bonds surrendered to the Insurance Trustee of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Trustee and available for such payment (but such assignment shall be delivered only if payment from the Insurance Trustee is received), (ii) receive as designee of the respective Owners (and not as Trustee) in accordance with the tenor of the Insurance Policy payment therefor from the Insurance Trustee and ( iii) disburse the same to such respective Owners.

( e) Payments with respect to claims for interest on and principal of Bonds disbursed by the Trustee from proceeds of the Insurance Policy shall not be considered to discharge the obligation of the Authority with respect to such Bonds, and the Insurer shall become the Owner of such unpaid Bonds and claims for the interest thereon in accordance with the tenor of the assignment made to it under the bond insurance provisions of the Indenture or otherwise.

(f) Irrespective of whether any such assignment is executed and delivered, the Authority and the Trustee hereby agree for the benefit of the Insurer that: (1) they recognize that to the extent the Insurer makes payments, directly or indirectly (as by paying through the Trustee), on account of principal of or interest on the Bonds, the Insurer will be subrogated to the rights of such Owners to receive the amount of such principal and interest from the Authority, with interest thereon as provided and solely from the sources stated in the Indenture and in the Bonds; and (2) the Authority and the Trustee will accordingly pay to the Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Insurance Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in the Indenture and in the Bonds, but only from the sources and in the manner provided therein for the payment of principal of and interest on the Bonds to Owners, and will otherwise treat the Insurer as the owner of such rights to the amount of such principal and interest.

(g) The Authority shall cause the District to provide to the Insurer copies of all audited financial statements and annual budgets of the District during the term of the Indenture.

(h) The Authority shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Bonds are tendered or purchased for any purpose ( other than the redemption and cancellation or legal defeasance of such Bonds) without the prior written consent of the Insurer.

THE PLEDGE AGREEMENT

Each of the Participants has entered into a Water Delivery Entitlement Contract with the San Luis Obispo County Flood Control and Water Conservation District (the "District"), where each of them, severally and not jointly, has pledged certain revenues (the "Capital Projects Instalhnent Debt Service") to be collected by their water enterprises (collectively, the "Water Enterprises") and has made certain

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covenants with respect thereto. The District has pledged the Revenues and Net Revenues from the Delivery Contracts for the payment of the principal and redemption price, if any, of and interest on the Bonds.

Pledge of Revenues. The District irrevocably pledges all Revenues from each of the respective Delivery Contracts, all Net Revenues it collects from the operation of the Project and all amounts on deposit in the Nacirniento Water Fund to the payment of the Municipal Obligations as provided in the Pledge Agreement. Such pledge shall constitute a lien on Revenues without any further action or filing by the District or any Participant and notwithstanding a lack of physical possession thereof.

Allocation of Revenues. As provided in the Delivery Contracts, and in order to carry out and effectuate the pledge and lien contained in the Pledge Agreement, the District has agreed and covenants that all Revenues shall be received by the District in trust and shall be deposited when and as received into the Nacimiento Water Fund, which fund the District agrees and covenants to maintain and to hold in trust separate and apart from other funds so long as any Bonds remain unpaid. During the term of the Pledge Agreement, the District shall withdraw amounts from the Nacirniento Water Fund on each Payment Date for deposit into the Debt Service Fund with the Trustee (a) to pay interest then corning due on and maturing or called principal of the Bonds and (b) to reimburse the Insurer as provided in the Pledge Agreement. Pursuant to the Delivery Contracts, any Delinquent Debt Service Payments from a Defaulting Participant shall be immediately due and payable to the District and otherwise shall bear interest at the Default Rate. The District shall promptly upon receipt forward any Delinquent Debt Service Payments and interest to the Trustee for deposit into the Reserve Fund to replenish the Reserve Requirement, then to the Interest Account and third, to the Principal Account. Moneys on deposit in the Nacimiento Water Fund not necessary to make any of the payments required above may be expended by the District at any time for any purpose permitted by law.

Covenants of the District. The District will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the Tax Exemption Certificate to be executed by the District and the Authority in connection with the issuance of the Series A Bonds, as may be required to be observed and performed by each of them; and it is expressly understood and agreed by and between the parties to the Pledge Agreement that each of the agreements, conditions, covenants and terms contained in each of the Pledge Agreement and the Tax Certificate is an essential and material term of the issuance of the Series A Bonds and the lending of the proceeds thereof to the District for the benefit of the related Participants. The tax covenants are inapplicable to the Series B Bonds.

Continuing Disclosure. The District covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreements. Notwithstanding any other provision of the Pledge Agreement, failure of the District to comply with the Continuing Disclosure Agreements shall not be considered an Event of Default thereunder; however, the Trustee, at the written request of the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, shall (but only to the extent the Trustee has been tendered funds in an amount satisfactory to it or has been otherwise indemnified from and against any loss, liability, cost or expense, including without limitation, fees and expenses of its counsel and agents and additional fees and charges of the Trustee) or any Owner or Beneficial Owner may, take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the District to comply with its obligations under this provision. For purposes of this provision, "Beneficial Owner" means 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.

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Enforcement of Delivery Contracts. The District covenants and agrees that it shall enforce its rights under each of the Delivery Contracts, in accordance with the terms thereof, and, in particular, that it shall use its best efforts to collect Capital Projects Installment Debt Service and Net Revenues in such time and amounts as shall permit the payment of Debt Service on the Bonds in accordance with their terms. In the event of a Debt Service Shortfall, the District covenants and agrees to enforce its right to collect each Delinquent Debt Service Payment under the Delivery Contract with the Delinquent Participant and use its best efforts to remedy such Debt Service Shortfall by enforcing the step-up provisions of the Delivery Contracts with the Participants that are then not delinquent.

Not to Purchase Bonds. The District covenants and agrees that it shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Bonds are tendered or purchased for any purposes ( other than the redemption and cancellation or legal defeasance of such Bonds ) without the prior written consent of the Insurer.

Events of Default. If one or more of the following Events of Default shall happen, that is to say -(a) if default shall be made in the due and punctual payment of any interest on or principal of any Bonds when and as the same shall become due and payable; (b) if default shall be made by the District in the performance of any of the agreements or covenants required in the Pledge Agreement to be performed by it, and such default shall have continued for a period of sixty (60) days after the District shall have been given notice in writing of such default by the Authority; provided, however, if in the reasonable opinion of the District the failure stated in the notice can be corrected, but not within such sixty (60) day period, such failure shall not, constitute an Event of Default if corrective action is instituted by the District within such sixty (60) day period and the District shall thereafter diligently and in good faith cure such failure in a reasonable period of time; or (c) if the District shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the District or of the whole or any substantial part of its property; provided, however, that a petition filed without the consent of the District shall not constitute an Event of Default if such petition is dismissed within sixty (60) days of the filing thereof; then and in each and every such case, the Authority may pursue any remedy set forth in the Pledge Agreement.

Additionally, during the continuance of an Event of Default under clause (a) above, interest on the unpaid obligations of the District shall accrue at the maximum rate permitted by law, being twelve percent (12%) per annum, until such payment is received by the Trustee.

Remedies of the Authority. The Authority shall have the right - (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the District or any director, officer or employee thereof, and to compel the District or any such director, officer or employee to perform and carry out its or his duties under the Pledge Agreement and under each of the Delivery Contracts and the agreements and covenants required to be performed by it or him contained therein; (b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority or the Trustee; or ( c) by suit in equity upon the occurrence of an Event of Default to require the District and its directors, officers and employees to account as the trustee of an express trust.

Notwithstanding anything contained in the Pledge Agreement, the Authority shall have no security interest in or mortgage on the respective Water Enterprises or any real property of the District or any Participant and no default thereunder shall result in the loss of the respective Water Enterprise or any other property of the District or the Participants. This limitation on remedies of the Authority shall be binding on successors in interest to the Authority's rights thereunder.

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Non-Waiver. Nothing in the Pledge Agreement shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to or upon the order of the Authority at the respective due dates from the Revenues, the Nacimiento Water Fund and the other funds pledged for such payment, or shall affect or impair the right of the Authority, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied therein.

A waiver of any default or breach of duty or contract by the Authority shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Authority to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Authority by law or by the Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Authority.

If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Authority, the District and the Authority shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.

Remedies Not Exclusive. No remedy conferred upon or reserved to the Authority or the Trustee in the Indenture is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the Pledge Agreement or under the Delivery Contracts or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law.

Discharge of Obligations. When (a) all of the Bonds shall have become due and payable in accordance with the terms of the Indenture; and (b) there shall have been deposited with the Trustee at or prior to the Maturity Date, in trust for the benefit of the Authority or its assigns and irrevocably appropriated and set aside to the payment of all of the Bonds then Outstanding, sufficient moneys and noncallable investments issued by the United States of America and described in Section 5360l(b) or (e) of the Government Code of the State of California, the principal of and interest on which when due will provide money sufficient to pay all principal of interest and redemption premium, if any, on such Bonds; and ( c) provision shall have been made for paying all fees and expenses of the Trustee, and all amounts due to the Insurer under the Financial Guaranty Agreement or otherwise due under the Insurance Policy and the Reserve Surety, then and in that event, all right, title and interest of the Authority in the Pledge Agreement and the obligations of the District thereunder shall thereupon cease, terminate, become void and be completely discharged and satisfied ( except for the rights of the Trustee as assignee of the Authority and the obligation of the District to have such moneys and such investments applied to the payment of such Bonds and any Additional Bonds).

Liability of District Limited to Revenues. Notwithstanding anything contained in the Pledge Agreement, the District shall not be required to pay or advance any moneys derived from any source of income other than Revenues, Net Revenues, the Nacimiento Water Fund and the other funds provided therein for the payment of amounts due on the Bonds, or for the performance of any agreements or covenants required to be performed by it contained therein. The District may, however, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the District for such purpose.

The obligation of the District to make payments to the Authority under the Pledge Agreement is a special obligation of the District payable solely from Revenues, Net Revenues, the Nacimiento Water Fund and other funds described therein, and does not constitute a debt of the District or of the State of California

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or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction.

Assignment. The Pledge Agreement and any rights thereunder have been assigned by the Authority to the Trustee, as a whole, as security for the Bonds.

Amendments. (a) The District and the Participants have reserved the right to amend, supplement and/or modify any of the Delivery Contracts following the 2007 Closing Date; provided, however, that the District shall first have (i) given notice to the Insurer or obtained the written consent of the Insurer, as required, according to the bond insurance commitment, and (ii) obtained an opinion of Bond Counsel to the effect that the amendment, supplement or other modification will not adversely affect the exclusion from gross income of interest on the Tax-Exempt Bonds for purposes of federal income taxation.

(b) The District and the Authority reserve the right to amend, supplement or modify the Pledge Agreement following the 2007 Closing Date; provided, however, that the Authority shall first have (i) given notice to the Insurer, or obtained the written consent of the Insurer, as required by the bond insurance commitment, and (ii) obtained an opinion of Bond Counsel to the effect that the amendment, supplement or other modification will not adversely affect the exclusion from gross income of interest on the Tax-Exempt Bonds for purposes of federal income taxation.

THE ESCROW AGREEMENT

Under the Escrow Agreement, an irrevocable Escrow Account is established which shall be a special trust account established and held by the Escrow Agent and administered as set forth therein. The Escrow Agreement provides that the Authority shall, upon the Closing Date of the Bonds, instruct the Trustee to transfer certain amounts specified in the Escrow Agreement from the proceeds of the Bonds to the Escrow Agent to be deposited into the Escrow Account. Fallowing such transfers, the Escrow Agent agrees to purchase Escrowed Securities with the moneys deposited in the Escrow Account, which Escrowed Securities shall mature no later than the dates and at the prices set forth in the Escrow Agreement to provide for the payment of the maturing principal of and interest on the outstanding 2006 City of San Luis Obispo Bond Anticipation Notes (the "BANs") in accordance with their terms and the terms of the Note Resolution. Following the making of the investments described above, the Escrow Agent, in its capacity as Escrow Agent for the BANs, shall close each of the funds and accounts established under the BANs and promptly return all balances therein to the Authority.

By funding the Escrow Account with the Escrowed Securities, the Authority intends to defease the BANs in accordance with their terms and irrevocably instructs the Escrow Agent to pay the outstanding BANs in whole on the date and at the price shown in the Escrow Agreement, in accordance with their terms and the terms of the Note Resolution.

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APPENDIXE

PROPOSED FORMS OF LEGAL OPINION

Upon delivery of the 2007 Bonds, Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, proposes to render its final approving opinion with respect to the 2007 Bonds in substantially the following form:

SLO Couuty Financing Authority Couuty Goverrnnent Center San Luis Obispo, California 93408

[Issue Date]

Re: $157,845,000 SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series A

Ladies and Gentlemen:

We have acted as bond couusel to the SLO County Financing Authority, a joint exercise of powers authority of the State of California (the "Authority") in connection with the issuance by the Authority of $157,845,000 aggregate principal arnouut of its Nacimiento Water Project Revenue Bonds, 2007 Series A, dated September 26, 2007 (the "Bonds"), pursuant to the provisions of Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title I of the California Government Code (the "Law") and pursuant to an Indenture of Trust, dated as of September I, 2007 (the "Indenture"), by and between the Authority and U.S. Bank National Association, as trustee (the "Trustee"). We have examined the Law and such certified proceedings and other papers as we deem necessary to render this opm1on.

As to questions of fact material to our op1mon, we have relied upon representations of the Authority contained in the Indenture and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing we are of the opinion, uuder existing law, as follows:

I. The Bonds constitute valid and binding limited obligations of the Authority as provided in the Indenture, and are entitled to the benefits of the Indenture. The Bonds are payable from Revenues ( as such term is defined in the Indenture).

2. The Indenture has been duly and validly authorized, executed and delivered by the Authority and, assuming the enforceability thereof against the Trustee, constitutes the legally valid and binding obligation of the Authority, enforceable against the Authority in accordance with its terms. The Indenture creates a valid pledge, to secure the payment of principal of and interest on the Bonds, of the Revenues and other amouuts held by the Trustee in the fuuds and accouuts established pursuant to the Indenture, subject to the provisions of the Indenture permitting the application thereof for other purposes and on the terms and conditions set forth therein.

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3. It is further our opinion, based upon the foregoing, that pursuant to Section 103 of the Internal Revenue Code of 1986, as amended and in effect on the date hereof (the "Code"), and existing regulations, published rulings, and court decisions thereunder, and assuming continuing compliance with the provisions of the Resolutions and in reliance upon representations and certifications of the Authority made in the Tax Exemption Certificate of even date herewith pertaining to the use, expenditure, and investment of the proceeds of the Bonds, when the Bonds are delivered to and paid for by the initial purchasers thereof, interest on the Bonds (I) will be excludable from the gross income, as defined in Section 61 of the Code, of the owners thereof for federal income tax purposes, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as described below, corporations, for federal income tax purposes. We call to your attention that, with respect to our opinion in clause (2) above, interest on all tax-exempt obligations, such as the Bonds, owned by a corporation will be included in such corporation's adjusted current earnings for purposes of calculating the alternative minimum taxable income of such corporation, other than an S corporation, a qualified mutual fund, a real estate mortgage investment conduit ("REMIC"), a financial asset securitization investment trust ("FASIT"), or a real estate investment trust ("REIT"). A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by Section 55 of the Code is computed.

In our opinion, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California.

We express no other opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds. Ownership of tax-exempt obligations such as the Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, certain S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, owners of an interest in a FASIT, individuals otherwise qualifying for the earned income tax credit, individual recipients of Social Security or Railroad Retirement benefits, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations.

The opinions expressed in paragraphs I through 3 above are qualified to the extent the enforceability of the Bonds and the Indenture may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or as to the availability of any particular remedy. The enforceability of the Bonds and the Indenture is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.

No op1mon is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds.

Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service or the State of California; rather,

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such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Respectfully submitted,

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SLO Couuty Financing Authority Couuty Government Center San Luis Obispo, California 93408

[Issue Date]

Re: $38,565,000 SLO Couuty Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable)

Ladies and Gentlemen:

We have acted as bond couusel to the SLO County Financing Authority, a joint exercise of powers authority of the State of California (the "Authority") in connection with the issuance by the Authority of $38,565,000 aggregate principal amouut of its Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable), dated September 26, 2007 (the "Bonds"), pursuant to the provisions of Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the "Law") and pursuant to an Indenture of Trust, dated as of September 1, 2007 (the "Indenture"), by and between the Authority and U.S. Bank National Association, as trustee (the "Trustee"). We have examined the Law and such certified proceedings and other papers as we deem necessary to render this opm1on.

As to questions of fact material to our op1mon, we have relied upon representations of the Authority contained in the Indenture and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing we are of the opinion, uuder existing law, as follows:

I. The Bonds constitute valid and binding limited obligations of the Authority as provided in the Indenture, and are entitled to the benefits of the Indenture. The Bonds are payable from Revenues ( as such term is defined in the Indenture).

2. The Indenture has been duly and validly authorized, executed and delivered by the Authority and, assuming the enforceability thereof against the Trustee, constitutes the legally valid and binding obligation of the Authority, enforceable against the Authority in accordance with its terms. The Indenture creates a valid pledge, to secure the payment of principal of and interest on the Bonds, of the Revenues and other amouuts held by the Trustee in the fuuds and accouuts established pursuant to the Indenture, subject to the provisions of the Indenture permitting the application thereof for other purposes and on the terms and conditions set forth therein.

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In our opinion, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California.

We express no other opinion with respect to any other federal, state, or local tax consequences under present law or any proposed legislation resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the Bonds.

The opinions expressed in paragraphs 1 and 2 above are qualified to the extent the enforceability of the Bonds and the Indenture may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or as to the availability of any particular remedy. The enforceability of the Bonds and the Indenture is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California.

No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds.

Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the State of California; rather, such opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above.

Respectfully submitted,

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APPENDIXF

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement ( this "Disclosure Agreement") is executed and delivered by [ one agreement for each respective Participant and for the District, each as defined in this Official Statement] (the "Obligated Person") and U.S. Bank National Association, as trustee (the "Trustee") in connection with the execution and delivery of $157,845,000 aggregate principal amount of the SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series A (the "Series A Bonds") and $38,565,000 aggregate principal amount of the SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable) (the "Series B Bonds" and, together with the Series A Bonds, the "Bonds"), and as Dissemination Agent hereunder. The Bonds are being issued by the SLO County Financing Authority (the "Authority") pursuant to an Indenture of Trust, dated as of September I, 2007 (the "Indenture"), by and between the Authority and U.S. Bank National Association, as trustee (the "Trustee") as authorized under the Resolution (the "Authority Resolution") adopted on August 28, 2007, by the Commission of the Authority. Pursuant to the Indenture and the Delivery Contract, the Obligated Person, the Dissemination Agent and the Trustee covenant and agree as follows:

Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Obligated Person and the Trustee for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with the Rule (defined below).

Section 2. Definitions. In addition to the definitions set forth in the Indenture, 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 Obligated Person pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

"Beneficial Owner" shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

"Disclosure Representative" shall mean the officer of the Obligated Person or his or her designee as the Obligated Person shall designate in writing to the Dissemination Agent and the Trustee from time to time.

"Dissemination Agent" shall mean initially, U.S. Bank National Association, and thereafter the party designated in writing by the District to serve as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Obligated Person and which has filed with the Trustee a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The National Repositories currently approved by the Securities and Exchange Commission can be found on the internet at http://www.sec.gov/info/municipal/nrmsir.htrn.

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http://www.sec.gov/info/municipal/nrmsir.htm

"Official Statement" shall mean the Official Statement relating to the Bonds dated September 10, 2007.

"Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Repository" shall mean each National Repository and the State Repository.

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State" shall mean the State of California.

"State Repository" shall mean any public or private repository or entity designated by the State as the state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository.

Section 3. Provision of Annual Reports.

(a) The Obligated Person shall, or upon written direction shall cause the Dissemination Agent to, not later than nine months after the end of the Obligated Person's fiscal year, commencing with the report for the 2006-07 Fiscal Year (or the 2007-08 Fiscal Year in the case of AMWC), provide to each Repository an Annual Report which is consistent 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 this Disclosure Agreement; provided, that the audited comprehensive annual financial report of the Obligated Person 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 Obligated Person's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(f).

(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 Obligated Person shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). Ifby such date the Trustee has not received a copy of the Annual Report, the Trustee shall contact the Obligated Person and the Dissemination Agent to inquire if the Obligated Person is in compliance with the first sentence of this subsection (b ). The Obligated Person shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and the Trustee may conclusively rely upon such certification of the Obligated Person and shall have no duty or obligation to review such Annual Report.

( c) If the Dissemination Agent is unable to confirm that an Annual Report has been provided to the Repositories by the date required in subsection (a), the Dissemination Agent shall send a notice to each Repository in substantially the form attached as Exhibit A.

( d) The Dissemination Agent shall:

( 1) 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; and

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(2) file a report with the Obligated Person, the Authority and (if the Dissemination Agent is not the Trustee) the Trustee certifying 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 Obligated Person's Annual Report shall contain or incorporate by reference the following:

(a) The comprehensive annual financial report of the Obligated Person for the prior fiscal year.

(b) As to the Participants, each Participant's Annual Report shall also contain the following information, substantially in the form appearing in that portion of Appendix A to the Official Statement with respect to such Participant, updated to the then-current fiscal year:

(i) Information appearing in Appendix A under the heading "Outstanding Obligations of the Water Fund."

(ii) Table A- - Historic Water Connections.

(iii) Table A- - Historic Water Deliveries.

(iv) Table A- - Historic Water Sales Revenues.

(v) Table A- - Secured Assessed Valuation.

(vi) Table A-_ - Historic Operating Results.

(vii) Information concerning any revision in the adopted rates and charges which are generally imposed by the Obligated Person upon users within the service area of the Water System.

(viii) For any customer whose total billings in the preceding fiscal year represent 10% or more of the Gross Revenues of the Water Enterprise, (1) the total amount of Gross Revenues derived from such customer and (2) the percent of total Gross Revenues represented by such customer for such fiscal year (in each case, excluding California Polytechnic State University, San Luis Obispo).

(c) As to the District, the following information for the then-current fiscal year: (1) a statement of amounts then on deposit in the Nacirniento Water Fund Under, (2) a sununary of receipts of Revenues from the Delivery Contracts and any delinquencies thereof attributable to such specified Participant or Participants, (3) a statement of the status of construction and completion of the Water Project, (4) the proceeds of sale by the District of Surplus Water, (5) revenues received by the District from Wheeling Customers, ( 6) revenues received by the District from the sale of Reserve Water, and (7) the costs of making such sales and collecting said revenues.

( d) In addition to any of the information expressly required to be provided under subsections (a) and (b) of this Section, the Obligated Person shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

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Any or all of the items above may be included by specific reference to other documents, including official statements of debt issues of the Obligated Person or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Obligated Person shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Obligated Person 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 and interest payment delinquencies;

(2) non-payment related defaults;

(3) modifications to rights of holders of the Bonds;

( 4) optional, contingent or unscheduled Bond calls;

( 5) defeasances;

( 6) rating changes;

(7) adverse tax opinions or events affecting the tax-exempt status of the Bonds;

(8) unscheduled draws on debt service reserves reflecting financial difficulties;

(9) unscheduled draws on credit enhancements reflecting financial difficulties;

( I 0) substitution of 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 (I) Business Day, or as promptly thereafter as practicable, of obtaining actual knowledge of the occurrence of any of the Listed Events contact the Disclosure Representative, inform such person of the event, and request that the Obligated Person promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Events shall mean actual knowledge by the officer at the corporate trust office of the Trustee with regular responsibility to determine the materiality of any of the Listed Events.

(c) Whenever the Obligated Person obtains knowledge of the occurrence of a Listed Event, because of a notice from the District, or the Trustee pursuant to subsection (b ), or otherwise, the Obligated Person shall as soon as possible determine if such event would be material under applicable federal securities laws.

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(d) If the Obligated Person or the District has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Obligated Person shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection ( f).

(e) !fin response to a request under subsection (b), the Obligated Person determines that the Listed Event would not be material under applicable federal securities laws, the Obligated Person shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence.

(f) If the Dissemination Agent has been instructed by the Obligated Person 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 Obligated Person. Notwithstanding the foregoing, notice of Listed Events described in subsections (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.

Section 6. Electronic Filing. Submission of Annual Reports and notices of Listed Events to DisclosureUSA.org or another "Central Post Office" designated and accepted by the Securities and Exchange Commission shall constitute compliance with the requirement of filing such reports and notices with each Repository hereunder, and the Obligated Person may satisfy its obligations hereunder to file any notice, document or information with a Repository by filing the same with any dissemination agent or conduit, including DisclosureUSA.org or another "Central Post Office" or similar entity, assuming or charged with responsibility for accepting notices, documents or information for transmission to such Repository, to the extent permitted by the Securities and Exchange Commission or Securities and Exchange Commission staff or required by the Securities and Exchange Commission. For this purpose, permission shall be deemed to have been granted by the Securities and Exchange Commission staff if and to the extent the agent or conduit has received an interpretive letter, which has not been revoked, from the Securities and Exchange Commission staff to the effect that using the agent or conduit to transmit information to the Repository will be treated for purposes of the Rule as if such information were transmitted directly to the Repository.

Section 7. Termination of Reporting Obligation. The Obligated Person's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption, if any, of the Bonds, or, as to a Participant, the payment in full of all of the Series of Bonds related to such Participant's pro rata share of the Project. If the Obligated Person's obligations under the agreements securing payment of the Bonds 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 Obligated Person, and the Obligated Person shall have no further responsibility hereunder. If such termination or substitution occurs prior to the final maturity of the Bonds, the Obligated Person shall give notice of such termination or substitution in the same manner as for a Listed Event under Section 5(f).

Section 8. Dissemination Agent. The Obligated Person 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Obligated Person pursuant to this Disclosure Agreement. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days written notice to the Obligated Person and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the Obligated Person. The Dissemination Agent shall have no duty to prepare any

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information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Obligated Person in a timely manner.

Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Obligated Person, the Dissemination Agent and the Trustee may amend this Disclosure Agreement ( and the Trustee and the Dissemination Agent shall agree to any amendment so requested by the Obligated Person, provided that neither the Trustee nor the Dissemination Agent shall be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder) and any prov1s1on 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 delivery 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 Obligated Person 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 Obligated Person. In addition, if the amendment relates to the accounting principles to be followed in preparing its comprehensive annual financial report, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(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 comprehensive annual financial report as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

Section 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Person from disseminating any other information, using the means of dissemination set forth in this 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 this Disclosure Agreement. If the Obligated Person chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Agreement, the Obligated Person shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Default. In the event of a failure of the Obligated Person or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee, at the written request of any Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds, shall (but only to the extent funds in an amount satisfactory to the Trustee have been provided to it

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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 necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Obligated Person or the Trustee, as the case may be, 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 Indenture or the Delivery Contract, and the sole remedy under this Disclosure Agreement in the event of any failure of the Obligated Person or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance.

Section 12. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. The Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Obligated Person agrees to indemnify and save the Dissemination Agent and the Trustee, their 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 their powers and duties hereunder, including the costs and expenses (including reasonable attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to them hereunder. The obligations of the Obligated Person under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

Section 13. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as specified in the respective Disclosure Agreement.

Section 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Trustee, the Dissemination Agent, the Participating Underwriters, and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 15. 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.

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IN WITNESS WHEREOF, the Obligated Person and U.S. Bank National Association have caused this Agreement to be executed each on its behalf as of the day and year first above written.

[OBLIGATED PERSON]

Authorized Signatory

U.S. BANK NATIONAL ASSOCIATION, as Trustee

Authorized Officer

U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent

Authorized Officer

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer:

Name of Issue:

Date of Issuance:

Name of Obligated Party:

SLO County Financing Authority

SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series

September 26, 2007

[Obligated Person]

NOTICE IS HEREBY GIVEN that the [respective Participant or District as defined in this Official Statement] (the "Obligated Person") has not provided an Annual Report with respect to the above-named Bonds. [The Obligated Person anticipates that the Annual Report will be filed by _____ .]

Dated: -------

cc: [Obligated Person] SLO County Financing Authority

U.S. BANK NATIONAL ASSOCIATION, on behalf of [Obligated Person]

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APPENDIXG

SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

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FINANCIAL GUARANTY INSURANCE POLICY

MBIA Insurance Corporation Armonk, New York 10504

Policy No. [NUMBER]

"MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of the Issuer to [PAYING AGENT/TRUSTEE] or its successor (the "Paying Agent") of an amount equal to (i) the principal of ( either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) 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 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 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, unless the Insurer elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of a such payment which is subsequently recovered from any owner 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. The amounts referred to in clauses (i) and (ii) of the preceding sentence 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 confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation 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 U.S. Bank Trust National Association, 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 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 Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners, or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation.

As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term owner shall not include the Issuer or any party whose agreement with the Issuer constitutes the underlying security for the Obligations.

Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding.

This policy is non-cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations.

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, established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code.

IN WITNESS WHEREOF, the Insurer has caused this policy to be executed in facsimile on its behalf by its duly authorized officers, this [DAY] day of [MONTH, YEAR].

"MBIA Insurance Corporation

President

Attest: Assistant Secretary

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UBS Investment Bank - CA.gov

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