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2017/07/25 City Council Agenda Packet
City of Rohnert Park 130 Avram Avenue Rohnert Park, California 94928 PHONE: (707) 588-2227 FAX: (707) 794-9248 WEB: www.rpcity.org ROHNERT PARK CITY COUNCIL Rohnert Park Financing Authority (RPFA) Successor Agency to the Community Development Commission (CDC) JOINT REGULAR MEETING AGENDA Tuesday, July 25, 2017 Open Session: 5:00 p.m. MEETING LOCATION: CITY HALL - COUNCIL CHAMBER 130 Avram Avenue, Rohnert Park, California The Rohnert Park City Council welcomes your attendance, interest and participation at its regular city meetings scheduled on the second and fourth Tuesdays of each month at 5:00 p.m. in the Council Chamber. City Council/RPFA agendas and minutes may be viewed at the City’s website: www.rpcity.org. PUBLIC HEARINGS: Council/RPFA may discuss and/or take action on any or all of the items listed on this agenda. If you challenge decisions of the City Council or the Rohnert Park Financing Authority of the City of Rohnert Park in court, you may be limited to raising only those issues you or someone else raised at public hearing(s) described in this agenda, or in written correspondence delivered to the City of Rohnert Park at, or prior to the public hearing(s). RIGHT TO APPEAL: Judicial review of any city administrative decision pursuant to Code of Civil Procedure Section 1094.5 may be had only if a petition is filed with the court no later than the deadlines specified in Section 1094.6 of the California Code of Civil Procedure, which generally limits the time within which the decision may be challenged to the 90th day following the date that the decision becomes final. SIMULTANEOUS MEETING COMPENSATION DISCLOSURE (Government Code § 54952.3): Members of the City Council receive no additional compensation as a result of convening this joint meeting of the City Council and the Rohnert Park Financing Authority. PUBLIC COMMENTS: Provides an opportunity for public comment on items not listed on the agenda, or on agenda items if unable to comment at the scheduled time (limited to three minutes per appearance and a 30 minute total time limit, or allocation of time determined by Presiding Officer based on number of speaker cards submitted). PLEASE FILL OUT A SPEAKER CARD PRIOR TO SPEAKING ANNOUNCEMENT: Please turn off all pagers, cellular telephones and all other communication devices upon entering the Council Chamber. Use of these devices causes electrical interference with the sound recording and TV broadcast systems. Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” City of Rohnert Park Joint Regular Meeting Agenda July 25, 2017 for City Council/RPFA/CDC Successor Agency Page 2 of 5 1. CITY COUNCIL/RPFA/SUCCESSOR AGENCY JOINT REGULAR MEETING - CALL TO ORDER/ROLL CALL (Ahanotu __ Belforte__ Callinan __ Stafford __ Mackenzie __) 2. PLEDGE OF ALLEGIANCE 3. PRESENTATIONS A. Mayor’s Certificate of Recognition: Commending Robert Safreno for Being Recognized as the Sonoma County Veteran of the Year 4. DEPARTMENT HEAD BRIEFING A. Community Services: Introduction of Sheri Miller, Performing Arts Center Supervisor B. Public Safety: National Night Out on Tuesday, August 1, 2017 from 5:00 p.m. – 8:00 p.m. at Rohnert Park City Center Plaza (475 City Center Drive) 5. PUBLIC COMMENTS Persons wishing to address the Council on any Consent Calendar item or on City business not listed on the Agenda may do so at this time. Each speaker will be allotted three minutes. Those wishing to address the Council on any report item listed on the Agenda should submit a “Speaker Card” to the City Clerk before announcement of that agenda item. 6. CLOSED SESSION A. Recess to Closed Session in Conference Room 2A to Consider: 1. Conference with Real Property Negotiators (Government Code §54956.8) Property: 5900 Labath Avenue, Rohnert Park, CA (APN: 143-040-124) City Negotiator: Darrin Jenkins, City Manager Negotiating Parties: Matthew Waken, Stadium RP Development Partners, LLC Under Negotiation: Price and Terms of Payment B. Reconvene Joint Regular Meeting Open Session in Council Chamber C. Report On Closed Session (Government Code § 54957.1) 7. CONSENT CALENDAR All items on the Consent Calendar will be considered together by one or more action(s) of the City Council and/or the Rohnert Park Financing Authority and Successor Agency to the Community Development Commission, whichever is applicable, unless any Council Member or anyone else interested in a consent calendar item has a question about the item. A. Approval of Minutes for: 1. City Council/RPFA/Successor Agency Joint Regular Meeting, July 11, 2017 B. Acceptance of Reports for: 1. City Bills/Demands for Payment dated July 25, 2017 2. Successor Agency to the CDC Bills/Demands for Payment dated July 25, 2017 3. City- Cash Report for Month Ending March 2017 4. RPFA- Cash Report for Month Ending June 2017 5. Housing Successor Agency- Cash Report for June 2017 City of Rohnert Park Joint Regular Meeting Agenda July 25, 2017 for City Council/RPFA/CDC Successor Agency Page 3 of 5 6. Successor Agency-Cash Report for Month Ending June 2017 C. City Council Resolutions for Adoption: 1. 2017-91 Approving Five Creek Subdivision Final Map, Authorizing Execution of a Deferred Improvement Agreement and Accepting Subject to Improvement Offers of Dedication for Public Right-of-Way, Public Parks, Public Utility Easements, Public Sidewalk Easements, and Water Line Easements and Related Actions 2. 2017-92 Approving a Standard Formal Reimbursement Agreement and Authorizing the City Manager to Execute 3. 2017-93 Authorizing and Approving Director of Finance to Increase 2017-18 Appropriation to Distribute Graton Mitigation Fund Community Investment Contributions to Designated Organizations Pursuant to MOU Section 4.2.2 4. 2017-94 Approving the Plans and Specifications for the Redwood & Commerce Rehabilitation (Project Number 2015-23), Awarding the Construction Contract to Ghilotti Bros., Inc. and Related Actions 5. 2017-95 Approving a Fourth Amendment to the Agreement for Purchase and Sale Between the City of Rohnert Park and Stadium RP Development Partners LLC and Related Actions 6. 2017-96 Approving the Plans and Specifications for the Snyder Lane Rehabilitation (Project Number 2016-06), Awarding the Construction Contract to Argonaut Constructors and Related Actions D. Ordinance for Adoption: 1. No. 907 An Ordinance Amending Chapter 13.04 of the City of Rohnert Park Municipal Code (City Water System) to Increase Water Service Rates E. Authorize the City Manager to Execute a Waiver of Claims and Indemnification Agreement Between Metropolitan Transportation Commission and City of Rohnert Park in order to Receive a Program for Arterial System Synchronization (PASS) Grant Council Motion/Roll Call Vote (Ahanotu __ Belforte__ Callinan __ Stafford __ Mackenzie __) 8. Consideration of Sale and Issuance of Sewer System Revenue Refunding Bonds, Series 2017 A. Staff Report B. Public Comments C. Resolution for Adoption: City of Rohnert Park Joint Regular Meeting Agenda July 25, 2017 for City Council/RPFA/CDC Successor Agency Page 4 of 5 1. 2017-97 Authorizing the Sale and Issuance of Sewer System Revenue Refunding Bonds and Approving the Execution and Delivery of Certain Documents and Authorizing Certain Actions in Connection Therewith a. Council motion/discussion/vote 9. Discussion and Direction on Use of Investible Funds to Redeem the Outstanding 2005 Water Bonds Using Interfund Loans A. Staff Report B. Public Comments C. Council discussion/direction 10. PUBLIC HEARING (NO EARLIER THAN 6PM) INTRODUCTION OF ORDINANCE – Consideration of Municipal Code Amendments to Regulate Short Term Rentals A. Staff Report B. Conduct Public Hearing C. Ordinance for Introduction and Reading of Title: 1. No. 908 An Ordinance of the City of Rohnert Park, California, Amending Title 17 of the Rohnert Park Municipal Code to Regulate Short Term Rentals a. Council motion/discussion/roll call vote (Ahanotu __ Belforte__ Callinan __ Stafford __ Mackenzie __) 11. COMMITTEE / LIAISON / OTHER REPORTS This time is set aside to allow Council members serving on Council committees or on regional boards, commissions or committees to present a verbal report on the activities of the respective boards, commissions or committees on which they serve. No action may be taken. A. Standing Committee Reports B. Liaison Reports 1. Chamber of Commerce (Board of Directors) (7/18) 2. Golf Course Oversight Committee (7/18) 3. Sonoma County Waste Management Agency (SCWMA) (7/19) C. Other Reports 12. COMMUNICATIONS Copies of communications have been provided to Council for review prior to this meeting. Council Members desiring to read or discuss any communication may do so at this time. No action may be taken except to place a particular item on a future agenda for Council consideration. 13. MATTERS FROM/FOR COUNCIL Prior to agenda publication, any Councilmember may place an item on this portion of the agenda. Upon the concurrence of two Councilmembers, the item may be added to a subsequent agenda for deliberation and action. In accordance with the Brown Act, at City of Rohnert Park Joint Regular Meeting Agenda July 25, 2017 for City Council/RPFA/CDC Successor Agency Page 5 of 5 the City Council meeting, Councilmembers may not add items hereunder, except for brief reports on his or her own activities or brief announcements regarding an event of community interest. 14. PUBLIC COMMENTS Persons wishing to address the Council on City business not listed on the Agenda may do so at this time. Each speaker will be allotted three minutes. Those wishing to address the Council on any report item listed on the Agenda should submit a “Speaker Card” to the City Clerk before announcement of that agenda item. 15. ADJOURNMENT NOTE: Time shown for any particular matter on the agenda is an estimate only. Matters may be considered earlier or later than the time indicated depending on the pace at which the meeting proceeds. If you wish to speak on an item under discussion by the Council which appears on this agenda, after receiving recognition from the Mayor, please walk to the rostrum and state your name and address for the record. Any item raised by a member of the public which is not on the agenda and may require Council action shall be automatically referred to staff for investigation and disposition which may include placing on a future agenda. If the item is deemed to be an emergency or the need to take action arose after posting of the agenda within the meaning of Government Code Section 54954.2(b), Council is entitled to discuss the matter to determine if it is an emergency item under said Government Code and may take action thereon. DISABLED ACCOMMODATION: If you have a disability which requires an interpreter or other person to assist you while attending this City Council meeting, please contact the City Clerk’s Office at (707) 588- 2227 at least 72 hours prior to the meeting to ensure arrangements for accommodation by the City. Please notify the City Clerk’s Office as soon as possible if you have a visual impairment requiring meeting materials to be produced in another format (Braille, audio-tape, etc.) AGENDA REPORTS & DOCUMENTS: Copies of all staff reports and documents subject to disclosure that relate to each item of business referred to on the agenda are available for public inspection at City Hall located at 130 Avram Avenue, during regular business hours, Monday through Friday from 8:00 am to 5:00 pm. Any writings or documents subject to disclosure that are provided to all, or a majority of all, of the members of the City Council regarding any item on this agenda after the agenda has been distributed will also be made available for inspection at City Hall during regular business hours. CERTIFICATION OF POSTING OF AGENDA I, Caitlin Saldanha, Deputy City Clerk for the City of Rohnert Park, declare that the foregoing agenda for the July 25, 2017, Joint Regular Meeting of the Rohnert Park City Council/RPFA was posted and available for review on July 20, 2017, at Rohnert Park City Hall, 130 Avram Avenue, Rohnert Park, California 94928. The agenda is also available on the City web site at www.rpcity.org, Executed this 20th day of July, 2017, at Rohnert Park, California. ___________________________________________ Caitlin Saldanha, Deputy City Clerk Honoring R OBERT S AFRENO for Being Recognized as Sonoma County Veteran of the Year As Mayor, an d on behalf of the City Council of the City of Rohnert Park , I do hereby recognize and congratulate Robert Safreno for his recent award of 2017 Sonoma County Veteran of the Year. Robert’s hard work and dedication on behalf of veterans is highly commendable. In addition to strong involvement in veteran civic groups in Rohnert Park, Robert also helps organize local community events including Founders Day, Memorial Day Commemoration and Hometown Heroes. Robert has, and continues to show, extreme dedication and resolve, ensuring our veterans receive the honor and assistance they so greatly deserve. We are honored to recognize Robert for his outstanding service to our country as well as all that he has accomplished to become the Sonoma County 2017 Veteran of the Year . Signed this 25th day of July, 2017 By: _________________________________________ Jake Mackenzie , Mayor Item No. 3A TUESDAY, AUGUST 1st 5-8 PM ROHNERT PARK CITY CENTER PLAZA 475 CITY CENTER DR City of Rohnert Park Department of Public Safety NATIONAL NIGHT OUT 2017 NATION AMERICA’S NIGHT OUT AGAINST CRIME MINUTES OF THE JOINT REGULAR MEETING OF THE CITY OF ROHNERT PARK City Council Rohnert Park Financing Authority Successor Agency to the Community Development Commission Tuesday, July 11, 2017 Rohnert Park City Hall, Council Chamber 130 Avram Avenue, Rohnert Park, California 1. CITY COUNCIL/RPFA/SUCCESSOR AGENCY TO THE CDC JOINT REGULAR MEETING - CALL TO ORDER/ROLL CALL Mayor Mackenzie called the joint regular meeting to order at 5:00 pm, the notice for which being legally noticed on July 6, 2017. Present: Jake Mackenzie, Mayor Pam Stafford, Vice Mayor Amy O. Ahanotu, Councilmember Gina Belforte, Councilmember Joseph T. Callinan, Councilmember Absent: None Staff present: Acting City Manager Schwartz, City Attorney Marchetta-Kenyon, Deputy City Attorney Rudin, Development Services Director Pawson, Director of Public Works and Community Services McArthur, Director of Public Safety Masterson, Finance Director Howze, Civil Engineer Garrett, Planning Manager Beiswenger, Senior Analyst L. Tacata, and City Clerk Buergler. 2. PLEDGE OF ALLEGIANCE Led by Vice Mayor Stafford. 4. DEPARTMENT HEAD BRIEFING A.Department of Public Safety: 4th of July Briefing. Public Safety Director Masterson provided the briefing which included a review of the last six years. Item No. 7A1 City of Rohnert Park Joint Regular Meeting Minutes July 11, 2017 for City Council/Rohnert Park Financing Authority/Successor Agency Page 2 of 6 24 hour period (0700 to 0700) 2012 2013 2014 2015 2016 2017 Police Calls for Service 352 421 194 258 178 251 Fireworks Calls for Service 89 90 63 93 58 117 Arrests 6 10 6 9 6 3 Admin Cites for Fireworks 10 11 3 6 5 0 Medical Calls for Service 3 7 13 8 12 7 Fire Calls for Service 13 16 25 16 25 9 Dumpster Fires 6 0 6 1 7 2 Fires *total includes dumpster fires 7* 7* 8* 4* 8 2 5. PUBLIC COMMENTS None. 6. CONSENT CALENDAR A. Approval of Minutes for: 1. City Council/RPFA/Successor Agency Joint Regular Meeting, June 27, 2017 B. Acceptance of Reports for: 1. Receive Series 2007R Excess Bond Proceeds Expenditure Report 2. Casino Mitigation Update: Fifth Year Report 3. City Bills/Demands for Payment dated July 11, 2017 C. City Council Resolution for Adoption: 1. 2017-087 Approving Two Public Improvement Agreements for Vast Oak East Surface and Dry Utility Improvements (Backbone and In-tract) with the University District LLC and Vast Oak L.P. and Finding This Action Covered Under the Environmental Impact Report for the University District Specific Plan as Amended 2. 2017-088 Approving the City of Rohnert Park Current Pay Rates and Ranges Revised July 9, 2017 D. Authorize the City Manager to Execute Task Order 2017-04 with GHD, Inc. for $235,000 to Complete a Sewer Collection System Master Plan E. Approve Priorities for the City’s Inclusionary Housing Program and Authorize the City Manager to Execute Affordable Housing Agreements with Preference Program Language, Including an Affordable Housing Agreement Between the City of Rohnert Park, and the Housing Land Trust of Sonoma County for the Southeast Specific Plan Area ACTION: Moved/seconded (Callinan/Stafford) to approve the Consent Calendar. Motion carried by the following unanimous 5-0 vote: AYES: Ahanotu, Belforte, Callinan, Stafford, and Mackenzie, NOS: None, ABSTAINS: None, ABSENT: None. 7. CLOSED SESSION A. Mayor Mackenzie made the closed session announcement pursuant to Government Code §54957.7 and Council recessed to Closed Session at 5:31 p.m. in Conference Room 2A to Consider: City of Rohnert Park Joint Regular Meeting Minutes July 11, 2017 for City Council/Rohnert Park Financing Authority/Successor Agency Page 3 of 6 1. Conference with Real Property Negotiators (Government Code §54956.8) Property: 6250 State Farm Drive, Rohnert Park, CA (APN: 143-051-021) City Negotiator: Don Schwartz, Assistant City Manager Negotiating Parties: Rhonda Deringer, Keegan & Coppin Company, Inc. Under Negotiation: Price and Terms of Payment 2. Conference with Real Property Negotiators (Government Code §54956.8) Property: 6400 State Farm Drive, Rohnert Park, CA (APN: 143-051-072) City Negotiator: Don Schwartz, Assistant City Manager Negotiating Parties: Katherine J. Kelleher, CBRE Under Negotiation: Price and Terms of Payment B. Reconvened Joint Regular Meeting Open Session in Council Chamber at 6:26 p.m. C. Report on Closed Session (Government Code § 54957.1) Mayor Mackenzie reported: no reportable action. 3. PRESENTATIONS A. Mayor’s Certificate of Recognition: Commending Rohnert Park Resident and Santa Rosa Junior College Student Vanessa Nava for Receiving the Jack Kent Cooke Foundation Scholarship. Mayor Mackenzie read and presented the Certificate to Vanessa Nava. 8. Consideration of a Cooperative Agreement with Sonoma County and the City of Cotati Regarding Quiet Zones and Related Actions Civil Engineer Garrett and Director of Development Services Pawson presented the item. Recommended Action(s): Approve a Resolution authorizing the City Manager to execute a cooperative agreement with Sonoma County and the City of Cotati regarding quiet zones and related actions which include authorizing the City Manager to execute additional change orders for Project 14-04 Seed Farm/Enterprise for related supplemental safety measure installation work and to send a letter to Sonoma County requesting that the quiet zone be established as soon as the supplemental safety measures have been installed. Public Comment in support of establishing quiet zones: Paula Molnar, Charles Robinett, and Ahmed Agouecsenud. ACTION: Moved/seconded (Callinan/Ahanotu) to approve Resolution 2017-089 Authorizing the City Manager to Execute a Cooperative Agreement with Sonoma County and the City of Cotati Regarding Quiet Zones and Related Actions. Motion carried by the following unanimous 5-0 vote: AYES: Ahanotu, Belforte, Callinan, Stafford, and Mackenzie, NOS: None, ABSTAINS: None, ABSENT: None. Mayor Mackenzie stepped away from dais 7:05 p.m. and Vice Mayor Stafford assumed the gavel. Mayor Mackenzie returned at 7:08 p.m. and reassumed the gavel. City of Rohnert Park Joint Regular Meeting Minutes July 11, 2017 for City Council/Rohnert Park Financing Authority/Successor Agency Page 4 of 6 9. Discussion and Direction on Updates to the City’s Marijuana Regulations Planning Manager Beiswenger presented the item. Recommended Action(s): Provide direction to staff on updates to the City’s regulations related to marijuana. Public Comment: None. ACTION: By Consensus (none opposed), City Council directed staff to move forward with updating the City’s regulations related to marijuana consistent with California law and bring back an ordinance for consideration. Councilmember Callinan stepped away from the dais 7:37 p.m. and returned 7:39 p.m. 10. PUBLIC HEARING (NO EARLIER THAN 6PM – (Noticed on 6/30/2017 and 7/7/2017) Consideration of Accepting the Final Water Rate Report and Introduction of Ordinance Amending Chapter 13.04 of the Rohnert Park Municipal Code to Increase Water Service Rates Director of Public Works & Community Services McArthur and Bob Reed, Reed Group Inc., presented the item. Recommended Action(s): 1) accept the Final Water Rate Study Report, 2) hold a public hearing to consider any written protests on the proposed water rate increases, 3) certify the final count of any written protests and, if written protests are not presented by a majority of the affected parcels, and 4) introduce by title only, an Ordinance amending Chapter 13.04 of the Rohnert Park Municipal Code to increase water service rates and waive further reading of the text. Hearing Opened 8:08 p.m. Public Comments: Manuel Martinez asked if the City adds fluoride to Rohnert Park water. Hearing Closed 8:11 p.m. Report from City Clerk Buergler: Eleven (11) written protests were received. The number of protests is less than one half of the parcels that would be subject to the new and/or increased rates. Rohnert Park has over 8,000 parcels. Therefore, a majority protest has not been filed. ACTION: Moved/seconded (Belforte/Stafford) to introduce Ordinance 907 an Ordinance Amending Chapter 13.04 of the City of Rohnert Park Municipal Code (City Water System) to Increase Water Service Rates. Title read by Mayor Mackenzie. Motion carried by the following unanimous 5-0 roll call vote: AYES: Ahanotu, Belforte, Callinan, Stafford, and Mackenzie, NOS: None, ABSTAINS: None, ABSENT: None. 11. PUBLIC HEARING (NO EARLIER THAN 6PM – (Noticed on 6/30/2017) Consideration of Vast Oak East Development Area Plan I for Land Development Phase 1 and Phase 2 and Direction on Solar Panel Installation Requirements Planning Manager Beiswenger presented the item. Recommended Action(s): 1) Conduct a public hearing on the Vast Oak East Development Area Plan I for Land Development Phase 1: Parkways and Walls and Vast Oak East Development Area Plan II for Land Development Phase 2: Cypress, Sycamore, Live Oak, and Juniper at University District (File Nos. City of Rohnert Park Joint Regular Meeting Minutes July 11, 2017 for City Council/Rohnert Park Financing Authority/Successor Agency Page 5 of 6 PLDP2017-0001 and PLDP2017-0002); 2) Consider a Resolution approving the two Development Area Plans; and 3) Provide direction to staff on solar panel installation requirements for new development. Applicant Comments: Kevin Pohlson, representing the University District, LLC, stated support of staff’s recommendation. In response to a suggestion from the City Council, he stated support for adding trees that coincide with the names of the neighborhoods subject to the landscape palate and City requirements. Hearing Opened 8:42p.m. Public Comments: None. Hearing Closed 8:42 p.m. ACTION: Moved/seconded (Stafford/Belforte) to adopt Resolution 2017-090 Approving the Development Area Plan I for the Vast Oak East Land Development Phase I: Parkways and Walls and Development Area Plan II for the Vast Oak East Land Development Phase II: Cypress, Sycamore, Live Oak, and Juniper at University District. Motion carried by the following unanimous 5-0 vote: AYES: Ahanotu, Belforte, Callinan, Stafford, and Mackenzie, NOS: None, ABSTAINS: None, ABSENT: None. ACTION: By Consensus (Mackenzie supports local regulatory requirements mandating solar), City Council supports waiting to see how state law will dictate energy efficiency requirements in 2020 and directed staff to track state regulations closely and keep Council informed. 12. Discussion and Direction Regarding City Sponsorships and Fee Waivers Acting City Manager Schwartz and Community Services Supervisor Bagley presented the item. Recommended Action(s): provide direction on City sponsorship and fee waivers, including potential changes to the policy regarding City sponsorship of events and fee waivers, and pursuit of reimbursement for the costs of sponsorships and fee waivers through the Rohnert Park Foundation. Public Comment in support of sponsorships and fee waivers: Cathy Slack and Ashley Kimball. ACTION: By Consensus (none opposed), City Council directed staff to move forward with updating the City’s policy regarding City sponsorship of events and fee waivers at the current $1,000 maximum, the organizations that received fee waivers in Fiscal Year 2016/2017 are grandfathered in, pursue reimbursement through the Rohnert Park Foundation and bring back the proposed policy for approval. 13. COMMITTEE / LIAISON/ OTHER REPORTS City of Rohnert Park Joint Regular Meeting Minutes July 11, 2017 for City Council/Rohnert Park Financing Authority/Successor Agency Page 6 of 6 A. Standing Committee Reports None. B. Liaison Reports 1. Sonoma Clean Power Authority (7/6) Councilmember Belforte reported 15 million dollars going into reserves, electric vehicle rebate programing coming back with four dealers, and an education component will be added to the Sonoma County Water Agency’s field trips with students. 2. Sonoma County Transportation Authority (7/10) Mayor Mackenzie asked staff to review the Shift Sonoma County Low Carbon Transportation Action Plan and the office is relocating to 100 B Street, Santa Rosa. C. Other Reports None. 14. COMMUNICATIONS Councilmember Callinan expressed appreciation of the work done on the Doretea Park playground. Councilmember Ahanotu expressed appreciation of the art work done on the creek bridge on Country Club. Mayor Mackenzie expressed appreciation of the work done at Golis Park. 15. MATTERS FROM/FOR COUNCIL Councilmember Callinan asked when SMART will be fixing the fence along the track on Commerce Blvd under the overpass. 16. PUBLIC COMMENTS None. 17. ADJOURNMENT Mayor Mackenzie adjourned the joint regular meeting at 9:46 pm. _____________________________________ __________________________________ JoAnne M. Buergler, City Clerk Jake Mackenzie, Mayor City of Rohnert Park City of Rohnert Park Item No. 7B1 Item No. 7B2 Item No. 7B3 Item No. 7B4 Item No. 7B5 Item No. 7B6 ITEM NO. 7C1 1 Meeting Date: July 25, 2017 Department: Development Services Submitted By: Mary Grace Pawson, Director of Development Services Prepared By: Vanessa Marin Garrett, Civil Engineer Agenda Title: Approving Five Creek Subdivision Final Map, Authorizing Execution of a Deferred Improvement Agreement and Accepting Subject to Improvement Offers of Dedication and Related Actions RECOMMENDED ACTION: Adopt a resolution approving Five Creek Subdivision Final Map, authorizing execution of a Deferred Improvement Agreement and accepting, subject to improvement, offers of dedication for public right-of-way, public parks, public utility easements, public drainage easements, and sidewalk easements and related actions. BACKGROUND: The City’s strategic plan calls for sale of an approximately 12.25 acre parcel of land, between Labath and Dowdell Avenues, which was the site of the former Crusher’s Stadium. The property is included within the City’s Stadium Lands Planned Development. The City has entered into a Purchase and Sale Agreement and a Development Agreement with Stadium RP Development Partners (“Developer”) to facilitate the sale and orderly development of this property. The City has also approved preliminary and final development plans, and a tentative map for a planned development, which will ultimately include a hotel, a 135 unit apartment complex, a public park, a local retail commercial center, and the City’s Westside Fire Station (See Attachment 1). Over the course of the past six months the Developer has been working to satisfy the Tentative Map Conditions on behalf of the City, and the requirements of the Purchase and Sale Agreement, and Development Agreement. The Developer’s team has submitted plans for the offsite improvements as well as the hotel and residential on-site properties. The Developer has applied for and received Planning Commission site plan and architectural review approval for its hotel and applied for site plan and architectural review of its apartment complex. At this time the Developer is seeking approval of the Final Map it submitted on behalf of the City, which will create five parcels, and is making the property dedications, maintenance commitments and construction commitments necessary to fully satisfy its Conditions of Approval, Purchase and the Sale Agreement, and Development Agreement requirements. Subdividing these parcels is key to selling the property to the Developer and allowing on-site construction to occur since the City is the current owner of the parcel and wishes to retain a portion of the property, called out as Lot 5 on the Tentative and Final Maps, in order to construct its Westside Fire Station. Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 7C1 2 The Purchase and Sale Agreement specifies a closing date of August 11, 2017, so the City’s timely action on the Final Map is an important component of meeting the timelines set forth in the Purchase and Sale Agreement. ANALYSIS: The Developer has prepared a Final Map on behalf of the City and submitted it to the City for review. The map has been checked for technical accuracy and conformance with the Tentative Map. The Map includes the required park land dedications and easement dedications in favor of the City and adjacent lots. Pursuant to Municipal Code section 16.10.200, the City has also submitted (1) a certificate from the County Tax Collector stating that all taxes and assessments due have been paid pursuant to Government Code section 66492, and (2) verification that no security for taxes and assessment need to be executed and filed with the Clerk of the County Board of Supervisors pursuant to Government Code section 66493. Pursuant to Municipal Code section 16.14.020(K)(3), the final map has been reviewed by the Parks and Recreation Commission and it has made its recommendations to the City Engineer regarding the Final Map (see Attachment 2). The Developer has satisfied the majority of its Conditions of Approval for the Tentative Map. However, one condition that requires that improvement plans and bonds be posted for the public improvements, has not yet been fully satisfied. The Developer has prepared improvement plans, which are under review. Staff anticipates that these plans will be approved for construction shortly after the sale of the property. Section 16.16.040 provides for the use of a “Deferred Improvement Agreement” to ensure construction of improvements and staff is recommending that this be used to ensure compliance with the Tentative Map condition. The Deferred Improvement Agreement is in the same form that was used when the original map for Stadium Lands Planned Development (Parcel Map 180) was approved. ENVIRONMENTAL ANALYSIS: The proposed land dedications and final map will allow for the development of new residences, a public park, and several pieces of infrastructure. An Environmental Impact Report (EIR) was approved for the SAMP in 2008. Mitigation measures included in the adopted EIR are required to be implemented as projects develop. Because of the proposed changes to the approved land uses, an Initial Study was prepared to determine whether the proposed project, including the City’s proposed facilities, would have a significant adverse effect on the environment. Based on the analysis included in the Initial Study, a Mitigated Negative Declaration (MND) was prepared. The MND was circulated for public review between November 8, 2016 and December 8, 2016. The MND was approved by City Council on January 10, 2017. Because the proposed improvements were included in the Initial Study and MND, and their impacts were analyzed and mitigated to a less than significant level, no further CEQA analysis is required. STRATEGIC PLAN ALIGNMENT: This action is consistent with Strategic Plan Goal D- Continue to Develop a Vibrant Community. OPTIONS CONSIDERED: 1. Adopt a Resolution approving Five Creek Subdivision Final Map and related actions including approval of the Deferred Improvement Agreement (recommended action). This action will allow for timely closing in accordance with the Purchase and Sale Agreement, while still ensuring that planned public improvements are completed. ITEM NO. 7C1 3 2. Do not approve the Five Creek Subdivision Final Map until the public improvements are completely designed and secured by improvement bonds. This action is not recommended because of the unique circumstances around this particular final map. The City is both the property owner and approving authority and, as such, has additional remedies to ensure construction of the required public improvements. In addition, the required public improvements are relatively minor in the overall scope of the project. Finally, the developer has submitted the plans for the required improvements, which are currently under review. Staff anticipates that the time frame between map approval and approval of the improvement plans will be relatively short, however the time frame will extend beyond the closing date specified in the Purchase and Sale Agreement. FISCAL IMPACT/FUNDING SOURCE: In accordance with the City’s General Plan policies, development within the Stadium Lands Master Plan Area has been designed to minimize impacts on both the General Fund and existing rate payers. This is accomplished in several ways. 1. Infrastructure construction is funded by the developer at no cost to the City, with the exception of the portion of Martin Avenue that has already been allocated funding in CIP project 0413. In cases where the infrastructure is included in the City’s Public Facilities Finance Plan, the Developer will receive credits against Public Facilities Fees for the infrastructure provided. 2. The Developer has compiled a Declaration of Covenants, Conditions, and Restrictions and Reciprocal Easements (CCRs) to cover operations, maintenance and service costs. The City, which is remaining the owner of Lot 5 and is included in the CCRs, can ensure that it cannot be dissolved since there has to be an undisputed vote to eliminate the CCRs. 3. The Developer has agreed, through the Development Agreement, to fund up to $800 per residential unit per year to offset the general fund burden of providing services to new residents. Department Head Approval Date: 07/10/17 Finance Director Approval Date: NA City Attorney Approval Date: 07/11/17 City Manager Approval Date: 07/17/17 Attachments (list in packet assembly order): 1. Attachment 1 – Site Map 2. Attachment 2 - Resolution of the Park and Recreation Commission of the City of Rohnert Park Making a Recommendation to the City Engineer Regarding Specific Improvements to Satisfy a Tentative Map Condition Related to Parkland Dedication within the Stadium Lands Master Plan Area 3. A Resolution of the City Council of the City of Rohnert Park Approving Five Creek Subdivision Final Map and Accepting Subject to Improvement Offers of Dedication for Public Right-of-Way, Public Park, Public Utility Easements, Water Line Easements, and Public Sidewalk Easements and Related Actions. 4. Resolution Exhibit A – Deferred Improvement Agreement 5. Resolution Exhibit B – Final Map September 21, 2016 Prepared by: Page 4 Residences at Five Creek — Final Development Plan Figure 1, Final Development Plan CIVIL DESIGN CONSULTANTS, INC Residential Summary Gross Site Area 6.07 AC Dwelling Units 135 Density 22.2 DU/AC Unit Distribution 1 Bdrm: 67 units 2 Bdrm: 56 units 3 Bdrm: 12 units Residential Amenity 4,000 SF Clubhouse Total Building Footprint 73,600 SF Lot Coverage 27.8% Total Common Open Space 66,211 SF On-Grade Private Open Space 2,025 SF Above-Grade Private Open Space 6,480 SF Parking Required 243 Spaces Parking Provided Garage: 109 spaces Covered: 28 spaces Uncovered: 106 spaces TOTAL: 243 SPACES Commercial Summary Gross Site Area Retail: 3.34 AC Hotel: 2.56 AC TOTAL: 5.90 AC Total Building Footprint Retail: 34,300 SF Hotel: 75,721 SF TOTAL: 110,021 SF F.A.R. Retail: 0.24 Hotel: 0.68 TOTAL: 0.43 Parking Required Retail: 106 spaces (25% Reduction) Hotel: 102 spaces (25% Reduction) TOTAL: 208 spaces Parking Provided Retail: 125 spaces Hotel: 139 spaces TOTAL: 264 spaces Residential Units Clubhouse 0.65-Acre Park Hotel Entrance Primary Residential Entry Retail Anchor Retail Shops Retail Plaza Attachment 2 RESOLUTION NO. 2017-091 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROHNERT PARK APPROVING FIVE CREEK SUBDIVISION FINAL MAP, AUTHORIZING EXECUTION OF A DEFERRED IMPROVEMENT AGREEMENT AND ACCEPTING SUBJECT TO IMPROVEMENT OFFERS OF DEDICATION FOR PUBLIC RIGHT-OF- WAY, PUBLIC PARKS, PUBLIC UTILITY EASEMENTS, PUBLIC SIDEWALK EASEMENTS, AND WATER LINE EASEMENTS AND RELATED ACTIONS WHEREAS, on August 11, 2015 the City entered into a Purchase and Sale Agreement with MJW Investments (“Purchaser”) to transfer the majority of the property that is the subject of this map within two years’ time; WHEREAS, said Purchase and Sale Agreement has been amended several times and assigned to Stadium RP Development Partners, LLC (Developer), Purchaser’s successor in interest; WHEREAS, on January 10, 2017, the City Council of the City of Rohnert Park adopted Resolution 2017-011 the Tentative Map for the Five Creek prepared by Cinquini & Passarino, Inc. (the “Tentative Map”), subject to certain conditions of approval (“Conditions”); WHEREAS, on January 24, 2017, the City Council of the City of Rohnert Park adopted Ordinance No. 903, approving a Development Agreement (“Development Agreement”) between the City of Rohnert Park and (Developer); WHEREAS, the Developer has submitted the Final Map on behalf of the City for the Five Creek Subdivision (“Map”), consisting of 135 multi-family units, a hotel, a fire station, a commercial parcel, and a park on five parcels, for filing; WHEREAS, the Map has been reviewed by the City Engineer and City Surveyor and has been determined to be technically accurate and in conformance with the California Subdivision Map Act, the City’s Municipal Code requirements set forth in Title 16; WHEREAS, pursuant to Municipal Code section 16.10.200, the City has submitted (1) a certificate from the County Tax Collector stating that all taxes and assessments due have been paid pursuant to Government Code section 66492, and (2) verification that no security for taxes and assessment need to be executed and filed with the Clerk of the County Board of Supervisors pursuant to Government Code section 66493. WHEREAS, the Developer has submitted all required security on behalf of City in connection with approved development, and purchase and sale agreements; WHEREAS, the Developer has submitted all required certificates and submittals and paid all required fees; WHEREAS, the Map includes the following offers of dedication: 1) Lot 1- Public Park 2) Public Right-Of-Way (portion of Carlson Avenue) 3) Public Utility Easements 4) Water Line Easements 5) Sidewalk Easements; ( 2 ) 2017-091 WHEREAS, the Developer has submitted improvement plans for the public improvements required by the Development Agreement and its Conditions of Approval, which are currently under review; WHEREAS, in the interest of complying with the time frames established the Purchase and Sale Agreement, a Deferred Improvement Agreement, as authorized by Municipal Code section 16.16.040 will be used to guarantee the construction of the required public improvements and assigned to Purchaser at the close of escrow. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Rohnert Park that: 1. The Deferred Improvement Agreement included as Exhibit A to this Resolution and incorporated by reference, is hereby approved subject to minor revisions approved by the City Attorney. 2. The City Council hereby finds as follows with the respect to the Tentative and Final Maps: a. The Final Map is determined to be consistent with the City’s Municipal Code and the Subdivision Map Act. b. The Final Map is in substantial conformance with the Tentative Map and all Conditions required to be completed prior to filing the final maps have been met. 3. The Final Map for the Five Creek Subdivision, which is attached hereto and incorporated by this reference as Exhibit B, is hereby approved and the City Council accepts, subject to improvement, the Offers of Dedication for Public Right-of-Way, Public Park, Public Utility Easements, Water Line Easements, and Public Sidewalk Easements as shown on the Map. 4. The Mayor is hereby authorized to sign the Deferred Improvement Agreement and the Final Map as the current property owner on behalf of the City of Rohnert Park 5. The City Manager is hereby authorized to take any and all further actions to effectuate the recordation of the Map in compliance with the Conditions. ( 3 ) 2017-091 DULY AND REGULARLY ADOPTED this 25th day of July, 2017. CITY OF ROHNERT PARK ____________________________________ Jake Mackenzie, Mayor ATTEST: ______________________________ Caitlin Saldanha, Deputy City Clerk Attachments: Exhibit A and Exhibit B AHANOTU: _________ BELFORTE: _________ CALLINAN: _________ STAFFORD: _________ MACKENZIE: _________ AYES: ( ) NOES: ( ) ABSENT: ( ) ABSTAIN: ( ) Exhibit A 1246596v2 80078/0024 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City of Rohnert Park 130 Avram Avenue Rohnert Park, California 94928-2486 Attention: City Clerk ) ) ) ) ) ) ) ) APN 143-040-124 (Space Above This Line for Recorder's Use Only) Exempt from recording fee per Gov. Code § 27383. DEFERRED IMPROVEMENT AGREEMENT CITY OF ROHNERT PARK THIS DEFERRED IMPROVEMENT AGREEMENT ("Deferred Improvement Agreement") is entered into as of ____________________________ ("Effective Date") by and between CITY OF ROHNERT PARK in its capacity as owner of the Property (defined below) ("Owner") and the CITY OF ROHNERT PARK in its capacity as a municipal corporation of the State of California ("City"), pursuant to Rohnert Park Municipal Code, Title 16 Subdivisions, Chapter 16.16 Design and Improvements, section 16.16.040 Deferred Improvement Agreements. RECITALS A. Owner is the owner of real property located within the corporate limits of the City located at the intersection of Labath and Carlson Avenues being more particularly described as Sonoma County Assessor’s Parcel 143-040-124 ("Property"). B. Owner and MJW Investments, a California limited liability partnership ("MJW Investments") have entered into a Purchase and Sale Agreement dated August 11, 2015 (“Purchase and Sale Agreement"), which has been amended and assigned several times whereby MJW Investments’ successor in interest, Stadium RP Development Partners (“Purchaser”) has agreed to purchase approximately 12.3 acres of the “Property”. C. The City has approved Tentative Parcel Map application PLSD16-0001 for the Property ("Tentative Parcel Map") via City Council Resolution Number 2017-11 adopted January 10, 2017 containing certain conditions of approval ("Resolution"). The Tentative Parcel Map and Resolution are collectively referred to herein as the "Tentative Parcel Map with Approvals." The Tentative Parcel Map with Approvals requires design and construction of certain improvements as further set forth thereon and therein ("Improvements"). D. The Tentative Parcel Map with Approvals contemplates that the Purchaser is generally responsible for the construction of the Improvements. The City is currently reviewing the construction plans for the Improvements ("Improvement Plans"). E. Per the Conditions of Approval for the Tentative Parcel Map, the Improvement Plans are to be secured by an Improvement Agreement prior to approval of the Final Map. F. Rohnert Park Municipal Code Section 16.16.040 provides that a Deferred Improvement Agreement may be used to provide the security required by the Conditions of -2- 1246596v2 80078/0024 Approval for the Tentative Parcel Map. G. The Purchase and Sale Agreement anticipates that the Purchaser shall complete its acquisition within two years of August 11, 2015, or by August 11, 2017. As such, City (in its capacity as Owner) is requesting that the City (in its capacity as a municipal corporation) proceed with issuance of a final parcel map in substantial conformance with the Tentative Parcel Map with Approvals, a copy of which is attached hereto and incorporated herein as Exhibit A. H. In the interest of meeting the contractual obligations of the Purchase and Sale Agreement, the City is willing to issue the Final Map for the Property, contingent on concurrent execution of this Deferred Improvement Agreement. Any City approval granted in connection with development of the Property will be conditioned on and require compliance with this Deferred Improvement Agreement, the Tentative Parcel Map with Approvals, and applicable sections of the Rohnert Park Municipal Code. The Deferred Improvement Agreement will run with the land and its obligations shall be transferred to Purchaser upon its purchase of the Property. NOW THEREFORE, in consideration of the faithful performance of the terms and conditions set forth herein, it is agreed as follows: 1. Timing of Improvements. The design and construction of the Improvements are hereby deferred. Owner shall begin construction of Improvements within ninety days of the receipt of the notice to proceed from the City, or as mutually agreed upon in writing, between Owner and the City. City, in its discretion, may issue a notice to proceed for Improvements related to a particular parcel, without issuing a notice to proceed for Improvements related to other parcels. 2. Default by Owner and Remedy by City. In the event of a default by Owner, the City is authorized to cause construction to be done and charge the entire cost and expense to Owner, including interest from the date of notice of the cost and expense until paid. The interest rate shall be consistent with the requirements of Article 15, Section 1 of the California State Constitution. 3. Recordation; Notice to Successors and Assigns. (a) This Deferred Improvement Agreement shall be recorded with the Sonoma County recorder at the expense of Owner, concurrently with the Five Creek Subdivision, and shall constitute notice to all successors and assigns of title to the Property of the obligations set forth therein. This Deferred Improvement Agreement binds the successors in interest and assigns of each of the parties thereto until the Improvements have been completed and certified complete by the City of Rohnert Park; provided, however, that obligations hereunder may be transferred as set forth in Section 13(c), below. (b) The obligations under this Deferred Improvement Agreement shall run with the Property and constitute a lien against the Property in such amount, including interest, as provided in Rohnert Park Municipal Code section 16.16.070, and subject to foreclosure in the event of a default in payment. The intent of this Deferred Improvement Agreement is to create an obligation for the Owner and its successors and assignes (including the project proponent) to design and construct the Improvements, for the benefit of the City and the public. Establishment and maintenance of the security for the obligations under this Deferred Improvement Agreement is dependent upon separation of the lien interest and fee title interest in the Property. No merger is intended nor shall occur by any current or future ownership of the underlying fee title interest -3- 1246596v2 80078/0024 in the Property or any portion thereof, by the City or its successors or assigns. City reserves the right, upon written notice to the applicable Owner(s), to require that the form of security for the Improvements (or portions thereof applicable to particular parcels or transferred portions of the Property per Section 13(c), below) be changed from the foregoing lien to any of the methods identified in Rohnert Park Municipal Code section 16.16.070.C, as required at the option of and subject to the approval of the City attorney. 4. Litigation. To the extent Owner is no longer the City of Rohnert Park in any capacity, then in the event of litigation occasioned by default of Owner, Owner agrees to pay all costs involved, including reasonable attorney fees. Those costs shall become a part of the lien against the Property. 5. Design and Construction of Improvements. The construction of deferred Improvements shall conform to Rohnert Park Municipal Code, Title 16 and all applicable provisions of Rohnert Park Municipal Code in effect at the time of construction. 6. Remainder. For a designated remainder parcel, the fulfillment of construction requirements for Improvements is not required until the City is ready to issue a permit or other grant of approval for development of the remainder parcel or until the construction of the Improvements is required under an agreement between Owner and the City. In the absence of an agreement, the City may require fulfillment of the construction requirements within a reasonable time following approval of the final map and before the issuance of a permit or other grant of approval for the development of a remainder parcel upon a finding by the City that fulfillment of the construction requirements is necessary for reasons of (a) the public health and safety; or (b) The required construction is a necessary prerequisite to the orderly development of the surrounding area. 7. Non-Performance and Costs. If Owner fails to complete the Improvements within the time specified in this Deferred Improvement Agreement or any approved extension, or to act promptly or in accordance with this Deferred Improvement Agreement, or should an urgency arise that requires the repair or replacement of any Improvements, the City, at its option, may proceed to complete the Improvements by contract or otherwise and Owner, immediately upon demand, shall pay the costs and charges related to said work, together with a 15% overhead charge. 8. Remedies. The City may bring legal action to (a) compel performance of this Deferred Improvement Agreement; (b) recover costs of completing the Improvements, including the City's administrative costs. If legal action is brought by the City against an Owner, such Owner shall pay all of the costs of suit and reasonable attorneys' fees, and all other expenses of litigation as determined by the Court. 9. Inspection by City. An inspector employed by the City shall inspect all work to be done at the cost and expense of Owner. Owner shall pay the City, on demand, the cost of the inspection in accordance with relevant City ordinances and provisions of the Rohnert Park Municipal Code. 10. Property Acquisition. If Owner is unable to acquire property required (if any) for the construction of the Improvements, Owner agrees to execute the standard City Contract for Real Property Acquisition to provide for acquisition through eminent domain. 11. Indemnification. Owner agrees to indemnify, defend and hold the City, its elective and appointed boards, commissions, officers, agents, employees and consultants, -4- 1246596v2 80078/0024 harmless from and against any and all claims, liabilities, losses, damages or injuries of any kind (collectively, "Claims") arising out of Owner's, or Owner's contractors', subcontractors', agents' or employees', acts, omissions, or operations under this Deferred Improvement Agreement, including, but not limited to, the performance of the work of the Improvements, whether such acts, omissions, or operations are by Owner or any of Owner's contractors, subcontractors, agents or employees. The aforementioned indemnity shall apply regardless of whether or not City has prepared, supplied or approved plans and/or specifications for any Improvements and regardless of whether any insurance required under this Deferred Improvement Agreement is applicable to any Claims. The City does not and shall not waive any of its rights under this indemnity provision because of its acceptance of any security (whether as a lien against the Property, bonds or insurance) required under the provisions of this Deferred Improvement Agreement. 12. Notices. Formal written notices, demands, correspondence and communications between City and Owner shall be sufficiently given if: (a) personally delivered; or (b) dispatched by next day delivery by a reputable carrier such as Federal Express to the offices of City and Owner indicated below, provided that a receipt for delivery is provided; or (c) dispatched by first class mail, postage prepaid, to the offices of City and Owner indicated below. Such written notices, demands, correspondence and communications may be sent in the same manner to such persons and addresses as either party may from time-to-time designate by next day delivery or by mail as provided in this section. City: City of Rohnert Park 130 Avram Avenue Rohnert Park, CA 94928 Attn: City Manager with a copy to: City of Rohnert Park 130 Avram Avenue Rohnert Park, CA 94928 Attn: City Attorney Owner: City of Rohnert Park 130 Avram Avenue Rohnert Park, CA 94928 Attn: City Manager with a copy to: City of Rohnert Park 130 Avram Avenue Rohnert Park, CA 94928 Attn: City Attorney Notices delivered by deposit in the United States mail as provided above shall be deemed to have been served two (2) business days after the date of deposit if addressed to an address within the State of California, and three (3) business days if addressed to an address within the United States but outside the State of California. 13. Miscellaneous Terms and Provisions. (a) Severability. If any provision of this Deferred Improvement Agreement is held, to any extent, invalid, the remainder of this Deferred Improvement Agreement shall not be affected, except as necessarily required by the invalid provision, and shall remain in full force and effect. -5- 1246596v2 80078/0024 (b) Entire Agreement. This writing contains a full, final and exclusive statement of the contract of the parties regarding deferral of the Improvements. This Deferred Improvement Agreement may not be altered, amended or modified without the written consent of both parties hereto. (c) Transfers; Assignments; Binding Upon Heirs, Successors and Assigns. If the Property or any portion thereof is transferred (whether voluntarily, involuntarily, by operation of law, or otherwise), then the terms, covenants and conditions of this Deferred Improvement Agreement shall be binding upon Owner's successors and assigns as to the Property or portions thereof transferred, and Owner's obligations hereunder as to those portions of the Property transferred, shall terminate upon transfer thereof. If an Owner ceases to have a legal interest in the Property or any portion thereof, then a notice to that effect shall be filed with the City, however City's prior written approval of any such transfer is not required. (d) Headings. Section headings in this Deferred Improvement Agreement are for convenience only and are not intended to be used in interpreting or construing the terms, covenants or conditions contained in this Deferred Improvement Agreement. (e) Governing Law; Venue. This Deferred Improvement Agreement shall be construed and enforced in accordance with the laws of the State of California, without reference to choice of law provisions. Any legal actions under this Deferred Improvement Agreement shall be brought only in the Superior Court of the County of Sonoma, State of California. (f) Authority. Each party executing this Deferred Improvement Agreement on behalf of a party represents and warrants that such person is duly and validly authorized to do so on behalf of the entity it purports to bind and if such party is a partnership, corporation or trustee, that such partnership, corporation or trustee has full right and authority to enter into this Deferred Improvement Agreement and perform all of its obligations hereunder. If there is more than one signer of this Deferred Improvement Agreement as Owner, their obligations are joint and several. -6- 1246596v2 80078/0024 IN WITNESS WHEREOF, City and Owner have executed this Deferred Improvement Agreement as of the Effective Date. "CITY" CITY OF ROHNERT PARK, a California municipal corporation Dated: By: Darrin Jenkins, City Manager Authorized by City Council Resolution No. 2017- ______ adopted by the Rohnert Park City Council on __________________, 2017. APPROVED AS TO FORM: City Attorney Dated: "OWNER" CITY OF ROHNERT PARK, a California municipal corporation By: Jake Mackenzie, Mayor Authorized by City Council Resolution No. 2017- _____ adopted by the Rohnert Park City Council on __________________, 2017. SIGNATURES MUST BE NOTARIZED -7- 1246596v2 80078/0024 EXHIBIT A Attached copy of Five Creek Subdivision ITEM NO. 7C2 1 Meeting Date: July 25, 2017 Department: Development Services Submitted By: Mary Grace Pawson, P.E., Director of Development Services Prepared By: Vanessa Marin Garrett, P.E., Civil Engineer Agenda Title: Consideration of a Standard Reimbursement Agreement RECOMMENDED ACTION: Approve a Standard Formal Reimbursement Agreement and Authorize the City Manager to Execute Future Agreements. BACKGROUND: In the past for large development projects, staff has established formal reimbursement agreements with the Developer in order to streamline the invoicing process and make it easier to set up plan reviews. The standard fee schedule that the Development Services Department established does not generate sufficient funds to cover these large projects. In the past, the City has approved formal reimbursement agreements for larger development projects, and a template has been created that meets staff’s needs. ANALYSIS: Rohnert Park Municipal Code, Section 3.32.050 - Cost recovery fees—Collection allows for recovery of costs through agreements with project applicants, specifically stating: “For any cost recovery fee exceeding one thousand dollars, the city may enter into an agreement with the applicant to provide for payment, with appropriate allowance for indirect costs and overhead, as the costs giving rise to the cost recovery fees are incurred. The form and content of such agreement is subject to city council approval.” The proposed Reimbursement Agreement will provide clarity about the responsibilities of both the Project applicant and the City in terms of invoicing, payments, deposits, and costs incurred by the City eligible for reimbursement. The Agreement also consolidates the individual deposits collected by each application submitted and consolidates them into one account. The Reimbursement Agreement requires that the applicant provide a security deposit in an amount typically requested in Reimbursement Agreements the City has with other developers of major projects. Allowing staff to execute this formal reimbursement agreement will streamline cost- recovery for the City. It should be noted that approval of the Reimbursement Agreement and payment of eligible costs does not construe a commitment by the City to grant or issue any project approvals or any other preliminary or formal approvals in connection with the Project. STRATEGIC PLAN ALIGNMENT: This action is consistent with Strategic Plan Goal D – Continue to Develop a Vibrant Community. This action supports the processing applications for upcoming planned developments. Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 7C2 2 OPTIONS CONSIDERED: 1. Approve a Standard Reimbursement Agreement (recommended action). This action is consistent with the City’s past practice for managing major development proposals, streamlines permit processing and invoicing, and provides the additional security deposit necessary when the City processes several applications for one applicant. 2. The City may retain the existing Informal Reimbursement Agreements for each application executed by large development Applicants as the binding contract for payment by the applicant of costs incurred by the City to process their Project. This option is not recommended as the Informal Reimbursement Agreement is not as detailed with respect to the costs eligible for reimbursement, and the timelines and procedures for invoicing and payment. The Informal Reimbursement Agreement also carries a lower security deposit which increases the City’s risk of incurring unreimbursed costs while processing complex applications for this development. FISCAL IMPACT/FUNDING SOURCE: The Reimbursement Agreement provides for all reimbursement of all of the City’s Project processing costs, so there will be no net fiscal impact to the General Fund. Upon receipt of developer reimbursements, the Finance Director will make appropriations and increase budgeted revenue as necessary to cover the costs of processing the Project. Department Head Approval Date: 06/30/2017 Finance Director Approval Date: 06/28/2017 City Attorney Approval Date: 06/28/2017 City Manager Approval Date: 07/17/2017 Attachments: 1. Resolution and Exhibit A to Resolution: Reimbursement Agreement RESOLUTION NO. 2017-092 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROHNERT PARK APPROVING A STANDARD FORMAL REIMBURSEMENT AGREEMENT AND AUTHORIZING THE CITY MANAGER TO EXECUTE WHEREAS, In the past, the City has established formal reimbursement agreements with Developers for large scale projects in order to streamline the invoicing process and plan reviews; and WHEREAS, the formal reimbursement agreement provides clarity about the responsibilities of both the Project applicant and the City in terms of invoicing, payments, deposits, and costs incurred by the City eligible for reimbursement, as well as consolidates developer deposits; and WHEREAS, allowing staff to execute this formal reimbursement agreement as needed will streamline the cost-recovery effort for the City; and WHEREAS, approval of a formal reimbursement agreement and payment of eligible costs does not construe a commitment by the City to grant or issue any project approvals or any other preliminary or formal approvals in connection with a project; and NOW THEREFORE BE IT RESOLVED by the City Council that the City Manager is hereby authorized and directed, as needed, to execute the standard formal reimbursement agreement attached hereto as Exhibit A and incorporated herein, subject to minor revisions approved the City Attorney or City Manager. BE IT FURTHER RESOLVED that upon receipt of developer reimbursements, the Finance Director is authorized to make appropriations and increase budgeted revenue as necessary to cover the costs of the processing the Project. DULY AND REGULARLY ADOPTED this 25th day of July, 2017. CITY OF ROHNERT PARK ____________________________________ Jake Mackenzie, Mayor ATTEST: _____________________________ Caitlin Saldanha, Deputy City Clerk Attachment: Exhibit A AHANOTU: _________ BELFORTE: _________ CALLINAN: _________ STAFFORD: _________ MACKENZIE: _________ AYES: ( ) NOES: ( ) ABSENT: ( ) ABSTAIN: ( ) Exhibit A to Resolution REIMBURSEMENT AGREEMENT THIS REIMBURSEMENT AGREEMENT ("Agreement") is made and entered into as of the ___ day of July, 2017, by and among the City of Rohnert Park (“City”), a municipal corporation, and ______________________ (“Developer”), a California Limited Liability Company. RECITALS Developer has submitted or plans to submit an application for development of _________________________________within _______________________________ in Rohnert Park, California at _____________, APN _________________(“Proposed Project”). The project name at time of application is ______________________________. The site is illustrated in Attachment A, which is attached hereto and incorporated by this reference. Development of the Proposed Project requires or contemplates the following approvals, documents and processing activities (collectively, "Project Approvals"): (1) <Insert items here> A. Prior to the execution of this Agreement, City and Developer had several Informal Reimbursement Agreements ("IRA"), pursuant to which City has been processing the Proposed Projects, and pursuant to which the Developer has deposited with City $<Insert Deposit Amount> to serve as a deposit for City’s costs incurred in processing the Project Approvals. As of <Insert date here>, City has incurred $<dollar amount> in processing costs. B. Continued processing of the Proposed Projects and processing of the Project Approvals will require City to incur various costs and expenses including but not limited to staff time, consultant costs, legal fees and costs, and other assorted costs to process the Proposed Project. C. In order to facilitate processing of the Project, Developer desires to reimburse City for all of its costs in connection with the Project Approvals, including but not limited to: legal fees, staff time and consultant costs incurred in connection with the Project Approvals; costs unbilled and/or unreimbursed by Developer in connection with Project Approvals covered by this Reimbursement Agreement; and any litigation costs incurred as a result of the processing of the Proposed Project and any Project Approvals. D. The parties to this agreement wish to establish the terms and conditions of such reimbursement obligation. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the parties hereby agree as follows: Exhibit A to Resolution 1. Purpose of Agreement. The purpose of this Agreement is to provide for payment by Developer of all legal, staff and consultant costs directly or indirectly incurred by City in connection with the Proposed Project, including legal defense costs, if any. 2. Developer Reimbursement Obligation. Developer shall reimburse City for the following costs (collectively, “Eligible Costs") incurred in connection with the Proposed Project (including any and all staff and or legal costs incurred following approval of the Proposed Project to process the project to completion): a. City staff time, processing costs, consultant costs and legal fees associated with processing and implementing all Project Approvals and Mitigation Measures including, but not limited to: legal fees and costs incurred in connection with the legal defense of any Project Approvals; legal fees and costs incurred in connection with the negotiation, drafting, implementation, and defense of the proposed Development Agreement; and fees and costs payable to outside consultants in connection with the negotiations of the proposed Development Agreement. b. A 7% administrative fee charged on costs of outside consultants and legal services which are included in subsections (a) above; and c. Fees and costs which City has incurred but which have either not yet been billed for reimbursement or which have not yet been reimbursed to the City. The City has made a good faith estimate to summarize all such fees and costs more particularly described in Attachment B, which is attached hereto and incorporated by this reference. The parties acknowledge that the figures on Attachment B constitute the City’s good faith effort to summarize all such fees and costs, and Developer agrees that fees or costs which have inadvertently been omitted from Attachment B, as well as those fees and costs incurred between <Insert Date that Attachment B was updated> and effective date of this Agreement, and are subsequently submitted to Developer, shall be construed as Eligible Costs pursuant to this subsection c. 3. Payment of Eligible Costs. City shall submit to Developer a copy of each invoice, bill, demand or other evidence (“Invoice”) that the City has incurred for Eligible Costs or other reasonable substantiation of such Eligible Costs. Each such Invoice of Eligible Costs shall be paid in full by Developer, without deduction or offset, within thirty (30) calendar days of the date of the Invoice. Developer covenants and agrees that failure to pay such Eligible Costs to City in full within thirty (30) calendar days of the date of such Invoice will result in a Late Charge in accordance with Section 4 of this Agreement, as well as in the cessation of processing the Proposed Project in accordance with Section 9 of this Agreement. Developer further covenants and agrees that, if as a result of a failure to pay an Invoice of Eligible Costs, City ceases processing the Proposed Project in accordance with Section 9, Developer shall not directly or indirectly initiate any litigation against City or its employees, agents, or volunteers for the cessation or delay in processing the Proposed Project. 4. Late Charge. Developer acknowledges that the late payment of any Eligible Costs will cause City to incur additional costs, including administration and collection costs and processing and accounting Exhibit A to Resolution of expenses (“Delinquency Costs”). If City has not received payment of all Eligible Costs within thirty (30) calendar days of the date of the Invoice, the Invoice is considered overdue and Developer shall immediately be charged a late charge of five percent (5%) of the delinquent amount. The City is then authorized to pay such Late Charge from the Security Deposit along with the amount of the unpaid Invoice of Eligible Costs in accordance with Section 5. City and Developer recognize that the expenses that City shall suffer as a result of Developer's failure to make timely payments is difficult to ascertain and agree that said five percent (5%) late charge represents a reasonable estimate of the Delinquency Costs that would be incurred by City. City's acceptance of any such late charge does not equate with a waiver of Developer's default with respect to the overdue amount, or prevent City from exercising any rights and remedies available under this Agreement. 5. Security Deposit. Upon signature of this Agreement, Developer shall deposit with City the sum of <Insert Deposit Amount> ($XXXX) in cash or other immediately available funds (“Security Deposit"), as security for Developer's obligation to pay all Eligible Costs, as provided herein. The parties acknowledge that, in connection with the IRA, Developer deposited <insert dollar amount deposited> ($<numeric dollar amount deposited>) cash with the City, of which $<cost incurred amount> has been used to pay for eligible costs incurred by the City through <last date of cost incurred>. Funds remaining in the IRA deposit as of the date of signature of this Agreement shall be applied to the Security Deposit required by this Agreement. To the extent additional funds are required to meet the $<Insert Deposit Amount> Security Deposit amount required by this Agreement, Developer shall deposit such additional amounts upon signature of this Agreement. The Security Deposit shall be subject to the following: a. Developer agrees that if Developer does not pay when due the full amount of each Invoice of Eligible Costs as provided in Section 3 above, then the City is authorized to pay such amount from the Security Deposit, which may include a Late Charge in accordance with Section 4. b. If the City withdraws from the Security Deposit, the City shall immediately notify the Developer in writing that it has used the Security Deposit to pay all or a portion of the bill, invoice, demand or other evidence of Eligible Costs, and the Developer shall thereafter have fourteen (14) calendar days from the date of such written notice to deposit with City, in cash, an amount necessary to restore the Security Deposit to its full amount of $<Insert Security Deposit Amount>. If the Developer fails to replenish the Security Deposit within said due date, City shall have no obligation to continue processing the Proposed Project or to incur any additional Eligible Costs. c. If the amount of the unpaid Invoice of Eligible Costs and Late Charge exceeds the available funds in the Security Deposit, the City shall immediately notify the Developer in writing that it has used the Security Deposit to pay all or a portion of the bill, invoice, demand or other evidence of Eligible Costs, and the Developer shall have fourteen (14) calendar days from the date of such written notice to deposit with City, in cash, an amount necessary to restore the Security Deposit to its full amount of $<Insert Security Deposit Amount>, plus the full amount of the unpaid Invoice of Eligible Costs and applicable Late Charge. If the Developer Exhibit A to Resolution fails to fully replenish the Security Deposit, pay the full Invoice of Eligible Costs and applicable Late Charge within said due date, City shall have no obligation to continue processing the Proposed Project or to incur any additional Eligible Costs. d. Developer further covenants and agrees that, if as a result of reduction of the Security Deposit to zero dollars or failure to replenish, City ceases processing the Proposed Project in accordance with Section 9, Developer shall not directly or indirectly initiate any litigation against City or its employees, agents, or volunteers for the failure to process or for delay in processing the Proposed Project following such reduction or failure to replenish. e. If this Agreement is terminated as provided in Section 8 below and all activities related to Project Approvals have ceased and the City is not continuing to incur costs related to the project, City shall return to Developer within ninety (90) calendar days following the effective date of termination that portion of the Security Deposit that has not been expended or committed by City as provided herein, if any. 6. No Commitment as to Future Approvals. Nothing in this Agreement shall be construed as a commitment to grant or issue any Project Approvals or any other preliminary or formal approvals in connection with the Proposed Project or to enter into the proposed Development Agreement or any other agreements. Developer acknowledges and agrees that nothing in this Agreement limits City's discretion, in any manner, with respect to any aspect of the Proposed Project, the proposed Development Agreement, or the proposed real estate transaction and fee credit agreements. Developer agrees that it shall remain obligated to pay all Eligible Costs, regardless of whether any aspect of the Proposed Project is approved and regardless of whether City and Developer enter into the proposed Development Agreement or any other agreements. Notwithstanding the aforementioned, City shall in good faith expeditiously and with all diligence process the Project Approvals. 7. Indemnity. Developer shall, to the greatest extent authorized by law, defend (with counsel approved by City, which approval shall not be unreasonably withheld), indemnify, and hold harmless the City, its officials, employees, volunteers and agents from and against any and all loss, liability, expenses, claims, costs (including reasonable attorneys’ fees), suits and damages of every kind nature, and description, directly or indirectly arising from any third party legal challenge to the Project Approvals, or the implementation of this Agreement. Developer may defend against any such third party legal challenge as a Real Party in Interest using counsel of Developer's choice, and Developer and City agree to cooperate in the joint defense of the Project Approvals or the implementation of this Agreement. Developer's indemnity obligations under this Section 7 shall survive the expiration or termination of this Agreement. 8. Termination. Developer may terminate this Agreement by providing thirty (30) calendar days written notice to City. If Developer is in default of any of its obligations under this Agreement and fails to cure such default within fourteen (14) calendar days following written notice from City, then City may terminate this Agreement by notice to Developer and, thereafter, City shall have no further obligation to process Project Approvals for the Proposed Project or to continue with negotiation and drafting of the proposed Development Agreement or any other agreements. Developer shall be Exhibit A to Resolution responsible for the payment of Eligible Costs incurred by City up to and including the date of termination regardless of which party terminates this agreement. 9. Cessation of Processing. Developer acknowledges and agrees that City may, in its sole discretion, cease processing the Proposed Project, the Project Approvals , and all negotiations in connection with the proposed Development Agreement or any other agreements , in any of the following events: a. This Agreement is terminated by either party following notice and expiration of any applicable cure periods as provided herein; or b. Developer fails to pay such Eligible Costs to City in full within thirty (30) calendar days of the date of such Invoice; or c. The Deposit amount is reduced to zero and Developer fails to replenish the Deposit upon request by City. Developer further covenants and agrees that if City ceases processing the Project Approvals for any of the foregoing reasons, Developer shall not directly or indirectly initiate any litigation against City or its employees, agents, or volunteer for the failure to process or for delay in processing such applications following such Agreement termination. 10. Attorneys’ Fees. If any legal action is brought by either party to interpret or enforce any terms or provisions of this Agreement, the prevailing party shall be entitled to its reasonable attorneys’ fees and costs. 11. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the matters set forth herein. Any amendments, modifications, or changes to this Agreement shall be in writing and signed by both parties. 12. Waivers. Waiver of a breach or default under this Agreement shall not constitute a continuing waiver or a waiver of a subsequent breach of the same or any other provision of this Agreement. 13. Severability. If any provision of this Agreement or the application of any such provision shall be held by a court of competent jurisdiction to be invalid, void or unenforceable to any extent, the remaining provisions of this Agreement and the application thereof shall remain in full force and effect and shall not be affected, impaired or invalidated. 14. CEQA Processing. Developer acknowledges and agrees that the City is the lead agency under CEQA, that the environmental review document(s), including but not limited to, an Initial Study, Environmental Impact Report (including project or program level review, supplemental EIR, subsequent EIR, or addendum), mitigated negative declaration, negative declaration, and/or notice of exemption, must reflect City's independent judgment and that City retains full discretion with respect to all findings to be made in connection therewith. 15. Successors and Assigns. This Agreement shall be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns. Exhibit A to Resolution 16. Jurisdiction. This Agreement shall be administered and interpreted under the laws of the State of California without regard to its choice of law rules. Jurisdiction and venue of litigation arising from this Agreement shall be in the County of Sonoma, State of California. 17. Notices. Notices required by this Agreement shall be personally delivered, mailed, postage prepaid, or mailed via nationally recognized overnight courier as follows: To the Developer: XXXXX with a copy to: XXXXX and to: XXXXX To the City: XXXXX with a copy to: Burke, Williams & Sorensen, LLP 1901 Harrison Street, 9th Floor Oakland, CA 94612 Attn: Michelle Marchetta Kenyon Tel: (510) 273-8780 Fax: (510) 839-9104 Notices given by personal delivery shall be effective immediately. Notices given by overnight courier shall be effective upon the date of delivery. Notices given by mail shall be deemed to have been delivered five days after having been deposited in the United States mail. Any party may change its address for notice by written notice to the other party in the manner provided in this paragraph 17. 18. Interpretation. The titles to the sections of this Agreement are not a part of this Agreement and shall have no effect upon the construction or interpretation of any part of this Agreement. As used in this Agreement, masculine, feminine or neuter gender and the singular or plural number shall each be deemed to include the others where and when the context so dictates. The word "including" shall be construed as if followed by the words “without limitation." This Agreement is the product of negotiations among the parties, and it shall not be construed as if it had been prepared by one of the parties, but rather as if all of the parties have prepared the same. Any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement. 19. Authority. Each person executing this Agreement covenants and warrants that (i) the party on whose behalf he or she is signing is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (ii) the party has Exhibit A to Resolution and is duly qualified to do business in California, (iii) the party has full corporate, partnership, trust, association or other power and authority to enter into this Agreement and to perform all of its obligations hereunder, and (iv) each person (and all of the persons if more than one signs) signing this Agreement is duly and validly authorized to do so. 20. Counterparts. This Agreement may be executed in counterparts. 21. Assignment of Claims. To the extent City determines that it may have Claims against any Project Consultant in connection with the Proposed Project, City may, upon written request by Developer, assign such Claims to Developer. As used herein, “Project Consultant” means any consultant, contractor, or other third party whose work product gives rise to any Eligible Cost or who is hired by City in connection with the Project Approvals; and “Claims” means any and all claims, potential claims, causes of action, and potential causes of action for breach of contract and/or professional negligence, regardless of whether such claims or causes of action accrue prior to or after the effective date of this Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] Exhibit A to Resolution IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CITY: CITY OF ROHNERT PARK, a Municipal Corporation City Manager Per Resolution No. __________ adopted by the Rohnert Park City Council at its meeting of July 25, 2017. APPROVED AS TO FORM: City Attorney ATTEST: City Clerk DEVELOPER: XXXXX By: (Signature) (Date) (Print name and title) Exhibit A to Resolution ATTACHMENT A PROPERTY DESCRIPTION <PROPERTY ADDRESS> <APN> Exhibit A to Resolution ATTACHMENT B PROJECT EXPENSES INCURRED [INSERT PROJECT EXPENSES SUMMARY HERE] ITEM NO. 7C3 1 Meeting Date: July 25, 2017 Department: Finance Submitted By: Betsy Howze, Director of Finance Prepared By: Leo Tacata, Senior Analyst Agenda Title: Appropriation to Distribute Graton Mitigation Fund Community Investment Contribution to Designated Tribal Charities RECOMMENDED ACTION: Consider for approval and authorize by resolution the Director of Finance to increase appropriations for Fiscal Year 2017-2018 within Casino Mitigation Recurring Contributions Special Revenue Fund 188 for the purpose of distributing Community Investment Contribution funds to designated organizations per MOU Section 4.2.2. BACKGROUND: On April 17, 2013, the City approved the First Amended and Restated Memorandum of Understanding by and between the City of Rohnert Park and the Federated Indians of Graton Rancheria (“MOU”) with the Federated Indians of Graton Rancheria (“Tribe”) to facilitate the mitigation of impacts resulting from the Graton Resort and Casino. As an intergovernmental agreement, the MOU provides that the Tribe, through the Graton Mitigation Fund, designates contributions to the City for certain purposes. One of these purposes is the “Community Investment Recurring Contribution,” which consists of a quarterly recurring contribution to charitable or other organizations which enhance the City, Sonoma State University, or otherwise mitigates the impacts of the Casino on Rohnert Park. Section 4.2.2 of the MOU permits the Tribe to make the sole determination of the grantee organizations of these funds. It is important to note that a quarterly Community Investment Recurring Contribution is only received if there are sufficient funds remaining in the Graton Mitigation Fund after guaranteed obligations to the City and County of Sonoma have been met. Although not guaranteed, the estimated contribution is expected to be $250,000 per quarter. The amount of the contribution will be adjusted by the Consumer Price Index on an annual basis. Community Investment Recurring Contribution money is included in the quarterly mitigation payment made to the City by the California State Gambling Control Commission (“State Commission”), which administers the Graton Mitigation Fund. The State Commission will not make payments directly to the charitable organizations. Pursuant to the “Tribal-State Compact between the State of California and the Federated Indians of Graton Rancheria” executed on or about March 27, 2012, which established the Graton Mitigation Fund, the Tribe makes payments to the State Commission; the State Commission then makes payments to the City that will be passed through to the designated organizations. Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 7C3 2 SUMMARY: On June 13, 2017, City Council adopted the Fiscal Year 2017-2018 Budget. The City has established a special revenue account whereby Community Investment Recurring Contribution revenue will be deposited and subsequently distributed to the organizations designated by the Tribe pursuant to MOU Section 4.2.2. The Fiscal Year 2017-2018 Budget anticipates $1.1 million in contributions to be received to the special revenue account. An appropriation is required to distribute any Community Investment Recurring Contribution payments. The recommended action is to fully appropriate the expected annual contribution. This will allow staff to administer the charitable contributions required by the MOU. Staff anticipates that distributions will be made quarterly, following the receipt of quarterly Graton Mitigation Fund payments to the City. OPTIONS CONSIDERED: Option 1: Approve appropriation to distribute Community Investment Recurring Contributions received from the Graton Mitigation Fund to designated charities and organizations. Recommended. This option would allow the City to administer the payments required by MOU Section 4.2.2. Option 2: Do not approve appropriation. City would not have sufficient appropriations to distribute these funds. Monies received in the special revenue fund for Community Investment purposes pursuant to MOU Section 4.2.2 cannot be used for any other purpose. Not Recommended. FISCAL IMPACT/FUNDING SOURCE: The proposed FY 2017-18 Budget Amendment is financed from Fund 188: Tribe Charity Recurring Non-Guaranteed, a special revenue fund specific to MOU Section 4.2.2. Department Head Approval Date: 07/19/2017 City Manager Approval Date: 07/19/2017 City Attorney Approval Date: N/A Finance Director Approval Date: 7/19/2017 Attachments (list in packet assembly order): Resolution authorizing and approving director of finance to increase 2017-18 appropriation to distribute Graton Mitigation Fund community investment contributions to designated organizations pursuant to MOU Section 4.2.2. 1 2017-093 RESOLUTION NO. 2017-093 A RESOLUTION OF THE CITY COUNCIL OF ROHNERT PARK AUTHORIZING AND APPROVING DIRECTOR OF FINANCE TO INCREASE 2017-18 APPROPRIATION TO DISTRIBUTE GRATON MITIGATION FUND COMMUNITY INVESTMENT CONTRIBUTIONS TO DESIGNATED ORGANIZATIONS PURSUANT TO MOU SECTION 4.2.2 WHEREAS, the City of Rohnert Park (“City”) approved and executed the First Amended and Restated Memorandum of Understanding (“MOU”) by and between the City of Rohnert Park and the Federated Indians of Graton Rancheria (“Tribe”) on April 17, 2013; and, WHEREAS, Section 4.2.2 of the MOU provides that the Tribe shall make non- guaranteed recurring contributions to the Graton Mitigation Fund for the purpose of Community Investment to provide funding to charitable or other organizations which enhance the City, Sonoma State University, or otherwise mitigates the impacts of the Casino on Rohnert Park; and, WHEREAS, the Tribe shall designate by written notice which organizations will receive the contributions provided in MOU Section 4.2.2; and, WHEREAS, the City will distribute the contributions provided by MOU Section 4.2.2 to the designated organizations; and, WHEREAS, City Council of the City of Rohnert Park adopted the FY 2017-18 Budget on June 13, 2017; and, WHEREAS, the City Council has the authority to amend the budget. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Rohnert Park as follows: 1. The foregoing recitals are true and correct. 2. The City Council of the City of Rohnert Park does hereby authorize and approve the Director of Finance to increase the following appropriation for FY 2017-18: PROPOSED FY 2017/18 BUDGET APPROPRIATION AMENDMENT Expenditure Account Number Funding Source Account Number Amount Appropriate $1,112,118 to distribute Non- Guaranteed Community Investment Recurring Contribution funds to designated organizations pursuant to MOU Section 4.2.2. 188-0000-400-5450 188-0000-300-3930 $1,112,118.00 3. The Director of Finance is authorized to make any administrative adjustments necessary to process the amendment in accordance with generally accepted accounting principles. 2 2017-093 DULY AND REGULARLY ADOPTED this 25th day of July, 2017. CITY OF ROHNERT PARK ____________________________________ Jake Mackenzie, Mayor ATTEST: _____________________________ Caitlin Saldanha, Deputy City Clerk AHANOTU: _________ BELFORTE: _________ CALLINAN: _________ STAFFORD: _________ MACKENZIE: _________ AYES: ( ) NOES: ( ) ABSENT: ( ) ABSTAIN: ( ) ITEM NO. 7C4 1 Meeting Date: July 25, 2017 Department: Development Services Submitted By: Mary Grace Pawson, Development Services Director Prepared By: Art da Rosa, Deputy City Engineer Agenda Title: Approving the Plans and Specifications for the Redwood & Commerce Rehabilitation (Project Number 2015-23), Awarding the Construction Contract to Ghilotti Bros., Inc. and Related Actions RECOMMENDED ACTION: Adopt a Resolution approving the plans and specifications for the Redwood & Commerce Rehabilitation (Project Number 2015-23), awarding the construction contract to Ghilotti Bros., Inc. and related actions. BACKGROUND: The Redwood & Commerce Rehabilitation Project seeks to rehabilitate Redwood Drive from Copeland Creek to Golf Course Drive and Commerce Boulevard from Rohnert Park Expressway to State Farm Drive. The rehabilitation strategy is consistent with the City’s Pavement Management System, which consists slurry seals, cape seals and asphalt overlays. Staff believes this is a timely project as the roadways are exhibiting signs of failure, and this project will bring both roadways back to good serviceable standards. The project is included in the City’s adopted Capital Improvement Program. ANALYSIS: The City of Rohnert Park Municipal Code Title 3 Chapter 3.04 provides that the City's purchasing functions shall be governed by the City's Purchasing Policy. The City’s Purchasing Policy recognizes that for public works construction projects, the City operates under California Uniform Public Construction Cost Accounting Act (CUPCCAA). In accordance with CUPCCAA, staff posted and published an Invitation to Bidders on June 16, 2017. The engineer’s estimate for the project was $650,000 and the City received two bids listed below. Given the very busy nature of the current construction market, which is causing very rapid increases in construction costs, staff believes the 5.5% difference between the engineer’s estimate and the low bid is acceptable. Contractor Bid Amount Ghilotti Bros., Inc. $686,793.15 Team Ghilotti, Inc. $744,673.32 Staff reviewed the bids for responsiveness and contractor responsibility. Ghilotti Bros., Inc.is a responsible bidder with the license and bonding capacity to complete the work Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 7C4 2 Staff also is requesting that the City Council also authorize the City Manager to execute change orders in amount up to 10% of the project costs to allow for unanticipated changes during construction. This would bring the total contract value to $755,472.47 ($686,793.15 for the base bid and $68,679.32 for contingencies). ENVIRONMENTAL ANALYSIS: The scope of work is road maintenance. The nature of the work will not expand the footprint of the road. This work is exempt from review under Section 15301(c) of the California Environmental Quality Act (CEQA) Guidelines which exempts work in existing highways and streets, sidewalks, gutters, bicycle and pedestrian trail. It is also exempt from review under CEQA Guidelines Section 15032 which exempts replacement or reconstruction projects. STRATEGIC PLAN ALIGNMENT: The recommended option is consistent with Strategic Plan Goal D – Continue to Develop a Vibrant Community. OPTIONS CONSIDERED: 1. Adopt a Resolution approving the plans and specifications for the Redwood & Commerce Rehabilitation (Project Number 2015-23), awarding the construction contract to Ghilotti Bros., Inc. and related actions (recommended action). This action will allow the City to accomplish planned preventative maintenance, consistent with its pavement management program. Do not award the construction contract. This option is not recommended as it will result in deferral of required road maintenance and more expensive rehabilitation costs in the future. FISCAL IMPACT/FUNDING SOURCE: The fiscal impact of the recommended action is $755,472.47. The Redwood & Commerce Rehabilitation (Project Number 2015-23) has a budget of $819,666 of which approximately $38,000 has been expended. The recommended contract, including contingency would bring the total funding commitment for the project to $793,472.47. The funding sources for the project include the Infrastructure Reserve (Fund 640 for $248,165), the Road Refuse Impact Fund (Fund 125 for $354,666) and the Gas Tax Fund (Fund 130 for $216,835). Department Head Approval Date: 07/12 /2017 City Attorney Approval Date: 07/13/2017 Finance Director Approval Date: 07/17/2017 City Manager Approval Date: 07/19/2017 Attachments (list in packet assembly order): 1. Resolution Approving the Plans and Specifications for the Redwood & Commerce Rehabilitation (Project Number 2015-23), Awarding the Construction Contract to Ghilotti Bros., Inc.and Related Actions. 2. Resolution Exhibit A - Construction Contract Agreement 1 RESOLUTION NO. 2017-094 A RESOLUTION APPROVING THE PLANS AND SPECIFICATIONS FOR THE REDWOOD & COMMERCE REHABILITATION (PROJECT NUMBER 2015-23), AWARDING THE CONSTRUCTION CONTRACT TO GHILOTTI BROS., INC. AND RELATED ACTIONS WHEREAS, the Redwood & Commerce Rehabilitation (Project Number 2015-23) includes the rehabilitation of the existing pavement surface on Redwood Drive and Commerce Boulevard; and WHEREAS, the plans and specifications for the Project were prepared by the City’s Engineering Division and approved by the City Engineer; and WHEREAS, the City of Rohnert Park Municipal Code Title 3 Chapter 3.04 provides that the City's purchasing functions shall be governed by the City's purchasing policy; and WHEREAS, consistent with City of Rohnert Park Purchasing Policy Section 3.6.F Contracts for Public Projects which defers to the California Uniform Public Construction Cost Accounting Act (CUPCCAA), an invitation to bid was posted/published on June 16, 2107, for the Project; and WHEREAS, two bids were received on the bid opening date of July 11, 2017; and WHEREAS, Development Services staff determined that Ghilotti Bros., Inc. submitted the lowest cost bid and is the lowest responsive and responsible bidder with a bid amount of $686,793.15; and NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Rohnert Park as follows: 1. The above recitals are true and correct and material to this Resolution. 2. The plans and specifications for the Redwood & Commerce Rehabilitation (Project Number 2015-23) are hereby approved and adopted. 3. The City Council finds that the Project is exempt from review under the California Environmental Quality Act (“CEQA”) because the scope of the project is pavement rehabilitation, and is therefore categorically exempt under CEQA Guidelines section 15301 (Existing Facilities) and 15302 (Replacement or Reconstruction), and directs staff to file a Notice of Exemption for the project. 4. In making its findings the City Council relied upon and hereby incorporates by reference all of the bid materials, correspondence, staff reports and all other related materials. 5. In accordance with California Public Contract Code Section 20160 and following any other applicable laws, the City Council of the City of Rohnert Park hereby finds the bid of Ghilotti Bros., Inc. for the Project to be the lowest, responsive bid and waives any irregularities in such bid in accordance with applicable law. 6. The City Manager is hereby authorized and directed to execute the contract with Ghilotti Bros., Inc. in substantially similar form to Exhibit A, which is attached hereto and incorporated by this reference, for the sum of the base bid for the six hundred eighty six thousand seven hundred ninety three dollars and fifteen cents ($686,793.15) for ( 2 ) 2017-094 construction of the Project in accordance with the bid documents and applicable law upon submission by Ghilotti Bros., Inc. of all documents required pursuant to the Project bid documents. 7. The City Manager is hereby authorized to execute change orders in an amount not to exceed 10% of the base bid or seventy three thousand six hundred fifty nine dollars and thirty two cents ($68,679.32). 8. City staff is hereby directed to issue a Notice of Award to Ghilotti Bros., Inc. for this project. 9. This Resolution shall become effective immediately. 10. All portions of this resolution are severable. Should any individual component of this Resolution be adjudged to be invalid and unenforceable by a body of competent jurisdiction, then the remaining resolution portions shall continue in full force and effect, except as to those resolution portions that have been adjudged invalid. The City Council of the City of Rohnert Park hereby declares that it would have adopted this Resolution and each section, subsection, clause, sentence, phrase and other portion thereof, irrespective of the fact that one or more section, subsection, clause, sentence, phrase or other portion may be held invalid or unconstitutional. DULY AND REGULARLY ADOPTED this 25th day of July, 2017. CITY OF ROHNERT PARK __________________________________ ATTEST: Jake Mackenzie, Mayor _____________________________ Caitlin Saldanha, Deputy City Clerk AHANOTU: _________ BELFORTE: _________CALLINAN: _________ STAFFORD: _________ MACKENZIE: _________ AYES: ( ) NOES: ( ) ABSENT: ( ) ABSTAIN: ( ) Exhibit A C O N T R A C T REDWOOD & COMMERCE REHABILITATION PROJECT NUMBER 2015-23 THIS AGREEMENT, made and entered into this 25th day of July, 2017, by and between Ghilotti Bros., Inc. hereinafter called "Contractor", and the City of Rohnert Park, hereinafter called "City". W I T N E S S E T H : WHEREAS, the City Council of said City has awarded a contract to Contractor for performing the work hereinafter mentioned in accordance with the sealed proposal of said Contractor. NOW, THEREFORE, IT IS AGREED, as follows: 1. Scope of Work: The Contractor must perform all the work and furnish all the labor, materials, equipment and all utility and transportation services required to complete all of the work of construction and installation of the improvements more particularly described in the Resolution adopted by the City Council of said City on July 25, 2017, the items and quantities of which are more particularly set forth in the Contractor's bid therefor on file in the office of the City Clerk, except work to be performed by subcontractors as set forth in the Contractor’s bid and for which the Contractor retains responsibility. 2. Time of Performance and Liquidated Damages: The Contractor must begin work within ten (10) calendar days after official notice by the City Engineer to proceed with the work and must diligently prosecute the same to completion within 40 working days of that Notice. The Contractor acknowledges and agrees that time is of the essence with respect to Contractor’s work and that Contractor shall diligently pursue performance of the work. In the event the Contractor does not complete the work within the time limit so specified or within such further time as said City Council must have authorized, the Contractor must pay to the City liquidated damages in the amount of five hundred dollars ($500.00) per day for each and every day's delay in finishing the work beyond the completion date so specified. Additional provisions with regard to said time of completion and liquidated damages are set forth in the specifications, which provisions are hereby referred to and incorporated herein by reference. 3. Payments: Payments will be made by City to the Contractor for said work performed at the times and in the manner provided in the specifications and at the unit prices stated in Contractor's bid. The award of the contract is for a base bid amount of $686,793.15. 4. Component Parts and Interpretation: This contract must consist of the following 2 documents, each of which is on file in the office of the City Clerk and all of which are incorporated herein and made a part hereof by reference thereto: a) This Agreement b) Notice Inviting Sealed Proposals c) Instruction and Information to Bidders d) Accepted Proposal, with all attachments and certifications e) Faithful Performance Bond f) Labor and Material Bond g) Special Provisions h) Standard Specifications i) Design Standards j) Plans, Profiles and Detailed Drawings In the event of conflict between these documents, the following order of precedence will govern: this contract; change orders; supplemental agreements and approved revisions to plans and specifications; special conditions; standard specifications; detail plans; general plans; standard plans; reference specifications. In the absence of a controlling or contrary provision in the foregoing, the Standard Specifications (2010 edition) of the California Department of Transportation shall apply to this project. 5. Independent Contractor. Contractor is and will at all times remain as to City a wholly independent contractor. Neither City nor any of its officers, employees, or agents will have control over the conduct of Contractor or any of Contractor’s officers, employees, agents or subcontractors, except as expressly set forth in the Contract Documents. Contractor may not at any time or in any manner represent that it or any of its officers, employees, agents, or subcontractors are in any manner officers, employees, agents or subcontractors of City. 6. Prevailing Wages: Copies of the determination of the Director of the Department of Industrial Relations of the prevailing rate of per diem wages for each craft, classification or type of worker needed to execute this Contract will be on file in, and available at, the office of the Director at 601 Carmen Drive, Camarillo, California 93010. Contractor must post at the work site, or if there is no regular work site then at its principal office, for the duration of the Contract, a copy of the determination by the Director of the Department of Industrial Relations of the specified prevailing rate of per diem wages. (Labor Code § 1773.2.) Contractor, and any subcontractor engaged by Contractor, may pay not less than the specified prevailing rate of per diem wages to all workers employed in the execution of the contract. (Labor Code § 1774.) Contractor is responsible for compliance with Labor Code section 1776 relative to the retention and inspection of payroll records. Contractor must comply with all provisions of Labor Code section 1775. Under Section 1775, Contractor may forfeit as a penalty to City up to $200.00 for each worker employed in the execution of the Contract by Contractor or any subcontractor for each calendar day, or portion thereof, in which the worker is paid less than the prevailing rates. Contractor may also be liable 3 to pay the difference between the prevailing wage rates and the amount paid to each worker for each calendar day, or portion thereof, for which each worker was paid less than the prevailing wage rate. Nothing in this Contract prevents Contractor or any subcontractor from employing properly registered apprentices in the execution of the Contract. Contractor is responsible for compliance with Labor Code section 1777.5 for all apprenticeable occupations. This statute requires that contractors and subcontractors must submit contract award information to the applicable joint apprenticeship committee, must employ apprentices in apprenticeable occupations in a ratio of not less than one hour of apprentice’s work for every five hours of labor performed by a journeyman (unless an exception is granted under § 1777.5), must contribute to the fund or funds in each craft or trade or a like amount to the California Apprenticeship Council, and that contractors and subcontractors must not discriminate among otherwise qualified employees as apprentices solely on the ground of sex, race, religion, creed, national origin, ancestry or color. Only apprentices defined in Labor Code section 3077, who are in training under apprenticeship standards and who have written apprentice contracts, may be employed on public works in apprenticeable occupations. If federal funds are used to pay for the Work, Contractor and any subcontractor agree to comply, as applicable, with the labor and reporting requirements of the Davis-Bacon Act (40 USC § 276a-7), the Copeland Act (40 USC § 276c and 18 USC § 874), and the Contract Work Hours and Safety Standards Act (40 USC § 327 and following). 7. Hours of Labor: Contractor acknowledges that under California Labor Code sections 1810 and following, eight hours of labor constitutes a legal day’s work. Contractor will forfeit as a penalty to City the sum of $25.00 for each worker employed in the execution of this Contract by Contractor or any subcontractor for each calendar day during which such worker is required or permitted to work more than eight hours in any one calendar day and 40 hours in any one calendar week in violation of the provisions of Labor Code section 1810. 8. Apprentices: Attention is directed to the provisions in Sections 1777.5 (Chapter 1411, Statutes of 1968) and 1777.6 of the Labor Code concerning the employment of apprentices by the Contractor or any Subcontractor under him. Section 1777.5, as amended, requires the Contractor or Subcontractor employing tradesmen in any apprenticeable occupation to apply to the joint apprenticeship committee nearest the site of the public works project and which administers the apprenticeship program in that trade for a certificate of approval. The certificate will also fix the ratio of apprentices to journeymen that will be used in the performance of the Contract. The ratio of apprentices to journeymen in such cases must not be less than one to five except: A. When unemployment in the area of coverage by the joint apprenticeship committee has exceeded an average of 15 percent in the 90 days prior to the request for certificate, or B. When the number of apprentices in training in that area exceeds a ratio of one to 4 five, or C. When the trade can show that it is replacing at least 1/30 of its membership through apprenticeship training on an annual basis statewide or locally, or D. When the assignment of an apprentice to any work performed under a public works Contract would create a condition which would jeopardize his life or the life, safety, or property of fellow employees or the public at large, or if the specified task to which the apprentice is to be assigned is of such a nature that training cannot be provided by a journeyman, or E. When the Contractor provides evidence that he employs registered apprentices on all of his Contracts on an annual average of not less than one apprentice to eight journeymen. The Contractor is required to make contributions to funds established for the administration of apprenticeship program if he employs registered apprentices or journeymen in any apprenticeable trade on such Contracts and if other Contractors on the public works site are making such contributions. The Contractor and any Subcontractor under him must comply with the requirements of Section 1777.5 and 1777.6 in the employment of apprentices. Information relative to apprenticeship standards, wage schedules, and other requirements may be obtained from the Director of Industrial Relations, ex officio the Administrator of Apprenticeship, San Francisco, California, or from the Division of Apprenticeship Standards and its branch offices. 9. Labor Discrimination: Attention is directed to Section 1735 of the Labor Code, which reads as follows: "A contractor must not discriminate in the employment of persons upon public works on any basis listed in subdivision (a) of Section 12940 of the Government Code, as those bases are defined in Sections 12926 and 12926.1 of the Government Code, except as otherwise provided in Section 12940 of the Government Code. Every contractor for public works who violates this section is subject to all the penalties imposed for a violation of this chapter. " 10. Workmen's Compensation Insurance: In accordance with the provisions of Article 5, Chapter 1, Part 7, Division 2 (commencing with Section 1860) and Chapter 4, Part 1, Division 4 (commencing with Section 3700) of the Labor Code of the State of California, the Contractor is required to secure the payment of compensation to his employees and must for that purpose obtain and keep in effect adequate Workmen's Compensation Insurance. The undersigned Contractor is aware of the provisions of Section 3700 of the Labor Code which requires every employer to be insured against liability for workmen's compensation or to undertake self-insurance in accordance with the provisions of that Code, and will comply with such provisions before commencing the performance of the work of this contract. 5 11. Indemnity and Insurance: To the fullest extent permitted by law, Contractor must indemnify, hold harmless, release and defend City, its officers, elected officials, employees, agents, volunteers, and consultants from and against any and all actions, claims, demands, damages, disability, losses, expenses including, but not limited to, attorney's fees and other defense costs and liabilities of any nature that may be asserted by any person or entity including Contractor, in whole or in part, arising out of Contractor’s activities hereunder, including the activities of other persons employed or utilized by Contractor including subcontractors hired by the Contractor in the performance of this Agreement excepting liabilities due to the active negligence of the City. This indemnification obligation is not limited in any way by any limitation on the amount or type of damages or compensation payable by or for Contractor under Worker's Compensation, disability or other employee benefit acts or the terms, applicability or limitations of any insurance held or provided by Contractor and must continue to bind the parties after termination/completion of this Agreement. Contractor shall procure and maintain throughout the time for performance of the work under this Contract the insurance required by the Special Provisions. The requirement that Contractor procure and maintain insurance shall in no way be construed to limit the Contractor’s duty to indemnify City as provided in the paragraph above. Failure of City to monitor compliance with these requirements imposes no additional obligations on City and will in no way act as a waiver of any rights hereunder. 12. City Right of Termination and Right to Complete the Work. The City may terminate the Contract when conditions encountered during the work make it impossible or impracticable to proceed, or when the City is prevented from proceeding with the Contract by act of God, by law, or by official action of a public authority. In addition, the occurrence of any of the following is a default by Contractor under this Contract: A. Contractor refuses or fails to prosecute the Work or any part thereof with such diligence as will insure its completion within the time specified or any permitted extension. B. Contractor fails to complete the Work on time. C. Contractor is adjudged bankrupt, or makes a general assignment for the benefit of creditors, or a receiver is appointed on account of Contractor’s insolvency. D. Contractor fails to supply enough properly skilled workers or proper materials to complete the Work in the time specified. E. Contractor fails to make prompt payment to any subcontractor or for material or labor. F. Contractor fails to abide by any applicable laws, ordinances or instructions 6 of City in performing the Work. G. Contractor breaches or fails to perform any obligation or duty under the Contract. Upon the occurrence of a default by Contractor, the Director will serve a written notice of default on Contractor specifying the nature of the default and the steps needed to correct the default. Unless Contractor cures the default within 10 days after the service of such notice, or satisfactory arrangements acceptable to City for the correction or elimination of such default are made, as determined by City, City may thereafter terminate this Contract by serving written notice on Contractor. In such case, Contractor will not be entitled to receive any further payment, except for Work actually completed prior to such termination in accordance with the provisions of the Contract Documents. In event of any such termination, City will also immediately serve written notice of the termination upon Contractor’s surety. The surety will have the right to take over and perform pursuant to this Contract; provided, however, that if the surety does not give City written notice of its intention to take over and perform this Contract within five days after service of the notice of termination or does not commence performance within 10 days from the date of such notice, City may take over the Work and prosecute the same to completion by contract or by any other method it may deem advisable for the account and at the expense of Contractor. Contractor and the surety will be liable to City for any and all excess costs or other damages incurred by City in completing the Work. If City takes over the Work as provided in this Section, City may, without liability for so doing, take possession of, and utilize in completing the Work, such materials, appliances, plant, and other propert y belonging to Contractor as may be on the site of the Work and necessary for the completion of the Work. 13. Substitution of Securities for Withheld Amounts: Pursuant to California Public Contracts Code Section 22300, securities may be substituted for any moneys withheld by a public agency to ensure performance under a contract. At the request and sole expense of the Contractor, securities equivalent to the amount withheld must be deposited with the public agency, or with a state or federally chartered bank as the escrow agent, who must pay such moneys to the Contractor upon satisfactory completion of the contract. Securities eligible for substitution under this section must include those listed in the California Public Contracts Code Section 22300 or bank or savings and loan certificates of deposit. The Contractor must be the beneficial owner of any securities substituted for moneys withheld and must receive any interest thereon. Alternatively, the Contractor may request and the City shall make payment of retentions earned directly to the escrow agent at the expense of the Contractor. At the expense of the Contractor, the Contractor may direct the investment of the payments into securities and the Contractor shall receive the interest earned on the investments upon the same terms provided for in Section 22300 for securities deposited by the Contractor. Upon satisfactory completion of the 7 Contract, the Contractor shall receive from the escrow agent all securities, interest, and payments received by the escrow agent from the City, pursuant to the terms of this section. Any escrow agreement entered into pursuant to this section must contain as a minimum the following provisions: a. The amount of securities to be deposited; b. The terms and conditions of conversion to cash in case of the default of the Contractor; and c. The termination of the escrow upon completion of the contract. 14. General Provisions A. Authority to Execute. Each Party represents and warrants that all necessary action has been taken by such Party to authorize the undersigned to execute this Contract and to bind it to the performance of its obligations. B. Assignment. Contractor may not assign this Contract without the prior written consent of City, which consent may be withheld in City’s sole discretion since the experience and qualifications of Contractor were material considerations for this Contract. C. Binding Effect. This Agreement is binding upon the heirs, executors, administrators, successors and permitted assigns of the Parties. D. Integrated Contract. This Contract, including the Contract Documents, is the entire, complete, final and exclusive expression of the Parties with respect to the Work to be performed under this Contract and supersedes all other agreements or understandings, whether oral or written, between Contractor and City prior to the execution of this Contract. E. Modification of Contract. No amendment to or modification of this Contract will be valid unless made in writing and approved by Contractor and by the City Council or City Manager, as applicable. The Parties agree that this requirement for written modifications cannot be waived and that any attempted waiver will be void. F. Counterparts, Facsimile or other Electronic Signatures. This Contract may be executed in several counterparts, each of which will be deemed an original, and all of which, when taken together, constitute one and the same instrument. Amendments to this Contract will be considered executed when the signature of a party is delivered by facsimile or other electronic transmission. Such facsimile or other electronic signature will have the same effect as an original signature. G. Waiver. Waiver by any Party of any term, condition, or covenant of this Contract will not constitute a waiver of any other term, condition, or covenant. Waiver by any Party of any breach of the provisions of this Contract will not constitute a waiver of any other provision, or a waiver of any subsequent breach or violation of any provision of this Contract. 8 Acceptance by City of any Work performed by Contractor will not constitute a waiver of any of the provisions of this Contract. H. Interpretation. This Contract will be interpreted, construed and governed according to the laws of the State of California. Each party has had the opportunity to review this Contract with legal counsel. The Contract will be construed simply, as a whole, and in accordance with its fair meaning. It will not be interpreted strictly for or against either party. I. Severability. If any term, condition or covenant of this Contract is declared or determined by any court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions of this Contract will not be affected and the Contract will be read and construed without the invalid, void or unenforceable provision. J. Venue. In the event of litigation between the parties, venue in state trial courts will be in the County of Sonoma. In the event of litigation in a U.S. District Court, venue will be in the Northern District of California. IN WITNESS WHEREOF, the City of Rohnert Park has caused these presents to be executed by its officers, thereunto duly authorized, and Contractor has subscribed same, all on the day and year first above written. CITY OF ROHNERT PARK GHILOTTI BROS., INC. ____________________________________ Darrin Jenkins, City Manager Date Name/Title Date Per Resolution No. 2017-_____ adopted by the Rohnert Park City Council at its meeting of July 25, 2017. ATTEST: APPROVED AS TO FORM: ____________________________________ City Clerk City Attorney ITEM NO. 7C5 1 Meeting Date: July 25, 2017 Department: Development Services Submitted By: Mary Grace Pawson, Development Services Director Prepared By: Mary Grace Pawson, Development Services Director Agenda Title: Consideration of the Fourth Amendment to the Purchase and Sale Agreement with Stadium RP Development Partners, LLC and Related Actions RECOMMENDED ACTION: Approve a Resolution Approving a Fourth Amendment to the Agreement for Purchase and Sale Between the City of Rohnert Park and Stadium RP Development Partners, LLC and Related Actions. BACKGROUND: In August, 2015 the City entered into a Purchase and Sale Agreement to sell approximately 12.25 acres of City-owned property at 5870 Labath Avenue, known as the Stadium Lands property. The City Council has approved three amendments to the initial agreement that (1) extended the initial due diligence period for 30 days, (2) allowed the buyer to construct up to 135 apartments on the property and (3) modified some terms and conditions to allow the Developer to obtain financing for its proposed hotel and to clarify items around the construction of an extension of Martin Avenue The Developer has been working diligently to implement its project. It has received approval of its Preliminary and Final Development Plan and Tentative Map as well as Site Plan and Architectural Approval for its hotel. The Final Map for the project is ready for approval and the site improvement plans are under final review. The Developer is proposing to close on the property in two phases, with the first phase including the hotel site and the second phase including the remainder of the property. The hotel site close is scheduled for late July 2017. The purpose of the fourth amendment to the Purchase and Sale Agreement is to describe this two phase close, the purchase price due at each closing and the allocation of the good faith and security deposits held by the City. ANALYSIS: The proposed fourth amendment will allow the property to be transferred in two phases. The first phase, which is planned to occur before the end of July, will include the new hotel site. The purchase price for this site is $1,345,925. The second phase, which includes the apartment, retail and park site, would occur in August. The purchase price for this site $5,795,075. The total purchase price remains $7,150,000, but is allocated between the two phases proportionally based on acreage. The City is currently holding $300,000 in good faith deposits which will be applied to the second closing (apartment, retail and park site). The Buyer itself is not intending to construct the hotel and will immediately upon close be transferring the hotel site to the hotel builder and is requesting to assign all the Development Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 7C5 2 Agreement responsibilities surrounding the hotel to the hotel developer. The Development Agreement contemplated the potential of future assignments and included a form of Assignment and Assumption Agreement as an attachment. Staff has reviewed the Buyer’s proposal and the qualifications of the hotel developer and believes that assigning portions of the Development Agreement to the hotel developer is consistent with the City’s goals for developing this site. As such, staff is also requesting the City Council authorize the City Manager to execute Assignment and Assumption Agreements, in the form contemplated by the Development Agreement, as necessary to advance development of the site and the approved Project. STRATEGIC PLAN ALIGNMENT: The recommended action is consistent with the Strategic Plan goal of achieving financial stability. The proposed Fourth Amendment to the Purchase and Sale agreement is necessary to allow the construction of the hotel, which will bring additional visitors and tax revenue to the City. OPTIONS CONSIDERED: 1. Recommended Option: Staff recommends approving the Fourth Amendment to the Purchase and Sale Agreement because it will allow the sale of the property and associated project to proceed without substantially increasing risk to the City. 2. Alternative: Staff also considered retaining the requirement for a single, consolidated close but is not recommending this because it would complicate the financing and closing for the hotel investor without providing measurable benefit for the City. One of the City’s prime objectives in this sale has been to secure the construction of a new hotel and the recommended action is consistent with this goal. FISCAL IMPACT/FUNDING SOURCE: Staff estimate that the City’s net revenue from sale of the Stadium Lands property will be approximately $6 million, and on-going revenue from the hotel and residential development will be $800,000/year. Department Head Approval Date: 07/17/2017 Finance Director Approval Date: NA City Attorney Approval Date: 07/18/2017 City Manager Approval Date: 07/19/2017 Attachments (list in packet assembly order): 1. Resolution Approving a Fourth Amendment to the Agreement for Purchase and Sale between the City of Rohnert Park and Stadium RP Development Partners, LLC and Related Actions. 2. Fourth Amendment to Agreement for Purchase and Sale (Including Joint Escrow Instructions) and Terms of Development 1 RESOLUTION NO. 2017-095 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROHNERT PARK APPROVING A FOURTH AMMENDMENT TO THE AGREEMENT FOR PURCHASE AND SALE BETWEEN THE CITY OF ROHNERT PARK AND STADIUM RP DEVELOPMENT PARTNERS LLC AND RELATED ACTIONS WHEREAS, on August 11, 2015, the City and 356 Advisors, Inc. and MJW Investments, LLC (the " Initial Buyer Party"), entered into that certain Agreement for Purchase and Sale (Including Joint Escrow Instructions) and Terms of Development (the "Original Agreement") with respect to Buyer's purchase and development of that certain real property consisting of 12.25 acres and located at Labath Avenue and Carlson Avenue in the City of Rohnert Park (the "Property"); and WHEREAS, on November 2, 2015, City and the Initial Buyer Party entered into a First Amendment to the Original Agreement to extend the due diligence period an additional 30 days to allow the buyer time for further analysis; and WHEREAS, on November 24, 2015, City and the Initial Buyer Party entered into a Second Amendment to the Original Agreement, as amended, to set forth the terms and conditions of a modified project that allows for residential development, including a revised Development Agreement Term Sheet; and WHEREAS, the Initial Buyer Party subsequently assigned its interests in the Original Agreement, as amended, to MJW Investments, Inc., who subsequently assigned its interests in the Agreement to Stadium RP Development Partners, LLC (the "Buyer"); and WHEREAS, on November 22, 2016, the City and the Buyer entered into a Third Amendment to the Original Agreement, as amended, to: remove the City' s right to repurchase the Property; amend the description of the Property to add an additional 0.1 acres; amend Buyer' s condition to close to require a grading permit, rather than a building permit, and a construction deed of trust; and amend the Development Agreement Term Sheet to set forth the terms by which the Buyer will construct the Martin Avenue improvements; and WHEREAS, on January 10, 2017, the City Council approved a Planned Development, Tentative Map and Development Agreement for the property that entitled a mixed use project including a hotel, apartment complex, retail center and public park (the “Project”); and WHEREAS, on January 24, 2017, the City and the Buyer entered into a Development Agreement that formalized the Buyer’s rights and obligations that were initially outlined in the Purchase and Sale Agreement; and WHEREAS, the Buyer has been diligently pursing the development of the property including securing various planning and engineering approvals necessary to subdivide the property and construct its Project; and WHEREAS, Buyer and City now desire to amend the Agreement a fourth time in order to allow the Buyer to purchase the property in two phases, associated with the lots created by its ( 2 ) 2017-095 subdivision in order to provide for the further transfer of the property and construction of the Project, including transfer to the developer of the hotel portion of the Project; and WHEREAS, Buyer and City staff have negotiated the form of a Fourth Amendment to Purchase and Sale Agreement (Including Joint Escrow Instructions) and Terms of Development, attached hereto as Exhibit A (the "Fourth Amendment"). NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Rohnert Park that it does hereby find, determine, declare and resolve as follows: Section 1. Recitals. The foregoing recitals are true and correct. Section 2. Approval of the Fourth Amendment. The form of the Fourth Amendment included as Exhibit A to this Resolution is approved subject to minor modifications approved by the City Manager and City Attorney. Section 3. Authority to Execute. The Mayor or his designee is hereby authorized and directed to execute the Fourth Amendment, in substantially similar form to that attached as Exhibit A. Section 4. Authority to Implement. The City Manager is hereby authorized and directed to take all actions necessary to implement the intent of the Purchase and Sale Agreement and its amendments including executing various documents associated with escrow and closing and executing various assignments of the Development Agreement, in forms approved by the City Attorney. Section 5. Effective Date of Resolution. This Resolution shall take effect immediately upon its adoption. DULY AND REGULARLY ADOPTED this 25th day of July, 2017. CITY OF ROHNERT PARK ____________________________________ Jake Mackenzie, Mayor ATTEST: ______________________________ Caitlin Saldanha, Deputy City Clerk Attachment: Exhibit A AHANOTU: _________ BELFORTE: _________ CALLINAN: _________ STAFFORD: _________ MACKENZIE: _________ AYES: ( ) NOES: ( ) ABSENT: ( ) ABSTAIN: ( ) Exhibit A OAK #4851-5781-8955 v2 1 FOURTH AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE (INCLUDING JOINT ESCROW INSTRUCTIONS) AND TERMS OF DEVELOPMENT This Fourth Amendment to Agreement for Purchase and Sale (Including Joint Escrow Instructions) and Terms of Development (“Third Amendment”), dated as of _______________, 2016 (“Effective Date”), is by and between the CITY OF ROHNERT PARK, a California municipal corporation (“Seller” or “City”), and STADIUM RP DEVELOPMENT PARTNERS, LLC, a California limited liability company (the “Buyer”). R E C I T A L S A. On August 11, 2015, Seller and Buyer’s predecessor-in-interest, 356 Advisors, Inc. and MJW Investments, LLC (the “Initial Buyer Party”), entered into that certain Agreement for Purchase and Sale (Including Joint Escrow Instructions) and Terms of Development (the “Original Agreement”) with respect to Buyer’s purchase and development of that certain real property consisting of 12.25 acres and located at Labath Avenue and Carlson Avenue in the City of Rohnert Park (the “Property”). Terms not otherwise defined herein shall have the meaning set forth in the Agreement, as defined in Recital D. below. B. On November 2, 2015, City and the Initial Buyer Party entered into a First Amendment to the Original Agreement to extend the Due Diligence Period an additional 30 days to allow Buyer time for further analysis (the “First Amendment”). C. On November 24, 2015, City and the Initial Buyer Party entered into a Second Amendment to the Original Agreement, as amended, to set forth the terms and conditions of a modified project that allows for residential development, including a revised Development Agreement Term Sheet (the “Second Amendment”). D. The Initial Buyer Party subsequently assigned its interests in the Agreement to MJW Investments, Inc., who subsequently assigned its interests in the Agreement to Buyer. E. On , Buyer and City entered into a Third Amendment to the Original Agreement, as amended, to: (1) remove the City’s right to repurchase the Property; (2) amend the description of the Property to add an additional 0.1 acres; (3) amend Buyer’s conditions to close to require a grading permit, rather than a building permit, and a construction deed of trust; and (4) amend the Development Agreement Term Sheet to set forth the terms by which the Buyer will construct the Martin Avenue improvements (the “Third Amendment”). The Original Agreement, as modified by the First, Second and Third Amendments, may be referred to herein as the “Agreement.” F. Buyer now desires to purchase the Property in two phases. First, the Buyer desires to purchase that portion of the Property described in Exhibit A-1a, attached hereto and incorporated herein by reference, as the Hotel Property (the “Hotel Property”). Thereafter. Buyer desires to purchase the remaining portion of the Property described in Exhibit A-1b, attached hereto and incorporated herein by reference, as the “Retail/Residential Property” (the “Retail/Residential Property”). OAK #4851-5781-8955 v2 2 G. The City and Buyer desire to amend the Agreement a fourth time to allow for a phased closing of the Property, with the Hotel Property to close separately from Retail/Residential Property. H. The City Council of the City of Rohnert Park duly authorized the execution of this Fourth Amendment by resolution adopted on , 2017. A G R E E M E N T 1. Section 1.3, Purchase Price, is hereby deleted in its entirety and replaced with the following: “1.3 Purchase Price. The purchase price for the Property is Seven Million One Hundred and Fifty Thousand Dollars ($7,150,000.00) (“Purchase Price”), consisting of One Million Three Hundred Fifty-Four Thousand and Nine Hundred Twenty-Five Dollars ($1,354,925.00) for the Hotel Property (“Hotel Purchase Price”) and Five Million Seven Hundred Ninety-Five Thousand and Seventy-Five Dollars ($5,795,075.00) for the Retail/Residential Property (“Retail/Residential Purchase Price”). Each of the Hotel Purchase Price and Retail/Residential Purchase Price shall be paid to Seller at each of the individual Closings for the Hotel Property and Retail/Residential Property, respectively, as defined in Section 6.2(a), in immediately available funds. The Purchase Price was determined based on a survey of comparable parcels and an evaluation of potential uses of the Property.” 2. Section 1.5, Good Faith Deposits, is hereby deleted in its entirety and replaced with the following: “1.5 Good Faith Deposits. (a) Within three business days of Escrow being opened as outlined in Section 6.1 of this agreement (Title Company to notify all parties of the exact date), Buyer shall deliver into escrow a good faith deposit in the amount of Fifty Thousand Dollars ($50,000.00) (“First Good Faith Deposit”). The First Good Faith Deposit shall serve as security for the performance of Buyer’s obligations under this Agreement, shall be applied towards the Retail/Residential Purchase Price at the closing for the Retail/Residential Property and is fully refundable to Buyer prior to the expiration of the Due Diligence Period (see Section 3.4). After the Due Diligence Period, the First Good Faith Deposit shall be nonrefundable and shall constitute liquidated damages to Seller in the event the purchase and sale is not completed as provided herein. (b) Within three business days after expiration of the Due Diligence Period, assuming Buyer approves the Property and elects to proceed, Buyer shall deliver into escrow a second good faith deposit in the amount of One Hundred Thousand ($100,000.00) (“Second Good Faith Deposit”). The Second Good Faith Deposit shall serve as security for the performance of Buyer’s OAK #4851-5781-8955 v2 3 obligations under this Agreement, shall be applied towards the Retail/Residential Purchase Price at the closing for the Retail/Residential Property and shall constitute liquidated damages and be nonrefundable to Buyer. The First and Second Good Faith Deposits shall be transferred to Seller within three business day of deposit of the Second Good Faith Deposit into escrow. (c) Prior to the date that is 18 months after the Effective Date, Buyer shall deliver into escrow a third good faith deposit in the amount of One Hundred Fifty Thousand Dollars ($150,000.00) (“Third Good Faith Deposit”). For example, if the Effective Date is August 3, 2015, the Third Good Faith Deposit shall be delivered on February 3, 2017. The Third Good Faith Deposit shall serve as security for the performance of Buyer’s obligations under this Agreement, shall be applied towards the Retail/Residential Purchase Price at the closing for the Retail/Residential Property and shall constitute liquidated damages and be nonrefundable to Buyer. The Third Good Faith Deposits shall be transferred to Seller within three business day of its deposit into escrow. The First, Second and Third Good Faith Deposits may hereafter each be referred to as a “Good Faith Deposit” or collectively as the “Good Faith Deposits.” After the expiration of the Buyer’s Due Diligence Period and Buyer’s acceptance of the condition of the Property, as set forth in Section 3.4, the Good Faith Deposits may only be returned to Buyer if all Buyer’s Conditions Precedent to Conveyance, as set forth in Section 2.1 have not been satisfied or waived by Buyer, or Seller is in default under this Agreement following notice and expiration of applicable cure periods. Buyer acknowledges that the construction of the Project on the Property is a material consideration to Seller. Buyer agrees and acknowledges that the Good Faith Deposits shall be retained by Seller in the event that the Buyer is not prepared to construct the Hotel. IN THE EVENT BUYER DEFAULTS IN BUYER’S OBLIGATION TO SATISFY ALL CONDITIONS PRECEDENT AND PURCHASE THE PROPERTY WITHIN THE TIME AND IN THE MANNER SPECIFIED IN THIS AGREEMENT, AND SELLER IS READY, WILLING AND ABLE TO CLOSE THIS TRANSACTION, SELLER SHALL BE RELEASED FROM ALL OBLIGATIONS AT LAW OR IN EQUITY TO CONVEY THE PROPERTY TO BUYER. BUYER AND SELLER AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ESTIMATE THE AMOUNT OF DAMAGES SUFFERED BY SELLER BECAUSE OF SUCH DEFAULT; THAT THE GOOD FAITH DEPOSITS DEPOSITED INTO ESCROW BY BUYER CONSTITUTE A REASONABLE ESTIMATE AND AGREED STIPULATION OF SUCH DAMAGES; THAT SELLER SHALL RETAIN SUCH SUM AS LIQUIDATED DAMAGES AS ITS SOLE AND EXCLUSIVE REMEDY IN THE EVENT OF BUYER’S DEFAULT, WAIVING ANY RIGHT TO SPECIFIC PERFORMANCE OR ANY OTHER REMEDY AT LAW OR IN EQUITY. OAK #4851-5781-8955 v2 4 ____________________ ______________________ Seller’s Initials Stadium RP Development Partners, LLC Initials If this Agreement is not cancelled or terminated, as provided herein, or the Good Faith Deposits are not retained by Seller as liquidated damages, the Good Faith Deposits shall be credited against the Retail/Residential Purchase Price at the closing for the Retail/Residential Property.” 3. The following is hereby added to the end of Section 2.1, Buyer’s Conditions Precedent to Conveyance: “Buyer’s Conditions Precedent to Conveyance shall separately apply to each of the individual Closings of the Hotel Property and the Retail/Residential Property.” 4. The following is hereby added to the end of Section 2.1, Seller’s Conditions Precedent to Conveyance: “Seller’s Conditions Precedent to Conveyance shall separately apply to each of the individual Closings of the Hotel Property and the Retail/Residential Property.” 5. Section 3.1(k) is hereby deleted in its entirety and replaced with the following: “Each of the representations and warranties of Seller contained in this Section 3.1 is true as of the Effective Date, and shall be deemed remade by Seller and shall be true as of the date of each of the individual Closings. In the event the purchase and sale of the Hotel Property or Retail/Residential Property closes prior to the closing of the other portion of the Property, the representations and warranties set forth in this Section 3.1 shall no longer be applicable to the portion of the Property that has been transferred to Buyer.” 6. Section 4.1, Conveyance, is hereby deleted in its entirety and replaced with the following: “Section 4.1 Conveyances. At each of the individual Closings, Seller shall convey title to the Hotel Property or Retail/Residential Property, as applicable, to Buyer by grant deed in a form substantially similar to that attached hereto as Exhibit C (“Grant Deed”), free of any possession or right of possession by any person except that of Buyer and subject only to those exceptions approved by Buyer pursuant to Section 4.2 below.” 7. Section 4.3, Title Insurance, is hereby deleted in its entirety and replaced with the following: “Section 4.3 Title Insurance. Concurrently with recordation of each of the Grant Deeds, the Title Company shall issue to Buyer such policy of title insurance for the Hotel Property or Retail/Residential Property, as applicable, which at Buyer’s option may be an ALTA extended coverage owner’s policy (“Title Policy”) as may be required by Buyer, and/or Buyer’s lenders or other institutions that may be providing financing for the Project, together with such endorsements as are reasonably requested by Buyer and/or Buyer’s lenders or other institutions, insuring that Buyer has a valid fee ownership interest in the OAK #4851-5781-8955 v2 5 Hotel Property or Retail/Residential Property, as applicable, subject only to the Permitted Exceptions and other encumbrances expressly contemplated by this Agreement to be recorded at each of the individual Closings The premium for the Title Policy, plus any additional costs, including the cost of surveys, and any endorsements requested by Buyer shall be paid by Buyer.” 8. Section 6.2(a) is hereby deleted in its entirety and replaced with the following: “(a) “Closing” means the consummation of the purchase and sale of the Property, including both the Hotel Property and the Retail/Residential Property as described herein as evidenced by the performance by each party of its obligations hereunder, including the Title Company’s recordation and delivery of each of the Grant Deeds, delivery of the documents as set forth in this Agreement, Title Company’s irrevocable and unconditional commitment to issue the Title Policy upon recordation of the Grant Deed, and the payment of the Purchase Price by Buyer. “Each of the individual Closings” shall refer to each of the separate phased closings with respect to the Hotel Property and the Retail/Residential Property.” 9. Section 6.3 is hereby deleted in its entirety and replaced with the following: “Section 6.3 Deposit of Documents. (a) At or before each of the individual Closings, Seller shall deposit into escrow the following items: (1) documentary transfer taxes and Seller’s customary share of the normal prorations; (2) with respect to the Retail/Residential Property, documentation of a credit towards the Retail/Residential Purchase Price in the amount of the Good Faith Deposit; (3) a duly executed and acknowledged Grant Deed conveying the Hotel Property or Retail/Residential Property, as applicable, to Buyer; (4) an executed affidavit pursuant to Section 1445(b)(2) of the Internal Revenue Code, and on which Buyer is entitled to rely, that Seller is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal Revenue Code; and (5) an executed California 597-W Certificate. (b) At or before each of the individual Closings, Buyer shall deposit into escrow the following items: (1) an executed Preliminary Change of Ownership Report; and OAK #4851-5781-8955 v2 6 (2) funds necessary to close this transaction, including the Hotel Purchase Price or Retail/Residential Purchase, adjusted with respect to the Retail/Residential Purchase Price by a credit towards the Retail/Residential Purchase Price in the amount of the Good Faith Deposit, any normal prorations, the Title Policy premium, all escrow fees and recording charges, and all other closing costs. Seller and Buyer shall each deposit such other instruments as are reasonably required by the Title Company or otherwise required to close the escrow and consummate the purchase and sale transaction in accordance with the terms hereof. Seller and Buyer hereby designate Title Company as the “Reporting Person” for the transaction pursuant to Section 6045(e) of the Internal Revenue Code and the regulations promulgated thereunder and agree to execute such documentation as is reasonably necessary to effectuate such designation. (c) Buyer shall be solely responsible for paying the following costs associated with the transfer of the Hotel Property or Retail/Residential Property, as applicable: (i) the premium for the Title Policy, including any endorsements; (ii) all escrow fees and recording charges, (iii) Buyer’s customary share of other normal prorations; (iv) all other closing costs; and (v) all of Buyer’s due diligence expenses. Seller shall be solely responsible for paying the following costs associated with the transfer of the Hotel Property or Retail/Residential Property, as applicable: (i) documentary transfer taxes and (ii) Seller’s customary share of normal prorations. (d) Ad valorem taxes and assessments levied, assessed or imposed on the Property for any period prior to each of the individual Closings, if any, shall be paid by Seller. Ad valorem taxes and assessments levied, assessed or imposed on the Hotel Property or Retail Residential Property, as applicable, for the period after each of the individual Closings shall be paid by Buyer. (e) The provisions of this Section 6.3 shall survive the Closing.” 10. Section 8.14, Termination, is hereby deleted in its entirety and replaced with the following: “Section 8.14 Termination. This Agreement may be terminated: (i) by Buyer, if prior to expiration of Buyer’s Due Diligence Period, Buyer elects not to proceed with purchase of the Property; (ii) by Buyer, if prior to each of the individual Closings, Buyer’s Conditions Precedent to Conveyance have not been satisfied or waived; (iii) by Seller, if prior to each of the individual Closings, Seller’s Conditions Precedent to Conveyance have not been satisfied or waived; or (iv) if there is an uncured default, by written notice from the party not in default. The party wishing to terminate the Agreement must provide the other party with written notice of termination. In the event of termination by Seller due to Buyer’s failure to satisfy Seller’s Conditions Precedent to Closing or Buyer’s OAK #4851-5781-8955 v2 7 default, the Good Faith Deposits shall be retained by Seller as liquidated damages.” 11. Exhibits A-1a, Legal Description of the Hotel Property, attached hereto, is hereby added to the Agreement and incorporated herein by this reference. 12. Exhibit A-1b, Legal Description of the Retail/Residential Property, attached hereto, is hereby added to the Agreement and incorporated herein by this reference. 13. Except as hereby amended by this Fourth Amendment, the Agreement, as amended by the First, Second and Third Amendments, remains in full force and effect. [SIGNATURES ON FOLLOWING PAGE] OAK #4851-5781-8955 v2 8 IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment as of the Effective Date. SELLER: City of Rohnert Park Dated: _______________, 2016 By: Jake Mackenzie, Mayor ATTEST: By: APPROVED AS TO FORM: By: Michelle Marchetta Kenyon, City Attorney BUYER: STADIUM RP DEVELOPMENT PARTNERS, LLC, a California limited liability corporation Dated: _______________, 2016 By: Name: Matthew J. Waken Its: Manager Exhibit A OAK #4851-5781-8955 v1 Exhibit A-1a EXHIBIT A-1a Legal Description of the Hotel Property Real property in the City of Rohnert Park, County of Sonoma, State of California, described as follows: PROPOSED LOT 3 OF THE FIVE CREEK SUBDIVISION BEING A PORTION OF THE LANDS OF THE CITY OF ROHNERT PARK AS DESCRIBED IN THAT GRANT DEED RECORDED AS DOCUMENT 2001-173231 OFFICIAL RECORDS OF SONOMA COUNTY CALIFORNIA, ALSO BEING A PORTION OF: LOT 1, AS SHOWN UPON THAT CERTAIN PARCEL MAP ENTITLED "PARCEL MAP NO. 180", FILED FOR RECORD DECEMBER 11, 2009, IN BOOK 736 OF MAPS, AT PAGES 30, 31 AND 32 SONOMA COUNTY RECORDS, EXCLUDING THE SOUTHERLY THREE ACRES OF SAID LOT 1. APN: 143-040-124 Exhibit A EXHIBIT A-1b OAK #4851-5781-8955 v2 EXHIBIT A-1b Legal Description of the Retail/Residential Property Real property in the City of Rohnert Park, County of Sonoma, State of California, described as follows: PROPOSED LOTS 2 AND 4 OF THE FIVE CREEK SUBDIVISION BEING A PORTION OF THE LANDS OF THE CITY OF ROHNERT PARK AS DESCRIBED IN THAT GRANT DEED RECORDED AS DOCUMENT 2001-173231 OFFICIAL RECORDS OF SONOMA COUNTY CALIFORNIA, ALSO BEING A PORTION OF: LOT 1, AS SHOWN UPON THAT CERTAIN PARCEL MAP ENTITLED "PARCEL MAP NO. 180", FILED FOR RECORD DECEMBER 11, 2009, IN BOOK 736 OF MAPS, AT PAGES 30, 31 AND 32 SONOMA COUNTY RECORDS, EXCLUDING THE SOUTHERLY THREE ACRES OF SAID LOT 1. APN: 143-040-124 ITEM NO. 7C6 1 Meeting Date: July 25, 2017 Department: Development Services Submitted By: Mary Grace Pawson, Development Services Director Prepared By: Art da Rosa, Deputy City Engineer Agenda Title: Approving the Plans and Specifications for the Snyder Lane Rehabilitation Project (Project Number 2016-06), Awarding the Construction Contract to Argonaut Constructors and Related Actions RECOMMENDED ACTION: Adopt a Resolution approving the plans and specifications for the Snyder Lane Rehabilitation Project (Project Number 2016-06), awarding the construction contract to Argonaut Constructors and related actions. BACKGROUND: The Snyder Lane Rehabilitation Project seeks to rehabilitate Snyder Lane from approximately Keiser Avenue to Moura Lane. The rehabilitation strategy is consistent with the City’s Pavement Management System and will utilize full depth reclamation technology. The project is timely because the roadway, despite extensive patching, is exhibiting signs of failure and this project will bring it back to serviceable standards. The project is included in the City’s adopted Capital Improvement Program. ANALYSIS: The City of Rohnert Park Municipal Code Title 3 Chapter 3.04 provides that the City's purchasing functions shall be governed by the City's Purchasing Policy. The City’s Purchasing Policy recognizes that for public works construction projects, the City operates under California Uniform Public Construction Cost Accounting Act (CUPCCAA). In accordance with CUPCCAA, staff posted and published an Invitation to Bidders on June 16, 2017. The engineer’s estimate for the project was $1,400,000. The City received four bids listed below. Given the very busy nature of the current construction market, which is causing very rapid increases in construction costs, staff believes the 9.8% difference between the engineer’s estimate and the low bid is acceptable. In addition, staff is planning to make some modifications to the contract, in order to better coordinate with planned work on Keiser Avenue, which will reduce the cost of the work. Contractor Bid Amount Argonaut Constructors $1,537,662.80 Ghilotti Bros., Inc. $1,547,930.80 Ghilotti Construction, Inc. $1,617,882.50 Team Ghilotti, Inc. $1,658,889.78 Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 7C6 2 Staff reviewed the bids for responsiveness and contractor responsibility. Argonaut Constructors Inc.is a responsible bidder with the license and bonding capacity to complete the work Staff also is requesting that the City Council also authorize the City Manager to execute change orders in amount up to 10% of the project costs to allow for unanticipated changes during construction. This would bring the total contract value to $1,691,429.05 ($1,537,662.80 for the base bid and $153,766.25 for contingencies). ENVIRONMENTAL ANALYSIS: The scope of work is road maintenance. The nature of the work will not expand the footprint of the road. This work is exempt from review under Section 15301(c) of the California Environmental Quality Act (CEQA) Guidelines which exempts work in existing highways and streets, sidewalks, gutters, bicycle and pedestrian trail. It is also exempt from review under CEQA Guidelines Section 15302 which exempts replacement or reconstruction projects. STRATEGIC PLAN ALIGNMENT: The recommended option is consistent with Strategic Plan Goal D – Continue to Develop a Vibrant Community. OPTIONS CONSIDERED: 1. Adopt a Resolution approving the plans and specifications for the Snyder Lane Rehabilitation Project (Project Number 2016-06), awarding the construction contract to Argonaut Constructors and related actions (recommended action). This action will allow the City to accomplish planned road rehabilitation work consistent with its pavement management program. Do not award the construction contract. This option is not recommended as it will result in deferral of required road maintenance and more expensive rehabilitation costs in the future. FISCAL IMPACT/FUNDING SOURCE: The fiscal impact of the recommended action is $1,691,429.05. The Snyder Lane Rehabilitation Project (Project Number 2016-06) has a budget of $2,500,000.00 of which approximately $150,000 has been expended. The recommended contract, including contingency would bring the total funding commitment for the project to $1,841,429.05. The remaining budget of approximately $660,000 can be used to cover staff time and consultant costs associated with construction management, administration and inspection. The funding sources for the project include the Infrastructure Reserve (Fund 640 for $750,000), Measure M (Fund 135 for $200,000) and the Casino Mitigation Funds (Fund 183 for $627,617 and Fund 184 for $922,383). Department Head Approval Date: 07/20/2017 City Attorney Approval Date: 07/20/2017 Finance Director Approval Date: 07/20/2017 City Manager Approval Date: 07//2017 Attachments (list in packet assembly order): 1. Resolution Approving the Plans and Specifications for the Snyder Lane Rehabilitation Project (Project Number 2016-06), Awarding the Construction Contract to Argonaut Constructors and Related Actions. 2. Resolution Exhibit A - Construction Contract Agreement 1 RESOLUTION NO. 2017-096 A RESOLUTION APPROVING THE PLANS AND SPECIFICATIONS FOR THE SNYDER LANE REHABILITATION PROJECT (PROJECT NUMBER 2016-06), AWARDING THE CONSTRUCTION CONTRACT TO ARGONAUT CONSTRUCTORS AND RELATED ACTIONS WHEREAS, the Snyder Lane Rehabilitation Project (Project Number 2016-06) includes the rehabilitation of the existing pavement surface on Snyder Lane from approximately Keiser Avenue to Moura Lane; and WHEREAS, the plans and specifications for the Project were prepared by Firma Design Group and approved by the Deputy City Engineer; and WHEREAS, the City of Rohnert Park Municipal Code Title 3 Chapter 3.04 provides that the City's purchasing functions shall be governed by the City's purchasing policy; and WHEREAS, consistent with City of Rohnert Park Purchasing Policy Section 3.6.F Contracts for Public Projects which defers to the California Uniform Public Construction Cost Accounting Act (CUPCCAA), an invitation to bid was posted/published on June 16, 2017, for the Project; and WHEREAS, four bids were received on the bid opening date of July 18, 2017; and WHEREAS, Development Services staff determined that Argonaut Constructors submitted the lowest cost bid and is the lowest responsive and responsible bidder with a bid amount of $1,537,662.80. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Rohnert Park as follows: 1. The above recitals are true and correct and material to this Resolution. 2. The plans and specifications for the Snyder Lane Rehabilitation Project (Project Number 2016-06) are hereby approved and adopted. 3. The City Council finds that the Project is exempt from review under the California Environmental Quality Act (“CEQA”) because the scope of the project is pavement rehabilitation, and is therefore categorically exempt under CEQA Guidelines section 15301 (Existing Facilities) and 15302 (Replacement or Reconstruction), and directs staff to file a Notice of Exemption for the project. 4. In making its findings the City Council relied upon and hereby incorporates by reference all of the bid materials, correspondence, staff reports and all other related materials. 5. In accordance with California Public Contract Code Section 20160 and following any other applicable laws, the City Council of the City of Rohnert Park hereby finds the bid of Argonaut Constructors for the Project to be the lowest, responsive bid and waives any irregularities in such bid in accordance with applicable law. 6. The City Manager is hereby authorized and directed to execute the contract with Argonaut Constructors in substantially similar form to Exhibit A, which is attached hereto and incorporated by this reference, for the sum of one million five hundred thirty- seven thousand six hundred sixty-two dollars and eighty cents ($1,537,662.80) for ( 2 ) 2017-096 construction of the Project in accordance with the bid documents and applicable law upon submission by Argonaut Constructors of all documents required pursuant to the Project bid documents. 7. The City Manager is hereby authorized to execute change orders in an amount not to exceed 10% of the bid or one hundred fifty-three thousand seven hundred sixty-six dollars and twenty-five cents ($153,766.25). 8. City staff is hereby directed to issue a Notice of Award to Argonaut Constructors for this project. 9. This Resolution shall become effective immediately. 10. All portions of this resolution are severable. Should any individual component of this Resolution be adjudged to be invalid and unenforceable by a body of competent jurisdiction, then the remaining resolution portions shall continue in full force and effect, except as to those resolution portions that have been adjudged invalid. The City Council of the City of Rohnert Park hereby declares that it would have adopted this Resolution and each section, subsection, clause, sentence, phrase and other portion thereof, irrespective of the fact that one or more section, subsection, clause, sentence, phrase or other portion may be held invalid or unconstitutional. DULY AND REGULARLY ADOPTED this 25th day of July, 2017. CITY OF ROHNERT PARK __________________________________ ATTEST: Jake Mackenzie, Mayor _____________________________ Caitlin Saldanha, Deputy City Clerk Attachments: Exhibit A AHANOTU: _________ BELFORTE: _________CALLINAN: _________ STAFFORD: _________ MACKENZIE: _________ AYES: ( ) NOES: ( ) ABSENT: ( ) ABSTAIN: ( ) Exhibit A C O N T R A C T SNYDER LANE REHABILITATION PROJECT NUMBER 2016-06 THIS AGREEMENT, made and entered into this 25th day of July, 2017, by and between Argonaut Constructors, hereinafter called "Contractor", and the City of Rohnert Park, hereinafter called "City". W I T N E S S E T H : WHEREAS, the City Council of said City has awarded a contract to Contractor for performing the work hereinafter mentioned in accordance with the sealed proposal of said Contractor. NOW, THEREFORE, IT IS AGREED, as follows: 1. Scope of Work: The Contractor must perform all the work and furnish all the labor, materials, equipment and all utility and transportation services required to complete all of the work of construction and installation of the improvements more particularly described in the Resolution adopted by the City Council of said City on July 25, 2017, the items and quantities of which are more particularly set forth in the Contractor's bid therefor on file in the office of the City Clerk, except work to be performed by subcontractors as set forth in the Contractor’s bid and for which the Contractor retains responsibility. 2. Time of Performance and Liquidated Damages: The Contractor must begin work within fifteen (15) calendar days after official notice by the City Engineer to proceed with the work and must diligently prosecute the same to completion within 50 calendar days of that Notice. The Contractor acknowledges and agrees that time is of the essence with respect to Contractor’s work and that Contractor shall diligently pursue performance of the work. In the event the Contractor does not complete the work within the time limit so specified or within such further time as said City Council must have authorized, the Contractor must pay to the City liquidated damages in the amount of two thousand dollars ($2,000.00) per day for each and every day's delay in finishing the work beyond the completion date so specified. Additional provisions with regard to said time of completion and liquidated damages are set forth in the specifications, which provisions are hereby referred to and incorporated herein by reference. 3. Payments: Payments will be made by City to the Contractor for said work performed at the times and in the manner provided in the specifications and at the unit prices stated in Contractor's bid. The award of the contract is for a base bid amount of $1,537,662.80. 4. Component Parts and Interpretation: This contract must consist of the following 2 documents, each of which is on file in the office of the City Clerk and all of which are incorporated herein and made a part hereof by reference thereto: a) This Agreement b) Notice Inviting Sealed Proposals c) Instruction and Information to Bidders d) Accepted Proposal, with all attachments and certifications e) Faithful Performance Bond f) Labor and Material Bond g) Special Provisions h) Standard Specifications i) Design Standards j) Plans, Profiles and Detailed Drawings In the event of conflict between these documents, the following order of precedence will govern: this contract; change orders; supplemental agreements and approved revisions to plans and specifications; special conditions; standard specifications; detail plans; general plans; standard plans; reference specifications. In the absence of a controlling or contrary provision in the foregoing, the Standard Specifications (2010 edition) of the California Department of Transportation shall apply to this project. 5. Independent Contractor. Contractor is and will at all times remain as to City a wholly independent contractor. Neither City nor any of its officers, employees, or agents will have control over the conduct of Contractor or any of Contractor’s officers, employees, agents or subcontractors, except as expressly set forth in the Contract Documents. Contractor may not at any time or in any manner represent that it or any of its officers, employees, agents, or subcontractors are in any manner officers, employees, agents or subcontractors of City. 6. Prevailing Wages: Copies of the determination of the Director of the Department of Industrial Relations of the prevailing rate of per diem wages for each craft, classification or type of worker needed to execute this Contract will be on file in, and available at, the office of the Director at 601 Carmen Drive, Camarillo, California 93010. Contractor must post at the work site, or if there is no regular work site then at its principal office, for the duration of the Contract, a copy of the determination by the Director of the Department of Industrial Relations of the specified prevailing rate of per diem wages. (Labor Code § 1773.2.) Contractor, and any subcontractor engaged by Contractor, may pay not less than the specified prevailing rate of per diem wages to all workers employed in the execution of the contract. (Labor Code § 1774.) Contractor is responsible for compliance with Labor Code section 1776 relative to the retention and inspection of payroll records. Contractor must comply with all provisions of Labor Code section 1775. Under Section 1775, Contractor may forfeit as a penalty to City up to $200.00 for each worker employed in the execution of the Contract by Contractor or any subcontractor for each calendar day, or portion thereof, in which the worker is paid less than the prevailing rates. Contractor may also be liable 3 to pay the difference between the prevailing wage rates and the amount paid to each worker for each calendar day, or portion thereof, for which each worker was paid less than the prevailing wage rate. Nothing in this Contract prevents Contractor or any subcontractor from employing properly registered apprentices in the execution of the Contract. Contractor is responsible for compliance with Labor Code section 1777.5 for all apprenticeable occupations. This statute requires that contractors and subcontractors must submit contract award information to the applicable joint apprenticeship committee, must employ apprentices in apprenticeable occupations in a ratio of not less than one hour of apprentice’s work for every five hours of labor performed by a journeyman (unless an exception is granted under § 1777.5), must contribute to the fund or funds in each craft or trade or a like amount to the California Apprenticeship Council, and that contractors and subcontractors must not discriminate among otherwise qualified employees as apprentices solely on the ground of sex, race, religion, creed, national origin, ancestry or color. Only apprentices defined in Labor Code section 3077, who are in training under apprenticeship standards and who have written apprentice contracts, may be employed on public works in apprenticeable occupations. If federal funds are used to pay for the Work, Contractor and any subcontractor agree to comply, as applicable, with the labor and reporting requirements of the Davis-Bacon Act (40 USC § 276a-7), the Copeland Act (40 USC § 276c and 18 USC § 874), and the Contract Work Hours and Safety Standards Act (40 USC § 327 and following). 7. Hours of Labor: Contractor acknowledges that under California Labor Code sections 1810 and following, eight hours of labor constitutes a legal day’s work. Contractor will forfeit as a penalty to City the sum of $25.00 for each worker employed in the execution of this Contract by Contractor or any subcontractor for each calendar day during which such worker is required or permitted to work more than eight hours in any one calendar day and 40 hours in any one calendar week in violation of the provisions of Labor Code section 1810. 8. Apprentices: Attention is directed to the provisions in Sections 1777.5 (Chapter 1411, Statutes of 1968) and 1777.6 of the Labor Code concerning the employment of apprentices by the Contractor or any Subcontractor under him. Section 1777.5, as amended, requires the Contractor or Subcontractor employing tradesmen in any apprenticeable occupation to apply to the joint apprenticeship committee nearest the site of the public works project and which administers the apprenticeship program in that trade for a certificate of approval. The certificate will also fix the ratio of apprentices to journeymen that will be used in the performance of the Contract. The ratio of apprentices to journeymen in such cases must not be less than one to five except: A. When unemployment in the area of coverage by the joint apprenticeship committee has exceeded an average of 15 percent in the 90 days prior to the request for certificate, or B. When the number of apprentices in training in that area exceeds a ratio of one to five, or 4 C. When the trade can show that it is replacing at least 1/30 of its membership through apprenticeship training on an annual basis statewide or locally, or D. When the assignment of an apprentice to any work performed under a public works Contract would create a condition which would jeopardize his life or the life, safety, or property of fellow employees or the public at large, or if the specified task to which the apprentice is to be assigned is of such a nature that training cannot be provided by a journeyman, or E. When the Contractor provides evidence that he employs registered apprentices on all of his Contracts on an annual average of not less than one apprentice to eight journeymen. The Contractor is required to make contributions to funds established for the administration of apprenticeship program if he employs registered apprentices or journeymen in any apprenticeable trade on such Contracts and if other Contractors on the public works site are making such contributions. The Contractor and any Subcontractor under him must comply with the requirements of Section 1777.5 and 1777.6 in the employment of apprentices. Information relative to apprenticeship standards, wage schedules, and other requirements may be obtained from the Director of Industrial Relations, ex officio the Administrator of Apprenticeship, San Francisco, California, or from the Division of Apprenticeship Standards and its branch offices. 9. Labor Discrimination: Attention is directed to Section 1735 of the Labor Code, which reads as follows: "A contractor must not discriminate in the employment of persons upon public works on any basis listed in subdivision (a) of Section 12940 of the Government Code, as those bases are defined in Sections 12926 and 12926.1 of the Government Code, except as otherwise provided in Section 12940 of the Government Code. Every contractor for public works who violates this section is subject to all the penalties imposed for a violation of this chapter. " 10. Workmen's Compensation Insurance: In accordance with the provisions of Article 5, Chapter 1, Part 7, Division 2 (commencing with Section 1860) and Chapter 4, Part 1, Division 4 (commencing with Section 3700) of the Labor Code of the State of California, the Contractor is required to secure the payment of compensation to his employees and must for that purpose obtain and keep in effect adequate Workmen's Compensation Insurance. The undersigned Contractor is aware of the provisions of Section 3700 of the Labor Code which requires every employer to be insured against liability for workmen's compensation or to undertake self-insurance in accordance with the provisions of that Code, and will comply with such provisions before commencing the performance of the work of this contract. 5 11. Indemnity and Insurance: To the fullest extent permitted by law, Contractor must indemnify, hold harmless, release and defend City, its officers, elected officials, employees, agents, volunteers, and consultants from and against any and all actions, claims, demands, damages, disability, losses, expenses including, but not limited to, attorney's fees and other defense costs and liabilities of any nature that may be asserted by any person or entity including Contractor, in whole or in part, arising out of Contractor’s activities hereunder, including the activities of other persons employed or utilized by Contractor including subcontractors hired by the Contractor in the performance of this Agreement excepting liabilities due to the active negligence of the City. This indemnification obligation is not limited in any way by any limitation on the amount or type of damages or compensation payable by or for Contractor under Worker's Compensation, disability or other employee benefit acts or the terms, applicability or limitations of any insurance held or provided by Contractor and must continue to bind the parties after termination/completion of this Agreement. Contractor shall procure and maintain throughout the time for performance of the work under this Contract the insurance required by the Special Provisions. The requirement that Contractor procure and maintain insurance shall in no way be construed to limit the Contractor’s duty to indemnify City as provided in the paragraph above. Failure of City to monitor compliance with these requirements imposes no additional obligations on City and will in no way act as a waiver of any rights hereunder. 12. City Right of Termination and Right to Complete the Work. The City may terminate the Contract when conditions encountered during the work make it impossible or impracticable to proceed, or when the City is prevented from proceeding with the Contract by act of God, by law, or by official action of a public authority. In addition, the occurrence of any of the following is a default by Contractor under this Contract: A. Contractor refuses or fails to prosecute the Work or any part thereof with such diligence as will insure its completion within the time specified or any permitted extension. B. Contractor fails to complete the Work on time. C. Contractor is adjudged bankrupt, or makes a general assignment for the benefit of creditors, or a receiver is appointed on account of Contractor’s insolvency. D. Contractor fails to supply enough properly skilled workers or proper materials to complete the Work in the time specified. E. Contractor fails to make prompt payment to any subcontractor or for material or labor. F. Contractor fails to abide by any applicable laws, ordinances or instructions of City in performing the Work. 6 G. Contractor breaches or fails to perform any obligation or duty under the Contract. Upon the occurrence of a default by Contractor, the Director will serve a written notice of default on Contractor specifying the nature of the default and the steps needed to correct the default. Unless Contractor cures the default within 10 days after the service of such notice, or satisfactory arrangements acceptable to City for the correction or elimination of such default are made, as determined by City, City may thereafter terminate this Contract by serving written notice on Contractor. In such case, Contractor will not be entitled to receive any further payment, except for Work actually completed prior to such termination in accordance with the provisions of the Contract Documents. In event of any such termination, City will also immediately serve written notice of the termination upon Contractor’s surety. The surety will have the right to take over and perform pursuant to this Contract; provided, however, that if the surety does not give City written notice of its intention to take over and perform this Contract within five days after service of the notice of termination or does not commence performance within 10 days from the date of such notice, City may take over the Work and prosecute the same to completion by contract or by any other method it may deem advisable for the account and at the expense of Contractor. Contractor and the surety will be liable to City for any and all excess costs or other damages incurred by City in completing the Work. If City takes over the Work as provided in this Section, City may, without liability for so doing, take possession of, and utilize in completing the Work, such materials, appliances, plant, and other property belonging to Contractor as may be on the site of the Work and necessary for the completion of the Work. 13. Substitution of Securities for Withheld Amounts: Pursuant to California Public Contracts Code Section 22300, securities may be substituted for any moneys withheld by a public agency to ensure performance under a contract. At the request and sole expense of the Contractor, securities equivalent to the amount withheld must be deposited with the public agency, or with a state or federally chartered bank as the escrow agent, who must pay such moneys to the Contractor upon satisfactory completion of the contract. Securities eligible for substitution under this section must include those listed in the California Public Contracts Code Section 22300 or bank or savings and loan certificates of deposit. The Contractor must be the beneficial owner of any securities substituted for moneys withheld and must receive any interest thereon. Alternatively, the Contractor may request and the City shall make payment of retentions earned directly to the escrow agent at the expense of the Contractor. At the expense of the Contractor, the Contractor may direct the investment of the payments into securities and the Contractor shall receive the interest earned on the investments upon the same terms provided for in Section 22300 for securities deposited by the Contractor. Upon satisfactory completion of the Contract, the Contractor shall receive from the escrow agent all securities, interest, and payments received by the escrow agent from the City, pursuant to the terms of this section. 7 Any escrow agreement entered into pursuant to this section must contain as a minimum the following provisions: a. The amount of securities to be deposited; b. The terms and conditions of conversion to cash in case of the default of the Contractor; and c. The termination of the escrow upon completion of the contract. 14. General Provisions A. Authority to Execute. Each Party represents and warrants that all necessary action has been taken by such Party to authorize the undersigned to execute this Contract and to bind it to the performance of its obligations. B. Assignment. Contractor may not assign this Contract without the prior written consent of City, which consent may be withheld in City’s sole discretion since the experience and qualifications of Contractor were material considerations for this Contract. C. Binding Effect. This Agreement is binding upon the heirs, executors, administrators, successors and permitted assigns of the Parties. D. Integrated Contract. This Contract, including the Contract Documents, is the entire, complete, final and exclusive expression of the Parties with respect to the Work to be performed under this Contract and supersedes all other agreements or understandings, whether oral or written, between Contractor and City prior to the execution of this Contract. E. Modification of Contract. No amendment to or modification of this Contract will be valid unless made in writing and approved by Contractor and by the City Council or City Manager, as applicable. The Parties agree that this requirement for written modifications cannot be waived and that any attempted waiver will be void. F. Counterparts, Facsimile or other Electronic Signatures. This Contract may be executed in several counterparts, each of which will be deemed an original, and all of which, when taken together, constitute one and the same instrument. Amendments to this Contract will be considered executed when the signature of a party is delivered by facsimile or other electronic transmission. Such facsimile or other electronic signature will have the same effect as an original signature. G. Waiver. Waiver by any Party of any term, condition, or covenant of this Contract will not constitute a waiver of any other term, condition, or covenant. Waiver by any Party of any breach of the provisions of this Contract will not constitute a waiver of any other provision, or a waiver of any subsequent breach or violation of any provision of this Contract. Acceptance by City of any Work performed by Contractor will not constitute a waiver of any of the provisions of this Contract. 8 H. Interpretation. This Contract will be interpreted, construed and governed according to the laws of the State of California. Each party has had the opportunity to review this Contract with legal counsel. The Contract will be construed simply, as a whole, and in accordance with its fair meaning. It will not be interpreted strictly for or against either party. I. Severability. If any term, condition or covenant of this Contract is declared or determined by any court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions of this Contract will not be affected and the Contract will be read and construed without the invalid, void or unenforceable provision. J. Venue. In the event of litigation between the parties, venue in state trial courts will be in the County of Sonoma. In the event of litigation in a U.S. District Court, venue will be in the Northern District of California. IN WITNESS WHEREOF, the City of Rohnert Park has caused these presents to be executed by its officers, thereunto duly authorized, and Contractor has subscribed same, all on the day and year first above written. CITY OF ROHNERT PARK ARGONAUT CONSTRUCTORS ____________________________________ Darrin Jenkins, City Manager Date Name/Title Date Per Resolution No. 2017-_____ adopted by the Rohnert Park City Council at its meeting of July 25, 2017. ATTEST: APPROVED AS TO FORM: ____________________________________ City Clerk City Attorney Item No. 7D1 1 Meeting Date: July 25, 2017 Department: Public Works Submitted By: John McArthur, Director of Public Works & Community Services Agenda Title: Adopt Ordinance 907 Amending Chapter 13.04 of the Rohnert Park Municipal Code to Increase Water Service Rates RECOMMENDED ACTION: Staff recommends that the City Council adopt Ordinance 907 amending Chapter 13.04 of the Rohnert Park Municipal Code to increase water service rates. BACKGROUND: The City of Rohnert Park provides water service to properties within its boundaries. The City charges for water service based on infrastructure expenses and customer usage with the goal of recovering costs. The costs to operate, maintain, and improve the water system along with revenue from water service charge rates need to be evaluated periodically to ensure that the City recovers the cost of these services. Other financial considerations include debt service obligations and maintenance of adequate reserve levels. Rohnert Park’s water rates continue to be one of the lowest in the region. On July 1, 2015, the City implemented new water rates to generate enough revenue to keep up with rising operating costs including the absorption of six years of Sonoma County Water Agency rate increases. Prior to the 2015 water rate increase, the last adjustment to the water rates occurred in October 2008, more than 8 years before. From 2008 to 2015 general inflation increased more than 12 percent and the cost of water purchased from the Sonoma County Water Agency (SCWA) increased more than 42 percent. Water purchases are the utility’s single largest cost. The 2015 water rate adjustment included an overall 9% rate increase as well as adoption of procedures for automatically adjusting water rates each January to reflect the cost increases of purchasing water from the Sonoma County Water Agency (SCWA) and general inflation. These adjustments to the water rates occurred in accordance with Government Code Section 53756, and will continue through January 2020. Upon implementing the 9% water rate increase, severe State-mandated water conservation measures were imposed in response to a statewide drought. City water customers reduced water usage by 17%, and despite the rate increase, water rate revenue actually declined, and the decline in water rate revenue was greater than the decline in expenses. Over the past year, as drought restrictions have eased, water usage has gradually increased and water rate revenue has partially recovered. However, water usage has not fully increased to pre-drought levels, and based upon anticipated long-term water-use habit changes resulting from the drought, staff has determined it is unlikely that water rate revenue will be fully restored. Staff has monitored water utility revenue closely since the previous water rate adjustment in 2015. CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” Item No. 7D1 2 Through the drought period, staff took actions to reduce expenses in order to maintain the solvency of the water utility. This included freezing discretionary spending and deferring all capital and non-emergency maintenance projects. The City’s water system is aging and is now over 50 years old. Due to the age of the system, the number of system failures has increased. This includes more water main pipe and water service pipe failures. Deferring needed capital projects as well as rehabilitation and improvement work on an aging water system such as Rohnert Park’s is not a sustainable long term approach to managing the water utility. Staff has determined that the average capital preservation needs are about $2.0 million per year. If water system capital needs continue to be deferred, the reliability and ability of the utility to provide safe drinking water could be jeopardized. Over the past several months, City staff has been working with The Reed Group to evaluate the water utility’s financial condition and develop a plan to adequately fund current and future system needs. A Water Rate Study Final Report (Report), dated May 11, 2017 has been prepared and is attached for reference. The Report includes a determination of water utility financial needs and a proposed rate plan. A draft of the Report was presented to the City’s Water/Wastewater Issues Sub Committee on March 21, 2017. Upon receiving comments from the Sub Committee, the Report revised and then presented to the City Council on May 9, 2017. There have been no substantive changes to the Report that was presented to the City Council. At the July 11, 2017 City Council meeting, the City held a public hearing, in accordance with Article XIIID, Section 6(a) of the California Constitution (Proposition 218) to consider the proposed water service rates. After considering all oral and written protests against the proposed water service rates, the City Council accepted the Report and determined that written protests were not presented by a majority of the parcels upon which the proposed water service charges will be imposed. The City Council then voted (5-0) introducing Ordinance 907, amending Chapter 13.04 of the Rohnert Park Municipal Code to increase water service rates, and Ordinance 907 is now before the City Council for adoption. DISCUSSION: Proposed Water Rates Details of the water utility’s current and estimated future revenue needs as well as the methodology for calculating the new water rate structure can be found in the Report. Upon analyzing the financial condition and revenue needs of the water utility, the following findings have been made and are detailed in the Report: 1) The current water rates do not adequately support the needs of the utility’s capital program. 2) Water rate revenue is sensitive to major decreases in water consumption that occur in a drought scenario, and therefore, the water utility needs a funding mechanism to address these drought related revenue shortfalls. The proposed rates include two components: (1) a water system capital preservation charge, and (2) a provision to implement a temporary water shortage surcharge. The Report has determined that the revenues generated by the current and proposed water rates and charges would not exceed the City’s cost of providing water service, including maintaining prudent reserves for specified purposes. The previously approved procedures for automatically adjusting water rates to reflect the increased costs associated with water purchases from the SCWA, as well as to reflect the effects of general inflation, would remain in effect. These automatic adjustments are authorized to occur in January of each year through 2020. Item No. 7D1 3 Capital Preservation Charge The water utility’s capital improvement program of preservation projects totals about $18.3 million (in future dollars) over the next ten years. Current water rates, and existing water demand, are estimated to provide about $300,000 annually for the capital improvement program which is insufficient to meet the capital needs of the water system. The proposed capital preservation charge would be phased in over a six-year period, and will be in addition to the current water rates and service charges. The Capital Preservation Charge would be used to support the City’s capital improvement program as well as maintenance projects and debt service related to capital projects. Temporary Water Shortage Rate Surcharge If adopted, the proposed temporary water shortage rate surcharges, as set forth in Table 2 of the proposed Notice, would be implemented when the City Council declares a water shortage emergency necessitating mandatory water use reductions exceeding 10 percent. Temporary water shortage surcharges would be applied to the water usage rates, and the amount of the surcharge would vary with the amount of required water use reductions. Monthly flat service charges and capital preservation charges would be unaffected. The temporary surcharge would be rescinded when the City Council declares an end to mandatory water use restrictions. Water shortage rate surcharges have been designed such that customers meeting water use reduction goals would have lower overall water bills than their water bills with normal (non-drought) water usage. For example, with the declaration of Stage 1 – 10% Mandatory Water Conservation, an 8 percent water shortage rate surcharge could be implemented. In this scenario, if the water customer met the 10% water conservation goal, their total charge for water service would actually be lower than their normal (no conservation requirement) water charges. NEXT STEPS: Following City Council adoption of Ordinance 907 the new rates would go into effect for water bills rendered after October 1, 2017. Department Head Approval Date: July 10, 2017 City Attorney Approval Date: July 11, 2017 City Manager Approval Date: July 19, 2017 Attachments: 1) Final Water Rate Study Report 2) Ordinance 907 CITY OF ROHNERT PARK Water Rate Study Final Report May 11, 2017 Attachment 1 C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. Table of Contents SECTION I. EXECUTIVE SUMMARY ..........................................................................1 Introduction and Background ..........................................................................................1 Financial Plan and Revenue Needs..................................................................................1 Proposed Capital Preservation Charge ............................................................................3 Comparison of Proposed Water Rates with Neighboring Communities .........................4 Water Shortage Financial Analysis and Water Shortage Surcharges .............................5 SECTION II. WATER FINANCIAL PLAN ...................................................................7 Fund Structure and Cash Flows ......................................................................................7 Financial Plan Assumptions ............................................................................................9 Financial Plan Findings and Conclusions .....................................................................17 Water Shortage Financial Analysis ...............................................................................18 SECTION III. WATER RATES ......................................................................................25 Current Water Rates ......................................................................................................25 Customer Account Data and Water Use Estimates ......................................................26 Annual Automatic Adjustments to Water Rates ..........................................................27 Capital Preservation Charge ..........................................................................................28 Water Shortage Rate Surcharges ...................................................................................31 Adopting Proposed Water Rates ....................................................................................33 C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 1 SECTION I. EXECUTIVE SUMMARY INTRODUCTION AND BACKGROUND The City of Rohnert Park retained The Reed Group, Inc. to update its ten-year water system financial plan and to review the water rates for the City’s water utility. The purpose of the study was to ensure that water rates are sufficient to meet the utility’s financial and service obligations for ongoing operation and maintenance, debt service, and capital improvements while maintaining prudent reserves. The Reed Group first prepared financial plan for the utility in 2015, and the current study was intended to review the financial situation in the wake of the recent drought. The last adjustment to the water rates occurred in January 2017 with a second year of automatic water rate adjustments. As used in this study, the term “water rates” refers to the monthly service charges and water usage rates applicable to active connections to the City’s water system for the provision of water service, including fire protection services. The scope of services for the water rate study included the following: • Review financial goals and policy objectives • Review current budget, existing debt obligations, and capital improvement plans • Prepare a ten-year financial plan and determine annual water rate revenue requirements for the water utility • Review the current water rate structure and recommend changes consistent with rate setting objectives • Develop water rate recommendations that meet the legal requirements for cost of service • Prepare a water rate study report (this report) to document the analyses performed during the study • Present study recommendations to the City Council during a regular meeting, and assist the City in preparing a notice of public hearing regarding the proposed water rates • Present final water rate recommendations during a public hearing to adopt new rates. The purpose of this report is to describe the analyses performed, present the updated financial plan for the water utility, and summarize findings and recommendations regarding the water rates. FINANCIAL PLAN AND REVENUE NEEDS The City’s water utility, the region, and the State are emerging from a multi-year drought, which had reduced water sales and related revenue. While the financial condition of the water utility is not critical, reduced water sales did place some financial stress on the utility. In addition, capital improvement needs are not being fully or C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 2 adequately funded. When revenues fall short of expectations, it is typical that capital program needs are deferred. Constant pressure to keep water rates low can result in a chronic underfunding of infrastructure rehabilitation and upgrade needs. At the present time, funding of the utility’s long-term preservation needs is the most significant financial issue to be addressed. Current water rates and other revenues are sufficient to meet operating and maintenance costs and debt service obligations, maintain prudent financial reserves, and provide modest support of capital program needs. However, the current water rates are insufficient to support a viable long-term strategy to preserve and rehabilitate the water system. In the upcoming year (FY 17-18) it is estimated that only $300,000 will be available from water rates and other operating revenues to support the capital improvement program. The capital improvement program, in contrast, includes nearly $550,000 in planned expenditures in FY 17-18, averages about $2 million per year for the remaining nine years of the 10-year planning period, and in some years will require more than $2.5 million to fund necessary projects. It is recommended that the City continue making the automatic adjustments to water rates each January to offset the effects of SCWA water cost changes as well as general inflation. The automatic adjustment procedures adopted by the City Council in 2015 are valid through January 2020, and will then need to be re-adopted by the City Council. To address the chronic underfunding of the capital improvement program, it is recommended that the City adopt a new capital preservation charge. It is further recommended that the charge be gradually phased in over a 6-year period. During this transition, a portion of operating fund revenues would continue to support the capital program. In addition to meeting the financial needs of the utility with respect to operating and maintenance costs, debt service obligations, and capital program needs, it is recommended that the City establish and maintain financial reserves, as follows: • Operating Reserve – It is recommended that the water utility establish and maintain an Operating Reserve equal to 50 percent of annual operating and maintenance costs, including debt service costs, as a minimum balance in the Water Operating Fund. The utility is able to fully fund this reserve with current revenues. The Operating Reserve is intended to provide working capital for improved cash flows and capacity to address unforeseen needs. • Rate Stabilization Reserve – It is recommended that the water utility also establish a Rate Stabilization Reserve with a target balance of $1.5 million. The Rate Stabilization Reserve, once funded, would provide funds for buffering the potential financial impacts of extended drought conditions, damage to facilities from earthquakes or other events, or other significant events. At this time, there is insufficient financial capacity to fund a Rate Stabilization Reserve. However, once the capital preservation charge is fully implemented, there will be capacity in the general water rates to establish the Rate Stabilization Reserve by the end of the 10-year planning period. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 3 By continuing with previously adopted automatic water rate adjustments, adopting and gradually implementing a capital preservation charge, and establishing and maintaining financial reserves, as recommended above, the City will bolster the water utility’s financial condition, establish reliable and dedicated funding for long-term rehabilitation and upgrade needs, and reduce financial risk. In addition, it is recommended that the City adopt temporary water shortage surcharges, which would be implemented in the event of a future drought or other water supply shortage, when water use restrictions are necessary and mandated by the City Council. The temporary surcharges, as presented below, will also help to reduce financial risk for the benefit of both the City’s water utility and customers. The financial plan model reflects assumptions and estimates that are believed reasonable at the present time. However, conditions change. It is recommended that the City review the financial condition of the water utility annually as part of the budget process, and perform a more comprehensive financial plan and rate update study every 3 to 5 years, unless otherwise needed sooner. The financial analysis presented in this report indicates that the revenues generated by the current and proposed water rates and charges would not exceed the cost of providing service, including maintaining prudent reserves for specified purposes. Details of financial plan analyses and the recommendation to adopt a capital preservation charge and drought-related temporary water shortage surcharges are presented in Section II of this report. PROPOSED CAPITAL PRESERVATION CHARGE Exhibit I-1 presents the proposed capital preservation charge, including the 6-year period for implementing the charge. It is recommended that the charge initially be implemented with water bills rendered after October 1, 2017, with subsequent adjustments implemented with bills rendered after each January 1, from 2019 through 2023. Once fully implemented, it is estimated that the capital preservation charge will generate about $2 million annually and provide stable funding for variable capital program needs. Details of the proposed water system capital preservation charge are presented in Section III of this report. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 4 COMPARISON OF PROPOSED WATER RATES WITH NEIGHBORING COMMUNITIES A typical monthly water bill for residential customers in Rohnert Park is currently lower than water bills for comparable water usage in most neighboring communities. Even with the proposed capital preservation charge, the monthly water bills for a typical single family residential customer will be lower than all but two neighboring communities. The typical water bill for a single family customer in Rohnert Park is compared with water bills based on current water rates of neighboring communities in Exhibit I-2. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 5 WATER SHORTAGE FINANCIAL ANALYSIS AND WATER SHORTAGE SURCHARGES This water rate study also included an analysis of the financial impacts associated with drought and reduced water sales. As drought conditions worsened in 2015, the Governor declared a statewide water emergency and ordered urban water agencies to reduce water use by 25 percent. In implementing the Governor’s Executive Order, the SWRCB required the City of Rohnert Park to reduce water use by 20 percent relative to 2013 water use. The City, like other communities in the state, responded by requiring customers to reduce water usage and implementing restrictions on water use. The City, the region, and the State are now emerging from the multi-year drought. However, the City is concerned about potential financial vulnerability in the event of a future drought, especially a multi-year drought. The financial analyses in this report support the development of temporary water shortage rate surcharges that would be implemented during periods of mandatory water use reductions as declared by the City. Water shortage conditions can result in (1) reduced water sales, (2) reduced water supply purchase and pumping costs, (3) increased groundwater production costs1, and (4) increased water conservation education and assistance costs. The net effect of these impacts is to create a financial deficit during periods of water shortage (i.e., revenue will decline more than the decline in expenses). To counter the financial impact of water shortage, a multi-prong strategy is proposed that includes (1) utilizing a portion of available Operating or Rate Stabilization Reserves when voluntary water use reductions are in effect to offset the financial deficit created by reduced water sales, and (2) adopting and implementing temporary water shortage rate surcharges to generate additional revenue when mandatory use restrictions are necessary. This strategy, including the temporary water shortage rate surcharges, should be incorporated into the City’s water shortage contingency plans. Proposed temporary water shortage rate surcharges would be implemented whenever the City Council declares a water shortage emergency requiring mandatory water use reductions. Water shortage rate surcharges would be applied to water usage rates (but not to monthly service charges or capital preservation charges). The temporary surcharges would mean that all customers would bear a proportionate share of the financial burden created by water shortage. The water shortage rate surcharges have been designed such that customers meeting water use reduction goals will have lower water bills than their normal water bills. Customers that do not meet water use reduction goals may have higher water bills. Exhibit I-3 presents the proposed temporary water shortage rate surcharges, expressed as a percentage increase to the normal water usage rates. The amount of increase depends on the level of water use reduction goals. It is expressed as a percentage so that it can be applied to any future water usage rate schedule. The specific rates shown in Exhibit I-3 are an application of the temporary water shortage surcharges to the water rates proposed for 1 The City has the ability to shift its water supply mix to increase reliance on groundwater during periods of shortage. This helps the City meet water supply needs, and lessens the financial impact of water shortage. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 6 2017. As an example, with a water use reduction goal of up to 20 percent (Stage 1 - Mandatory), an 8 percent water shortage rate surcharge would temporarily increase the Tier 1 residential water usage rate from $0.00292 per gallon to $0.00315 per gallon (a surcharge of $0.00023 per gallon). Monthly service charges and capital preservation charges would be unaffected. The water shortage rate surcharges will need to be adopted through a Proposition 218 notice and public hearing process. It is recommended that the water shortage rate surcharges be adopted along with the capital preservation charges proposed in the study. The water shortage rate surcharges would then be implemented during any stage of mandatory water use reduction, as declared by the City Council. Details of the water shortage financial analysis are presented in Section II of this report, and proposed temporary water shortage surcharges are presented in Section III of this report. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 7 SECTION II. WATER FINANCIAL PLAN This section of the report describes the financial plan and related recommendations for the City’s water utility. The ten-year financial plan is used to determine annual water rate revenue requirements. The annual rate revenue requirement is the amount of revenue needed from water rates to cover planned operating, maintenance, debt service, and capital program costs with consideration of other revenues and financial reserves. FUND STRUCTURE AND CASH FLOWS The financial plan is an annual cash flow model. As a cash flow model, it differs from standard accounting income statements, and balance sheets. The financial plan models sources and uses of funds into, out of, and between the various funds and reserves of the water utility. The financial plan model is based on the fund structure currently used by the City, and incorporates proposed reserve policies for specified purposes. This structure was discussed with staff, with concurrence that it provides a helpful framework for evaluating the financial needs of the utility and for clearly demonstrating how operating and maintenance costs, debt service obligations, and capital program needs are addressed. The proposed reserve structure includes an Operating Reserve and a Rate Stabilization Reserve within the Operating Fund (Fund 511), as well as the Capital Fund (Fund 541) for the purpose of meeting water system preservation needs of the capital program. The Developer Fund (Fund 110) is used to account for connection fee revenues that are used to expand the capacity of the water system to serve new development. Exhibit II-1 is a schematic diagram of the funds/reserves and major cash flows associated with the financial plan model. An understanding of the fund/reserve structure is helpful in understanding the financial plan worksheets that model estimated annual cash flows through the water utility from one year to the next. The fund/reserve structure is comprised of: • Water Operating Fund (511) – The Operating Fund is the primary fund within the water utility. Most of the water system’s revenues, including water rate revenues, flow into the Operating Fund and all operating and maintenance costs, including water purchases and debt service payments, are paid out of this fund. Funds are also transferred from the Operating Fund to the Capital Fund to help pay for capital projects intended to rehabilitate and upgrade facilities. o Operating Reserve – It is recommended that the City establish and maintain an Operating Reserve equal to 50 percent of annual operating and maintenance costs, including debt service, for the water system. The purpose of the Operating Reserve is to provide working capital and funds for unplanned operating and maintenance expenditures. The balance in the Water Operating Fund at the end of FY 15-16 was about $2,977,000, or about $238,000 below the target Operating Reserve for FY 16-17. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 8 o Rate Stabilization Reserve – It is recommended that the City establish a Rate Stabilization Reserve within the Operating Fund. The reserve would help bolster financial stability, could be drawn upon for drought or other emergency purposes, and would reduce the utility’s financial risk. While, at present, there is insufficient capacity to fund the Rate Stabilization Reserve, it is recommended that the City establish a target goal of $1.5 million to be funded toward the end of the 10-year planning period. o Available Balance – The balance in the Operating Fund in excess of the target amounts for the Operating Reserve and the Rate Stabilization Reserve is shown in the financial plan as Available Balance. After all other obligations are met the Available Balance is used to offset rate increases. The financial plan model generally seeks to reduce any Available Balance over time. A negative value for the Available Fund Balance would indicate shortfalls in maintaining the minimum Operating Reserve and/or Rate Stabilization Reserve. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 9 • Water Capital Fund (541) – The Capital Fund is used to account for revenues and funds available for capital project expenditures. Capital projects funded from this fund are intended to preserve (rehabilitate and upgrade) the water system, rather than expand the water system to serve new growth. The financial plan model generally seeks to maintain a positive balance in the Capital Fund while also covering the costs of planned preservation projects. At present, this is achieved through an annual transfer of funds from the Operating Fund to the Capital Fund in support of the capital improvement program. However, as described later in this section, funding of the capital program is generally insufficient to meet overall capital program needs, and this study introduces a new capital preservation charge to help ensure adequate long-term funding of the capital program and the rehabilitation and upgrade of the water system. • Water Developer Fund (Fund 110) – The City maintains the Water Developer Fund to account for connection fee revenue. Money in this fund is available for capacity expansion projects needed to meet the capacity needs of new development. Because this fund is independent of the issues affecting water rates, it does not play an active role in the financial plan and development of water rate recommendations. FINANCIAL PLAN ASSUMPTIONS The financial plan was created to reflect the FY 16-17 budget and financial conditions as of the beginning of the fiscal year. The financial plan also reflects the City’s debt service obligations and capital improvement program, as identified by City staff, during the ten- year planning period. The process used to develop the financial plan involved estimating future revenues and expenditures based on estimates of future conditions using the current budget, existing debt service schedules and a capital improvement plan provided by City staff. The financial plan is based on the best available information and reasonable assumptions; future estimates have been reviewed with staff and are believed to be reasonable. Previously approved automatic annual water rate adjustments help protect the City and ratepayers from some of the uncertainty associated with financial plan assumptions, because rate adjustments are based on the actual cost of the wholesale water supply and the actual inflation experienced, rather than on the inflation assumptions made in the model. Primary assumptions reflected in financial plan analyses are described below, with additional information presented in Exhibit II-2: • Interest Rates – Interest earned on fund/reserve balances is estimated to be 0.5 percent per year in FY 17-18 and FY 18-19, 0.75 percent in FY 19-20 through FY 21-22, 1.0 percent for the remainder of the planning period. Interest calculations are based on beginning-of-year balances. These interest rates reflect the recent return from the Local Agency Investment Fund (LAIF), as well as a gradual return towards historical averages. Interest accrues to each of the funds. The City also pays interest on outstanding long-term debt obligations. The interest payments on outstanding debt are those contained in existing contracts and repayment schedules. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 10 C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 11 • Inflation Rates – The financial plan analyses include general inflation at 3.0 percent per year, SCWA water rate inflation at 5.0 percent per year, and construction inflation at 3.0 percent per year. As stated above, the automatic annual water rate adjustments ensure that water rates are adjusted for the actual inflation rates experienced, rather than the assumptions included in the financial plan. General inflation is currently about 3.0 percent per year, as reported by the Bureau of Labor Statistics for the San Francisco-Oakland-San Jose area. The SCWA has developed its own long-term financial plan, which illustrates that their water rates will increase by 4 to 6 percent annually to meet their operation, debt service and capital program requirements. For FY 17-18, SCWA has proposed a 4.98 percent increase in the rate for water. Based on this, a 5 percent per year average is used to model changes to the SCWA’s rates. Construction inflation, as indicated by the Engineering News Record’s 20-Cities Construction Cost Index has increased about 3.0 percent per year for the past five years. Each of these inflation assumptions has been reviewed with City staff and is reasonable for financial planning purposes. • Growth Projections – The financial plans assume that the customer base (number of active service connections) will grow by 0.5 percent per year throughout the planning period. This estimate is slightly less than the City’s 2015 Urban Water Management Plan to be conservative. The estimate is believed to be reasonable for financial planning purposes because it correlates well with both the development proposals currently moving through the City’s approval process and limits established by the City’s growth management ordinance, and has been reviewed with City staff. • Customer Demand – The City was under state-mandated water use restrictions during the recent drought. Customer water demand in FY 15-16 was about 17 percent below the pre-drought level from 2013. Water demand is beginning to rebound. Average customer water demands are assumed to rebound from the recent drought levels over a five-year period, beginning in FY 16-17. A full rebound to pre-drought water usage is not included due to hardening of usage and anticipated new water conservation requirements from the State. The assumption used is believe reasonable and has been reviewed with City staff. • Operation and Maintenance Costs – The financial plan model is based on current operating and maintenance costs as reflected in the FY 16-17 operating budget, with future estimates based on the inflation and growth assumptions described above. Assumptions were reviewed with City staff. • Water Supplies – At present, about 33 percent of water supplies are derived from groundwater, with the balance purchased from the SCWA. To reduce the current financial strain on the water utility, the City plans to increase use of groundwater to about 2,200 AF per year (about 48 percent of supplies) from FY 17-18 through FY 19-20. Groundwater usage will then be gradually decreased, reaching 1,400 AF per year by the end of the planning period. This lower amount reflects the City’s long-term goal of managing groundwater use sustainably, consistent with the adopted Groundwater Management Plan for the Santa Rosa Plain Groundwater Basin. By definition, managing the groundwater sustainably means limiting long-term groundwater extraction to C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 12 the amount of recharge, thereby avoiding long-term depletion of the aquifer. The balance of the City’s potable water supplies is provided by the SCWA2. • Capital Improvement Program – The water utility’s capital improvement plan, as developed by staff, includes multiple preservation projects totaling about $18.3 million (in future dollars) over a ten-year period to be funded by the water utility. As described later in this report, a new water system capital preservation charge is proposed to provide dedicated and stable financial support for the capital improvement program. As proposed, the capital preservation charge would be gradually phased in over six years. No new long-term debt is included in the financial plan analysis. The capital improvement plan reflected in the financial plan is presented in Exhibit II-3. • Debt Obligations – In FY 15-16 the City paid off its 2002 CSCDA Water Revenue Bond, thereby reducing annual debt service costs by about $150,000. Remaining water system long-term debt obligations are summarized in Exhibit II-4. The water utility currently pays about $318,000 annually on debt service related to debt issued in 2005. The City is required to maintain water system revenues at a level that meets a coverage requirement3. This requirement is currently being met, and is expected to be met throughout the planning period. Exhibit II-5 provides the details of the financial plan model of the City’s water utility. It reflects a proposed strategy for meeting the utility’s financial and service obligations through (1) continuation of previously approved automatic water rate adjustments for SCWA rate changes and general inflation, and (2) establishing and gradually phasing in a capital preservation charge. The capital preservation charge is intended to help ensure stable funding to address the utility’s long-term capital program needs to preserve water system capacity and reliability. Once fully implemented, this strategy will provide the financial capacity for the water utility to continue to meet financial and service obligations, including meeting debt service obligations, maintaining the water system, and adequately supporting the planned capital improvement program. Exhibit II-6 graphically summarizes the annual revenues, expenses, and year-end balances of both the Operating Fund (511) and the Capital Fund (541) through the planning period. The graph for the Capital Fund illustrates that, in the near-term, there will be funding shortfall for the capital improvement program of slightly more than $1.1 million. This will require the City to defer one or more projects. This funding shortfall could also be avoided by accelerating the implementation of the proposed capital preservation charge, though that is not recommended at this time due to the impact it would have on customer water bills. 2 The City also plans to continue to offset approximately 1,100 acre-feet per year of irrigation use with recycled water. 3 Debt service coverage is calculated as net revenues (defined as gross revenues minus annual operating and maintenance expenses) divided by annual debt service. Existing debt covenants require that debt service coverage exceed 1.20. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 13 C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 14 C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 15 C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 16 C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 17 FINANCIAL PLAN FINDINGS AND CONCLUSIONS The preceding portion of this section described the basic framework and assumptions underlying the financial analyses. Specific findings and conclusions pertaining to the water utility are presented below, beginning with a description of the current situation. At present, the City’s water utility has: • Cash in the Operating Fund as of June 30, 2016 that is only slightly below the recommended minimum target Operation Reserve, • Estimated FY 16-17 water utility revenues of about $6.85 million, and • Estimated FY 16-17 operating and maintenance costs, including debt service obligations, totaling about $6.68 million, and • Planned water system capital improvements in FY 16-17 of $250,000. While current water system revenues are sufficient to cover operating and maintenance expenses and debt service obligations, the revenues are insufficient to maintain a prudent Operating Reserve and adequately fund the water system capital improvement program. Current water rates will provide only about $300,000 for the capital program in FY 17-18, while planned project expenditures are $541,000. In addition, preservation project expenditures are estimated to average about $2 million annually over the remaining nine years of the 10-year planning period. Ensuring the long-term viability of the water system is the most significant financial challenge facing the water utility. In 2015, the City adopted procedures to automatically adjust water rates each January to incorporate the effects of changes in SCWA’s water rate and the cost of water supply purchases, and to counter the effects of general inflation. These adjustments to water rates were successfully implemented in both January 2016 and 2017. The adjustment procedure is available through January 2020, and then will need to be re-adopted by the City Council. At this time, these automatic rate adjustments appear adequate to meet the water utility’s financial needs for operating and maintenance and debt service. Furthermore, with the anticipated gradual rebound in water demand utility revenues will also be sufficient to establish and maintain the recommended Operating Reserve (at 50 percent of annual operating and maintenance expense, including debt service), as well as provide modest (but insufficient) funding for capital projects. Because current funding for capital projects is insufficient, and is typically the first thing to be cut when revenues fall short of needs, it is recommended that the City adopt and gradually implement a capital preservation charge for the water utility. As described in Section III of this report, this fixed monthly charge would be gradually phased in over 6 years. Once fully implemented it is expected to provide ongoing financial support for the utility’s capital program needs for preserving the water system for future use. As shown in the lower portion of Exhibit II-5, and graphically in the lower portion of Exhibit II-6, the capital preservation charge will provide stable revenue for variable capital program needs. Any excess revenue in one year would provide for a Capital Fund reserve that would then be used for the next “peak” expenditure year. With the 6-year phase in period, the proposed capital preservation charge is estimated to generate a total of about $14.1 million over ten years. Preservation project expenditures are expected to total about $18.3 million over this same period. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 18 Current estimates indicate that the proposed charge will not result in excessive revenue, and a future financial plan and rate update studies will provide opportunities to review the adequacy of the charge relative to the capital program needs identified at that time. No other change is required to the City’s water rates at this time for normal water supply conditions. Details of the proposed capital preservation charge are included in Section III of this report. For most customers (those with a 1” or smaller water meter), the monthly capital preservation charge would start at $2.50 per month and gradually increase to $15.00 per month by January 2023 (increasing $2.50 each year). Until the capital preservation charge is fully implemented, a portion of general water rate revenue will be required to help support the capital improvement program. However, as depicted in the financial plan model, the annual transfer will be limited such that the target Operating Reserve is maintained. As the lower portion of Exhibit II-6 illustrates, this may result in a funding shortfall of about $1.1 million in the capital program. City staff believes that planned projects can be deferred during this period of transition. However, reaching full funding of the program is in the best interest of the water utility, and its customers. Once the capital preservation charge is fully implemented and transfers from the Operating Fund to the Capital Fund will not be required, it is anticipated that the general water rate revenue will be sufficient to begin to fund a Rate Stabilization Reserve. The Rate Stabilization Reserve is intended to provide additional protections for the water utility against financial risk that may be associated with drought-related water supply shortages, earthquakes and related (potentially significant) water system damage, or other emergency conditions. The financial plan model indicates that a Rate Stabilization Reserve of $1.5 million may be reached by the end of the planning period. It would provide the City with an additional tool for managing the financial risk associated with uncertainty. The financial plan model reflects assumptions and estimates that are believed reasonable at the present time. However, conditions change. It is recommended that the City review the financial condition of the water utility annually as part of the budget process, and perform a more comprehensive financial plan and water rate update study every 3 to 5 years, unless otherwise needed sooner. In addition, the procedures for automatically adjusting water rates for changes in SCWA costs and for general inflation will need to be re-adopted after January 2020. WATER SHORTAGE FINANCIAL ANALYSIS This study also included an analysis of the financial impacts associated with drought and reduced water sales. The City (and the entire State) is emerging from an extended drought, which included State-mandated water use restrictions. Reduced water sales in recent years have had a financial impact of the water utility as the reduction in water sales revenue exceeded the reduction in water system costs. The financial strain placed on the City’s water utility was similar to the strain confronted by many other utilities. However, the City was able to partially mitigate this strain through the ability to shift its water supply mix away from SCWA water to greater use of groundwater. While that action helped in this recent drought, the City is also concerned about long-term groundwater C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 19 sustainability and its obligations under the Groundwater Management Plan for the Santa Rosa Plain Groundwater Basin. With this recent experience, and the evolving groundwater regulatory environment, the City is concerned about potential financial impact of drought and reduced water usage on the water utility. As a result, a new financial analysis of the potential impact of drought was performed as part of this study with the intent of identifying and developing additional tools for countering the potential financial impacts associated with water shortage conditions. The City’s water utility can be affected in several ways by drought conditions. Changes in operating and maintenance costs and revenues can include: • Reduced water sales and water sales revenue • Reduced water purchases and water purchase costs • Reduced or increased groundwater production and production costs4 • Increased water conservation program costs. While the reduction in water sales revenue will be partially offset by the reduction in water purchase and production costs, revenue will typically decline more than costs creating a financial deficit. Increased water conservation program costs, including education and assistance programs, will add to the financial deficit created by water shortage. In response to water shortage, and the financial deficit created, the City has the ability to take several actions. The analysis presented herein focused on four potential courses of action, including: • Using available financial reserves, including portions of Operating or Rate Stabilization Reserves • Shifting the water supply mix away from SCWA water purchases and toward groundwater as the percentage of total water production • Supplementing water rate revenues through imposition of temporary water shortage surcharges • Deferring capital program expenditures to reduce costs. The City could also reduce operating and maintenance costs, where possible, or seek outside funding sources to help bridge a financial deficit. In 2016, the City adopted its 2015 Urban Water Management Plan (UWMP), which includes an updated Water Shortage Contingency Plan (WSCP). The WSCP identifies several stages of water shortage, as summarized in the table below. 4 An increase in groundwater production costs could result from a shift in water supply mix away from SCWA water purchases and towards groundwater production. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 20 Stage No. Water Supply Condition % Water Supply Shortage % Demand Reduction Stage 1 – Voluntary Up to 15% reduction in SCWA water supply 0% Up to 10% Stage 1 – Mandatory 15% to 30% reduction in SCWA water supply 0% 10% to 20% Stage 2 – Mandatory 30% to 40% reduction in SCWA water supply 10% 20% to 25% Stage 3 – Mandatory 40% to 50% reduction in SCWA water supply 25% 25% or more The State Water Resources Control Board is in the process of developing new regulations for implementing the Governor’s order for expanding water conservation requirements as well as planning and preparing for future water shortages5. While the regulations are not final, the draft document includes different specifications for WSCPs. The City may need to modify its WSCP once State regulations have been finalized. Using the financial plan model, an analysis of the potential financial impacts of water shortages has been performed. The analysis includes estimating the magnitude of reduced revenue, reduced costs, and increased costs that may be associated with various ranges of water shortage. Exhibit II-7 graphically illustrates the financial deficit created by reduced water sales resulting from water shortage conditions as defined by the City’s WSCP6. 5 See California State Water Resources Control Board, Making Water Conservation a California Way of Life – Public Review Draft, November 2016. 6 For the “Normal Supply” condition in the analysis, both water supply and demand have been adjusted to reflect normal conditions. In addition, the analysis assumes a normal water supply mix of 65 percent SCWA water and 35 percent groundwater. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 21 The shortage analysis starts with normal conditions whereby revenues and expenses are effectively in balance. Under water shortage conditions, a financial deficit is likely to emerge and increases with increasing severity of drought conditions. Analyses indicate that the City of Rohnert Park has an advantage that other communities do not have. Groundwater is less expensive to produce (in the short-term) than purchasing water from the SCWA7. During drought conditions, the City has the ability to shift its water supply mix to place increased emphasis on groundwater production. Because of its cost structure and water supply flexibility, the City of Rohnert Park can mitigate a portion of the financial impact of water shortage. As a result only the modest use of available reserves and moderate water shortage rate surcharges are required. Exhibit II-8 summarizes estimated FY 17-18 operating revenues and expenses under normalized water supply conditions and under various water shortage conditions. The shortage analysis starts with normal conditions whereby revenues and expenses are effectively in balance. Under water shortage conditions, a financial deficit will emerge and increase with increasing severity of shortage conditions. The exhibit shows how different factors adversely impact the financial condition. The bottom portion of the exhibit summarizes the cost reductions associated with reduced water sales and how corrective actions (i.e., use of available reserves and implementation of a temporary water shortage surcharge) can offset the remaining financial deficit. 7 Heavy use of groundwater over the long term could result in depletion of the aquifer and increased costs for pumping. This would conflict with policy objectives reflected in the adopted Groundwater Management Plan for the Santa Rosa Plain Groundwater Basin. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 22 Exhibit II-9 graphically illustrates how the financial deficit created by reduced water sales could be bridged through a combination of actions. Under modest shortage conditions and voluntary use restrictions, the City would rely on its Operating Reserve and/or Rate Stabilization Reserve to bridge the deficit gap. Under more significant conditions with mandatory use restrictions, the City would implement the proposed temporary water shortage rate surcharges to provide supplemental water rate revenue, thereby minimizing the impact on reserves. Financial analysis indicates that it would not be necessary to reduce capital improvement program expenditures during shortage periods, nor would it be necessary to change the water supply mix. By invoking the temporary water shortage surcharge during periods of mandatory use restrictions the City would provide customers with a financial incentive for meeting use reduction goals, and also preserve its water system reserves as protection against extended droughts or other risks. In addition, once reserves are drawn down, the City would be faced with having to replenish them, which may necessitate a subsequent rate increase to re-establish financial stability. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 23 Exhibit II-10 presents additional details of the analysis of estimated FY 17-18 annual revenues and expenses at the defined stages of water shortage. Analyses suggest that, in modest conditions with voluntary water use restrictions of up to 10 percent, it is possible to limit the financial drain on reserves to less than $150,000 annually. In more significant conditions, when mandatory use restrictions are required, the temporary water shortage surcharge is employed to bridge the financial deficit. This analysis assumes water shortage rate surcharges, as described in Section III of this report, would be used to help limit the financial strain created by reduced water sales during drought conditions with mandatory water use restrictions. Considering that droughts may extend over several years (as the most recent drought did) a Rate Stabilization Reserve could also help bridge any financial deficit created by extended water shortage conditions. In effect, the temporary water shortage surcharges provide the City with an additional tool for managing the financial risk associated with water shortage conditions. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 24 As indicated in Section II of this report, a Rate Stabilization Reserve is appropriate and prudent for helping to bolster the financial stability of the water utility. Until the utility can fund this reserve, the Operating Reserve will need to be relied upon for bridging any financial deficit. For this reason, adopting the water shortage rate surcharges (presented in Section III of this report) is an important step in providing a comprehensive strategy to protect the water utility’s financial condition against the uncertainty associated with potential future drought conditions. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 25 SECTION III. WATER RATES This section of the report presents information and analyses leading to the development of water rate recommendations for FY 17-18 and beyond. CURRENT WATER RATES The City of Rohnert Park provides water service through nearly 8,750 water service connections8, including nearly 7,675 single family residences, and about 1,075 multi-family, commercial, and irrigation services. In 2015, the City adopted a 9 percent increase in the overall level of water rates in order to meet the financial needs of the utility. At that time, the City also adopted procedures for automatically adjusting, in January of each year, the level of water rates (1) based on changes in SCWA water supply costs, and (2) to offset the effects of general inflation. Automatic rate adjustments have been implemented in both 2016 and 2017 based on these procedures. The City’s current water rates, as adjusted in January 2017, are summarized in Exhibit III-1. Current water rates include a monthly service charge for all service connections, a 2- tier water usage rate structure for single family homes, and a uniform water rate for multi- family and non-residential accounts. The tiered water usage rates for single family homes are based on differences in water supply costs (groundwater and SCWA water), and provided a proportionate method of allocating costs that also helps to achieve the City’s water conservation objectives. The uniform water usage rate applicable to multi-family and non-residential accounts is equal to the weighted average of the single family tier rates, to ensure proportionality between customer classes. Tier rates were determined to not be suitable for multi-family and non-residential accounts due to the diversity of water use characteristics and the more complex and costly administrative requirements. Additionally, monthly fire protection charges apply to dedicated private fire service connections (related to fire suppression requirements). At present, about 54 percent of water rate revenue is generated from water usage charges and about 46 percent from fixed service charges, including private fire service charges. The 2015 water rate study9 provided the cost and cost of service justification for the current rate structure10. The adjustments to the rates made each January are intended to maintain revenues relative to inflationary pressures on costs including SCWA cost changes, which is the largest single cost to the utility’s operations. The water rate structure also meets constitutional requirements for proportionately allocating costs to each 8 The term “customer” is generally used in this report to refer to a water service connection that provides water service to an individual parcels. In some cases, a parcel may be served by more than one service connection. 9 City of Rohnert Park, Water Rate Study Final Report, prepared by The Reed Group, Inc. dated March 12, 2015. 10 Supplemental information on the City’s 2-tier water rate structure was provided in a November 13, 2015 letter to the City regarding the 2016 automatic water rate adjustment to address issues raised by the April 2015 Appellate Court decision in Capistrano Taxpayers Association v. City of San Juan Capistrano. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 26 component of the rate structure. The two-tier water usage rates, in particular, are based on cost differences between SCWA water costs and groundwater production. The recent drought resulted in a reduction in customer water demand, and proposed new water conservation measures may result in any rebound in water demand remaining below pre-drought levels. Because of this shift in water demand current water rates are not providing the desired level of funding for the utility. In particular, funding for the capital improvement program (preservation projects) is falling short of long-term needs11. As a result, the focus of this rate study is to develop an approach that addresses this financial need with a revenue source that is both stable and sustainable. 11 As noted previously in this report, revenue shortfalls tend to result in the deferral of capital projects, and chronic underfunding results in capital improvement plans falling short of long-term needs (i.e., capital improvement plans are prepared based on ability to fund, rather than system needs). C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 27 CUSTOMER ACCOUNT DATA AND WATER USE ESTIMATES Water rate calculations are based on a number of factors related to the City’s customer base. Factors include the number of customers, customer classes, meter size, and actual water usage. The City provides water service through nearly 8,750 water service connections. Single family customers comprise about 88 percent of the customer accounts; multi-family and non-residential customers make up about 12 percent of the customer accounts. While there are extremes on both the low and high ends, average single family water usage is currently about 6,000 gallons per month (about 200 gallons per day)12. Single family customers also exhibit a wide variation in water usage throughout the year. Winter water usage for single family homes averages about 4,000 per month (about 133 gpd), while summer usage varies dramatically depending on landscape irrigation and other factors. Water usage for multi-family dwellings is lower than for single family residences for a variety of reasons including fewer people per household and limited landscape irrigation (or irrigation that is separately metered). Non-residential water usage can vary dramatically, and non-residential customers are served by meters of varying sizes to accommodate the differences in water demands. Service connections with different meter sizes can place different demands on the water system. Much more water can be delivered through a 4” water meter than through a 1” meter. To relate the potential demands on the water system from customers with different sized water meters, it is recommended that hydraulic capacity factors be used to determine the number of equivalent meters represented by the total customer base with variable meter sizes. For purposes of rate analysis, meters up to 1” are assigned a meter equivalency factor of 1.0. The ratio of instantaneous flow capacity of the various meter sizes to the capacity of a 1” meter is used to determine the meter equivalencies for larger meter sizes. This capacity relationship across meter sizes is generally used to allocate capacity-related costs to various customers. As a result, customers with larger meters have a greater responsibility in bearing capacity-related costs. ANNUAL AUTOMATIC ADJUSTMENTS TO WATER RATES In the fall of 2008, the Governor signed Assembly Bill (AB) 3030 adding Section 53756 to the Government Code. Section 53756 authorizes water utilities to adopt procedures for automatically adjusting water rates to pass through increases in wholesale charges for water or to counter the effects of inflation. Automatic adjustment procedures may be adopted for up to five years. In addition, customers must be notified of the rate adjustments at least 30 days before they go into effect. The notification can be made with a bill insert or other means. In 2015, the City adopted procedures for automatically adjusting water rates each January from 2016 through 2020. The procedures include an adjustment to the water usage rates to reflect changes in SCWA water costs, as well as an adjustment for general inflation applied to both the usage rates and fixed monthly service charges. These adjustments have 12 This current average usage has been affected by the recent drought and is lower than historical norms. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 28 been made in both January 2016 and 2017, and it is recommended that the City continue with these adjustments through 2020 to help ensure that the water rates continue to cover the costs of service. Financial plan analyses presented in Section II of this report indicate that the City’s current water rates, with the annual automatic adjustments for changes in SCWA water costs and general inflation, are adequate for covering current operating and maintenance costs, and debt service obligations. In addition, current rate revenues are expected to enable the utility to meet recommended reserve levels, as well as provide modest support for the capital improvement program (preservation projects). However, they are insufficient to fully support the capital improvement program. The City should also consider re-adopting the procedures in 2020 for another five years. Exhibit III-2 presents the two automatic rate adjustments that resulted in the water rate schedule for January 2017. The exhibit illustrates the effect of a 5.98 percent increase in SCWA water rates and a 3.06 percent annual change in the SF-CPI. As required by the California Constitution, in no event shall rate adjustments result in rates that exceed the cost of providing water service. The changes resulted in a modest increase in water rates. For example, a typical residential monthly water bill increased from $37.63 to $39.21 (a change of $1.58 per month, 4.2 percent) for 6,000 gallons of water. CAPITAL PRESERVATION CHARGE While the current water rates adequately address the utility’s financial needs for operation and maintenance, debt service, and maintaining prudent reserves, the current rates do not adequately support the needs of the capital program. This is the most significant financial issue for the utility. In order to provide funding to rehabilitate and upgrade water system facilities, it is recommended that the City adopt a capital preservation charge as part of the water rate structure. It is recommended that this be a separate charge on the water bill and accrue as revenue to the Water Capital Fund, thereby ensuring that the funds are primarily used for capital program needs. As indicated in Section II of this report, the proposed capacity preservation charge will not fully fund the City’s current 10-year water system capital improvement program. Transfers from the Water Operating Fund and the deferral of some projects will still be required. Nevertheless, the proposed capital preservation charge will provide substantive new revenue to meet the needs of the utility. Future financial planning and water rate updates will provide opportunities to refine the amount of the charge, consistent with future capital program needs. The amount of the capital preservation charge was calculated by taking the estimated cost to fund the 10-year capital improvement program, as limited by the above considerations, and proportionately assigning the costs to each customer based on the hydraulic capacity associated with each meter size. This is the same method used for allocating capacity-related costs to each customer in the City’s current monthly service charges. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 29 While the amount of the capital preservation charge is justified entirely on capital program needs during the planning period, to provide flexibility in managing the utility’s finances, it is recommended that revenue from the capital preservation charge also be available for maintaining a Capital Fund reserve, paying debt service, and supporting the repair and maintenance of the water system including equipment and vehicles. These uses are all consistent with the purpose of preserving capacity in the water system. The proposed capital preservation charge would be a fixed monthly charge that varies with the size of the water meter. To provide needed revenue by the end of the planning period a capital preservation charge of $15.00 per month (for a 1” meter) is recommended. However, because of the significant amount, it is recommended that the charge be gradually phased in over a 6-year period, in increments of $2.50 per year. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 30 During this transition period, funds available in the Operating Fund that exceed the target Operating Reserve level would be available to help support the capital improvement program. Even with this support, for the next several years there will be insufficient funds to undertake the entire capital improvement program. Financial plan analyses indicate that the shortfall may total about $1.1 million. City staff has indicated that a portion of the capital program could be delayed, and that this would be a preferred adaptation than more rapidly implementing the proposed capital preservation charge. Exhibit III-3 presents the proposed schedules for gradually implementing the capital preservation charge. After the initial implementation, planned to be included in water bills rendered after October 1, 2017, remaining steps in the implementation plan would occur with bills rendered after each January 1, beginning in 2019. The full capital preservation charge will not be in place until January 2023. Once fully implemented, the capital preservation charge is estimated to generate about $2.0 million annually. This is estimated to then provide adequate funding of the capital improvement program beyond the current 10-year planning period. Benefits of the proposed capital preservation charge include: ! A dedicated funding source to help ensure adequate funding of the water utility’s capital improvement program (preservation projects) ! This funding would be stable under varying demand conditions and would not put the capital improvement program at risk during periods of water shortage ! Enables City to continue with general water rate adjustments that are limited to changes due to the effects of SCWA cost changes and general inflation ! Once fully implemented, will contribute to greater financial stability, as well as rate stability. The proposed capital preservation charge adds an important dimension to meeting the full requirements of providing water service to customers (i.e., helping to ensure the long- term viability of the water system). In addition, the proposed capital preservation charge reflects a proportionate distribution of water system preservation costs to all customers and customer classes, and will provide additional revenue essential to continuing to provide water service. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 31 WATER SHORTAGE RATE SURCHARGES To help encourage water conservation and to help bridge the financial deficit created by a water shortage, it is recommended that the City adopt temporary water shortage surcharges that would be implemented under specified water shortage conditions. The temporary water shortage rate surcharges would be incremental increases in the water usage rates. Even though the water shortage surcharges represent an increase in the water rates, total water rate revenue could still decline with reduced water sales as water shortage conditions worsen. That is, the supplemental revenue generated through the water shortage rate surcharges might only partially bridge the deficit gap created by drought and reduced water sales. As described in Section II of this report, a multi-pronged approach to addressing financial strain caused by water supply shortages and reduced water is suggested. While the utility can use a portion of Operating or Rate Stabilization Reserves in modest conditions, with voluntary use restrictions, temporary water shortage rate surcharges are recommended for conditions that warrant mandatory water use restrictions. Under these more severe conditions, the estimated financial deficit created by water shortage conditions is largely recovered through a temporary water shortage surcharge from customers in proportion to each customer’s water usage. In short, the calculation ensures that each customer bears a proportionate share of the costs associated with water shortage conditions. The temporary water shortage rate surcharges have been specifically designed such that customers that meet water use reduction goals will have lower water bills with the water shortage rate surcharges than they would with normal water usage and normal water rates. Customers that do not meet water use reduction goals may pay more for water service because of the water shortage rate surcharges. Exhibit III-4 presents the current 2017 water rate schedule including the effect of temporary water shortage rate surcharges. As an example, Tier 1 of residential water usage rates would increase from $0.00292 per gallon to $0.00315 per gallon under Stage 1 – Mandatory conditions (an 8 percent surcharge when water use reductions of 10 to 20 percent are necessary). Because the water shortage rate surcharge would only apply to the water usage rates (and not the fixed monthly service charges or capital preservation charges) the impact on the total water bill is substantially mitigated. In addition, the temporary water shortage surcharges would only be required during periods of mandatory use restrictions, but not in the modest Stage 1 - Voluntary conditions with a use reduction of up to 10 percent. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 32 The temporary water shortage rate surcharge is not intended to be a penalty for excessive use; rather it represents each customer’s fair share of the cost of partially bridging the financial deficit created by reduced water sales during periods of water shortage. Customers would participate in bearing this cost in proportion to their water use. Water shortage rate surcharges would provide modest revenue increases for addressing water supply shortages and the resulting reduced water demand. As illustrated graphically in Exhibit III-5, the water shortage rate surcharge revenue only partially replaces lost revenue due to reduced water sales. As a result, even with the water shortage rate surcharges, the proposed water rates for water shortage conditions are less than the total cost of providing water service. The information in Exhibit III-5 reflects revenue estimates based on implementation of water shortage rate surcharges in 2017. If adopted, the temporary water shortage rate surcharges would be implemented when water shortage conditions necessitate water use reductions exceeding 10 percent, and would depend on the specific stage of shortage, as declared by the City Council. The surcharges would continue only as long as the shortage conditions exist. When the shortage is declared over, then the water shortage rate surcharges would be discontinued. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 33 Bill Impacts of Water Shortage Rate Surcharges Water shortage rate surcharges have been specifically designed such that customers achieving required water use reduction goals will have lower water bills than they would with normal water rates and normal water usage. Customers that do not meet water use reduction goals may have higher water bills. Because the water shortage rate surcharges apply to all water usage, all customers will participate in bridging the financial gap created by water shortage. Of course, those customers that use the least amount of water or conserve the most will pay less through the water shortage rate surcharges. Exhibit III-6 illustrates how three different single family customers would be affected by the water shortage rate surcharges across various shortage conditions. Monthly water bills are shown for customers that, under normal conditions, use 6,000 gallons monthly (typical), 4,000 gallons (typical in winter), and 10,000 (typical in summer) of water. Water bills are calculated for customers meeting requested water use reduction goals, and customers that do not conserve at all. ADOPTING PROPOSED WATER RATES In order to adopt both the proposed capital preservation charges (with 6-year phased implementation schedule) and the proposed water shortage rate surcharges the City will need to follow the requirements contained in Article XIII D of the California Constitution (Proposition 218). This includes a Notice of Public Hearing to be mailed to all affected property owners and customers at least 45 days prior to a public hearing. C ITY OF R OHNERT P ARK W ATER R ATE S TUDY T HE R EED G ROUP, I NC. P AGE 34 It is recommended that the City combine the adoption of both the capital preservation charges and the temporary water shortage rate surcharges into a single public notice and rate hearing process. This will save the City both time and expenses. ORDINANCE NO. 907 AN ORDINANCE AMENDING CHAPTER 13.04 OF THE CITY OF ROHNERT PARK MUNICIPAL CODE (CITY WATER SYSTEM) TO INCREASE WATER SERVICE RATES WHEREAS, Section 13.04.030 of the Rohnert Park Municipal Code provides that the City Council shall, by ordinance, establish rates for the sale of water; and WHEREAS, the City wishes to increase water service rates effective on water bills rendered after October 1, 2017; and WHEREAS, the City has identified the parcels upon which the charges will be imposed, calculated the amount of the charge to be imposed on each parcel, and mailed written notice to all parcels, wherein the City provided notice of the proposed charges, the amount of the proposed charges, the basis for the calculation, the reason for the charge, and the date, time, and location for a public hearing on the proposed charges not less than 45 days after the notice; and WHEREAS, the City Council held the duly noticed public hearing and considered all written protests; and WHEREAS, written protests against the water rates were not presented by a majority of the affected parcels; NOW, THEREFORE, the City Council of the City of Rohnert Park does hereby ordain as follows: SECTION 1: Findings. A. The above recitals are incorporated herein as if set forth herein in full and each is relied upon independently by the City Council for its adoption of this Ordinance. In accordance with Article XIII D, Section 6(b), of the California Constitution, the City Council finds that: 1. The revenues derived from the water service charges shall not exceed the funds required to provide water service, because the rates are calculated to allow the City to recover its costs. 2. The revenues derived from the water service charge will not be used for any purpose other than that for which the charge is imposed, because the revenue will be kept in a separate fund used only for costs related to the provision of water service. 3. The amount of the charge does not exceed the proportional cost of the water service attributable to each parcel, because it is based upon necessary pipe size and water consumption. 2 Ord. 907 4. The water service charge will not be imposed upon parcels for which water service is not immediately available. 5. The water service charge will be used to enable the City to provide water service rather than general governmental services. B. Water service rates as last adjusted in January 2017 shall remained in effect. In addition, the annual water rate adjustments, which began in January 2016 in accordance with Ordinance 884, shall remain in effect each year through 2020. The annual water rate adjustments are necessary to reflect the changes in the water usage rates imposed by the Sonoma County Water Agency, and to also reflect the annual adjustment in the Consumer Price Index, as calculated by the US Bureau of Labor Statistics for the San Francisco-Oakland-San Jose area (Series CUURA422SA0). SECTION 2: Adoption of Capital Preservation Charge The following monthly capital preservation charges are adopted in accordance with Section 13.04.030 of the Rohnert Park Municipal Code after mailed notice and a public hearing, to be effective on water bills rendered after October 1, 2017: . Oct. 2017 Jan. 2019 Jan. 2020 Jan. 2021 Jan. 2022 Jan. 2023 Monthly Capital Preservation Charges 1" meter or less 2.50$ 5.00$ 7.50$ 10.00$ 12.50$ 15.00$ 1 1/2" meter 5.00$ 10.00$ 15.00$ 20.00$ 25.00$ 30.00$ 2" meter 8.00$ 16.00$ 24.00$ 32.00$ 40.00$ 48.00$ 3" meter 15.00$ 30.00$ 45.00$ 60.00$ 75.00$ 90.00$ 4" meter 25.00$ 50.00$ 75.00$ 100.00$ 125.00$ 150.00$ 6" meter 50.00$ 100.00$ 150.00$ 200.00$ 250.00$ 300.00$ 8" meter 80.00$ 160.00$ 240.00$ 320.00$ 400.00$ 480.00$ SECTION 3: Adoption of Temporary Water Shortage Rate Surcharge The following temporary water shortage rate surcharge charges, expressed as a percentage of the water usage rates, are adopted in accordance with Section 13.04.030 of the Rohnert Park Municipal Code after mailed notice and a public hearing. The monthly temporary water shortage rate surcharge charges will only be implemented when the City Council declares water shortage conditions that necessitate water use reductions exceeding 10 percent and will be discontinued when the City Council declares an end to water use restrictions. 3 Ord. 907 SECTION 4: Environmental Review. This ordinance is not a project within the meaning of Section 15378 of the CEQA (California Environmental Quality Act) Guidelines, because it has no potential for resulting in physical change in the environment, directly or ultimately. In the event that this ordinance is found to be a project under CEQA, it is subject to the CEQA exemptions contained in CEQA Guidelines section 15273 (a), because it constitutes the establishment of charges for the purpose of obtaining funds to meet the water utility’s financial and service obligations for ongoing operation and maintenance, debt service, and capital improvements within existing service areas, and CEQA Guidelines section 15061 (b) (3), because it can be seen with certainty to have no possibility of a significant effect on the environment. SECTION 5: Severability. The City Council hereby declares that every section, paragraph, sentence, clause and phrase is severable. If any section, paragraph, sentence, clause or phrase of this Ordinance is for any reason found to be invalid or unconstitutional, such invalidity, or unconstitutionality shall not affect the validity or constitutionality of the remaining sections, paragraphs, sentences, clauses or phrases. SECTION 6: Effective Date: This ordinance shall be in full force and effective 30 days after its adoption and shall be published and posted as required by law. SECTION 7: Publication. The City Clerk is directed to cause this ordinance to be published in the manner required by law. 4 Ord. 907 This ordinance was introduced by the Council of the City of Rohnert Park on July 11, 2017 and adopted on July 25, 2017 by the following roll call vote: AYES: NOES: ABSENT: ABSTAIN: CITY OF ROHNERT PARK ____________________________________ Jake Mackenzie, Mayor ATTEST: _____________________________ Caitlin Saldanha, Deputy City Clerk APPROVED AS TO FORM: ____________________________________ Michelle Marchetta Kenyon, City Attorney ITEM NO. 7E 1 Meeting Date: July 25, 2017 Department: Development Services Submitted By: Mary Grace Pawson, Director of Development Services Prepared By: Art da Rosa, Deputy City Engineer Agenda Title: Authorizing the City Manager to execute a Waiver of Claims and Indemnification Agreement between Metropolitan Transportation Commission and City of Rohnert Park in order to Receive a Program for Arterial System Synchronization (PASS) Grant RECOMMENDED ACTION: By Minute Order, Authorize the City Manager to execute a Waiver of Claims and Indemnification Agreement between Metropolitan Transportation Commission and City of Rohnert Park in order to receive a Program for Arterial System Synchronization (PASS) Grant. BACKGROUND: The Metropolitan Transportation Commission (MTC) administers the Program for Arterial System Synchronization (PASS) Grant. The purpose of the PASS grant is to provide technical consultant assistance to cities and counties to update traffic signal timing plans, as a low-cost way to improve the safety and efficiency of arterials in the region. The PASS grant system is a particularly effective way to ensure that signal timing between various jurisdictional authorities is aligned. In Rohnert Park, where Caltrans owns and controls traffic signals on both the Rohnert Park Expressway and Golf Course Drive corridors, the PASS grant provides an important tool for assisting with efforts to reduce congestion along these corridors. Because the PASS grant program would benefit the City’s Traffic Signal Upgrade Project (CIP Project 16-07), staff submitted an application, which is being recommended for funding by MTC. MTC estimates that the City will receive services with a value of up to $100,000. One of MTC’s requirements is that the City execute a Waiver of Claims and Indemnification Agreement, in a form provided by MTC. This waiver must be executed by August 12, 2017 in order for the City to remain eligible for assistance from the PASS grant program. ANALYSIS: As noted above, the PASS grant program provides technical assistance, in the form of traffic engineering services to support signal re-timing and provides an effective way to work with CalTrans to secure a high level of signal coordination, regardless of signal ownership. Because MTC’s contribution is funded traffic engineering services, MTC requires the Waiver of Claims and Indemnification, which generally protects MTC against claims, except in the case of negligence by MTC. The waiver does not extend to MTC’s consultants. Similar to other MTC forms and agreements, this waiver is not negotiable and is required for program participation. Staff believes that the risk associated with the traffic signal synchronization effort will be similar whether the City undertakes it itself or as part of the PASS grant program. Staff believes that executing this waiver does not substantially change the City’s overall risk associated with its Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 7E 2 signal retiming project. Staff also believes that the PASS grant program provides a very valuable means of ensuring coordination with CalTrans throughout the signal retiming effort. ENVIRONMENTAL ANALYSIS: The PASS grant program will fund re-timing of existing traffic signals to improve efficiency, reduce congestion and reduce vehicle emissions. This work is exempt from review under Section 15301(c) of the California Environmental Quality Act (CEQA) Guidelines which exempts work in existing highways and streets, sidewalks, gutters, bicycle and pedestrian trails, and similar facilities. STRATEGIC PLAN ALIGNMENT: This action is consistent with Strategic Plan Goal D – Continue to Develop a Vibrant Community. OPTIONS CONSIDERED: 1. Authorize the City Manager to execute a Waiver of Claims and Indemnification Agreement between Metropolitan Transportation Commission and City of Rohnert Park in order to receive a Program for Arterial System Synchronization (PASS) Grant (recommended option). This action will allow the City to take advantage of outside funding and coordination to support its planned Traffic Signal Upgrade Project, with minimal additional risk 2. Do not execute the Waiver of Claims and Indemnification Agreement. This option would disqualify the City from the PASS grant program and would require the City to fund the signal re-timing services entirely with its own funds. FISCAL IMPACT/FUNDING SOURCE: Staff estimates the value of the services provided through the PASS grant program will be $100,000. The program requires a twenty percent match, which means the City would contribute $20,000 in order to receive $100,000 worth of services. Staff has planned to acquire traffic engineering and signal timing services through the City’s Signal Upgrade Project (CIP Project 16-07), which has a budget of $450,000 over several years. The budget for Fiscal Year 17-18 is $200,000, which is funded by the Traffic Signalization Fee (Fund 150) and the Casino Mitigation MOU (Fund 184). By participating in the PASS grant program, the demand on these funds would be reduced by as much as $80,000, allowing the City to accomplish additional signal upgrades for the same budget. Department Head Approval Date: 07/10/2017 Finance Director Approval Date: 07/11/2017 City Attorney Approval Date: NA City Manager Approval Date: 07/12/2017 Attachments (list in packet assembly order): 1. Waiver of Claims and Indemnification Agreement between Metropolitan Transportation Commission and City of Rohnert Park Attachment 1 WAIVER OF CLAIMS AND INDEMNIFICATION AGREEMENT Between METROPOLITAN TRANSPORTATION COMMISSION And CITY OF ROHNERT PARK THIS AGREEMENT is made and entered into as of the (MM-DD-YYYY), by and between the Metropolitan Transportation Commission, a regional transportation planning agency established pursuant to California Government Code § 66500 et seq., (herein called “MTC”), and City of Rohnert Park (herein called CITY). WITNESSETH WHEREAS, MTC has entered or will enter into technical services agreements with several consulting firms (herein called “the Consultants”), under which the firms will provide assistance to various Bay Area jurisdictions in the retiming of traffic signals (herein called “the Project”); and WHEREAS, CITY is participating in the Project by receiving assistance from one or more of the Consultants (herein called “the Consultant”); and WHEREAS, the parties wish to define CITY’s obligations to MTC respecting waiver of claims and indemnity; NOW, THEREFORE, the parties hereto agree as follows: 1.0 WAIVER OF CLAIMS AGAINST MTC CITY waives all claims by CITY, its directors, supervisors, officers, employees, or agents against MTC, its commissioners, officers, and/or employees for damages, loss, injury and/or liability, direct or indirect, resulting from CITY’s participation in the Project and/or the services provided to CITY by the Consultant under contract to MTC. CITY’s waiver shall not apply to liability arising from and caused by the gross negligence or willful misconduct of MTC, its commissioners, officers, and/or employees. 2.0 INDEMNIFICATION AND DEFENSE CITY agrees to indemnify, hold harmless and defend MTC, its commissioners, officers, and employees from any and all third party claims, demands, lawsuits, liability, loss, damages, injury and/or liability, direct or indirect (including any and all costs and expenses in connection therewith), resulting from or in connection with provision of services to CITY by the Consultant under contract with MTC, to the extent such claims, demands, etc. are not covered by the Consultant’s indemnification of MTC in the Consultant’s contract with MTC. CITY’s indemnification obligation shall not apply to liability arising from and caused by the gross negligence or willful misconduct of MTC, its commissioners, officers, agents, and employees. CITY is responsible for obtaining from MTC a copy of the applicable Consultant agreement(s). 3.0 TERM The term of this Agreement shall continue indefinitely, applying to multiple Consultant contracts, unless terminated by written notice of either party or superseded by another Indemnification Agreement. Attachment 1 IN WITNESS WHEREOF, this agreement has been executed by the parties hereto. METROPOLITAN TRANSPORTATION COMMISSION CITY OF ROHNERT PARK Steve Heminger, Executive Director Darrin Jenkins, City Manager Per Minute Order adopted by the Rohnert Park City Council on July 25, 2017 Approved as to form: Michelle Kenyon, City Attorney ITEM NO. 8 Meeting Date: July 25, 2017 Department: Finance Submitted By: Betsy Howze, Finance Director Prepared By: Betsy Howze, Finance Director Agenda Title: Sale and Issuance of Sewer System Revenue Refunding Bonds, Series 2017 RECOMMENDED ACTIONS: Approve and authorize a resolution of the City Council of the City of Rohnert Park authorizing and directing the City Manager and Finance Director to execute the sale and issuance of the City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017 (the “Bonds”) in an estimated aggregate principal amount of $8.86 million to refinance the City’s Sewer System Revenue Certificates of Participation, Series 2005 (the “2005 Certificates”) and authorizing certain actions in connection therewith, to take advantage of lower interest rates to reduce the annual debt service payments. BACKGROUND: The City’s current Long Term Debt obligations of the Sewer Fund include the 2005 Certificates. The 2005 Certificates were issued to finance certain improvements, betterments, renovations and expansions of facilities within the City’s sewer system. At the time the 2005 Certificates were issued, the Net Revenues of the Sewer Fund were pledged as security and City was to maintain a debt service coverage ratio of at least 1.20. The 2005 Certificates are tax-exempt and were originally issued in May 2005 in the total par amount of $13.00 million with $8.86 million currently outstanding. The 2005 Certificates are a good candidate to payoff due to their high interest rates in today’s market. ANALYSIS: The City, working with its consultants, has determined that, due to prevailing financial market conditions, it is in the best interests of the City at this time to refund the 2005 Certificates. The Bonds will refund all of the outstanding 2005 Certificates. The Bonds will mature in 2036, which is the current maturity date of the 2005 Certificates. Based on the current interest rates, the City is proposing to issue approximately $8.86 million par amount of Bonds. The City will be obtaining an underlying credit rating for the Bonds from Standards & Poor’s. It is expected the credit rating from Standards & Poor’s will help the City obtain the best possible interest rates. The City will also be obtaining bids from bond insurers to provide insurance on some or all of the maturities. Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 8 The resolution being presented for approval authorizes the issuance of the Bonds and approves the form and authorizes execution of the related financing documents including a draft of a Preliminary Official Statement that describes the terms of the Bonds. These documents will be finalized when the exact terms of the Bonds are determined at the time the Bonds are sold to investors, anticipated to occur early August with an anticipated bond closing of mid-August. The forms of the documents to be approved are: The resolution being presented for approval authorizes the issuance of the Bonds and approves the form and authorizes execution of the related financing documents including a draft of a Preliminary Official Statement that describes the terms of the Bonds. These documents will be finalized when the exact terms of the Bonds are determined at the time the Bonds are sold to investors, anticipated to occur early August with an anticipated bond closing of mid-August. The forms of the documents to be approved are: • Indenture of Trust – The Indenture is a contract between the City and MUFG Union Bank, N.A. acting as Trustee. The Indenture specifies the Trustee, dated date, maturity date or dates, interest rate or rates, interest payment dates, denominations, forms, registration privileges, manner of execution, place or places of payment, terms of redemption and other terms of the Bonds. The Indenture also contains important covenants of the City relating to additional parity debt and the covenant to set rates and charges in amounts that will provide coverage of debt service on the Bonds. • Escrow Agreement – The Escrow Agreement is a contract between the City and MUFG Union Bank, N.A., acting as Escrow Bank. Under the Escrow Agreement, the City will deliver a portion of the proceeds of the Bonds to the Escrow Bank for deposit in an escrow fund and the Escrow Bank will deposit certain moneys held in connection with the 2005 Certificates in the Escrow Fund on or about the date of issuance of the Bonds. • Contract of Purchase – The Contract of Purchase is a contract between the City and Stifel, Nicolaus & Company, Inc. (the “Underwriter”), whereby the City agrees to sell the Bonds to the Underwriter and the Underwriter agrees to buy the Bonds from the City and resell them to the public. The Contract of Purchase contains parameters that the true interest rate of the Bonds cannot exceed 4.25% and the Underwriter’s Discount with respect to the Bonds shall not exceed 0.65% of the principal amount of the Bonds. • Continuing Disclosure Certificate – The Continuing Disclosure Certificate is a contract between the City and the Trustee, being executed in order to assist the Participating Underwriter in complying with the Rule 15c2-12. The City will be required to submit annual continuing disclosure reports each year as long as the Bonds are outstanding. The City already provides substantially similar information for the 2005 Certificates. • Preliminary Official Statement – The Preliminary Official Statement or offering statement is used by the Underwriter to inform the marketplace of the terms of the ITEM NO. 8 Bonds and contains all relevant information for the investor to make a decision as to whether or not to purchase the Bonds. The form of the Preliminary Official Statement is approved and the document is deemed final within the meaning of Rule 15c2-12 of the Securities Exchange Act of 1934, with its distribution by Stifel Nicolaus & Company as underwriter for the bonds. STRATEGIC PLAN ALIGNMENT: Goal B of our strategic plan calls for City to Achieve and Maintain Financial Stability. Managing sewer operations, capital improvements, debt and debt covenants is an integral part of this goal. OPTIONS CONSIDERED: Option 1 – Recommended. The City would pay off the 2005 Certificates on or about August 3, 2017. This action would reduce debt service payment and relieve pressure on the Sewer Fund to meet ongoing operations and obligations. Option 2 – Not Recommended. The City would not refund the debt, and continue to make debt service payments per the debt schedule. The City would forgo the opportunity to save future interest costs and reduce the Sewer Fund costs from the annual debt service payments on the 2005 Certificates. FISCAL IMPACT: The Bonds will have no financial impact on the City’s General Fund, as all payments of principal and interest on the Bonds will be paid solely from Sewer System Net Revenues. It is estimated that the refunding of the 2005 Certificates will reduce annual debt service payments by $90,000 per year, totaling over $1.3 million in net present value savings over the remaining term of the Bonds. Department Head Approval Date: July 18, 2017 City Manager Approval Date: July 19, 2017 City Attorney Approval Date: July 18, 2017 Attachments (list in packet assembly order): 1. Resolution 2. Indenture of Trust 3. Escrow Agreement 4. Purchase Contract 5. Preliminary Official Statement RESOLUTION NO. 2017-097 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROHNERT PARK AUTHORIZING THE SALE AND ISSUANCE OF SEWER SYSTEM REVENUE REFUNDING BONDS AND APPROVING THE EXECUTION AND DELIVERY OF CERTAIN DOCUMENTS AND AUTHORIZING CERTAIN ACTIONS IN CONNECTION THEREWITH WHEREAS, the City Council (the “City Council”) of the City of Rohnert Park (the “City”) has heretofore determined that it was in the best interest of the City to finance the acquisition and construction of certain improvements to the City’s sewer system through the execution and delivery of revenue certificates of participation (the “Certificates”); and WHEREAS, the City Council has now determined that it would be prudent in the management of its fiscal affairs and beneficial to the users of its sewer system to provide for the prepayment of the Certificates; and WHEREAS, in order to provide funds with which to pay the prepayment price of the Certificates, the City Council is considering the sale and issuance of City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017 (the “Bonds”); and WHEREAS, in connection with the foregoing, the following documents, a copy of each of which is on file with the City Clerk, have been presented to the City Council: (a) the Indenture of Trust, dated as of August 1, 2017 (the “Indenture”), by and between the City and MUFG Union Bank, N.A., as trustee (the “Trustee”); (b) the Escrow Agreement (2005 Installment Purchase Agreement – Sewer System), dated as of August 1, 2017 (the “Escrow Agreement”), by and between the City and MUFG Union Bank, N.A., as escrow bank (the “Escrow Bank”); (c) the Contract of Purchase by and between the City and Stifel, Nicolaus & Company, Incorporated (the “Contract of Purchase”); (d) the Continuing Disclosure Agreement, dated as of August 1, 2017 (the “Continuing Disclosure Agreement”), by and between the City and the Trustee; and (e) the Preliminary Official Statement relating to the Bonds (the “Preliminary Official Statement”); and WHEREAS, the City Council wishes to approve the execution and delivery of said documents and the sale of the Bonds pursuant thereto; BE IT RESOLVED by the City Council of the City of Rohnert Park that it does hereby find, determine, resolve and order as follows: Section 1. The Indenture, in substantially the form on file with the City Clerk, is hereby approved. Any of the Mayor, Vice Mayor, City Manager or Finance Director (the “Authorized 2 2017-097 Officials”) is authorized and directed, for and in the name of and on behalf of the City, to execute and deliver to the Trustee the Indenture as so approved with such insertions and modifications as may be approved by the Authorized Official executing the same, said execution and delivery being conclusive evidence of such approval. In connection therewith, the Finance Director is authorized and directed to secure a policy of municipal bond insurance from one or more recognized bond insurance companies to insure the payments of principal of and interest on some or all of the Bonds if she determines, based on the advice of the City’s financial advisor, that the present value of the interest payments that would be saved by reason of such insurance exceeds the cost of such insurance. If the Finance Director makes such a determination, (i) any Authorized Official is hereby authorized and directed for and in the name and on behalf of the City to execute, acknowledge and deliver to such bond insurance company or companies and the Trustee any agreements relating thereto approved by the Finance Director and (ii) the documents approved by this Resolution, including but not limited to the Indenture, shall be amended to include such provisions as may be reasonable and necessary to obtain such insurance and to reflect the fact that such insurance will be in effect. Section 2. The Escrow Agreement, in substantially the form on file with the City Clerk, is hereby approved. Any of the Authorized Officials is hereby authorized and directed, for and in the name of and on behalf of the City, to execute and deliver to the Escrow Bank the Escrow Agreement as so approved with such insertions and modifications as may be approved by the Authorized Official executing the same, said execution and delivery being conclusive evidence of such approval. Section 3. The Contract of Purchase, in substantially the form on file with the City Clerk, is hereby approved. Any of the Authorized Officials is hereby authorized and directed, for and in the name of and on behalf of the City, to execute and deliver to Stifel, Nicolaus & Company, Incorporated ( the “Underwriter”) the Contract of Purchase as so approved with such insertions and modifications as may be approved by the Authorized Official executing the same, said execution being conclusive evidence of such approval; provided, however that in no event shall the principal amount of the Bonds exceed $11,000,000, nor shall the Underwriter’s discount (exclusive of any original issue discount) exceed 0.65%, nor shall the true interest rate of the Bonds exceed 4.25% per annum. Section 4. The preparation and distribution of the Preliminary Official Statement, in substantially the form on file with the City Clerk, is hereby approved. The City Manager or Finance Director is hereby authorized to sign a certificate pursuant to Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 relating to the Preliminary Official Statement, and any of the Authorized Officials is hereby authorized and directed, for and in the name of and on behalf of the City, to execute, approve and deliver the final Official Statement in the form of the Preliminary Official Statement with such changes, insertions and omissions as the officer executing said document may require or approve, such approval to be conclusively evidenced by the execution and delivery thereof. The Underwriter is hereby authorized to distribute copies of said Preliminary Official Statement to persons who may be interested in the initial purchase of the Bonds and is directed to deliver copies of any final Official Statement to all actual initial purchasers of the Bonds. Section 5. The Continuing Disclosure Agreement, in substantially the form on file with the City Clerk, is hereby approved. Any of the Authorized Officials is hereby authorized and directed, for and in the name of and on behalf of the City, to execute and deliver to the Trustee the Continuing Disclosure Certificate as so approved with such insertions and modifications as may be 3 2017-097 approved by the Authorized Official executing the same, said execution being conclusive evidence of such approval. Section 6. MUFG Union Bank, N.A. is hereby appointed to act as trustee under the Indenture and to act as escrow bank under the Escrow Agreement. Section 7. The engagement letter with Stradling Yocca Carlson & Rauth, a Professional Corporation, in substantially the form on file with the Finance Director is hereby approved, and said firm is appointed to serve as bond counsel and disclosure counsel in connection with the Bonds. Section 8. The previous appointment of Fieldman Rolapp & Associates, Inc. as the City’s financial advisor in connection with the Bonds is hereby ratified and confirmed. Section 9. The City Council hereby authorizes the preparation, sale and delivery of the Bonds in accordance with the terms and provisions of this Resolution, the Indenture and the Contract of Purchase. Section 10. Each of the Authorized Officials and any other officer of the City, acting singly, is authorized and directed to execute and deliver any and all documents and instruments and to do and cause to be done any and all acts and things necessary or proper for carrying out the transactions contemplated by the Indenture, the Escrow Agreement, the Contract of Purchase, the Continuing Disclosure Agreement and this Resolution. Section 11. The City Council hereby authorizes the City Manager or Finance Director to select a municipal bond insurer to insure payments of debt service on the Bonds and to provide a surety bond so long as the City Manager or Finance Director, as the case may be, determines that obtaining the municipal bond insurance policy and/or the surety bond provided thereby will be cost effective to the City. Section 12. This resolution shall take effect immediately. DULY AND REGULARLY ADOPTED this 25th day of July, 2017. CITY OF ROHNERT PARK ____________________________________ Jake Mackenzie, Mayor ATTEST: ______________________________ Caitlin Saldanha, Deputy City Clerk AHANOTU: _________ BELFORTE: _________ CALLINAN: _________ STAFFORD: _________ MACKENZIE: _________ AYES: ( ) NOES: ( ) ABSENT: ( ) ABSTAIN: ( ) SYCR DRAFT OF 7/10/17 Attachment 3 INDENTURE OF TRUST Dated as of August 1, 2017 By and between MUFG UNION BANK, N.A., as Trustee and the CITY OF ROHNERT PARK Relating to $X,XXX,000 CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2017 TABLE OF CONTENTS Page i ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions .............................................................................................................. 3 Section 1.02. Content of Certificates and Opinions.................................................................... 12 Section 1.03. Interpretation......................................................................................................... 13 ARTICLE II THE 2017 BONDS Section 2.01. Authorization of 2017 Bonds ................................................................................ 13 Section 2.02. Terms of the 2017 Bonds ...................................................................................... 13 Section 2.03. Transfer of 2017 Bonds ........................................................................................ 14 Section 2.04. Exchange of 2017 Bonds ...................................................................................... 15 Section 2.05. Registration Books ................................................................................................ 15 Section 2.06. Form and Execution of 2017 Bonds ..................................................................... 15 Section 2.07. 2017 Bonds Mutilated, Lost, Destroyed or Stolen................................................ 15 Section 2.08. Book Entry System ............................................................................................... 16 ARTICLE III ISSUANCE OF 2017 BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the 2017 Bonds .................................................................................. 19 Section 3.02. Application of Proceeds of the 2017 Bonds ......................................................... 19 Section 3.03. Establishment and Application of Costs of Issuance Fund ................................... 19 Section 3.04. Validity of 2017 Bonds ......................................................................................... 19 ARTICLE IV REDEMPTION OF 2017 BONDS Section 4.01. Terms of Redemption ........................................................................................... 19 Section 4.02. Selection of 2017 Bonds for Redemption ............................................................. 20 Section 4.03. Notice of Redemption ........................................................................................... 20 Section 4.04. Partial Redemption of 2017 Bonds ....................................................................... 21 Section 4.05. Effect of Redemption ............................................................................................ 21 ARTICLE V SYSTEM REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; System Revenue Fund................................................... 21 Section 5.02. Allocation of System Revenues ............................................................................ 23 Section 5.03. Rate Stabilization Fund ......................................................................................... 23 TABLE OF CONTENTS (continued) Page ii Section 5.04. Application of Interest Account ............................................................................ 23 Section 5.05. Application of Principal Account ......................................................................... 24 Section 5.06. Application of Redemption Fund ......................................................................... 24 Section 5.07. Investments ........................................................................................................... 24 Section 5.08. Rebate Fund .......................................................................................................... 25 Section 5.09. Application of Funds and Accounts When No Bonds Are Outstanding .............. 26 ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment ................................................................................................. 27 Section 6.02. Extension of Payment of Bonds ........................................................................... 27 Section 6.03. Against Encumbrances ......................................................................................... 27 Section 6.04. Power to Issue 2017 Bonds and Make Pledge and Assignment ........................... 27 Section 6.05. Accounting Records and Financial Statements .................................................... 27 Section 6.06. Tax Covenants ...................................................................................................... 28 Section 6.07. Waiver of Laws ..................................................................................................... 29 Section 6.08. Further Assurances ............................................................................................... 29 Section 6.09. Budgets ................................................................................................................. 29 Section 6.10. Observance of Laws and Regulations ................................................................... 29 Section 6.11. Compliance with Contracts ................................................................................... 29 Section 6.12. Prosecution and Defense of Suits ......................................................................... 29 Section 6.13. Continuing Disclosure .......................................................................................... 30 Section 6.14. Additional Bonds and Contracts ........................................................................... 30 Section 6.15. Against Sale or Other Disposition of Property ..................................................... 31 Section 6.16. Against Competitive Facilities ............................................................................. 31 Section 6.17. Maintenance and Operation of the System ........................................................... 31 Section 6.18. Payment of Claims ................................................................................................ 31 Section 6.19. Insurance ............................................................................................................... 32 Section 6.20. Payment of Taxes and Compliance with Governmental Regulations .................. 32 Section 6.21. Amount of Rates and Charges .............................................................................. 33 Section 6.22. Collection of Rates and Charges ........................................................................... 33 Section 6.23. Eminent Domain Proceeds ................................................................................... 33 Section 6.24. Enforcement of Contracts ..................................................................................... 33 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default .................................................................................................. 34 Section 7.02. Remedies Upon Event of Default ......................................................................... 34 Section 7.03. Application of System Revenues and Other Funds After Default ........................ 35 Section 7.04. Trustee to Represent Bond Owners ...................................................................... 36 Section 7.05. Bond Owners’ Direction of Proceedings .............................................................. 36 Section 7.06. Suit by Owners ..................................................................................................... 37 Section 7.07. Absolute Obligation of the City ............................................................................ 37 Section 7.08. Remedies Not Exclusive ....................................................................................... 37 TABLE OF CONTENTS (continued) Page iii Section 7.09. No Waiver of Default ........................................................................................... 37 ARTICLE VIII THE TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Trustee ...................................................... 38 Section 8.02. Merger or Consolidation ....................................................................................... 39 Section 8.03. Liability of Trustee ............................................................................................... 39 Section 8.04. Right to Rely on Documents ................................................................................. 41 Section 8.05. Preservation and Inspection of Documents .......................................................... 42 Section 8.06. Compensation and Indemnification ...................................................................... 42 ARTICLE IX MODIFICATION OR AMENDMENT OF THE INDENTURE Section 9.01. Amendments Permitted ........................................................................................ 42 Section 9.02. Effect of Supplemental Indenture ......................................................................... 43 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ............................................. 44 Section 9.04. Amendment of Particular Bonds .......................................................................... 44 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture ......................................................................................... 44 Section 10.02. Discharge of Liability on Bonds ........................................................................... 45 Section 10.03. Deposit of Money or Securities with Trustee ....................................................... 45 Section 10.04. Payment of Bonds After Discharge of Indenture .................................................. 46 ARTICLE XI MISCELLANEOUS Section 11.01. Liability of City Limited to System Revenues ..................................................... 46 Section 11.02. Successor Is Deemed Included in All References to Predecessor ........................ 46 Section 11.03. Limitation of Rights to Parties and Bond Owners ................................................ 46 Section 11.04. Waiver of Notice; Requirement of Mailed Notice ................................................ 47 Section 11.05. Destruction of Bonds ............................................................................................ 47 Section 11.06. Severability of Invalid Provisions ........................................................................ 47 Section 11.07. Notices .................................................................................................................. 47 Section 11.08. Evidence of Rights of Bond Owners .................................................................... 47 Section 11.09. Disqualified Bonds ............................................................................................... 48 Section 11.10. Money Held for Particular 2017 Bonds ................................................................ 48 Section 11.11. Funds and Accounts .............................................................................................. 48 Section 11.12. Waiver of Personal Liability ................................................................................. 48 Section 11.13. Execution in Several Counterparts ....................................................................... 49 TABLE OF CONTENTS (continued) Page iv Section 11.14. CUSIP Numbers ................................................................................................... 49 Section 11.15. Choice of Law....................................................................................................... 49 Section 11.16. Paired Obligation Provider Guidelines ................................................................. 49 Signatures ............................................................................................................................ S-1 Exhibit A Form of 2017 Bond ............................................................................................. A-1 1 INDENTURE OF TRUST THIS INDENTURE OF TRUST, made and entered into and dated as of August 1, 2017 (the “Indenture”), by and between CITY OF ROHNERT PARK, a municipal corporation duly organized and existing under the laws of the State of California (the “City”), and MUFG UNION BANK, N.A., a national banking association duly organized and existing under the laws of the United States of America, as trustee hereunder (the “Trustee”); W I T N E S S E T H: WHEREAS, the City has determined that it is in the best interest of the public to prepay and defease that certain Installment Purchase Agreement – Sewer System, dated as of May 1, 2005 (the “2005 Installment Purchase Agreement”) by and between the City and the Rohnert Park Financing Authority (the “Authority”); and WHEREAS, the City is authorized by Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, including but not limited to Section 53583, to issue bonds for the purpose of refunding any evidences of indebtedness of the City; and WHEREAS, in order to provide for the authentication and delivery of refunding revenue bonds (the “2017 Bonds”), to establish and declare the terms and conditions upon which such 2017 Bonds are to be issued and secured and to secure the payment of the principal thereof and interest and premium, if any, thereon, the City has authorized the execution and delivery of the Indenture; and WHEREAS, the City has determined that all acts and proceedings required by law necessary to make the 2017 Bonds, when executed by the City, authenticated and delivered by the Trustee, and duly issued, the valid, binding and legal special obligations of the City, and to constitute the Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of the Indenture have been in all respects duly authorized; NOW, THEREFORE, THE INDENTURE WITNESSETH: GRANTING CLAUSES The City, in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the mutual covenants herein contained and of the purchase and acceptance of the 2017 Bonds and any other Bonds (as hereinafter defined) by the Owners thereof, and for other valuable considerations, the receipt whereof is hereby acknowledged, in order to secure the payment of the principal of and the interest and premium (if any) on all Bonds at any time issued and Outstanding under the Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, does hereby assign and pledge unto, and grant a security interest in, the following (the “Trust Estate”) to the Trustee and its successors in trust and assigns forever: 2 GRANTING CLAUSE FIRST All right, title and interest of the City in and to the System Revenues (as defined herein), including, but without limiting the generality of the foregoing, the present and continuing right to make claim for, collect, receive and receipt for any System Revenues payable to or receivable by the City under the Constitution of the State, the Government Code of the State of California and the Indenture and any other applicable laws of the State or otherwise, to bring actions and proceedings thereunder for the enforcement thereof, and to do any and all things which the City is or may become entitled to do thereunder, subject to the terms hereof. GRANTING CLAUSE SECOND All moneys and securities held in funds and accounts of the Indenture, except amounts held in the Rebate Fund and the Rate Stabilization Fund, and all other rights of every name and nature from time to time herein or hereafter by delivery or by writing of any kind pledged, assigned or transferred as and for additional security hereunder to the Trustee by the City or by anyone on its behalf, or with its written consent, and to hold and apply the same, subject to the terms hereof. TO HAVE AND TO HOLD, all and singular, the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in trust and assigns forever for the benefit of the Owners; and such pledge shall constitute a lien on and security interest in such Trust Estate; IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future Owners of the Bonds issued under and secured by the Indenture without privilege, priority or distinction as to the lien or otherwise of any of the Bonds over any of the other Bonds; PROVIDED, HOWEVER, that if the City, its successors or assigns shall well and truly pay, or cause to be paid, the principal of and interest and any redemption premium on the Bonds due or to become due thereon, at the times and in the manner provided in the Bonds according to the true intent and meaning thereof, and shall well and truly keep, perform and observe all the covenants and conditions pursuant to the terms of the Indenture to be kept, performed and observed by it, and shall pay or cause to be paid to the Trustee all sums of money due or to become due in accordance with the terms and provisions hereof, then upon such final payments or deposits as herein provided, the Indenture and the rights hereby granted shall cease, terminate and be void; otherwise the Indenture shall remain in full force and effect. THE INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds issued and secured hereunder are to be issued, authenticated and delivered, and all sold property, rights and interests, including, without limitation, the System Revenues, hereby assigned and pledged, are to be dealt with and disposed of, under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes hereinafter expressed; and the City has agreed and covenanted, and does hereby covenant and agree, with the Trustee, for the benefit of the respective Owners from time to time of the Bonds, as follows: 3 ARTICLE I DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section 1.01 shall, for all purposes of the Indenture and of any indenture supplemental hereto and of any certificate, opinion or other document herein mentioned, have the meanings herein specified, to be equally applicable to both the singular and plural forms of any of the terms herein defined. Accountant’s Report. The term “Accountant’s Report” means a report signed by an Independent Certified Public Accountant. Annual Debt Service. The term “Annual Debt Service” means for any Fiscal Year, the sum of: (1) the interest accruing on or pursuant to all Bonds and Contracts during such Fiscal Year, assuming that all Bonds and Contracts are retired as scheduled; plus (2) the principal amount (including principal due as sinking fund installment payments) allocable to all Bonds and Contracts in such Fiscal Year, calculated as if such principal amounts were deemed to accrue daily during such Fiscal Year in equal amounts from, in each case, each payment date for principal or the date of delivery of such Bonds and Contracts (provided that principal shall not be deemed to accrue for greater than a 365-day period prior to any payment date), as the case may be, to the next succeeding payment date for principal; provided that the following adjustments shall be made to the foregoing amounts in the calculation of Annual Debt Service: (A) with respect to any such Bonds and Contracts bearing or comprising interest at other than a fixed interest rate, the rate of interest used to calculate Annual Debt Service shall be: (i) with respect to such Bonds and Contracts then outstanding, one hundred ten per cent (110%) of the greater of: (I) the daily average interest rate on such obligations during the twelve (12) calendar months next preceding the date of such calculation (or the portion of the then current Fiscal Year that such Bonds and Contracts have borne interest); or (II) the most recent effective interest rate on such Bonds and Contracts prior to the date of such calculation; or (ii) with respect to such Bonds and Contracts then proposed to be issued, 80% of the interest rate on actively traded 30-year United States Treasury Obligations; (B) with respect to any such Bonds and Contracts having twenty-five per cent (25%) or more of the aggregate principal amount thereof due in any one Fiscal Year, Annual Debt Service shall be calculated for the Fiscal Year of determination as if the interest on and principal of such Bonds and Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of twenty (20) years from the date of such Bonds and Contracts; provided, however that the full amount of such Bonds and Contracts shall be included in Annual Debt Service if the date of calculation is within 24 months of the actual maturity of the payment; (C) with respect to any such Bonds and Contracts or portions thereof bearing no interest but which are sold at a discount and which discount accretes with respect to such Bonds and Contracts or portions thereof, such accreted discount shall be treated as due when scheduled to be paid; (D) Annual Debt Service shall not include interest on Bonds and Contracts which is to be paid from amounts constituting capitalized interest; and 4 (E) if an interest rate swap agreement is in effect with respect to, and is payable on a parity with, any Bonds and Contracts to which it relates, no amounts payable under such interest rate swap in excess of debt service payable under such Bonds and Contracts shall be included in the calculation of Annual Debt Service unless the sum of: (i) the interest payable on such Bonds and Contracts; plus (ii) the amounts payable by the City under such interest rate swap agreement; less (iii) the amounts receivable by the City under such interest rate swap agreement, is greater than the interest payable on such Bonds and Contracts, in which case the amount of such payments to be made that exceed the interest to be paid on such Bonds and Contracts shall be included in such calculation; and, for this purpose, the variable amount under any such interest rate swap agreement shall be determined in accordance with the procedure set forth in subparagraph (A) of this definition; provided that the amount on deposit in a debt service reserve fund on any date of calculation of Annual Debt Service shall be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established and to the extent that the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted. Authorized Representative. The term “Authorized Representative” means, with respect to the City, its Mayor, Vice Mayor , City Manager, Finance Director or any other person designated as an Authorized Representative of the City by a Certificate of the City signed by its Mayor, Vice Mayor, City Clerk, City Manager or Finance Director and filed with the Trustee. Bond Counsel. The term “Bond Counsel” means Stradling Yocca Carlson & Rauth, a Professional Corporation, or another firm, selected by the City, of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code. Bonds. The term “Bonds” means the 2017 Bonds and all revenue bonds or notes of the City authorized, executed, issued and delivered by the City, the payments of which are payable from System Net Revenues on a parity with the 2017 Bonds and which are secured by a pledge of and lien on System Revenues as described in Section 5.01 hereof. Bond Year. The term “Bond Year” means the period beginning on the date of issuance of the 2017 Bonds and ending on June 1, 2018, and each successive one year or, during the last period prior to maturity, shorter period thereafter until there are no Outstanding Bonds. Business Day. The term “Business Day” means a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed or on which the New York Stock Exchange is not closed. Certificate; Direction; Request; Requisition. The terms “Certificate,” “Direction,” “Request” and “Requisition” of the City mean a written certificate, direction, request or requisition signed in the name of the City by its Authorized Representative. Any such instrument and supporting opinions or representations, if any, 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 Section 1.02, each such instrument shall include the statements provided for in Section 1.02. 5 City. The term “City” means City of Rohnert Park, a municipal corporation duly organized and existing under and by virtue of the laws of the State. Closing Date. The term “Closing Date” means the date on which the 2017 Bonds are delivered to the original purchaser thereof. Code. The term “Code” means the Internal Revenue Code of 1986, as amended. Continuing Disclosure Certificate. The term “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate of the City, dated the Closing Date, as originally executed or as it may be from time to time amended or supplemented in accordance with its terms. Contracts. The term “Contracts” means all contracts of the City previously or hereafter authorized and executed by the City, the payments under which are payable from System Net Revenues on a parity with the 2017 Bonds and which are secured by a pledge and lien on System Revenues as described in Section 5.01 hereof, but excluding contracts entered into for operation and maintenance of the System. Costs of Issuance. The term “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City and related to the authorization, issuance, sale and delivery of the 2017 Bonds, including but not limited to costs of preparation and reproduction of documents, printing expenses, filing and recording fees, initial fees and charges of the Trustee and counsel to the Trustee, legal fees and charges, fees and disbursements of consultants and professionals, rating agency fees, title insurance premiums, letter of credit fees and bond insurance premiums (if any), fees and charges for preparation, execution and safekeeping of the 2017 Bonds and any other cost, charge or fee in connection with the original issuance of the 2017 Bonds. Costs of Issuance Fund. The term “Costs of Issuance Fund” means the fund by that name established pursuant to Section 3.03. Depository; DTC. The term “Depository” or “DTC” means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York, in its capacity as securities depository for the 2017 Bonds. Event of Default. The term “Event of Default” means any of the events specified in Section 7.01. Federal Securities. The term “Federal Securities” means any direct, noncallable general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), or noncallable obligations the timely payment of principal of and interest on which are fully and unconditionally guaranteed by the United States of America. Fiscal Year. The term “Fiscal Year” means the twelve month period beginning on July 1 of each year and ending on the next succeeding June 30, both dates inclusive, or any other twelve month period hereafter selected and designated as the official fiscal year period of the City. Generally Accepted Accounting Principles. The term “Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures for governmental agencies set 6 forth in publications of the Governmental Accounting Standards Board or its successor, or by any other generally accepted authority on such procedures. Indenture. The term “Indenture” means the Indenture of Trust, dated as of August 1, 2017, by and between the City and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture. Independent Certified Public Accountant. The term “Independent Certified Public Accountant” means any firm of certified public accountants appointed by the City, each of whom is independent of the City pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants. Independent Financial Consultant. The term “Independent Financial Consultant” means a financial consultant or firm of such consultants appointed by the City, which may, for purposes of the certification described in the definition of “Paired Obligations” be an interest rate swap adviser, and who, or each of whom: (1) is in fact independent and not under domination of the City; (2) does not have any substantial interest, direct or indirect, with the City; and (3) is not connected with the City as an officer or employee thereof, but who may be regularly retained to make reports thereto. Information Services. The term “Information Services” means the Municipal Securities Rulemaking Board; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the City may specify in a certificate to the Trustee. Initial Rating Requirement. The term “Initial Rating Requirement” means the rating requirement described in Section 11.16(a). Interest Account. The term “Interest Account” means the account by that name in the Payment Fund established pursuant to Section 5.02. Interest Payment Date. The term “Interest Payment Date” means December 1, 2017 and each June 1 and December 1 thereafter. Investment Agreement. The term “Investment Agreement” means an investment agreement, supported by appropriate opinions of counsel, that shall: (i) be from a provider rated by S&P or Moody’s at “A-” or “A3”, respectively, or above; (ii) require the City to terminate such agreement and immediately reinvest the proceeds thereof in other Permitted Investments if the rating assigned to the provider by S&P or Moody’s falls to “BBB+” or “Baa1”, respectively, or below; and (iii) expressly permit the withdrawal, without penalty, of any amounts necessary at any time to fund any deficiencies on account of debt service requirements with respect to the Bonds, together with such amendments as may be approved by the City and the Trustee from time to time. Law. The term “Law” means the laws of the State of California pursuant to which the City was formed and operates and Section 5451 of the Government Code of the State of California, and in each case all laws amendatory thereof or supplemental thereto. Letter of Representations. The term “Letter of Representations” means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the 2017 Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, 7 as originally executed or as it may be supplemented or revised or replaced by a letter from the City delivered to and accepted by the Depository. Maximum Annual Debt Service. The term “Maximum Annual Debt Service” means, as of any date of calculation, the largest Annual Debt Service during the period from the date of such calculation through the final maturity date of all Bonds and Contracts. Minimum Rating Requirement. The term “Minimum Rating Requirement” means the rating requirement described in Section 11.16(b). Moody’s. The term “Moody’s” means Moody’s Investors Service, Inc. or any successor thereto. Net Proceeds. The term “Net Proceeds” means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys’ fees) incurred in the collection of such proceeds. Nominee. The term “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.08 hereof. Office. The term “Office” means with respect to the Trustee, the corporate trust office of the Trustee at 350 California Street, 12th Floor, San Francisco, California 91404, Fax: (415) 273-2492; and Email: AccountAdministration-CorporateTrust@unionbank.com and CashControlGroup- LosAngeles@unionbank.com or such other or additional offices as may be specified in writing by the Trustee to the City, except that with respect to presentation of 2017 Bonds for payment or for registration of transfer and exchange, such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted. Operation and Maintenance Costs. The term “Operation and Maintenance Costs” means (i) the reasonable and necessary costs paid or incurred by the City for maintaining and operating the System, determined by the City in accordance with Generally Accepted Accounting Principles, including (a) all reasonable expenses of management and repair and all other expenses necessary to maintain and preserve the System in good repair and working order, (b) all administrative costs of the City that are charged directly or apportioned to the operation of the System (such as salaries, wages and benefits of employees, overhead, taxes (if any) and insurance premiums (including payments required to be paid into any self-insurance funds), and (c) all other reasonable and necessary costs of the City and charges (other than debt service payments) required to be paid by it to comply with the terms of the Indenture, any Supplemental Indenture or any Contracts or Bonds (such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of Independent Certified Public Accountants); (ii) amounts determined by the City to be reasonably required in order to establish or maintain a contingency reserve for the costs described in clause (i) above, provided that the aggregate maximum amount maintained as such contingency reserve at any time shall not exceed twenty-five percent (25%) of the estimated total of such costs for the then-current Fiscal Year; and (iii) all payments of any kind whatsoever that the City is required, or may in the future be required, to make to or for the benefit of the City of Santa Rosa for the actual treatment and disposal of wastewater (but not for capacity for such treatment if and to the extent such payments are made from development impact fees) in any facility owned or operated by or on behalf of the City of Santa Rosa; provided that “Operation and Maintenance Costs” shall not include: (x) 8 payment of obligations payable from System Revenues on a subordinate basis to Bonds and Contracts; (y) costs of capital additions, replacements, betterments, extensions or improvements which under Generally Accepted Accounting Principles are chargeable to a capital account; and (z) depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles. Opinion of Counsel. The term “Opinion of Counsel” means a written opinion of counsel (including but not limited to counsel to the City) selected by the City. If and to the extent required by the provisions of Section 1.02, each Opinion of Counsel shall include the statements provided for in Section 1.02. Outstanding. The term “Outstanding,” when used as of any particular time with reference to 2017 Bonds, means (subject to the provisions of Section 11.09) all 2017 Bonds theretofore or thereupon being authenticated and delivered by the Trustee under the Indenture except: (i) 2017 Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2017 Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.02, including 2017 Bonds (or portions thereof) described in Section 11.09; and (iii) 2017 Bonds for the transfer or exchange of or in lieu of or in substitution for which other 2017 Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture. Owner. The term “Owner,” whenever used herein with respect to a 2017 Bond, means the person in whose name the ownership of such 2017 Bond is registered on the Registration Books. Paired Obligation Provider. The term “Paired Obligation Provider” means a party to a Paired Obligation other than the City. Paired Obligations. The term “Paired Obligations” means any Bond or Contract (or portion thereof) designated as Paired Obligations in the resolution, indenture or other document authorizing the issuance or execution and delivery thereof, which are simultaneously issued or executed and delivered: (i) the principal of which is of equal amount maturing and to be redeemed or prepaid (or cancelled after acquisition thereof) on the same dates and in the same amounts; and (ii) the interest rates which, taken together, are reasonably expected to result in a fixed interest rate obligation of the City for the term of such Bond or Contract, as certified by an Independent Financial Consultant in writing, and which comply with the provisions of Section 11.16 hereof. Participants. The term “Participants” means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book entry certificates as securities depository. Payment Fund. The term “Payment Fund” means the fund by that name established pursuant to Section 5.02. Permitted Investments. The term “Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein: (a) for all purposes, including but not limited to defeasance investments in refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in paragraph (2) below); and (2) direct obligations 9 of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury, including REFCORP Interest STRIPS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America; and (b) for all purposes other than defeasance investments in refunding escrow accounts: (1) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including the Export - Import Bank; Farmers Home Administration; General Services Administration; U.S. Maritime Administration; Government National Mortgage Association (GNMA); U.S. Department of Housing & Urban Development (PHA’s); and Federal Housing Administration; (2) bonds, notes or other evidences of indebtedness rated at least “AA-” or “Aa3” by the applicable Rating Agency issued by Fannie Mae or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (3) U.S. dollar denominated deposit accounts, certificates of deposit, federal funds and banker’s acceptances with domestic commercial banks (including the Trustee) which are either insured by the Federal Deposit Insurance Corporation or have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-1+” by S&P and “P-1” by Moody’s or are collateralized by Permitted Investments described in (1) of this paragraph for amounts above the amount insured by the Federal Deposit Insurance Corporation and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (4) commercial paper which is rated at the time of purchase in the single highest classification, “A-1+” by S&P and “P-1” by Moody’s and which matures not more than 270 days after the date of purchase; (5) investments in a money market fund rated “AAm”, “AAm-G”, “AAAm” or “AAAm-G” or better by S&P, including such funds for which the Trustee or an affiliate acts as investment advisor or provides other services but excluding such funds with a floating net asset value; (6) pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice and which are rated, based on the escrow, in the highest rating category of S&P and Moody’s; (7) any Investment Agreement; and (8) the Local Agency Investment Fund. The Trustee is entitled to rely upon the written investment direction of the City as a representation that such investment constitutes a legal investment under the laws of the State. Principal Account. The term “Principal Account” means the account by that name in the Payment Fund established pursuant to Section 5.02. Proceeds Fund. The term “Proceeds Fund” means the fund by that name established pursuant to Section 3.02. Rate Stabilization Fund. The term “Rate Stabilization Fund” means the fund by that name established in Section 5.03 hereof. Rating. The term “Rating” means any currently effective rating on the 2017 Bonds issued by a Rating Agency. Rating Agency. The term “Rating Agency” means S&P. 10 Rebate Fund. The term “Rebate Fund” means the fund by that name established pursuant to Section 5.08. Record Date. The term “Record Date” means, with respect to any Interest Payment Date, the fifteenth (15th) day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day. Redemption Date. The term “Redemption Date” means the date fixed for an optional redemption prior to maturity of the 2017 Bonds. Redemption Fund. The term “Redemption Fund” means the fund by that name established pursuant to Section 5.06. Redemption Price. The term “Redemption Price” means, with respect to any 2017 Bond (or portion thereof), the principal amount of such 2017 Bond (or portion) plus the interest accrued to the applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such 2017 Bond and the Indenture. Registration Books. The term “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2017 Bonds pursuant to Section 2.05. Repayment Obligations. The term “Repayment Obligations” means the reimbursement obligation or any other payment obligation of the City under a written agreement between the City and a credit provider to reimburse the credit provider for amounts paid pursuant to a credit facility for the payment of the principal amount or purchase price of and/or interest on any Contracts or Bonds. Responsible Officer of the Trustee. The term “Responsible Officer of the Trustee” means any officer within the corporate trust services division (or any successor group or department of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, with responsibility for the administration of this Indenture. S&P. The term “S&P” means S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC, or any successor thereto. Securities Depositories. The term “Securities Depositories” means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Request of the City delivered to the Trustee. Sewer System Service. The term “Sewer System Service” means the service made available or provided by the System. State. The term “State” means the State of California. Supplemental Indenture. The term “Supplemental Indenture” means any indenture hereafter duly authorized and entered into between the City and the Trustee, supplementing, modifying or 11 amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. System. The term “System” means the whole and each and every part of the sewer system of the City, including all ready property and improvements and including also the portion thereof existing on the date hereof, and including all additions, betterments, extensions and improvements to such sewer system or any part thereof hereafter acquired or constructed. System Net Revenues. The term “System Net Revenues” means, for any period, the System Revenues for such period less the Operation and Maintenance Costs for such period. When held by the Trustee in any funds or accounts established hereunder, System Net Revenues shall include all interest or gain derived from the investment of amounts in any of such funds or accounts. Notwithstanding the foregoing, when used in Sections 6.14 and 6.21 the term “System Net Revenues” shall not include amounts transferred to the System Revenue Fund from the Rate Stabilization Fund pursuant to Section 5.03 in any Fiscal Year that are in excess of twenty percent (20%) of Annual Debt Service for such Fiscal Year. System Revenue Fund. The term “System Revenue Fund” means the Sewer System Fund of the City, or such other enterprise fund of the City in which System Revenues are deposited. System Revenues. The term “System Revenues” means all gross income, rents, rates, fees, charges and other moneys derived from the ownership or operation of the System, including all fees (other than development impact fees), rates, charges and all amounts paid under any contracts received by or owed to the City in connection with the operation of the System, all proceeds of insurance relating to the System and investment income allocable to the System and all other income and revenue howsoever derived by the City from the ownership or operation of the System or arising from the System, but excluding deposits or advances that are subject to refund until such deposits or advances have become the property of the City and any proceeds of taxes or assessments restricted by law to be used by the City to pay bonds or other obligations heretofore or hereafter issued. Notwithstanding the foregoing, “System Revenues” for any period shall be increased by the amounts, if any, transferred during such period from the Rate Stabilization Fund to the System Revenue Fund. Tax Certificate. The term “Tax Certificate” means the Tax Certificate dated the Closing Date, concerning certain matters pertaining to the use and investment of proceeds of the 2017 Bonds issued by the City on the date of issuance of the 2017 Bonds, including any and all exhibits attached thereto. Trustee. The term “Trustee” means MUFG Union Bank, N.A., a national banking association duly organized and existing under the laws of the United States of America, or its successor as Trustee hereunder as provided in Section 8.01. 2005 Installment Purchase Agreement. The term “2005 Installment Purchase Agreement” means the Installment Purchase Agreement, dated as of May 1, 2005, by and between the City and the Authority, as originally executed and as it may from time to time be amended or supplemented in accordance therewith. 2017 Bonds. The term “2017 Bonds” means the City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017 issued by the City and at any time Outstanding pursuant to the Indenture. 12 Valuation Date. “Valuation Date” means the fifth Business Day preceding the date of redemption. Value. The term “Value,” which shall be determined as of the end of each month, means that the value of any investments shall be calculated as follows: (a) for the purpose of determining the amount of any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Bank of America Merrill Lynch and Morgan Stanley Smith Barney. (b) As to certificates of deposit and bankers’ acceptances: the face amount thereof, plus accrued interest. (c) As to any investment not specified above: market value, or, if the market value is not ascertainable by the City or the Trustee, at cost. Written Consent of the City; Written Order of the City; Written Request of the City; Written Requisition of City. The terms “Written Consent of the City,” “Written Order of the City,” “Written Request of the City” and “Written Requisition of the City” mean, respectively, a written consent, order, request or requisition signed by or on behalf of the City by the Mayor or City Manager or its Finance Director/Treasurer or by the Secretary or by any two persons (whether or not members of the City Council) who are specifically authorized by resolution of the City to sign or execute such a document on its behalf. Section 1.02. Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for in Section 11.05 hereof, with respect to compliance with any provision hereof shall include: (1) a statement that the person making or giving such certificate or opinion has read such provision and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such person he or she has made or caused to be made such examination or investigation as is necessary to enable him or her to express an informed opinion with respect to the subject matter referred to in the instrument to which his or her signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with. Any such certificate or opinion made or given by an officer of the City may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant or Independent Financial Consultant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an Independent Certified Public Accountant or Independent Financial Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the City) upon a certificate or opinion of or representation by an officer of the City, unless such counsel or Independent Certified Public Accountant or Independent Financial Consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with 13 respect to the matters upon which such person’s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the City, or the same counsel or Independent Certified Public Accountant or Independent Financial Consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants or Independent Financial Consultants may certify to different matters, respectively. Section 1.03. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to “Articles,” “Sections” and other subdivisions are to the corresponding Articles, Sections or subdivisions of the Indenture; the words “herein,” “hereof,” “hereby,” “hereunder” and other words of similar import refer to the Indenture as a whole and not to any particular Article, Section or subdivision hereof. ARTICLE II THE 2017 BONDS Section 2.01. Authorization of 2017 Bonds. The City hereby authorizes the issuance hereunder from time to time of the 2017 Bonds in the aggregate principal amount of $X,XXX,000. The 2017 Bonds shall constitute special obligations of the City, for the purpose of prepaying all amounts payable under the 2005 Installment Purchase Agreement and are hereby designated the “City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017.” The Indenture constitutes a continuing agreement with the Owners from time to time of the Bonds to secure the full payment of the principal of and interest and premium (if any) on all the Bonds, subject to the covenants, provisions and conditions herein contained. Section 2.02. Terms of the 2017 Bonds. The 2017 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The 2017 Bonds shall mature on June 1 in each of the years and in the amounts set forth below and shall bear interest on each Interest Payment Date at the rates set forth below: 14 Maturity Date (June 1) Principal Amount Interest Rate [TO COME] Interest on the 2017 Bonds shall be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee sent by first class mail on the applicable Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books (except that in the case of an Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the Record Date. Principal of and premium (if any) on any 2017 Bond shall be paid by check of the Trustee upon presentation and surrender thereof at maturity or upon the prior redemption thereof, at the Office of the Trustee. Both the principal of and interest and premium (if any) on the 2017 Bonds shall be payable in lawful money of the United States of America. Each 2017 Bond shall be dated the date of initial delivery, and shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date; or (b) unless it is authenticated on or before November 15, 2017, in which event it shall bear interest from the date of initial delivery; provided, however, that if, as of the date of authentication of any 2017 Bond, interest thereon is in default, such 2017 Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the 2017 Bonds shall be calculated on the basis of a 360 day year composed of twelve 30 day months. Section 2.03. Transfer of 2017 Bonds. Any 2017 Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2017 Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee shall not be required to register the transfer of any 2017 Bond during the period in which the Trustee is selecting 2017 Bonds for redemption and any 2017 Bond that has been selected for redemption. Whenever any 2017 Bond or 2017 Bonds shall be surrendered for transfer, the City shall execute and the Trustee shall authenticate and shall deliver a new 2017 Bond or 2017 Bonds of 15 authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee shall require the 2017 Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2017 Bonds, the Trustee will cancel and destroy the 2017 Bonds that it has received. Section 2.04. Exchange of 2017 Bonds. 2017 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee shall not be required to exchange any 2017 Bond during the period in which the Trustee is selecting 2017 Bonds for redemption and any 2017 Bond that has been selected for redemption. The Trustee shall require the 2017 Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2017 Bonds, the Trustee will cancel and destroy the 2017 Bonds that it has received. Section 2.05. Registration Books. The Trustee will keep or cause to be kept, at the Office, sufficient records for the registration and transfer of ownership of the 2017 Bonds, which shall upon reasonable notice and at reasonable times be open to inspection during regular business hours by the City and the Owners; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the 2017 Bonds as hereinbefore provided. The person in whose name any 2017 Bond shall be registered shall be deemed the Owner thereof for all purposes hereof, and payment of or on account of the interest on and principal and Redemption Price of by such 2017 Bonds shall be made only to or upon the order in writing of such registered Owner, which payments shall be valid and effectual to satisfy and discharge liability upon such 2017 Bond to the extent of the sum or sums so paid. Section 2.06. Form and Execution of 2017 Bonds. The 2017 Bonds shall be in substantially the form set forth in Exhibit A hereto. The 2017 Bonds shall be executed in the name and on behalf of the City with the manual or facsimile signature of its Mayor. The 2017 Bonds may carry a seal, and such seal may be in the form of a facsimile of the City’s seal and may be reproduced, imprinted or impressed on the 2017 Bonds. The 2017 Bonds shall then be delivered to the Trustee for authentication by it. In case any of the officers who shall have signed or attested any of the 2017 Bonds shall cease to be such officer or officers of the City before the 2017 Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the City, such 2017 Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers of the City, and also any 2017 Bonds may be signed and attested on behalf of the City by such persons as at the actual date of execution of such 2017 Bonds shall be the proper officers of the City although at the nominal date of such 2017 Bonds any such person shall not have been such officer of the City. Only such of the 2017 Bonds as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit A hereto, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of the Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the 2017 Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of the Indenture. Section 2.07. 2017 Bonds Mutilated, Lost, Destroyed or Stolen. If any 2017 Bond shall become mutilated, the City, at the expense of the Owner of said 2017 Bond, shall execute, and the 16 Trustee shall thereupon authenticate and deliver, a new 2017 Bond of like tenor, series and authorized denomination in exchange and substitution for the 2017 Bonds so mutilated, but only upon surrender to the Trustee of the 2017 Bond so mutilated. Every mutilated 2017 Bond so surrendered to the Trustee shall be canceled by it and upon the Written Request of the City delivered to, or upon the order of, the City. If any 2017 Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee shall be given, the City, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2017 Bond of like tenor, series and authorized denomination in lieu of and in substitution for the 2017 Bond so lost, destroyed or stolen (or if any such 2017 Bond shall have matured or shall be about to mature, instead of issuing a substitute 2017 Bond, the Trustee may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2017 Bond issued under this Section and of the expenses which may be incurred by the City and the Trustee in the premises. Any 2017 Bond issued under the provisions of this Section in lieu of any 2017 Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the 2017 Bond so alleged to be lost, destroyed, or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of the Indenture with all other 2017 Bonds secured by the Indenture. Notwithstanding any other provision of this Section, in lieu of delivering a new 2017 Bond for a 2017 Bond which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for redemption, the Trustee may make payment of such 2017 Bond upon receipt of indemnity satisfactory to the Trustee. Section 2.08. Book Entry System. (a) Election of Book Entry System. Prior to the issuance of the 2017 Bonds, the City may provide that such 2017 Bonds shall be initially issued as book entry 2017 Bonds. If the City shall elect to deliver any 2017 Bonds in book entry form, then the City shall cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such 2017 Bonds in an authorized denomination corresponding to that total principal amount of the 2017 Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2017 Bond shall be registered in the Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the 2017 Bonds, or any portion thereof may not thereafter be transferred except as provided in Section 2.08(e). With respect to book entry 2017 Bonds, the City and the Trustee shall have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book entry 2017 Bonds. Without limiting the immediately preceding sentence, the City and the Trustee shall have no responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book entry 2017 Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the Registration Books, of any notice with respect to book entry 2017 Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book entry 2017 Bonds to be redeemed in the event that the City redeems the 2017 Bonds in part; or (iv) the payment by the Depository or any Participant or any other person, of any amount of principal of, premium, if any, or interest on book entry 2017 Bonds. The City and the Trustee may treat and consider the person in whose name each book entry 2017 Bond is registered in the Registration Books as the absolute Owner of such book entry 2017 Bond for the purpose of payment of principal of, premium and interest on such 2017 Bond, for the purpose of giving notices of redemption and other matters with respect to such 2017 Bond, for the purpose of registering transfers 17 with respect to such 2017 Bond, and for all other purposes whatsoever. The Trustee shall pay all principal of, premium, if any, and interest on the 2017 Bonds only to or upon the order of the respective Owner, as shown in the Registration Books, or his respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the City’s obligations with respect to payment of principal of, premium, if any, and interest on the 2017 Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the Registration Books, shall receive a 2017 Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the 2017 Bonds. Upon delivery by the Depository to the City and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in the Indenture shall refer to such nominee of the Depository. (b) Delivery of Letter of Representations. In order to qualify the book entry 2017 Bonds for the Depository’s book entry system, the City and the Trustee (if required by the Depository) shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the City or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2017 Bonds other than the Owners, as shown on the Registration Books. The Trustee shall agree to take all action necessary at all times so that the Trustee will be in compliance with all representations on the Trustee’s behalf in such Letter of Representations. The City and the Trustee shall take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2017 Bonds for the Depository’s book entry program. (c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2017 Bonds; or (ii) the City determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2017 Bonds or the City, then the City will discontinue the book entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate, fully registered 2017 Bond for each of the maturity dates of such book entry 2017 Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in subsection (e) hereof. If the City fails to identify another qualified securities depository to replace the Depository, then the 2017 Bonds shall no longer be restricted to being registered in such Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such 2017 Bonds shall designate, in accordance with the provisions of Sections 2.03 and 2.04 hereof. (d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2017 Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such 2017 Bond and all notices with respect to such 2017 Bond shall be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions herein. (e) Transfer of 2017 Bonds to Substitute Depository. (i) The 2017 Bonds shall be initially issued as provided in Section 2.01 hereof. Registered ownership of such 2017 Bonds, or any portions thereof, may not thereafter be transferred except: 18 (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) of subsection (i) of this Section 2.08(e) (“Substitute Depository”); provided that any successor of DTC or Substitute Depository shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. (ii) In the case of any transfer pursuant to clause (A) or clause (B) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2017 Bonds by the Trustee, together with a Written Request of the City to the Trustee designating the Substitute Depository, a single new 2017 Bond, which the City shall prepare or cause to be prepared, shall be issued for each maturity of 2017 Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such Written Request of the City. In the case of any transfer pursuant to clause (C) of subsection (i) of this Section 2.08(e), upon receipt of all Outstanding 2017 Bonds by the Trustee, together with a Written Request of the City to the Trustee, new 2017 Bonds, which the City shall prepare or cause to be prepared, shall be issued in such denominations and registered in the names of such persons as are requested in such Written Request of the City, subject to the limitations of Section 2.01 hereof, provided that the Trustee shall not be required to deliver such new 2017 Bonds within a period of less than sixty (60) days from the date of receipt of such Written Request from the City. (iii) In the case of a partial redemption or an advance refunding of any 2017 Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) shall make an appropriate notation on such 2017 Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such Depository’s failure to make such notations or errors in making such notations and the records of the Trustee as to the Outstanding principal amount of such 2017 Bonds shall be controlling. (iv) The City and the Trustee shall be entitled to treat the person in whose name any 2017 Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and the City and the Trustee shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2017 Bonds. Neither the City nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any 2017 Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2017 Bonds. 19 ARTICLE III ISSUANCE OF 2017 BONDS; APPLICATION OF PROCEEDS Section 3.01. Issuance of the 2017 Bonds. At any time after the execution of the Indenture, the City may execute and the Trustee shall authenticate and, upon Written Request of the City, deliver the 2017 Bonds in the aggregate principal amount of $X,XXX,000. Section 3.02. Application of Proceeds of the 2017 Bonds. The proceeds received by the Trustee from the sale of the 2017 Bonds shall be deposited in the Proceeds Fund, which the Trustee shall establish, maintain and hold in trust in a separate fund, and such proceeds shall be thereafter transferred or deposited by the Trustee as directed in a Direction of the City. After making such transfers or deposits, the Trustee shall close the Proceeds Fund. The Trustee may establish temporary funds or accounts in its records to record and facilitate such deposits. Section 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall establish, maintain and hold in trust a separate fund designated as the “Costs of Issuance Fund.” The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee to pay the Costs of Issuance upon submission of Requisitions of the City stating the person to whom payment is to be made, the amount to be paid, the purpose for which the obligation was incurred, that such payment is proper charge against said fund and that payment for such charge has not previously been made. On the six month anniversary of the issuance of the 2017 Bonds, or upon the earlier Written Request of the City, all amounts remaining in the Costs of Issuance Fund shall be transferred by the Trustee to the Interest Account and the Costs of Issuance Fund shall be closed. Investment earnings on amounts on deposit in the Costs of Issuance Fund shall be applied in accordance with Section 5.07 hereof. Section 3.04. Validity of 2017 Bonds. The validity of the authorization and issuance of the 2017 Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the City or the Trustee with respect to any other agreement. The recital contained in the 2017 Bonds that the same are issued pursuant to the Constitution and laws of the State shall be conclusive evidence of the validity and of compliance with the provisions of law in their issuance. ARTICLE IV REDEMPTION OF 2017 BONDS Section 4.01. Terms of Redemption. (a) Optional Redemption. The 2017 Bonds with stated maturities on or after _______ 1, ____, shall be subject to redemption prior to their respective stated maturities, as a whole or in part on _______ 1, ____, or any date thereafter, at the option of the City and as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice being solely for the convenience of the Trustee) and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium. (b) Extraordinary Redemption. The 2017 Bonds shall be subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date from such 20 maturities as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice being solely for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, Sections 6.19 and 6.23, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. (c) Mandatory Sinking Payment Redemption. The 2017 Bonds maturing on June 1, ____, shall be subject to mandatory redemption in part on June 1, ____, and on each June 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date fixed for redemption, without premium, from sinking payments as follows: Redemption Date (June 1) Sinking Payments The amounts in the foregoing table shall be reduced to the extent practicable so as to maintain level debt service on the 2017 Bonds, as a result of any prior partial redemption of the 2017 Bonds pursuant to Section 4.01(a) or (b) above, as directed by the City in a Written Request provided to the Trustee. Section 4.02. Selection of 2017 Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2017 Bonds, the Trustee shall select the 2017 Bonds for redemption on any date and from such maturities as directed by the City and by lot within each maturity in integral multiples of $5,000 in accordance with Section 4.01 hereof. The Trustee will promptly notify the City in writing of the numbers of the 2017 Bonds or portions thereof so selected for redemption. Section 4.03. Notice of Redemption. Notice of redemption shall be mailed by first class mail at least twenty (20) days but not more than sixty (60) days before any Redemption Date, to the respective Owners of any 2017 Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and the Information Services; provided that, in the case of notice of optional redemption not related to an advance or current refunding, such notice may be given only if sufficient funds have been deposited with the Trustee to pay the applicable Redemption Price of the 2017 Bonds to be redeemed; and provided further that such notice may be cancelled by the City upon Written Request delivered to the Trustee not less than five (5) days prior to such Redemption Date. Each notice of redemption shall state the date of notice, the Redemption Date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, if less than all 2017 Bonds of any such maturity are to be redeemed, the serial numbers of the 2017 Bonds of such maturity to be redeemed by giving the individual number of each 2017 Bond or by stating that all 2017 Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2017 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the Redemption Date there will become due and payable on each of said 2017 Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2017 Bond to be redeemed in part only, together with interest accrued thereon 21 to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon shall cease to accrue, and shall require that such 2017 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2017 Bond. Notice of redemption of 2017 Bonds shall be given by the Trustee, at the expense of the City, for and on behalf of the City. With respect to any notice of optional redemption of 2017 Bonds, such notice may state that such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2017 Bonds to be redeemed and that, if such moneys shall not have been so received, said notice shall be of no force and effect and the Trustee shall not be required to redeem such 2017 Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption shall not be made, and the Trustee shall within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received. Section 4.04. Partial Redemption of 2017 Bonds. Upon surrender of any 2017 Bond redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the City, a new 2017 Bond or 2017 Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 2017 Bonds surrendered and of the same series, interest rate and maturity. Section 4.05. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the date fixed for redemption on, the 2017 Bonds (or portions thereof) so called for redemption being held by the Trustee, on the Redemption Date designated in such notice, the 2017 Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the 2017 Bonds so called for redemption shall cease to accrue, said 2017 Bonds (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2017 Bonds shall have no rights in respect thereof except to receive payment of the Redemption Price thereof. The Trustee shall, upon surrender for payment of any of the 2017 Bonds to be redeemed on their Redemption Dates, pay such 2017 Bonds at the Redemption Price. All 2017 Bonds redeemed pursuant to the provisions of this Article shall be canceled and destroyed upon surrender thereof to the Trustee. ARTICLE V SYSTEM REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Section 5.01. Pledge and Assignment; System Revenue Fund. (a) All of the System Revenues, all amounts held in the System Revenue Fund described in subsection (b) below and any other amounts (including proceeds of the sale of the 2017 Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund and the Rate Stabilization Fund) are hereby irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2017 Bonds in accordance with their terms 22 and the provisions of the Indenture, and the System Revenues shall not be used for any other purpose while any of the 2017 Bonds remains Outstanding; provided that out of the System Revenues there may be apportioned such sums for such purposes as are expressly permitted herein. Said pledge, together with the pledge created by all other Bonds and Contracts, shall constitute a first lien on and security interest on System Revenues and, subject to application of System Revenues and all amounts on deposit therein as permitted herein, the System Revenue Fund and other funds and accounts created hereunder for the payment of the principal of and interest, and the premium, if any, on the Bonds and all Contracts in accordance with the terms hereof, and shall attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and shall be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice hereof. (b) In order to carry out and effectuate the pledge and lien contained herein, the City agrees and covenants that all System Revenues shall be received by the City in trust hereunder and shall be deposited when and as received in the System Revenue Fund, which fund the City agrees and covenants to maintain and to hold separate and apart from other funds so long as the Bonds and any Contracts remain unpaid. In addition, the City may from time to time transfer from the Rate Stabilization Fund to the System Revenue Fund such amounts as it deems necessary or appropriate. Moneys in the System Revenue Fund shall be used and applied by the City as provided herein. All moneys in the System Revenue Fund shall be held in trust and shall be applied, used and withdrawn for the purposes set forth in this Section. The City shall, from the moneys in the System Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. All remaining moneys in the System Revenue Fund shall be set aside by the City at the following times for the transfer to the following respective special funds in the following order of priority: (i) Interest and Principal Payments. Not later than the Business Day prior to each Interest Payment Date, the City shall, from the moneys in the System Revenue Fund, transfer to the Trustee for deposit in the Payment Fund or the Redemption Fund the payments of interest and principal or mandatory sinking fund payments, as applicable, on the Bonds due and payable on such Interest Payment Date. The City shall also, from the moneys in the System Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other debt service in accordance with the provisions of any Bond or Contract. (ii) Reserve Funds. Not later than the Business Day prior to each Interest Payment Date, the City shall, from the remaining moneys in the System Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the applicable trustee for such reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the reserve requirement with respect thereto. (iii) Surplus. Moneys on deposit in the System Revenue Fund on any date when the City reasonably expects such moneys will not be needed for the payment of Operation and Maintenance Costs or any of the purposes described in clauses (b)(i) or (b)(ii) may be expended by 23 the City at any time for any purpose permitted by law including, but not limited to, transfers to the Rate Stabilization Fund. (iv) Investments. All moneys held by the City in the System Revenue Fund shall be invested in Permitted Investments and the investment earnings thereon shall remain on deposit in such fund, except as otherwise provided herein. Section 5.02. Allocation of System Revenues. There is hereby established with the Trustee the Payment Fund, which the Trustee covenants to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2017 Bonds remain unpaid. Except as directed herein, all payments of interest and principal on the 2017 Bonds received by the Trustee pursuant to Section 5.01(b)(i) shall be promptly deposited by the Trustee upon receipt thereof into the Payment Fund; except that all moneys received by the Trustee and required hereunder to be deposited in the Redemption Fund shall be promptly deposited therein. All payments of interest and principal on the 2017 Bonds deposited with the Trustee shall be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee shall also establish and hold an Interest Account and a Principal Account within the Payment Fund. The Trustee shall transfer from the Payment Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of System Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) Not later than each Interest Payment Date, the Trustee shall deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2017 Bonds then Outstanding. No deposit need be made into the Interest Account so long as there shall be in such fund moneys sufficient to pay the interest becoming due and payable on such date on all 2017 Bonds then Outstanding. (b) Not later than each date on which the principal of the 2017 Bonds shall become due and payable hereunder, the Trustee shall deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2017 Bonds coming due and payable on such date. No deposit need be made into the Principal Account so long as there shall be in such fund moneys sufficient to pay the principal becoming due and payable on such date on all 2017 Bonds then Outstanding. Section 5.03. Rate Stabilization Fund. If and when the City deems the establishment of such a fund to be necessary or appropriate for the management of its financial affairs, the City may establish and maintain a fund designated the “City of Rohnert Park Sewer System Rate Stabilization Fund.” The City may make deposits in the Rate Stabilization Fund at such times and in such amounts as it deems necessary or appropriate and may transfer amounts on deposit in the Rate Stabilization Fund to the System Revenue Fund at such times and in such amounts as it deems necessary or appropriate. Section 5.04. Application of Interest Account. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2017 Bonds as it 24 shall become due and payable (including accrued interest on any 2017 Bonds purchased or accelerated prior to maturity pursuant to the Indenture). Section 5.05. Application of Principal Account. All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the 2017 Bonds at maturity, purchase or acceleration; provided, however, that at any time prior to selection for redemption of any such 2017 Bonds, upon written direction of the City, the Trustee shall apply such amounts to the purchase of 2017 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2017 Bonds. Section 5.06. Application of Redemption Fund. There is to be established with the Trustee when needed a special fund designated as the “Redemption Fund.” All amounts in the Redemption Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the Redemption Price of the 2017 Bonds to be redeemed on any Redemption Date pursuant to Section 4.01; provided, however, that at any time prior to selection for redemption of any such 2017 Bonds, upon written direction of the City, the Trustee shall apply such amounts to the purchase of 2017 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2017 Bonds. Section 5.07. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments. Such investments shall be directed by the City pursuant to a Written Request of the City filed with the Trustee at least two (2) Business Days in advance of the making of such investments (which directions shall be promptly confirmed to the Trustee in writing). In the absence of any such directions from the City, the Trustee shall invest any such moneys in Permitted Investments described in clause (b)(5) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a written direction from the City specifying a specific money market fund and, if no such written direction from the City is so received, the Trustee shall hold such moneys uninvested. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established hereunder shall be deposited in the Interest Account unless otherwise provided in the Indenture. For purposes of acquiring any investments hereunder, the Trustee may commingle funds (other than the Rebate Fund) held by it hereunder upon the Written Request of the City. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made pursuant to this Section 5.07. The Trustee shall furnish the City with periodic cash transaction statements which include detail for all investment transactions effected by the Trustee or brokers selected by the City. Upon the City’s election, such statements will be delivered via the Trustee’s online service and upon electing such service, paper statements will be provided only upon request. The City waives the right 25 to receive brokerage confirmations of security transactions effected by the Trustee as they occur, to the extent permitted by law. The City further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. The City shall invest, or cause to be invested, all moneys in any fund or accounts established with the Trustee as provided in the Tax Certificate. For investment purposes, the Trustee may commingle the funds and accounts established hereunder, but shall account for each separately. In making any valuations of investments hereunder, the Trustee may utilize and rely on computerized securities pricing services that may be available to the Trustee, including those available through the Trustee accounting system. Section 5.08. Rebate Fund. (a) Establishment. The Trustee shall establish a fund for the 2017 Bonds designated the “Rebate Fund” when required in accordance herewith. Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2017 Bonds will not be adversely affected, the City shall cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the 2017 Bonds shall be governed by this Section and the Tax Certificate, unless and to the extent that the City delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2017 Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained herein or in the Tax Certificate, the Trustee: (i) shall be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the City; (ii) shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate; (iii) may rely conclusively on the City’s calculations and determinations and certifications relating to rebate matters; and (iv) shall have no responsibility to independently make any calculations or determinations or to review the City’s calculations or determinations thereunder. (i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the City shall calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the “1½% Penalty”) has been made), for this purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the “Rebatable Arbitrage”). The City shall obtain expert advice as to the amount of the Rebatable Arbitrage to comply with this Section. 26 (ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the Written Request of the City, an amount shall be deposited to the Rebate Fund by the Trustee from any System Net Revenues legally available for such purpose (as specified by the City in the aforesaid Written Request), if and to the extent required so that the balance in the Rebate Fund shall equal the amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this subsection (a). In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the City, the Trustee shall withdraw the excess from the Rebate Fund and then credit the excess to the Payment Fund. (iii) Payment to the Treasury. The Trustee shall pay, as directed by Written Request of the City, to the United States Treasury, out of amounts in the Rebate Fund: (A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all the 2017 Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations. In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City shall calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to this subsection (a) shall be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and shall be accompanied by Internal Revenue Service Form 8038-T (prepared by the City), or shall be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2017 Bonds and the payments described in subsection (a) above being made may be withdrawn by the City and utilized in any manner by the City. (c) Survival of Defeasance. Notwithstanding anything in this Section to the contrary, the obligation to comply with the requirements of this Section shall survive the defeasance or payment in full of the 2017 Bonds. Section 5.09. Application of Funds and Accounts When No Bonds Are Outstanding. On the date on which all 2017 Bonds shall be retired hereunder or provision made therefor pursuant to Article X and after payment of all amounts due the Trustee hereunder, all moneys then on deposit in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to the Indenture shall be withdrawn by the Trustee and paid to the City for use by the City at any time for any purpose permitted by law. 27 ARTICLE VI PARTICULAR COVENANTS Section 6.01. Punctual Payment. The City shall punctually pay or cause to be paid the principal and interest to become due in respect of all of the 2017 Bonds, in strict conformity with the terms of the 2017 Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of System Net Revenues and other assets pledged for such payment as provided in the Indenture. Section 6.02. Extension of Payment of Bonds. The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the 2017 Bonds or the time of payment of any claims for interest by the purchase of such 2017 Bonds or by any other arrangement, and in case the maturity of any of the 2017 Bonds or the time of payment of any such claims for interest shall be extended, such 2017 Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of the Indenture, except subject to the prior payment in full for the principal of all of the 2017 Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding 2017 Bonds, and such issuance shall not be deemed to constitute an extension of maturity of 2017 Bonds. Section 6.03. Against Encumbrances. The City will not make any pledge of or place any lien on System Revenues or the moneys in the System Revenue Fund except as provided herein. The City may at any time, or from time to time, execute Contracts or issue Bonds as permitted herein. The City may also at any time, or from time to time, incur evidences of indebtedness or incur other obligations for any lawful purpose which are payable from and secured by a pledge of lien on System Revenues on any moneys in the System Revenue Fund as may from time to time be deposited therein, provided that such pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided herein. Section 6.04. Power to Issue 2017 Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to law to issue the 2017 Bonds and to enter into the Indenture and to pledge and assign the System Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2017 Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Trustee shall at all times, subject to the provisions of Article VIII and to the extent permitted by law, defend, preserve and protect said pledge and assignment of System Revenues and other assets and all the rights of the 2017 Bond Owners under the Indenture against all claims and demands of all persons whomsoever. Section 6.05. Accounting Records and Financial Statements. (a) The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions made by it relating to the proceeds of 2017 Bonds and all funds and accounts established by it pursuant to the Indenture. Such books of record and account shall be available for inspection by the City upon reasonable prior notice during business hours and under reasonable circumstances. 28 (b) The City will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the System, which records shall be available for inspection by the Trustee (which shall have no duty to inspect such records) at reasonable hours and under reasonable conditions. (c) The City will prepare and file with the Trustee annually within two hundred seventy (270) days of the end of each Fiscal Year (commencing with the Fiscal Year within which the Closing Date occurs) financial statements of the City for such Fiscal Year prepared in accordance with Generally Accepted Accounting Principles, together with an Accountant’s Report thereon. The Trustee shall have no duty to review such financial statements. Section 6.06. Tax Covenants. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2017 Bonds will not be adversely affected for federal income tax purposes, the City covenants to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2017 Bonds and specifically covenants, without limiting the generality of the foregoing, as follows: (a) Private Activity. The City will take no action or refrain from taking any action or make any use of the proceeds of the 2017 Bonds or of any other moneys or property which would cause the 2017 Bonds to be “private activity bonds” within the meaning of Section 141 of the Code; (b) Arbitrage. The City will make no use of the proceeds of the 2017 Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2017 Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code; (c) Federal Guarantee. The City will make no use of the proceeds of the 2017 Bonds or take or omit to take any action that would cause the 2017 Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code; (d) Information Reporting. The City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the 2017 Bonds pursuant to Section 103(a) of the Code; (e) Hedge Bonds. The City will make no use of the proceeds of the 2017 Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the 2017 Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the City takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2017 Bonds for federal income tax purposes; and (f) Miscellaneous. The City will take no action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the City in connection with the issuance of the 2017 Bonds and will comply with the covenants and requirements stated therein and incorporated by reference herein. 29 This Section and the covenants set forth herein shall not be applicable to, and nothing contained herein shall be deemed to prevent the City from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the 2017 Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation. Section 6.07. Waiver of Laws. The City 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 2017 Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the City to the extent permitted by law. Section 6.08. Further Assurances. The City will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the 2017 Bonds of the rights and benefits provided in the Indenture. Section 6.09. Budgets. On or prior to the fifteenth day of each Fiscal Year, the City shall certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the 2017 Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of the principal of and interest on the 2017 Bonds due under the Indenture, the City will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the City in the then ensuing Fiscal Year for the payment of the principal of and interest on the 2017 Bonds due under the Indenture and will notify the Trustee of the proceedings then taken or proposed to be taken by the City. Section 6.10. Observance of Laws and Regulations. To the extent necessary to assure its performance hereunder, the City will well and truly keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on the City by contract, or prescribed by any law of the United States of America, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or hereafter acquired by the City, respectively, including its right to exist and carry on its business, to the end that such contracts, rights and franchises shall be maintained and preserved, and shall not become abandoned, forfeited or in any manner impaired. Section 6.11. Compliance with Contracts. The City will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the City to pay principal of or interest on the 2017 Bonds; and the City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the System, to the extent that the City is a party thereto. Section 6.12. Prosecution and Defense of Suits. The City shall promptly, upon request of the Trustee or any Bond Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the System or any part thereof, whether now existing or hereafter developing, shall prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee (including all of its employees, officers and directors), the Trustee and every 2017 Bond Owner harmless from all loss, 30 cost, damage and expense, including attorneys’ fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. The City shall defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or any 2017 Bond Owner upon any claim arising out of the receipt, application or disbursement of any of the payments of principal of or interest on the 2017 Bonds or involving the rights of the Trustee or any 2017 Bond Owner under the Indenture; provided that the Trustee or any 2017 Bond Owner at such party’s election may appear in and defend any such suit, action or proceeding. The City shall indemnify and hold harmless the Trustee and the 2017 Bond Owners against any and all liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and shall indemnify and hold harmless the 2017 Bond Owners against any attorneys’ fees or other expenses which any of them may incur in connection with any litigation (including pre-litigation activities) to which any of them may become a party by reason of ownership of 2017 Bonds. The City shall promptly reimburse any 2017 Bond Owner in the full amount of any attorneys’ fees or other expenses which such Owner may incur in litigation or otherwise in order to enforce such party’s rights under the Indenture or the 2017 Bonds, provided that such litigation shall be concluded favorably to such party’s contentions therein. Section 6.13. Continuing Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of its obligations under the Continuing Disclosure Certificate to be executed and delivered by the City in connection with the issuance of the 2017 Bonds. Notwithstanding any other provision of the Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Section. For purposes of this Section, “Beneficial Owner” means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2017 Bonds (including persons holding 2017 Bonds through nominees, depositories or other intermediaries). Section 6.14. Additional Bonds and Contracts. (a) The City may at any time execute any Contract or issue any Bonds, as the case may be, in accordance herewith; provided that: (i) The System Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the City and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the City, shall have produced a sum equal to at least one hundred twenty percent (120%) of the Annual Debt Service for such Fiscal Year; and (ii) The System Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the System approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the City, shall have produced a sum equal to at least one hundred twenty percent (120%) of the 31 Annual Debt Service for such Fiscal Year, plus the debt service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year, assuming that such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the debt service which would have accrued had such proposed additional Contract been executed or proposed additional Bonds been issued at the beginning of such Fiscal Year. (iii) Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Annual Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding. (b) Nothing contained in this Section shall limit the issuance of any revenue bonds of the City payable from the System Net Revenues and secured by a lien and charge on the System Net Revenues if, after the issuance and delivery of such revenue bonds, none of the 2017 Bonds shall be unpaid. Furthermore, nothing contained in this Section shall limit the issuance of any obligations payable from System Net Revenues on a subordinate basis to the Bonds and Contracts. Section 6.15. Against Sale or Other Disposition of Property. The City will not enter into any agreement or lease which impairs the operation of the System or any part thereof necessary to secure adequate System Revenues for the payment of the principal of and interest on the 2017 Bonds, or which would otherwise impair the operation of the System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the System, or any material or equipment which has become worn out, may be sold if such sale will not impair the ability of the City to pay the principal of and interest on the 2017 Bonds and if the proceeds of such sale are deposited in the System Revenue Fund. Nothing herein shall restrict the ability of the City to sell any portion of the System if such portion is immediately repurchased by the City and if such arrangement cannot by its terms result in the purchaser of such portion of the System exercising any remedy which would deprive the City of or otherwise interfere with its right to own and operate such portion of the System. Section 6.16. Against Competitive Facilities. To the extent that it can so legally obligate itself, the City covenants that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the City any sewer system competitive with the System. Section 6.17. Maintenance and Operation of the System. The City will maintain and preserve the System in good repair and working order at all times and will operate the System in an efficient and economical manner and will pay all Operation and Maintenance Costs as they become due and payable. Section 6.18. Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the System Revenues or the funds or accounts created hereunder or on any funds in the hands of the City pledged to pay the principal of or interest on the 2017 Bonds or to the Owners prior or superior to the lien under the Indenture. 32 Section 6.19. Insurance. (a) The City will procure and maintain or cause to be procured and maintained insurance on the System with responsible insurers in such amounts and against such risks (including damage to or destruction of the System) as are usually covered in connection with facilities similar to the System so long as such insurance is available from reputable insurance companies. In the event of any damage to or destruction of the System caused by the perils covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the System. The City shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the System shall be free and clear of all claims and liens. If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of the System, and/or the cost of the construction of additions, betterments, extensions or improvements to the System, then the excess Net Proceeds shall be applied in part to the redemption of 2017 Bonds as provided in Section 4.01(b) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2017 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts. If such Net Proceeds are sufficient to enable the City to retire the entire obligation evidenced hereby prior to the final due date of the 2017 Bonds as well as the entire obligations evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the City may elect not to reconstruct, repair or replace the damaged or destroyed portion of the System, and/or not to construct other additions, betterments, extensions or improvements to the System; and thereupon such Net Proceeds shall be applied to the redemption of 2017 Bonds as provided in Section 4.01(b) and to the retirement of such Bonds and Contracts. (b) The City will procure and maintain such other insurance as it shall deem advisable or necessary to protect its interests and the interests of the 2017 Bond Owners, which insurance shall afford protection in such amounts and against such risks as are usually covered in connection with municipal sewer systems similar to the System. (c) Any insurance required to be maintained by paragraph (a) above and, if the City determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance, may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with sewer systems similar to the System and is, in the opinion of an accredited actuary, actuarially sound. Section 6.20. Payment of Taxes and Compliance with Governmental Regulations. The City will pay and discharge all taxes, assessments and other governmental charges which may hereafter be lawfully imposed upon the System, or any part thereof or upon the System Revenues when the same shall become due. The City will duly observe and conform with all valid regulations and requirements of any governmental authority relative to the operation of the System, or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. 33 Section 6.21. Amount of Rates and Charges. (a) To the fullest extent permitted by law, the City shall fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Sewer System Service provided by the System which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during each Fiscal Year System Net Revenues equal to one hundred twenty percent (120%) of Annual Debt Service for such Fiscal Year. (b) The City may make or permit to be made adjustments from time to time in such rates, fees and charges and may make or permit to be made such classification thereof as it deems necessary, but shall not reduce or permit to be reduced such rates, fees and charges below those then in effect unless the System Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the requirements of this Section. Section 6.22. Collection of Rates and Charges. The City will have in effect at all times by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Sewer System Service and providing for the billing thereof and for a due date and a delinquency date for each bill. Section 6.23. Eminent Domain Proceeds. If all or any part of the System shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied as follows: (a) If: (1) the City files with the Trustee a certificate showing: (i) the estimated loss of annual System Net Revenues, if any, suffered or to be suffered by the City by reason of such eminent domain proceedings; (ii) a general description of the additions, betterments, extensions or improvements to the System proposed to be acquired and constructed by the City from such Net Proceeds; and (iii) an estimate of the additional annual System Net Revenues to be derived from such additions, betterments, extensions or improvements; and (2) the City, on the basis of such certificate filed with the Trustee, determines that the estimated additional annual System Net Revenues will sufficiently offset the estimated loss of annual System Net Revenues resulting from such eminent domain proceedings so that the ability of the City to meet its obligations hereunder will not be substantially impaired (which determination shall be final and conclusive), then the City shall promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds shall be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the City for such purpose shall be deposited in the System Revenue Fund. (b) If the foregoing conditions are not met, then such Net Proceeds shall be applied by the City in part to the redemption of 2017 Bonds as provided in Section 4.01(b) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2017 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts. Section 6.24. Enforcement of Contracts. The City will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with any contracts previously or hereafter entered into if such rescission or amendment would in any manner impair or adversely affect the ability of the City to pay principal of and interest on the 2017 Bonds. 34 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS Section 7.01. Events of Default. The following events shall be Events of Default hereunder: (a) Default by the City in the due and punctual payment of the principal of any 2017 Bonds, the principal of any other Bonds or the principal with respect to any Contract, when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Default by the City in the due and punctual payment of any installment of interest on any 2017 Bonds, any installment of interest on any other Bond or any installment of interest with respect to any Contract, when and as the same shall become due and payable. (c) Default by the City in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2017 Bonds, or required by any other Bond or indenture relating thereto or by any Contract, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the City by the Trustee or by the Owners of not less than a majority in aggregate principal amount of 2017 Bonds Outstanding, a majority in principal amount of other Bonds outstanding, or a majority in principal amount outstanding with respect to such Contract, as applicable; provided, however, that if in the reasonable opinion of the City the default stated in the notice can be corrected, but not within such sixty (60) day period and corrective action is instituted by the City within such sixty (60) day period and diligently pursued in good faith until the default is corrected such default shall not be an Event of Default hereunder. (d) The City 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 a court of competent jurisdiction shall approve a petition filed with or without the consent of the City 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 City or of the whole or any substantial part of its property. (e) Payment of the principal of any Bond or with respect to any Contract is accelerated in accordance with its terms. Section 7.02. Remedies Upon Event of Default. If any Event of Default specified in Section 7.01(d) or (e) shall occur and be continuing, the Trustee shall, and for any other Event of Default, the Trustee may, and, at the written direction of the Owners of not less than a majority in aggregate principal amount of the 2017 Bonds at the time Outstanding, shall, in each case, upon notice in writing to the City, declare the principal of all of the 2017 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 2017 Bonds contained to the contrary notwithstanding. 35 Nothing contained herein shall permit or require the Trustee to accelerate payments due under the Indenture if the City is not in default of its obligation hereunder. Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the City shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the 2017 Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2017 Bonds to the extent permitted by law, and the reasonable fees, disbursements and expenses of the Trustee, or shall deposit with the applicable trustee with respect to any Contract a sum sufficient to pay all the principal and installments of interest with respect to such Contract payment of which is overdue, with interest on such overdue principal at the rate borne by such Contract to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Contract, or shall deposit with the applicable trustee with respect to any Bond a sum sufficient to pay all the principal of and installment of interest on such Bond payment of which is overdue, with interest on such overdue principal at the rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Bonds, and any and all other Events of Default known to the Trustee or the applicable trustee with respect to such Contract or Bonds (other than in the payment of principal of and interest on the 2017 Bonds, payment of principal and interest with respect to such Contract or payment of principal and interest on such Bond, as applicable, due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case the Trustee shall on behalf of the Owners of all of the 2017 Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. Section 7.03. Application of System Revenues and Other Funds After Default. If an Event of Default shall occur and be continuing, all System Revenues held or thereafter received by the Trustee and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund and the Rate Stabilization Fund) shall be applied in the following order: (a) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the 2017 Bonds, Contract or other Bonds and payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; (b) To the payment of Operation and Maintenance Costs; and (c) To the payment of the principal of and interest then due on the 2017 Bonds (upon presentation of the 2017 Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid), in accordance with the provisions of the Indenture, the payment of the principal and interest then due with respect to such Contract in accordance with the provisions thereof and the payment of the principal of and interest then due on such Bonds in accordance with the provisions thereof and of any indenture related thereto, in the following order of priority: 36 First: To the payment to the persons entitled thereto of all installments of interest then due on the 2017 Bonds, with respect to such Contract or on such Bonds, as applicable, 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 2017 Bonds, principal with respect to such Contract or principal of any Bonds, as applicable, which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate of eight percent (8%) per annum, and, if the amount available shall not be sufficient to pay in full all the 2017 Bonds, all amounts due under such Contract or all the Bonds, as applicable, 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; and Third: If there shall exist any remainder after the foregoing payments, such remainder shall be paid to the City. Section 7.04. Trustee to Represent 2017 Bond Owners. The Trustee is hereby irrevocably appointed (and the successive respective Owners of the 2017 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 2017 Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the 2017 Bonds or the Indenture and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2017 Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a majority in aggregate principal amount of the 2017 Bonds then Outstanding, 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 herein, or in aid of the execution of any power herein granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the 2017 Bonds or the Indenture or any law; and upon instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver of the System Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the 2017 Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2017 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 all the Owners of such 2017 Bonds, subject to the provisions of the Indenture. Section 7.05. Bond Owners’ Direction of Proceedings. Anything in the Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the 2017 Bonds then Outstanding 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 conduct in all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of the 37 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 Bond Owners not parties to such direction. Section 7.06. Suit by Owners. No Owner of any 2017 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 with respect to such 2017 Bonds, unless: (a) such Owners shall have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than fifty percent (50%) in aggregate principal amount of the 2017 Bonds then Outstanding 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 Owners shall have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have failed 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; and (e) no direction inconsistent with such written request shall have been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the 2017 Bonds then Outstanding. 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 2017 Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of 2017 Bonds shall have any right in any manner whatever by their action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of 2017 Bonds, or to enforce any right under the 2017 Bonds, the Indenture, or applicable law with respect to the 2017 Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding 2017 Bonds, subject to the provisions of the Indenture. Section 7.07. Absolute Obligation of the City. Nothing in this Section 7.07 or in any other provision of the Indenture or in the 2017 Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the 2017 Bonds to the respective Owners of the 2017 Bonds at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the System Revenues and other assets herein pledged therefor, 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 2017 Bonds. Section 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners of the 2017 Bonds is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.09. No Waiver of Default. No delay or omission of the Trustee or of any Owner of the 2017 Bonds to exercise any right or power arising upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein. 38 ARTICLE VIII THE TRUSTEE Section 8.01. Duties, Immunities and Liabilities of Trustee. (a) The Trustee shall, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture and no implied covenants or duties shall be read into the Indenture against the Trustee. The Trustee shall, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. (b) The City may remove the Trustee at any time, unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2017 Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon shall promptly appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by giving written notice of such resignation to the City and by giving the 2017 Bond Owners notice of such resignation by mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall promptly appoint a successor Trustee by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee shall have been appointed and have accepted appointment within forty-five (45) days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any 2017 Bond Owner (on behalf of himself and all other 2017 Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all of the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all of the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the City shall execute and deliver any and all instruments as may be reasonably 39 required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the City shall mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts hereunder to each rating agency which is then rating the 2017 Bonds and to the 2017 Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the City. (e) Any Trustee appointed under the provisions of this Section in succession to the Trustee shall be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least Seventy Five Million Dollars ($75,000,000), and subject to supervision or examination for federal or state authority. If such bank, banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of this subsection the combined capital and surplus of such trust company, banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. Section 8.02. Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such trust company, banking association or bank shall be eligible under subsection (e) of Section 8.01, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 8.03. Liability of Trustee. (a) The recitals of facts herein and in the Bonds shall be taken as statements of the City, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or the 2017 Bonds, nor shall the Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the 2017 Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the 2017 Bonds. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2017 Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond Owners, whether or not such committee shall represent the Owners of a majority in principal amount of the 2017 Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. 40 (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for herein) in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. (d) The Trustee shall not be liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. (e) The Trustee shall not be deemed to have knowledge of any default or Event of Default hereunder or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default hereunder unless and until a Responsible Officer of the Trustee shall have actual knowledge of such event or the Trustee shall have been notified in writing, in accordance with Section 11.07, of such event by the City or the Owners of not less than fifty percent (50%) of the 2017 Bonds then Outstanding. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance by the City of any of the terms, conditions, covenants or agreements herein of any of the documents executed in connection with the Bonds, or as to the existence of an Event of Default thereunder or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default thereunder. The Trustee shall not be responsible for the validity, effectiveness or priority of any collateral given to or held by it. (f) No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its rights or powers. (g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Owners pursuant to the Indenture, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy. (h) Whether or not herein expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article VIII. (i) The Trustee shall have no responsibility or liability with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2017 Bonds. (j) The immunities extended to the Trustee also extend to its directors, officers, employees and agents. (k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and shall not be answerable for the conduct of the same if appointed by it with reasonable care. 41 (l) The Trustee shall not be considered in breach of or in default in its obligations hereunder or progress in respect thereto in the event of delay in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the System, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (m) The Trustee agrees to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured electronic mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding the fact that such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. (n) The Trustee shall not be concerned with or accountable to anyone for the subsequent use or application of any moneys which shall be released or withdrawn in accordance with the provisions hereof. (o) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it hereby at the request, order or direction of any of the Owners pursuant to the provisions hereof unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (p) The permissive right of the Trustee to do things enumerated herein shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. Section 8.04. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the City, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. The Trustee may treat the Owners of the 2017 Bonds appearing in the Registration Books as the absolute owners of the 2017 Bonds for all purposes and the Trustee shall not be affected by any notice to the contrary. 42 Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Certificate, Request or Requisition of the City, and such Certificate, Request or Requisition shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 8.05. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture shall be retained in its possession subject to its record retention policies and shall be subject at all reasonable times to the inspection of the City and any Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. Section 8.06. Compensation and Indemnification. The City shall pay to the Trustee from time to time all reasonable compensation for all services rendered under the Indenture, and also all reasonable expenses, charges, legal and consulting fees and other disbursements and those of their attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture. The City shall indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or bad faith on its part, arising out of or in connection with the execution of the Indenture, acceptance or administration of this trust, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers hereunder. The rights of the Trustee and the obligations of the City under this Section 8.06 shall survive removal or resignation of the Trustee hereunder or the discharge of the 2017 Bonds and the Indenture. ARTICLE IX MODIFICATION OR AMENDMENT OF THE INDENTURE Section 9.01. Amendments Permitted. (a) The Indenture and the rights and obligations of the City and of the Owners of the 2017 Bonds and of the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the City and the Trustee may enter into when the written consent of the Owners of a majority in aggregate principal amount of all 2017 Bonds then Outstanding, exclusive of 2017 Bonds disqualified as provided in Section 11.09 hereof, shall have been filed with the Trustee. No such modification or amendment shall: (1) extend the fixed maturity of any 2017 Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each Bond so affected; or (2) reduce the aforesaid percentage of 2017 Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the System Revenues and other assets pledged under the Indenture prior to or on a parity with the 43 lien created by the Indenture except as permitted herein, or deprive the Owners of the 2017 Bonds of the lien created by the Indenture on such System Revenues and other assets except as permitted herein, without the consent of the Owners of all of the 2017 Bonds then Outstanding. It shall not be necessary for the consent of the 2017 Bond 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 City and the Trustee of any Supplemental Indenture pursuant to this subsection (a), the Trustee shall mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency and the Owners of the 2017 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. (b) The Indenture and the rights and obligations of the City, the Trustee and the Owners of the 2017 Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into without the consent of any 2017 Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners of the Outstanding 2017 Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the City contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2017 Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the City; (2) 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 in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable; (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereunder in effect, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and (4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2017 Bonds to remain excludable from gross income under the Code. (c) The Trustee may in its discretion, but shall not be obligated to, enter into any such Supplemental Indenture authorized by subsections (a) or (b) of this Section which materially adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise. (d) Prior to the Trustee entering into any Supplemental Indenture hereunder, there shall be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the 2017 Bonds from federal income taxation and from state income taxation. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, the Indenture shall be deemed to be modified and amended in 44 accordance therewith, and the respective rights, duties and obligations under the Indenture of the City, the Trustee and all Owners of 2017 Bonds Outstanding shall thereafter be determined, exercised and enforced thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes. Section 9.03. Endorsement of Bonds; Preparation of New 2017 Bonds. 2017 Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2017 Bonds Outstanding at the time of such execution and presentation of his or her 2017 Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation shall be made on such 2017 Bonds. If the Supplemental Indenture shall so provide, new 2017 Bonds so modified as to conform, in the opinion of the City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the City and authenticated by the Trustee, and upon demand on the Owners of any 2017 Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any 2017 Bond Owner, for 2017 Bonds then Outstanding, upon surrender for cancellation of such 2017 Bonds, in equal aggregate principal amount of the same series and maturity. Section 9.04. Amendment of Particular 2017 Bonds. The provisions of this Article shall not prevent any 2017 Bond Owner from accepting any amendment as to the particular 2017 Bonds held by such Owner. ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. The 2017 Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable hereunder by the City: (a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 2017 Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem all 2017 Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the 2017 Bonds then Outstanding. If the City shall also pay or cause to be paid all other sums payable hereunder by the City, then and in that case, at the election of the City (as evidenced by a Certificate of the City, filed with the Trustee, signifying the intention of the City to discharge all such indebtedness and the Indenture), and notwithstanding that any 2017 Bonds shall not have been surrendered for payment, the Indenture and the pledge of System Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the City under the Indenture shall cease, terminate, become void 45 and be completely discharged and satisfied. In such event, upon the Written Request of the City, the Trustee shall execute and deliver to the City 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 which are not required for the payment or redemption of 2017 Bonds not theretofore surrendered for such payment or redemption to the City. Section 10.02. Discharge of Liability on 2017 Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in Section 10.03) to pay or redeem any Outstanding 2017 Bonds (whether upon or prior to the maturity or the Redemption Date of such 2017 Bonds), provided that, if such Outstanding 2017 Bonds are to be redeemed prior to maturity, notice of such redemption shall have been given as provided in Article IV or provisions satisfactory to the Trustee shall have been made for the giving of such notice, then all liability of the City in respect of such 2017 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 Section 10.04. The City may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such 2017 Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired. Section 10.03. Deposit of Money or Securities with Trustee. 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 2017 Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and 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 2017 Bonds and all unpaid interest thereon to maturity, except that, in the case of 2017 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 Article IV or provisions 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 2017 Bonds and all unpaid interest and premium, if any, thereon to the Redemption Date; or (b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant or Independent Financial Consultant filed with the City and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the Redemption Date (with premium, if any), as the case may be, on the 2017 Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 2017 Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in Article IV or provision satisfactory to the Trustee shall have been made for the giving of such notice; provided, in each case, that: (i) the Trustee shall have been irrevocably instructed (by the terms of the Indenture or by Written Request of the City) to apply such money to the payment of such principal, interest and premium, if any, with respect to such 2017 Bonds; and (ii) the City shall have delivered to the Trustee an opinion of Bond Counsel addressed to the City and the Trustee to the effect that 46 such 2017 Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant’s or Independent Financial Consultant’s opinion referred to above). Section 10.04. Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2017 Bonds and remaining unclaimed for two (2) years after the principal of all of the 2017 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 2017 Bonds became due and payable, shall be repaid to the City free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the City and the Trustee indemnifying the Trustee with respect to claims of Owners of 2017 Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Trustee shall at the written direction of the City (at the cost of the City) first mail to the Owners of 2017 Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2017 Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof. ARTICLE XI MISCELLANEOUS Section 11.01. Liability of City Limited to System Revenues. Notwithstanding anything in the Indenture or the 2017 Bonds, but subject to the priority of payment with respect to Operation and Maintenance Costs, the City shall not be required to advance any moneys derived from any source other than the System Revenues, the System Revenue Fund and other moneys pledged under the Indenture for any of the purposes mentioned in the Indenture, whether for the payment of the principal of or interest on the 2017 Bonds or for any other purpose of the Indenture. Nevertheless, the City may, but shall not be required to, advance for any of the purposes hereof any funds of the City which may be made available to it for such purposes. The obligation of the City to pay interest and principal on the 2017 Bonds is a special obligation of the City payable solely from the System Net Revenues, and does not constitute a debt of the City or of the State of California or of any political subdivision thereof (other than the City) in contravention of any constitutional or statutory debt limitation or restriction. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in the Indenture contained by or on behalf of the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.03. Limitation of Rights to Parties and 2017 Bond Owners. Nothing in the Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any person other than the City, the Trustee and the Owners of the 2017 Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein 47 or herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the City, the Trustee and the Owners of the 2017 Bonds. Section 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Section 11.05. Destruction of 2017 Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee shall destroy such 2017 Bonds as may be allowed by law, and deliver a certificate of such destruction to the City. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2017 Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of the Indenture, and the Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The City hereby declares that it would have entered into the Indenture and each and every other Section, paragraph, sentence, clause or phrase hereof and authorized the issuance of the 2017 Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable. Section 11.07. Notices. Any notice to or demand upon the City or the Trustee shall be deemed to have been sufficiently given or served for all purposes by being sent by facsimile, electronic mail, overnight mail or courier, or by being deposited, first class mail, postage prepaid, in a post office letter box, addressed, as the case may be, to the City at City of Rohnert Park, 130 Avram Avenue, Rohnert Park, California 94928, Attention: City Manager (or such other address as may have been filed in writing by the City with the Trustee), or to the Trustee at its Office. Notwithstanding the foregoing provisions of this Section 11.07, the Trustee shall not be deemed to have received, and shall not be liable for failing to act upon the contents of, any notice unless and until the Trustee actually receives such notice. Section 11.08. Evidence of Rights of 2017 Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2017 Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such 2017 Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of 2017 Bonds transferable by delivery, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and the City if made in the manner provided in this Section. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to him the execution thereof, 48 or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The Ownership of 2017 Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the City in accordance therewith or reliance thereon. Section 11.09. Disqualified 2017 Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2017 Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2017 Bonds which are known by the Trustee to be owned or held by or for the account of the City, or by any other obligor on the 2017 Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2017 Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. 2017 Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such 2017 Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2017 Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request, the City shall certify to the Trustee those 2017 Bonds that are disqualified pursuant to this Section 11.09 and the Trustee may conclusively rely on such certificate. Section 11.10. Money Held for Particular 2017 Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2017 Bonds (or portions of 2017 Bonds in the case of registered 2017 Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2017 Bonds entitled thereto, subject, however, to the provisions of Section 10.04 hereof but without any liability for interest thereon. Section 11.11. Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of Section 6.05(a) and for the protection of the security of the 2017 Bonds and the rights of every Owner thereof. Section 11.12. Waiver of Personal Liability. No member, officer, agent, employee, consultant or attorney of the City shall be individually or personally liable for the payment of the principal of or premium or interest on the 2017 Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture. 49 Section 11.13. Execution in Several Counterparts. The Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original; and all such counterparts, or as many of them as the City and the Trustee shall preserve undestroyed, shall together constitute but one and the same instrument. Section 11.14. CUSIP Numbers. Neither the Trustee nor the City shall be liable for any defect or inaccuracy in the CUSIP number that appears on any 2017 Bond or in any redemption notice. The Trustee may, in its discretion, include in any redemption notice a statement to the effect that the CUSIP numbers on the 2017 Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the 2017 Bondholders and that neither the City nor the Trustee shall be liable for any inaccuracies in such numbers. Section 11.15. Choice of Law. THE INDENTURE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. Section 11.16. Paired Obligation Provider Guidelines. For purposes of Sections 6.14 and 6.21, Paired Obligations shall comply with the following conditions: (a) A Paired Obligation Provider shall initially have a long-term rating of A- or better by S&P and A3 or better by Moody’s. (b) So long as the long-term rating of the Paired Obligation Provider is not reduced below Baa2 by S&P or BBB by Moody’s, the interest rate of such Paired Obligation shall be deemed to be equal to the irrevocable fixed interest rate attributable thereto for purposes of Sections 6.14 and 6.21. In the event that a Paired Obligation Provider does not maintain the Minimum Rating Requirement and the City does not replace such Paired Obligation Provider with another Paired Obligation Provider which maintains the Initial Rating Requirement within ten (10) Business Days of notice that the Paired Obligation Provider has not maintained the Minimum Rating Requirement, interest with respect to such Paired Obligations shall be computed for purposes of Sections 6.14 and 6.21 without regard to payments to be received from the Paired Obligation Provider. S-1 IN WITNESS WHEREOF, the City has caused the Indenture to be signed in its name by its Mayor, and the Trustee, in token of its acceptance of the duties and obligations of the Trustee created hereunder, has caused the Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. CITY OF ROHNERT PARK By: Its: Mayor MUFG UNION BANK, N.A., as Trustee By: Its: Authorized Officer A-1 EXHIBIT A FORM OF 2017 BOND UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AS DEFINED IN THE INDENTURE) TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. No. ____ $__________ UNITED STATES OF AMERICA STATE OF CALIFORNIA CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BOND, SERIES 2017 INTEREST RATE MATURITY DATE ORIGINAL ISSUE DATE CUSIP ____% June 1, 20__ ________ 1, 2017 378640 ___ REGISTERED OWNER CEDE & CO. PRINCIPAL AMOUNT: _________________________________________ DOLLARS The CITY OF ROHNERT PARK, a municipal corporation duly organized and existing under the laws of the State of California (the “City”), for value received, hereby promises to pay to the Registered Owner specified above or registered assigns (the “Registered Owner”), on the Maturity Date specified above (subject to any right of prior redemption hereinafter provided for), the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the interest payment date next preceding the date of authentication of this Bond (unless: (i) this Bond is authenticated after the fifteenth day of the calendar month preceding an interest payment date, whether or not such day is a business day, and on or before the following interest payment date, in which event it shall bear interest from such interest payment date; or (ii) this Bond is authenticated on or before November 15, 2017, in which event it shall bear interest from the Original Issue Date identified above; provided, however, that if as of the date of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the interest payment date to which interest has previously been paid or made available for payment on this Bond), at the Interest Rate per annum specified above, payable on December 1, 2017 and each June 1 and December 1 thereafter, calculated on the basis of a 360 day year composed of twelve 30 day months. Principal hereof and premium, if any, upon early redemption hereof are payable by check of the Trustee upon presentation and surrender hereof at the Office (as defined in the hereinafter described Indenture) of MUFG Union Bank, N.A., as trustee (the “Trustee”). Interest A-2 hereon is payable by check of the Trustee sent by first class mail on the applicable interest payment date to the Registered Owner hereof at the Registered Owner’s address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each interest payment date (except that in the case of a Registered Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Registered Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Registered Owner prior to the fifteenth (15th) day of the month preceding such interest payment date). This Bond is not a debt of the State of California, or any of its political subdivisions (other than the City), and neither the State, nor any of its political subdivisions (other than the City), is liable hereon, nor in any event shall this Bond be payable out of any funds or properties of the City other than the System Net Revenues (as such term is defined in the Indenture of Trust, dated as of August 1, 2017 (the “Indenture”), by and between the City and the Trustee) and other moneys pledged therefor under the Indenture. The obligation of the City to make payments in accordance with the Indenture is a limited obligation of the City as set forth in the Indenture and the City shall have no liability or obligation in connection herewith except with respect to such payments to be made pursuant to the Indenture. This Bond does not constitute an indebtedness of the City in contravention of any constitutional or statutory debt limitation or restriction. This Bond is one of a duly authorized issue of bonds of the City designated as the “City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017” (the “2017 Bonds”), of an aggregate principal amount of __________________________________________ Dollars ($X,XXX,000), all of like tenor and date (except for such variation, if any, as may be required to designate varying series, numbers or interest rates) and all issued pursuant to the provisions of Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California, including but not limited to Section 53583, and pursuant to the Indenture and the resolution authorizing the issuance of the 2017 Bonds. Reference is hereby made to the Indenture (copies of which are on file at the office of the City) and all supplements thereto for a description of the terms on which the 2017 Bonds are issued, the provisions with regard to the nature and extent of the System Net Revenues, and the rights thereunder of the Owners of the 2017 Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the City hereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The 2017 Bonds have been issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The 2017 Bonds have been issued by the City to prepay and defease that certain Installment Purchase Agreement, dated as of May 1, 2005, by and between the City and the Rohnert Park Financing Authority, as more fully described in the Indenture. This Bond and the interest, premium, if any, hereon and all other 2017 Bonds and the interest and premium, if any, thereon (to the extent set forth in the Indenture) are special obligations of the City, secured by a pledge and lien on the System Revenues and any other amounts on deposit in certain funds and accounts created under the Indenture, and payable from the System Net Revenues. As and to the extent set forth in the Indenture, all of the System Revenues are exclusively and irrevocably pledged in accordance with the terms hereof and the provisions of the Indenture, to the payment of the principal of and interest and premium (if any) on this Bond. A-3 The Indenture and the rights and obligations of the City and the Owners of the Bonds and the Trustee may be modified or amended from time to time and at any time with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, exclusive of Bonds disqualified as set forth in the Indenture, in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall: (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, 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 affect any such modification or amendment, or permit the creation of any lien on the System Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the Bonds of the lien created by the Indenture on such System Revenues and other assets, except as expressly provided in the Indenture, without the consent of the Owners of all of the Bonds then Outstanding. The Indenture and the rights and obligations of the City, of the Trustee and the Owners of the Bonds may also be modified or amended for certain purposes described more fully in the Indenture at any time in the manner, to the extent and upon the terms provided in the Indenture by a supplemental indenture, which the City and the Trustee may enter into without the consent of any Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the provisions of such supplemental indenture will not materially adversely affect the interests of the Owners of the Outstanding Bonds. The 2017 Bonds with stated maturities on or after _______ 1, ____, shall be subject to redemption prior to their respective stated maturities, as a whole or in part on _______ 1, ____, or any date thereafter, at the option of the City and as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice being solely for the convenience of the Trustee) and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium. The 2017 Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice being solely for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, the Indenture at a redemption price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. A-4 The 2017 Bonds maturing on June 1, ____, shall be subject to mandatory redemption in part on June 1, ____, and on each June 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date fixed for redemption, without premium, from sinking payments as follows: Redemption Date (June 1) Sinking Payments The amounts in the foregoing table shall be reduced to the extent practicable so as to maintain level debt service on the 2017 Bonds, as a result of any prior partial optional or extraordinary redemption of the 2017 Bonds pursuant to the Indenture, as directed by the City in a Written Request provided to the Trustee. As provided in the Indenture, notice of redemption shall be mailed by the Trustee by first class mail at least 20 days but not more than 60 days prior to the date fixed for redemption to the respective Owners of any 2017 Bonds designated for redemption at their addresses appearing on the registration books of the Trustee, but neither the failure to receive such notice nor any defect in the notice or the mailing thereof shall affect the validity of the redemption. If this Bond is called for redemption and payment is duly provided therefor as specified in the Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption. If an Event of Default, as defined in the Indenture, shall occur, the principal of all of the 2017 Bonds and the interest accrued thereon may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture, but such declaration and its consequences may be rescinded and annulled as further provided in the Indenture. This Bond is transferable by the Registered Owner hereof, in person or by his or her duly authorized attorney in writing, at the office of the Trustee but only in the manner, subject to the limitations and upon payment of the taxes and charges provided in the Indenture and upon surrender and cancellation of this Bond. Upon registration of such transfer, a new 2017 Bond or 2017 Bonds of the same series, of authorized denomination or denominations, for the same aggregate principal amount of the same maturity will be issued to the transferee in exchange therefor. This Bond may be exchanged at said office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations of the same series and same maturity, but only in the manner, subject to the limitations and upon payment of the taxes and charges provided in the Indenture. The Trustee shall not be required to register the transfer or exchange of this Bond during the period in which the Trustee is selecting 2017 Bonds for redemption or if this Bond has been selected for redemption. The City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City and the Trustee shall not be affected by any notice to the contrary. A-5 It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have happened or have been performed in due and regular time, form and manner as required by the Indenture and the laws of the State of California and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit under any laws of the State of California, and is not in excess of the amount of 2017 Bonds permitted to be issued under the Indenture. This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee. IN WITNESS WHEREOF, the City has caused this Bond to be executed in its name and on its behalf with the manual or facsimile signature of its Mayor as of this ____ day of ________, 2017. CITY OF ROHNERT PARK By: Its: Mayor A-6 [FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION TO APPEAR ON BONDS] This is one of the Bonds described in the within-mentioned Indenture. Dated: ________ __, 2017 MUFG UNION BANK, N.A., as Trustee By: Its: Authorized Signatory A-7 [FORM OF ASSIGNMENT] For value received the undersigned hereby sells, assigns and transfers unto (Name, Address and Tax Identification or Social Security Number of Assignee) the within registered Bond and hereby irrevocably constitute(s) and appoint(s) __________________ _________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. Signature Guaranteed: Note: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. SYCR DRAFT OF 7/10/17 ESCROW AGREEMENT (2005 INSTALLMENT PURCHASE AGREEMENT – SEWER SYSTEM) By and Between CITY OF ROHNERT PARK and MUFG UNION BANK, N.A., as Escrow Bank Dated as of August 1, 2017 Relating to INSTALLMENT PURCHASE AGREEMENT – SEWER SYSTEM, DATED AS OF MAY 1, 2005, BY AND BETWEEN THE CITY OF ROHNERT PARK AND THE ROHNERT PARK FINANCING AUTHORITY ESCROW AGREEMENT (2005 INSTALLMENT PURCHASE AGREEMENT – SEWER SYSTEM) THIS ESCROW AGREEMENT (2005 INSTALLMENT PURCHASE AGREEMENT – SEWER SYSTEM), dated as of August 1, 2017 (the “Escrow Agreement”), by and between the City of Rohnert Park (the “City”) and MUFG Union Bank, N.A., as escrow bank (the “Escrow Bank”) and as Prior Trustee (as such term is defined below), is entered into in accordance with a resolution of the City Council of the City adopted on July 25, 2017 and in connection with an Indenture of Trust, dated as of August 1, 2017 (the “Indenture”), by and between the City and MUFG Union Bank, N.A., as trustee (the “Trustee”), to prepay all amounts due under the Installment Purchase Agreement – Sewer System, dated as of May 1, 2005 (the “Installment Purchase Agreement”), by and between the City and the Rohnert Park Financing Authority (the “Prior Issuer”). The payments under the Installment Purchase Agreement represent payments relating to the Prior Issuer’s Sewer System Revenue Certificates of Participation, Series 2005 (the “COPs”), which were executed and delivered pursuant to a Trust Agreement, dated as of May 1, 2005 (the “Trust Agreement”), by and between the Prior Issuer and MUFG Union Bank, N.A. (formerly known as Union Bank of California, N.A.), as trustee (the “Prior Trustee”). RECITALS A. The COPs were executed and delivered in the aggregate principal amount of $13,000,000, of which a principal amount of $9,970,000 is currently outstanding. B. The City has determined to issue its Sewer Revenue Refunding Bonds, Series 2017 in the aggregate principal amount of $_____,000 (the “2017 Bonds”), a portion of the proceeds of which will be used to optionally prepay all amounts due under the Installment Purchase Agreement on September 5, 2017 (the “Prepayment Date”) at a price equal to 100% of the outstanding aggregate principal amount thereof, together with interest accrued with respect thereto through the Prepayment Date (the “Prepayment Price”). C. By irrevocably depositing with the Escrow Bank moneys (as permitted by, in the manner prescribed by, and all in accordance with the Installment Purchase Agreement), a portion of which moneys will be used to purchase securities as described on Schedule A hereto (the “Federal Securities”), which Federal Securities satisfy the criteria for defeasance securities set forth in Section 9.01 of the Installment Purchase Agreement and Section 10.01 of the Trust Agreement, provided that the principal of and the interest on the Federal Securities when paid will provide money which, together with the moneys deposited with the Escrow Bank at the same time pursuant to this Escrow Agreement, will be fully sufficient to pay and discharge the Installment Purchase Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the City and the Escrow Bank agree as follows: Deposit of Moneys. The City hereby deposits with the Escrow Bank $______________, comprised of a portion of the net sale proceeds of the 2017 Bonds, and instructs the Prior Trustee to transfer to the Escrow Bank $________, consisting of $______ in the Certificate Payment Fund held by the Prior Trustee under the Trust Agreement, to be held in irrevocable escrow by the Escrow Bank separate and apart from all other securities, investments or moneys on deposit with the Escrow Bank, in a fund hereby created and established and to be known as the “Escrow 2 Fund,” and to be applied solely as provided in this Escrow Agreement. The City represents that such moneys are at least equal to an amount sufficient to purchase the Federal Securities listed in Schedule A hereto and to leave $_______ to be held uninvested as cash. Investment of Moneys. The Escrow Bank acknowledges receipt of the moneys described in Section 1 and agrees immediately to invest such moneys in the Federal Securities listed on Schedule A hereto as directed in Section 1 and to deposit such Federal Securities in the Escrow Fund. The Escrow Bank shall be entitled to rely upon the conclusion of Grant Thornton, LLP (the “Verification Agent”), that the Federal Securities listed on Schedule A hereto mature and bear interest payable in such amounts and at such times as, together with cash on deposit in the Escrow Fund, will be sufficient to pay on the Prepayment Date the Prepayment Price of the Installment Purchase Agreement. Investment of Any Remaining Moneys. At the written direction of the City, the Escrow Bank shall reinvest any other amount of principal and interest, or any portion thereof, received from the Federal Securities prior to the date on which such payment is required for the purposes set forth herein, in non-callable Federal Securities maturing not later than the date on which such payment or portion thereof is required for the purposes set forth in Section 5, at the written direction of the City, as verified in a report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of obligations of political subdivisions to the effect that the reinvestment described in said report will not adversely affect the sufficiency of the amounts of securities, investments and money in the Escrow Fund to pay when due all regularly scheduled payments of interest and principal with respect to the Installment Purchase Agreement on and prior to the Prepayment Date, and to pay on the Prepayment Date the Prepayment Price of the Installment Purchase Agreement, and provided that the City has obtained and delivered to the Escrow Bank an unqualified opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, that such reinvestment will not adversely affect the exclusion from gross income for federal income tax purposes of the interest portion of the Installment Payments (as such term is defined in the Trust Agreement) payable by the City or interest on the 2017 Bonds. Any interest income resulting from investment or reinvestment of moneys pursuant to this Section 3 which is not required for the purposes set forth in Section 5, as verified in the letter of the Verification Agent originally obtained by the City with respect to the prepayment of all amounts payable under the Installment Purchase Agreement or in any other report prepared by an independent certified public accountant or firm of certified public accountants of favorable national reputation experienced in the refunding of tax-exempt obligations of political subdivisions, shall be paid to the City promptly upon the receipt of such interest income by the Escrow Bank. The determination of the City as to whether an accountant qualifies under this Escrow Agreement shall be conclusive. Substitution of Securities. Upon the written request of the City, and subject to the conditions and limitations herein set forth and applicable governmental rules and regulations, the Escrow Bank shall sell, redeem or otherwise dispose of the Federal Securities, provided that there are substituted therefor from the proceeds of the Federal Securities other Federal Securities, but only after the City has obtained and delivered to the Escrow Bank: (i) an unqualified opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, to the effect that the substitution of securities is permitted under the Installment Purchase Agreement and the Trust Agreement and that such reinvestment will not adversely affect the exclusion from gross income for federal income tax purposes of the interest portion of the Installment Payments (as such term is defined in the Trust Agreement) payable by the City or interest with respect to the 2017 Bonds; and (ii) a report by a firm of independent certified public accountants to the effect that the reinvestment described in said report 3 will not adversely affect the sufficiency of the amounts of securities, investments and money in the Escrow Fund to pay when due all regularly scheduled payments of interest and principal with respect to the Installment Purchase Agreement on and prior to the Prepayment Date, and to pay on the Prepayment Date the Prepayment Price of the Installment Purchase Agreement. The Escrow Bank shall not be liable or responsible for any loss resulting from any reinvestment made pursuant to this Escrow Agreement and in full compliance with the provisions hereof. Refunding of the Installment Purchase Agreement. (a) Payment. From the maturing principal of the Federal Securities and the investment income and other earnings thereon and other moneys on deposit in the Escrow Fund, the Escrow Bank shall transfer to the Prior Trustee for payment on the Prepayment Date the Prepayment Price of the Installment Purchase Agreement, all as set forth in Exhibit 1 hereto. (b) Required Notices. The Escrow Bank acknowledges that the prepayment of the Installment Purchase Agreement will cause a corresponding prepayment and defeasance of the COPs. The Escrow Bank hereby further acknowledges that the City has heretofore directed it, in its capacity as the Prior Trustee, to provide notice of prepayment, as required under Section 4.03 of the Trust Agreement, in substantially the form attached hereto as Exhibit 2 and that it has so given such notice of prepayment at least 30 days prior to the Prepayment Date. The form of the notice required to be mailed pursuant to Section 10.01 of the Trust Agreement is substantially in the form attached hereto as Exhibit 3. The Escrow Bank or the Prior Trustee, as appropriate, agrees to mail a notice of defeasance of the COPs in accordance with Section 10.01 of the Trust Agreement, as required to provide for such defeasance. (c) Unclaimed Moneys. Any moneys which remain unclaimed for two years after the Prepayment Date or which is not needed to pay the Prepayment Price shall be repaid by the Escrow Bank to the City. (d) Priority of Payments. The Prior Trustee, on behalf of the owners of the COPs, shall have a first and exclusive lien on all moneys and securities in the Escrow Fund until such moneys and such securities are used and applied as provided in this Escrow Agreement. (e) Termination of Obligation. As provided in the Installment Purchase Agreement, upon the deposit of moneys with the Escrow Bank in the Escrow Fund as set forth in Section 1 hereof and the purchase of the various Federal Securities as provided in Section 2 hereof, all obligations of the City under the Installment Purchase Agreement shall cease, terminate and become void (except for the rights of the Prior Trustee and the obligation of the City to have the Federal Securities and moneys on deposit in the Escrow Fund applied to Installment Payments). Application of Certain Terms of the Installment Purchase Agreement and the Trust Agreement. All of the terms of the Installment Purchase Agreement relating to notices to the Prior Trustee, the Prior Issuer or the City and the making of payments of principal and interest under the Installment Purchase Agreement are incorporated in this Escrow Agreement as if set forth in full herein. The procedures set forth in Article VII of the Trust Agreement relating to the resignation and removal and merger of the Prior Trustee under the Trust Agreement are also incorporated in this Escrow Agreement as if set forth in full herein and shall be the procedures to be followed with respect to any resignation or removal of the Escrow Bank hereunder. 4 Performance of Duties. The Escrow Bank agrees to perform the duties set forth herein and shall have no responsibility to take any action or omit to take any action not set forth herein. Escrow Bank’s Authority to Make Investments. Except as provided in Section 2 hereof, the Escrow Bank shall have no power or duty to invest any funds held under this Escrow Agreement or to sell, transfer or otherwise dispose of the moneys or Federal Securities held hereunder. Indemnity. The City hereby assumes liability for, and hereby agrees (whether or not any of the transactions contemplated hereby are consummated) to indemnify, protect, save and keep harmless the Escrow Bank and its respective successors, assigns, directors, agents, employees and servants, from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses and disbursements (including reasonable legal fees and disbursements) of whatsoever kind and nature which may be imposed on, incurred by, or asserted against, the Escrow Bank at any time (whether or not also indemnified against the same by the City or any other person under any other agreement or instrument, but without double indemnity) in any way relating to or arising out of the execution, delivery and performance of this Escrow Agreement, the establishment hereunder of the Escrow Fund, the acceptance of the funds deposited therein, the acceptance of the funds and securities deposited therein, the retention of the proceeds thereof and any payment, transfer or other application of moneys by the Escrow Bank in accordance with the provisions of this Escrow Agreement; provided, however, that the City shall not be required to indemnify the Escrow Bank against the Escrow Bank’s own negligence or willful misconduct or the negligent or willful misconduct of the Escrow Bank’s respective agents and employees or the breach by the Escrow Bank of the terms of this Escrow Agreement. In no event shall the City or the Escrow Bank be liable to any person by reason of the transactions contemplated hereby other than to each other as set forth in this Section. The indemnities contained in this Section shall survive the termination of this Escrow Agreement. Responsibilities of the Escrow Bank. The Escrow Bank and its respective successors, assigns, agents and servants shall not be held to any personal liability whatsoever, in tort, contract or otherwise, in connection with the execution and delivery of this Escrow Agreement, the establishment of the Escrow Fund, the acceptance of the moneys or securities deposited therein, the retention of the Federal Securities or the proceeds thereof, the sufficiency of the Federal Securities to pay the regularly scheduled payments under the Installment Purchase Agreement through the Prepayment Date and to pay the Prepayment Price of the Installment Purchase Agreement on the Prepayment Date or any payment, transfer or other application of moneys or obligations by the Escrow Bank in accordance with the provisions of this Escrow Agreement or by reason of any non- negligent act, non-negligent omission or non-negligent error of the Escrow Bank made in good faith in the conduct of its duties. The recitals of fact herein shall be taken as the statements of the City, and the Escrow Bank assumes no responsibility for the correctness thereof. The Escrow Bank makes no representation as to the sufficiency of the funds deposited in the Escrow Fund to accomplish the prepayment of all amounts payable under the Installment Purchase Agreement on the Prepayment Date or to the validity of this Escrow Agreement as to the City and, except as otherwise provided herein, the Escrow Bank shall incur no liability with respect thereto. The Escrow Bank shall not be liable in connection with the performance of its duties under this Escrow Agreement except for its own negligence, willful misconduct or default, and the duties and obligations of the Escrow Bank shall be determined by the express provisions of this Escrow Agreement. The Escrow Bank may consult with counsel, who may or may not be counsel to the City, and in reliance upon the written 5 opinion of such counsel shall have full and complete authorization and protection with respect to any action taken, suffered or omitted by it in good faith in accordance therewith. Whenever the Escrow Bank shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering, or omitting any action under this Escrow Agreement, such matter may be deemed to be conclusively established by a certificate signed by an authorized officer of the City. The liability of the Escrow Bank to make the payments required by this Escrow Agreement shall be limited to the moneys in the Escrow Fund. No provision of this Escrow Agreement shall require the Escrow Bank to expend or risk its own funds or otherwise incur any financial liability in the performance or exercise of any of its duties hereunder, or in the exercise of its rights or powers. The Escrow Bank shall not be liable for the accuracy of any calculations provided herein. Any company into which the Escrow Bank may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Escrow Bank may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Escrow Bank without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. The Escrow Bank may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care, and shall not be responsible for any willful misconduct or negligence on the part of any agent, attorney, custodian or nominee so appointed. The Escrow Bank agrees to accept and act upon instructions or directions pursuant to this Escrow Agreement sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Escrow Bank shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Escrow Bank e-mail or facsimile instructions (or instructions by a similar electronic method) and the Escrow Bank in its discretion elects to act upon such instructions, the Escrow Bank’s understanding of such instructions shall be deemed controlling. The Escrow Bank shall not be liable for any losses, costs or expenses arising directly or indirectly from the Escrow Bank’s reliance upon and compliance with such instructions notwithstanding that such instructions conflict or are inconsistent with a subsequent written instruction. The City agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Escrow Bank, including without limitation the risk of the Escrow Bank acting on unauthorized instructions, and the risk of interception and misuse by third parties. The Escrow Bank shall furnish the City with periodic cash transaction statements that include detail for all investment transactions effected by the Escrow Bank or brokers selected by the City. Upon the City’s election, such statements will be delivered via the Escrow Bank’s online service and upon electing such service, paper statements will be provided only upon request. The City waives the right to receive brokerage confirmations of security transactions effected by the Escrow Bank as they occur, to the extent permitted by law. The City further understands that trade confirmations for 6 securities transactions effected by the Escrow Bank will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. Amendments. This Escrow Agreement is made for the benefit of the City, the Prior Issuer and the owners of the COPs, and it shall not be repealed, revoked, altered or amended without the written consent of all such owners, the Escrow Bank and the City; provided, however, but only after the receipt by the Escrow Bank of an opinion of nationally recognized bond counsel that the exclusion from gross income of interest on the 2017 Bonds and the Installment Purchase Agreement will not be adversely affected for federal income tax purposes, the City and the Escrow Bank may, without the consent of, or notice to, such holders, amend this Escrow Agreement or enter into such agreements supplemental to this Escrow Agreement as shall not adversely affect the rights of such holders and as shall not be inconsistent with the terms and provisions of this Escrow Agreement for any one or more of the following purposes: (i) to cure any ambiguity or formal defect or omission in this Escrow Agreement; (ii) to grant to, or confer upon, the Escrow Bank any additional rights, remedies, powers or authority that may lawfully be granted to, or conferred upon, such holders or the Escrow Bank; and (iii) to include under this Escrow Agreement additional funds, securities or properties. The Escrow Bank shall be entitled to rely conclusively upon an unqualified opinion of nationally recognized bond counsel with respect to compliance with this Section, including the extent, if any, to which any change, modification, addition or elimination affects the rights of the Prior Issuer or that any instrument executed hereunder complies with the conditions and provisions of this Section. Term. This Escrow Agreement shall commence upon its execution and delivery and shall terminate on the later to occur of either: (i) the date upon which the Installment Purchase Agreement has been prepaid in accordance with this Escrow Agreement; or (ii) the date upon which no unclaimed moneys remain on deposit with the Escrow Bank and all amounts owed to the Escrow Bank shall have been paid in full. Any unclaimed money which remains in the Escrow Fund for two years from the date upon which the Installment Purchase Agreement has been prepaid in accordance with this Escrow Agreement shall be remitted by the Escrow Bank to the City. Compensation. The City shall pay the Escrow Bank its reasonable fees and expenses as previously agreed to and any other reasonable fees and expenses of the Escrow Bank approved by the City; provided, however, that under no circumstances shall the Escrow Bank be entitled to any lien nor will it assert a lien whatsoever on any moneys or obligations in the Escrow Fund for the payment of fees and expenses for services rendered by the Escrow Bank under this Escrow Agreement. Severability. If any one or more of the covenants or agreements provided in this Escrow Agreement on the part of the City or the Escrow Bank to be performed should be determined by a court of competent jurisdiction to be contrary to law, such covenants or agreements shall be null and void and shall be deemed separate from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Escrow Agreement. Counterparts. This Escrow Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. 7 Governing Law. This Escrow Agreement shall be construed under the laws of the State of California. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Escrow Agreement, shall be a legal holiday or a day on which banking institutions in the City in which is located the principal office of the Escrow Bank are authorized by law to remain closed, such payment may be made or act performed or right exercised on the next succeeding day not a legal holiday or a day on which such banking institutions are authorized by law to remain closed, with the same force and effect as if done on the nominal date provided in this Escrow Agreement, and no interest shall accrue for the period after such nominal date. Notices. Any notice or demand which by any provision of this Escrow Agreement is required or permitted to be given may be given or served by being deposited postage prepaid in a post office letter box, delivered via courier or overnight mail or sent via fax or electronic transmission addressed as follows: If to the Escrow Bank: MUFG Union Bank, N.A. 350 California Street, 11th Floor San Francisco, California 94104 Attention: Corporate Trust Services Fax: 415-273-2492 Email: AccountAdministration-CorporateTrust@unionbank.com with a copy to: CashControlGroup-LosAngeles@unionbank.com If to the City: City of Rohnert Park 130 Avram Avenue Rohnert Park, California 94928 Attention: City Manager Assignment. This Escrow Agreement shall not be assigned by the Escrow Bank or any successor thereto without the prior written consent of the City. S-1 IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be executed by their duly authorized officers and attested as of the date and year first written above. CITY OF ROHNERT PARK By: Mayor ATTEST: City Clerk [SIGNATURES CONTINUED ON NEXT PAGE.] S-2 [SIGNATURE PAGE CONTINUED.] MUFG UNION BANK, N.A., as Escrow Bank and as Prior Trustee By: Authorized Officer SCHEDULE A-1 SCHEDULE A FEDERAL SECURITIES Security Maturity Principal Amount Yield CUSIP EXHIBIT 1-1 EXHIBIT 1 ESCROW FUND PAYMENT SCHEDULE Date Principal Amount Interest Amount Total EXHIBIT 2-1 EXHIBIT 2 CONDITIONAL NOTICE OF PREPAYMENT ROHNERT PARK FINANCING AUTHORITY SEWER SYSTEM REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2005 BASE CUSIP 775392 NOTICE IS HEREBY GIVEN to the owners of the above-captioned certificates of participation (the “COPs”) pursuant to the Trust Agreement, dated as of May 1, 2005 (the “Trust Agreement”), by and between the Rohnert Park Financing Authority (the “Prior Issuer”) and MUFG Union Bank, N.A., formerly known as Union Bank of California, N.A., as trustee (the “Trustee”), that all of the outstanding COPs have been called for prepayment on September 5, 2017 (the “Prepayment Date”). The COPs to be called are as follows: CUSIP Maturity (June 1) Rate Outstanding Amount of COPs Price AM5 2018 3.875% $ 260,000 100% AN3 2019 3.875 270,000 100 AP8 2020 4.000 285,000 100 AQ6 2021 4.000 295,000 100 AR4 2030 5.000 3,340,000 100 AS2 2036 5.000 3,200,000 100 AT0 2036 4.500 2,395,000 100 Assuming the availability of sufficient funds, the COPs will be payable on the Prepayment Date at a Prepayment Price of 100% of the principal amount plus accrued interest with respect thereto to such date (the “Prepayment Price”); the Prepayment Price of the COPs will become due and payable on the Prepayment Date; and, from and after the Prepayment Date, interest on the COPs will cease to accrue, and such COPs will be surrendered to the Trustee. Prepayment of the COPs on the Prepayment Date is conditional upon the receipt by the Trustee on or prior to the Prepayment Date of moneys sufficient to pay the principal of and interest with respect to the COPs and, if such moneys have not been so received, this notice shall be of no force and effect and the Trustee shall not be required to prepay the COPs. To receive payment on the Prepayment Date, owners of the COPs should present and surrender said COPs on the Prepayment Date at the address of the Trustee set forth below: Hand Delivery: MUFG Union Bank, N.A. 445 S. Figueroa Street Suite 401 Los Angeles, California 90071 Attention: Corporate Trust Redemptions Mailing Address: MUFG Union Bank, N.A. 445 S. Figueroa Street Suite 401 Los Angeles, California 90071 Attention: Corporate Trust Redemptions EXHIBIT 2-2 If the Owner of any COP fails to deliver such COP to the Trustee on the Prepayment Date, such COP shall nevertheless be deemed prepaid on the Prepayment Date and the Owner of such COP shall have no rights in respect thereof except to receive payment of the Prepayment Price from funds held by the Trustee for such payment. The Trustee may be obligated to withhold a percentage of the prepayment price from the owner of any COP who fails to furnish the Trustee with a valid taxpayer identification number or a certification that such owner is not subject to backup withholding. Owners of Bonds who wish to avoid the application of these provisions should submit a completed IRS Form W-9 when presenting their COPs. Note: The City and the Trustee shall not be responsible for the selection or use of the CUSIP numbers selected, nor is any representation made as to their correctness in the notice or as printed on any COP. They are included solely for the convenience of the holders. By: MUFG UNION BANK, N.A., as Trustee Dated this ____ day of _________, 2017. EXHIBIT 3-1 EXHIBIT 3 NOTICE OF DEFEASANCE ROHNERT PARK FINANCING AUTHORITY SEWER SYSTEM REVENUE CERTIFICATES OF PARTICIPATION, SERIES 2005 BASE CUSIP 775392 Notice is hereby given to the owners the outstanding above-captioned certificates of participation (collectively, the “COPs”) that: (i) there have been deposited on the date hereof with MUFG Union Bank, N.A., as trustee (the “Trustee”) under the Trust Agreement, dated as of May 1, 2005 (the “Trust Agreement”), by and between the Rohnert Park Financing Authority (the “Prior Issuer”) and the Trustee, moneys and Federal Securities as permitted by the Trust Agreement that are sufficient and available to prepay the COPs on September 5, 2017 at a price equal to 100% of the aggregate principal amount of the COPs plus accrued interest with respect thereto; (ii) the COPs are deemed to be paid; (iii) the lien of the Trust Agreement has been released with respect to the COPs in accordance with Section 10.01 thereof; (iv) the right, title and interest of the City of Rohnert Park (the “City”) under the Installment Purchase Agreement, dated as of May 1, 2005 (the “Installment Purchase Agreement”), by and between the City and the Prior Issuer, and the obligations of the City under the Installment Purchase Agreement have ceased, terminated, become void and been completely discharged and satisfied; and (v) all obligations of the City, the Prior Issuer and the Trustee under the Trust Agreement with respect to the COPs have ceased, terminated and become void. In addition, all obligations of the City under the Continuing Disclosure Certificate executed with respect to the COPs have ceased and terminated. The COPs are described below: CUSIP Maturity (June 1) Rate Outstanding Amount of COPs Price AM5 2018 3.875% $ 260,000 100% AN3 2019 3.875 270,000 100 AP8 2020 4.000 285,000 100 AQ6 2021 4.000 295,000 100 AR4 2030 5.000 3,340,000 100 AS2 2036 5.000 3,200,000 100 AT0 2036 4.500 2,395,000 100 No representation is made as to the correctness of the CUSIP number either as printed on any COP or as contained herein and any error in the CUSIP number shall not affect the validity of the proceedings for redemption of the COPs. Dated this ____ day of _________, 2017. MUFG UNION BANK, N.A., as Trustee Attachment 4 Jones Hall Draft 7-10-17 $[____] CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2017 PURCHASE CONTRACT [_____], 2017 City of Rohnert Park 130 Avram Avenue Rohnert Park, California 94928 Ladies and Gentlemen: The undersigned, Stifel, Nicolaus & Company, Incorporated (the “Underwriter”), offers to enter into this Purchase Contract (this “Purchase Contract”) with the City of Rohnert Park (the “City”), which will be binding upon the City and the Underwriter upon the acceptance hereof by the City. This offer is made subject to its acceptance by the City by execution of this Purchase Contract and its delivery to the Underwriter on or before 5:00 p.m., California time, on the date hereof. All terms used herein and not otherwise defined shall have the respective meanings given to such terms in the Indenture (as hereafter defined). 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties and agreements hereinafter set forth, the Underwriter hereby agrees to purchase from the City for offering to the public, and the City hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of the $[____].00 aggregate principal amount of the above-captioned bonds (the “Bonds”), at a purchase price equal to $[_____], being the aggregate principal amount thereof less an underwriter’s discount of $[_______] and plus a net original issue premium of $[______]. 2. Description of Bonds; Purpose of the Bonds; Security for the Bonds. (a) Description of the Bonds. The Bonds shall be issued pursuant to an Indenture of Trust, dated as of August 1, 2017 (the “Indenture”) by and between the City and MUFG Union Bank, N.A., as trustee (the “Trustee”), and pursuant to Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the “Bond Law”). The Bonds shall be as described in the Indenture and the Official Statement (described below). (b) Purpose of the Bonds. In order to finance certain public capital improvements to the City’s sewer system (the “Sewer System”), the City and the Rohnert Park Financing Authority, as the prior issuer (the “Authority”) previously entered into an Installment Purchase Agreement - Sewer System, dated as of May 1, 2005 (the “2005 Installment Purchase Agreement”), and caused execution and delivery of the Authority’s Sewer System Revenue Certificates of Participation, Series 2005 (the “2005 Certificates”). 2 The purpose of issuing the Bonds is to provide a source of funds to refinance the City’s obligations under the 2005 Installment Purchase Agreement, and to prepay the 2005 Certificates. In connection with the refinancing of the 2005 Installment Purchase Agreement and the 2005 Certificates, the City will cause a portion of the proceeds of the Bonds and other available moneys to be deposited into an escrow fund held by MUFG Union Bank, N.A., as escrow agent (the “Escrow Agent”), pursuant to an Escrow Agreement (2005 Installment Purchase Agreement - Sewer System), dated as of August 1, 2017 (the “2005 Escrow Agreement”). (c) Security for the Bonds. Under the Indenture, the Bonds are secured by and payable from “System Net Revenues” and amounts on deposit in certain funds and accounts established by the Indenture. (d) Additional Bonds. The City may issue additional bonds on a parity with the Bonds, in accordance with Section 6.14 of the Indenture. 3. Public Offering. The Underwriter agrees to make a bona fide public offering of all the Bonds initially at the public offering prices (or yields) set forth on Appendix A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth on Appendix A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. The Bonds will be subject to redemption as set forth on Appendix A. 4. Preliminary Official Statement; Delivery of Official Statement; Continuing Disclosure Certificate. (a) Preliminary Official Statement. The City has delivered or caused to be delivered to the Underwriter prior to the execution of this Purchase Contract, copies of the Preliminary Official Statement relating to the Bonds (the “Preliminary Official Statement”). Such Preliminary Official Statement is the official statement deemed final by the City for purposes of the Rule, as defined herein, and approved for distribution by resolution of the City Council of the City. The City executed and delivered to the Underwriter a certification to such effect in the form attached hereto as Appendix B. (b) Delivery of Official Statement. Within seven (7) business days from the date hereof, or such earlier date identified by the Underwriter to meet its obligation under Municipal Securities Rulemaking Board Rule G-32, the City shall deliver to the Underwriter a final Official Statement, executed on behalf of the City by authorized representatives of such entities and dated the date of delivery thereof to the Underwriter, which shall include information permitted to be omitted by paragraph (b)(1) of the Rule and with such other amendments or supplements as shall have been approved by the City and the Underwriter (the “Final Official Statement”) and such additional conformed copies thereof as the Underwriter may reasonably request in sufficient quantities to comply with the Rule and to meet potential customer requests for copies of the Official Statement. The Preliminary Official Statement and the Final Official Statement, including the cover pages, the appendices thereto and all information incorporated therein by reference are hereinafter referred collectively to as the “Official Statement.” 3 The Underwriter agrees to comply with the Rule and applicable rules of the Municipal Securities Rulemaking Board with respect to the Preliminary Official Statement and the Official Statement. (c) Continuing Disclosure Certificate. In order to enable the Underwriter to comply with Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”), the City will execute and deliver a Continuing Disclosure Certificate (the “Continuing Disclosure Certificate”). 5. The Closing. At 8:00 a.m., California time, on ___________, 2017, or at such other time or on such earlier or later business day as shall have been mutually agreed upon by the City and the Underwriter (the “Closing Date”), the City will deliver (i) the Bonds in definitive form to the Underwriter in such city as the Underwriter shall request, and (ii) the closing documents hereinafter mentioned at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, (“Bond Counsel”) or another place to be mutually agreed upon by the City and the Underwriter. The Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof in immediately available funds to the order of the Trustee on behalf of the City. This payment and delivery, together with the delivery of the aforementioned documents, is herein called the “Closing.” The Bonds will be delivered in such denominations and deposited in the account or accounts specified by the Underwriter pursuant to written notice given by the Underwriter not later than five business days prior to Closing. The Bonds will be made available to the Underwriter for inspection and packaging not less than 48 hours prior to the Closing. 6. City Representations, Warranties and Covenants. The City represents, warrants and covenants to the Underwriter that: (a) Due Organization, Existence and Authority. The City is a general law city and municipal corporation, duly organized and existing under the Constitution and the laws of the State, with full right, power and authority to execute, deliver and perform its obligations under this Purchase Contract, the Continuing Disclosure Certificate, the Indenture and the 2005 Escrow Agreement (collectively, the “City Documents”) and to carry out and consummate the transactions contemplated by the City Documents and described in the Official Statement. (b) Due Authorization and Approval. By all necessary official action of the City, the City has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations contained in, the Preliminary Official Statement, the Official Statement and the City Documents and as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered, the City Documents will constitute the legally valid and binding obligations of the City enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally. The City has complied, and will at the Closing be in compliance in all respects, with the terms of the City Documents. (c) Official Statement Accurate and Complete. The Preliminary Official Statement (excluding information about The Depository Trust Company and its book-entry only system, as to which no opinion is expressed) was as of its date, and the Official Statement (excluding information about The Depository Trust Company and its book-entry only system, as to which no opinion is expressed) is, and at all times subsequent to the date of the Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary 4 Official Statement (excluding information about The Depository Trust Company and its book- entry only system, as to which no opinion is expressed) contained and the Official Statement (excluding information about The Depository Trust Company and its book-entry only system, as to which no opinion is expressed) contains, and up to and including the Closing will contain, no misstatement of any material fact and does not, and up to and including the Closing will not, omit any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading. (d) Underwriter’s Consent to Amendments and Supplements to Official Statement. Until the date which is twenty-five (25) days after the end of the underwriting period (as defined above), if any event shall occur of which the City is aware, as a result of which it may be necessary to supplement the Official Statement in order to make the statements in the Official Statement (excluding information about The Depository Trust Company and its book-entry only system, as to which no opinion is expressed), in light of the circumstances existing at such time, not misleading, the City shall forthwith notify the Underwriter of any such event of which it has knowledge and shall cooperate fully in furnishing any information available to it for any supplement to the Official Statement necessary, in the Underwriter’s opinion, so that the statements therein as so supplemented will not be misleading in light of the circumstances existing at such time and the City shall promptly furnish to the Underwriter a reasonable number of copies of such supplement. (e) No Breach or Default. As of the time of acceptance hereof and as of the time of the Closing, except as otherwise disclosed in the Official Statement, the City is not and will not be in breach of or in default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City is a party or is otherwise subject, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument which breach or default would materially adversely affect the security of the Bonds or the City’s performance under the City Documents; and, as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of the City Documents and compliance with the provisions of each of such agreements or instruments do not and will not conflict with or constitute a breach of or default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, license, permit, trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the City (or any of its officers in their respective capacities as such) is subject, or by which it or any of its properties is bound; nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may be provided by the City Documents. (f) No Litigation. As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body, pending or threatened (i) in any way questioning the corporate existence of the City or the titles of the officers of the City to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or the collection of System Net Revenues pledged under the Indenture, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby, or contesting the exclusion of the interest on the Bonds from taxation; (iii) which may result in any 5 material adverse change relating to the City or relating to the financial condition of the City; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of this sentence. (g) Preliminary Official Statement. For purposes of the Rule, the City has heretofore deemed final the Preliminary Official Statement prior to its use and distribution by the Underwriter, except for the information specifically permitted to be omitted by paragraph (b)(l) of the Rule. (h) Continuing Disclosure. Except as disclosed in the Preliminary Official Statement and the Official Statement, the City has not failed in any material respect to comply with any undertaking under the Rule in the past five years. (i) Representation to Underwriter. Any certificate signed by any official of the City and delivered to the Underwriter shall be deemed to be a representation and warranty by the City to the Underwriter as to the statements made therein. (j) Relationship to Underwriter. The City acknowledges and agrees that: (i) the purchase and sale of the Bonds pursuant to this Purchase Contract is an arm’s-length commercial transaction between the City and the Underwriter; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as a principal and is not acting as a Municipal Advisor (as defined in Section 15B of The Securities Exchange Act of 1934, as amended); (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the City with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the City on other matters); (iv) the City has consulted its own legal, accounting, tax, financial and other advisors to the extent it has deemed appropriate; (v) the Underwriter has financial and other interests that may differ from and be adverse to those of the City, and (vi) the Underwriter has provided the City with certain disclosures required under the rules of the MSRB. (k) Cooperation with Blue Sky. The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate; provided, however, that the City shall not be required to register as a dealer or broker or foreign corporation in any such state or jurisdiction or consent to service of process therein. (l) Articles XIIIC and XIIID. The rates, fees and charges for the services provided by the City’s Sewer System have been established in a manner that complies in all material respects with the applicable requirements of Articles XIIIC and XIIID of the California Constitution and other applicable laws of the State of California; (m) Consent, waivers and approvals. No additional authorization, approval, consent, waiver or any other action by any person, board or body, public or private, not previously 6 obtained is required as of the date of the Closing for the City to enter into the City Documents, or to perform its obligations thereunder. 7. Closing Conditions. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties and covenants herein and the performance by the City of its obligations hereunder, both as of the date hereof and as of the date of the Closing. The Underwriter’s obligations under this Purchase Contract to purchase and pay for the Bonds shall be subject to the following additional conditions: (a) Bring-Down Representation. The representations, warranties and covenants of the City contained herein shall be true, complete and correct at the date hereof and at the time of the Closing, as if made on the date of the Closing. (b) Executed Agreements and Performance Thereunder. At the time of the Closing (i) the City Documents shall be in full force and effect, and shall not have been amended, modified or supplemented except with the written consent of the Underwriter and (ii) there shall be in full force and effect such ordinances and resolutions (the “Resolutions”) as, in the opinion of Bond Counsel, shall be necessary in connection with the transactions contemplated by the Official Statement and the City Documents. (c) Termination Events. The Underwriter shall have the right to terminate this Purchase Contract, without liability therefor, by notification to the City if at any time at or prior to the Closing: (i) any event shall occur which causes any statement contained in the Official Statement to be materially misleading or results in a failure of the Official Statement to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading; or (ii) the marketability of the Bonds or the market price thereof, in the reasonable opinion of the Underwriter, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of this Purchase Contract in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any Federal or State court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority materially adversely affecting the federal or State tax status of the City, or the interest on bonds or notes or obligations of the general character of the Bonds; or 7 (iii) any legislation, ordinance, rule or regulation shall be introduced in, or be enacted by any governmental body, department or agency of the State, or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered which, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or (iv) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall be issued or made to the effect that the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including all underlying obligations, as contemplated hereby or by the Official Statement, is in violation or would be in violation of, or that obligations of the general character of the Bonds, or the Bonds, are not exempt from registration under, any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, or that the Indenture needs to be qualified under the Trust Indenture Act of 1939, as amended and as then in effect; or (v) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which restrictions materially adversely affect the Underwriter’s ability to trade the Bonds; or (vi) a general banking moratorium shall have been established by federal or State authorities; or (vii) there shall have occurred any outbreak of hostilities or other local, national or international calamity or crisis, or a default with respect to the debt obligations of, or the institution of proceedings under the federal bankruptcy laws by or against, any state of the United States or agency thereof, or any city in the United States having a population of over one million, the effect of which on the financial markets of the United States will be such as in the Underwriter’s reasonable judgment, makes it impracticable for the Underwriter to market the Bonds or enforce contracts for the sale of the Bonds; or (viii) any rating of the Bonds shall have been downgraded, suspended or withdrawn by a national rating service, which, in the Underwriter’s reasonable opinion, materially adversely affects the marketability or market price of the Bonds; or (ix) the commencement of any action, suit or proceeding described in Paragraphs 6(f) or 7(f) hereof which, in the judgment of the Underwriter, materially adversely affects the market price of the Bonds; or (x) there shall be in force a general suspension of trading on the New York Stock Exchange; or (xi) there shall have been any materially adverse change in the affairs of the City which in the Underwriter’s reasonable judgment materially adversely affects the ability of the Underwriter to market the Bonds. 8 (d) Closing Documents. At or prior to the Closing, the Underwriter shall receive with respect to the Bonds (unless the context otherwise indicates) the following documents: (1) Bond Opinion. An approving opinion of Bond Counsel dated the date of the Closing and substantially in the form appended to the Official Statement, together with a letter from such counsel, dated the date of the Closing and addressed to the Underwriter, to the effect that the foregoing opinion addressed to the City may be relied upon by the Underwriter to the same extent as if such opinion were addressed to them. (2) Supplemental Opinion. A supplemental opinion or opinions of Bond Counsel addressed to the Underwriter, in form and substance acceptable to the Underwriter, and dated the date of the Closing substantially to the following effect: (i) The City has duly and validly executed the Purchase Contract, and the Purchase Contract constitutes the legal, valid and binding agreement of the City, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and to the exercise of judicial discretion in appropriate cases; (ii) The statements contained in the Official Statement on the cover page and under the captions "INTRODUCTION," “THE 2017 BONDS (other than information relating to DTC and its book-entry only system, as to which no opinion need be expressed),” “SECURITY FOR THE 2017 BONDS,” “TAX MATTERS,” and in Appendices B and C thereto, insofar as such statements expressly summarize certain provisions of the Bonds, the Indenture, and Bond Counsel’s final approving opinion relating to the Bonds, are accurate in all material respects; and (iii) The Bonds are exempt from registration under the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended. (3) City Attorney Opinion. An opinion of the City Attorney, dated the date of the Closing and addressed to the Underwriter, in form and substance acceptable to the Underwriter, substantially to the following effect: (i) The City is a general law city and municipal corporation, duly organized and validly existing under the Constitution and the laws of the State of California; (ii) The resolution of the City (the “City Resolution”) approving and authorizing the execution and delivery of the City Documents and approving the Official Statement, was duly adopted at a meeting of the City Council called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout and the City Resolution is in full force and effect and has not been modified, amended or rescinded; (iii) The City Documents have been duly authorized, executed and delivered by the City and constitute the legal, valid and binding agreements of the City enforceable against the City in accordance with their respective terms, 9 except as enforcement may be limited by bankruptcy, insolvency, reorganization moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally; (iv) To the knowledge of the City Attorney, the execution and delivery of the City Documents and compliance with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with, or constitute on the part of the City a breach of or default under, any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject; (v) To the knowledge of the City Attorney, except as otherwise disclosed in the Official Statement, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, governmental agency or body, pending or threatened in writing against the City, challenging the creation, organization or existence of the City, or the validity of the City Documents or seeking to restrain or enjoin the City’s obligations under the City Documents or in any way contesting or affecting the validity of the City Documents or any of the transactions referred to therein or contemplated thereby or contesting the authority of the City to enter into or perform its obligations under any of the City Documents, or under which a determination adverse to the City would have a material adverse effect upon the financial condition or the revenues of the City, or which, in any manner, questions the right of the City to issue the Bonds or to use the System Net Revenues for repayment of the Bonds; and [subject of UW/CA discussion: (vi) The Official Statement (excluding financial, engineering and statistical data; forecasts, projections, estimates, assumptions and expressions of opinions, including without limitation, the descriptions of the City’s finances and operation; information relating to the Depository Trust Company and the book-entry only system; as to all of which the City Attorney expresses no view)) was as of its date, and up to and including the Closing Date, is true and correct in all material respects, and the Official Statement (excluding financial, engineering and statistical data; forecasts, projections, estimates, assumptions and expressions of opinions, including without limitation, the descriptions of the City’s finances and operation; information relating to the Depository Trust Company and the book-entry only system; as to all of which the City Attorney expresses no view) contains, and up to and including the Closing Date will contain, no misstatement of any material fact and does not, up to and including the Closing Date will not, omit any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading.] The City Attorney opinion may provide that (i) the opinions may be affected by actions taken or events occurring after the date of the opinion, (ii) as to questions of fact material to its opinions, the City Attorney has relied upon representations by the principal officers of the City, (iii) whenever a statement in the City Attorney opinion is qualified by "to the knowledge of the City Attorney" or similar statement, it is intended to indicate that, during the course of the City Attorney’s representation of the City in connection with the transactions described in the City Attorney opinion, no information that would give the City 10 Attorney current actual knowledge of the inaccuracy of such statement has come to its attention, (iv) except with respect to paragraph (v) above, with respect to which the City Attorney shall have performed a search in Westlaw for the Sonoma County Superior Court and the electronic dockets for the United States District Court, Northern District of California, the California Court of Appeal, 1st Appellate District and the United States Court of Appeals for the Ninth Circuit, the City Attorney has not undertaken any independent investigation to determine the accuracy of such statement, and any documents and matters described in the City Attorney opinion and in the preparation of the City Attorney opinion letter should not be regarded as such an investigation and (v) no opinion is expressed with regard to any laws other than laws of the State of California, and no opinion is expressed as to matters covered by any tax or regulation or, except with respect to paragraph (vi) above, any securities law or regulation. (4) Disclosure Counsel Letter. A letter of Stradling Yocca Carlson & Rauth, a Professional Corporation (“Disclosure Counsel”), dated the date of the Closing, addressed to the Underwriter substantially to the following effect: On the basis of the information made available to such firm in the course of its participation in the preparation of the Official Statement (but without having undertaken to determine or verify independently, or assuming any responsibility for the accuracy, completeness or fairness of any of the statements contained in the Official Statement), no facts have come to the attention of the personnel in such firm directly involved in rendering legal advice and assistance to the City in connection with the preparation of the Official Statement which cause such firm to believe that the Official Statement as of its date (excluding therefrom financial, engineering and statistical data; forecasts, projections, estimates, assumptions and expressions of opinions, including without limitation, the descriptions of the City’s finances and operation; information relating to the Depository Trust Company and the book-entry only system; as to all of which such firm expresses no view as Disclosure Counsel) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (5) Trustee Counsel Opinion. The opinion of counsel to the Trustee and the Escrow Agent, dated the date of the Closing, addressed to the Underwriter, to the effect that: (i) The Trustee is a national banking association, duly organized and validly existing under the laws of the United States of America, having full power to enter into, accept and administer the trusts created under the Indenture and the 2005 Escrow Agreement (the “Trustee Agreements”). (ii) The Trustee Agreements have been duly authorized, executed and delivered by the Trustee, and constitute the legal, valid and binding obligations of the Trustee, enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles, if equitable remedies are sought. (iii) Except as may be required under Blue Sky or other securities laws of any state, no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has 11 not been obtained is or will be required for the execution and delivery of the Indenture, or the consummation of the transactions contemplated by the Indenture. (6) Underwriter's Counsel Opinion. An opinion of Jones Hall, A Professional Law Corporation, counsel to the Underwriter, dated the Closing Date, and addressed to the Underwriter, to the effect that: (i) during the course of serving as Underwriter's Counsel in connection with the issuance of the Bonds and without having undertaken to determine independently or assuming any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement, no information came to the attention of the attorneys in such firm rendering legal services in connection with the issuance of the Bonds that would lead them to believe that the Official Statement (excluding therefrom the financial statements, any financial or statistical data, or forecasts, charts, numbers, estimates, projections, assumptions or expressions of opinion included in the Official Statement, information regarding The Depository Trust Company and its book- entry only system, and the appendices to the Official Statement as to which no opinion need be expressed), as of the date thereof or the Closing Date, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (ii) the Bonds are exempt from registration pursuant to the Securities Act of 1933, as amended. (7) Trustee/Escrow Agent’s Certificate. A certificate of the Trustee/Escrow Agent, dated the date of Closing, in form and substance acceptable the Underwriter, to the following effect: (i) The Trustee is duly organized and existing as a national banking association in good standing under the laws of the United States of America, having the full power and authority to enter into and perform its duties under the Trustee Agreements; (ii) The Trustee has duly and validly executed the Trustee Agreements, and the Trustee Agreements constitute the legal, valid and binding agreement of the Trustee, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and to the exercise of judicial discretion in appropriate cases; (iii) To the Trustee’s best knowledge after due inquiry, there is no action, suit, proceeding or investigation, at law or in equity, before or by any court or governmental agency, public board or body served on the Trustee or threatened against the Trustee which in the reasonable judgment of the Trustee would affect the existence of the Trustee or in any way contesting or affecting the validity or enforceability of the Trustee Agreements or contesting the powers of the Trustee or its authority to enter into, accept and perform its obligations under the Trustee Agreements. 12 (8) City Certificate. A certificate of the City, dated the date of the Closing, signed on behalf of the City by a duly authorized officer of the City to the effect that: (i) The representations, warranties and covenants of the City contained herein are true and correct in all material respects on and as of the date of the Closing as if made on the date of the Closing and the City has complied with all of the terms and conditions of this Purchase Contract required to be complied with by the City at or prior to the date of the Closing; and (ii) No event affecting the City has occurred since the date of the Official Statement which has not been disclosed therein or in any supplement or amendment thereto which event should be disclosed in the Official Statement in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (9) Documents. An original executed copy of the Purchase Contract and of each of the City Documents. (10) Resolutions. A certified copy of the City Resolution approving the sale of the Bonds by the City. (11) Form 8038-G. Evidence that the federal tax information form 8038-G has been prepared for filing. (12) Nonarbitrage Certificate. A tax and nonarbitrage certificate in form satisfactory to Bond Counsel. (13) Continuing Disclosure Certificate: A Continuing Disclosure Certificate executed by the City in order to assist the Underwriter’s compliance with Rule 15c2-12. (14) Ratings. Evidence that the Bonds have been given the ratings shown in the Official Statement. (15) Defeasance Opinion. A defeasance opinion of Bond Counsel in form and substance acceptable to the Underwriter. (16) [Escrow Verification. A report satisfactory to the Underwriter of an independent nationally recognized certified public accountant verifying the sufficiency of amounts deposited into the escrow fund established under the Escrow Agreement to accomplish the proposed defeasance and refinancing of the City’s obligations under the 2005 Installment Purchase Agreement.] (17) Historical Continuing Disclosure Compliance. Evidence satisfactory to the Underwriter of the information about the City’s historical continuing disclosure compliance set forth in the Preliminary Official Statement and the final Official Statement. (18) Additional Documents. Such additional certificates, instruments and other documents as Bond Counsel, the City or the Underwriter may reasonably deem necessary. 13 If the City shall be unable to satisfy the conditions contained in this Purchase Contract, or if the obligations of the Underwriter shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and neither the Underwriter nor the City shall be under further obligation hereunder, except as further set forth in Section 10 hereof. 8. Establishment of Issue Price. (a) The Underwriter agrees to assist the City in establishing the issue price of the Bonds and shall execute and deliver to the City at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Appendix C, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the City and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds. [All actions to be taken by the City under this section to establish the issue price of the Bonds may be taken on behalf of the City by the City’s municipal advisor identified herein and any notice or report to be provided to the City may be provided to the City’s municipal advisor.] (b) The City will treat the first price at which 10% of each maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Contract, the Underwriter shall report to the City the price or prices at which it has sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the City the prices at which it sells the unsold Bonds of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until the 10% test has been satisfied as to the Bonds of that maturity or until all Bonds of that maturity have been sold to the public. (c) The Underwriter confirms that any selling group agreement and any retail distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker-dealer that is a party to such retail distribution agreement, as applicable, to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allotted to it until it is notified by the Underwriter that either the 10% test has been satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the public and (B) comply with the hold-the-offering-price rule, if applicable, in each case if and for so long as directed by the Underwriter. The City acknowledges that, in making the representation set forth in this subsection, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the hold-the- offering-price rule, if applicable, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a retail distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the hold-the-offering-price rule, if applicable, as set forth in the retail distribution agreement and the related pricing wires. The City further acknowledges that the Underwriter shall not be liable for the failure of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a retail distribution agreement, to comply with its corresponding agreement regarding the hold-the-offering-price rule as applicable to the Bonds. 14 (d) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to the Underwriter shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: (i) “public” means any person other than an underwriter or a related party, (ii) “underwriter” means (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the public), (iii) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) at least 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other), and (iv) “sale date” means the date of execution of this Purchase Contract by all parties. 9. Expenses. The Underwriter shall be under no obligation to pay and the City shall pay or cause to be paid the expenses incident to the performance of the obligations of the City hereunder including but not limited to (a) the costs of the preparation and printing, or other reproduction (for distribution on or prior to the date hereof) of the City Documents and the cost of preparing, printing, issuing and delivering the definitive Bonds, (b) the fees and disbursements of any counsel, financial advisors, accountants or other experts or consultants retained by the City, (c) the fees and disbursements of Bond Counsel and its financial advisor (if any), (d) the fees and disbursements of Disclosure Counsel, (e) the cost of preparation and printing of the Preliminary Official Statement and any supplements and amendments thereto and the cost of preparation and printing of the Official Statement, including the requisite number of copies thereof for distribution by the Underwriter, and (f) charges of rating agencies for the rating of the Bonds. The Underwriter shall pay and the City shall not be under an obligation to pay all expenses incurred by it, the fees and expenses of its counsel, the CUSIP Service Bureau charge for the assignment of said numbers, and the costs of qualifying the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate. 15 10. Notice. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing to such entity at the address set forth above. Any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated, One Montgomery Street, 35th Floor, San Francisco, CA 94104, Attention: Sara Brown. 11. Entire Agreement. This Purchase Contract, when accepted by the City, shall constitute the entire agreement between the City and the Underwriter and is made solely for the benefit of the City and the Underwriter (including the successors or assigns of any Underwriter). No other person shall acquire or have any right hereunder by virtue hereof, except as provided herein. All the City’s representations, warranties and agreements in this Purchase Contract shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter, until the earlier of (a) delivery of and payment for the Bonds hereunder, and (b) any termination of this Purchase Contract. 12. Counterparts. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 13. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. 14. State of California Law Governs. The validity, interpretation and performance of this Purchase Contract shall be governed by the laws of the State. 15. No Assignment. The rights and obligations created by this Purchase Contract shall not be subject to assignment by the Underwriter or the City without the prior written consent of the other parties hereto. STIFEL, NICOLAUS & COMPANY, INCORPORATED By: Authorized Representative Accepted as of the date first stated above: CITY OF ROHNERT PARK By: Authorized Representative Time of Execution: Pacific Time A-1 APPENDIX A Maturity Schedule Maturity Date Principal Amount Interest Rate Yield Price Redemption Provisions Optional Redemption. In accordance with the Indenture, the Bonds with stated maturities on or after [June] 1, 20[__] are subject to redemption prior to their respective stated maturities, as a whole or in part on [June] 1, 20[__], or any date thereafter, as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee), and by lot within each maturity in integral multiples of $5,000 at a Redemption Price equal to the principal amount of the Bonds to be redeemed, together with accrued interest to the date of redemption, without premium. Extraordinary Redemption. In accordance with the Indenture, the Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date from such maturities as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience of the Trustee) prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds, upon the terms and conditions of, and as provided for in, the Indenture, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. Mandatory Sinking Payment Redemption. The Bonds maturing on June 1, ____, shall be subject to mandatory redemption in part on June 1, ____, and on each June 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date fixed for redemption, without premium, from sinking payments as follows: Redemption Date (June 1) Sinking Payments The amounts in the foregoing table will be reduced to the extent practicable so as to maintain level debt service on the Bonds, as a result of any prior partial redemption of the Bonds pursuant to an optional redemption or extraordinary redemption. B-1 APPENDIX B CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2017 RULE 15c2-12 CERTIFICATE The undersigned hereby certifies to Stifel, Nicolaus & Company, Incorporated (the “Underwriter”) that I am an authorized representative of the City of Rohnert Park (the “City”), and as such, I am authorized to execute and deliver this Certificate and further hereby certify and reconfirm on behalf of the City to the Underwriter as follows: (1) This Certificate is delivered to enable the Underwriter to comply with Securities and Exchange Commission Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”) in connection with the offering and sale of the above-captioned bonds (the “Bonds”). (2) In connection with the offering and sale of the Bonds, there has been prepared a Preliminary Official Statement, setting forth information concerning the Bonds and the City (the “Preliminary Official Statement”). (3) As used herein, “Permitted Omissions” means the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, ratings and other terms of the Bonds depending on such matters and the identity of the underwriter(s), all with respect to the Bonds. (4) The Preliminary Official Statement is, except for the Permitted Omissions, deemed final within the meaning of the Rule and has been, and the information therein is, accurate and complete except for the Permitted Omissions. IN WITNESS WHEREOF, the undersigned has executed this certificate as of this [___] day of [____], 2017. CITY OF ROHNERT PARK By: Authorized Representative C-1 APPENDIX C $[____] CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2017 ISSUE PRICE CERTIFICATE The undersigned, on behalf of Stifel, Nicolaus & Company, Incorporated (“Stifel”) hereby certifies as set forth below with respect to the sale and issuance of the above-captioned obligations (the “Bonds”). 1. Sale of the Bonds. As of the date of this certificate, for each Maturity of the Bonds, the first price at which at least 10% of such Maturity of the Bonds was sold to the Public is the respective price listed in Schedule A. 2. Defined Terms. (a) Issuer means the City of Rohnert Park. (b) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities. (c) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (d) Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Stifel’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Stradling Yocca Carlson & Rauth, a Professional Corporation in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds. C-2 STIFEL, NICOLAUS & COMPANY, INCORPORATED By:___________________________________ Name:________________________________ Dated: _____, 2017 Schedule A Page 1 SCHEDULE A SALE PRICES (Attached) Stradling Yocca Carlson & Rauth Draft of 7/20/17 Th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t a n d t h e i n f o r m a t i o n c o n t a i n e d h e r e i n a r e s u b j e c t t o c o m p l e t i o n o r a m e n d m e n t . T h e s e s e c u r it i e s m a y n o t b e s o l d , n o r m a y o f f e r s t o b u y t h e m b e a c c e p t e d , p r i o r t o th e t i m e t h e O f f i c i a l S t a t e m e n t i s d e l i v e r e d i n f i n a l f o r m . U n d e r n o c i r c u m s t a n c e s s h a l l t h i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t c o n s t i t u t e a n o f f e r t o s e l l o r t h e s o l i c i t a t i o n o f a n o f f er t o b u y , n o r s h a l l t h e r e be a n y s a l e o f , t h e s e s e c u r i t i e s i n a n y j u r i s d i c t i o n i n w h i c h s u c h o f f e r , s o l i c i t a t i o n o r s a l e w o u l d b e un l a w f u l . PRELIMINARY OFFICIAL STATEMENT DATED JULY __, 2017 NEW ISSUE – BOOK ENTRY ONLY RATINGS: Insured: S&P: “___” Underlying: S&P: “__” See the caption “RATINGS” In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2017 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income tax. See the caption “TAX MATTERS.” $____________* CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2017 Dated: Date of Issuance Due: June 1, as set forth on the inside front cover page The 2017 Bonds are being issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Purchasers of the 2017 Bonds will not receive securities representing their beneficial ownership in the 2017 Bonds purchased. Interest on the 2017 Bonds is payable on December 1, 2017 and each June 1 and December 1 thereafter, until the maturity thereof. The principal of and interest on the 2017 Bonds are payable by the Trustee to Cede & Co., and such interest and principal payments are to be disbursed to the Beneficial Owners of the 2017 Bonds through their nominees. The 2017 Bonds are subject to optional, mandatory sinking fund and extraordinary redemption as more fully described herein. The 2017 Bonds are being issued to provide funds, together with certain other moneys: (i) to prepay the City of Rohnert Park Sewer System Revenue Certificates of Participation, Series 2005, which are currently outstanding in the aggregate principal amount of $9,970,000; (ii) to purchase a municipal bond insurance policy from ___ to guarantee the payment of principal of and interest on the 2017 Bonds; and (iii) to pay costs of issuance of the 2017 Bonds, all as more fully described herein. The 2017 Bonds are being issued pursuant to the Indenture of Trust, dated as of August 1, 2017, by and between the City of Rohnert Park and MUFG Union Bank, N.A., as trustee. The 2017 Bonds are limited obligations of the City that are payable solely from System Net Revenues, which consist of System Revenues of the City’s municipal sewer system remaining after payment of Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts that have been created under the Indenture. The City has not established a reserve fund in connection with the issuance of the 2017 Bonds. The City may incur additional obligations that are payable from System Net Revenues on a parity with the obligation to pay principal of and interest on the 2017 Bonds, subject to the terms and conditions of the Indenture, as more fully described herein. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2017 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2017 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM SYSTEM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. [INSURER DISCLOSURE]. [INSURER LOGO] THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. ____________________________________ MATURITY SCHEDULE – See Inside Front Cover Page ____________________________________ The 2017 Bonds are offered when, as and if issued and received by the Underwriter, subject to the approval of the valid, legal and binding nature of the 2017 Bonds by Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and by Burke, Williams & Sorensen, City Attorney, for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, for the Trustee by its counsel and for the Insurer by its counsel. It is anticipated that the 2017 Bonds will be available for delivery through the facilities of The Depository Trust Company on or about August __, 2017. Dated: August __, 2017 * Preliminary; subject to change. MATURITY SCHEDULE BASE CUSIP®† _____ $____________* CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2017 Maturity Date (June 1) Principal Amount Interest Rate Yield Price CUSIP®† Suffix $ % % $_____ ___% Term 2017 Bond due _____ 1, 2036, Yield ____%, Price _____, CUSIP®† Suffix ___ * Preliminary; subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2017 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. Neither the City nor the Underwriter takes any responsibility for the accuracy of such numbers. No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those that are contained in this Official Statement in connection with the offering made hereby and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Underwriter. 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 2017 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2017 Bonds. Statements in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. 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 a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information that is set forth herein has been obtained from official sources that are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expression of opinions herein are subject to change without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2017 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 2017 BONDS TO CERTAIN DEALERS, DEALER BANKS, BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES THAT ARE STATED ON THE COVER PAGE HEREOF, AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. CERTAIN STATEMENTS IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND “FORWARD-LOOKING STATEMENTS.” NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS THAT ARE DISCUSSED HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS THAT ARE DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS “ESTIMATE,” “PROJECT,” “ANTICIPATE,” “EXPECT,” “INTEND,” “BELIEVE” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SECTION 21E OF THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. The 2017 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in such act. The 2017 Bonds have not been registered or qualified under the securities laws of any state. The Indenture has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon an exemption contained in such act. The City maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2017 Bonds. [INSURANCE DISCLOSURE TO COME] CITY OF ROHNERT PARK COUNTY OF SONOMA STATE OF CALIFORNIA MAYOR AND MEMBERS OF THE CITY COUNCIL Jake Mackenzie, Mayor Pam Stafford, Vice Mayor Amy O. Ahanotu, Council Member Gina Belforte, Council Member Joseph T. Callinan, Council Member STAFF Darrin Jenkins, City Manager Betsy Howze, Finance Director/City Treasurer JoAnne Buergler, City Clerk John McArthur, Director of Public Works and Community Services Mark Hendersen, Utilities Service Supervisor SPECIAL SERVICES City Attorney Burke, Williams & Sorensen Oakland, California Municipal Advisor Fieldman, Rolapp & Associates Irvine, California Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Trustee MUFG Union Bank, N.A. San Francisco, California Escrow Agent MUFG Union Bank, N.A. San Francisco, California Verification Agent Grant Thornton LLP Minneapolis, Minnesota TABLE OF CONTENTS Page i SUMMARY STATEMENT .................................................................................................................................. i INTRODUCTION ................................................................................................................................................ 1 REFUNDING PLAN ............................................................................................................................................ 2 General ........................................................................................................................................................... 2 Verification of Mathematical Computations .................................................................................................. 2 THE 2017 BONDS ............................................................................................................................................... 2 General Provisions ......................................................................................................................................... 2 Transfers and Exchanges Upon Termination of Book Entry Only System .................................................... 3 Redemption of the 2017 Bonds ...................................................................................................................... 4 Notice of Redemption .................................................................................................................................... 4 Book Entry Only System ............................................................................................................................... 5 DEBT SERVICE PAYMENT SCHEDULE ........................................................................................................ 5 SECURITY FOR THE 2017 BONDS .................................................................................................................. 6 Limited Obligations Payable From System Net Revenues ............................................................................ 6 Rate Covenant ................................................................................................................................................ 7 Additional Indebtedness ................................................................................................................................. 7 No Reserve Fund ............................................................................................................................................ 8 Insurance; Reconstruction, Repair and Replacement ..................................................................................... 8 Rate Stabilization Fund .................................................................................................................................. 9 BOND INSURANCE ........................................................................................................................................... 9 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................................ 9 THE CITY .......................................................................................................................................................... 10 General ......................................................................................................................................................... 10 Land Use and Service Area .......................................................................................................................... 10 Seismic Considerations ................................................................................................................................ 10 Governance and Management ...................................................................................................................... 11 Employees and Employee Benefits .............................................................................................................. 12 Budget Process ............................................................................................................................................. 17 Investment of Funds ..................................................................................................................................... 17 Reserve Policies ........................................................................................................................................... 18 City Insurance .............................................................................................................................................. 18 No Outstanding Parity Obligations .............................................................................................................. 19 Financial Statements .................................................................................................................................... 19 THE SEWER SYSTEM OF THE CITY ............................................................................................................ 20 The System................................................................................................................................................... 20 Historic System Accounts ............................................................................................................................ 22 Historic System Usage ................................................................................................................................. 23 Historic System Service Charge Revenues .................................................................................................. 24 Largest System Customers ........................................................................................................................... 24 System Rates and Charges ........................................................................................................................... 25 System Collection Procedures ..................................................................................................................... 27 Future System Improvements ...................................................................................................................... 28 Projected System Accounts .......................................................................................................................... 29 Projected System Usage ............................................................................................................................... 29 Projected System Service Charge Revenues ................................................................................................ 30 Historic System Operating Results and Debt Service Coverage .................................................................. 30 Projected System Operating Results and Debt Service Coverage ............................................................... 31 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES ......................................... 33 TABLE OF CONTENTS (continued) Page ii Article XIIIB ................................................................................................................................................ 33 Proposition 218 ............................................................................................................................................ 33 Proposition 26 .............................................................................................................................................. 35 Future Initiatives .......................................................................................................................................... 35 CERTAIN RISKS TO BONDHOLDERS .......................................................................................................... 35 Limited Obligations ..................................................................................................................................... 36 Accuracy of Assumptions ............................................................................................................................ 36 System Demand ........................................................................................................................................... 36 System Expenses .......................................................................................................................................... 36 Limited Recourse on Default ....................................................................................................................... 36 Rate-Setting Process under Proposition 218 ................................................................................................ 37 Statutory and Regulatory Compliance ......................................................................................................... 37 Natural Disasters .......................................................................................................................................... 37 Limitations on Remedies ............................................................................................................................. 37 Loss of Tax Exemption ................................................................................................................................ 38 Secondary Market ........................................................................................................................................ 38 Parity Obligations ........................................................................................................................................ 38 Risks Associated with Bond Insurance ........................................................................................................ 39 APPROVAL OF LEGAL PROCEEDINGS ....................................................................................................... 39 LITIGATION ..................................................................................................................................................... 39 TAX MATTERS................................................................................................................................................. 40 RATINGS ........................................................................................................................................................... 41 UNDERWRITING ............................................................................................................................................. 42 MUNICIPAL ADVISOR ................................................................................................................................... 42 CONTINUING DISCLOSURE UNDERTAKING ............................................................................................ 42 FINANCIAL INTERESTS ................................................................................................................................. 43 MISCELLANEOUS ........................................................................................................................................... 43 APPENDIX A FINANCIAL STATEMENTS ........................................................................................... A-1 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE ............................................. B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL ................................................................... C-1 APPENDIX D INFORMATION CONCERNING DTC ............................................................................ D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE ............................................ E-1 APPENDIX F SPECIMEN MUNICIPAL BOND INSURANCE POLICY ..............................................F-1 i SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information that is contained in this Official Statement, and the offering of the 2017 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms that are used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement. Purpose. The 2017 Bonds are being issued to provide funds, together with certain other moneys: (i) to prepay the City of Rohnert Park Sewer System Revenue Certificates of Participation, Series 2005, which are currently outstanding in the aggregate principal amount of $9,970,000; (ii) to purchase a municipal bond insurance policy from ___ to guarantee the payment of principal of and interest on the 2017 Bonds; and (iii) to pay costs of issuance of the 2017 Bonds, all as more fully described herein. See the captions “REFUNDING PLAN” and “ESTIMATED SOURCES AND USES OF FUNDS.” Security for the 2017 Bonds. The 2017 Bonds are limited obligations of the City that are payable solely from System Net Revenues, which consist of System Revenues of the City’s municipal sewer system remaining after the payment of Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts that have been created under the Indenture. The City may incur additional obligations that are payable on a parity with the obligation to pay principal of and interest on the 2017 Bonds in the future as described herein. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2017 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2017 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM SYSTEM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. See the caption “SECURITY FOR THE 2017 BONDS.” The Refunding Plan. A portion of the proceeds of the 2017 Bonds, together with moneys held in certain funds and accounts established in connection with the 2005 Certificates, will be transferred to MUFG Union Bank, N.A., as trustee with respect to the 2005 Certificates, on the date of issuance of the 2017 Bonds. The amount transferred to MUFG Union Bank, N.A. will be applied on September __, 2017 to prepay the $9,970,000 principal amount of the 2005 Certificates outstanding, plus accrued interest with respect thereto. See the caption “REFUNDING PLAN.” Rate Covenant. To the fullest extent permitted by law, the City will fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Sewer System Service provided by the System which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during each Fiscal Year System Net Revenues equal to 120% of Annual Debt Service for such Fiscal Year. The City may make or permit to be made adjustments from time to time in such rates, fees and charges and may make or permit to be made such classification thereof as it deems necessary, but shall not reduce or permit to be reduced such rates, fees and charges below those then in effect unless the System Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements. See the caption “SECURITY FOR THE 2017 BONDS—Rate Covenant.” ii Additional Contracts and Bonds. The Indenture permits the City to execute any Contracts or issue any Bonds that are payable from System Net Revenues on a parity with the obligation to pay principal of and interest on the 2017 Bonds, provided that certain conditions are satisfied as described herein. See the caption “SECURITY FOR THE 2017 BONDS—Additional Indebtedness.” The Indenture also permits the City to execute or issue obligations that are payable from System Net Revenues on a subordinate basis to the 2017 Bonds. Bond Insurance. Payment of the principal of and interest on the 2017 Bonds will be insured by the Policy to be issued by the Insurer concurrently with the issuance of the 2017 Bonds. See the caption “BOND INSURANCE.” No Reserve Fund. The City has not established a reserve fund in connection with the issuance of the 2017 Bonds. Rate Stabilization Fund. If and when the City deems the establishment of such a fund to be necessary or appropriate for the management of its financial affairs, the City may establish and maintain a fund designated the “City of Rohnert Park Sewer System Rate Stabilization Fund.” The City may make deposits in the Rate Stabilization Fund at such times and in such amounts as it deems necessary or appropriate and may transfer amounts on deposit in the Rate Stabilization Fund to the System Revenue Fund at such times and in such amounts as it deems necessary or appropriate. Redemption. The 2017 Bonds are subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity as described herein. See the caption “THE 2017 BONDS—Redemption of the 2017 Bonds.” The City and the System. The City was incorporated in 1962 as a general law city. The City has a land area of approximately 7.3 square miles and an estimated population of 42,067 people as of January 1, 2017. The City is located in Sonoma County, California, approximately 42 miles north of San Francisco on U.S. Highway 101 between the cities of Santa Rosa and Petaluma. California State University at Sonoma is located on County land adjacent to the City. The System includes approximately 91 miles of gravity pipelines, 9.5 miles of sewer force mains, 16 inverted siphons and 3 pump stations. The majority of System facilities were installed between 1956 and 1980. The collection system’s underground network of pipes range in size from 6 to 42 inches in diameter. The City provides sewer service to approximately 7,705 single family residential, 321 multi-family residential and 465 commercial and other accounts within the City’s boundaries. The City does not treat wastewater. Wastewater is collected through the System and transported for treatment to the Santa Rosa Subregional Water Reclamation System of the City of Santa Rosa, where it is treated at the Laguna Subregional Water Reclamation Facility approximately 3 miles west of the City. The amount of wastewater that enters the System fluctuates from between 1 to 7 million gallons per day. Average dry weather wastewater flows are approximately 3.5 million gallons per day, and peak winter flows can be as high as 15 million gallons per day. For information concerning the System, see the caption “THE SEWER SYSTEM OF THE CITY.” For general information regarding the City, see the caption “THE CITY” and Appendix A. 1 $____________* CITY OF ROHNERT PARK SEWER SYSTEM REVENUE REFUNDING BONDS, SERIES 2017 INTRODUCTION This Official Statement, including the front cover page, the inside front cover page and all appendices hereto, provides certain information concerning the sale and delivery of the City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017 (the “2017 Bonds”). The 2017 Bonds are being issued pursuant to an Indenture of Trust, dated as of August 1, 2017 (the “Indenture”), by and between the City of Rohnert Park (the “City”) and MUFG Union Bank, N.A., San Francisco, California, as trustee (the “Trustee”). Capitalized terms that are used and not otherwise defined herein have the meanings ascribed to them in Appendix B. The 2017 Bonds are being issued to provide funds, together with certain other moneys: (i) to prepay the City of Rohnert Park Sewer System Revenue Certificates of Participation, Series 2005 (the “2005 Certificates”), which are currently outstanding in the aggregate principal amount of $9,970,000; (ii) to purchase a municipal bond insurance policy (the “Policy”) from ___ (“___” or the “Insurer”) to guarantee the payment of principal of and interest on the 2017 Bonds; and (iii) to pay costs of issuance of the 2017 Bonds. See the captions “REFUNDING PLAN,” “BOND INSURANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.” The 2017 Bonds are limited obligations of the City that are payable solely from System Net Revenues, which consist of System Revenues of the City’s municipal sewer system (the “System”) remaining after the payment of Operation and Maintenance Costs of the System, as such terms are defined in Appendix B, and from amounts on deposit in certain funds and accounts that have been created under the Indenture. The City may incur additional obligations that are payable on a parity with the obligation to pay principal of and interest on the 2017 Bonds in the future as described under the caption “SECURITY FOR THE 2017 BONDS—Additional Indebtedness.” The 2017 Bonds are subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity as described herein. See the caption “THE 2017 BONDS—Redemption of the 2017 Bonds.” Payment of the principal of and interest on the 2017 Bonds will be insured by the Policy to be issued by the Insurer concurrently with the issuance of the 2017 Bonds. See the caption “BOND INSURANCE.” The City has not established a reserve fund in connection with the issuance of the 2017 Bonds. The summaries and references to the Indenture and all documents, statutes, reports and other instruments that are referred to herein do not purport to be complete, comprehensive or definitive, and each such summary or reference is qualified in its entirety by reference to the full Indenture or the respective document, statute, report or instrument, copies of which are available for inspection at the offices of the City in Rohnert Park, California and from the Trustee upon request and payment of duplication cost. The capitalization of any word that is not conventionally capitalized or otherwise defined herein indicates that such word is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unless otherwise indicated, all financial and statistical information herein has been provided by the City. The City regularly prepares a variety of reports, including audits, budgets and related documents. Any registered owner of the 2017 Bonds may obtain a copy of such reports, as available, from the Trustee or the * Preliminary; subject to change. 2 City. Additional information regarding the Official Statement may be obtained by contacting the Trustee or the City of Rohnert Park, 130 Avram Avenue, Rohnert Park, California 94928-1180, Attn: Finance Director. REFUNDING PLAN General The 2005 Certificates, which are currently outstanding in the aggregate principal amount of $9,970,000, were executed and delivered pursuant to a Trust Agreement, dated as of May 1, 2005 (the “2005 Trust Agreement”), by and among the City, the Rohnert Park Financing Authority (the “Authority”) and MUFG Union Bank, N.A., as trustee (the “2005 Trustee”), to finance certain pipeline, pump station and other capital improvements of the System. The 2005 Certificates are payable from installment payments made under an Installment Purchase Agreement, dated as of May 1, 2005 (the “2005 Installment Purchase Agreement”), by and between the City and the Authority. The City plans to apply a portion of the proceeds of the 2017 Bonds to refund all outstanding 2005 Certificates. Under an Escrow Agreement (2005 Installment Purchase Agreement – Sewer System), dated as of August 1, 2017 (the “Escrow Agreement”), by and between the City and MUFG Union Bank, N.A., as escrow bank (the “Escrow Bank”), the City will deliver a portion of the proceeds of the 2017 Bonds to the Escrow Bank for deposit in an escrow fund (the “Escrow Fund”) established under the Escrow Agreement on or about the date of issuance of the 2017 Bonds. In addition, the Escrow Bank will deposit certain moneys held in connection with the 2005 Certificates in the Escrow Fund on or about the date of issuance of the 2017 Bonds. From the moneys on deposit in the Escrow Fund, the Escrow Bank will pay the principal of the 2005 Certificates, plus interest with respect thereto accrued to such date, without premium (the “Prepayment Price”), on or about September __, 2017. Sufficiency of the deposits in the Escrow Fund for such purposes will be verified by Grant Thornton LLP, Minneapolis, Minnesota (the “Verification Agent”). Assuming the accuracy of such computations, as a result of the deposit and application of funds as provided in the Escrow Agreement, the Certificates will be defeased pursuant to the provisions thereof as of the date of issuance of the 2017 Bonds. The portion of the proceeds of the 2017 Bonds and the moneys held in connection with the 2005 Certificates that are deposited in the Escrow Fund are pledged solely to the payment of the Prepayment Price of the 2005 Certificates, and will not be available for the payments of principal of and interest on the 2017 Bonds. Verification of Mathematical Computations Upon the issuance of the 2017 Bonds, the Verification Agent will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to it by the Underwriter relating to the adequacy of the moneys deposited in the Escrow Fund to pay the Prepayment Price of the 2005 Certificates. THE 2017 BONDS General Provisions The 2017 Bonds will be issued in the initial aggregate principal amount of $____________.* The 2017 Bonds will be dated as of the date of initial issuance thereof (the “Issuance Date”), will bear interest * Preliminary; subject to change. 3 from such date at the rates per annum that are set forth on the inside cover page hereof, payable on December 1, 2017 and each June 1 and December 1 thereafter (each, an “Interest Payment Date”), and will mature on the dates that are set forth on the inside cover page hereof. Interest on the 2017 Bonds will be computed on the basis of a 360 day year composed of twelve 30 day months. The 2017 Bonds will be issued only in fully registered form 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 2017 Bonds. Ownership interests in the 2017 Bonds may be purchased in book entry form, in denominations of $5,000 or any integral multiple thereof. See the caption “—Book Entry Only System” below and Appendix D. In the event that the book entry only system that is described herein is discontinued, the principal of and redemption premium (if any) on the 2017 Bonds are payable by check or draft of the Trustee upon presentation and surrender thereof at maturity or upon prior redemption at the office of the Trustee in San Francisco, California (the “Office of the Trustee”). Interest on the 2017 Bonds is payable on each Interest Payment Date to the person whose name appears on the registration books maintained by the Trustee (the “Registration Books”) as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding the Interest Payment Date (the “Record Date”), such interest to be paid by check of the Trustee, sent by first class mail on the applicable Interest Payment Date to the Owner at such Owner’s address as it appears on the Registration Books. An Owner of $1,000,000 or more in principal amount of 2017 Bonds may, at such Owner’s option, be paid by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record Date. The principal of and interest and premium, if any, on the 2017 Bonds will be payable in lawful money of the United States. Each 2017 Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date; or (b) unless it is authenticated on or before November 15, 2017, in which event it will bear interest from the Issuance Date; provided, however, that if, as of the date of authentication of any 2017 Bond, interest thereon is in default, such 2017 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Transfers and Exchanges Upon Termination of Book Entry Only System In the event that the book entry system that is described herein is abandoned, the 2017 Bonds will be printed and delivered as provided in the Indenture. Thereafter, any 2017 Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2017 Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee is not required to register the transfer of any 2017 Bond during the period in which the Trustee is selecting 2017 Bonds for redemption or any 2017 Bond that has been selected for redemption. Whenever any 2017 Bond or 2017 Bonds are surrendered for transfer, the City will execute and the Trustee will authenticate and deliver a new 2017 Bond or 2017 Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee will require the 2017 Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2017 Bonds, the Trustee will cancel and destroy the 2017 Bonds that it has received. 2017 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee is not required to exchange any 2017 Bond during the period in which the Trustee is selecting 2017 Bonds for redemption and any 2017 Bond 4 that has been selected for redemption. The Trustee will require the 2017 Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2017 Bonds, the Trustee will cancel and destroy the 2017 Bonds that it has received. Redemption of the 2017 Bonds Optional Redemption. The 2017 Bonds with stated maturities on or after June 1, 20__, are subject to redemption prior to their respective stated maturities, as a whole or in part on _____ 1, 20__, or any date thereafter, at the option of the City and as directed by the City and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium. Mandatory Sinking Fund Redemption. The 2017 Bonds maturing on June 1, 20__ are subject to mandatory sinking fund redemption in part on June 1, 20__ and on each June 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest to the date fixed for redemption, without premium, from sinking payments as follows: Redemption Date (June 1) Principal Amount 20__ $ 20__* * Maturity. The amounts in the foregoing table will be reduced to the extent practicable so as to maintain level debt service on the 2017 Bonds, as a result of any prior partial redemption of the 2017 Bonds pursuant to the optional or extraordinary redemption provisions of the Indenture, as directed by the City in a Written Request provided to the Trustee. Extraordinary Redemption. The 2017 Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the City prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds of insurance or condemnation, upon the terms and conditions of, and as provided for in, the Indenture, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. Notice of Redemption Notice of redemption will be mailed by first class mail at least 20 days but not more than 60 days before any Redemption Date, to the respective Owners of any 2017 Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and the Information Services; provided that, in the case of notice of optional redemption not related to an advance or current refunding, such notice may be given only if sufficient funds have been deposited with the Trustee to pay the applicable Redemption Price of the 2017 Bonds to be redeemed; and provided further that such notice may be cancelled by the City upon Written Request delivered to the Trustee not less than five days prior to such Redemption Date. Each notice of redemption will state the date of notice, the Redemption Date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, if less than all 2017 Bonds of any such maturity are to be redeemed, the serial numbers of the 2017 Bonds of such maturity to be redeemed by giving the individual number of each 2017 Bond or by stating that all 2017 Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2017 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on the Redemption Date there will become due and payable on each of said 2017 5 Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2017 Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon will cease to accrue, and will require that such 2017 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2017 Bond. Notice of redemption of 2017 Bonds will be given by the Trustee, at the expense of the City, for and on behalf of the City. With respect to any notice of optional redemption of 2017 Bonds, such notice may state that such redemption will be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2017 Bonds to be redeemed and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required to redeem such 2017 Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received. Book Entry Only System One fully-registered 2017 Bond of each maturity will be issued in the principal amount of the 2017 Bonds of such maturity. Such 2017 Bond will be registered in the name of Cede & Co. and will be deposited with DTC. The City may decide to discontinue use of the system of book entry transfers through DTC (or a successor securities depository). In that event, the 2017 Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer. See the caption “—Transfers and Exchanges Upon Termination of Book Entry Only System.” The City cannot and does not give any assurances that DTC Participants or others will distribute payments of principal of and interest on the 2017 Bonds received by DTC or its Nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners (as such term is defined in Appendix D), or that they will do so on a timely basis, or that DTC will service and act in the manner described in this Official Statement. See Appendix D for additional information concerning DTC. DEBT SERVICE PAYMENT SCHEDULE Set forth below is an annualized schedule of principal of and interest on the 2017 Bonds for the period ending June 1 in each of the years indicated. 6 Period Ending June 1 2017 Bonds Principal 2017 Bonds Interest 2017 Bonds Total 2018(1) $ $ $ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 TOTAL $ $ $ (1) Period ending June 1, 2018 excludes debt service with respect to the 2005 Certificates, which are being refunded from proceeds of the 2017 Bonds as described under the caption “REFUNDING PLAN.” Source: Stifel, Nicolaus & Company, Incorporated. SECURITY FOR THE 2017 BONDS Limited Obligations Payable From System Net Revenues The City is obligated to make payments of principal of and interest on the 2017 Bonds solely from System Net Revenues. The term “System Net Revenues” means, for any period, the System Revenues for such period less the Operation and Maintenance Costs for such period. When held by the Trustee in any funds or accounts established under the Indenture, System Net Revenues will include all interest or gain derived from the investment of amounts in any of such funds or accounts. Notwithstanding the foregoing, in connection with the rate covenant and the additional debt test that are described under the captions “—Rate Covenant” and “—Additional Indebtedness,” respectively, the term “System Net Revenues” will not include amounts transferred to the System Revenue Fund from the Rate Stabilization Fund pursuant to Indenture in any Fiscal Year that are in excess of 20% of Annual Debt Service for such Fiscal Year. See Appendix B for a detailed discussion of the terms of the Indenture. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2017 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2017 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM SYSTEM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. 7 Rate Covenant To the fullest extent permitted by law, the City will fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Sewer System Service provided by the System which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during each Fiscal Year System Net Revenues equal to 120% of Annual Debt Service for such Fiscal Year. The term “System Net Revenues” will not include amounts transferred to the System Revenue Fund from the Rate Stabilization Fund pursuant to Indenture in any Fiscal Year that are in excess of 20% of Annual Debt Service for such Fiscal Year. The City may make or permit to be made adjustments from time to time in such rates, fees and charges and may make or permit to be made such classification thereof as it deems necessary, but shall not reduce or permit to be reduced such rates, fees and charges below those then in effect unless the System Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements. Additional Indebtedness Upon the refunding of the 2005 Certificates as described under the caption “REFUNDING PLAN,” the City will have no outstanding obligations that are payable from Net Revenues on a parity with the 2017 Bonds. See the caption “THE CITY—No Outstanding Parity Obligations.” The City may at any time in the future execute any Contract or issue any Bonds, as the case may be, payable from Net Revenues on a parity with the 2017 Bonds in accordance with the Indenture; provided that: (a) The System Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the City and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the City, shall have produced a sum equal to at least 120% of the Annual Debt Service for such Fiscal Year; and (b) The System Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the System approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the City, shall have produced a sum equal to at least 120% of the Annual Debt Service for such Fiscal Year, plus the debt service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year, assuming that such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the debt service which would have accrued had such proposed additional Contract been executed or proposed additional Bonds been issued at the beginning of such Fiscal Year. The term “System Net Revenues” will not include amounts transferred to the System Revenue Fund from the Rate Stabilization Fund pursuant to Indenture in any Fiscal Year that are in excess of 20% of Annual Debt Service for such Fiscal Year. Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Annual Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding. 8 Nothing contained in the Indenture limits the issuance of any revenue bonds of the City payable from the System Net Revenues and secured by a lien and charge on the System Net Revenues if, after the issuance and delivery of such revenue bonds, none of the 2017 Bonds shall be unpaid. Furthermore, nothing contained in the Indenture limits the issuance of any obligations payable from System Net Revenues on a subordinate basis to the Bonds and Contracts. No Reserve Fund The City has not established a reserve fund in connection with the issuance of the 2017 Bonds. Insurance; Reconstruction, Repair and Replacement The City has covenanted to maintain insurance on the System with responsible insurers in amounts and against such risks (including accident to or destruction of the System) as are usually covered in connection with facilities similar to the System so long as such insurance is available from reputable insurance companies at reasonable rates. The City maintains insurance coverages as described under the caption “THE CITY—City Insurance,” including limited earthquake insurance. See Appendix B under the caption “PARTICULAR COVENANTS—Insurance” for a description of the insurance coverages that are required by the Indenture. In the event of any damage to or destruction of the System caused by the perils covered by such insurance, the Net Proceeds thereof will be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the System. The City will begin such reconstruction, repair or replacement promptly after such damage or destruction occurs, and will continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and will pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same are completed and the System is free and clear of all claims and liens. If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of the System, and/or the cost of the construction of additions, betterments, extensions or improvements to the System, then the excess Net Proceeds will be applied in part to the redemption of 2017 Bonds as provided in the Indenture (see the caption “THE 2017 BONDS—Redemption of the 2017 Bonds—Extraordinary Redemption”) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2017 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts. If such Net Proceeds are sufficient to enable the City to retire the entire obligation evidenced by the Indenture prior to the final due date of the 2017 Bonds as well as the entire obligations evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the City may elect not to reconstruct, repair or replace the damaged or destroyed portion of the System, and/or not to construct other additions, betterments, extensions or improvements to the System; and thereupon such Net Proceeds will be applied to the redemption of 2017 Bonds as provided in the Indenture and to the retirement of such Bonds and Contracts. See the captions “CERTAIN RISKS TO BONDHOLDERS—System Expenses” and “CERTAIN RISKS TO BONDHOLDERS—Natural Disasters.” If all or any part of the System is taken by eminent domain proceedings, the Net Proceeds thereof will be applied as follows: (a) If: (1) the City files with the Trustee a certificate showing: (i) the estimated loss of annual System Net Revenues, if any, suffered or to be suffered by the City by reason of such eminent domain proceedings; (ii) a general description of the additions, betterments, extensions or improvements to the System proposed to be acquired and constructed by the City from such Net Proceeds; and (iii) an estimate of the additional annual System Net Revenues to be derived from such additions, betterments, extensions or improvements; and (2) the City, on the basis of such certificate filed with the Trustee, determines that the estimated additional annual System Net Revenues will sufficiently offset the estimated loss of annual System 9 Net Revenues resulting from such eminent domain proceedings so that the ability of the City to meet its obligations under the Indenture will not be substantially impaired (which determination will be final and conclusive), then the City will promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds will be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the City for such purpose will be deposited in the System Revenue Fund. (b) If the foregoing conditions are not met, then such Net Proceeds will be applied by the City in part to the redemption of 2017 Bonds as provided in the Indenture (see the caption “THE 2017 BONDS— Redemption of the 2017 Bonds—Extraordinary Redemption”) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2017 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts. Rate Stabilization Fund If and when the City deems the establishment of such a fund to be necessary or appropriate for the management of its financial affairs, the City may establish and maintain a fund designated the “City of Rohnert Park Sewer System Rate Stabilization Fund.” The City may make deposits in the Rate Stabilization Fund at such times and in such amounts as it deems necessary or appropriate and may transfer amounts on deposit in the Rate Stabilization Fund to the System Revenue Fund at such times and in such amounts as it deems necessary or appropriate. BOND INSURANCE The information under this caption has been prepared by the Insurer for inclusion in this Official Statement. Neither the City nor the Underwriter has reviewed this information, nor do the City or the Underwriter make any representation with respect to the accuracy or completeness thereof. The following information is not a complete summary of the terms of the Policy (as such term is defined below) and reference is made to Appendix F for a specimen of the Policy. [INSURER DISCLOSURE TO COME] ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds: Sources(1): Principal Amount $ Plus/Less Net Original Issue Premium/Discount Additional Moneys(2) Total Sources $ Uses(1): Deposit to Escrow Fund $ Costs of Issuance(3) Total Uses $ (1) All amounts rounded to the nearest dollar. Totals may not add due to rounding. (2) Reflects moneys held in funds and accounts established in connection with the 2005 Certificates. (3) Includes Underwriter’s discount, certain legal, rating agency, printing, verification and other financing-related costs and premium for the Policy. 10 THE CITY General The City was incorporated in 1962 as a general law city. The City has a land area of approximately 7.3 square miles and an estimated population of 42,067 people as of January 1, 2017. The City provides a wide range of services, including police, fire, public works (including potable and recycled water, sewer and storm drain services), street maintenance and land and building development. The City also operates various community services, including parks, a senior center, community gardens and municipal swimming pools. In addition, the City owns and operates the Dorothy Rohnert Spreckels Performing Arts Center, an approximately 41,000 square feet facility consisting of a 550-seat theater and a 125-seat theater, each of which is designed exclusively for dance, music and theatrical performances. The City is located in Sonoma County, California (the “County”), approximately 42 miles north of San Francisco on U.S. Highway 101 between the cities of Santa Rosa and Petaluma. California State University at Sonoma (“Sonoma State”) is located on County land adjacent to the City. The System includes approximately 91 miles of gravity pipelines, 9.5 miles of sewer force mains, 16 inverted siphons and 3 pump stations. The majority of System facilities were installed between 1956 and 1980. The collection system’s underground network of pipes range in size from 6 to 42 inches in diameter. The City provides sewer service to approximately 7,705 single family residential, 321 multi-family residential and 465 commercial and other accounts within the City’s boundaries. The City does not treat wastewater. Wastewater is collected through the System and transported for treatment to the Santa Rosa Subregional Water Reclamation System of the City of Santa Rosa (the “Subregional System”), where it is treated at the Laguna Subregional Water Reclamation Facility approximately 3 miles west of the City. The amount of wastewater that enters the System fluctuates from between 1 to 7 million gallons per day (“mgd”). Average dry weather wastewater flows are approximately 3.5 mgd, and peak winter flows (including stormwater) can be as high as 15 mgd. The City has entered into agreements with Sonoma State, the County (on behalf of Canon Manor West, an unincorporated area just east of City boundaries), and the Federated Indians of Graton Rancheria to provide sewer collection services to such entities’ satellite sewer systems. Under the Canon Manor West agreement, the City also provides operation and maintenance services. Land Use and Service Area The City’s service area largely encompasses single family residences and multi-family units, including units in which Sonoma State students reside. All of the land within City limits is served by the System and new residents and businesses in the City are required to connect to the System. The service area also includes four annexed specific plan areas. Two additional unannexed specific plan areas are designated in the City’s general plan, one of which is currently connected to the System and one of which is designated for future connection to the System. The specific plan areas include a total of approximately 5,000 housing units. Two of the specific plan developments are currently under construction, with one such development expected to be completed in the next five years. Additional connections from such development are reflected in the projected operating information that is set forth herein. See the caption “THE SEWER SYSTEM OF THE CITY— Projected System Accounts.” Seismic Considerations The City is located in a seismically active region. Significant faults are located near the City, including the Rodgers Creek fault system and the San Andreas fault. There is potential for destructive ground shaking during the occurrence of a major seismic event. In addition, land along fault lines may be subject to 11 liquefaction during the occurrence of such an event. In the event of a severe earthquake, there may be significant damage to both property and infrastructure within the City. The City has an emergency response plan that would be implemented under such circumstances. Newer System facilities are designed to withstand earthquakes with minimal damage, as earthquake loads are taken into consideration in the design of project structures. The impact of lesser magnitude events is expected by the City to be temporary, localized and repairable. The System has never sustained major damage to its facilities or experienced extended incidences of service interruptions as a result of seismic disturbances. System facilities have been designed and constructed in compliance with the City’s construction standards. The City maintains limited earthquake insurance on certain System facilities. However, there can be no assurance that coverage will be provided under such insurance in sufficient amounts to cover losses in the event of an earthquake, or that the City will continue to maintain such insurance in the future. See the captions “—City Insurance” and “CERTAIN RISKS TO BONDHOLDERS—Natural Disasters.” Governance and Management The City is governed by a 5-member City Council, the members of which are elected at large for staggered four year terms. City Council members elect a mayor from among the City Council members, and the mayor serves a one-year term. The current City Council members and the expiration dates of their terms are set forth below. City of Rohnert Park City Council Members City Council Member Expiration of Term Jake Mackenzie, Mayor December 2020 Pam Stafford, Vice Mayor December 2018 Amy O. Ahanotu December 2018 Gina Belforte December 2020 Joseph T. Callinan December 2020 Day-to-day management of the City is delegated to the City Manager, Darrin Jenkins. Mr. Jenkins has served as the City Manager since 2013. He has been with the City since 2003 and previously served as the Assistant City Manager and the Director of Development Services/City Engineer, among other positions. Mr. Jenkins has a Bachelor’s Degree and a Master’s Degree, both in Civil Engineering from the University of California at Berkeley, and is a registered professional engineer in the State of California. The City’s Finance Department provides financial services to the System. Betsy Howze has served as the Finance Director/City Treasurer since 2014. Prior to coming to the City, Ms. Howze served as the Deputy Director of Finance for the City of Santa Rosa, and prior to that worked in various accounting roles with the County for 27 years, most recently as an Accounting Manager with responsibility for financial reporting, budgetary controls, cost allocation planning, debt reporting and centralized accounts payable. Ms. Howze has a bachelor’s degree from Humboldt State University and over 250 hours of continuing education units in governmental accounting. City utilities are managed by the Director of Public Works and Community Services, John McArthur. Mr. McArthur has been with the City since 2008 and has served as the Director of Public Works and Community Services since 2009. Prior to coming to the City, Mr. McArthur served as the Public Works Operations Manager for the City of Healdsburg. Mr. McArthur has a Bachelor’s Degree in Business Administration and a Master’s in Public Administration, both from the University of San Francisco. 12 The System is managed on a day to day basis by the Utilities Service Supervisor, Mark Hendersen. Mr. Hendersen has served as the Utilities Service Supervisor since 2015. Prior to coming to the City, Mr. Hendersen was a field supervisor/recycled water coordinator with the Scotts Valley Water District in Santa Cruz County. Mr. Hendersen has an Associate of Arts Degree from Cabrillo College in Aptos, California and holds the following Professional Licenses: State of California Water Resources Control Board Water Distribution Operator IV, State of California Water Resources Control Board Water Treatment Operator III, American Water Works Association Cross-Connection Control Specialist and American Water Works Association Backflow Prevention Assembly General Tester. Employees and Employee Benefits Employees. As of June 30, 2017, the City had approximately 221 full-time equivalent employees, of whom approximately 65 work in the Public Works and Community Services Department and approximately 12 work in the Finance Department. Of the Public Works and Community Services Department’s 65 full-time equivalent employees, approximately 7.5 have been allocated to the operation of the System. Public Works and Community Service Department and Finance Department employees are represented by the Service Employees International Union Local 1021 Maintenance Works (the “SEIU”) and the Rohnert Park Employees Association (the “RPEA”). Relations between the City and these bargaining units are governed by memoranda of agreement (each, an “MOA ”). The current MOA with the RPEA extends through June 30, 2021 and the current MOA with the SEIU expired on June 30, 2017. The City and the SEIU are currently negotiating the terms of a new MOA and relations between the City and employees who are represented by the SEIU are governed by the expired MOA. Other City employees are also represented by bargaining units. The City has never experienced a strike, slowdown or work stoppage. Pension Obligations. In June 2012, the Governmental Accounting Standards Board (“GASB”) adopted revised standards (GASB Statement No. 68, or “GASB 68”) with respect to accounting and financial reporting by state and local government employers for defined benefit pension plans. The new standards revise the accounting treatment of defined benefit pension plans, changing the way expenses and liabilities are calculated and how state and local government employers report those expenses and liabilities in their financial statements. Major changes include the following: (i) unfunded pension liabilities are included on the government’s balance sheet (previously, such unfunded liabilities were typically included as notes to the government’s financial statements); (ii) pension expense incorporates more rapid recognition of actuarial experience and investment returns and is no longer based on the employer’s actual contribution amounts; (iii) lower actuarial discount rates are required to be used for underfunded plans in certain cases for purposes of the financial statements; (iv) closed amortization periods for unfunded liabilities are required to be used for certain purposes of the financial statements; and (v) the difference between expected and actual investment returns will be recognized over a closed five-year smoothing period. The reporting requirements took effect in Fiscal Year 2015. Based on the adoption of the new accounting standards, beginning with the Fiscal Year 2015 actuarial valuation, the annual required contribution and the annual pension expense will be different. GASB 68 is a change in accounting reporting and disclosure requirements, but it does not change the City’s pension plan funding obligations. The City participates in Miscellaneous plans to fund pension benefits for employees who operate the System. The City’s plans are administered by the California Public Employees Retirement System (“CalPERS”). CalPERS administers agent multiple-employer public employee defined benefit pension plans for all of the City full-time and certain of its temporary and part-time employees. CalPERS provides retirement, disability and death benefits to plan members and beneficiaries and acts as a common investment and administrative agent for participating public entities within the State, including the City. CalPERS plan benefit provisions and all other requirements are established by State statute and the City Council. The City participates in separate CalPERS Miscellaneous plans for employees based upon hire date. Benefit provisions for each plan as of June 30, 2016 are set forth below. 13 City of Rohnert Park Miscellaneous CalPERS Plans Summary of Benefit Provisions Employees Hired Before 7/1/2008 Employees Hired Between 7/1/2008 and 6/30/2011 Employees Hired Between 7/1/2011 and 12/31/2012 Employees Hired on and after 1/1/2013 Benefit Formula 2.7% @55 with 5.0% COLA(1) 2.7% @55 with 2.0% COLA(1) 2.0% @55 with 2.0% COLA(1) 2.0% @62 with 2.0% COLA(1) Benefit Vesting 5 years of service 5 years of service 5 years of service 5 years of service Benefit Payments Monthly for life Monthly for life Monthly for life Monthly for life Retirement Age 55 55 55 62 Monthly Benefits as % of Salary 2.7% 2.7% 2.0% 2.0% Employee Contribution Rate 8.00%(2) 8.00%(2) 7.00%(2) 6.25%(2) (1) Cost of Living Adjustment. (2) Employees are required to make the full employee contribution. The City does not make any portion of such contribution. Source: City. City employees who were hired on and after January 1, 2013 and who were not previously CalPERS members participate in the City’s 2.0% at 62 plan; such employees are required to make the full amount of required contributions themselves under the California Public Employees’ Pension Reform Act of 2013 (“AB 340”), which was signed by the State Governor on September 12, 2012. AB 340 established a new pension tier (2.0% at 62 formula) with a maximum benefit formula of 2.5% at age 67. Benefits for such participants are calculated on the highest average annual compensation over a consecutive 36 month period. Employees are required to pay at least 50% of the total normal cost rate. AB 340 also caps pensionable income for 2015 at $117,020 ($140,424 for employees who are not enrolled in Social Security), subject to Consumer Price Index increases, and prohibits retroactive benefits increases, generally prohibiting contribution holidays and purchases of additional non-qualified service credit. CalPERS estimates savings for local agency plans as a result of AB 340 of approximately $1.653 billion to $2.355 billion over the next 30 years, primarily due to increased employee contributions and, as the workforce turns over, lower benefit formulas that will gradually reduce normal costs. Savings specific to the City have not been quantified. Provisions in AB 340 will not likely have a material effect on City contributions in the short term. However, additional employee contributions, limits on pensionable compensation and higher retirement ages for new members will reduce the City’s unfunded pension lability and potentially reduce City contribution levels in the long term. The City is also required to contribute actuarially determined remaining amounts that are necessary to fund the benefits for its members. The required employer contribution rate for all employees for Fiscal Year 2017 is 27.634% of pensionable payroll. Employer contribution rates for all public employers are determined on an annual basis by the CalPERS actuary and are effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through the CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount, expressed as a percentage of payroll, that is necessary to finance the costs of benefits that are earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Under GASB 68, which was implemented beginning in Fiscal Year 2015, the City’s Miscellaneous pension plans had an aggregate total net pension liability of approximately $18,937,000 as of June 30, 2016 14 and an aggregate total net pension liability of approximately $18,937,000 as of June 30, 2016. The net pension liability is the difference between total pension liability and the fair market value of pension assets. The City’s total pension assets include funds that are held by CalPERS, and its net pension asset or liability is based on such amounts. On December 21, 2016, the CalPERS Board voted to lower its discount rate from the current rate of 7.50% to 7.00% over the next three years according to the following schedule. Fiscal Year Discount Rate 2017-18 7.375% 2018-19 7.250 2019-20 7.000 For public agencies such as the City, the new discount rate will take effect July 1, 2018. Lowering the discount rate means that employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013 will also see their contribution rates rise under AB 340. The three-year reduction of the discount rate will result in average employer rate increases of approximately 1% to 3% of normal cost as a percentage of payroll for most miscellaneous retirement plans such as those of the City. Additionally, many employers will see a 30% to 40% increase in their current unfunded accrued liability payments. These payments are made to amortize unfunded liabilities over 20 years to bring pension funds to a fully funded status over the long-term. For Fiscal Year 2016, the City made total CalPERS Miscellaneous plan contributions of approximately $2.4 million. The City currently expects its total contribution in Fiscal Year 2017 to be approximately $2.7 million. The System’s share of such contribution is expected to be approximately 13%. In February 2016, the City began contributing to a retirement trust fund that is held by the Public Agency Retirement System (“PARS”). Contributed funds are intended to offset future CalPERS costs but are not differentiated between the City’s Miscellaneous and Safety employee retirement programs. As of May 31, 2017, the balance in the City’s PARS retirement trust fund was approximately $6.3 million. The City has budgeted a contribution of approximately $4 million to the PARS retirement trust fund in Fiscal Year 2018. A summary of the principal assumptions and methods that were used to determine the Miscellaneous plans’ total pension liability for Fiscal Year 2016 is shown below. City of Rohnert Park Miscellaneous CalPERS Plans Summary of Actuarial Assumptions Actuarial Cost Method Entry Age Normal Cost Method in accordance with GASB 68 Asset Valuation Method Actuarial Value of Assets Actuarial Assumptions: Discount Rate 7.65% Inflation 2.75% Salary Increases Varies by entry age and position Investment Rate of Return 7.50% net of pension plan investment and administrative expenses; includes projected inflation rate of 2.75% Source: City. The above information is primarily derived from information that has been produced by CalPERS, its independent accountants and its actuaries. The City has not independently verified such information and neither makes any representations nor expresses any opinion as to the accuracy of the information that has been provided by CalPERS. 15 The comprehensive annual financial reports of CalPERS are available on CalPERS’ Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information that concerns benefits and other matters. The textual reference to such Internet website is provided for convenience only. None of the information on such Internet website is incorporated by reference herein. The City cannot guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. The aggregate total changes in the net pension liability for the City’s CalPERS Miscellaneous plans were as follows: City of Rohnert Park Miscellaneous CalPERS Plans Changes in Net Pension Liability(1) Increase / (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability / (Asset) Balance at June 30, 2015 $78,032,000 $59,911,000 $18,121,000 Balance at June 30, 2016 78,531,000 59,594,000 18,937,000 Net Changes during Fiscal Year 2015-16 $ 499,000 ($ 317,000) $ 816,000 (1) Numbers are rounded to nearest thousand. Source: City. The June 30, 2016 balances are based on CalPERS actuarial valuation data of June 30, 2014 with assumptions and market values updated through June 30, 2015. The following table presents the net pension liability of the City’s CalPERS plans, calculated using the discount rate of 7.65%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.65%) or 1 percentage point higher (8.65%) than the current rate: City of Rohnert Park Miscellaneous CalPERS Plans Sensitivity of the Net Pension Liability to Changes in the Discount Rate Discount Rate – 1% (6.65%) Current Discount Rate (7.650%) Discount Rate + 1% (8.65%) Plan’s Net Pension Liability/(Asset) $29,123,697 $18,936,612 $10,492,593 Source: City. CalPERS earnings reports for Fiscal Years 2010 through 2016 report an investment gain in excess of 13.0%, 21.7%, 1%, 12.5%, 18.4%, 2.4% and 0.61%, respectively. Future earnings performance may increase or decrease future contribution rates for plan participants, including the City. The City’s projections of Operation and Maintenance Costs under the caption “THE SEWER SYSTEM OF THE CITY—Projected System Operating Results and Debt Service Coverage” do not assume further unusual increases in CalPERS contributions or other labor costs. However, no assurance can be provided that such expenses will not increase significantly in the future. For additional information relating to the City’s CalPERS Miscellaneous plans, see Note 8 to the City’s audited financial statements for Fiscal Year 2016 set forth in Appendix A. 16 Post-Employment Benefits. In addition to the pension benefits that are described under the caption “—Pension Obligations,” the City provides certain health care benefits for retired employees and eligible dependents. Substantially all of the City’s employees who were hired before July 1, 2007 may become eligible for such benefits after attaining between 10 and 15 years of service (depending on hire date) if they also receive CalPERS plan benefits. Employees who were hired on or after July 1, 2007 are not eligible for such post-employment health care benefits. GASB Statement No. 45 (“GASB 45”) requires governmental agencies that fund post-employment benefits on a pay-as-you-go basis, such as the City, to account for and report the outstanding obligations and commitments related to such post-employment benefits in essentially the same manner as for pensions. For the City, the reporting obligation began in Fiscal Year 2009. The City retained Bartel Associates, LLC (the “Actuarial Consultant”) to calculate the City’s post-employment benefits funding status. In a report dated November 24, 2015 (the “Report”), the Actuarial Consultant concluded that, as of July 1, 2015, the City’s unfunded actuarial accrued liability for post-employment benefits was $24,762,000. The Actuarial Consultant also concluded that the City’s annual required contribution (the actuarial value of benefits earned during Fiscal Year 2017 plus costs to amortize the unfunded actuarial accrued liability, or “ARC”) is $2,212,000. The Report also determined the portion of the ARC that is attributable to the System was $36,000 for Fiscal Year 2015 and $28,000 for Fiscal Year 2016. While requiring the City to disclose the unfunded actuarial accrued liability and the ARC in its financial statements, GASB 45 does not require the City to fund the ARC. However, the City has entered into a contract with the California Employer’s Retiree Benefit Trust (“CERBT”) Program to prefund some of its post-employment benefit obligations. In Fiscal Year 2016, the City contributed $3.3 million to the CERBT Program. In Fiscal Year 2017, the City contributed $2.7 million to the CERBT Program. These prefunding contributions were made based on a prefunding plan adopted in February 2016. The City expects to contribute approximately $200,000 to the CERBT program in Fiscal Year 2018. The historical schedule of funding progress below presents multi-year trend information as to the actuarial value of plan assets over time relative to the actuarial accrued liabilities for benefits. City of Rohnert Park Other Post-Employment Benefits Schedule of Funding Progress Actuarial Valuation Date Actuarial Value of Assets (a) Actuarial Accrued Liability (b) Unfunded Actuarial Accrued Liability (b) – (a) Funded Ratio (a) / (b) Annual Covered Payroll Unfunded Actuarial Accrued Liability as % of Annual Covered Payroll 7/1/2015 $ 5,008,000 $29,770,000(1) $24,762,000(1) 16.8% $12,262,602 201.9% 7/1/2013 2,487,000 49,130,000 46,643,000 5.1 14,498,000 321.7 7/1/2012 1,654,000 41,857,000 40,203,000 4.0 14,299,000 281.2 (1) Decreases reflect reductions in benefits provided to retirees pursuant to policy adopted in July 2014 and buyouts of liabilities to retirees in late 2014. Source: City. The City’s projections of Operation and Maintenance Costs under the caption “THE SEWER SYSTEM OF THE CITY—Projected System Operating Results and Debt Service Coverage” do not assume further unusual increases in post-employment benefit funding expenses given that the City’s plan is now closed. However, future changes in funding policies and assumptions, including those related to assumed rates of investment return and inflation, could trigger increases in the City’s annual required contributions, and such increases could be material to the finances of the City. Given its prefunding of its post-employment benefits through the CERBT Program, the City does not expect that any increased funding of post-employment benefit 17 will have a material adverse effect on the ability of the City to make payments of principal of and interest on the 2017 Bonds. For additional information relating to the post-employment benefit plan, see Note 9 to the City’s audited financial statements for Fiscal Year 2016 set forth in Appendix A. Budget Process The City prepares and adopts a budget for each Fiscal Year after extensive coordination with all City departments. Prior to June 30 of each year, the City Manager submits to the City Council a proposed budget for the Fiscal Year that commences the following July 1. The budget is controlled at the fund level and includes proposed expenditures (which become appropriations to the applicable departments upon adoption of the budget) and the means of financing them. Prior to June 30, budgetary review sessions are conducted to obtain input from various City departments and residents, and the budget is legally enacted through the passage of a resolution. The City Council may amend the budget during each Fiscal Year and the City Manager may authorize transfers between different accounts of the same department. The City Council adopted the budget for Fiscal Year 2018 on June 13, 2017. Investment of Funds The City invests its funds in accordance with the City’s investment policy (the “Investment Policy”), which was adopted by the City Council on April 25, 2006. The Investment Policy sets forth the policies and procedures that are applicable to the investment of City funds and designates eligible investments. The Investment Policy also sets forth stated objectives, including the assurance of the safety of invested funds, the maintenance of sufficient liquidity and the attainment of the best yield or returns on investments. Funds are invested in the following order of priority: • Safety of Principal; • Liquidity; and • Yield. The City Council has delegated the authority to invest funds of the City to the City Manager and the Finance Director/Treasurer. The Investment Policy provides a number of permitted investment categories, including: (i) the State of California Local Agency Investment Fund; (ii) the Sonoma County Investment Pool; (iii) United States Treasury notes or bills and other federal agency securities; (iv) negotiable certificates of deposit; (v) certificates of deposit with commercial banks, savings and loan companies and credit unions; (vi) bankers’ acceptances; and (vii) money market mutual funds that are invested in federal securities. All investments must have a maturity that does not exceed five years. As of May 31, 2017, the City had funds invested in the amount of $58,347,112 in authorized investments under the Investment Policy, summarized as follows: Local Agency Investment Fund ($7,397,123); Sonoma County Investment Pool ($32,545,218); and Money Market Mutual Funds ($18,404,771). In addition, the City held funds in various checking and savings accounts ($31,305,737). See the caption “—Reserve Policies” for a description of the portion of such moneys that are attributable to the Sewer Fund. For additional information relating to the Investment Policy, see Note 3 to the City’s audited financial statements for Fiscal Year 2016 set forth in Appendix A. 18 Reserve Policies The City does not hold segregated reserves that are devoted to the Sewer Fund. However, the City holds operating cash and retained earnings in such fund. As of June 30, 2016, the City held approximately $11.5 million in unrestricted retained earnings in the Sewer Fund, of which approximately $10.6 million was held in available cash. As of May 31, 2017, the City held approximately $8.9 million in available cash in the Sewer Fund. The City’s Fiscal Year 2018 budget reflects the City’s expectation that approximately $10.2 million in unrestricted retained earnings will be held in the Sewer Fund as of June 30, 2017. City Insurance The City maintains insurance for the System through the Redwood Empire Municipal Insurance Fund (“REMIF”), a joint powers authority that was created in 1976 under the provisions of Government Code § 6500 et seq. to provide an independently managed risk sharing self-insurance program for member entities. The City also notes that the City of Santa Rosa maintains separate insurance for the Laguna Subregional Water Reclamation Facility on behalf of the Subregional System. See the caption “THE SEWER SYSTEM OF THE CITY—The Sewer System—Laguna Subregional Water Reclamation Facility.” The City’s current insurance coverages (for the System and other City assets) are as follows: Property Damage. The City is self-insured up to $5,000 and maintains coverage for losses of up to $25,000 through REMIF. REMIF purchases additional coverage from private insurers up to $400,000,000. Certain components of the System, including underground pipelines and manhole covers, are not covered by such insurance. Earthquake. The City is self-insured up to $100,000 and maintains coverage for losses of an additional $100,000 through REMIF. REMIF purchases additional coverage from private insurers up to $20,000,000. Boiler and Machinery. The City is self-insured up to $5,000 and maintains coverage for losses of an additional $5,000 through REMIF. REMIF purchases additional coverage from private insurers up to $100,000,000. General Liability. The City is self-insured up to $5,000 and maintains coverage for losses of up to $500,000 through REMIF. REMIF purchases additional coverage from private insurers up to $40,000,000. Automobile Liability. The City is self-insured up to $5,000 and maintains coverage for losses of up to $10,000 through REMIF. REMIF purchases additional coverage from private insurers up to $5,000,000. Fidelity. The City is self-insured up to $5,000 and maintains coverage for losses of up to $25,000 through REMIF. REMIF purchases additional coverage from private insurers up to $1,990,000. Cyber Crime. The City is self-insured up to $50,000. REMIF purchases additional coverage from private insurers up to $2,000,000. Workers Compensation. The City is self-insured up to $5,000 and maintains coverage for losses of up to $1,000,000 through REMIF. The City is insured up to statutory limits. The City has not settled any claims that exceeded its insurance coverage in the past three years. The City can provide no assurance that it will maintain the above insurance coverage amounts while the 2017 Bonds are outstanding. See the caption “SECURITY FOR THE 2017 BONDS—Insurance; 19 Reconstruction, Repair and Replacement” for a description of the insurance coverages that the City is required to maintain under the Indenture. No Outstanding Parity Obligations Upon the prepayment of the 2005 Installment Purchase Agreement as described under the caption “REFUNDING PLAN,” the City will have no other obligations that are payable from System Net Revenues or secured by a pledge of System Revenues on a parity with the obligation of the City to pay principal of and interest on the 2017 Bonds. However, the City is permitted to incur additional obligations that are payable from System Net Revenues on a parity with the 2017 Bonds in the future upon satisfaction of the conditions that are described under the caption “SECURITY FOR THE 2017 BONDS—Additional Indebtedness.” Financial Statements A copy of the most recent audited basic financial statements of the City prepared by Macias Gini O’Connell LLP, Walnut Creek, California (the “Auditor”) is set forth in Appendix A. The Auditor’s letter dated December 22, 2016 is set forth therein. The summary operating results that are contained under the caption “THE SEWER SYSTEM OF THE CITY—Historic System Operating Results and Debt Service Coverage” are derived from these financial statements and audited financial statements for prior Fiscal Years (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 City accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to governmental agencies such as the City (“GAAP”). In certain cases, GAAP requires or permits moneys that are collected in one Fiscal Year to be recognized as revenue in a subsequent Fiscal Year and requires or permits expenses that are paid or incurred in one Fiscal Year to be recognized as expenses in a subsequent Fiscal Year. See Appendix A. Except as otherwise expressly noted herein, all financial information that has been derived from the City’s audited financial statements reflects the application of GAAP. The Sewer Fund is presented on an economic resources measurement focus and the accrual basis of accounting. Revenues are recognized when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The Sewer Fund distinguishes operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with the Sewer Fund’s principal ongoing operations. Operating expenses include the cost of sales of services, administrative expenses and depreciation on capital assets. All revenues and expenses that do not meet the foregoing definition are reported as non-operating revenues and expenses in the City’s financial statements. In providing a rating on the 2017 Bonds, certain rating agencies may have performed independent calculations of coverage ratios using their own internal formulas and methodology, which may not reflect the provisions of the Indenture. See the caption “RATINGS.” The City makes no representations as to any such calculations, and such calculations should not be construed as a representation by the City as to past or future compliance with any financial covenants, the availability of particular revenues for the payment of debt service or for any other purpose. 20 THE SEWER SYSTEM OF THE CITY The System General. The System provides wastewater collection and disposal service to approximately 7,705 single family residential, 321 multi-family residential and 465 commercial and other accounts. The System does not include treatment facilities; instead, collected wastewater is transported to the Subregional System for treatment at the Subregional System’s Laguna Subregional Water Reclamation Facility, a tertiary treatment plant with a capacity of 21.34 mgd (under dry weather conditions) that is owned and operated by the City of Santa Rosa. On average, the Subregional System treats approximately 15 mgd. Collection is primarily via gravity pipelines, with pump stations pumping wastewater under pressure through force mains until the nearest gravity line can be reached. The System includes approximately 91 miles of collection pipelines that transport wastewater to the Subregional System, 9.5 miles of sewer force mains, 16 inverted siphons and 3 pump stations. Subregional System Operations. The Subregional System is owned and operated by the City of Santa Rosa pursuant to a Master Agreement, dated April 3, 1975 (as amended, the “Master Agreement”), by and among the City, the City of Santa Rosa, the cities of Sebastopol and Cotati and South Park County Sanitation District (“SPCSD”). None of the City, the cities of Sebastopol and Cotati or SPCSD has or will acquire any ownership interest in the Subregional System. Under the Master Agreement, the City: (i) has capacity rights to the Subregional System as set forth below; (ii) is obligated to maintain its System; and (iii) is obligated to fund a portion of the capital improvements to the Subregional System as set forth below. The Master Agreement will remain in place as long as the Subregional System’s treatment facilities are in operation. Santa Rosa Subregional Water Reclamation System Fiscal Year 2018 Capacity Shares and Capital Obligations Member Agency Wastewater Flow Capacity Share Capital Obligation Share Rohnert Park 17.21% 15.39% Cotati 2.38 3.69 Santa Rosa 74.65 75.86 Sebastopol 2.64 2.90 SPCSD 3.12 2.16 TOTAL 100.00% 100.00% Source: City. 21 Final allocations for Fiscal Year 2018 with respect to operation and maintenance and debt service for the Subregional System are set forth below. The amounts attributable to the City are reflected in the System’s Fiscal Year 2018 projected Operation and Maintenance Costs set forth under the caption “—Projected System Operating Results and Debt Service Coverage.” Santa Rosa Subregional Water Reclamation System Fiscal Year 2018 Member Agency Allocations Member Agency O&M Contribution % of O&M Contribution Debt Service % of Debt Service Total Contribution Rohnert Park $ 6,126,336 17.21% $ 3,485,166(1) 15.39% $ 9,611,502 Cotati 845,621 2.38 836,028 3.69 1,681,649 Santa Rosa 26,571,169 74.65 17,177,726 75.86 43,748,895 Sebastopol 938,814 2.64 655,866 2.90 1,594,680 SPCSD 1,110,961 3.12 489,146 2.16 1,600,107 $ 35,592,901 100.00% $ 22,643,932 100.00% $ 58,236,833 (1) Includes payments by City for loan by City of Santa Rosa of 1.03 mgd capacity to the City pursuant to a November 6, 2002 agreement that is described under the caption “—2002 Capacity Loan.” Source: City. The above Operation and Maintenance shares are reviewed and adjusted annually based upon each party’s use of the Subregional System. The City reports that, historically, its shares of the above-described costs have not varied by more than a few percentage points on an annual basis. The Subregional System is governed by a Board of Public Utilities, the members of which are appointed solely by the City of Santa Rosa. The City and other parties to the Master Agreement provide one member each to a Technical Advisory Committee, which advises the parties to the Master Agreement with respect to the Subregional System and each party’s individual collection system, including rates and charges and budgeting matters. Under the Master Agreement, the City is obligated to adopt and enforce wastewater use and pollution control ordinances and to set permit fees and user charges in amounts that are sufficient to meet the City’s obligations to the Subregional System. The City’s payments to the Subregional System, which are intended to cover the Subregional System’s administrative, labor, material, utility, chemical, operating, capital and debt service costs, constitute Operation and Maintenance Costs of the System. The City’s obligations are limited to costs that are associated with the Laguna Subregional Water Reclamation Facility. 2002 Capacity Loan. On November 6, 2002, the City of Santa Rosa agreed to loan 1.03 mgd of capacity in the Laguna Subregional Water Reclamation Facility to the City. Until such time as the capacity is returned to the City of Santa Rosa, the City will make debt service payments based on this capacity. Such loaned capacity will revert to the City of Santa Rosa after a subsequent enlargement of the Subregional System results in additional capacity being allocated to the City as approved by the parties to the Master Agreement. There is no anticipated timeframe for such enlargement. Laguna Subregional Water Reclamation Facility. The Laguna Subregional Water Reclamation Facility is a 21.34 mgd capacity tertiary treatment plant that produces high quality biosolids and disinfected tertiary treated water. During normal to dry years, nearly 100% of the recycled water is beneficially reused. Approximately two-thirds of the recycled water is pumped to the Geysers Pipeline to recharge the Geysers steam fields and used to produce renewable green energy for the region. The other third is stored in recycled water storage ponds for subsequent reuse during the dry season by agricultural and irrigation customers. In wet years, recycled water distributions to the Geysers Pipeline and the storage ponds are carefully managed in order to minimize discharges into the Laguna de Santa Rosa, a freshwater wetlands complex. Biosolids are reused in composting and agricultural applications, with the remainder going to landfills. 22 The Laguna Subregional Water Reclamation Facility is operated pursuant to the terms of a National Pollutant Discharge Elimination System (“NPDES”) permit issued by the State of California North Coast Regional Water Quality Control Board (the “Regional Water Board”). The Regional Water Board administers NPDES regulations that are promulgated by the United States Environmental Protection Agency and Division 7 of the State Water Code and regulations thereunder. The Subregional System’s current NPDES permit for the Laguna Subregional Water Reclamation Facility, Order No. R1-2013-0001, NPDES No. CA 0022764, WDID No. 1B830990SON, became effective on February 1, 2014 and expires on January 31, 2019. There have been no recent violations of the NPDES permit that have required the City to pay any fines or penalties. The Subregional System faces various challenges in the continued treatment of wastewater. A description of these challenges as well as a variety of other operating information with respect to the Subregional System is included in certain disclosure documents prepared by the City of Santa Rosa, including the Official Statement dated July 19, 2016 for the City of Santa Rosa’s Wastewater Revenue Refunding Bonds, Series 2016A. The City of Santa Rosa has disseminated certain publicly available documents and entered into certain continuing disclosure agreements pursuant to which the City of Santa Rosa is contractually obligated for the benefit of owners of certain of its outstanding obligations to file certain annual reports, notices of certain enumerated events as defined under Rule 15c2-12, as amended, and annual audited financial statements (the “Santa Rosa Disclosure Information”) with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System. NO SANTA ROSA DISCLOSURE INFORMATION IS INCORPORATED INTO THIS OFFICIAL STATEMENT AND THE CITY MAKES NO REPRESENTATION AS TO THE ACCURACY OF SUCH SANTA ROSA DISCLOSURE INFORMATION. THE CITY OF SANTA ROSA HAS NOT ENTERED INTO ANY CONTRACTUAL COMMITMENT WITH THE CITY, THE TRUSTEE OR THE OWNERS OF THE 2017 BONDS TO PROVIDE SANTA ROSA DISCLOSURE INFORMATION TO THE CITY, THE TRUSTEE OR THE OWNERS OF THE 2017 BONDS. THE CITY OF SANTA ROSA HAS NOT REVIEWED THIS OFFICIAL STATEMENT AND HAS MADE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION THAT IS CONTAINED OR INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO THE SUBREGIONAL SYSTEM AND THE LAGUNA SUBREGIONAL WATER RECLAMATION FACILITY. THE CITY OF SANTA ROSA IS NOT CONTRACTUALLY OBLIGATED, AND HAS NOT UNDERTAKEN, TO UPDATE SANTA ROSA DISCLOSURE INFORMATION FOR THE BENEFIT OF THE CITY OR THE OWNERS OF THE 2017 BONDS UNDER RULE 15c2-12. Historic System Accounts The following table shows the number of System accounts for the last five Fiscal Years. 23 City of Rohnert Park Historic Sewer System Accounts Fiscal Year Ended June 30 Residential Commercial/Other(1) Total Increase/(Decrease) 2013 7,896 453 8,349 N/A% 2014 7,835 459 8,294 (0.66) 2015 7,894 459 8,353 0.71 2016 7,899 462 8,361 0.10 2017 8,026 465 8,491 1.55 (1) Includes Sonoma State. Source: City. The following table shows the current distribution of System customers by customer type as of June 30, 2017. City of Rohnert Park Sewer System Customer Distribution as of June 30, 2017 Customer Type Number of Accounts Number of Dwelling Units Flow(1) Residential Single Family Residential 7,705 7,821 193 Multi-Family Residential 316 7,464 94 Mobilehome Park 5 1,317 130 Subtotal Residential 8,026 16,602 Other Sonoma State 1 N/A 166,524 Other Commercial 464 N/A 1,543 Subtotal Other 465 Total 8,491 16,602 (1) In gallons per day per dwelling unit or non-residential account. Source: City. Historic System Usage The following table shows the City share of the volume of wastewater treated by the Subregional System for the last five Fiscal Years. 24 City of Rohnert Park Historic Sewer System Usage Fiscal Year Ended June 30 Daily Average Flow (mgd) Increase/(Decrease) 2013 3.40 N/A% 2014 3.01 (11.47) 2015 3.07 1.99 2016 3.18 3.58 2017(1) 3.45 8.49 (1) Increase from prior Fiscal Year reflects above average precipitation levels in late 2016 and early 2017. Source: City. System usage is affected by a number of factors, including but not limited to the number of connections to the System and each customer’s indoor water usage. Historic System Service Charge Revenues The following table shows service charge revenues of the System for the last five Fiscal Years. Penalties and connection fee revenues are excluded from the numbers below. City of Rohnert Park Historic Sewer System Service Charge Revenues Fiscal Year Ended June 30 Service Charge Revenues Increase/(Decrease) 2013 $12,058,301 N/A% 2014 13,273,873 10.08 2015 13,049,471 (1.69) 2016(1) 12,705,947 (2.63) 2017(2) 12,976,385 2.13 (1) Decrease from prior Fiscal Year reflects water conservation by System customers. (2) Reflects unaudited actual Fiscal Year 2017 results. Source: City. System service revenues are affected by a number of factors, including the number of connections to the System, System rates and charges, indoor water usage and winter average usage for residential customers. See the captions “—Historic System Accounts” and “—System Rates and Charges.” Largest System Customers The following table shows the ten largest customers of the System as of the Fiscal Year ended June 30, 2016, as determined by annual payments. Although the City’s billing cycle for June 2017 will not be completed until August 2017, the City does not expect significant changes in its top ten customers in Fiscal Year 2017. 25 City of Rohnert Park Largest Sewer System Customers Customer Annual Payments(1) Percentage of Total System Service Charge Revenues Sonoma State University $ 704,701 5.55% Graton Economic Development(2) 534,089 4.20 Rancho Verde MHP 238,037 1.87 Mountain Shadow HOA 204,848 1.61 Rancho Feliz MHP 196,504 1.55 Double Tree Hotel 149,468 1.18 Rancho Grande MHP 147,580 1.16 Sonoma Racquet Club 136,875 1.08 Mountain Shadow Apartments 73,509 0.58 Redwood Creek Apartments 40,542 0.32 TOTAL $2,426,153 19.09% (1) Rounded to the nearest dollar. (2) Reflects fees for sewer collection service only. Pursuant to the City’s agreement with this customer, the customer also pays a portion of the City’s share of Subregional System debt service. See the caption “THE CITY—General.” Source: City. These customers accounted for approximately 19.09% of total System service charge revenues of $12,705,947 in Fiscal Year 2016. System Rates and Charges General. System rates and charges are set by the City Council and are not subject by statute to the jurisdiction of, or regulation by, the California Public Utilities Commission or any other regulatory body. The City is, however, required to comply with the notice, hearing and majority protest provisions of Article XIIID of the State Constitution, which is popularly known as Proposition 218. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218” for further information with respect to Proposition 218. City staff annually determines the adequacy of the charge structure for wastewater service in the service area after full consideration of expected operations, maintenance, capital costs and capital repayment obligations of the System. The City Council currently sets wastewater service charges at a level that it determines is sufficient to pay all Operation and Maintenance Costs of wastewater pumping and collection, to recover operating expenses for the System, to pay debt service payments and to maintain appropriate reserves for the System. The City is subject to certain covenants with respect to the 2017 Bonds which require that, to the fullest extent permitted by law, the City will fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Sewer Service provided by the System that are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during each Fiscal Year Net Revenues equal to 120% of Debt Service for such Fiscal Year. See the caption “SECURITY FOR THE 2017 BONDS—Rate Covenant.” Wastewater rates consist of monthly flat charges and volume charges. Volume charges are based on the customer’s average monthly water usage during the prior winter quarter (December through February). In 2011, after the public hearing required by Proposition 218, the City Council approved System rate increases of approximately 25%, 25%, 3%, 3% and 3% effective July 1, 2011, January 1, 2012, January 1, 26 2013, January 1, 2014 and January 1, 2015, respectively. The rates that came into effect on January 1, 2015 remain in place as of the date hereof. There is no assurance that the City Council will not repeal or modify such rates in the future or that the System’s ratepayers will not approve an initiative to repeal or modify any wastewater service rates and charges approved by the City Council. The City’s ratepayers previously voted to reduce System rates and charges that were in place in 2008 to January 1, 2006 levels through an initiative that appeared on the November 4, 2008 ballot (Measure L). See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218—Article XIIIC.” The City expects to engage The Reed Group, Inc. to undertake a study of System rates and charges in the fall of 2017. There can be no assurance as to the timing of the completion of such study. However, the projected operating results set forth herein assume an additional increase in System rates and charges of approximately 4% in Fiscal Year 2018 based in part on the expectation that such rate study will be completed. All rate increases are subject to the notice, hearing and majority protest provisions of Proposition 218, as well as City Council approval, and there can be no assurance that rates will be increased as projected herein. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” City of Rohnert Park Sewer System Single Family Residential Charges Rate Type Current Rate Monthly Base Charge $ 9.40 Flow Charge(1) 10.94 (1) Rate per thousand gallons. Amounts charged are based on customer’s prior winter quarter average monthly use. Source: City. City of Rohnert Park Sewer System Commercial Monthly Base Charges Meter Size Monthly Base Charge ¾” $ 25.30 1” 38.71 1½” 71.93 2” 112.01 3” 205.54 4” 339.12 6” 672.77 8” 1,073.32 Source: City. 27 City of Rohnert Park Sewer System Commercial/Multi-Family Residential Flow Charges Customer Type Flow Charge(1) Multi-Family Residential $ 10.94 Commercial – Low Strength(2) 11.42 Commercial – Medium Strength(3) 15.33 Commercial – High Strength(4) 23.08 (1) Rate per thousand gallons. Amounts charged are based on customer’s prior winter quarter average monthly use. (2) Includes customers such as beauty salons, car washes, churches, convalescent homes, dry cleaners, health clubs, hospitals, hotels without restaurants, laundromats, office buildings, public buildings, retail stores and schools. (3) Includes customers such as automobile repair facilities, commercial laundries, hotels with restaurants, restaurants with grease interceptors and retail stores with food services. (4) Includes customers such as bakeries, bars that serve food, grocery stores, mortuaries and restaurants without grease interceptors. Source: City. Wastewater Service Charge Comparison. The table below sets forth a comparison of an average monthly wastewater billing of the System for a single family residential bill based on December 2016 and January 2017 readings (so as to eliminate the impacts of the winter average sewer cap on actual summer flows), to those of similar wastewater purveyors as of July 1, 2016, excluding fixed service charges. City of Rohnert Park and Neighboring Service Providers Single Family Residential Charge Comparison Service Provider Monthly Wastewater Bill(1) City of Windsor $129.39 City of Healdsburg 128.83 City of Santa Rosa 114.23 City of San Francisco 108.99 City of Petaluma 102.87 City of Sebastopol 95.26 City of Rohnert Park Sewer System 81.33 SPCSD 75.25 City of Cotati 75.24 City of Vallejo 55.48 (1) Assumes usage of 6,575 gallons. Source: City. Connection Fees. The City collects impact fees from new development though an integrated Public Facilities Financing Plan (“PFFP”) fee program. The PFFP fees include a component for sewer capacity and are used to offset debt service costs associated with expansion of the Subregional System, expand System collection capacity and expand recycled water capacity as a means of disposing of treated wastewater. PFFP fees vary depending on geographic location and user type. System Collection Procedures System bills are generated and collected by the City’s Finance Department and are included jointly with water charges. Bills are sent to customers on a bi-monthly basis. Customers have one month to make payment, after which bills become delinquent. Delinquent accounts are assessed a late charge of 10% and a delinquent bill will be sent allowing 14 more days for payment. If payment is not received by such date, a final shut-off notice is sent requesting payment within 10 days. The City Council may adopt a resolution declaring a lien on the real property served by a delinquent customer. 28 On average, over 85% of all bills are paid in full prior to becoming delinquent. Historically, nearly all delinquencies of active customers are brought current within 10 days. Outstanding bills for closed and shut off accounts are sent to an outside collection agency. As of June 30, 2017, approximately 0.2% of total annual billings ($25,809) have been sent to a collection agency. The collection agency currently recovers approximately 18.4% of uncollected billings that are sent to it. Future System Improvements The City projects total capital improvements to the System for existing users of approximately $12 million over the next five years, including linings, pipeline replacements and expansions of the System to serve new connections. Such capital improvements are expected to be financed by a combination of PFFP fees, Revenues remaining after payment of debt service on the 2017 Bonds and City reserves. The City does not expect to issue additional bonds or to incur additional obligations in order to finance such capital improvements. The City of Santa Rosa’s Fiscal Year 2018 budget reflects a Subregional System Capital Improvement Program budget of approximately $4.1 million. Such amount is anticipated to be paid from contributions by the City and other member agencies. See the caption “—The System—Subregional System Operations.” In addition, the Official Statement dated July 19, 2016 for the City of Santa Rosa’s Wastewater Revenue Refunding Bonds, Series 2016A disclosed that the City of Santa Rosa anticipates issuing additional bonds in the aggregate principal amount of approximately $60 million in Fiscal Year 2018. The projections of Subregional System operating costs that are set forth in this Official Statement reflect such additional bond issuance, although the City can provide no assurance as to the timing or terms thereof. Fiscal Year 2018 capital projects include digester gas conditioning improvements, nutrient removal infrastructure improvements and electrical infrastructure replacements. 29 Projected System Accounts The following table shows the number of System accounts projected by the City for the current and next four Fiscal Years. See the caption “THE CITY—Land Use and Service Area” for a discussion of expected new development in the City. City of Rohnert Park Projected Sewer System Accounts Fiscal Year Ending June 30 Residential Commercial/Other(1) Total Increase/(Decrease) 2018 8,228 468 8,696 2.41% 2019 8,496 471 8,967 3.12 2020 8,804 474 9,278 3.47 2021 9,042 477 9,519 2.60 2022 9,339 480 9,819 3.15 (1) Includes Sonoma State. Source: City. Projected System Usage The following table shows the System’s share of the volume of wastewater treated by the Subregional System projected by the City for the current and next four Fiscal Years. City of Rohnert Park Projected Sewer System Usage Fiscal Year Ending June 30 Daily Average Flow (mgd) Increase/(Decrease) 2018 3.20 (7.81)%(1) 2019 3.24 1.25 2020 3.30 1.85 2021 3.35 1.52 2022 3.41 1.79 (1) Decrease reflects expected return to historical average precipitation levels. Source: City. System usage will be affected by a number of factors, including connections to the System, annual rainfall and each customer’s prior winter System usage. See the caption “—Projected System Accounts” above. 30 Projected System Service Charge Revenues The following table shows service charge revenues of the System projected by the City for the current and next four Fiscal Years. The projected wastewater service charge revenues reflect projected increases in connections and a projected rate increase of approximately 4% in Fiscal Year 2018. See the captions “— Projected System Accounts” and “—System Rates and Charges.” All rate increases are subject to the notice, hearing and majority protest provisions of Proposition 218, as well as City Council approval, and there can be no assurance that rates will be increased as projected herein. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” City of Rohnert Park Projected Sewer System Service Charge Revenues Fiscal Year Ending June 30 Service Charge Revenues Increase/(Decrease) 2018 $13,113,904 1.06% 2019 13,881,034 5.85 2020 14,224,933 2.48 2021 14,512,277 2.02 2022 14,838,394 2.25 Source: City. Historic System Operating Results and Debt Service Coverage The following table is a summary of operating results of the System for the last five Fiscal Years. These results have been derived from the audited financial statements of the City, but exclude certain receipts which are not included as Revenues under the Indenture and certain non-cash items and include certain other adjustments. 31 City of Rohnert Park Historic Sewer System Operating Results Fiscal Year Ended June 30 2013(1) 2014(1) 2015(1) 2016(1) 2017(2) Revenues Sewer Service Rates and Charges $ 12,058,301 $ 13,273,873 $ 13,049,471 $ 12,705,947 $ 12,976,385 Connection Fees 340,780 124,335 144,164 - - Penalties 123,745 18,649 23,025 17,437 - Total Revenues $ 12,522,826 $ 13,416,857 $ 13,216,660 $ 12,723,384 $ 12,976,385 Operation and Maintenance Costs Personnel, Supplies and Professional $ 1,296,233 $ 1,402,642 $ 1,744,581 $ 241,747(3) $ 1,230,145 Capital Outlay (Equipment) 392,680 79,613 13,399 80,063 50,000 Operation and Maintenance Cost Allocation 970,459 782,314 1,345,653 1,914,771(3) 1,912,723 Subregional System Master Agreement Operation and Maintenance Payments 4,607,677 4,946,729 5,231,984 5,330,756 6,094,389 Subregional System Master Agreement Capital Related Payments 3,903,260 3,873,621 3,866,065 3,053,882 2,532,467 Less Refunds(1) (109,516) (134,057) (273,327) - - Total Operation and Maintenance Costs $ 11,060,793 $ 10,950,862 $ 11,928,355 $ 10,621,219 $ 11,819,724 Net Revenues $ 1,462,033 $ 2,465,995 $ 1,288,305 $ 2,102,165 $ 1,156,661 Debt Service 2005 Installment Purchase Agreement(4) $ 812,386 $ 817,205 $ 816,518 $ 815,143 $ 812,888 Total Debt Service $ 812,386 $ 817,205 $ 816,518 $ 815,143 $ 812,888 Debt Service Coverage 1.80 3.02 1.58 2.58 1.42 Cash Available for Capital Projects or Other Improvements $ 649,647 $ 1,648,790 $ 471,788 $ 1,287,022 $ 343,773 Sewer Enterprise Fund Fiscal Year End Cash Balance(5) $ 9,442,765 $ 13,416,067 $ 11,412,336 $ 10,616,897 $ 10,960,670 (1) Reflects reconciliation of amounts paid under Master Agreement. See the caption “THE SEWER SYSTEM OF THE CITY—The System—Subregional System Operations.” (2) Reflects unaudited actual Fiscal Year 2017 results prior to reconciliation of amounts paid under Master Agreement. See the caption “THE SEWER SYSTEM OF THE CITY—The System—Subregional System Operations.” (3) Differences from prior Fiscal Year reflect reallocation of certain expenses that were previously recorded in the Personnel, Supplies and Professional line item to the Operation and Maintenance Cost Allocation line item as well as buyouts of retiree medical expenses, as discussed under the caption “THE CITY—Employees and Employee Benefits—Post-Employment Benefits.” (4) This obligation is expected to be prepaid from proceeds of the 2017 Bonds. See the caption “REFUNDING PLAN.” (5) Reflects prior Fiscal Year’s ending cash balance plus Cash Available for Capital Projects or Other Improvements plus reconciled amounts under Master Agreement and other adjustments. Increase in Fiscal Year 2014 reflects reimbursement to Sewer Fund from other City funds for capital project expenses. Source: City. Projected System Operating Results and Debt Service Coverage The estimated projected operating results for the System for the current and next four Fiscal Years, are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the City’s estimate of projected financial results based upon a variety of assumptions, including the assumptions set forth in the footnotes to the chart set forth below. All of such assumptions are material in the development of the City’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. 32 City of Rohnert Park Projected Sewer System Operating Results Fiscal Year Ending June 30 2018(1) 2019 2020 2021 2022 Revenues Sewer Service Rates and Charges(2) $ 13,113,904 $ 13,881,034 $ 14,224,933 $ 14,512,277 $ 14,838,394 Connection Fees(3) - - - - - Penalties(4) - - - - - Total Revenues $ 13,113,904 $ 13,881,034 $ 14,224,933 $ 14,512,277 $ 14,838,394 Operation and Maintenance Costs Personnel, Supplies and Professional(5) $ 1,156,106 $ 1,196,570 $ 1,238,450 $ 1,281,796 $ 1,326,659 Capital Outlay (Equipment)(6) 35,000 36,225 37,493 38,805 40,163 Operation and Maintenance Cost Allocation(7) 1,412,721 1,462,166 1,513,342 1,566,309 1,621,130 Subregional System Master Agreement Operation and Maintenance Payments(8) 6,126,336 6,432,653 6,754,285 7,092,000 7,446,600 Subregional System Master Agreement Capital Related Payments(9) 2,635,732 3,185,732 3,185,732 3,185,732 3,185,732 Less Refunds(10) - - - - - Total Operation and Maintenance Costs $ 11,365,896 $ 12,313,346 $ 12,729,303 $ 13,164,642 $ 13,620,284 Net Revenues $ 1,748,009 $ 1,567,688 $ 1,495,630 $ 1,347,635 $ 1,218,111 Debt Service 2005 Installment Purchase Agreement(11) $ - $ - $ - $ - $ - 2017 Bonds * 750,000 750,000 750,000 750,000 750,000 Total Debt Service* $ 750,000 $ 750,000 $ 750,000 $ 750,000 $ 750,000 Debt Service Coverage(12)* 2.33 2.09 1.99 1.80 1.62 Cash Available for Capital Projects or Other Improvements(13)* $ 998,009 $ 817,688 $ 745,631 $ 597,635 $ 468,110 Sewer Enterprise Fund Fiscal Year End Cash Balance(14) $ 11,958,679 $ 12,776,366 $ 13,521,996 $ 14,119,631 $ 14,587,742 (1) Based on Fiscal Year 2018 adopted budget with certain adjustments. (2) Reflects projected increase in wastewater service charges of approximately 4.0% in Fiscal Year 2018, as described under the caption “— System Rates and Charges.” Such rate increase is subject to the notice, hearing and majority protest provisions of Proposition 218, as well as City Council approval, and there can be no assurance that rates will be increased as projected herein. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” Also reflects projected increases in revenues based on expected new development. See the captions “—Projected System Accounts” and “THE CITY—Land Use and Service Area.” (3) Connection fees now subsumed within PFFP fee structure. See the caption “—System Rates and Charges—Connection Fees.” (4) Projected to remain at Fiscal Year 2018 budgeted amount of $0. (5) Projected to increase approximately 3.5% per annum. (6) Projected to increase approximately 0.63% from Fiscal Year 2018 budgeted amount in Fiscal Year 2019 and approximately 3.5% per annum thereafter. (7) Projected to increase approximately 3.5% per annum. Decrease from Fiscal Year 2016 amount reflects expectation that additional debt will not be issued by the City of Santa Rosa for the Subregional System during the projection period. See the caption “—Future System Improvements.” (8) Projected to increase approximately 5.0% per annum. (9) Includes the City’s share of debt service on $60 million aggregate principal amount of bonds that are expected to be issued by the City of Santa Rosa in Fiscal Year 2018 to finance Subregional System capital improvements. See the caption “—Future System Improvements.” (10) Projected to remain at $0. (11) This obligation is expected to be prepaid from proceeds of the 2017 Bonds. See the caption “REFUNDING PLAN.” (12) Net Revenues divided by Total Debt Service. (13) Net Revenues minus Total Debt Service. (14) Reflects prior Fiscal Year’s projected ending cash balance plus projected Cash Available for Capital Projects or Other Improvements plus projected reconciled amounts under Master Agreement and other adjustments. Source: City. * Preliminary; subject to change. 33 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB 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. The “base year” for establishing such appropriation limit is the 1978-79 State fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the 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 the entity approve a change in the limit for a period of time not to exceed four years. Appropriations that are subject to Article XIIIB generally include the proceeds of taxes levied by or for the State or other entity of local government, exclusive of certain State subventions, refunds of taxes and benefit payments from retirement, unemployment, insurance and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from: (a) regulatory licenses, user charges, and user fees (but only to the extent that such proceeds exceed the cost reasonably borne by the entity in providing the service or regulation); and (b) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Certain expenditures are excluded from the appropriations limit, including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by a vote of electors of the issuing entity and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the provision of existing services more costly. The City is of the opinion that its charges for sewer service do not exceed the costs that it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The City has covenanted in the Indenture that it will, at all times while any of the 2017 Bonds remain unpaid, fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Sewer System Service provided by the System which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during each Fiscal Year System Net Revenues equal to 120% of Annual Debt Service for such Fiscal Year. See the caption “SECURITY FOR THE 2017 BONDS—Rate Covenant.” Proposition 218 General. An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the “Title and Summary” of the Initiative prepared by the State Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.” Article XIIID. Article XIIID defines the terms “fee” and “charge” to mean “any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service.” A “property-related service” is defined as “a public service having a direct relationship to property ownership.” Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. 34 Article XIIID requires that any agency that imposes or increases a 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 sewer 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 may not exceed the funds required to provide the property-related service; (ii) such revenues may 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 may 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 immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. Based upon the California Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000) (the “HJTA Case”), which was denied review by the State Supreme Court, it was generally believed that Article XIIID did not apply to charges for water or sewer services that are “primarily based on the amount consumed” (i.e., metered water rates), which had been held to be commodity charges related to consumption of the service, not property ownership. The Supreme Court stated in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (2006) (the “Bighorn Case”), however, that fees for ongoing water service through an existing connection were property-related fees and charges. The Supreme Court specifically disapproved the holding in the HJTA Case that metered water rates are not subject to Proposition 218. The City complies with the notice and public hearing requirements of Article XIIID in determining whether to change System rates and charges. On April 20, 2015, the California Court of Appeal, Fourth District, issued an opinion in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (2015) (the “SJC Case”) upholding tiered water rates under Proposition 218 provided that the tiers correspond to the actual cost of furnishing service at a given level of usage. The opinion was specific to the facts of the case, including a finding that the City of San Juan Capistrano did not attempt to calculate the actual costs of providing water at various tier levels. The City’s sewer rate structure does not currently include tiered rates, and the City does not expect the decision in the SJC Case to affect its sewer rate structure. The City believes that its current sewer rates comply with the requirements of Proposition 218 and expects that any future System rate increases will comply with Proposition 218’s procedural and substantive requirements to the extent applicable thereto. Article XIIIC. Article XIIIC provides that the initiative power may 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 is applicable to all local governments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge,” so it was unclear whether the definitions set forth in Article XIIID referred to above were applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the State Supreme Court held in the Bighorn Case that the provisions of Article XIIIC included rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. As discussed under the caption “THE SEWER SYSTEM OF THE CITY—System Rates and Charges—General,” the City’s ratepayers previously voted to reduce System rates and charges that were in place in 2008 to January 1, 2006 levels through an initiative that appeared on the November 4, 2008 ballot (Measure L). There can be no assurance that future initiative measures to reduce System rates and charges will not be submitted to voters in the future. 35 Notwithstanding the foregoing, the City does not believe that Article XIIIC grants to the voters within the City the power to repeal or reduce rates and charges for sewer service in a manner that would be inconsistent with the contractual obligations of the City. However, there can be no assurance of the availability of particular remedies that are adequate to protect the Beneficial Owners of the 2017 Bonds. Remedies available to Beneficial Owners of the 2017 Bonds in the event of a default by the City are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. So long as the 2017 Bonds are held in book-entry form, DTC (or its nominee) will be the sole registered owner of the 2017 Bonds and the rights and remedies of the 2017 Bond Owners will be exercised through the procedures of DTC. In addition to the specific limitations on remedies that are contained in the applicable documents themselves, the rights and obligations with respect to the 2017 Bonds and the Indenture 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, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix C), will be similarly qualified. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 applies to charges imposed or increased after November 2, 2010 and provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. The City believes that its sewer rates and charges are not taxes under Proposition 26. Future Initiatives Articles XIIIB, XIIIC and XIIID and Proposition 26 were adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiatives could be proposed and adopted affecting the City’s revenues or ability to increase revenues. CERTAIN RISKS TO BONDHOLDERS The following information should be considered by prospective investors in evaluating the 2017 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations may be relevant to making an investment decisions with respect to the 2017 Bonds. In addition, the order in 36 which the following information is presented is not intended to reflect the relative importance of any such risks. Limited Obligations The obligation of the City to pay the 2017 Bonds is a limited obligation of the City and is not secured by a legal or equitable pledge or charge or lien upon any property of the City or any of its income or receipts, except the System Revenues. The obligation of the City to pay the 2017 Bonds does not constitute an obligation of the City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Accuracy of Assumptions To estimate the revenues that are available to pay debt service on the 2017 Bonds, the City has made certain assumptions with regard to the rates and charges to be imposed in future years, the expenses associated with operating the System and the interest rate at which funds will be invested. The City believes these assumptions to be reasonable, but to the extent that any of these assumptions fail to materialize, the System Net Revenues that are available to pay debt service on the 2017 Bonds will, in all likelihood, be less than those projected herein. See the caption “THE SEWER SYSTEM OF THE CITY—Projected System Operating Results and Debt Service Coverage.” In particular, the projected operating results that are set forth herein assume the adoption of increases in System rates and charges of approximately 4% in Fiscal Year 2018. All rate increases are subject to the notice, hearing and majority protest provisions of Proposition 218, as well as City Council approval, and there can be no assurance that rates will be increased as projected herein. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” The City may choose, however, to maintain compliance with the rate covenant that is set forth in the Indenture in part by means of contributions from available reserves or other resources. In such event, System Net Revenues may generate amounts which are less than 1.20 times Debt Service in any given Fiscal Year. See the caption “SECURITY FOR THE 2017 BONDS—Rate Covenant.” System Demand There can be no assurance that the demand for sewer service from the System will occur as described in this Official Statement. Reduction in levels of demand could require an increase in rates or charges in order to comply with the rate covenant. Demand for sewer services could be reduced as a result of hydrological conditions, conservation efforts (including in response to droughts) and other factors. System Expenses There can be no assurance that the City’s expenses will be consistent with the descriptions in this Official Statement. Operation and Maintenance Costs may vary with labor costs (including costs related to pension liabilities), treatment costs, regulatory compliance costs and other factors. Increases in expenses could require an increase in rates or charges in order to comply with the rate covenant. See the caption “SECURITY FOR THE 2017 BONDS—Rate Covenant.” Limited Recourse on Default If the City defaults on its obligation to pay the principal of and interest on the 2017 Bonds, the Trustee has the right to declare the total unpaid principal of the 2017 Bonds, together with the accrued interest thereon to be immediately due and payable. However, in the event of a default and such acceleration, there can be no assurance that the City will have sufficient funds to pay the accelerated amounts due on the 2017 Bonds from System Net Revenues. 37 Rate-Setting Process under Proposition 218 Proposition 218, which added Articles XIIIC and XIIID to the State Constitution, affects the City’s ability to maintain existing rates and impose rate increases, and no assurance can be given that future rate increases will not encounter majority protest opposition or be challenged by initiative action as authorized under Proposition 218. In the event that future proposed rate increases (including a rate increase of approximately 4% in Fiscal Year 2018 that is projected herein) cannot be imposed as a result of majority protest or initiative, the City might thereafter be unable to generate System Net Revenues in the amounts that are required by the Indenture to pay the 2017 Bonds. The City believes that the current System rates that were approved by the City Council were effected in accordance with the public hearing and majority protest provisions of Proposition 218. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” Statutory and Regulatory Compliance Laws and regulations that govern the treatment and delivery of water are enacted and promulgated by federal, State and local government agencies. Compliance with these laws and regulations is and will continue to be costly, and, as more stringent standards are developed, such costs are likely to increase. Claims against the System for failure to comply with applicable laws and regulations could be significant. Such claims may be payable from assets of the System or from other legally available sources. In addition to claims by private parties, changes in the scope and standards for public agency sewer systems such as the System may also lead to administrative orders issued by federal or State regulators. Future compliance with such orders can also impose substantial additional costs on the City. No assurance can be given that the cost of compliance with such laws, regulations and orders would not adversely affect the ability of the City to generate System Net Revenues that are sufficient to pay the 2017 Bonds. Natural Disasters The occurrence of any natural disaster in the City, including, without limitation, fire, earthquake, landslide, drought, high winds or flooding, could have an adverse material impact on the economy within the City, the System and the revenues that are available for the payment of the 2017 Bonds. Portions of the System may be at risk of damage or destruction from wildfires or subject to unpredictable seismic activity. The City maintains limited earthquake insurance for parts of the System. See the caption “THE CITY—City Insurance.” The occurrence of natural disasters within System boundaries could result in substantial damage to the System which, in turn, could substantially reduce revenue generated by the System and affect the ability of the City to pay the 2017 Bonds. The City maintains liability insurance for the System and property casualty insurance for certain portions of the System. However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers. Furthermore, as described under the caption “THE CITY—City Insurance,” significant portions of the System, including underground pipelines and manholes, are not covered by property casualty insurance. Damage to such portions of the System as a result of natural disasters would result in uninsured losses to the City. Limitations on Remedies The ability of the City to comply with its covenants under the Indenture and to generate System Net Revenues that are sufficient to pay principal of and interest on the 2017 Bonds may be adversely affected by actions and events that are outside of the control of the City or actions taken (or not taken) by voters, property owners, taxpayers or persons who are obligated to pay assessments, fees and charges. See the caption 38 “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” Furthermore, the remedies available to the owners of the 2017 Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition, usual equity principles may limit the specific enforcement under State law of certain remedies, as may the exercise by the United States of America of the powers delegated to it by the federal Constitution, and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the 2017 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations, or modification of their rights. Remedies may be limited because the System serves an essential public purpose. In addition to the limitations on remedies that are contained in the Indenture, rights and obligations under the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws that relate to or affect creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against cities in the State. The opinion to be delivered by Bond Counsel concurrently with the issuance of the 2017 Bonds will be subject to such limitations and the various other legal opinions to be delivered concurrently with the issuance of the 2017 Bonds will be similarly qualified. See Appendix C. In the event that the City fails to comply with its covenants under the Indenture or fails to pay principal of and interest on the 2017 Bonds, there can be no assurance of the availability of remedies adequate to protect the interest of the holders of the 2017 Bonds. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of interest on the 2017 Bonds, the City has covenanted in the Indenture to comply with the applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and not to take any action or fail to take any action if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the 2017 Bonds under Section 103 of the Code. Interest on the 2017 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of such 2017 Bonds as a result of acts or omissions of the City in violation of this or other covenants in the Indenture that apply to the 2017 Bonds. The 2017 Bonds are not subject to redemption or any increase in interest rates should an event of taxability occur and will remain outstanding until maturity or prior redemption in accordance with the provisions contained in the Indenture. See the caption “TAX MATTERS.” Secondary Market There can be no guarantee that there will be a secondary market for the 2017 Bonds or, if a secondary market exists, that the 2017 Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Parity Obligations The Indenture permits the City to enter into additional Contracts or to issue Bonds payable that are from System Net Revenues on a parity with the 2017 Bonds, subject to the terms and conditions that are set forth therein. The entry into of additional Contracts or the issuance of Bonds could result in reduced System Net Revenues available to pay the 2017 Bonds. The City has covenanted to maintain Maximum Annual Debt 39 Service coverage of 120%, as further described under the caption “SECURITY FOR THE 2017 BONDS— Additional Indebtedness.” Risks Associated with Bond Insurance In the event that the City defaults in the payment of principal of or interest on the 2017 Bonds when due, the owners of the 2017 Bonds will have a claim under the Policy for such payments. See the caption “BOND INSURANCE.” In the event that the Insurer becomes obligated to make payments with respect to the 2017 Bonds, no assurance can be given that such event will not adversely affect the market for the 2017 Bonds. In the event that the Insurer is unable to make payment of principal of and interest on the 2017 Bonds when due under the Policy, the 2017 Bonds will be payable solely from System Net Revenues and amounts that are held in certain funds and accounts established under the Indenture, as described under the caption “SECURITY FOR THE 2017 BONDS.” The long-term rating on the 2017 Bonds is dependent in part on the financial strength of the Insurer and its claims-paying ability. The Insurer’s financial strength and claims-paying ability are predicated upon a number of factors which could change over time. If the long-term ratings of the Insurer are lowered, such event could adversely affect the market for the 2017 Bonds. See the caption “RATINGS.” Neither the City nor the Underwriter have made an independent investigation of the claims-paying ability of the Insurer, and no assurance or representation regarding the financial strength or projected financial strength of the Insurer is being made by the City or the Underwriter in this Official Statement. Therefore, when making an investment decision with respect to the 2017 Bonds, potential investors should carefully consider the ability of the City to pay principal of and interest on the 2017 Bonds, assuming that the Policy is not available for that purpose, and the claims-paying ability of the Insurer through final maturity of the 2017 Bonds. So long as the Policy remains in effect and the Insurer is not in default of its obligations thereunder, the Insurer has certain notice, consent and other rights under the Indenture and will have the right to control all remedies for default under the Indenture. The Insurer is not required to obtain the consent of the owners of the 2017 Bonds with respect to the exercise of remedies. See Appendix B. APPROVAL OF LEGAL PROCEEDINGS The valid, legal and binding nature of the 2017 Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, acting as Bond Counsel. The form of such legal opinion is attached hereto as Appendix C, and such legal opinion will be attached to each 2017 Bond. Certain legal matters will be passed upon for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and by Burke, Williams & Sorensen, City Attorney, for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, for the Trustee by its counsel and for the Insurer by its counsel. From time to time Bond Counsel represents the Underwriter on matters that are unrelated to the issuance of the 2017 Bonds or other City obligations. LITIGATION At the time of delivery of and payment for the 2017 Bonds, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the City affecting the existence of the City or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the 2017 Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the 2017 Bonds, the Indenture, or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of 40 this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the 2017 Bonds or any action of the City contemplated by any of said documents, nor to the knowledge of the City, is there any basis therefor. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2017 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2017 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2017 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2017 Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2017 Bonds to assure that interest (and original issue discount) on the 2017 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017 Bonds. The City has covenanted to comply with all such requirements. In the opinion of Bond Counsel, the difference between the issue price of a 2017 Bond (the first price at which a substantial amount of the 2017 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2017 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner basis in the applicable 2017 Bond. The amount of original issue discount that accrues to the Beneficial Owner of a 2017 Bond is excluded from the gross income of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. The amount by which a 2017 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2017 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2017 Bond Owner’s basis in the applicable 2017 Bond (and the amount of tax-exempt interest received with respect to the 2017 Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2017 Bond Owner realizing a taxable gain when a 2017 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2017 Bond to the Owner. Purchasers of the 2017 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2017 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2017 Bonds might be affected as a result of such an audit of the 2017 Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not 41 change the Code (or interpretation thereof) subsequent to the issuance of the 2017 Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the 2017 Bonds or their market value. SUBSEQUENT TO THE ISSUANCE OF THE 2017 BONDS, THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE 2017 BONDS OR THE MARKET VALUE OF THE 2017 BONDS. TAX REFORM PROPOSALS ARE BEING CONSIDERED BY CONGRESS. IT IS POSSIBLE THAT LEGISLATIVE CHANGES MIGHT BE INTRODUCED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME OR STATE TAX BEING IMPOSED ON OWNERS OF TAX- EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2017 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2017 BONDS. NO ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE 2017 BONDS SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE 2017 BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE 2017 BONDS. Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2017 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any 2017 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2017 Bonds is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the 2017 Bonds and the accrual or receipt of interest (and original issue discount) on the 2017 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2017 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2017 Bonds. Should interest on the 2017 Bonds become includable in gross income for federal income tax purposes, the 2017 Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed in accordance with the Indenture. A complete copy of the proposed opinion of Bond Counsel is set forth in Appendix C. RATINGS The City expects that Standard and Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”), will assign the 2017 Bonds the rating of “__” based upon the delivery of the Policy by the Insurer at the time of issuance of the 2017 Bonds, and that S&P will assign the 2017 Bonds the rating of “__” notwithstanding the delivery of the Policy. There is no assurance that any credit rating that is given to the 2017 Bonds will be maintained for any period of time or that the ratings may not be lowered or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. Any downward revision or withdrawal of the ratings may have an adverse effect on the market price of the 2017 Bonds. The ratings reflect only the 42 views of S&P, and an explanation of the significance of such ratings may be obtained from S&P. Generally, a rating agency bases its ratings on the information and materials furnished to it (which may include information and material from the City that is not included in this Official Statement) and on investigations, studies and assumptions of its own. Neither the City nor the Underwriter makes any representation as to the Insurer’s creditworthiness and no representation that the Insurer’s credit rating will be maintained in the future. S&P has previously taken action to downgrade the ratings of certain municipal bond insurers and has published various releases outlining the processes that S&P intends to follow in evaluating the ratings of financial guarantors. For some financial guarantors, the result of such evaluations could be a rating affirmation, a change in rating outlook, a review for downgrade or a downgrade. Potential investors are directed to S&P for additional information on S&P’s evaluations of the financial guaranty industry and individual financial guarantors, including the Insurer. See the caption “BOND INSURANCE” for further information relating to the Insurer. UNDERWRITING The 2017 Bonds will be purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”) pursuant to a Purchase Contract, dated the date of this Official Statement, by and between the City and the Underwriter (the “Purchase Contract”). Under the Purchase Contract, the Underwriter has agreed to purchase all, but not less than all, of the 2017 Bonds for an aggregate purchase price of $_____ (representing the principal amount of the 2017 Bonds, less Underwriter’s discount of $____, plus/less net original issue premium of $_____). The Purchase Contract provides that the Underwriter will purchase all of the 2017 Bonds if any are purchased, the obligation to make such a purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions. The initial public offering prices that are stated on the inside cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2017 Bonds to certain dealers (including dealers depositing 2017 Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. MUNICIPAL ADVISOR The City has retained Fieldman, Rolapp & Associates, Irvine, California, as municipal advisor (the “Municipal Advisor”) in connection with the issuance of the 2017 Bonds. The Municipal Advisor has not undertaken to make an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. CONTINUING DISCLOSURE UNDERTAKING The City has covenanted in a Continuing Disclosure Certificate for the benefit of the holders and Beneficial Owners of the 2017 Bonds to provide certain financial information and operating data relating to the City by not later than April 1 following the end of the City’s Fiscal Year (currently its Fiscal Year ends on June 30) (the “Annual Report”), commencing with the report for the Fiscal Year ended June 30, 2017, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the City with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System (“EMMA”) for municipal securities disclosures, which is maintained on the Internet at http://emma.msrb.org/. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E. These covenants have been made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission. 43 In two of the past five years (most recently for Fiscal Year 2013), the City and the Community Development Commission of the City of Rohnert Park (the City’s former redevelopment agency, for which the City coordinates annual filings) filed audited financial statements or certain annual information on EMMA after the time by which such statements or information were required to be filed pursuant to the applicable entity’s previous continuing disclosure undertakings, the latest being submitted approximately one year after the filing deadline. The City also did not provide notice of such late filings with respect to each of its prior issuances. In addition, on two occasions in the past five years, the City filed notices of rating upgrades with respect to City obligations after the time by which such notices were required to be filed pursuant to previous continuing disclosure undertakings of the City. Except as disclosed in the prior paragraph, the City has not in the past five years failed to comply with any previous continuing disclosure undertaking in any material respect. In order to ensure compliance with its continuing disclosure undertakings in the future, the City has retained Willdan Financial Services as its dissemination agent. FINANCIAL INTERESTS The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel and counsel to the Underwriter, the Trustee and the Escrow Agent are contingent upon the issuance and delivery of the Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Bonds. MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2017 Bonds. The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF ROHNERT PARK By: City Manager APPENDIX A FINANCIAL STATEMENTS B-1 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE The following is a summary of certain provisions of the Indenture that are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the Indenture for a full and complete statement of the provisions thereof. [TO COME] C-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL Upon issuance of the 2017 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: August __, 2017 City of Rohnert Park 130 Avram Avenue Rohnert Park, California 94928-1180 Re: City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017 Members of the City Council: We have examined a certified copy of the record of the proceedings of the City of Rohnert Park (the “City”) relative to the issuance of the $______ City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017 (the “2017 Bonds”), dated the date hereof, and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the City, the initial purchaser of the 2017 Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. The 2017 Bonds are being issued pursuant to an Indenture of Trust, dated as of August 1, 2017 (the “Indenture”), by and between the City and MUFG Union Bank, N.A., as trustee (the “Trustee”). The 2017 Bonds mature on the dates and in the amounts referenced in the Indenture. The 2017 Bonds are dated their date of delivery and bear interest at the rates per annum referenced in the Indenture. The 2017 Bonds are registered in the form set forth in the Indenture. Based on our examination as Bond Counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that: 1. The proceedings of the City show lawful authority for the issuance and sale of the 2017 Bonds under the laws of the State of California now in force, and the Indenture has been duly authorized, executed and delivered by the City, and, assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2017 Bonds and the Indenture are valid and binding obligations of the City enforceable against the City in accordance with their terms. 2. The obligation of the City to make the payments of principal of and interest on the 2017 Bonds from System Net Revenues (as such term is defined in the Indenture) is an enforceable obligation of the City and does not constitute an indebtedness of the City in contravention of any constitutional or statutory debt limit or restriction. 3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2017 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest (and original issue discount) may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. 4. Interest (and original issue discount) on the 2017 Bonds is exempt from State of California personal income tax. C-2 5. The difference between the issue price of a 2017 Bond (the first price at which a substantial amount of the 2017 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2017 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2017 Bond owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2017 Bond owner will increase the 2017 Bond owner’s basis in the applicable 2017 Bond. The amount of original issue discount that accrues to the 2017 Bond owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or corporations and is exempt from State of California personal income tax. 6. The amount by which a 2017 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2017 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the “Code”); such amortizable bond premium reduces the 2017 Bond Owner’s basis in the applicable 2017 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2017 Bond premium may result in a 2017 Bond Owner realizing a taxable gain when a 2017 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2017 Bond to the Owner. Purchasers of the 2017 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The opinions expressed herein as to the exclusion from gross income of interest (and original issue discount) on the 2017 Bonds are based upon certain representations of fact and certifications made by the City and are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2017 Bonds to assure that such interest (and original issue discount) on the 2017 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017 Bonds. The City has covenanted to comply with all such requirements. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement ends as of the date of issuance of the 2017 Bonds. The Indenture and the Tax Certificate relating to the 2017 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) on the 2017 Bonds for federal income tax purposes with respect to any 2017 Bond if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the 2017 Bonds. The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture and the 2017 Bonds 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. Our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2017 Bonds or other offering material relating to the 2017 Bonds and expressly disclaim any duty to advise the owners of the 2017 Bonds with respect to matters contained in the Official Statement. Respectfully submitted, D-1 APPENDIX D INFORMATION CONCERNING DTC The information in this section concerning DTC and DTC’s book entry only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2017 Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the 2017 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2017 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2017 Bonds. The 2017 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2017 Bond will be issued for each annual maturity of the 2017 Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC is rated AA+ by Standard & Poor’s. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of 2017 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2017 Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2017 Bonds (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2017 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 bonds representing their ownership interests in 2017 Bonds, except in the event that use of the book entry system for the 2017 Bonds is discontinued. To facilitate subsequent transfers, all 2017 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2017 Bonds with DT C and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2017 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such 2017 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. D-2 Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2017 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2017 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2017 Bonds documents. For example, Beneficial Owners of 2017 Bonds may wish to ascertain that the nominee holding the 2017 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the 2017 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2017 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City 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 2017 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 2017 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A 2017 Bond Owner shall give notice to elect to have its 2017 Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2017 Bond by causing the Direct Participant to transfer the Participant’s interest in the 2017 Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of 2017 Bond in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2017 Bond are transferred by Direct Participants on DTC’s records and followed by a book entry credit of tendered 2017 Bond to the Trustee’s DTC account. DTC may discontinue providing its services as depository with respect to the 2017 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book entry only transfers through DTC (or a successor securities depository). In that event, 2017 Bonds will be printed and delivered to DTC. THE TRUSTEE, AS LONG AS A BOOK ENTRY ONLY SYSTEM IS USED FOR THE 2017 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2017 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE Upon issuance of the 2017 Bonds, the City proposes to enter into a Continuing Disclosure Certificate in substantially the following form: This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Rohnert Park (the “City”) in connection with the issuance of the $_____ City of Rohnert Park Sewer System Revenue Refunding Bonds, Series 2017 (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of August 1, 2017 (the “Indenture”), by and between MUFG Union Bank, N.A., as trustee (the “Trustee”), and the City. The City covenants and agrees as follows: 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders, [the Insurer] and the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule. 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report. The term “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner. The term “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. EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/. Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year. Holder. The term “Holder” means a registered owner of the Bonds. Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate. Official Statement. The term “Official Statement” means the Official Statement dated August __, 2017 relating to the Bonds. Participating Underwriter. The term “Participating Underwriter” means Stifel, Nicolaus & Company, Incorporated, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. 3. Provision of Annual Reports. (a) The City shall provide not later than April 1 following the end of its Fiscal Year (commencing with Fiscal Year 2016-17) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may E-2 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 Certificate. (b) If the City is unable to provide to EMMA an Annual Report by the date required in subsection (a), the City shall send to EMMA in a timely manner a notice in the manner prescribed by the Municipal Securities Rulemaking Board. 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) The audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available; (b) Principal amount of the Bonds outstanding; (c) An update of customer accounts by customer type for the prior Fiscal Year in substantially the form set forth in the table “City of Rohnert Park Sewer System Customer Distribution as of June 30, 2017” under the caption “THE SEWER SYSTEM OF THE CITY—Historic System Accounts” in the Official Statement; (d) An update of System usage for the prior Fiscal Year in substantially the form set forth under the caption “THE SEWER SYSTEM OF THE CITY—Historic System Usage” in the Official Statement; (e) An update of the top ten customers of the System for the prior Fiscal Year in substantially the form set forth under the caption “THE SEWER SYSTEM OF THE CITY—Largest System Customers” in the Official Statement; (f) A description of System rates and charges for the prior Fiscal Year in substantially the form set forth in the tables “City of Rohnert Park Sewer System Single Family Residential Charges,” “City of Rohnert Park Sewer System Commercial Monthly Base Charges” and “City of Rohnert Park Sewer System Commercial/Multi-Family Residential Flow Charges” under the caption “THE SEWER SYSTEM OF THE CITY— System Rates and Charges—General” in the Official Statement; and (g) A summary of historical operating results (with debt service and coverage ratio shown) for the prior Fiscal Year, in substantially the form set forth under the caption “THE SEWER SYSTEM OF THE CITY—Historic System Operating Results and Debt Service Coverage” in the Official Statement. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to EMMA; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the City shall clearly identify each such document so included by reference. 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the occurrence of the event: 1. principal and interest payment delinquencies; E-3 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB); 6. tender offers; 7. defeasances; 8. ratings changes; and 9. bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: 1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds; 2. modifications to the rights of Bond holders; 3. bond calls; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and 7. appointment of a successor or additional trustee or the change of the name of a trustee. (c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the City shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the occurrence of the event. E-4 6. Customarily Prepared and Public Information. Upon request, the City shall provide to any person financial information and operating data regarding the City which is customarily prepared by the City and is publicly available. 7. Termination of Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, [the Insurer], any Holders or Beneficial Owners of at least 50% aggregate principal amount 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 City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time. 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, [the Insurer], the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: August __, 2017 CITY OF ROHNERT PARK By: Its: City Manager F-1 APPENDIX F SPECIMEN MUNICIPAL BOND INSURANCE POLICY ITEM NO. 9 1 Meeting Date: July 25, 2017 Department: Administration Submitted By: Darrin Jenkins, City Manager Agenda Title: Use of Investible Funds to Redeem the Outstanding 2005 Water Bonds Using Interfund Loans RECOMMENDED ACTION: Provide direction to staff to use investible special revenue funds to pay off the outstanding water bonds via internal borrowings to achieve a positive net fiscal impact of $784,000. BACKGROUND: The City’s Water Fund has long term debt in the form of bonds issued in 2005 to finance improvements to the City’s water system (“the Bonds”). At the time the Bonds were issued, the net revenues of the Water Fund were pledged as security for the Bonds and the City was to maintain a debt service coverage ratio of at least 1.20. The Bonds were originally issued in May 2005 in the total par amount of $5.0 million. The Bonds current outstanding principal amount is $3,285,000. ANALYSIS: The State of California recently went through a serious four-year drought. Since January 2014, the Governor and the State Water Board have issued increasingly more stringent Executive Orders and Emergency Regulations. This culminated in April of 2015, when the combined effect of these orders and regulations was a requirement the City reduce overall water use by 16% compared to 2013 baseline use. These emergency regulations provided the State Water Board with the authority to impose fines upon the City if it did not meet its required conservation target. Residents and businesses responded to the State requirements imposed upon the City and have achieved water savings in excess of 16% compared to the 2013 baseline. While this response has allowed the City to avoid fines from the State Water Board, it has significantly impacted water revenues. Because of the significant winter rains, our local and regional water supplies are in good shape. In June of 2016, in an effort to improve the cash flow of the Water Fund and help meet the City’s bond covenant obligation to maintain a debt coverage ratio of 1.20, the City paid off some of the Water Fund’s debt using retained earnings (fund balance). In an effort to continue to improve the cash flow conditions in the Water Fund, staff would like to pursue paying off the remaining Water Fund debt—2005 bonds in the amount of $3.3 million outstanding. The Water Fund lacks sufficient funds to pay off the Bonds at this time. However, a number of other City Special Revenue Funds contain monies intended for long-term investment. These funds can be used to reduce interest costs in the Water Fund while increasing interest earnings in the Special Revenue Funds. This would relieve or reduce the pressure on the Water Fund and eliminate the debt Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 9 2 coverage requirement contained in the bond documents. It also meets our goal to reduce debt where possible. The Bonds are redeemable on any date without premium from prepayment. Such a prepayment may next be made on or about September 1, 2017 and the 2005 Bonds could be redeemed on that date. In addition to the $3,285,000 of principal, approximately $60,000 in interest is due for a total payoff of $3,345,000. At present, the outstanding Bonds carry an interest rate of 4.00% to 4.50% (4.39% aggregate), which is significantly higher than what the City is receiving from the market on its current investment portfolio. Due to the reasons highlighted above, it makes economic sense for the City to pay off the 2005 Bonds from other funds and redeem them in full. This results in the City saving the interest cost it will otherwise incur, if it leaves the 2005 Bonds outstanding until their maturity on October 1, 2030. Upon Council direction, staff will proceed with the necessary activities to pay off the 2005 Bonds. LOAN TERMS: Inter-fund loans should benefit the loaning fund, but not at the detriment of the borrowing fund. The proposed terms in this case would benefit both the lending funds and the borrowing fund. Attached are four proposed term sheets for the inter-fund loans. The amount varies by each special revenue fund. The interest is set at 3% or the Sonoma County Investment Pool rate, whichever is higher. Payments will be twice per year, consistent with the current bonds. The principal payment amount will be based on a 12-year term, one year shorter than the remaining life on the Bonds. To be consistent with state law limiting some local investments to five years or less, the loans will be due in five years. The loans could then be paid back by the Water Fund, or renewed for an additional five years. This five-year check-in provides opportunity to evaluate the loans and whether they are fair to the lending and borrowing funds at that future date. The Water Fund may prepay the loans at any time. FISCAL IMPACT: The proposed payoff would utilize funds held in a number of Special Revenue Funds. These monies are currently invested with the Sonoma County Investment Pool (SCIP) managed by the Sonoma County Treasurer. This pool of investments is currently (3rd Quarter FY 16-17) earning 1.11% interest. Over the last 12 years SCIP has averaged 1.78% interest. Rather than holding the funds in this relatively low interest pool, staff proposes to loan these funds to the Water Fund to pay off the Bonds. The Water Fund would pay a fixed rate of 3.00% to the Special Revenue Funds unless the SCIP pool rate goes above 3.00%, in which case it would pay the SCIP rate. This ITEM NO. 9 3 provides a lower cost of interests for the Water Fund compared to the 4.39% of the Bonds and a greater rate of return for the Special Revenue Funds. The estimated Fiscal Impact is as follows: Water Fund Interest Savings: $528,000 Special Revenue Fund Earnings: $256,000 Total Benefit to City of Payoff: $784,000 The cost to pay off the outstanding 2005 Bonds on September 1, 2017 is estimated to be approximately $3,345,000 including accrued interest. The proposed funding sources are as follows: Water Fund Retained Earnings (Fund Balance) $ 345,000 University District Maintenance Annuity Fund (Loan) $1,000,000 Vehicle Replacement Fund (Loan) $1,200,000 Spreckels Endowment Permanent Fund (Loan) $ 500,000 Spreckels Donation Permanent Fund (Loan) $ 300,000 Total: $3,345,000 Staff is prepared to proceed with the funding sources as listed or open to suggesting other possible funding sources for the refunding. Water Fund Retained Earnings is the money held in the Water Fund after accounting for revenues and expenses. In 2016, the City used a portion of the retained earnings to pay off a 2002 Water Bond. While there are insufficient funds to pay off the entire Bond and maintain adequate reserves, there are sufficient funds to contribute toward the payoff as indicated above. University District Maintenance Annuity Fund holds monies provided to the City for the purpose of investing and using the earned interest to offset the maintenance costs created by the new housing development and accompanying infrastructure. The proposed loan would increase interest earnings by $85,000 over the 12-year period.1 Vehicle Replacement Fund is a fund created by the City to fund the planned replacement of our fleet. The City has set aside additional fund balance the last two years in the vehicle replacement fund. The loan can be made without negatively impacting our vehicle replacement schedule. The proposed loan would increase interest earnings by $102,000 over the 12-year period. Spreckels Endowment Permanent Fund holds monies donated to the City with the express purpose of investing the funds and putting the investment earnings toward the Spreckels Performing Arts Center. The proposed loan would increase those interest earnings by $43,000 over the 12-year period. Spreckels Donation Permanent Fund holds monies donated to the City for the purpose of supporting the Spreckels Performing Arts Center. These funds are used from time to time for projects and upgrades to Spreckels. With the proposed loan and the currently funded lighting and sound system replacement project, the fund would still have $300,000 for additional improvements 1 Using proposed 3.0% interest compared to the last 12 years of Sonoma County Investment Pool rate of 1.78%. ITEM NO. 9 4 while the principal of the loan is being repaid. The proposed loan would increase interest earnings by $26,000 over the 12-year period. STRATEGIC PLAN ALIGNMENT: Goal B of our strategic plan calls for City to Achieve and Maintain Financial Stability. Managing water operations, capital improvements, debt and debt covenants is an integral part of this goal. OPTIONS CONSIDERED: Option 1 – Recommended. The City would pay off the 2005 Bonds on or about September 1, 2017. This action would eliminate the debt coverage ratio requirement on the Water Fund. Option 2 – Not Recommended. The City would not pay off or refund the debt, and continue to make debt service payments per the debt schedule. City would forgo the opportunity to save future interest costs and relieve the Water Fund from the annual debt service payments on the 2005 Bonds. Finance Director Approval Date: July 17, 2017 City Attorney Approval Date: June 27, 2017 City Manager Approval Date: July 17, 2107 Attachments (list in packet assembly order): 1. UDSP Maintenance Annuity Interfund Loan Term Sheet 2. Vehicle Replacement Interfund Loan Term Sheet 3. Spreckels Endowment Interfund Loan Term Sheet 4. Spreckels Donation Interfund Loan Term Sheet ATTACHMENT 1 INTER-FUND LOAN TERM SHEET $1,000,000 Inter-Fund Loan from the University District Specific Plan Maintenance Annuity Fund to the Water Fund Purpose The Inter-Fund Loan proceeds shall be used exclusively for the purpose of prepaying the Rohnert Park CSCDA Water Revenue Bonds (Series 2005). Borrower City Water Fund #511 Lender City UDSP Maintenance Annuity Fund #151 Amount Up to $1,000,000 Interest The equivalent to a fixed annual rate of 3.0% or the Sonoma County Investment Pool, calculated semi-annually, whichever is greater. Payments Semi-annual payments to begin on the next semi-annual interval (April 1, October 1), following prepayment of the CSCDA Bonds. Payments are due within 30 days of the due date. Payments not received on time will continue to accrue interest on the remaining principal balance. Payment Calculation The annual sum of the payments shall be based on a 12-Year Term Loan compounded semi-annually at an annual interest rate of 3.0%. Maturity The Inter-Fund Loan will be repaid in full no later than July 31 , 2022 or may be renewed, as needed, for up to two additional five year periods. Prepayment Borrower has the right to prepay part or the entire outstanding Inter-Fund Loan amount at an y time without penalty. Security Net Revenues of the Water Fund (being total revenues less maintenance and operation expenses) ATTACHMENT 2 INTER-FUND LOAN TERM SHEET $1,200,000 Inter-Fund Loan from the Vehicle Replacement Fund to the Water Fund Purpose The Inter-Fund Loan proceeds shall be used exclusively for the purpose of prepaying the Rohnert Park CSCDA Water Revenue Bonds (Series 2005). Borrower City Water Fund #511 Lender City Vehicle Replacement #620 Amount Up to $1,200,000 Interest The equivalent to a fixed annual rate of 3.0% or the Sonoma County Investment Pool, calculated semi-annually, whichever is greater. Payments Semi-annual payments to begin on the next semi-annual interval (April 1, October 1), following prepayment of the CSCDA Bonds. Payments are due within 30 days of the due date. Payments not received on time will continue to accrue interest on the remaining principal balance. Payment Calculation The annual sum of the payments shall be based on a 12-Year Term Loan compounded semi-annually at an annual interest rate of 3.0%. Maturity The Inter-Fund Loan will be repaid in full no later than July 31 , 2022 or may be renewed, as needed, for up to two additional five year periods. Prepayment Borrower has the right to prepay part or the entire outstanding Inter-Fund Loan amount at an y time without penalty. Security Net Revenues of the Water Fund (being total revenues less maintenance and operation expenses) ATTACHMENT 3 INTER-FUND LOAN TERM SHEET $500,000 Inter-Fund Loan from the Spreckels Endowment Permanent Fund to the Water Fund Purpose The Inter-Fund Loan proceeds shall be used exclusively for the purpose of prepaying the Rohnert Park CSCDA Water Revenue Bonds (Series 2005). Borrower City Water Fund #511 (Water Fund) Lender Spreckels Endowment Permanent Fund #431 Amount Up to $500,000 Interest The equivalent to a fixed annual rate of 3.0% or the Sonoma County Investment Pool, calculated semi-annually, whichever is greater. Payments Semi-annual payments to begin on the next semi-annual interval (April 1, October 1), following prepayment of the CSCDA Bonds. Payments are due within 30 days of the due date. Payments not received on time will continue to accrue interest on the remaining principal balance. Payment Calculation The annual sum of the payments shall be based on a 12-Year Term Loan compounded semi-annually at an annual interest rate of 3.0%. Maturity The Inter-Fund Loan will be repaid in full no later than July 31 , 2022 or may be renewed, as needed, for up to two additional five year periods. Prepayment Borrower has the right to prepay part or the entire outstanding Inter-Fund Loan amount at an y time without penalty. Security Net Revenues of the Water Fund (being total revenues less maintenance and operation expenses) ATTACHMENT 4 INTER-FUND LOAN TERM SHEET $300,000 Inter-Fund Loan from the Spreckels Donation Permanent Fund to the Water Fund Purpose The Inter-Fund Loan proceeds shall be used exclusively for the purpose of prepaying the Rohnert Park CSCDA Water Revenue Bonds (Series 2005). Borrower City Water Fund #511 (Water Fund) Lender Spreckels Donation Permanent Fund #430 Amount Up to $300,000 Interest The equivalent to a fixed annual rate of 3.0% or the Sonoma County Investment Pool, calculated semi-annually, whichever is greater. Payments Semi-annual payments to begin on the next semi-annual interval (April 1, October 1), following prepayment of the CSCDA Bonds. Payments are due within 30 days of the due date. Payments not received on time will continue to accrue interest on the remaining principal balance. Payment Calculation The annual sum of the payments shall be based on a 12-Year Term Loan compounded semi-annually at an annual interest rate of 3.0%. Maturity The Inter-Fund Loan will be repaid in full no later than July 31 , 2022 or may be renewed, as needed, for up to two additional five year periods. Prepayment Borrower has the right to prepay part or the entire outstanding Inter-Fund Loan amount at an y time without penalty. Security Net Revenues of the Water Fund (being total revenues less maintenance and operation expenses) ITEM NO. 10 1 Meeting Date: July 25, 2017 Department: Development Services Submitted By: Mary Grace Pawson, PE, Development Services Director Prepared By: Zach Tusinger, Planner II Agenda Title: Public Hearing: Municipal Code Amendments to Regulate Short Term Rentals RECOMMENDED ACTION: Conduct a public hearing and waive first reading and introduce ordinance to amend Chapters 17.07.020 (Footnotes), 17.04.030 (Definitions), and 17.06.030 (Permitted Uses) of the Rohnert Park Zoning Ordinance. BACKGROUND: On January 24, 2017 staff presented the topic of Short Term Rentals (STRs) to City Council as a discussion item. City Council directed staff to craft an ordinance that allowed STRs under certain circumstances. The consensus of the Council was not to allow the rental of an entire primary dwelling unit but to develop a regulatory program that would allow single room rentals or rentals in accessory dwelling units. The Council indicated the primary goal of the regulatory program should be to provide a reasonable path for permitting while maintaining neighborhood character and preserving the City’s housing supply. Concerns Associated with STRs. Numerous issues are associated with STRs. Opponents of STRs note that they provide incentives for owners to remove properties from the available housing stock contributing to the housing shortage and increased housing costs. Data indicates that as the number of STRs in Sonoma County has increased, the seasonal, recreational, or occasional use units, which include vacation rental units, now comprise the largest share of total unoccupied units in Sonoma County and have steadily increased as a percentage of unoccupied units since 2005. As measured by the American Community Survey, they are now approximately 44 percent of the total unoccupied units in the County. This is an increase of 1,761 units or about 20 percent, which can be assumed to be a proportional reduction in for sale or rental housing available to working families. Various public safety issues are also cited, such as the impact on parking and traffic. Neighbors are often concerned about the potential noise impacts from parties and people coming and going, and the way the absence of traditional neighbors changes the character of their neighborhoods. Hotels and Bed & Breakfasts may complain that STRs do not shoulder the same overhead costs (such as Transient Occupancy Taxes or safety regulations) that they face. At the same time, there are positives associated with STRs. They’re a tool for homeowners to supplement their incomes and make their own homes more affordable. As an increasingly popular lodging option, areas with concentrations of STRs may see benefits to the economy in the form of visitors who spend money locally. Short Term Rentals in Rohnert Park. A well-run STR can generate substantial revenue for the owner/host. Studies have shown that in some markets, an owner can expect to earn double or more in annual rental income through short-term rental versus renting to local residents at market Mission Statement “We Care for Our Residents by Working Together to Build a Better Community for Today and Tomorrow.” CITY OF ROHNERT PARK CITY COUNCIL AGENDA REPORT ITEM NO. 10 2 rates. This creates an incentive for owners to withdraw potential rental units from the available housing pool. However, as Rohnert Park is a college town with high demand for long-term rental housing, there may be increased investor value without STRs compared to other cities in Sonoma County. As vacation rentals have not traditionally been a part of the landscape in Rohnert Park, the issue of STRs in the City is only beginning to emerge. To date there has only been two code complaints related to STRs – both involving the rental of an entire house. In May of 2015, Rohnert Park only had nine STR listings on AirBnB. As of September 2016, there were 22 separate listings within the city limits. This represents more than 100% growth in less than a year and a half. Dozens of additional AirBnB listings can be found in the immediate vicinity of the City including in Cotati, southern Santa Rosa, and adjacent areas of unincorporated Sonoma County. Of the listings within Rohnert Park, 18 were for private rooms within (presumably) owner-occupied homes, and four were for the entire home. The average advertised nightly rates for the private rooms and entire homes were $71.00 and $157.00, respectively. Listings also occur on less popular platforms such as Craigslist, HomeAway, Flipkey, and VRBO. ANALYSIS: The proposed ordinance is based on direction received by staff from the City Council, as well as additional input from the Planning Commission. The municipal code amendments would create a new definition for Short Term Rentals, add an additional line for Short Term Rentals to the residential use table, and add a footnote ‘KK’ to Section 17.07.020. Footnote KK is proposed to allow Short Term Rentals under certain conditions through an Administrative Use Permit. Administrative Use Permits are reviewed by staff and notices go out to immediately adjacent property owners. If members of the public wish to contest the issuance of an Administrative Use Permit for an STR, the matter can be referred to the Planning Commission at the discretion of the Planning Manager. As proposed, STRs would be subject to all of the following conditions as part of the Administrative Use Permit process: 1) Only single room rentals would be permitted (no whole house rentals would be permitted). 2) The STR could be rented for no more than 14 consecutive days. 3) A business license shall be required. 4) The STR will be subject to the City’s Transient Occupancy Tax (TOT) regulations. 5) No onsite signage would be allowed. 6) The business license number would be required to be included in any advertisement. 7) Smoke and carbon monoxide detectors would be required within the STR. 8) The owner would be required to provide rules and a copy of this ordinance within the rented space. One of the key proposed restrictions is to differentiate between whole house rentals and room rentals. Single room rentals would be allowed while whole house rentals would not. Staff believes that room rentals are unlikely to have much of a negative impact on the community’s available housing supply. In fact, they may make housing more affordable for some by allowing them an opportunity to use their home to supplement their income and pay their mortgage expenses. Room rentals by their nature limit the size of the visiting party, which reduces the potential for noise and traffic which could impact neighbors. Whole house rentals have a greater potential to change the character of neighborhoods, particularly if they are in close proximity to one another. Whole house rentals are more often associated with noise, traffic, and parties. The Council’s initial direction allowed accessory dwelling units to be used as STRs. The Planning Commission deliberated on this issue with the goal of aligning short term rental regulations with the recently adopted accessory dwelling unit (ADU) regulations. The Planning ITEM NO. 10 3 Commission indicated that it believed the use of accessory dwelling units as short term rentals was inconsistent with the goals of the ADU ordinance which include creating and preserving housing. The Planning Commission also indicated that it believed allowing accessory units, which can be up to 1200 square feet in size in some circumstances, to be used for short term rentals could create problems similar to whole house rentals. Based on these deliberations, the proposed ordinance includes a broad definition of STRs, which includes ADUs, but specifically prohibits the use of an accessory unit as a short term rental. This approach allows for modification of the prohibition in the future. The recommended requirements and restrictions strive to find a balance between allowing STRs and putting reasonable regulations on them to maintain neighborhood character and preserve the City’s housing supply. An important consideration is enforcement, which can be challenging with STRs. A requirement for home owners to obtain an administrative use permit, as proposed, is reasonable and provides staff with an enforcement mechanism. The administrative use also provides a way for neighbors to be informed, complaints to be considered, and STRs to be referred to the Planning Commission if necessary. Enforcement would be primarily complaint driven. If a complaint or issue is brought to the City, then the code enforcement officer would confirm with the Finance Department whether or not this is an STR that has been permitted, has a valid business license, and is complying with the City’s TOT requirements. If they do not, or if they are in violation of any other aspect of the City code then informal contact with the owner would be established and accompanied by a letter. If the issue is not resolved then an administrative citation could be issued, ultimately resulting in fines. On a separate track, if the STR has a valid administrative use permit for an STR but is otherwise violating a provision of the ordinance, then the Planning Commission on recommendation from staff or of its own initiative, could begin proceedings to revoke the administrative use permit. This is a process that already exists for situations where a use permit has been violated (usually on multiple occasions or in an ongoing manner). After acquiring a city business license, an STR would be required to submit a monthly return to the City with a payment for total applicable TOT and fees for the foregoing time period. The City conducts occasional audits to ensure that returns are accurate. Such audits could require the submission of records from the owner/operator to verify their reporting. Certain proposed regulations (like the limitation of 14 consecutive days and the prohibition on signage) are designed to lessen the potential impacts of any STR on the neighborhood. The limitation on consecutive days is also intended to clearly distinguish between a short term rental and long term rentals (30 days or longer) which are regulated quite differently. Requiring that operators maintain a city business license and comply with Transient Occupancy Tax requirements would allow an opportunity to monitor permitted STRs and put them on a more level playing field with hotels and motels. Per direction from City Council and Planning Commission, staff will keep records of permitted STRs and any complaints and will report back periodically on STRs. By recommendation from the Planning Commission, the proposed ordinance also includes a provision requiring operators to maintain a liability insurance policy. Traditional homeowners’ policies generally do not provide protection for STRs, which is why some companies like ITEM NO. 10 4 AirBnB sell liability insurance policies directly to their hosts. The City does not traditionally require insurance policies for businesses in their normal course of operation. However, the City does require insurance policies for temporary events or for other activities or work being conducted on or affecting City property. The Planning Commission indicated that STRs are a novel use within residential districts, and have the potential to affect property in unique ways, the requirement to maintain a liability insurance property in this case is a responsible course of action. ENVIRONMENTAL ANALYSIS: The proposed amendments are not subject to CEQA pursuant to Section 13060(c) (2) (the activity will not result in a direct or reasonable foreseeable indirect physical change to the environment) and 15060(c) (3) (the activity is not a project as defined in Section 15378 of the CEQA Guidelines, because it has no potential for resulting in a physical change to the environment, directly or indirectly). OPTIONS CONSIDERED: None. This action results from City Council direction. STRATEGIC PLAN ALIGNMENT: This action is consistent with Strategic Plan Goal D: Continue to develop a vibrant community. The proposed amendments would be consistent with the goals, policies and implementation measures contained in the General Plan, Land Use and Housing Elements: The proposed regulations would retain the fundamental character and land use mix in residential areas, while adapting existing structures to reflect changing economic circumstances and housing needs. The proposed regulations would expand opportunities for homeowners to stay in their existing housing, and will assist the City in meeting its regional housing needs by preserving the existing housing stock for residential purposes. FISCAL IMPACT/FUNDING SOURCE: This action results in the modest fiscal impact associated with the staff time necessary to prepare the ordinance, modify the Zoning Code, and update internal processes and procedures. Additional minor fiscal impact may be expected through the collection of TOT and business license fees. Administrative Permits for STRs would result in proportional minimal fiscal impacts in terms of collecting planning application fees. Department Head Approval Date: July 10, 2017 Finance Director Approval Date: July 14, 2017 City Attorney Approval Date: July 10, 2017 City Manager Approval Date: July 17, 2017 Attachments (list in packet assembly order): 1. Proposed Ordinance 2. Planning Commission Resolution No. 2017-15 1 Ord. 908 ORDINANCE NO. 908 AN ORDINANCE OF THE CITY OF ROHNERT PARK, CALIFORNIA, AMENDING TITLE 17 OF THE ROHNERT PARK MUNICIPAL CODE TO REGULATE SHORT TERM RENTALS WHEREAS, the applicant, the City of Rohnert Park, filed Planning Application No. PLMC2017-0002 proposing to amend the Rohnert Park Municipal Code (“RPMC”) by amending Sections 17.04.030 – Definitions, 17.06.030 – Permitted Uses and Sections 17.07.020 – Footnotes; WHEREAS, on January 24, 2017 the City Council directed City Staff to prepare an ordinance allowing and regulating Short Term Rentals under certain circumstances; WHEREAS, on May 25, 2017, the Planning Commission held a public hearing at which time interested persons had an opportunity to testify either in support or opposition to the proposal; WHEREAS, pursuant to California State Law and the RPMC, a public notice was published in the Press Democrat for a minimum of 10 days prior to the Planning Commission public hearing; WHEREAS, the Planning Commission has reviewed and considered the information contained in Planning Application No. PLMC2017-0002 for the proposed amendments to Title 17 Zoning of the Municipal Code; WHEREAS, on June 22, 2017, the Planning Commission recommended the proposed changes to the City Council by Resolution No. 2017-15; WHEREAS, pursuant to California State Law and the RPMC, a public notice was published in the Community Voice for a minimum of 10 days prior to the City Council public hearing; WHEREAS, on July 25, 2017, the City Council held a public hearing at which time interested persons had an opportunity to testify either in support or opposition to the proposal; and WHEREAS, the City Council has reviewed and considered the information contained in the Zoning Ordinance amendment application for the proposal. NOW, THEREFORE, the City Council of the City of Rohnert Park does hereby ordain as follows: Section 1. Recitals and Evidence. The above recitations are true and correct. In making its findings, the City Council relied upon and hereby incorporates by reference all staff reports, presentations, and other documentation presented to the Council in the meeting. 2 Ord. 908 Section 2. Environmental Review. No CEQA analysis is required for this project pursuant to CEQA pursuant to Section 13060(c)(2) and Section 15060(c)(3) as the activity will not result in direct or reasonably foreseeable physical change to the environment, and the activity is not a project because it has no potential for resulting in a physical change to the environment, directly or indirectly. Section 3. Findings for Enactment of Amendments to Zoning Map and Zoning Ordinance. The City Council hereby makes the following findings concerning amendments to Sections 17.07.020 – Footnotes, 17.04.030 – Definitions, and 17.06.030 – Permitted Uses, of the Zoning Ordinance: 1. That the proposed amendments to the Zoning Map and Zoning Ordinance are consistent with the General Plan 2020. Criteria Satisfied. Criteria Satisfied. The proposed amendments to the Municipal Code are consistent with the General Plan 2020 Goals of maintaining a compact urban form, and providing a range of housing types and prices. Specifically, Goal LU-A (compact urban form) is promoted by a more efficient utilization of land, housing stock, and infrastructure through the use of existing housing for limited transient occupancy. Goal CD-H (variety of housing types and sizes) is promoted by restricting whole house rentals and resultantly maintaining neighborhoods. Goal HO- 3 (affordable housing) is encouraged by allowing residents to supplement their income through single room rentals. 2. That the proposed amendment to the Zoning Ordinance will be beneficial to the public health, safety or welfare. Criteria Satisfied. The proposed amendments to the RPMC will provide for the health, safety and welfare of individuals living in Rohnert Park by preserving housing options, while also expanding safe opportunities for residents to supplement their incomes and generate revenue from their homes. This will help to insure that new investment comes into neighborhoods and reduces the need to build new housing by better utilizing existing housing stock. Regulations will ensure that Short Term Rentals are safe for occupants and do not affect the health, safety, and welfare of surrounding residents. Section 4. Amendment of Section 17.04.030 to Add New Definition for Short Term Rental. The City Council hereby adds the following definition to Section 17.04.030, of the Rohnert Park Municipal Code: “Short Term Rental” means a dwelling unit, part of a dwelling unit, or an accessory dwelling unit, that is a type of transient lodging establishment engaged in providing overnight or otherwise temporary lodging for a period of less than 30 days. Does not include “Bed and Breakfast Inns”, “Boarding House”, “Hotel”, or “Motel”, each of which are separately defined. 3 Ord. 908 Section 6. Amendment of Section 17.06.030. Permitted Uses. The City Council hereby amends Section 17.06.030, Permitted Uses, of the Rohnert Park Municipal Code by adding “Short Term Rentals” as a Land Use Category as shown herein: Land Use Category R-R/R-E R-L R-M R-H DTR-H [To be inserted alphabetically:] Short Term Rental (single room) (KK) A A A A A [End Insertion] Section 7. Amendment of Section 17.07.020. Footnotes. The City Council hereby adds Subsection KK of Section 17.07.020, Footnotes, of the Rohnert Park Municipal Code, to be inserted sequentially, with the following: “(KK) SHORT TERM RENTAL 1. Short Term Rentals as described in § 17.04.030 (Definitions) are permitted by Administrative Use Permit in all residential districts per § 17.06.030. 2. Permit required. No person shall establish, operate or maintain a Short Term Rental without first obtaining a valid Administrative Use Permit (See RPMC § 17.25.050 et seq.) for operation of a Short Term Rental. 3. Short Term Rentals are distinct from Bed and Breakfast Inns as described in § 17.07.020.D. 4. Short Term Rentals are prohibited in Accessory Dwelling Units and accessory structures. 5. Short Term Rentals shall be subject to the following conditions: a. No more than one bedroom of a primary dwelling unit shall be rented, let, or leased as a Short Term Rental. b. The Short Term Rental shall be rented for no more than fourteen consecutive days. c. The owner/operator of an approved Short Term Rental shall be required to obtain and maintain a city business license prior to operation of a Short Term Rental. d. All applications for Short Term Rentals shall include the property owner’s authorization. 4 Ord. 908 e. Short Term Rentals are subject to the City’s transient occupancy tax. The person in whose name the Administrative Use Permit (referenced in subsection (2) of this section) is issued, shall be responsible for compliance with the City’s transient occupancy tax regulations as described in § 3.24 (Transient Occupancy Tax). f. No on-site exterior signage of any kind shall be allowed in conjunction with the Short Term Rental. g. In every advertisement for the Short Term Rental, the owner/operator shall include the City issued permit number. h. All Short Term Rentals must provide smoke and carbon monoxide detectors in compliance with the Rohnert Park Building Code for new construction. i. The Short Term Rental shall comply with all applicable sections of the Rohnert Park Municipal Code. Any violation of this section or of the Rohnert Park Municipal Code will be considered a violation of the Administrative Use Permit. j. The Host (owner/operator) shall provide a written manual to guests providing important contact numbers, a copy of this RPMC code section, parking limitations, and other helpful information to minimize conflict within the neighborhood. k. The Host (owner/operator) shall maintain a liability insurance policy that covers this use. Section 10. Severability. The City Council hereby declares that every section, paragraph, sentence, clause, and phrase of this ordinance is severable. If any section, paragraph, sentence, clause or phrase of this ordinance is for any reason found to be invalid or unconstitutional, such invalidity, or unconstitutionality shall not affect the validity or constitutionality of the remaining sections, paragraphs, sentences, clauses, or phrases. Section 11. Effective Date. This ordinance shall be in full force and effective 30 days after its adoption, and shall be published and posted as required by law. Section 12. Publication. The City Clerk is directed to cause this ordinance to be published in the manner required by law. [THE REMAINDER OF THIS PAGE IS LEFT BLANK INTENTIONALLY.] 5 Ord. 908 This ordinance was introduced on July 25, 2017 and is scheduled for adoption by the Council of the City of Rohnert Park on August 8, 2017, by the following roll call vote: AYES: NOES: ABSENT: ABSTAIN: CITY OF ROHNERT PARK ___________________________________ Jake Mackenzie, Mayor ATTEST: ___________________________________ JoAnne Buergler, City Clerk APPROVED AS TO FORM: ___________________________________ Michelle Kenyon, City Attorney I, JOANNE BUERGLER, CITY CLERK of the City of Rohnert Park, California, do hereby certify that the foregoing Ordinance was duly adopted and passed at a regular meeting of the City Council on the 8th day of August, 2017 by the following vote: AYES: NOES: ABSENT: ABSTAIN: ___________________________________ JoAnne Buergler, City Clerk Attachment 2 Municipal Code Amendments: Short Term Rentals PLMC17-0002 City of Rohnert Park City Council July 25, 2017 1 Goals Get ahead of issue/be proactive Opportunity to bring existing STRs out of the dark and for new STRs to have a legal process to go through Give the City enforcement options Tailor a policy approach that works for Rohnert Park 2 What this affects Existing Short Term Rentals New Short Term Rentals 3 AirBnB Growth in Rohnert Park May 2015 –9 listings September 2016 –22 listings July 2017 –32 listings (1/3 are whole house) 4 Concerns Reduces available housing Nuisance impacts: parking, traffic, parties Changes neighborhood character Lack of health and safety regulation Negative fiscal impacts (if unregulated) 5 Benefits 6 Tool for homeowners to supplement income Increased lodging options for tourists and business travelers Positive fiscal impacts (if regulated) City Council Direction Rohnert Park is a family friendly city Want to stay ahead of the issue Preserve housing and neighborhoods Balance cost/benefits of regulation Notice to neighbors is important Require business license and payment of TOT Single Room rentals or ADUs ok* 7 Public Hearing Feedback from one homeowner who is a neighbor to an STR (supportive of proposed ordinance) Staff has conducted additional outreach to STR operators 8 Planning Commission Feedback *Do not allow STRs in ADUs Recommended Ordinance Add definition of ‘short term rental’ Amend use table for residential districts New footnote: ◦Require an administrative use permit ◦Single room only (not ADUs) ◦City business license, TOT, and insurance required ◦Require posting of rules, ordinance, and permit number ◦Subject to permit revocation and/or administrative citation 9 Next Steps Second reading Effective 30 days after second reading Implementation Outreach 10 Recommendation ◦Adopt the Ordinance amending Municipal Code Chapters 17.07.020 Footnotes, 17.04.030 Definitions, and Chapter 17.06.030 Permitted Uses. 11