$4,390,000 placentia public financing ... - californiacdiacdocs.sto.ca.gov/2009-0438.pdf ·...

NEW ISSUE NOT RATED

BOOK-ENTRY-ONLY (See “CONCLUDING INFORMATION – No Ratings on the Bonds” herein)

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, interest on the 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 and the Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. See “LEGAL MATTERS – Tax Exemption” herein.

ORANGE COUNTY STATE OF CALIFORNIA

$4,390,000 PLACENTIA PUBLIC FINANCING AUTHORITY

2009 LEASE REVENUE BONDS (WORKING CAPITAL FINANCING)

(BANK QUALIFIED)

Dated: Date of Delivery Due: June 1, 2019

The cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. See “BOND OWNERS’ RISKS” herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds.

The Placentia Public Financing Authority (the “Authority”) 2009 Lease Revenue Bonds (Working Capital Financing) (the “Bonds”) are being issued to (i) finance the City’s accumulated working capital deficit, (ii) fund a reserve fund for the Bonds and (iii) pay the costs incurred in connection with the issuance of the Bonds. The Bonds are payable from lease payments (“Lease Payments”) to be made by the City of Placentia (the “City”) to the Placentia Public Financing Authority (the “Authority”) as rental for certain real property and the improvements thereon (referred to herein as the “Leased Property”) consisting of the City’s City Hall, pursuant to a Lease Agreement dated as of June 1, 2009, by and between the City and the Authority (the “Lease Agreement”), as described herein. The City is required under the Lease Agreement to make Lease Payments in each Fiscal Year in consideration of the use and possession of the Leased Property from any source of available funds, including certain funds held under an indenture of trust, as described herein, and insurance or condemnation awards, in an amount sufficient to pay the annual principal and interest due on the Bonds, subject to abatement, as described herein. See “SOURCES OF PAYMENT FOR THE BONDS” and “BOND OWNERS’ RISKS” herein.

Interest on the Bonds is payable semiannually on December 1 and June 1 of each year, commencing on December 1, 2009, until maturity or earlier redemption. See “THE BONDS - General Provisions” and “THE BONDS - Redemption” herein.

MATURITY SCHEDULE

$4,390,000 7.50% Term Bond Due June 1, 2019 Yield 7.50% CUSIP®† 72588R AB5

The Bonds do not constitute an obligation of the Authority for which the Authority is obligated to levy or pledge any form of taxation or for which the Authority has levied or pledged any form of taxation. The obligation of the City to pay Lease Payments 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 Lease Payments does not constitute a debt or liability of the City, the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.

The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will be passed on for the City and the Authority by the City Attorney, and by Best Best & Krieger LLP, Riverside, California, as Disclosure Counsel and for the Underwriter by its Counsel, Nossaman LLP, Irvine, California. It is anticipated that the Bonds, in book-entry form, will be available for delivery on or about June 30, 2009 through the facilities of The Depository Trust Company (see “APPENDIX E – DTC AND THE BOOK-ENTRY-ONLY SYSTEM” herein).

The date of the Official Statement is June 24, 2009.

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Authority or the City in any press release and in any oral statement made with the approval of an authorized officer of the City or any other entity described or referenced herein, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.

Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Authority or the City to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the City, the Financial Advisor 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 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

Involvement of Underwriter. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as 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.

Information Subject to Change. The information and expressions 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 Authority or the City or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions.

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

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

† CUSIP® A registered trademark of the American Bankers Association. Copyright © 1999-2009 Standard & Poor’s, a Division of The McGraw-Hill Companies, Inc. CUSIP® data herein is provided by Standard & Poor’s CUSIP® Service Bureau. This data in not intended to create a database and does not serve in any way as a substitute for the CUSIP® Service Bureau. CUSIP® numbers are provided for convenience of reference only. Neither the City, the Authority nor the Underwriter takes any responsibility for the accuracy of such numbers.

PLACENTIA PUBLIC FINANCING AUTHORITY PLACENTIA, CALIFORNIA

CITY COUNCIL AND AUTHORITY BOARD

Greg Sowards, Mayor and Chair Joseph V. Aguirre, Mayor Pro Tem and Vice Chair

Scott W. Nelson, Council Member and Board Member Constance Underhill, Council Member and Board Member

Jeremy B. Yamaguchi, Council Member and Board Member ______________________________________________

CITY AND AUTHORITY STAFF

Troy L. Butzlaff, ICMA-CM, City Administrator and Executive Director Ken Domer, Assistant City Administrator

Stephen D. Pischel, Administrative Services Director Karen Ogawa, Finance Director

Patrick J. Melia, City Clerk and Secretary Chad P. Wanke, City Treasurer

________________________________________

PROFESSIONAL SERVICES

Bond Counsel Jones Hall

A Professional Law Corporation San Francisco, California

Disclosure Counsel Best Best & Krieger LLP

Riverside, California

City Attorney Andrew V. Arczynski Fullerton, California

Financial Advisor Harrell & Company Advisors, LLC

Orange, California

Trustee U.S. Bank National Association

Los Angeles, California

TABLE OF CONTENTS

INTRODUCTION ......................................................1 The Authority.............................................................1 The City .....................................................................1 Security and Sources of Repayment ..........................2 Current City Finances ................................................3 Tax Exemption...........................................................3 Professional Services .................................................3 Offering of the Bonds ................................................4 Information Concerning this Official Statement........4

THE BONDS...............................................................5 General Provisions.....................................................5 Redemption................................................................6 Scheduled Debt Service on the Bonds .......................8

THE FINANCING PLAN..........................................8 Working Capital Deficit.............................................8 Estimated Uses of Funds..........................................10

THE LEASED PROPERTY ....................................10 SOURCES OF PAYMENT FOR THE BONDS .....10

General.....................................................................10 Lease Payments; Abatement ....................................11 Reserve Fund ...........................................................12 Insurance Relating to the Property...........................12 Remedies on Default................................................13

CITY OF PLACENTIA ...........................................13 FINANCIAL INFORMATION ...............................20

Budgetary Process and Administration....................20 Appropriations Limit ...............................................20 Revenues and Expenditures .....................................20 Local Taxes ..............................................................23 Motor Vehicle License Fees.....................................27 Other Revenue Sources............................................28 Retirement Programs ...............................................28 Employee Relations and Collective Bargaining ......29 Insurance Program...................................................29 Litigation and Investigations ...................................30 Outstanding Indebtedness of the City ......................31 Direct and Overlapping Debt...................................31 Financial Statements ................................................33 City Investment Policy and Portfolio.......................36

Long-Term Financial Plan .......................................36 Projected Working Capital and Payment of the

Bonds ....................................................................40 BOND OWNERS’ RISKS ........................................43

No Tax Pledge .........................................................43 Projected Working Capital .......................................43 The Lease Payments ................................................43 Dispute with CalTrans .............................................44 State Budget.............................................................45 Constitutional Limitation on Taxes and

Expenditures .........................................................50 Limited Recourse on Default ...................................53 Substitution of Property ...........................................53 Enforceability of Remedies......................................54 Loss of Tax Exemption ............................................54 Secondary Market ....................................................54

LEGAL MATTERS ..................................................55 Approval of Legal Proceedings................................55 Tax Exemption.........................................................55 Absence of Litigation...............................................56

CONCLUDING INFORMATION ..........................57 No Ratings on the Bonds .........................................57 Underwriting............................................................57 The Financial Advisor..............................................57 Continuing Disclosure .............................................57 Additional Information ............................................58 References................................................................58 Execution .................................................................58

APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

APPENDIX B - CITY AUDITED FINANCIAL STATEMENTS

APPENDIX C - FORM OF CONTINUING DISCLOSURE CERTIFICATE

APPENDIX D - FORM OF BOND COUNSEL’S OPINION

APPENDIX E - DTC AND THE BOOK-ENTRY-ONLY SYSTEM

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OFFICIAL STATEMENT $4,390,000

PLACENTIA PUBLIC FINANCING AUTHORITY 2009 LEASE REVENUE BONDS

(WORKING CAPITAL FINANCING)

This Official Statement which includes the cover page and appendices (the “Official Statement”), is provided to furnish certain information concerning the sale of the Placentia Public Financing Authority (the “Authority”) 2009 Lease Revenue Bonds (Working Capital Financing) (the “Bonds”), in the aggregate principal amount of $4,390,000.

INTRODUCTION This Introduction contains only a brief description of this issue and does not purport to be complete. The Introduction is subject in all respects to more complete information in the entire Official Statement and the offering of the Bonds to potential investors is made only by means of the entire Official Statement and the documents summarized herein. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision (see “BOND OWNERS’ RISKS” herein).

The Authority

The Placentia Public Financing Authority (the “Authority”) is a joint exercise of powers authority formed by its members, the City of Placentia (the “City”) and the Placentia Redevelopment Agency (the “Redevelopment Agency”). The Authority was established under that certain Joint Exercise of Powers Agreement by and between the City and the Agency dated July 1, 1996 and under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the “Act”), and is authorized pursuant to Article 4 of the Act to borrow money for the purpose of refunding its bonds, notes and other obligations and to provide financing and refinancing for working capital and capital improvements of member entities of the Authority.

The Authority is governed by a board of five directors, which is composed of the members of the City Council. The Executive Director of the Authority is the City Administrator. The Authority is specifically granted all of the powers specified in the Act, including but not limited to the power to issue bonds and to sell such bonds to public or private purchasers at public or by negotiated sale. The Authority is entitled to exercise powers common to its members and necessary to accomplish the purpose for which it was formed.

The City

The City was incorporated in 1926 as a general law city, adopted a charter form of government in 1965, and operates under the council-administrator form of government. The City encompasses approximately 6.7 square miles and is located in northern Orange County, adjacent to the cities of Brea, Fullerton and Yorba Linda (see “CITY OF PLACENTIA” herein).

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Security and Sources of Repayment

The Bonds are secured under an Indenture of Trust dated as of June 1, 2009 (the “Indenture”), by and between the Authority and U.S. Bank National Association, Los Angeles, California, as trustee (the “Trustee”) (see “APPENDIX A – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein).

Pursuant to a Site Lease dated as of June 1, 2009 (the “Site Lease”), by and between the City and the Authority, the City will lease to the Authority certain real property (the “Site”) and certain facilities located thereon (together with the Site, the “Leased Property”) owned by the City. See “THE LEASED PROPERTY” herein. Concurrently, the City will lease back the Leased Property from the Authority pursuant to a Lease Agreement dated as of June 1, 2009 (the “Lease Agreement”), by and between the Authority and the City. Under the Lease Agreement and, subject to abatement, the City is required to make lease payments (the “Lease Payments”) from legally available funds in amounts calculated to be sufficient to pay principal of and interest on the Bonds when due. The City has covenanted in the Lease Agreement to take such actions as may be necessary to include all Lease Payments in its annual budgets and to make the necessary annual appropriations for all such Lease Payments subject to complete or partial abatement of such Lease Payments resulting from a taking of the Leased Property (either in whole or in part) under the powers of eminent domain or resulting from damage or loss of all or any portion of the Leased Property. All of the Authority’s right, title and interest in and to the Lease Agreement (apart from certain rights to receive Additional Payments, as defined herein, to the extent payable to the Authority and to indemnification), including the right to receive Lease Payments under the Lease Agreement, are assigned to the Trustee under the Indenture and the Assignment Agreement, dated June 1, 2009 (the “Assignment Agreement”), for the benefit of Bondholders.

For a summary of the Indenture, the Lease Agreement and the Site Lease, see “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” herein. Certain capitalized terms used in this Official Statement and not otherwise defined have the meanings given them in “APPENDIX A.”

In general, the City is required under the Lease Agreement to pay to the Authority specified amounts for use and possession of the Leased Property which amounts are calculated to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. The City is also required to pay any taxes and assessments levied on the Leased Property and all costs of maintenance and repair of the Leased Property. Except for the Authority’s right, title and interest in and to the Lease Agreement which have been assigned to the Trustee, no funds or Leased Property of the Authority or the City are pledged to or otherwise liable for the obligations of the Authority or the City (see “BOND OWNERS’ RISKS” herein).

The Lease Agreement is, in the opinion of Bond Counsel, a valid and binding obligation of the Authority and the City enforceable against the Authority and the City in accordance with its terms, except to the extent enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights heretofore or hereinafter enacted, by equitable principles, by the exercise of judicial discretion and by the limitations on legal remedies against municipalities in the State of California (see “BOND OWNERS’ RISKS - Limited Recourse on Default” herein). The form of Bond Counsel’s opinion is attached hereto as “APPENDIX D.”

The obligation of the City to pay Lease Payments 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 pledged any form of taxation. The obligation of the City to pay Lease Payments does not constitute a debt or liability of the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction.

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Current City Finances

As further described in this Official Statement, the City is experiencing significant financial stress as a result of the City’s prior years’ advance of $16 million from the General Fund to the Orange North American Trade Access Corridor Joint Powers Authority (“OnTrac”), with the expectation that such advance would be reimbursed. The advance was not reimbursed and, as a result, the General Fund has experienced a deficit for the last five Fiscal Years, ended Fiscal Year 2007/08 with a negative General Fund balance of $4.56 million, and without the issuance of the Bonds, projects to end Fiscal Year 2008/09 with a negative General Fund balance of $3.7 million. The prolonged economic downturn in the State of California has made it unlikely that the City will experience enough growth in property tax revenues and sales tax revenues, which constitute a significant portion of the City’s General Fund revenues, to eliminate the deficit in a short period of time. It does not appear likely that the City can continue to operate with a large deficit balance and it will take the City many years to recover. The City is reviewing its expenditures and revenue sources to address its cash flow needs.

The City also expects to end Fiscal Year 2008/09 with a negative fund balance of $1.98 million in its major Capital Projects fund, the Orangethorpe Corridor Capital Projects Fund. This deficit is expected to be eliminated over time as grant monies are received from the State, the County of Orange and the federal government as reimbursement for prior expenditures on qualifying projects.

These and other matters relating to the City’s finances are set forth in greater detail in “THE FINANCING PLAN – Working Capital Deficit,” and, “FINANCIAL INFORMATION,” which should each be read in its entirety by purchasers of the Bonds.

Tax Exemption

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, the interest on the 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 and the Bonds are “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, the interest on the Bonds is exempt from State of California personal income tax. See “LEGAL MATTERS - Tax Exemption” herein.

Professional Services

The legal proceedings relating to the issuance of the Bonds are subject to the approving opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will be passed on for the Authority and the City by Andrew V. Arczynski, Fullerton, California as City Attorney and Best Best & Krieger LLP, Riverside, California as Disclosure Counsel and for the Underwriter by its Counsel, Nossaman LLP, Irvine, California.

U.S. Bank National Association serves as Trustee under the Indenture. The Trustee will act on behalf of the Bond Owners for the purpose of receiving all moneys required to be paid to the Trustee, to allocate, use and apply the same, to hold, receive and disburse the Lease Payments and other funds held under the Indenture, and otherwise to hold all the offices and perform all the functions and duties provided in the Indenture to be held and performed by the Trustee.

Harrell & Company Advisors, LLC (the “Financial Advisor”) advised the Authority and the City as to the financial structure and certain other financial matters relating to the Bonds.

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The City’s audited general purpose financial statements for the Fiscal Year ended June 30, 2008, attached hereto as “APPENDIX B” have been audited by Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants, Rancho Cucamonga, California. The City’s audited financial statements are public documents and are included within this Official Statement without the prior approval of the auditor. Accordingly, the auditor has not performed any post-audit of the financial condition of the City.

Offering of the Bonds

Authority for Issuance and Delivery. The Bonds are to be issued and delivered pursuant to the Indenture authorized by a resolution of the Authority adopted on June 16, 2009. The Site Lease and the Lease Agreement will be entered into in accordance with the laws of the State of California (the “State”), and particularly Section 37350 of the Government Code of the State.

Offering and Delivery of the Bonds. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. It is anticipated that the Bonds, in book-entry form, will be available for delivery in New York, New York on June 30, 2009 through the facilities of The Depository Trust Company. See “APPENDIX E – DTC AND THE BOOK-ENTRY-ONLY SYSTEM.”

Information Concerning this Official Statement

This Official Statement speaks only as of its date. The information set forth herein which has been obtained by the Authority and the City with the assistance of the Financial Advisor from sources which are believed to be reliable and such information is believed to be accurate and complete, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor or the Disclosure Counsel. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended as such and are not to be construed as representations of fact.

The information and expressions of opinion herein are subject to change without notice and the delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the information or opinions set forth herein or in the affairs of the Authority or the City since the date hereof.

Availability of Legal Documents. The summaries and references contained herein with respect to the Indenture, the Lease Agreement, the Site Lease, the Bonds and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Financial Advisor. Copies of these documents may be obtained after delivery of the Bonds at the trust office of the Trustee, U.S. Bank National Association, Los Angeles, California or from the Authority at 401 East Chapman Avenue, Placentia, California 92870.

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THE BONDS General Provisions

Payment of the Bonds. The Bonds will be issued in the form of fully registered Bonds in the principal amount of $5,000 each or any integral multiple thereof. Interest on the Bonds is payable at the rates per annum set forth on the inside front cover page hereof, on December 1, 2009 and each June 1 and December 1 thereafter (each, an “Interest Payment Date”) until maturity. Interest on the Bonds will be computed on the basis of a year consisting of 360 days and twelve 30-day months. Principal on the Bonds is payable on June 1 in each of the years and in the amounts set forth on the inside front cover page hereof.

Each Bond will be dated as of the date of original delivery of the Bonds, and interest on the Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof, unless (a) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (b) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (c) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date.

Book-Entry Only System. The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The 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. Interest on and principal of the Bonds will be payable when due by wire of the Trustee to DTC which will in turn remit such interest and principal to DTC Participants (as defined herein), which will in turn remit such interest and principal to Beneficial Owners (as defined herein) of the Bonds (see “APPENDIX E – DTC AND THE BOOK-ENTRY-ONLY SYSTEM” herein). As long as DTC is the registered owner of the Bonds and DTC’s book-entry method is used for the Bonds, the Trustee will send any notices to Bond Owners only to DTC.

Discontinuance of Book-Entry System. DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Indenture. The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, the Bonds will be printed and delivered as described in the Indenture. In addition, the following provisions shall apply: interest represented by each Bond will be paid on each Interest Payment Date by check of the Trustee mailed on such Interest Payment Date by first class mail, to the person appearing on the registration books of the Trustee as the Owner thereof as of the close of business on the preceding Record Date, at such Owner’s address as it appears on the registration books of the Trustee; provided however, that at the written request of the Owner of Bonds in an aggregate principal amount of at least $1,000,000, which request is on file with the Trustee as of any Record Date, interest with respect to such Bonds shall be paid on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account within the United States of America as shall be specified in such request. The principal and redemption price represented by any Bond at maturity or upon redemption will be payable upon presentation and surrender of such Bond at the Office of the Trustee in Los Angeles, California, or at such place as may be designated by the Trustee.

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Redemption

Optional Redemption. The Bonds are subject to redemption prior to maturity, at the option of the Authority, in whole or in part by lot, from any available source of funds, on December 1, 2011 and on any date thereafter, at a redemption price equal to 100% of the principal amount of Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Amounts received from the prepayment of Lease Payments under the Lease Agreement will be applied to the prepayment of the Bonds.

Mandatory Redemption From Sinking Fund Payments. The Bonds are subject to mandatory redemption in part by lot, at a redemption price equal to 100% of the principal amount thereof to be redeemed, without premium, in the aggregate respective principal amounts and on June 1 in the respective years as set forth in the following table; provided, however, that if some but not all of the Bonds have been redeemed pursuant to an optional or other mandatory special redemption, the total amount of all future sinking fund payments shall be reduced by the aggregate principal amount of the Bonds so redeemed, to be allocated among such sinking fund payments on a prorata basis in integral multiples of $5,000 (as set forth in a schedule provided by the Authority to the Trustee).

Sinking Fund Redemption Date

(June 1)

Principal Amount To Be Redeemed

2011 $ 75,000 2012 50,000 2013 150,000 2014 200,000 2015 300,000 2016 525,000 2017 830,000 2018 1,025,000 2019 (maturity) 1,235,000

Mandatory Redemption From Surplus Funds. The Bonds are subject to redemption in whole, or in part by lot, on December 1 in each year commencing December 1, 2011, from any Surplus Funds of the City determined in accordance with the Lease Agreement, at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed plus accrued interest to the date of redemption, without premium.

On or before October 15 of each year during the term of the Lease Agreement, commencing October 15, 2010, the City shall (a) determine the total amount of Surplus Funds ( defined below), if any, generated during the preceding Fiscal Year, and (b) deliver to the Trustee a Written Certificate of the City certifying the amount of such Surplus Funds. Not later than November 1 of each year, commencing November 1, 2011, the City shall pay the amount of such Surplus Funds to the Trustee. Amounts so paid to the Trustee shall be applied to the prepayment of the Lease Payments and the concurrent prepayment of Bonds.

“Surplus Funds” means, as of any June 30 in any Fiscal Year, all amounts held in any funds or accounts or otherwise by the City or a related party to the City if those amounts may be used by the City for working capital expenditures. Surplus Funds do not include (i) proceeds of the Bonds, (ii) the amount of $1,465,935, being 5% of working capital expenditures for the Fiscal Year ending June 30, 2009,

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which is treated as a bona fide working capital reserve for purposes of the Tax Code, and (iii) amounts held in any fund or account of the City or a related party to the City which may not be used by the City for working capital expenditures without legislative or judicial action or without a legislative, judicial or contractual requirement that such amounts be reimbursed.

Extraordinary Redemption From Net Proceeds of Insurance or Condemnation. The Bonds are subject to redemption as a whole, or in part by lot, on any date, from any amounts derived from any policy of casualty insurance or title insurance with respect to the Leased Property, or the proceeds of any taking of the Leased Property or any portion thereof in eminent domain proceedings (including sale under threat of such proceedings), to the extent remaining after payment therefrom of all expenses incurred in the collection and administration thereof, and required to be used for such purpose, at a redemption price equal to 100% of the principal amount thereof plus interest accrued thereon to the date fixed for redemption, without premium. There can be no assurance that such proceeds will be sufficient to redeem all of the Bonds (see “BOND OWNERS’ RISKS – The Lease Payments – Insurance” herein).

Notice of Redemption. When redemption is authorized or required, the Trustee shall mail notice of redemption of the Bonds by first class mail, postage prepaid, not less than 30 nor more than 60 days before any redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Registration Books and to one or more Securities Depositories and to the Information Services. Each notice of redemption shall state the date of the notice, the redemption date, the place or places of redemption, whether less than all of the Bonds (or all Bonds of a single maturity) are to be redeemed, the CUSIP numbers and (in the event that not all Bonds within a maturity are called for redemption) Bond numbers of the Bonds to be redeemed and the maturity or maturities of the Bonds to be redeemed, and in the case of 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 Bonds the redemption price thereof, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered. Neither the failure to receive any notice nor any defect therein shall affect the sufficiency of the proceedings for such redemption or the cessation of accrual of interest from and after the redemption date. Notice of redemption of Bonds shall be given by the Trustee, at the expense of the Authority, for and on behalf of the Authority.

So long as DTC is the registered Owner of the Bonds, all such notices will be provided to DTC as the Owner, without respect to the beneficial ownership of the Bonds. See “APPENDIX E – DTC AND THE BOOK-ENTRY-ONLY SYSTEM.”

Rescission of Notice. The Authority has the right to rescind any notice of the optional redemption of Bonds by written notice to the Trustee on or prior to the dated fixed for redemption. Any notice of optional redemption will be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation will not constitute an Event of Default. The Authority and the Trustee have no liability to the Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent.

Effect of Redemption. Interest represented by the Bonds (or portions thereof) called for redemption will cease to accrue on the date fixed for redemption and such Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture and the Owners of such Bonds will have no rights in respect thereof except to receive payment of the redemption price.

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Partial Redemption. In the event only a portion of any Bond is called for redemption, upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Bonds surrendered.

Scheduled Debt Service on the Bonds The following is an annualized schedule of Lease Payments, and therefore the annualized scheduled payments of principal and interest on the Bonds.

Bond Year Ending June 1 Principal Interest Annual Total 2010 $ 302,727.08 $ 302,727.08 2011 $ 75,000.00 329,250.00 404,250.00 2012 50,000.00 323,625.00 373,625.00 2013 150,000.00 319,875.00 469,875.00 2014 200,000.00 308,625.00 508,625.00 2015 300,000.00 293,625.00 593,625.00 2016 525,000.00 271,125.00 796,125.00 2017 830,000.00 231,750.00 1,061,750.00 2018 1,025,000.00 169,500.00 1,194,500.00 2019 1,235,000.00 92,625.00 1,327,625.00 Total $4,390,000.00 $2,642,727.08 $7,032,727.08

THE FINANCING PLAN Working Capital Deficit

In April 2000, the City and its Redevelopment Agency formed a joint powers authority called the “Orange North American Trade Access Corridor Joint Powers Authority” or “OnTrac.” The purpose of OnTrac was primarily to fund grade separation and lowered railroad track systems, to ensure orderly movement of passenger and freight traffic and to ensure safe and free movement across railroad separated streets for residents, businesses and commuters.

Between 2000 and 2004, the City spent a total of $52 million on OnTrac projects, of which $36 million was reimbursed by the State of California Department of Transportation (“CalTrans”). The City advanced $16 million to the project with the expectation that additional State transportation grants would be available. During 2001, 2003 and 2004 the City issued Certificates of Participation to provide a portion of this funding. These transactions resulted in the General Fund advancing an amount greater than its existing unrestricted fund balance. The outstanding advance of General Fund monies to the OnTrac Fund and resulting General Fund fund balance deficit through June 30, 2005 are shown below:

Advance General Fund to OnTrac Balance (Deficit) June 30, 2002 $ 5,063,556 $ 1,901,860 June 30, 2003 9,229,000 (3,496,000) June 30, 2004 14,153,000 (2,014,000) June 30, 2005 16,619,000 (5,487,000)

____________________ Source: City of Placentia.

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In 2006, the City determined that recovery of the $16 million advanced to the project would not be likely, and as a result, wrote off the advance to the OnTrac Fund and ended June 30, 2006 with a General Fund deficit of $4,564,000. On July 1, 2006, the City used $7.1 million to pay the Certificates of Participation issued in 2004 to fund OnTrac expenditures. Since 2006, the City’s revenues, expenditures and changes in fund balance (excluding the prepayment of the City’s COP) can be summarized as follows:

Decrease (Increase) General Fund Revenues Expenditures in Fund Deficit Deficit June 30, 2007 $29,340,000 $27,783,000 $ 1,557,000 $(3,007,000) June 30, 2008 29,963,000 31,516,000 (1,553,000) (4,560,000) June 30, 2009* 30,186,000 29,319,000 867,000 (3,693,000) ____________________ *Estimated

Source: City of Placentia.

At the end of Fiscal Year 2008, the City had four funds with deficit cash balances totaling $7,575,257, which includes the General Fund cash deficit of $4,494,215 and the Orangethorpe Corridor Capital Projects Fund cash deficit of $2,790,592. In accordance with the City’s Charter, the City has certain authority to borrow from other City funds so that the City could continue to process the payment of demands against the City. The City has not specifically defined which funds were borrowed from to meet the required cash demands. Thus, the potential exists that the City borrowed from funds which could have specific laws and/or regulations relating to the use of the specific monies. As a result of the borrowing the City may be subject to certain laws and regulations relating to such funds that advanced monies to the General Fund and it is uncertain at this time what effect, if any, this will have on the City of Placentia.

The City adopted a Fiscal Recovery Plan in June 2008, as amended in October 2008, to address the General Fund deficit. However, due to the prolonged economic downturn and limited opportunities for revenue enhancement, it does not appear likely that the City can continue to operate with such a large deficit balance, which will take many years to recover. To that end, the City will finance the projected June 30, 2009 General Fund deficit of $3.7 million over a 10 year period. The City’s Fiscal Recovery Plan seeks to restore the financial stability of the City’s General Fund by implementing revenue enhancement programs and cost reduction measures over several years. The Fiscal Recovery Plan is more completely described in “FINANCIAL INFORMATION – Long-Term Financial Plan” herein.

The City anticipates that the Orangethorpe Corridor Capital Projects Fund will end Fiscal Year 2008/09 with a negative fund balance of $1.98 million. This deficit is expected to be eliminated over time as grant monies are received from the State, the County of Orange and the federal government as reimbursement for prior expenditures on qualifying projects.

The City will make annual payments on the Bonds. In addition to the annual scheduled payments, at the end of each Fiscal year, the City will determine how much, if any, General Fund revenues exceed General Fund expenditures (including other financing sources such as transfers in and transfers out). Each year, the City will first be allowed to set aside surplus revenues in excess of expenditures in an amount equal to a cumulative $1,465,935 (5% of the City’s estimated 2008/09 expenditures), and all surplus revenues in excess of expenditures will be used to prepay the Lease and in turn, the Bonds, each December 1, commencing December 1, 2011. While the Bond are callable from Surplus Funds beginning December 1, 2011, based on the City’s current projections of revenues and expenditures, it is unlikely that Surplus Funds will be available to call Bonds in advance of their scheduled repayment. See “TABLE NO. 19 - PROJECTED PAYMENT OF THE BONDS” herein.

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A projection of the City’s expected revenues and expenditures from 2008/09 to 2018/19 and the assumptions used in those projections can be found in “FINANCIAL INFORMATION – Projected Working Capital and Payment of the Bonds.” These projections were prepared by the City to structure the principal repayment schedule of the Bonds, and any actual excess of revenues over expenditures will be used to prepay the Bonds in advance of maturity.

THERE CAN BE NO ASSURANCE THAT ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM THOSE CONTAINED IN THE CITY’S CALCULATION. IF THEY DIFFER, THE CITY MAY NOT BE ABLE TO TIMELY PAY THE BONDS.

The City also expects to issue $5,000,000 of its 2009-2010 Tax and Revenue Anticipation Notes (the “Notes”) in July 2009. The Notes are being issued to help meet General Fund expenditures for the Fiscal Year ending June 30, 2010. The Notes will be payable by June 30, 2010 from unrestricted taxes, income, revenue and other monies of the City attributable solely to the 2009/10 Fiscal Year.

Estimated Uses of Funds

Under the provisions of the Indenture, the Trustee will receive the proceeds from the sale of the Bonds and will apply them as follows:

Working Capital $3,700,000.00 Reserve Fund 439,000.00 Underwriter’s Discount 89,142.50 Costs of Issuance Fund (1) 161,857.50 Total Uses $4,390,000.00

___________________________ (1) Expenses include fees and expenses of Bond Counsel, Financial Advisor, Disclosure Counsel and Trustee, costs

of printing the Official Statement, and other costs of delivery of the Bonds.

THE LEASED PROPERTY The Leased Property is comprised of the Placentia City Hall. The City Hall consists of a single story, concrete building of approximately 38,000 square feet located on a 3.7 acre site. The facility was built in 1974 and houses the main administrative functions of the City, as well as the City’s police department. It is part of the City’s Civic Center complex which includes the City’s Library. The City Hall facility is insured for approximately $3 million (building only, excluding contents), and the City estimates that the 3.7 acre site is valued at least $9 million based on recent property acquisitions. See “SOURCES OF PAYMENT FOR THE BONDS – Insurance Relating to the Bonds” and “BOND OWNERS’ RISKS – Substitution of Property: herein.

SOURCES OF PAYMENT FOR THE BONDS General

As provided in the Indenture, the Bonds will be secured by a first pledge of, security interest in and lien on all of the Lease Payments, including insurance or condemnation Net Proceeds received with respect to the Leased Property to the extent that such Net Proceeds are not used for repair or replacement, interest or other income derived from the investment of the funds held by the Trustee, or, in certain instances, from the Reserve Fund. The Authority has, pursuant to the Assignment Agreement, assigned all of its rights under the Lease Agreement including its rights to receive Lease Payments from the City and its remedies under the Lease Agreement to the Trustee for the benefit of the Owners of the Bonds. The Lease Payments are calculated to be sufficient to pay, when due, the annual principal of and interest on the Bonds.

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Lease Payments; Abatement

The City is required to pay to the Authority specified amounts for use of the Leased Property, which are equal to the principal of and interest due with respect to the Bonds. The Lease Agreement requires the City to make Lease Payments to the Authority five (5) Business Days preceding each Interest Payment Date. Lease Payments to be paid by the City are assigned and are to be transmitted directly to the Trustee. The Indenture provides that the Lease Payments will be deposited in the Lease Payment Account maintained by the Trustee under the Indenture and applied to pay the principal and interest on the Bonds.

The City covenants in the Lease Agreement to take such action as may be necessary to include all Lease Payments in its annual budgets and to make annual appropriations for all such Lease Payments. The Lease Agreement provides that the several actions required by such covenants are deemed to be and shall be construed to be duties imposed by law and that it is the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such official to enable the City to carry out and perform the covenants in the Lease Agreement agreed to be carried out and performed by the City.

The Lease Agreement provides that, except as set forth below, Lease Payments will be abated during any period in which there is substantial interference with the City’s use of any portion of the Leased Property because of damage, destruction or condemnation of such portion. The amount of such abatement will be an amount such that the resulting Lease Payments do not exceed the fair rental value for the use and occupancy of the portions of the Leased Property not taken, damaged or destroyed. Such abatement will continue for the period commencing with such taking, damage, destruction or interference with use and ending with the substantial completion of the work of replacement, repair or reconstruction. In the event of any event causing an abatement, the Lease Agreement will continue in full force and effect and the City waives any right to terminate the Lease Agreement by virtue of such event. Notwithstanding the foregoing, there shall be no abatement of Lease Payments under the Lease Agreement to the extent that the proceeds of rental interruption insurance or amounts in the Bond Repayment Fund or the Reserve Fund are available to pay Lease Payments which would otherwise be abated under the Lease Agreement.

During any period of abatement of Lease Payments, the Trustee shall pay principal and interest on the Bonds allocable to such portions of the Leased Property from moneys on deposit in the Reserve Fund, and, if available, proceeds of insurance or condemnation award. The reduced Lease Payments may not be sufficient to pay principal and interest on the Bonds when due. In the event and to the extent the Lease Payments and other amounts available to the Trustee under the Trust Agreement are subject to abatement, there could be insufficient amounts to pay principal of and interest on the Bonds in full, and such insufficiency would not constitute a default by the City under the Indenture, the Lease Agreement or otherwise.

The obligation of the City to make Lease Payments does not constitute an indebtedness of the City 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. Neither the Bonds nor the obligation of the City to make Lease Payments constitutes an indebtedness of the City, the State of California, or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

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Reserve Fund

A Reserve Fund is established by the Indenture which is to be maintained in an amount equal to 10% of the principal amount of the Bonds (the “Reserve Requirement”). The full amount available in the Reserve Fund may be used by the Trustee to make payments due with respect to the Bonds in the event of abatement or a failure by the City to make Lease Payments when due.

Interest or income received by the Trustee on investment of monies in the Reserve Fund will be retained in the Reserve Fund so long as amounts on deposit in the Reserve Fund are less than the Reserve Requirement. In the event that amounts on deposit in the Reserve Fund exceed the Reserve Requirement, such excess shall be transferred to the Bond Repayment Fund on or before each Lease Payment Date (as defined in the Indenture). See “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - DEFINITIONS” for the definition of Lease Payment Date.

Insurance Relating to the Property

Pursuant to the Lease Agreement, the City is required to obtain a CLTA title insurance policy insuring the City’s leasehold estate in the Leased Property in an amount at least equal to the aggregate principal amount of the Bonds. The Lease Agreement also requires that the City maintain casualty insurance on the Leased Property in amount equal to the lesser of replacement value or the aggregate principal amount of outstanding Bonds and rental interruption insurance to insure against loss of Lease Payments caused by loss or damage to the Leased Property covered under the City’s casualty insurance. The City is not required to maintain earthquake insurance with respect to the Leased Property. The rental interruption insurance is to be in an amount not less than the maximum remaining scheduled Lease Payments in any future two-year period. The City also is obligated under the Lease Agreement to obtain a standard comprehensive general public liability and property damage insurance policy or policies. See “FINANCIAL INFORMATION – Insurance Program” and “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – LEASE AGREEMENT – Insurance” herein.

The proceeds of any rental interruption insurance will be deposited to (i) the Reserve Fund to make up any deficiency therein and (ii) in the Bond Repayment Fund to be credited towards the payment of the Lease Payments in the order in which such Lease Payments become due and payable. The Lease Agreement requires the City to apply the Net Proceeds of any casualty insurance award either to (a) replace, repair, restore, modify or improve the Leased Property if the City determines that such is economically feasible or in the best interests of the City, or (b) to the extent not so used, to prepay the Lease Payments and thereby redeem outstanding Bonds. See “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – INDENTURE OF TRUST – Establishment of Funds and Accounts; Flow of Funds – Insurance and Condemnation Fund – Insurance and Condemnation Fund; Application of Net Proceeds” and “LEASE AGREEMENT – Insurance” and “THE BONDS – Redemption – Special Mandatory Redemption From Insurance or Condemnation Proceeds.” The amount of Lease Payments will be abated and Lease Payments due under the Lease Agreement may be reduced during any period in which by reason of damage, destruction, title defect or taking by eminent domain or condemnation there is substantial interference with the City’s use and possession of all or part of the Leased Property. See “BOND OWNERS’ RISKS - The Lease Payments - Abatement” herein.

If there are not sufficient insurance proceeds to complete repair of the Leased Property, the Lease Payment schedule will be proportionally reduced in accordance with the Lease Agreement. Such reduced Lease Payments may not be sufficient to pay principal and interest with respect to the Bonds. Such reduction would not constitute a default under either the Indenture or the Lease Agreement.

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Remedies on Default

If the City defaults in performance of its obligations under the Lease Agreement, the Trustee, as assignee of the Authority, may elect not to terminate the Lease Agreement and may re-enter and relet the Leased Property and may enforce the Lease Agreement and hold the City liable for all Lease Payments on an annual basis while re-entering and reletting the Leased Property. Such re-entry and reletting shall not effect a surrender of the Lease Agreement. Alternatively, the Trustee may elect to terminate the Lease Agreement and may re-enter and relet the Leased Property and seek to recover all costs, losses or damages caused by the City’s default. See “APPENDIX A – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – LEASE AGREEMENT - Events of Defaults.”

CITY OF PLACENTIA General Information

The City of Placentia covers 6.7 square miles in northern Orange County. The City is 24 miles southeast of Los Angeles and 22 miles northeast of Long Beach. Placentia’s proximity to the junction of the Riverside and Orange freeways provides easy access to all points of the region. The City is bordered by the neighboring communities of Brea, Fullerton Anaheim and Yorba Linda.

General Organization

The City of Placentia is a charter city and was incorporated in 1926. The City has a Council/ Administrator form of government. The City Council appoints the City Administrator who is responsible for the day-to-day administration of City business and the coordination of all departments of the City. The City Council is composed of five members elected bi-annually at large to four-year terms. Placentia employs a staff of 141 full-time employees and 45 full-time equivalent part-time employees under the direction of the City Administrator.

The members of the City Council, the expiration dates of their terms and key administrative personnel are set forth below.

CITY COUNCIL

Council Member Term Expires Greg Sowards, Mayor December 5, 2010 Joseph V. Aguirre, Mayor Pro Tem December 5, 2010 Scott W. Nelson December 4, 2012 Constance Underhill December 4, 2012 Jeremy B. Yamaguchi December 4, 2012

CHIEF ADMINISTRATIVE PERSONNEL

Troy L. Butzlaff, ICMA-CM, City Administrator and Executive Director Ken Domer, Assistant City Administrator

Stephen D. Pischel, Administrative Services Director Karen Ogawa, Finance Director

Patrick J. Melia, City Clerk and Secretary Chad P. Wanke, City Treasurer

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Governmental Services

Placentia is a full service City including a Police Department, Public Works Department, Development Services Department and Community Services Department. The Public Works Department is responsible for engineering, street maintenance, building maintenance, vehicle maintenance and park maintenance. The Development Services Department is responsible for planning, building inspection and redevelopment. The Community Services Department is responsible for recreational activities, cultural events and public assistance. Fire services are contracted with the Orange County Fire Authority and refuse collection is franchised to a private hauler, Taormina Industries.

Transportation

Highway 57, the Orange Freeway, passes through the City and provides a major north-south link to the surrounding area. Highway 91, the Riverside Freeway, provides access to southern Los Angeles County and the eastern communities of Riverside County.

John Wayne-Orange County Airport is 14 miles south of Placentia and Los Angeles International Airport is approximately 36 miles to the west.

Population

The following table provides a comparison of population growth for Placentia, surrounding cities and Orange County between 2005 and 2009.

TABLE NO. 1 CHANGE IN POPULATION

PLACENTIA, SURROUNDING CITIES AND ORANGE COUNTY 2005 – 2009

PLACENTIA SURROUNDING CITIES ORANGE COUNTY Percentage Percentage Percentage Year Population Change Population Change Population Change

2005 50,090 239,835 3,044,980 2006 50,988 1.8% 241,991 0.9% 3,063,159 0.6% 2007 51,110 0.2% 243,262 0.5% 3,080,393 0.6% 2008 51,405 0.6% 244,768 0.6% 3,107,500 0.9% 2009 51,932 1.0% 246,199 0.6% 3,139,017 1.0%

% Increase Between 2005 - 2009 3.7% 2.7% 3.1%

Surrounding cities include Brea, Fullerton and Yorba Linda.

Source: State of California, Department of Finance, “E-4 Population Estimates for Cities, Counties and the State, 2001-2009, with 2000 Benchmark.” Sacramento, California, May 2009.

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Employment and Industry

The City is located in the Orange County (Santa Ana-Anaheim-Irvine Metropolitan Division). Six major job categories constitute 79.2% of the work force. They are professional and business services (17.9%), service producing (15.8%), leisure and hospitality (12.0%), manufacturing (11.6%), government (11.3%) and educational and health services (10.6%). The March 2009 unemployment rate in the Orange County area was 8.5%. The State of California March 2009 unemployment rate (unadjusted) was 11.5%. The distribution of employment in the Orange County area is presented in the following table.

TABLE NO. 2 ORANGE COUNTY (SANTA ANA-ANAHEIM-IRVINE METROPOLITAN DIVISION)

WAGE AND SALARY WORKERS BY INDUSTRY (1) (in thousands)

Industry 2005 2006 2007 2008 2009

Government 157.5 158.9 161.9 164.6 162.4 Other Services 47.9 47.7 47.4 47.2 47.5 Leisure and Hospitality 162.1 165.6 168.3 175.2 171.3 Educational and Health Services 132.9 137.3 141.4 149.4 151.1 Professional and Business Services 262.0 271.7 272.8 271.2 256.5 Financial Activities 136.7 140.2 135.3 115.9 108.6 Information 33.2 32.3 31.6 30.5 28.3 Transportation, Warehousing and Utilities 29.1 28.2 28.4 29.2 28.9 Service Producing Retail Trade 153.2 158.1 157.9 157.1 145.8 Wholesale Trade 83.1 82.7 86.7 87.4 80.5 Manufacturing Nondurable Goods 55.4 55.0 54.6 52.4 49.1 Durable Goods 128.4 128.4 126.8 123.5 117.1 Goods Producing Construction 94.1 104.3 103.2 94.3 79.0 Natural Resources and Mining 0.7 0.6 0.6 0.7 0.6 Total Nonfarm 1,476.3 1,511.0 1,516.9 1,498.6 1,426.7 Farm 6.0 6.4 5.8 5.7 4.9 Total (all industries) 1,482.3 1,517.4 1,522.7 1,504.3 1,431.6

(1) Annually, as of March.

Source: State of California Employment Development Department, Labor Market Information Division, “Industry Employment & Labor Force - by month March 2007 Benchmark.”

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The five largest major employers operating within the City and their respective number of employees as of June 2008 are as follows:

TABLE NO. 3 CITY OF PLACENTIA MAJOR EMPLOYERS

Employer

Estimated Number of Employees

Product/Service

Placentia-Yorba Linda Unified School District 2,500 Education Placentia-Linda Community Hospital 375 Hospital The Hartwell Corporation 290 Mechanical Fasteners Primedia 200 Publish Trade magazines City of Placentia 141 General Government


Per Capita Income

The following table summarizes per capita income information for the City of Placentia, Orange County, the State of California and the United States for 2003 to 2007 (the most recent year for which statistics are available).

TABLE NO. 4 PER CAPITA INCOME

CITY OF PLACENTIA, ORANGE COUNTY, STATE OF CALIFORNIA AND UNITED STATES

2003 –2007

Year Placentia Orange County State of California United States

2003 $33,340 $39,745 $33,469 $31,466 2004 35,115 42,115 35,313 33,072 2005 36,746 44,453 37,183 34,685 2006 (1) 48,209 39,358 36,629 2007 (1) 48,752 41,571 38,615

(1) Not available.

Source: State of California Department of Finance; State of California Employment Development Department.

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Commercial Activity

The following table summarizes the volume of retail sales and taxable transactions for the City of Placentia for 2003 through 2007 (the most recent year for which statistics are available). Additional information on sales tax can be found in “FINANCIAL INFORMATION – Local Taxes” herein.

TABLE NO. 5 CITY OF PLACENTIA

TOTAL TAXABLE TRANSACTIONS (in thousands)

2003 – 2007

Total Taxable Retail Sales Retail Sales Transactions Issued Sales Year ($000’s) % Change Permits ($000’s) % Change Permits

2003 $348,471 428 $490,962 1,296 2004 353,359 1.4% 485 488,908 (0.4)% 1,322 2005 388,761 10.0% 505 518,753 6.1% 1,323 2006 377,304 (3.0)% 495 522,928 0.8% 1,306 2007 351,137 (6.9)% 485 483,054 (7.6)% 1,254

Source: California State Board of Equalization, “Taxable Sales in California.”

The following table compares taxable transactions for the City of Placentia and surrounding cities for 2003 through 2007 (the most recent year for which statistics are available).

TABLE NO. 6 CHANGE IN TOTAL TAXABLE TRANSACTIONS

PLACENTIA AND SURROUNDING CITIES (in thousands)

2003 – 2007

% Change from City 2003 2004 2005 2006 2007 2003 - 2007

PLACENTIA $ 490,962 $ 488,908 $ 518,753 $ 522,928 $ 483,054 (1.6)% Brea 1,320,858 1,467,636 1,582,264 1,657,090 1,666,298 26.2% Fullerton 1,429,159 1,546,622 1,659,029 1,671,246 1,666,613 16.6% Yorba Linda 547,264 557,759 550,871 567,081 568,411 3.9%


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Taxable transactions by type of business for the City of Placentia for 2003 through 2007 (the most recent year for which statistics are available) are summarized in Table No. 7.


TAXABLE TRANSACTIONS BY TYPE OF BUSINESS (in thousands)

2003 2004 2005 2006 2007

Retail Stores Apparel Stores $ 707 $ 872 $ 2,196 $ 2,862 $ 3,754 General Merchandise Stores 20,897 21,364 20,756 23,359 24,796 Food Stores 24,922 25,138 30,284 32,613 33,242 Eating/Drinking Places 54,766 59,078 59,370 61,913 63,512 Home Furnishings and Appliances 8,888 10,268 10,023 9,011 9,214 Building Materials 52,042 38,469 40,661 38,298 2,164 Motor Vehicles and Parts 89,517 78,806 84,181 77,369 71,616 Service Stations 34,035 46,660 65,049 68,024 61,367 Other retail stores 62,697 72,704 76,241 63,855 81,472 Total Retail Stores 348,471 353,359 388,761 377,304 351,137

All Other Outlets 142,491 135,549 129,992 145,624 131,917

Total All Outlets $490,962 $488,908 $518,753 $522,928 $483,054


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Building Activity

The following table summarizes building activity valuations for the City of Placentia for the five-year period from 2003/04 through 2007/08.


BUILDING ACTIVITY AND VALUATION (in thousands)

2003/04 – 2007/08

2003/04 2004/05 2005/06 2006/07 2007/08

Residential $61,000 $22,000 $25,000 $12,000 $15,000

Commercial 3,900 4,600 1,600 7,700 3,900

Total Valuation $64,900 $26,600 $26,600 $19,700 $18,900


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FINANCIAL INFORMATION Budgetary Process and Administration

In accordance with the Government Code of the State of California, the City prepares and adopts a budget for each Fiscal Year. Prior to June 1 of each year, the City Administrator is required to submit to the City Council a proposed budget for the Fiscal Year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. Public hearings are conducted at City Council meetings to obtain taxpayer comments prior to adoption of the budget in June. On or before June 30, the budget is required to be enacted through the passage of a resolution by the City Council.

From the effective date of the budget, the amounts stated as proposed expenditures become appropriated to the several departments, offices and agencies for the objects and purposes named. The City Administrator is authorized to transfer budget amounts within and between funds as deemed desirable and necessary in order to meet the City’s needs; however, revisions that alter the total expenditures must be approved by the City Council. The City Council may approve supplemental budget appropriations during the Fiscal Year.

Appropriations Limit

Section 7910 of the Government Code of the State of California requires the City to adopt a formal appropriations limit for each Fiscal Year. The City’s appropriations limit for Fiscal Year 2008/09 was $58,533,765. The City’s appropriations subject to the limit for 2008/09 were $21,843,089. Based on this, the appropriations limit is not expected to have any impact on the ability of the City to budget and appropriate the Lease Payments as required by the Lease Agreement.

Revenues and Expenditures

The City General Fund Budget includes programs which are provided on a largely city-wide basis. The programs and services are financed primarily by the City’s share of sales taxes, property taxes, transient occupancy taxes, franchise fees, revenues from the State and/or federal government, and charges for services provided. See “BOND OWNERS’ RISKS – State Budget” herein.

Table No. 9 compares the preliminary General Fund 2009/10 Budget with estimated actual revenue and expenditures for 2008/09 and actual revenue and expenditures for 2007/08. Property tax and sales tax provide the major source of revenues to the General Fund, comprising approximately 37% and 18% respectively, of the City’s 2009/10 General Fund Budget.

Public safety represents the major use of General Fund moneys, accounting for approximately 52% of total expenditures of the 2009/10 General Fund Budget.

The budget for Fiscal Year 2009/10 assumes minimal or flat economic growth given the current economic environment. The City’s largest revenue sources, property tax and sales and use taxes, are expected to decline slightly in the case of property tax, and decline by 4% in the case of sales tax, from 2008/09 estimated actual results. This projected decrease is in addition to an actual estimated reduction in sales tax that occurred in 2008/09 of 5.2%. Franchise fees are expected to increase in 2009/10 by $200,000 due to an increase in refuse franchise fees and a newly imposed towing franchise fee. Transient occupancy taxes are also projected to be flat as the economy softens. Additional revenue declines are projected in investment income, business license fees and vehicle license fee revenue from the State of California. Charges for services are expected to increase due to the implementation in 2008/09 of a 30-day police impound lot, which generated an additional $320,000 in 2008/09 and is expected to generate additional revenue of $540,000 in 2009/10 and subsequent years.

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Reductions in personnel costs through elimination of positions and full cost recovery of administrative and overhead with respect to the City’s enterprise funds and Redevelopment Agency proposed for Fiscal Year 2009/10 reduce expenditures by $540,000 compared with 2008/09. Supplies and services, however, are budgeted to increase by 1.5%, or $448,000, due to additional city-wide costs for such items as utilities and insurance. The overall net reduction in costs for 2009/10 compared to 2008/09 is projected to be $92,000.

The State of California is experiencing significant difficulty in balancing its 2009/10 budget. One of the Governor’s proposed budget balancing items is a borrowing of a portion of city and county property tax during 2009/10 by a suspension of Proposition 1A(2004), to be repaid within three Fiscal Years. The City estimates this loan could be $1,040,000. If the State is successful in borrowing this amount, the City will be required to reduce its budgeted expenditures, and will likely result in further personnel reductions. On June 15, 2009, the Budget Conference Committee, made up of three members each of the State Senate and State Assembly, voted to reject the Governor’s and LAO’s proposal to suspend Proposition 1A – however, the potential for State borrowing from counties and cities remains until ultimately decided at the end of budget negotiations between the Governor and the Legislature.

See “BOND OWNERS’ RISKS – State Budget” and “FINANCIAL INFORMATION – Local Taxes – State Borrowing Local Government Property Tax” herein.

Assumptions relating to future year revenue and expenditure projections are found in “FINANCIAL INFORMATION – Long-Term Financial Plan.”

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GENERAL FUND REVENUES AND EXPENDITURES

2008/09 2008/09 2007/08 Amended Estimated 2009/10 Actual Budget Actual Budget

Revenues Property Taxes $11,371,081 $12,013,778 $11,811,400 $11,751,000 Sales and Use Taxes 5,300,514 5,519,074 5,275,250 5,064,240 Real Property Taxes 123,095 210,000 118,000 118,000 Transient Occupancy Tax 762,038 715,734 760,000 760,000 Franchise Fees 1,226,353 1,090,890 1,230,000 1,430,000 Business License 719,564 697,310 728,350 647,450 Lease Revenues 867,771 872,037 922,037 962,037 Per Barrel Tax 4,521 40,000 7,000 7,000 Permits 717,178 515,700 592,000 452,000 Fines, Forfeitures & Penalties 765,264 921,651 695,000 695,000 Investment Income 4,352 539,500 400,000 380,000 Intergovernmental 1,527,873 532,876 591,300 352,000 Charges for services 995,223 991,778 997,310 1,872,010 Sale of Real Property 13,376 13,260 40,000 13,200 Refunds and Reimbursements 336,677 134,654 130,120 115,320 $24,734,880 $24,808,242 $24,287,767 $24,619,257 Operating Transfers-In 5,229,572 4,508,546 5,898,516 5,147,639 Total General Fund Revenues $29,964,452 $29,316,804 $30,186,283 $29,766,896 Expenditures Legislative $ 2,643,800 $ 2,498,855 $ 1,589,746 $ 757,845 Administration 1,229,020 1,087,975 1,111,732 880,140 Finance 1,247,539 1,234,166 1,156,651 810,660 Development Services 971,203 887,939 945,893 721,435 Public Safety 16,859,450 17,145,136 17,092,067 15,294,913 Engineering Services (formerly Public Works) 5,724,363 4,473,033 (1) 915,839 689,095 Maintenance Services - - (1) 3,639,119 2,441,420 Community Services 2,353,418 1,997,005 1,760,155 1,143,786 Debt Service - - (2) 1,107,386 1,102,700 (3)

Transfers out 488,883 - - 5,384,621 (4) Total General Fund Expenditures $31,517,676 $29,324,109 $29,318,588 $29,226,615 Revenues Over Expenditures ($ 1,553,224) ($ 7,305) $ 867,695 $ 540,281

(1) Prior to 2008/09, the City combined engineering and maintenance expenditures in one combined Public Works expenditure category.

(2) Prior to 2008/09, the City budgeted and recorded debt service in the Legislative expenditure category. (3) Does not include debt service on the Bonds. See “TABLE NO. 19 - PROJECTED PAYMENT OF THE BONDS.” (4) Represents transfers to internal service funds, which in prior years were distributed to departments

individually. Source: City of Placentia.

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Local Taxes

The City receives the following local taxes:


TAX REVENUES BY SOURCE

Estimated Budget 2005/06 2006/07 2007/08 2008/09 2009/10

Sales and Use Taxes $ 5,984,976 $ 6,087,406 $ 5,300,514 $ 5,275,250 $ 5,064,240 Property Taxes (1) 9,533,304 10,699,536 11,371,081 11,811,000 11,751,000

Franchise Taxes 1,156,016 1,077,428 1,226,353 1,230,000 1,430,000 Business License Tax 704,108 731,589 719,564 728,350 647,450 Transient Occupancy Tax 728,423 755,999 762,038 760,000 760,000 Real Property Transfer Tax 323,549 230,299 123,095 118,000 118,000

Total Tax Revenues $18,430,376 $19,582,257 $19,502,645 8 $19,922,600 $ 19,770,690

(1) Includes property tax shift of Vehicle License Fees. See “Motor Vehicle License Fees” below.


Sales and Use Taxes. Sales tax is collected and distributed by the State Board of Equalization. Each local jurisdiction receives an amount equal to one percent of taxable sales within their jurisdiction. In addition, the City receives a portion of a ½ cent sales tax increase approved by voters in 1993. Sales tax generated by this increase is used to offset certain expenses for public safety.

On March 2, 2004, voters in the State approved a bond proposition formally known as the “Economic Recovery Bond Act.” This act authorized the issuance of $15 billion in bonds to finance the 2002/03 and 2003/04 State budget deficits, which would be payable from a fund to be established by the redirection of tax revenues through the Triple Flip.

Under the “Triple Flip,” one-quarter of local governments’ one percent share of the sales tax imposed on taxable transactions within their jurisdiction are redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the legislation provides for property taxes in the Education Revenue Augmentation Fund (“ERAF”) to be redirected to local government (see “Ad Valorem Property Taxes - State Legislative Shift of Property Tax Allocation” below). Because the ERAF moneys were previously earmarked for schools, the legislation provides for schools to receive other state general fund revenues. It is expected that the swap of sales taxes for property taxes will terminate once the deficit financing bonds are repaid, which is currently expected to occur in approximately 9 to 13 years. See “BOND OWNERS’ RISKS – State Budget” herein.

Ad Valorem Property Taxes. Taxes are levied for each Fiscal Year on taxable real and personal property which is situated in the City as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”

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Property taxes on the secured roll are due in two installments, on November 1 and February 1 of the Fiscal Year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the Fiscal Year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of l½% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is subject to sale by the County Tax Collector.

Property taxes on the unsecured roll become delinquent, if unpaid on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of l½% per month begins to accrue on November 1 of the Fiscal Year. The City has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s Office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

Article XIIIA of the California Constitution provides that the base value of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given calendar year. The inflationary rate may be reduced below 2% to reflect a reduction in the consumer price index (“CPI”) or comparable local data. Such a reduction, if instituted by the County Assessor of Orange County, could have the effect of slowing growth in assessed valuation within the City.

In addition to a reduction in base value as a result of a decrease in the CPI, in the event the market value of real property declines such that it becomes less than the base value under Article XIIIA, such decline in market value may be recognized for taxing purposes. Proposition 8, passed by the electors in 1978, permits enrollment of the lesser of the base value described above or the market value as of the January 1 lien date. In cases where the market value is less than the base value, such market value is reviewed annually as of the January 1 lien date to determine each year’s valuation and enrollment. Properties enrolled at market value are not subject to the 2% increase limitation under Article XIIIA such that the value of such properties may be increased by more than 2% from year to year for taxing purposes. Reassessments of property value under Proposition 8 may be instituted by a property owner or by the Assessor. The Assessor will review any facts justifying reassessment and compare the base value plus inflationary increases with the January 1 market value. A property owner may subsequently file an assessment appeal if they feel the value was not lowered sufficiently.

The County’s valuation of land and improvements shown in Table Nos. 11 and 12 below is based on the lesser of the base year assessed value (which may or may not be reflective of the fair market value of the land and improvements as it is determined when parcel last changed ownership or underwent substantial improvement) increased by a maximum of 2% a year each year thereafter, as allowed under Article XIIIA of the Constitution of the State of California, or the market value. Therefore, for property which has not changed ownership recently, the assessor’s value typically does not accurately reflect the fair market value of the land and improvements which may be higher or lower than the Assessor’s value.

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Possible Assessed Valuation Decline. As a result of the current economic downturn and related real estate market conditions, the website for the Orange County Assessor states that assessor's office reviewed the value of 190,000 properties countywide in 2008, and that 147,000 received a reduction of assessed value to reduce the value to the then market value under the provisions of Proposition 8. From 2007 to 2008, the total secured assessed value of the City increased by 1.6%. For purposes of establishing the 2009/10 tax roll values, the Orange County Assessor will again be reviewing the value of properties throughout the County and determining if additional reductions are required under Proposition 8. The secured assessed valuation within the boundaries of the City could decline as a result. While the City expects some decline in total assessed valuation of the City, no prediction can be made as to the amount of the decline in total assessed valuation, if any, within the territory of the City. For purposes of projecting its future cashflow, the City has estimated that property taxes will decrease slightly for the next two years before showing slight increases in 2012. See “FINANCIAL INFORMATION – Long-Term Financial Plan” herein.

Taxable Property and Assessed Valuation

Set forth in Table No. 11 below is historical assessed valuation for secured and unsecured property within the City of Placentia.


GROSS ASSESSED VALUE OF ALL TAXABLE PROPERTY (in thousands)

Total Before Local Redevelopment Fiscal Year Secured Utility Unsecured Increment

2004/05 $3,649,241 $2,900 $139,925 $3,792,066 2005/06 4,025,669 2,927 160,990 4,189,586 2006/07 4,475,589 2,838 150,559 4,628,986 2007/08 4,820,355 381 170,439 4,991,175 2008/09 4,898,924 391 170,808 5,070,123


Redevelopment Agencies

The California Redevelopment Law authorizes the redevelopment agency of any city or county to receive an allocation of tax revenues resulting from increases in assessed values of property within designated redevelopment project areas (the “incremental value”) occurring after the year the project area is formed. In effect, local taxing authorities, such as the City, realize tax revenues only on the assessed value of such property at the time the redevelopment project is created for the duration of such redevelopment project. There has been one redevelopment project formed in the City. The following table sets forth total assessed valuations and redevelopment agency incremental values.

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TOTAL AND NET PROPERTY TAX VALUATIONS (in thousands)

Total Redevelopment Fiscal Assessed Agency Net Year Valuation Incremental Value Value

2004/05 $3,792,066 $167,737 $3,624,329 2005/06 4,189,586 174,135 4,015,451 2006/07 4,628,986 197,074 4,431,912 2007/08 4,991,175 233,209 4,757,966 2008/09 5,070,123 234,941 4,835,182

Source: County of Orange Auditor-Controller.

Largest Property Owners

The principal property owners in the City based on the 2007/08 tax roll are as shown in Table No. 13.


LARGEST PROPERTY OWNERS

Property Owner

Land Use

Percent of Gross Assessed Value

1. OC of SD Holdings LLC Residential 1.51% 2. Placentia 422 Vacant 1.13 3. Reef Imperial Rose Inc. Commercial 0.50 4. Inland Western Placentia LLC Commercial 0.50 5. Villa Tierra Apartments LLC Residential 0.46 6. Donahue Schriber Realty Group Commercial 0.45 7. Realty Associates Fund VIII LP Industrial 0.36 8. AG BPG Placentia Inc. Commercial 0.32 9. Knott Family Company LLC Commercial 0.22

10. Carla Ann Petillo Trust Industrial 0.22


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State Legislative Shift of Property Tax Allocation

Beginning in 1992/93, the State has required that local agencies including cities remit a portion of property taxes received to augment school funding. These funds are deposited in each county’s Education Revenue Augmentation Fund (“ERAF”). An additional shift in property taxes to ERAF for local agencies including cities was required for 2004/05 and 2005/06. The General Fund’s share of this property tax shift was $4,017,574 for 2004/05 and 2005/06. Certain provisions in the State budget have resulted in a realignment of property tax revenues in future years. See “BOND OWNERS’ RISKS – State Budget” herein and “Local Taxes - Sales and Use Taxes” above.

State Borrowing Local Government Property Taxes

As part of the 2009/10 State Budget, the Governor proposes to use the constitutional mechanism authorized by Proposition 1A (the measure approved in 2004 related to local government finance) to borrow almost $2 billion of property tax revenues received by cities, counties, and special districts. Under the Governor’s current proposal, the borrowing would be instituted on an across-the-board basis, with each agency lending 8 percent of its 2008/09 property tax revenues. Repayment would be required within three years with interest. In an effort to minimize the short-term financial strain for local governments associated with these loans, the Governor also proposes legislation to create an authority that would allow local agencies to borrow against future state repayments collectively, rather than just individually. The City estimates that this “loan” of property tax to the State could be $1,040,000. Proposition 1A requires such shift to be approved by two-thirds of the State Legislature. As of the date hereof, no legislation has been introduced relating to such shift of property tax revenue.

Franchise Taxes. The City levies a franchise tax on its utility, trash collection and cable television franchises.

Business License Taxes. The City levies a business license tax based on gross receipts.

Transient Occupancy Taxes. The City levies a transient occupancy tax of 10.0% on hotel and motel bills.

Property Transfer Taxes. A documentary stamp tax is assessed for recordation of real property transfers.

Utility Users Tax. Placentia levies a utility users tax, approved by voters in 1970. The 3.5% utility user’s tax generates approximately $2.75 million and is restricted for capital equipment replacement, special capital projects or general City operations support. It is recorded in a Utility Users Tax Fund and transferred during the year to the General Fund. (See “BOND HOLDER’S RISKS – Constitutional Limitations on Taxes and Expenditures – Proposition 62 and Proposition 218” herein).

Motor Vehicle License Fees

A significant revenue source of the City is State of California payments in-lieu of taxes. The City receives a portion of Department of Motor Vehicles license fees (“VLF”) collected statewide. Payments of VLF to the City are budgeted to be $4,500,000 or approximately 15% of the total General Fund Budget for 2009/10. Payment of State assistance depends on the adoption by the State of its budget, including the appropriations therein providing for local assistance.

Several years ago, the state-wide VLF rate was reduced by approximately two-thirds. However, pursuant to legislation, the State continued to remit to cities and counties the same amount that those local agencies would have received if the VLF had not been reduced, known as the “VLF backfill.” The VLF backfill is paid through a realignment of property taxes. On June 19, 2003, the State increased the VLF rate back to its prior level, effective beginning October 1, 2003. The Governor signed an executive order on November 17, 2003 to reduce the VLF rate once again, eliminating the increase. On December 17, 2003

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the Governor issued another executive order, this time appropriating $2.625 billion to provide backfill funding for the city and county VLF funding in 2003/04 which covered the backfill except for the VLF loan amounts.

A temporary two-year increase in VLF rates went into effect on April 1, 2009. This is expected to increase the funding of VLF from fees and reduce the State’s VLF backfill from the property tax realignment.

The City’s budgeted VLF amount of $4,250,000 for Fiscal Year 2009/10 is based on projected amounts at the VLF rates prior to the temporary increase ($250,000) and a State VLF backfill from property tax ($4,000,000). The State’s 2009/10 Budget is expected to continue the realignment of certain property tax revenues so that cities and counties are kept whole with respect to the amount of the VLF backfill in future years. See “BOND OWNERS’ RISKS – State Budget” herein.

Other Revenue Sources

Licenses and Permits. These revenues consist primarily of permits and business licenses.

Fines and Forfeitures. These revenues include parking citations, traffic fines, municipal curt fines, asset seizure proceeds and other fines for code violations.

Use of Money and Property. These revenues consist primarily of investment earnings and rental income received for the City’s community buildings.

Charges for Services. The City charges recording fees, booking fees, court filing fees, fees for dispatch services, fees for plan check and inspection, as well as for various City-sponsored recreational programs and other services. The City also established a 30-day police impound lot during 2008/09

Retirement Programs

California Public Employee’s Retirement System. The City contributes to the California Public Employee’s Retirement System (PERS), an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for participating public entities within the State of California.

All full-time employees are eligible to participate in the PERS. City employees’ contribution rate is 7% of their annual covered salary. The City makes the contributions required of City employees on their behalf and for their account, which amounted to $2.8 million for the year ended June 30, 2008, is estimated at $3.1 million for Fiscal Year ending June 30, 2009 and is budgeted at $2.7 million for the Fiscal Year ending June 30, 2010. The City was required to contribute at an actuarial determined rate of 37.239% for safety employees and 6.997% for all other employees for the period from July 1, 2007 through June 30, 2008.

The remaining PERS unfunded actuarial accrued liability at June 30, 2007 was approximately $310,414,014. PERS recently set contribution rates for 2009/10 at 37.695% for safety and 7.919% for all other employees. PERS recently set contribution rates for 2010/11 based on a 5.1% negative return on investments which occurred in 2007/08. From July 1, 2008 through April 27, 2009, the PERS portfolio has lost more than 25% of its value. The loss will begin affecting PERS contribution rates in 2011/12.

Other Post Employment Benefits. The City provides post-retirement health care and life insurance benefits for retirees under a two-tier system. All employees hired before 1995 are Tier 1 and become eligible for benefits beginning at age 50, with a minimum service of 5 years. These benefits include both medical and dental insurance. All other employees are Tier II and upon retirement have the option of participating in a post-retirement insurance benefit program at their own cost.

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Vision insurance and life insurance (through age 70) are available to all employees retiring after 1990.

At June 30, 2008, approximately 76 retirees were eligible to receive such benefits. City contributions for Fiscal Year 2007/08 were $1,119,161 and are estimated at $1,164,000 for Fiscal Year 2008/09 and is budgeted at $1,006,000 for the Fiscal Year ending June 30, 2010. These contributions are funded on a pay-as-you-go basis.

In April 2004, the Governmental Accounting Standards Board (“GASB”) issued Statement No. 43, which requires state and local governmental employers to determine, on an actuarial basis, the total liability of post-employment benefits other than pension benefits (known as other post-employment benefits or “OPEB”), including healthcare and life insurance expenses and related liabilities, such as those described above, and an annual required contribution to fund such liabilities. In June 2004, GASB issued Statement No. 45, which requires state and local governmental employers to fund the actuarially determined annual required contribution for its OPEB or record the entire amount of the unfunded liability of its OPEB in its financial statements. The City is required to implement GASB Statement No. 43 by June 30, 2009, and is required to implement GASB Statement No. 45 by June 30, 2009. Through its participation in the Public Agencies Retirement System, the City is in the process of commissioning an actuarial calculation of its OPEB liability.

Employee Relations and Collective Bargaining

City employees are represented by 3 labor unions and associations. Currently 83% of all City employees are covered by negotiated agreements.

Bargaining Unit # of Employees Contract Expires Placentia City Employee Assoc (PCEA) 54 June 2011 Placentia Police Officers Assoc (PCOA) 35 June 2011 Placentia Police Management Assoc (PCMA) 15 June 2011 Placentia Management/Mid-Management 21 N/A (no union)

Insurance Program

The City is a member of the Public Agency Risk Sharing Authority of California (PARSAC). The PARSAC is composed of 36 California public entities and is organized under a joint powers agreement pursuant to California Government Code Section 6500, et seq. The purpose of the PARSAC is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group-purchased insurance for property and other coverages. Each member government has an elected official as its representative on the Board of Directors. Officers are elected annually by the Board members.

Self-insurance program of the PARSAC

General liability - Annual deposits are paid by member cities, and are adjusted retrospectively to cover cost. Each member city is self-insured for an amount of $1,000 to $500,000, based on the option chosen. The City of Placentia is self-insured for the first $150,000. Participating cities then share in the losses, up to $1,000,000 per loss occurrence. The California Affiliated Risk Management Authority (CARMA) provides excess coverage above $1,000,000 to $3,000,000. Losses exceeding $3,000,000 and up to $10,000,000 are reinsured by Am Re Managers. Specific coverage includes comprehensive and general liability, personal injury, contractual liability, errors and omissions, and certain other coverage. In addition, $1,000,000,000 of shared loss limits all risk insurance for real and personal property, as well as boiler and machinery insurance coverage, was brokered through Robert Driver Company.

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Other Insurance Coverage

Due to the high cost of earthquake insurance, the City remained self-insured for this coverage. See “BOND OWNERS’ RISKS - The Lease Payments - Abatement” herein. The City is also self-insured for $300,000 of workers’ compensation insurance and has obtained from an independent provider coverage for a total of $5,000,000 in workers’ compensation insurance. Fidelity/Public Employee Dishonesty Bond insurance includes all employees (including elected officials) for coverage of $1,000,000.

Adequacy of Protection

During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year.

The claims and judgments liability reported in the Internal Service Risk Management Fund is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims and judgments be reposted if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statement and the amount of loss can be reasonably estimated. As of June 30, 2008, claims and judgments payable, including estimated claims for incurred but not reported claims, amounted to $1,203,713. No significant change in claims and judgments payable is expected at June 30, 2009.

Litigation and Investigations

The City is a defendant in various lawsuits and is a party to various claims. The City Attorney estimates that the potential claims against the City resulting from such litigation would not materially affect the financial condition of the City.

The California Department of Transportation (CalTrans) performed an audit relating to the OnTrac projects of the City. A final determination with respect to their audit had been made and due to deficiencies identified by the audit, costs claimed and reimbursed totaling $36 million had been previously disallowed per a letter from CalTrans dated January 18, 2008. On September 16, 2008, the City received another letter indicating that $24 million of previously disallowed reimbursements are now considered satisfactorily addressed. The January 18, 2008 letter also describes CalTrans desire to find methods for the City to repay any disputed amounts from non-General Fund related revenues. On May 14, 2009 the City received another letter from CalTrans further reducing the disallowed reimbursements by $1,642,183 which currently leaves $10,261,130 in disallowed costs. The City continues to work with CalTrans to reduce the disallowed reimbursements. The City cannot guarantee what the final outcome of the negotiations with CalTrans will be and whether it will be required to use General Fund monies or other revenues to satisfy amounts, if any, required to be reimbursed to CalTrans.

The projections herein assume that no General Fund monies will be expended as a result of the dispute.

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Outstanding Indebtedness of the City

The City’s audited financial statements are consolidated and include the respective indebtedness of entities related to the City, including the Redevelopment Agency (which issues tax allocation obligations), and the various assessment districts (which issue limited obligation tax bonds). Exclusive of indebtedness to be paid from specifically pledged revenues such as tax allocation bonds, and limited obligation tax bonds, as of June 30, 2009, the City will have outstanding indebtedness as shown in the table below. The City has never defaulted in the payment of any of its obligations.

Original Amount Final Description Issue Outstanding Maturity

(1) 2001 Certificates of Participation $ 4,500,000 $1,180,000 2011 (2) 2003 Certificates of Participation 11,145,000 8,375,000 2028 (3) Capital Leases 19,330 2010 (4) Compensated Absences 2,618,284 N/A

(1) In July 2001, the City issued its 2001 Certificates of Participation, Series A to provide funds to finance traffic circulation improvements. The Certificates are to be repaid from lease payments to be made by the City to the Redevelopment Agency. Annual lease payments are approximately $655,000 and are primarily funded from the Measure M taxes.

(2) In November 2003, the City issued its 2003 Certificates of Participation to provide funds to refinance other obligations (Including a portion of the 2001 Certificates) and fund additional public improvements. The Certificates are to be repaid from lease payments to be made by the City to the Redevelopment Agency. Annual lease payments are approximately $1 million, decreasing to $485,000 in 2015. Pursuant to an Amended and Restated Reimbursement Agreement, the Redevelopment Agency has agreed to reimburse the City for approximately 87.52% of debt service payable in connection with the 2003 Certificates of Participation. The contribution to the City is payable from, but has no lien on Tax Increment Revenues. The Redevelopment Agency payments to the City are approximately $875,000 per year through 2014, reducing to approximately $438,000 though the remaining term of the agreement.

(3) The City has capitalized leases for equipment purchases.

(4) Represents that portion of compensated absences not expected to be paid during the current year.

Source: City of Placentia Finance Department.

Direct and Overlapping Debt

Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics as of May 1, 2009. The Debt Report is included for general information purposes only. The City has not independently verified this information and makes no representations as to its accuracy or completeness. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations are not payable from City’s General Fund nor are they necessarily obligations secured by property within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

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DIRECT AND OVERLAPPING DEBT

2008/09 Assessed Valuation: $5,070,122,916 Redevelopment Incremental Valuation: 234,946,295 Adjusted Assessed Valuation: $4,835,176,621

OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/09 Metropolitan Water District 0.261% $ 765,839 North Orange County Joint Community College District 6.063 13,815,091 Placentia-Yorba Linda Unified School District 28.367 47,025,706 City of Placentia Community Facilities District No. 89-1 100. 17,005,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $ 78,611,636

DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations 1.275% $ 6,146,864 Orange County Pension Obligations 1.275 888,841 Orange County Board of Education Certificates of Participation 1.275 249,773 Municipal Water District of Orange County Water Facilities Corporation 1.510 267,044 North Orange County Regional Occupational Program Certificates of Participation 6.281 733,621 Placentia-Yorba Linda Unified School District Certificates of Participation 28.367 24,625,482 Yorba Linda County Water District Certificates of Participation 9.503 916,564 Orange County Fire Authority General Fund Obligations 2.479 174,522 City of Placentia Certificates of Participation 100. 9,555,000 (1) TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $ 43,557,711 Less: MWDOC Water Facilities Corporation (100% self-supporting) 267,044 City of Placentia Certificates of Participation (87.52% supported from tax increment revenues) 7,329,800 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $ 35,960,867

GROSS COMBINED TOTAL DEBT $122,169,347 (2) NET COMBINED TOTAL DEBT $114,572,503

(1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded

capital lease obligations.

Ratios to 2008/09 Assessed Valuation: Total Overlapping Tax and Assessment Debt....................1.55%

Ratios to Adjusted Assessed Valuation: Gross Combined Direct Debt ($9,555,000) .....................0.20% Net Combined Direct Debt ($2,225,000) .........................0.05% Gross Combined Total Debt..............................................2.53% Net Combined Total Debt .................................................2.37%

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/08: $0

________________________________ Source:California Municipal Statistics, Inc.

33

Financial Statements

The City’s accounting policies conform to generally accepted accounting principles and reporting standards set forth by the State Controller. The audited financial statements also conform to the principles and standards for public financial reporting established by the National Council of Government Accounting and the Governmental Accounting Standards Board.

Basis of Accounting and Financial Statement Presentation. The government-wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Governmental fund financial statements are reported using the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due.

The City retained the firm of Vavrinek, Trine, Day & Co., LLP, Certified Public Accountants, Rancho Cucamonga, California, to examine the general purpose financial statements of the City as of and for the years ended June 30, 2008 and June 30, 2007. The City’s general purpose financial statements for the year ended June 30, 2006 and June 30, 2005 were audited by Mayer Hoffman McCann P.C., Conrad Government Services Division, Irvine, California and Conrad and Associates, LLP, Irvine California, respectively. The following tables summarize the Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balance of the City’s General Fund for the last four Fiscal Years.

34


GENERAL FUND BALANCE SHEET

As of June 30

2005

2006

2007

2008

ASSETS Cash and investments with fiscal agent $ 1,162,257 $ 7,179,611 $ 46,466 $ 35,635 Accounts receivable 1,558,651 1,834,176 256,500 742,892 Taxes receivable - - 1,308,304 1,249,472 Interest receivable - - 139,486 71,898 Due from other governments 347,175 - 170,168 94,373 Loans receivable 483,007 285,120 189,829 93,276 Prepaid items 2,412 21,912 700 - Advances to other funds 16,619,747 - - - Inventories of supplies 16,187 15,998 - 10,048 Total Assets $20,189,436 $ 9,336,817 $ 2,111,453 $ 2,297,594 LIABILITIES Negative cash and investments $ - $ - $ 3,642,141 $ 4,494,215 Accounts payable 1,274,890 362,245 534,933 869,001 Retentions payable - - - 14,828 Payroll payable 461,895 556,575 604,387 702,891 Due to other governments - - - - Due to other funds 6,175,396 4,913,107 - - Deferred revenue 483,007 290,304 220,134 655,579 Deposits payable 643,296 599,079 116,423 120,869 Total Liabilities 9,038,484 6,721,310 5,118,018 6,857,383 FUND BALANCES Reserved for: Loans receivable - 285,120 54,000 93,276 Prepaid items 2,412 21,912 700 - Inventory of supplies 16,187 15,998 - 10,048 Debt proceeds - 7,179,611 46,466 35,635 Advances to other funds 16,619,747 - - - Unreserved, reported in: General Fund (5,487,394) (4,887,134) (3,107,731) (4,698,748) Total Fund Balances 11,150,952 2,615,507 (3,006,565) (4,559,789) Total Liabilities and Fund Balances $20,189,436 $ 9,336,817 $ 2,111,453 $ 2,297,594

Source: City of Placentia Comprehensive Annual Financial Report.

35


GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE

For the year ended June 30

2005

2006

2007

2008

REVENUES: Taxes: Property taxes $ 8,285,564 $ 9,533,303 $10,699,537 $11,371,081 Sales and use taxes 4,252,155 4,881,095 5,820,037 5,300,514 Other taxes 3,987,298 3,242,081 2,078,677 2,116,009 Intergovernmental 1,502,505 1,298,757 929,088 1,527,873 Licenses and permits 574,689 532,904 1,309,238 1,441,263 Fines and forfeitures 401,591 436,086 801,584 765,264 Investment income 122,166 192,235 195,105 4,352 Charges for services 1,175,905 960,553 1,003,834 995,223 Miscellaneous 1,200,587 2,162,766 953,884 1,199,926 Total Revenues 21,502,460 23,239,780 23,790,984 24,721,505

EXPENDITURES: Current: General government 3,418,277 3,779,529 3,030,546 3,262,926 Public safety 13,385,700 14,964,988 16,034,370 16,915,327 Public works 3,862,878 4,153,242 5,182,387 6,695,566 Community development 1,837,582 1,749,704 2,692,373 3,325,730 Capital outlay 5,748,994 154,334 - - Debt Service: Certificates of participation issuance costs 182,596 - - - Principal 567,860 568,372 7,494,606 525,000 Interest 263,428 502,680 518,805 304,244 Total Expenditures 29,267,315 25,872,849 34,953,087 31,028,793 Excess (Deficiency) of Revenues Over (Under) Expenditures (7,764,855) (2,633,069) (11,162,103) (6,307,288)

OTHER FINANCING SOURCES (USES): Transfers in 2,682,463 4,711,016 5,537,283 5,229,572 Transfers out (2,873,491) (13,624,685) (9,489) (488,883) Issuance of Certificates of participation 6,940,000 - - - Certificates of participation discount (82,817) - - - Proceeds from sale of land - 3,011,293 12,237 13,375 Total Other Financing Sources (Uses) 6,666,155 (5,902,376) 5,540,031 4,754,064 Net Change in Fund Balances (1,098,700) (8,535,445) (5,622,072) (1,553,224) Fund Balances, Beginning of Year 12,249,652 11,150,952 2,615,507 (3,006,565) Fund Balances, End of Year $11,150,952 $ 2,615,507 $(3,006,565) $(4,559,789)

Source: City of Placentia Comprehensive Annual Financial Report.

36

City Investment Policy and Portfolio

The City administers a pooled investment program, except for assets held by fiscal agents (which are administered separately under bond indentures). This program enables the City to combine available cash from all funds and to invest cash that exceeds current needs. The most recently revised Investment Policy for the City was adopted on December 16, 2008. Under the City’s Investment Policy and in accordance with the Government Code, the City may invest in the following types of investments:

Portfolio Maturity Investment Limit (if any) Limit (if any) Securities Issued by the U.S. Treasury No Limit 5 years Securities of U.S. Government Sponsored Agencies 30% of Portfolio 5 years Negotiable Certificates of Deposit (AA or better rating) 30% Certificates of Deposit (FDIC insured or collateralized) 40%-

15% one institution

Bankers Acceptances 30% 180 days Local Agency Investment Fund No Limit Repurchase Agreements 30% 30 days Mutual Funds (invested in U.S. Treasuries) 20%-

10% one institution

Passbook Savings As Needed Money Market Funds 20%-

10% one institution

Long-Term Financial Plan

The budget for Fiscal Year 2009/10 assumes minimal or flat economic growth given the current economic environment. The City’s largest revenue sources, property tax and sales and use taxes, are expected to decline slightly in the case of property tax, and decline by 4% in the case of sales tax, from 2008/09 estimated actual results. This projected decrease is in addition to an actual estimated reduction in sales tax that occurred in 2008/09 of 5.2%. Franchise fees are expected to increase in 2009/10 by $200,000 due to an increase in refuse franchise fees and a newly imposed towing franchise fee. Transient occupancy taxes are also projected to be flat as the economy softens. Additional revenue declines are projected in investment income, business license fees and vehicle license fee revenue from the State of California. Charges for services will increase due to the implementation in 2008/09 of a 30-day police impound lot, which generated an additional $320,000 in 2008/09 and is expected to generate additional revenue of $540,000 in 2009/10 and subsequent years.

Reductions in personnel costs through elimination of positions and full cost recovery of administrative and overhead with respect to the City’s enterprise funds and Redevelopment Agency proposed for Fiscal Year 2009/10 reduce expenditures by $540,000 compared with 2008/09. Supplies and services, however, are budgeted to increase by 1.5%, or $448,000, due to additional city-wide costs for such items as utilities and insurance. The overall net reduction in costs for 2009/10 compared to 2008/09 is projected to be $92,000. The City ended Fiscal Year 2007/08 with a negative General Fund balance of $4.56 million and expects to end Fiscal Year 2008/09 with a negative General Fund balance of $3.7 million prior to the issuance of the Bonds.

37

The City anticipates that the Orangethorpe Corridor Capital Projects Fund will end Fiscal Year 2008/09 with a negative fund balance of $1.98 million. The Orangethorpe Corridor Capital Projects Fund deficit is expected to be eliminated as grant monies are received from the State, the County and the federal government over time.

To address the City’s negative fund balance and systemic structural deficit, in June 2008, the City Council adopted a Fiscal Recovery Plan. The objectives of this plan are:

• Successfully resolve the issues pertaining to the CalTrans audit with minimal impact upon the General Fund;

• Establish an environment of fiscal stability, by setting the City on the path of eliminating its General Fund deficit;

• Implement a number of revenue enhancement ideas to further strengthen the City’s fiscal position;

• Continue to provide core General Fund services in the most efficient manner possible;

• Establish an Economic Uncertainty Fund to offset future financial problems;

• Address retiree health costs;

• Expand economic opportunity, as well as the City’s ability to retain and attract residents and businesses, through capital investment in projects to develop the City’s economy; and

• Develop a five year capital improvement program to address the maintenance and replacement of the City’s infrastructure.

The Fiscal Recovery Plan states that while these objectives will help reduce the City’s budget deficit, eliminating the deficit altogether will require additional financial resources. In order to generate these resources, the City Council has put forth a series of revenue enhancement ideas. These enhancements include:

• issuing a pension obligation bond;

• establishing a 30-day police impound yard;

• restructuring debt;

• implementing an Emergency Medical Response Fee; and

• selling surplus property.

It was estimated that the revenue from these enhancements would generate $2.8 million in the first year and an additional $1,150,000 in subsequent years. These revenues could have eliminated the City’s General Fund deficit and stabilized the City’s financial position. However, continued deterioration in the economy and credit markets have eliminated the potential of issuing the pension obligation bond to provide one-time cashflow savings of $1 million, and additional reductions in sales tax and other City revenues have offset some of the revenue increases provided by the establishment of the impound yard.

38

Although the City is currently undertaking steps to reduce its General Fund negative fund balance with personnel and expenditure reductions, there are still many serious internal and external threats to the long term fiscal sustainability of the plan. These threats include:

• The current economic crisis;

• reduced rate of growth in sales tax revenues;

• reduced number of local home sales combined with a drop in property values;

• the State’s structural budget deficit and threat of State raids on local revenues; and

• delay in reimbursement of Capital expenditures form other governmental agencies.

Despite these threats, the City’s budget will continue to stress sound financial management and efficiency, effectiveness and equity in public service. Emphasis will be given to bringing expenditures more in line with available revenues while also exploring new revenue enhancements that will further strengthen the City’s financial position.

The City plans to improve its internal controls and administrative procedures to enhance financial accountability and reporting. Such topics include delivery of accurate and comprehensible financial reports, establishing and maintaining internal controls, establishing and maintaining budget controls, re-establish cash position and maintain cash management policies and practices and review of risk management.

The City is planning to invest in capital improvements throughout the City to attract private business. The City continues to complete major projects designed to improve the community and provide for a better quality of life. During 2008 the City completed several projects to improve and extend streets, sidewalks and traffic signals, construct a pedestrian over crossing, improve several playgrounds at parks throughout the City, perform ballfield renovations at parks including the new Torii Hunter Field at Kraemer Memorial Park, and upgrade storm drain system and repair sewer lines.

The City’s seven-year Capital Improvement Program (CIP) contains 113 projects with a total estimated cost of $610,571,713. For Fiscal Year 2009/10, there is planned a total of 44 projects representing $65,043,956. Some of the key projects in the CIP include:

• $4,273,000 in pavement rehabilitation projects covering all or portions of four major arterials in the City’s aging roadway network: Placentia Avenue, Bastanchury Road, Valencia Avenue and Rose Drive;

• $300,000 for the annual Slurry Seal Project;

• $250,000 for the Lyons Way/Central Avenue Sewer Rehabilitation Project;

• $679,000 in street, sidewalk and traffic signal improvements under the State Safe Routes to School program;

• $446,000 for the initial two projects in a series of Annual Pedestrian Accessibility projects to achieve accessible and ADA compliant streets, sidewalks, parks and facilities citywide and correct deficiencies identified in the City’s ADA Transition Plan;

• $250,000 to install a clarifier at the City Corporation Yard, eliminate the existing septic tank sewage system and connect the clarifier and yard facilities to a sanitary sewer system;

39

• $250,000 for a comprehensive renovation and improvement to the Edwin T. Powell Building, a valuable community asset in downtown Placentia;

• $130,000 in Citywide park lighting upgrades; and

• $108,000 for improvements to facilities in the City Hall complex, including upgrades to the Council Chambers Audio/Video system and refurbishment of the Police Department backroom area.

Also included in the CIP is $44 million for grade separation at Placentia Avenue. The grade separation is part of a $303 million plan over seven years for five grade separations along Orangethorpe Avenue in the City. Orange County Transportation Agency will be the lead agency for the construction of the grade separation, and the funding source will be from State transportation funds and local Measure M sales tax funds.

To fund certain street improvements, the City is considering the issuance of obligations payable from it gas sales tax revenues. Any such financing will be deferred until the State’s 2009/10 budget, and its various proposals to defer or use city and county gas tax revenues to balance its budget are finalized. Other projects are anticipated to be funded under the Safe Routes to School Program, Community Development Block Grant funds, enterprise funds of the city, and community facilities district funds. The City does not anticipate using any moneys from the General Fund for the completion of the CIP.

40

Projected Working Capital and Payment of the Bonds

The following projection of General Fund revenues and expenditures, prepared by the City, depends on the realization of certain assumptions. The projections are based on the percentage increases or decreases in revenue and expenditure categories shown in Table No. 17 starting with a comparison with the 2009/10 General Fund Budget described herein. The City believes the assumptions upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see “BOND HOLDERS’ RISKS”). To the extent that the assumptions are not actually realized, the City’s ability to timely pay interest and principal on the Bonds may be adversely affected. Investors should read “FINANCIAL INFORMATION” in its entirety. The projections do not assume that the Governor’s current State budget proposal to implement a loan of city and county property tax will occur. See “Local Taxes – State Borrowing Local Government Property Taxes” herein.

The projections do not include revenues and expenditures of the Orangethorpe Corridor Capital Projects Fund. The Orangethorpe Corridor Capital Projects Fund deficit is expected to be eliminated over time as grant monies are received from the State, the County of Orange and the federal government as reimbursement for prior expenditures on qualifying projects.

TABLE NO. 17 PROJECTED CHANGE FROM PRIOR YEAR REVENUE AND EXPENDITURES

FOR FISCAL YEARS ENDING JUNE 30

2011 2012 2013 2014

Property Tax -1.0% 1.0% 2.0% 2.0% Sales Tax -1.0% 2.0% 3.0% 3.0% Real Property Transfer Tax -1.0% 0.0% 1.0% 1.0% Transient Occupancy Tax 0.0% 2.0% 3.0% 3.0% All Other Revenues 1.0% 3.0% 3.0% 3.0% Public Safety 0.0% 2.5% 2.5% 3.0% Maintenance 0.0% 2.0% 2.0% 2.0% All Other Expenditures 0.0% 2.0% 2.0% 2.0%


2015 2016 2017 2018 2019

Property Tax 3.0% 3.0% 4.0% 4.0% 5.0% Sales Tax 3.0% 3.0% 3.0% 3.0% 3.0% Real Property Transfer Tax 1.0% 1.0% 1.0% 1.0% 1.0% Transient Occupancy Tax 3.0% 3.0% 3.0% 3.0% 3.0% All Other Revenues 3.0% 3.0% 3.0% 3.0% 3.0% Public Safety 3.0% 3.0% 3.0% 3.0% 3.0% Maintenance 2.0% 2.0% 2.0% 3.0% 3.0% All Other Expenditures 2.0% 2.0% 2.0% 3.0% 3.0%


41

TAB

LE

NO

. 18

PRO

JEC

TE

D G

EN

ER

AL

FUN

D W

OR

KIN

G C

API

TAL

FO

R F

ISC

AL

YE

AR

S E

ND

ING

JU

NE

30

20

10

2011

20

12

2013

20

14

2015

20

16

2017

20

18

2019

Rev

enue

s

P

rope

rty T

ax

$11,

456,

742

$11,

342,

174

$11,

455,

596

$11,

684,

708

$11,

918,

402

$12,

275,

954

$12,

644,

233

$13,

150,

002

$13,

676,

002

$14,

359,

802

Sal

es T

ax

5,34

0,44

4 5,

287,

039

5,39

2,78

05,

554,

564

5,72

1,20

05,

892,

836

6,06

9,62

26,

251,

710

6,43

9,26

26,

632,

439

Tra

nsie

nt O

ccup

ancy

Tax

76

7,77

9 76

7,77

978

3,13

480

6,62

883

0,82

785

5,75

288

1,42

490

7,86

793

5,10

396

3,15

6 O

ther

Tax

12

8,27

6 12

6,99

312

6,99

312

8,26

312

9,54

613

0,84

113

2,15

013

3,47

113

4,80

613

6,15

4 L

icen

se a

nd P

erm

its

2,53

6,45

0 2,

561,

815

2,63

8,66

92,

717,

829

2,79

9,36

42,

883,

345

2,96

9,84

53,

058,

940

3,15

0,70

93,

245,

230

Fin

es a

nd F

orfe

iture

s 69

5,00

0 70

1,95

072

3,00

974

4,69

976

7,04

079

0,05

181

3,75

283

8,16

586

3,31

088

9,20

9 U

se o

f Mon

ey

1,34

2,03

7 1,

355,

457

1,39

6,12

11,

438,

005

1,48

1,14

51,

525,

579

1,57

1,34

71,

618,

487

1,66

7,04

21,

717,

053

Int

ergo

vern

men

tal

352,

000

355,

520

366,

186

377,

171

388,

486

400,

141

412,

145

424,

509

437,

245

450,

362

Cha

rges

for S

ervi

ce

1,87

2,01

0 1,

890,

730

1,94

7,45

22,

005,

876

2,06

6,05

22,

128,

033

2,19

1,87

42,

257,

631

2,32

5,36

02,

395,

120

Oth

er/T

rans

fers

5,2

76,1

59

5

,328

,921

5

,488

,788

5

,653

,452

5

,823

,055

5

,997

,747

6

,177

,679

6

,363

,010

6

,553

,900

6

,750

,517

$2

9,76

6,89

6 $2

9,71

8,37

8$3

0,31

8,72

8$3

1,11

1,19

4$3

1,92

5,11

7$3

2,88

0,28

0$3

3,86

4,07

1$3

5,00

3,79

3$3

6,18

2,73

7$3

7,53

9,04

3 E

xpen

ditu

res

L

egis

lativ

e 75

7,84

5 75

7,84

577

3,00

278

8,46

280

4,23

182

0,31

683

6,72

285

3,45

787

9,06

090

5,43

2 A

dmin

istra

tion

880,

140

880,

140

897,

743

915,

698

934,

012

952,

692

971,

746

991,

181

1,02

0,91

61,

051,

543

Fin

ance

81

0,66

0 81

0,66

082

6,87

384

3,41

186

0,27

987

7,48

489

5,03

491

2,93

594

0,32

396

8,53

3 D

evel

opm

ent S

ervi

ces

721,

435

721,

435

735,

864

750,

581

765,

593

780,

904

796,

523

812,

453

836,

827

861,

931

Pub

lic S

afet

y 15

,294

,913

15

,294

,913

15,6

77,2

8616

,069

,218

16,5

51,2

9517

,047

,833

17,5

59,2

6818

,086

,046

18,6

28,6

2819

,187

,487

Eng

inee

ring

689,

095

689,

095

702,

877

716,

934

731,

273

745,

899

760,

817

776,

033

799,

314

823,

293

Mai

nten

ance

2,

441,

420

2,44

1,42

02,

490,

248

2,54

0,05

32,

590,

854

2,64

2,67

22,

695,

525

2,74

9,43

52,

831,

919

2,91

6,87

6 C

omm

unity

Ser

vice

s 1,

143,

786

1,14

3,78

61,

166,

662

1,18

9,99

51,

213,

795

1,23

8,07

11,

262,

832

1,28

8,08

91,

326,

731

1,36

6,53

3 D

ebt S

ervi

ce

1,10

2,70

0 1,

102,

700

1,12

4,75

41,

147,

249

1,17

0,19

41,

193,

598

1,21

7,47

01,

241,

819

1,27

9,07

41,

317,

446

Oth

er/T

rans

fers

Out

5,3

84,6

21

5

,384

,621

5

,492

,313

5

,602

,160

5

,714

,203

5

,828

,487

5

,945

,057

6

,063

,958

6

,245

,877

6

,433

,253

$2

9,22

6,61

5 $2

9,22

6,61

5$2

9,88

7,62

2$3

0,56

3,76

1$3

1,33

5,72

8$3

2,12

7,95

6$3

2,94

0,99

3$3

3,77

5,40

6$3

4,78

8,66

8$3

5,83

2,32

8

Ava

ilabl

e W

orki

ng C

apita

l $

540

,281

$

4

91,7

63$

4

31,1

06$

5

47,4

33$

5

89,3

89$

7

52,3

24$

9

23,0

78$

1,2

28,3

87$

1,3

94,0

70$

1,7

06,7

16

Sour

ce:

City

of P

lace

ntia

.

42

TABLE NO. 19 PROJECTED PAYMENT OF THE BONDS

First Remaining Working Cashflow Capital Working Add to Balance Capital Working Up to Available Bonds Capital 5% Working Surplus

Revenue Expenditure for Bonds Debt Service Reserve Cap Reserve Funds (1)

2008/09 $30,186,283 $29,318,698 2009/10 29,766,896 29,226,615 $ 540,281 $ 302,727 $237,554 $ 245,350 (2) $ - 2010/11 29,718,378 29,226,615 491,763 404,250 87,513 332,863 - 2011/12 30,318,728 29,887,622 431,106 373,625 57,481 390,344 - 2012/13 31,111,194 30,563,761 547,433 469,875 77,558 467,902 - 2013/14 31,925,117 31,335,728 589,389 508,625 80,764 548,666 - 2014/15 32,880,280 32,127,956 752,324 593,625 158,699 707,365 - 2015/16 33,864,071 32,940,993 923,078 796,125 126,953 834,319 - 2016/17 35,003,793 33,775,406 1,228,387 1,061,750 166,637 1,000,956 - 2017/18 36,182,737 34,788,668 1,394,070 1,194,500 199,570 1,200,526 - 2018/19 37,539,043 35,832,328 1,706,716 1,327,625 265,439 1,465,965 113,652

(1) Surplus Funds, if any, available after establishing a Working Capital reserve not exceeding $1,465,935, will be used toward the mandatory redemption of Bonds on December 1 following such Fiscal Year.

(2) Includes July 1, 2009 estimated balance of $7,796.


THERE CAN BE NO ASSURANCE THAT ACTUAL RESULTS WILL NOT DIFFER MATERIALLY FROM THOSE CONTAINED IN THE CITY’S CALCULATION. IF THEY DIFFER, THE CITY MAY NOT BE ABLE TO TIMELY PAY THE LEASE PAYMENTS.

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BOND OWNERS’ RISKS The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it could delay or prevent payment of principal and/or interest represented by the Bonds. Such risk factors include, but are not limited to, the following matters and should be considered, along with other information in this Official Statement, by potential investors.

No Tax Pledge

THE PAYMENT OF PRINCIPAL OF AND INTEREST ON THE BONDS ARE OBLIGATIONS PAYABLE FROM LEASE PAYMENTS CONSTITUTING FUNDS TO BE APPROPRIATED BY THE CITY PURSUANT TO THE LEASE AGREEMENT. THE CITY COUNCIL IS OBLIGATED TO MAKE APPROPRIATIONS TO PAY THE LEASE PAYMENTS. THE BONDS DO NOT CONSTITUTE AN OBLIGATION OF THE AUTHORITY OR CITY FOR WHICH THE AUTHORITY OR THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OF THE AUTHORITY, THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

Projected Working Capital

The projections of General Fund revenues and expenditures prepared by the City depend on the realization of certain assumptions. The City believes the assumptions upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events may occur. To the extent that the assumptions are not actually realized, the City’s ability to timely pay Lease Payments may be adversely affected. See “FINANCIAL INFORMATION – Projected Working Capital and Payment of the Bonds” for a discussion of assumptions made by the City in projecting working capital available to pay the Bonds.

The Lease Payments

City’s Lease Payments and Other Payments. The City’s Lease Payments and other payments due under the Lease Agreement (including the costs of improvement, repair and maintenance of the Leased Property and taxes, other governmental charges and assessments levied against the Leased Property) are not secured by any pledge of taxes or other revenues of the City but are payable from yearly appropriations of any funds lawfully available to the City. If the City’s revenue sources are less than its total obligations, the City could choose to fund other expenditures before making Lease Payments and Additional Payments due under the Lease Agreement. The same result could occur if, because of State Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues (see “Constitutional Limitation on Taxes and Expenditures” herein). To the extent these types of events or other events adversely affecting the funds available to the City occur in any year, the funds available to make Lease Payments may be decreased.

The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, or revenues are less than needed to meet all expenditures, the funds available to the City to make Lease Payments may be decreased. In the event of a shortfall in revenues, a court might require that the City first set aside revenues to pay other obligations of the City or to make expenditures to preserve the health and welfare of City residents.

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Abatement. The amount of Lease Payments due under the Lease Agreement will be adjusted or abated during any period in which by reason of damage or destruction to the Leased Property or eminent domain proceedings there is substantial interference with the use and possession of the Leased Property. Notwithstanding the provisions of the Lease Agreement and the Indenture specifying the extent of abatement in the event of the City’s failure to have use and possession of the Leased Property, such provisions may be superseded by operation of law, and, in such event, the resulting Lease Payments of the City may not be sufficient to pay all of that portion of the remaining principal and interest represented by the Bonds.

Insurance. The Lease Agreement obligates the City to obtain and keep in force various forms of insurance, to assure repair or replacement of the Leased Property in the event of damage or destruction to the Leased Property (see “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – LEASE AGREEMENT - Insurance” herein). The City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy provided for in the Lease Agreement. In addition, certain risks, such as damage from earthquakes, may not be covered by such property insurance (see “SOURCES OF PAYMENT FOR THE BONDS - Insurance Relating to the Property” herein).

Like many areas of California, the City is subject to seismic activity. According to the Seismic Safety Element of the City’s General Plan, the City is located in a seismically active region and buildings constituting the Leased Property could be impacted by a major earthquake originating from the numerous faults in the area. Potentially active faults in the immediate area include the Whittier Fault and the Norwalk Fault. Seismic hazards such as surface rupture are considered very low, however, ground shaking can occur.

The Leased Property is not located in a 100-year Flood Plain.

If the Leased Property is partially or completely damaged or destroyed due to any uninsured or underinsured event, it is likely that Lease Payments will be partially or completely abated. Apart from the Net Proceeds of insurance, the City and the Authority will have no obligation to expend any funds to repair or replace such damaged or destroyed property. If any Leased Property so damaged or destroyed is not repaired or replaced within the period during which the proceeds of rental interruption insurance or amounts in the Reserve Fund are available, any such abatement could prevent the City from making timely Lease Payments.

Discovery of a Hazardous Substance That Would Limit the Beneficial Use of the Leased Property. In general, the owners and lessees of a parcel may be required by law to remedy conditions of the property relating to the releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 sometimes referred to as CERCLA or the Superfund Act, is the most well known and widely applicable of these laws but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or lessee) is obligated to remedy a hazardous substance condition of property whether or not the owner (or lessee) had any involvement in creating or handling the hazardous substance. The effect, therefore, should the Leased Property be affected by a hazardous substance, might be to limit the beneficial use of the Leased Property upon discovery and during remediation.

Dispute with CalTrans

As described under the caption “FINANCIAL INFORMATION – Litigation and Investigations,” the California Department of Transportation (CalTrans) performed an audit relating to the OnTrac projects of the City. A final determination with respect to their audit had been made and due to deficiencies identified by the audit, costs claimed and reimbursed totaling $36 million had been previously disallowed per a letter from CalTrans dated January 18, 2008. On September 16, 2008, the City received another letter indicating that $24 million of previously disallowed reimbursements are now considered

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satisfactorily addressed. The January 18, 2008 letter also describes CalTrans desire to find methods for the City to repay any disputed amounts from non-General Fund related revenues. On May 14, 2009 the City received another letter from CalTrans further reducing the disallowed reimbursements by $1,642,183 which currently leaves $10,261,130 in disallowed costs. The City continues to work with CalTrans to reduce the disallowed reimbursements. The City cannot guarantee what the final outcome of the negotiations with CalTrans will be and whether it will be required to use General Fund monies to satisfy amounts, if any, required to be reimbursed to CalTrans. Should the City be required to use General Fund monies and other revenues to satisfy amounts, if any, required to be reimbursed to CalTrans, it will have a negative impact on the City’s ability to pay Lease Payments.

State Budget

Information regarding the State budget is regularly available at various State-maintained websites. The Fiscal Year 2009/10 State Budget further described below may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” Additionally, an impartial analysis of the State’s Budgets is posted by the Office of the Legislative Analyst at www.lao.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City takes no responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.

Budget Reform and 2009 Budget Act. On November 6, 2008, the Governor called a special session of the State Legislature and announced a plan to address a projected revenue shortfall for Fiscal Year 2008/09, estimated as of December 10, 2008 to be approximately $14.8 billion, as well as substantial shortfalls in future Fiscal Years. This legislative special session ended without a resolution. Coinciding with the swearing-in of the new Legislature on December 1, 2008, the Governor declared a fiscal emergency for the State, allowing him to call several Proposition 58 legislative special sessions to address the shortfall.

On February 19, 2009, the State Legislature passed a budget-balancing reform package signed by Governor Schwarzenegger on February 20, 2009 (the “2009 Budget Act”), intended to close the State’s projected $41.6 billion deficit through June of 2010. The 2009 Budget Act, enacted nearly five months ahead of the constitutional deadline, along with a number of accompanying measures, was designed to reduce the deficit forecasts and to achieve budget solutions for both the 2008/09 and 2009/10 Fiscal Years. The Department of Finance has reported that California’s chronic and cyclic budget crises are largely attributable to the use of higher than normal revenues to create permanent, ongoing spending commitments and tax cuts. The 2009 Budget Act and accompanying legislation were designed to end this cycle by preventing government from spending revenue above the long-term trend line and by creating a substantial ‘Rainy Day’ fund of up to 12.5 percent of general fund revenue for use only during times when revenue is insufficient to fund a moderate, population-and-inflation-based growth in spending. Certain of these reforms, to be effective, were required to be approved as constitutional amendments by qualified voters voting at an election on May 19, 2009. See “May Revision to the 2009 Budget Act” below.

The 2009 Budget Act requires the Director of Finance and the Treasurer to determine how much general fund benefit the State will receive in 2008/09 and 2009/10 from the receipt of the American Recovery and Reinvestment Act of 2009 (the “Federal Stimulus Package”). If the determination at that time is $10 billion or greater, the expenditure solutions labeled as “trigger reductions” will not go into effect, nor will the additional 0.125 percent surcharge on the income tax rate. The Department of Finance estimate of $8 billion would be insufficient to trigger the cuts and tax increase. However, such amount if received, is expected to increase the general fund reserve and thereby reduce the need for the State to sell Revenue Anticipation Warrants (RAWs) for budgetary purposes in July of 2009. However, the State may still need to sell RAWs for cash management purposes. To the extent the State realizes more from the federal

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government for certain programs, the 2009 Budget Act provides that smaller spending reductions will be made in those areas. The 2009 State Budget Act projected $42 billion deficit through Fiscal Year-end 2009/10 and consists of $15 billion in expenditure reductions, $11.4 billion in borrowing, $12.8 billion in taxes and $2 billion in federal moneys.

The 2009 Budget Act includes the following major expenditure reductions:

• No COLAs. $1.2 billion in combined spending-related savings for Fiscal Years 2008/09 and 2009/10 by suspending COLAs for various programs, including Supplemental Security Income (“SSI”), State Supplementary Payment (“SSP”), California Work Opportunities and Responsibilities to Kids (“CalWORKs”) and Medi-Cal, as well as trial courts and the University of California and California State University systems.

• Fund Shifts. The 2009 Budget Act uses approximately $1 billion in fund shifts to balance the State general fund. The two largest shifts include $608 million from Proposition 10 child development programs and $227 million from Proposition 63 mental health funds. Both of these provisions were subject to voter approval of the May 19, 2009 election. However, voters did not approve these provisions.

• Deferred Spending. The 2009 Budget Act also defers approximately $500 million in costs for expenses the State will face in future years, including approximately $200 million in tribal revenues to the General Fund that would otherwise have been used to pay off prior transportation loans. The 2009 Budget Act also defers approximately $91 million in mandate reimbursements to local governments.

• Health. $184 million in savings in Fiscal Year 2009/10 by eliminating certain optional Medi-Cal benefits and reducing reimbursements rates to public hospitals by 10%. This provision may be triggered off by the receipt of sufficient federal stimulus funds. The 2009 Budget Act also assumes $160 million in savings from reductions to reimbursement rates for developmental health service providers.

• Social Services. $74 million in savings in Fiscal Year 2009/10 for In-Home Supportive Service (“IHSS”) expenditures from the reduction of IHSS provider wages, as well as $4 million in savings by eliminating state assistance with Medi-Cal co-payments for new IHSS participants. The 2009 Budget Act also achieves $147 million in savings by reducing CalWORKs grants by 4% and $268 million in savings by reducing SSI/SSP grants by 2.3%. All of these Social Services reductions can be triggered off by the receipt of sufficient federal stimulus funds.

• Transportation. $460 million in combined savings in Fiscal Years 2008/09 and 2009/10 for transportation services expenditures by reducing state funding of the State Transit Assistance program in Fiscal Year 2008/09 and eliminating such funding in Fiscal Year 2009/10.

• Employee Compensation. $1.2 billion in combined savings for Fiscal Years 2008/09 and 2009/10, realized primarily from the continued implementation of monthly one and two-day furloughs for State employees.

• Higher Education Savings. $232 million in unallocated reductions for higher education funding, as well as an additional $100 million unallocated reduction for Fiscal Year 2009/10 that may be triggered off by the receipt of sufficient federal stimulus funds.

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• Other Reductions. The 2009 Budget Act also includes (i) a $171.4 million reduction in judiciary expenditures in Fiscal Year 2009/10 that may be triggered off by the receipt of sufficient federal stimulus funds, and (ii) $580 million in unspecified correctional services reductions.

The 2009 Budget Act assumes an additional $12.5 billion in revenues, including $1.5 billion in Fiscal Year 2008/09 and $11 billion in Fiscal Year 2009/10, through the enactment of the following major revenue and borrowing solutions:

• Sales Tax. $5.8 billion from a temporary one-cent increase in the state sales tax, including $1.2 billion of additional revenue for Fiscal Year 2008/09 and $4.6 billion of such revenues for Fiscal Year 2009/10. The increased tax becomes effective April 1, 2009 and is set to lapse on July 1, 2011.

• Vehicle License Fees. $2 billion from a temporary increase in vehicle license fees, including $346 million in additional revenues for Fiscal Year 2008/09 and $1.7 billion of such revenues in Fiscal Year 2009/10. This increase is set to lapse on July 1, 2011.

• Personal Income Tax. $1.8 billion from a temporary increase of 0.125% in each personal income tax rate. The 2009 Budget Act also provides for $1.8 billion from an additional personal income tax increase of 0.125% that may be triggered off if sufficient federal stimulus funds are received. This tax increase is set to lapse after tax year 2010.

• Reduction of Dependent Tax Credit. $1.4 billion from a temporary reduction in the value of dependent credit for income tax purposes. This reduction is set to lapse after tax year 2010.

• Borrowing. $5 billion by accounting for the proceeds from the securitization of the State lottery, and used to offset General Fund expenditures. This provision was subject to voter approval at the May 19, 2009 state election. However, voters did not approve these provisions. The 2009 Budget Act also provides for an additional $328 million in borrowing from various state special funds.

May Revision to the 2009 Budget Act. On May 14, 2009, the office of the Governor proposed its May revision to the 2009 Budget Act (the “May Revision”). The May Revision proposes additional solutions to address growing revenue losses and expenditure increases experienced by the State since the passage of the 2009 Budget Act. The May Revision projected that, absent corrective action, State expenditures will exceed revenues by approximately $15.4 billion through the current Fiscal Year and Fiscal Year 2009/10. To address this projected deficit, the May Revision proposes $2 billion in expenditure reductions and revenue increases for Fiscal Year 2008/09 and $12.5 billion of such solutions for Fiscal Year 2009/10, coupled with a $889 million reduction to the $2.1 billion reserve approved as part of the 2009 Budget Act. The May Revision also acknowledged that the 2009 Budget Act included approximately $6 billion of solutions subject to voter approval at the May 19, 2009 special election, including the sale of future State Lottery revenues and diversion of tax revenues to general fund purposes that were previously dedicated by voter initiative to childhood development and mental health services. However, on May 19, 2009, five of the six proposed Statewide ballot measures failed to pass. Failure to secure voter approval for these measures increases the projected deficit by the amount of approximately $6 billion. Accordingly, in response to worsening revenue projections and the May 19, 2009 special election results, the May Revision proposed the following budgetary measures, among numerous others:

Revenues: the acceleration of state income tax withholding ($1.7 billion) and personal and corporation estimated tax payments ($610 million) and sale of a portion of the State Compensation Insurance Fund ($1.0 billion).

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Expenditures: a cut and deferral of K-14 education funding (Proposition 98) by $1.6 billion in 2008/09 and by $4.6 billion in 2009/10 and a reduction of $1.02 billion from 2008/09 California State University and University of California funding.

Borrowing: diversion of $1.98 billion in local property tax revenues to the State, to be repaid within three years under Proposition 1A of 2004. See “LAO Overview of May Revision – Borrowing Local Government Property Taxes” below.

Additional changes include spending cuts, revenue enhancements, and shifting revenues and expenditures between programs. For further details regarding the May Revision, please see the summary thereof published by the California State Department of Finance (the “May Revision Report”). The May Revision Report may be found at www.dof.ca.gov. This website is not incorporated herein by reference and neither the City nor the Underwriter makes any representation as to the accuracy of the information provided therein. In addition, the City is unable to predict what further actions might be taken by the State Legislature and the Governor to address changing State revenues and expenditures or the exact impact such actions or the 2009 Budget Act and accompanying legislation will have on State revenues and, as a result, City revenues and expenditures. The State Budget will continue to be affected by future national and State economic conditions and other factors over which the City has no control.

LAO Overview of May Revision. The LAO points out that the May Revision proposals include major spending reductions and efforts for long-term State efficiencies and savings and that by acting promptly, rejecting the Governor’s RAW proposal, and reducing reliance on certain of the Governor’s proposals, the State Legislature can return the budget to balance, prevent another State cash crunch, and preserve core funding for what it deems to be the State’s long-term priorities. To accomplish these goals, the LAO believes that the State Legislature must cut lower-priority programs substantially or eliminate them and, to address significant budget deficits forecast in future years, the State Legislature also needs to begin work on measures that further improve the efficiency of State services in future Fiscal Years. The May Revision includes the following items affecting local government:

Workload, Caseload, and Program Issues. The May Revision always includes updates of program spending, including actual and estimated caseloads in the health and social services areas. In total, the administration has identified $1.1 billion in higher spending requirements of this type in the May Revision.

The Governor proposes major spending reductions affecting most parts of state government, as well as many local governments and individual Californians. The proposed spending reduction measures include:

Medi-Cal Reductions. The Governor proposes $1.1 billion of total reductions to Medi-Cal, including $750 million of changes that would likely require federal approval.

In-Home Supportive Services (IHSS). The May Revision includes several proposals which would result in combined General Fund savings of about $500 million in IHSS. Specifically, the May Revision would limit the scope of services and copayments currently provided to the less disabled, reduce state participation in wages to the minimum wage, restrict program eligibility to the more severely disabled, and enhance fraud prevention activities.

The Governor proposes use of $7.5 billion of borrowing proceeds to return the budget to balance. The proposed borrowing measures include the use of the constitutional mechanism authorized by Proposition 1A (the measure approved in 2004 related to local government finance) to borrow almost $2 billion of property tax revenues received by cities, counties, and special districts. Under the Governor’s proposal, the borrowing would be instituted on an across-the-board basis, with each agency lending 8 percent of its 2008/09 property tax revenues. Repayment would be required within three years with interest. In an effort to minimize the short-term financial strain for local governments associated with these loans, the

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Governor also proposes legislation to create an authority that would allow local agencies to borrow against future state repayments collectively, rather than just individually.

LAO Recommendations. In connection with municipalities, the LAO recommends the Legislature acknowledge the impact of the state’s budget solutions on local government. California’s cities, counties, and special districts have been experiencing fiscal stress due to the economic downturn. Some of the Governor’s budget solutions would exacerbate this stress because they (1) decrease local revenues (particularly the property tax) or (2) indirectly increase demand for local programs (such as county jails and indigent health programs). Any budget package that the Legislature adopts is likely to negatively affect local governments in some way—whether by budgetary cuts or payment delays. Consequently, the LAO recommends that the Legislature acknowledge the impact of the state’s budget solutions on local governments, implement budget solutions in a targeted fashion, and take actions to maximize local government program flexibility and resources whenever possible.

While the LAO believes that the Governor’s estimate of the budget problem that now needs to be addressed, namely $21.3 billion, is reasonable, the LAO’s updated estimates of General Fund revenues and expenditures differ somewhat from the administration’s, indicating that the problem may be larger by about $3 billion. In March 2009, the LAO projected that the State faced huge operating shortfalls in future years even after the adoption of the 2009 Budget Act. The LAO now estimates that the May Revision proposals would leave the General Fund with an imbalance between resources and expenditures of greater than $15 billion in 2010-11, with the annual shortfall rising even more in the subsequent three Fiscal Years. A complete copy of the LAO overview of the May Revision is posted by the Office of the Legislative Analyst at www.lao.ca.gov. This website is not incorporated herein by reference and neither the City nor the Underwriter makes any representation as to the accuracy of the information provided therein.

Additional Budget Proposals. On May 26, 2009, the Governor announced additional proposals to balance the budget after the May 19, 2009 election was held and five of the six propositions relating to the State budget failed to pass. The Governor estimated that an additional $5.6 billion in expenditure reductions are now needed. The Governor has proposed the closure of approximately 80% of State parks, elimination of the California Work Opportunity and Responsibility to Kids Program, elimination of the Healthy Families program, early release of about 19,000 nonviolent, non-serious prisoners not convicted of sex offenses and reduction of inmate services such as substance abuse counseling and vocational education. Further, the Governor and the LAO have proposed both cutting and borrowing local transportation funding as part of the solution to balance the State budget.

The Governor proposes to take virtually all of the local share of Highway User Tax Account (gas tax) in FY 2009-10 and 72 percent going forward to pay for highway bond debt each year until the debt is retired. The local share would be reduced in most years from $1.03 billion to approximately $300 million. However, in the coming Fiscal Year, through a formula adjustment involving weight fees, the local share would be reduced from $1.03 billion to just $44 million. The Governor claims that the California Constitution (Section 5 of Article XIX) allows the state to take 25 percent of gas tax revenues for bond debt repayment and can take all of this from the local share. This would relieve pressure on the State’s General Fund to pay debt service. LAO proposes both a one-year suspension of the local gas tax revenues, and a partial suspension of the Proposition 42 transfer, the sales tax on gas.

Borrowing Local Gas Tax Subventions: Rather than take local gas taxes as the Governor proposes, LAO proposes instead to borrow $1.03 billion in gas tax funds from local governments in FY 2009-10. LAO proposes that the State repay the borrowing with interest within three years, as required pursuant of Article XIX, Section 6 of the California Constitution.

Borrowing Prop 42 (Sales Tax on Gas): LAO proposes to suspend 80% of the Proposition 42 transfer for FY 2009-10, resulting in less funding for state highway projects and for local streets and roads. The suspended amount would be approximately $1.2 billion (approximately $600

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million from cities and counties). It would have to be repaid within three years according to the same criteria that applies to borrowing local property taxes under Proposition 1A (2004). LAO has also proposed a repeal of Proposition 42, but the voters would need to approve this proposal.

Transit: The Governor has proposed redirecting $315 million in Public Transportation Account funds to pay for debt service on transit bonds.

COPS/Booking Fees: COPS, Booking Fee and other local public safety programs are currently being funded by the temporary 0.15% increase in the Vehicle License Fee adopted as part of the 2009/10 Budget. LAO has proposed taking one half of these revenues for the General Fund.

Emergency Response Funding: Discussions continue over the details of the Governor’s proposal to allocate $76 million from a new 4.8% surcharge on insurance policies to partially fund CAL Fire and local response agencies. Local agencies can receive reimbursement for costs incurred for responding to emergencies as part of the state's mutual aid system.

The Governor and the State Legislature are continuing to consider substantial revisions to the 2009 Budget Act in light of voter rejection of key State Budget Propositions and the continued deterioration of the State’s financial condition. The City cannot predict such revisions or the final impact of the State Budget on City revenues and expenditures in 2009/10 or beyond. For example, on June 15, 2009, the Budget Conference Committee, made up of three members each of the State Senate and State Assembly, rejected the Governor’s and LAO’s proposal to suspend Proposition 1A – however, the potential for this State borrowing from counties and cities remains until ultimately decided at the end of budget negotiations between the Governor and the Legislature.

Future State Budgets

Changes in the revenues received by the State can affect the amount of funding to be received by the City. The City cannot predict the extent of the budgetary problems the State will encounter in this or in any future Fiscal Year, and, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of current or future State budget negotiations, the impact that such budgets will have on its finances and operations or what actions will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures. Current and future State budgets are being and will be affected by national and State economic conditions and other factors, including the current economic downturn, over which the City has no control.

Constitutional Limitation on Taxes and Expenditures

State Initiative Measures Generally. Under the California Constitution, the power of initiative is reserved to the voters for the purpose of enacting statutes and constitutional amendments. For more than 25 years, the voters have exercised this power to place limitations on the ability of local governments to levy taxes and make expenditures, including through the adoption of Proposition 13 (“Article XIIIA”) and similar measures, the most recent of which was approved as Proposition 218 in the general election held on November 5, 1996.

Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies such as the City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the extent of creating cash-flow problems in the payment of outstanding obligations such as the Lease Agreement.

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Article XIIIA. Article XIIIA of the California Constitution limits the taxing powers of California public agencies. Article XIIIA provides that the maximum ad valorem tax on real property cannot exceed one percent of the “full cash value” of the property, and effectively prohibits the levying of any other ad valorem property tax except for taxes above that level required to pay debt service on voter-approved general obligation bonds. “Full cash value” is defined as “the County assessor’s valuation of real property as shown on the 1975/76 tax bill under ‘full cash value’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The “full cash value” is subject to annual adjustment to reflect inflation at a rate not to exceed two percent or a reduction in the consumer price index or comparable local data. Article XIIIA has subsequently been amended to permit reduction of the ‘full cash value’ base in the event of declining property values caused by substantial damage, destruction or other factors, and to provide that there would be no increase in the ‘full cash value’ base in the event of reconstruction of property damaged or destroyed in a disaster and in other special circumstances.

The foregoing limitation does not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters before July 1, 1978 or any bonded indebtedness for the acquisition or improvement of real property approved by two-thirds of votes cast by the voters voting on the proposition.

Possible Assessed Valuation Decline. As a result of the current economic downturn and related real estate market conditions, the website for the Orange County Assessor states that assessor's office reviewed the value of 190,000 properties countywide in 2008, and that 147,000 received a reduction of assessed value to reduce the value to the then market value under the provisions of Proposition 8. From 2007 to 2008, the total secured assessed value of the City increased by 1.6%. For purposes of establishing the 2009/10 tax roll values, the Orange County Assessor will again be reviewing the value of properties throughout the County and determining if additional reductions are required under Proposition 8. The secured assessed valuation within the boundaries of the City could decline as a result. While the City expects some decline in total assessed valuation of the City, no prediction can be made as to the amount of the decline in total assessed valuation, if any. For purposes of projecting its future cashflow, the City has estimated that property taxes will decrease slightly for the next two years before showing slight increases in 2012. See “TABLE NO. 17 – PROJECTED CHANGE FROM PRIOR YEAR REVENUE AND EXPENDITURES” herein.

In the general election held November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amend the terms “purchase” and “change of ownership”, for purposes of determining full cash value of property under Article XIIIA, to not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. Proposition 60 amends Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence and buy or build another of equal or lesser value within two years in the same city, to transfer the old residence’s assessed value to the new residence. In the March 26, 1996 general election, voters approved Proposition 193, which extends the parents-children exception to the reappraisal of assessed value. Proposition 193 amended Article XIIIA so that grandparents may transfer to their grandchildren whose parents are deceased, their principal residences, and the first $1,000,000 of other property without a re-appraisal of assessed value.

Article XIIIB. On October 6, 1979, California voters approved Proposition 4, or the Gann Initiative, which added Article XIIIB to the California Constitution. The principal thrust of Article XIIIB is to limit the annual appropriations of the State and any city, county, city and county, school district, authority or other political subdivision of the State. The “base year” for establishing such appropriations limit is the 1978/79 Fiscal Year, and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by public agencies.

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Proposition 62 and Proposition 218. Proposition 62 was a statutory initiative, approved by voters in the November 1986 general election, and added Sections 53720 to 53730, inclusive, to the California Government Code. It confirmed the distinction between a general tax and special tax, established by the State Supreme Court in 1982 in City and County of San Francisco v. Farrell, by defining a general tax as one imposed for general governmental purposes and a special tax as one imposed for specific purposes. Proposition 62 further provided that no local government or district may impose (i) a general tax without prior approval of the electorate by majority vote or (ii) a special tax without such prior approval by two-thirds vote. It further provided that if any such tax is imposed without such prior written approval, the amount thereof must be withheld from the levying entity’s allocation of annual property taxes for each year that the tax is collected. By its terms, Proposition 62 applies only to general and special taxes imposed on or after August 1, 1985. Proposition 62 was generally upheld in Santa Clara County Local Transportation Authority v. Guardino, a California Supreme Court decision filed September 28, 1995.

The Santa Clara decision did not decide the question of the applicability of Proposition 62 to charter cities such as the City of Placentia. Two cases decided by the California Courts of Appeals in 1993, Fielder v. City of Los Angeles (1993) 14 Cal.App.4th 137 (review denied May 27, 1993), and Fisher v. County of Alameda (1993) 20 Cal.App.4th 120 (review denied Feb. 24, 1994), had held that Proposition 62’s restriction on property transfer taxes did not apply to charter cities because charter cities derive their power to enact such taxes under Article XI, Section 5 of the California Constitution relating to public affairs.

The City levies a utility user’s tax equal to 3.5% of electric, telephone, gas and cable television bills. The tax was approved by voters in 1970 and has not been increased. The tax generates approximately $2.75 million annually.

On November 5, 1996, California voters approved Proposition 218 - Voter Approval for Local Government Taxes - Limitation on Fees, Assessments, and Charges - Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote.

Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) assessments, fees, and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges.

Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts.

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Proposition 218 provides that, effective July 1, 1997, fees that are charged “as an incident of property ownership” may not “exceed the funds required to provide the property related services” and may only be charged for services that are “immediately available to the owner of the property.”

The foregoing discussion of Proposition 62 and Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Lease Payments as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218.

Like its antecedents, Proposition 218 is likely to continue to undergo both judicial and legislative scrutiny before its ultimate impact on the City and its obligations can be determined. Certain provisions of Proposition 218 may be examined by the courts for their constitutionality under both State and federal constitutional law. The City is not able to predict the outcome of any such examination, although it does not currently anticipate that the provisions of Proposition 218 or 62 will have a material adverse impact on its financial condition.

Future Initiatives. Articles XIIIA, XIIIB, XIIIC and XIIID were adopted as measures that qualified for the ballot pursuant to California’s Constitutional initiative process. From time to time other initiative measures could be adopted, affecting the ability of the City to increase revenues and to increase appropriations.

Limited Recourse on Default

If an event of default occurs and is continuing under the Lease Agreement, there is no remedy of acceleration of any Lease Payments which have not come due and payable in accordance with the Lease Agreement. The City will continue to be liable for Lease Payments as they become due and payable in accordance with the Lease Agreement if the Trustee does not terminate the Lease Agreement, and the Trustee would be required to seek a separate judgment each year for that year’s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against counties in California, including a limitation on enforcement of judgments against funds or property needed to serve the public welfare and interest. In addition, the enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time-consuming.

The Lease Agreement permits the Trustee to take possession of and re-lease the Leased Property in the event of a default by the City under the Lease Agreement. However, due to the fact that the Leased Property serve essential governmental purposes, it is unlikely that a court would permit such remedy to be exercised. Even if such remedy may be exercised, due to the specialized nature of the Leased Property it is unlikely that the Trustee could readily re-lease it for rents which are sufficient to enable it to pay principal and interest represented by the Bonds in full when due.

Substitution of Property

The City has the right from time to time to substitute other real property or improvements (subject only to Permitted Encumbrances) for all or a portion of the Leased Property, subject to the conditions precedent to such substitution as set forth in the Lease Agreement. No substitution under the Lease Agreement will be, by itself, the basis for any reduction in or abatement of the Lease Payments due from the City thereunder. See “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - LEASE AGREEMENT - Substitution of Property” herein.

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Enforceability of Remedies

The remedies available to the Trustee and the Owners of the Bonds upon an event of default under the Indenture, the Lease Agreement, the Site Lease, or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. In the case of any bankruptcy proceeding involving the City, the rights of the Owners could be modified at the direction of the court. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of certain legal rights related to the Indenture, the Lease Agreement, the Site Lease and other pertinent documents is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally.

Loss of Tax Exemption

As discussed under the caption “LEGAL MATTERS - Tax Exemption” herein, interest received by the Owners of the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the Authority or the Authority in violation of their covenants contained in the Indenture and the Lease Agreement. Should such an event of taxability occur, the Bonds are not subject to special redemption or any increase in interest rate and will remain outstanding until maturity or until prepaid under one of the redemption provisions contained in the Indenture.

Secondary Market

There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such 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 in connection with a particular issue 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. See “CONCLUDING INFORMATION – No Ratings on the Bonds” herein.

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LEGAL MATTERS Approval of Legal Proceedings

Jones Hall, A Professional Law Corporation, San Francisco, California, as Bond Counsel, will render an opinion which states that the Lease Agreement represents a valid and binding obligation of the Authority and the City, enforceable against the Authority and the City, as applicable, in accordance with its terms except as limited by bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights, by equitable principles, by the exercise of judicial discretion and by limitations on legal remedies against municipalities in the State. See “APPENDIX D” hereto for the proposed form of Bond Counsel’s opinion.

The Authority and the City have no knowledge of any fact or other information which would indicate that the Indenture, the Lease Agreement, the Site Lease or the Bonds are not so enforceable against the Authority and the City, as applicable, except to the extent such enforcement is limited by principles of equity, by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors’ rights generally and by limitations on legal remedies against municipalities in the State.

Certain legal matters will be passed on by Best Best & Krieger LLP, Riverside, California, as Disclosure Counsel and by Andrew V. Arczynski, Fullerton, California, as City Attorney. Certain legal matters will be passed on for the Underwriter by Nossaman LLP, Irvine, California, as Underwriter’s Counsel. Fees payable to Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds.

Tax Exemption

Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however, to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations and the Bonds are “qualified tax-exempt obligations” within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the “Tax Code”) such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Tax Code), a deduction for federal income tax purposes is allowed for 80 percent of that portion of such financial institution’s interest expense allocable to interest payable on the Bonds. The opinions described in the preceding sentence are subject to the condition that the City and Authority comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The City and Authority have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds.

Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which each Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of federal income taxes and State of California personal income taxes. De minimis original issue discount is disregarded.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straightline interpolations between compounding dates).

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The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes.

Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond’s maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straightline interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of Premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State of California personal income tax and federal income tax consequences of owning such Bonds.

California Tax Status. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.

Other Tax Considerations. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above.

Proposed Form of Tax Opinion. A copy of the proposed form of opinion of Bond Counsel is included as “APPENDIX D.”

Absence of Litigation

The Authority will furnish a certificate dated as of the date of delivery of the Bonds that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Indenture, the Site Lease or the Lease Agreement or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Indenture and the Site Lease and the Lease Agreement are to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof.

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CONCLUDING INFORMATION No Ratings on the Bonds

The Authority has not made, and does not contemplate making, any application for a rating on the Bonds. No such rating should be assumed based upon any other Authority rating that may be obtained. Prospective purchasers of the Bonds are required to make independent determinations as to the credit quality of the Bonds and their appropriateness as an investment. Should a Bondholder elect to sell a Bond prior to maturity, no representations or assurances can be made that a market will have been established or maintained for the purchase and sale of the Bonds. The Underwriter assumes no obligation to establish or maintain a market for the purchase and sale of the Bonds and is not obligated to repurchase any of the Bonds at the request of the holder thereof.

Underwriting

The Bonds were sold to Stone & Youngberg LLC, (the “Underwriter”). The Underwriter is offering the Bonds at the prices set forth on the inside front cover page hereof. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter has purchased the Bonds at a price equal to $4,300,857.50, which amount represents the principal amount of the Bonds less an Underwriter’s discount of $89,142.50. The Underwriter will pay certain of its expenses relating to the offering.

The Financial Advisor

The material contained in this Official Statement was prepared by the Authority with the assistance of the Financial Advisor who advised the Authority and the City as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein received from sources other than the City has been obtained by the Authority from sources which are believed to be reliable, but such information is not guaranteed by the Authority or the Financial Advisor as to accuracy or completeness, nor has it been independently verified. Fees paid to the Financial Advisor are contingent upon the sale and delivery of the Bonds.

Continuing Disclosure

The City will covenant to provide annually certain financial information and operating data by not later than November 1 and March 31 each year commencing March 31, 2010 and to provide the audited General Purpose Financial Statements of the City for the Fiscal Year ending June 30, 2009 and for each subsequent Fiscal Year when they are available (together, the “Annual Report”), and to provide notices of the occurrence of certain other enumerated events if deemed by the City to be material. The Annual Report and notices of material events can be accessed from the Electronic Municipal Markets Access Website (“EMMA”) operated by the Municipal Securities Rulemaking Board (www.emma.msrb.org). These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). The specific nature of the information to be contained in the Annual Report or the notices of material events and certain other terms of the continuing disclosure obligation are summarized in “APPENDIX C – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” Failure of the Authority to provide the required ongoing information may have a negative impact on the value of the Bonds in the secondary market. The Authority has never failed to comply timely with any obligation to file annual reports or provide notice of a material event. However, with respect to the annual reports filed by the City and the Authority for Fiscal Year 2007/08, the City’s financial statements were filed on June 2, 2009. The release of the audited financial statements for Fiscal Year 2007/08 was delayed until the auditor’s concerns relating to the City’s cash position were satisfied.

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Additional Information

The summaries and references contained herein with respect to the Indenture, the Site Lease, the Lease Agreement, the Bonds, statutes and other documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Indenture. Copies of the Indenture, the Site Lease and the Lease Agreement are available for inspection during the period of initial offering on the Bonds at the offices of the Financial Advisor. Copies of these documents may be obtained after delivery of the Bonds from the Authority at 401 East Chapman Avenue, Placentia, California 92870.

References

Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or Owners of any of the Bonds.

Execution

The execution of this Official Statement by the Executive Director has been duly authorized by the Placentia Public Financing Authority.

PLACENTIA PUBLIC FINANCING AUTHORITY

By: /s/ Troy L. Butzlaff Executive Director

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APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of the provisions of the Site Lease, Lease

Agreement and the Indenture of Trust relating to the Bonds. Such summary is not intended to be definitive, and reference is made to the complete documents for the complete terms thereof.

DEFINITIONS

Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have the following meanings when used in this summary:

“Additional Rental Payments” means the amounts of additional rental which are

payable by the City under the Lease Agreement. “Authorized Representative” means: (a) with respect to the Authority, its

Executive Director, Chief Financial Officer or any other person designated as an Authorized Representative of the Authority by a Written Certificate of the Authority signed by its Executive Director and filed with the City and the Trustee; and (b) with respect to the City, its Mayor, City Administrator or any other person designated as an Authorized Representative of the City by a Written Certificate of the City signed by its City Administrator and filed with the Authority and the Trustee.

“Bond Counsel” means (a) Jones Hall, A Professional Law Corporation, or (b)

any other attorney or firm of attorneys appointed by or acceptable to the Authority of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code.

“Business Day” means a day (other than a Saturday or a Sunday) on which

banks are not required or authorized to remain closed in the City in which the Office of the Trustee is located.

“Closing Date” means June 30, 2009, being the date of delivery of the Bonds to

the Original Purchaser. “Costs of Issuance” means all items of expense directly or indirectly payable by

or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to: printing expenses; rating agency fees; filing and recording fees; initial fees, expenses and charges of the Trustee and their respective counsel, including the Trustee’s first annual administrative fee; fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals; fees and charges for preparation, execution and safekeeping of the Bonds; and any other cost, charge or fee in connection with the original issuance of the Bonds.

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“Federal Securities” means: (a) any direct 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), for which the full faith and credit of the United States of America are pledged; (b) obligations of any agency, department or instrumentality of the United States of America, the timely payment of principal and interest on which are directly or indirectly secured or guaranteed by the full faith and credit of the United States of America.

“Fiscal Year” means any twelve-month period extending from July 1 in one

calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the City as its official fiscal year period.

“General Fund Revenues” means all income and revenues received by or on

behalf of the City which are lawfully available for the payment of the Lease Payments. “Interest Payment Date” means each June 1 and December 1, commencing

December 1, 2009, so long as any Bonds remain unpaid. “Lease Payment Date” means, with respect to any Interest Payment Date, the 5th

Business Day immediately preceding such Interest Payment Date. “Lease Payments” means the amounts payable by the City under the Lease

Agreement as rental for the Leased Property, including any prepayment thereof and including any amounts payable upon a delinquency in the payment thereof, but excluding Additional Rental Payments.

“Leased Property” means the real property described in Appendix A to the Lease,

together with all improvements and facilities at any time situated thereon, consisting generally of the land and improvements constituting the existing City Hall of the City.

“Locked Fund” means any fund or account of the City or a related party to the

City, amounts in which may not be used by the City for working capital expenditures without legislative or judicial action or without a legislative, judicial or contractual requirement that such amounts be reimbursed.

“Net Proceeds” means amounts derived from any policy of casualty insurance or

title insurance with respect to the Leased Property, or the proceeds of any taking of the Leased Property or portion thereof in eminent domain proceedings (including sale under threat of such proceedings), to the extent remaining after payment therefrom of all expenses incurred in the collection and administration thereof.

“Owner”, when used with respect to any Bond, means the person in whose name

the ownership of such Bond is registered on the Bond registration books of the Trustee. “Permitted Encumbrances” means, as of any time: (a) liens for general ad

valorem taxes and assessments, if any, not then delinquent, or which the City may permit to remain unpaid under the Lease Agreement; (b) the Site Lease, the Lease Agreement and the Assignment Agreement; (c) any right or claim of any mechanic, laborer, material man, supplier or vendor not filed or perfected in the manner prescribed by law; (d) the exceptions disclosed in the title insurance policy with respect to the

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Leased Property issued as of the Closing Date by Stewart Title Guaranty Company; and (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record and which the City certifies in writing will not materially impair the use of the Leased Property for its intended purposes.

“Permitted Investments” means any of the following which at the time of

investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein:

(a) Federal Securities; (b) obligations of any federal agency which represent full faith and

credit of the United States of America, or which are otherwise rated “AAA” by S&P;

(c) U.S. dollar denominated deposit accounts federal funds and

banker’s acceptances with domestic commercial banks, which may include the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “A” or better by S&P, maturing no more than 360 days after the date of purchase, provided that ratings on holding companies are not considered as the rating of the bank;

(d) commercial paper which is rated at the time of purchase in the

single highest classification, “A” or better by S&P, and which matures not more than 270 calendar days after the date of purchase;

(e) investments in a money market fund, including those of an affiliate

of the Trustee, rated in the highest short-term rating category by S&P, including funds for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee or such holding company provide investment advisory or other management services;

(f) investment agreements with financial institutions whose long-term

general credit rating is A or better from S&P, by the terms of which the Trustee may withdraw funds if such rating falls below “A”; and

(g) the Local Agency Investment Fund of the State of California,

created under Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name.

“Reserve Requirement” means an amount equal to $439,000, being 10% of the

aggregate principal amount of the Bonds originally issued. “Revenues” means: (a) all amounts received by the Authority or the Trustee

under or with respect to the Lease Agreement, including, without limiting the generality of the foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source); and (b) all interest,

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profits or other income derived from the investment of amounts in any fund or account established under the Indenture.

“Site Lease Payment” means the amount of up-front rent which is payable under

the Site Lease in the amount of $3,700,000, in consideration of the lease of the Leased Property by the City to the Authority thereunder.

“S&P” means Standard & Poor’s Corporation, of New York, New York, and its

successors. “Surplus Funds” means, as of any June 30 in any Fiscal Year, all amounts held in

any funds or accounts or otherwise by the City or a related party to the City (within the meaning of §1.150-1(b) of the regulations under the Tax Code) if those amounts may be used by the City for working capital expenditures. Surplus Funds do not include (i) proceeds of the Bonds, (ii) an amount equal to 5% of working capital expenditures for the Fiscal Year ending June 30, 2009, which is treated as a bona fide working capital reserve for purposes of the Tax Code, and (iii) amounts held in any Locked Fund. Any Surplus Funds transferred to a Locked Fund shall be treated as Surplus Funds if a principal purpose for the transfer was to cause such amounts to no longer be treated as Surplus Funds (and therefore avoid adverse federal income tax consequences) and the City does not have bona fide non-tax reasons for making such transfer.

“Tax Code” means the Internal Revenue Code of 1986 as in effect on the Closing

Date or as it may be amended to apply to obligations issued on the Closing Date, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under said Code.

“Working Capital Expenses” means any and all operating expenses of the City

paid or accrued during the Fiscal Year ending June 30, 2009. “Working Capital Fund” means the fund by that name established and held by the

Trustee under the Indenture.

SITE LEASE

Under the Site Lease, the City agrees to lease the Leased Property to the Authority in consideration of the payment by the Authority of the Site Lease Payment on the Closing Date. The Authority agrees to cause the full amount of the Site Lease Payment to be raised from the proceeds of the Bonds, and to cause the Site Lease Payment to be deposited with the Trustee in the Working Capital Fund. No further rent payment is due by the Authority for the lease of the Leased Property under the Site Lease. The Site Lease is for a term commencing on the Closing Date and extending to the date on which no Bonds remain outstanding under the Indenture, but not later than ten years following the final stated maturity date of the Bonds.

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LEASE AGREEMENT

Lease of Leased Property; Term Under the Lease Agreement, the Authority leases the Leased Property back to

the City. The Lease Agreement is for a term commencing on the Closing Date and extending to the date on which no Bonds remain outstanding under the Indenture, but not later than ten years following the final stated maturity date of the Bonds.

Lease Payments

The City agrees to pay semiannual Lease Payments, subject to abatement as

described below, as the rental for the use and occupancy of the Leased Property. On each Lease Payment Date, the City is obligated to deposit with the Trustee the full amount of the Lease Payments coming due and payable on the next Interest Payment Date, to the extent required to be paid by the City under the Lease Agreement. Any amount held in the Bond Repayment Fund on any Lease Payment Date (other than amounts specifically required to be credited to the prepayment of Lease Payments), will be credited towards the Lease Payment then coming due and payable.

Source of Payments

The Lease Payments are payable from General Fund Revenues, subject to

abatement as described below. The City covenants to take all actions required to include the Lease Payments in each of its budgets during the term of the Lease Agreement and to make the necessary appropriations for all Lease Payments and Additional Rental Payments. The City further covenants to take all actions required to include the appropriation of Surplus Funds in each of its budgets during the term of the Lease Agreement and to make the necessary appropriations for the payment of Surplus Funds.

Budget and Appropriation

The City covenants to take all actions required to include the Lease Payments in

each of its budgets during the term of the Lease Agreement and to make the necessary appropriations for all Lease Payments and Additional Rental Payments. Such covenant constitutes a duty imposed by law and each and every public official of the City is required to take all actions required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the City.

Calculation and Application of Surplus Funds

On or before October 15 of each year during the term of the Lease Agreement,

commencing October 15, 2010, the City shall (a) determine the total amount of Surplus Funds, if any, generated during the preceding Fiscal Year, and (b) deliver to the Trustee a written certificate of the City certifying the amount of such Surplus Funds. Not later than November 1 of each year, commencing November 1, 2011, the City shall pay the amount of such Surplus Funds to the Trustee. Amounts so paid to the Trustee shall be applied to the prepayment of the Lease Payments and the concurrent prepayment of Certificates on the next succeeding December 1.

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Abatement of Lease Payments

The Lease Payments will be abated under the Lease Agreement during any

period in which there is substantial interference with the City’s use and occupancy of all or any portion of the Leased Property, including interference due to: (i) damage or destruction of the Leased Property in whole or in part or (ii) eminent domain proceedings with respect to the Leased Property or any portion thereof.

The amount of such abatement is required to be an amount determined by the

City such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property. In the event of such abatement, the City will have no obligation to pay abated Lease Payments and there is no remedy available to the Trustee or the Bond Owners arising from such abatement. Notwithstanding the foregoing, there will be no abatement of Lease Payments to the extent that Net Proceeds or amounts in the Reserve Fund are available to pay Lease Payments which would otherwise be abated under the Lease Agreement, such proceeds and amounts being constituted a special fund for the payment of the Lease Payments.

Option to Prepay

The City has the option to prepay the principal components of the Lease

Payments in whole, or in part in any integral multiple of $5,000, from any source of legally available funds, on any date on which the Bonds are subject to optional redemption, at a prepayment price equal to the aggregate principal components of the Lease Payments to be prepaid, together with the interest component of the Lease Payment required to be paid on such date. Substitution of Property

The City has the option at any time and from time to time to substitute other real

property (the “Substitute Property”) for the Leased Property or any portion thereof (the “Former Property”), provided that the City shall satisfy all of the following requirements which are declared to be conditions precedent to such substitution:

(a) No Event of Default has occurred and is continuing under the Lease

Agreement. (b) The City has filed with the Authority and the Trustee, and caused to

be recorded in the office of the Orange County Recorder sufficient memorialization of, an amendment to the Lease Agreement which adds a description of such Substitute Property and deletes the description of the Former Property.

(c) The City has obtained a CLTA policy of title insurance insuring the

City’s leasehold estate in such Substitute Property, subject only to Permitted Encumbrances, in an amount at least equal to the estimated fair market value thereof;

(d) The City has certified in writing to the Authority and the Trustee that

the Substitute Property serves the municipal purposes of the City

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and constitutes property which the City is permitted to lease under the laws of the State of California, and has been determined to be essential to the proper, efficient and economic operation of the City and to serve an essential governmental function of the City.

(e) The Substitute Property does not cause the City to violate any of its

covenants, representations and warranties made in the Lease Agreement.

(f) The City has filed with the Authority and the Trustee an appraisal or

other written documentation which establishes that the fair market value of the Substitute Property is at least equal to the fair market value of the Former Property, and that the useful life of the Substitute Property is not less than the useful life of the Former Property.

(g) The City has mailed written notice of such substitution to each rating

agency (if any) which then maintains a rating on the Bonds. The City is not entitled to any reduction, diminution, extension or other

modification of the Lease Payments whatsoever as a result of such substitution. The Authority and the City shall execute, deliver and cause to be recorded all documents required to discharge the Lease Agreement against the Former Property. Maintenance, Utilities, Taxes and Modifications

The City, at its own expense, has agreed to maintain or cause to be maintained

the Leased Property in good repair; the Authority has no responsibility for such maintenance. The City is also obligated to pay all taxes and assessments charged to the Leased Property. The City has the right under the Lease Agreement to remodel the Leased Property and to make additions, modifications and improvements to the Leased Property, provided that any such additions, modifications and improvements to the Leased Property are of a value which is not substantially less than such value of the Leased Property immediately prior to making such additions, modifications and improvements. The City will not permit any mechanic’s or other lien to be established or to remain against the Leased Property, except that the City has the right in good faith to contest any such lien.

Insurance

The Lease Agreement requires the City to maintain or cause to be maintained

the following insurance against risk of physical damage to the Leased Property and other risks for the protection of the Bond Owners, the Authority and the Trustee:

Public Liability and Property Damage Insurance. The City shall maintain,

throughout the term of the Lease Agreement (but only if and to the extent available at reasonable cost from reputable insurers), a standard comprehensive general insurance policy or policies in protection of the Authority, the City, and their respective members, officers, agents and employees. Such policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the

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Leased Property. Such policy or policies shall provide coverage in such liability limits and be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained in whole or in part in the form of self-insurance by the City or as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The proceeds of such liability insurance will be applied toward extinguishment or satisfaction of the liability with respect to which the proceeds of such insurance have been paid.

If any insurance required pursuant to this provision is provided in the form of self-

insurance, the City must file with the Trustee annually, within 90 days following the close of each Fiscal Year, a statement of the risk manager of the City or an independent insurance adviser engaged by the City identifying the extent of such self-insurance and stating the determination that the City maintains sufficient reserves with respect thereto. In the event that any such insurance is provided in the form of self-insurance by the City, the City is not obligated to make any payment with respect to any insured event except from such reserves.

Casualty Insurance. The City shall maintain, throughout the term of the Lease

Agreement, insurance against loss or damage to the improvements constituting part of the Leased Property by fire and lightning, with extended coverage and vandalism and malicious mischief insurance. Such insurance is required, as nearly as practicable, to cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, and including earthquake coverage (but only if such earthquake coverage is available at reasonable cost from reputable insurers, in the judgment of the City). Such insurance shall be in an aggregate amount at least equal to the lesser of (a) 100% of the replacement cost of the insured improvements, or (b) 100% of the aggregate principal amount of the outstanding Bonds. All policies of such insurance may be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained in the form of self-insurance. The Net Proceeds of any such insurance will be deposited by the Trustee in the Insurance and Condemnation Fund and applied at the election and direction of the City either to the replacement, repair, restoration, modification or improvement of the damaged Property or to the prepayment of the Lease Payments and the corresponding redemption of outstanding Bonds as described above. Such insurance policy shall provide that the Net Proceeds thereof are payable to the Trustee for application as provided in the Lease Agreement and the Indenture.

Rental Interruption Insurance. The City shall maintain, throughout the term of the

Lease Agreement, rental interruption or use and occupancy insurance to cover loss, total or partial, in an amount at least equal to the maximum Lease Payments allocable to buildings or other improvements coming due and payable during any consecutive two Fiscal Years, as a result of any of the hazards covered in the casualty insurance described above. Such insurance may be maintained in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained in the form of self-insurance. The Net Proceeds of such insurance are required to be paid to the

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Trustee and deposited in the Bond Repayment Fund, to be credited towards the payment of the Lease Payments as the same become due and payable.

Recordation and Title Insurance. On or before the Closing Date, the City will

cause the Site Lease, the Lease Agreement and the Assignment Agreement, or a memorandum of either thereof in form and substance approved by Bond Counsel, to be recorded in the office of the Orange County Recorder. In addition, the City will obtain a CLTA policy of title insurance which insures the City’s leasehold estate in the Leased Property, in the aggregate principal amount of the Bonds. All Net Proceeds received under said policy are required to be deposited with the Trustee in the Redemption Fund, to be applied to the redemption of Bonds under the Indenture.

Assignment; Subleases

The Authority has assigned certain of its rights under the Lease Agreement to the

Trustee under the Assignment Agreement. The City may not assign any of its rights in the Lease Agreement. The City may sublease all or a portion of the Leased Property, but only under the conditions contained in the Lease Agreement, including the condition that such sublease not cause the interest component of the Lease Payments to become subject to federal or State of California personal income taxes.

Amendment of Lease Agreement

The Authority and the City may at any time amend or modify any of the

provisions of the Lease Agreement, but only: (a) with the prior written consents of the Owners of a majority in aggregate principal amount of the outstanding Bonds; or (b) without the consent of any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes:

• to add to the covenants and agreements of the City contained in the

Lease Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the City;

• to make such provisions for the purpose of curing any ambiguity, or of

curing, correcting or supplementing any defective provision contained therein, to conform to the original intention of the City and the Authority;

• to modify, amend or supplement the Lease Agreement in such

manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code;

• to amend the description of the Leased Property to reflect accurately

the property originally intended to be included therein; • in any other respect whatsoever as the Authority and the City may

deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments do not materially adversely affect the interests of the Owners of the Bonds.

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Events of Default

Each of the following constitutes an Event of Default under and as defined in the

Lease Agreement: • Failure by the City to pay any Lease Payment or other payment

required to be paid under the Lease Agreement at the time specified therein.

• Failure by the City to observe and perform any covenant, condition or

agreement on its part to be observed or performed under the Lease Agreement, other than as referred to in the preceding paragraph, for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Trustee; provided, however, that if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 30 day period, such failure will not constitute an Event of Default if the City commences to cure such failure within such 30 day period and thereafter diligently and in good faith cures such failure in a reasonable period of time.

• Certain events relating to the insolvency or bankruptcy of the City.

Remedies on Default Upon the occurrence and continuance of any Event of Default, the Authority has

the right to terminate the Lease Agreement or, with or without such termination, re-enter, take possession of and re-let the Leased Property. When the Authority does not elect to terminate the Lease Agreement, the City remains liable to pay all Lease Payments as they come due and liable for damages resulting from such Event of Default. Any amounts collected by the Authority from the reletting of the Leased Property will be credited towards the unpaid Lease Payments. Any net proceeds of re-leasing or other disposition of the Leased Property are required to be applied as set forth in the Indenture. Under the Assignment Agreement, the Authority assigns all of its rights with respect to remedies in an Event of Default to the Trustee, so that all such remedies will be exercised by the Trustee and by the Bond Owners as provided in the Indenture.

The Trustee has no right to accelerate Lease Payments and, due to the

governmental nature of the Leased Property, it is uncertain whether a court would permit the exercise of the remedies of re-entry, repossession or re-letting.

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INDENTURE OF TRUST

Establishment of Funds and Accounts; Flow of Funds Costs of Issuance Fund. A portion of the proceeds of the Bonds will be

deposited by the Trustee in the Costs of Issuance Fund on the Closing Date. The moneys in the Costs of Issuance Fund will be disbursed to pay costs of issuing the Bonds and other related financing costs from time to time upon receipt of written requests of the Authority. On September 1, 2009, or at the earlier written request of the Authority, all amounts remaining in the Costs of Issuance Fund will be transferred by the Trustee to the Working Capital Fund and will thereupon close the Costs of Issuance Fund.

Working Capital Fund. The Trustee will establish and maintain a separate fund

to be known as the “Working Capital Fund”. The Trustee will disburse moneys in the Working Capital Fund from time to time to pay Working Capital Expenses (or to reimburse the City for payment of Working Capital Expenses), upon the receipt of written requisitions of the City. Each such written requisition will be sufficient evidence to the Trustee of the facts stated therein and the Trustee has no duty to confirm the accuracy of such facts.

Upon the receipt by the Trustee of a written certificate of the City stating that no

further amounts are intended to be requisitioned from the Working Capital Fund, the Trustee will withdraw all amounts remaining in the Working Capital Fund and deposit such amounts in the Redemption Fund to be applied to the redemption of the Bonds on the next succeeding redemption date.

Bond Repayment Fund; Deposit and Transfer of Amounts Therein. All Revenues

will be deposited by the Trustee in the Bond Repayment Fund promptly upon receipt. On or before each Interest Payment Date, the Trustee shall apply amounts held by it in the Bond Repayment Fund to pay the principal of and interest on the Bonds as it comes due and payable. In the event the amounts on deposit in the Bond Repayment Fund are not sufficient to enable the Trustee to pay the full amount of principal and interest due and payable on any date, the Trustee shall apply such amounts first, to the payment of interest and second, to the payment of principal (including principal payable upon mandatory sinking fund redemption).

Reserve Fund. All amounts in the Reserve Fund shall be used and withdrawn by

the Trustee solely for the purpose of (i) paying principal of or interest on the Bonds when due and payable, including the principal amount of any Bonds which are subject to mandatory sinking fund redemption, to the extent that moneys deposited in the Bond Repayment Fund are not sufficient for such purpose, and (ii) making the final payments of principal of and interest on the Bonds. If the amounts on deposit in the Reserve Fund are insufficient at any time to pay the full amount of principal of and interest on the Bonds then required to be paid from the Reserve Fund, including the principal amount of any Bonds which are subject to mandatory sinking fund redemption, the Trustee shall apply such amounts first, to the payment of interest and second, to the payment of principal (including principal payable upon mandatory sinking fund redemption).

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If at any time the amounts on deposit in the Reserve Fund are sufficient to enable the Authority to pay or redeem all of the Outstanding Bonds and the interest thereon, the Trustee shall apply the amounts in the Reserve Fund for that purpose at the written request of the Authority. On the date on which all Bonds are retired, after payment of any amounts then owed to the Trustee, all moneys then on deposit in the Reserve Fund shall be withdrawn by the Trustee and paid to the City as a refund of overpaid Lease Payments.

If the amount held in the Reserve Fund on May 1 in any year is excess of the

Reserve Requirement, the Trustee shall transfer such amount to the Bond Repayment Fund to be applied as a credit against the next Lease Payment coming due.

Redemption Fund. The Trustee will establish and maintain a Redemption Fund,

amounts in which will be used and withdrawn by the Trustee solely for the purpose of paying the principal of on the Bonds to be redeemed. At any time prior to giving notice of redemption of any such Bonds, the Trustee may apply such amounts to the purchase of 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 the Authority directs, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds.

Insurance and Condemnation Fund; Application of Net Proceeds. Any Net

Proceeds of insurance or condemnation awards with respect to the Leased Property will be deposited in the Insurance and Condemnation Fund. In the event of an insurance or eminent domain award, the Net Proceeds on deposit in the Insurance and Condemnation Fund will be used, as directed by the City, either:

• to replace, repair, restore, modify or improve the Leased Property if

the City determines that such is economically feasible or in the best interests of the City, or

• to the extent not so used, to prepay the Lease Payments and thereby

redeem outstanding Bonds. Notwithstanding the foregoing, however, in the event of damage or destruction of

the Leased Property in full, the Net Proceeds of such insurance are required to be used by the City to rebuild or replace the Leased Property if such proceeds are not sufficient to redeem outstanding Bonds equal in aggregate principal amount to the unpaid Lease Payments.

Investment of Funds; Determination of Value of Investments

All moneys in any of the funds or accounts held by the Trustee under the

Indenture will be invested by the Trustee solely in Permitted Investments as directed by the Authority in advance of the making of such investments, except that the investment of amounts in the Working Capital Fund shall be directed by the City. In the absence of any such direction of the Authority or the City, as applicable, the Trustee will invest any such moneys in Permitted Investments consisting of money market funds. Obligations purchased as an investment of moneys in any fund will be deemed to be part of such fund or account.

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All amounts in any of the funds or accounts established with the City under the Indenture shall be invested by the City solely in investments which are authorized for the investment of such funds under the applicable laws of the State of California and under the adopted investment policy of the City.

All interest or gain derived from the investment of amounts in any of the funds or

accounts established under the Indenture will be deposited in the Bond Repayment Fund, except that interest or gain derived from the investment of the amount in the Reserve Fund will be retained therein to the extent required to maintain the Reserve Requirement. For the purpose of determining the amount in any fund or account established under the Indenture, the value of investments credited to such fund will be calculated at the market value thereof, in accordance with the procedures specified in the Indenture.

Covenants of the Authority

Payment of Bonds. The Authority will punctually pay or cause to be paid the

principal of and interest on the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, but only out of the Revenues and other assets pledged for such payment as provided in the Indenture. The Authority will not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are outstanding, except the pledge and assignment created by the Indenture.

Accounting Records and Financial Statements. The Trustee will at all times

keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries will be made of all transactions relating to the proceeds of the Bonds, the Revenues, the Lease Agreement and all funds and accounts established under the Indenture. Such books of record and account will be available for inspection by the Authority and the City, during regular business hours and upon reasonable prior notice.

No Additional Obligations. The Authority covenants that no additional bonds,

Bonds or other indebtedness will be issued or incurred which are payable out of the Revenues in whole or in part.

Tax Covenants. The Authority will not take, nor permit nor suffer to be taken by

the Trustee or otherwise, any action with respect to the proceeds of any of the Bonds which would cause any of the Bonds to be “arbitrage bonds” or “private activity bonds” within the meaning of the Tax Code. The Authority will cause to be calculated annually all excess investment earnings which are required to be rebated to the United States of America under the Tax Code, and will cause all required amounts to be rebated from payments made by the City for such purpose under the Lease Agreement.

Lease Agreement. The Trustee will promptly collect all amounts due from the

City pursuant to the Lease Agreement. Subject to the provisions of the Indenture governing the enforcement of remedies upon the occurrence of an Event of Default, the Trustee is required to enforce, and take all steps, actions and proceedings which the Trustee determines to be reasonably necessary for the enforcement of all of its rights thereunder as assignee of the Authority and for the enforcement of all of the obligations of the City under the Lease Agreement.

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Amendment of Indenture

The Indenture may be modified or amended at any time by a supplemental

indenture with the prior written consents of the Owners of a majority in aggregate principal amount of the Bonds then outstanding. No such modification or amendment may (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal or interest at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee.

The Indenture may also be modified or amended at any time by a supplemental

indenture without the consent of any Bond Owners, to the extent permitted by law, but only for any one or more of the following purposes:

• To add to the covenants and agreements of the Authority contained in

the Indenture, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power therein reserved to or conferred upon the Authority.

• To cure any ambiguity, inconsistency or omission in the Indenture, or

correct any defective provision in the Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable, so long as such modification or amendment does not materially adversely affect the interests of the Bond Owners in the opinion of Bond Counsel filed with the Trustee.

• To modify, amend or supplement the Indenture in such manner as to

permit the qualification of the Indenture under the Trust Indenture Act of 1939 or any similar federal statute at any time in effect.

• To modify, amend or supplement the Indenture so as to cause interest

on the Bonds to remain excludable from gross income under the Tax Code.

Events of Default

Events of Default Defined. The following events constitute events of default

under the Indenture: • Default in the payment of the principal of any Bonds when due,

whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise.

• Default in the due and punctual payment of any installment of interest

on any Bonds when and as the same become due and payable.

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• Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default has continued for a period of 30 days after written notice thereof, specifying such default and requiring the same to be remedied, has been given to the Authority by the Trustee; provided, however, that if in the reasonable opinion of the Authority the default stated in the notice can be corrected, but not within such 30-day period, such default does not constitute an Event of Default under the Indenture if the Authority commences to cure such default within such 30-day period and thereafter diligently and in good faith cures such failure in a reasonable period of time.

• The occurrence and continuation of any Event of Default under and as

defined in the Lease Agreement. See “LEASE AGREEMENT - Events of Default” above.

Remedies. Upon the occurrence and during the continuance of any Event of

Default, the Trustee may, and at the written direction of the Owners of a majority in aggregate principal amount of the Bonds at the time outstanding the Trustee shall:

• upon notice in writing to the Authority and the City, declare the

principal of all of the Bonds then outstanding, and the interest accrued thereon, to be due and payable immediately (provided that no such acceleration will have the effect of accelerating the City’s obligations under the Lease Agreement, as more fully described above), or

• enforce any rights of the Trustee under or with respect to the

Indenture. The Trustee is irrevocably appointed (and the successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the Bonds, the Indenture and applicable provisions of any 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 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 Bonds then outstanding, and upon being indemnified to its satisfaction therefor, the Trustee 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 deems most effectual to protect and enforce any such right, at law or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default will impair any such right or power or will be construed to be a waiver of any such Event of Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient.

Application of Revenues and Other Funds After Default. If an Event of Default

has occurred and is continuing, all Revenues and any other funds then held or thereafter

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received by the Trustee under any of the provisions of the Indenture will be applied by the Trustee as follows and in the following order:

(a) To the payment of reasonable fees, charges 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 the principal of and interest then due on the

Bonds (upon presentation of the 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, as follows:

First: To the payment to the persons entitled thereto of all

installments of interest then due in the order of the maturity of such installments, and, if the amount available is not 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;

Second: To the payment to the persons entitled thereto of the

unpaid principal of any Bonds which have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds (to the extent permitted by law), and, if the available amount is not sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and

Limitation on Bond Owners’ Right to Sue. No Owner of any Bond has the right to

institute any suit, action or proceeding at law or in equity, for any remedy under the Indenture, unless:

• such Owner has previously given to the Trustee written notice of the

occurrence of an Event of Default; • the Owners of a majority in aggregate principal amount of all the

Bonds then outstanding have requested the Trustee in writing to exercise its powers under the Indenture;

• said Owners have tendered to the Trustee indemnity reasonably

acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request;

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• the Trustee has refused or failed to comply with such request for a period of 60 days after such written request has been received by the Trustee and said tender of indemnity is made to the Trustee; and

• no direction inconsistent with such written request has been given to

the Trustee during such 60 day period by the Owners of a majority in aggregate principal amount of the Bonds then outstanding.

Discharge of Indenture

The Authority may pay and discharge the indebtedness on any or all of the

outstanding Bonds in any one or more of the following ways: • by paying or causing to be paid the principal of and interest on the

Bonds, as and when the same become due and payable; • by irrevocably depositing with the Trustee, in trust, at or before

maturity, cash and/or non-callable Federal Securities which, together with the investment earnings to be received thereon, have been verified by an independent accountant to be sufficient to pay or redeem such Bonds when and as the same become due and payable; or

• by delivering to the Trustee, for cancellation by it, all of such Bonds. Upon such payment, and notwithstanding that any Bonds have not been

surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other obligations of the Authority under the Indenture with respect to such Bonds, will cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose. Any funds thereafter held by the Trustee, which are not required for said purposes, will be paid over to the Authority.

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B-1

APPENDIX B CITY AUDITED FINANCIAL STATEMENTS

CITY OF PLACENTIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT

Year Ended June 30, 2008

CITY OF PLACENTIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2008

INTRODUCTORY SECTION

Letter of Transmittal List of Principal Officials OrganizBtional Chart

FINANCIAL SECTION

Independent Auditors' Report

TABLE OF CONTENTS

Management's Discussion and Analysis (Required Supplementary Information)

Basic Financial Statements

Government- Wide Financial Statements Statement of Net Assets Statement of Activities

Fund Financial Statements Governmental Funds

Balance Sheet Reconciliation of the Balance Sheet to the Statement ofNet Assets Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities

Proprietary Funds Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows

Fiduciary Funds Statement of Assets and Liabilities

Notes to Basic Financial Statements

Required Supplementary Information Schedule of Revenues, Expenditures and Changes in Fund Balance

Budget and Actual: General Fund Low and Moderate Income Housing Fund

Note to Required Supplementary Information

PAGE

ix X

3

13 14

16 17 19 20

22

23 24 26 28

30 31

32

70

71 72

73

CITY OF PLACENTIA


TABLE OF CONTENTS, CONTINUED

FINANCIAL SECTION, (Continued)

Supplementary Schedules Non-Major Governmental Funds

Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balance

Non-Major Special Revenue Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Schedule of Revenues, Expenditures, and Changes in Fund Balance

- Budget and Actual Park Development Fund Utility Users Tax Fund Street Lighting Fund Gasoline Tax Fund Measure M Fund Sewer Construction Fund Storm Drain Construction Fund Thoroughfare Construction Fund Asset Seizure Fund Supplemental Law Enforcement Fund Air Quality Improvement Fund Landscape Maintenance District 92-l Fund Housing and Community Development Fund

M~or Debt Service Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance-·

Budget and Actual Redevelopment Agency Fund

Major Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance

Budget and Actual Orangethorpe Corridor Fund

Non-Major Capital Projects Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Schedule of Revenues, Expenditures, and Changes in Fund Balance

- Budget and Actual Redevelopment Area I Capital Projects

74 75

76 78 81

84 85 86 87 88 89 90 91 92 93 94 95 96

97

98

99

100

101 102 103

104 105

CITY OF PLACENTIA


TABLE OF CONTENTS, CONTINUED

FINANCIAL SECTION, (Continued)

Internal Service Funds Combining Statement of Net Assets Combining Statement of Revenues, Expenses and Changes in Fund Net Assets Combining Statement of Cash Flows

Agency Funds Combining Statement of Assets and Liabilities Statement of Changes in Assets and Liabilities

STATISTICAL SECTION (UNAUDITED)

Net Assets by Component-Last Five Fiscal Years Changes in Net Assets- I "ast Five Fiscal Years Fund Balances of Governmental Funds-Last Ten Fiscal Years Changes in Fund Balances of Governmental Funds-Last Ten Fiscal Years Assessed Value ofTaxable Property-Last Ten Fiscal Years Direct and Overlapping Property Tax Rates Principal Property Tax Payers-Current Year and Nine Years Ago Property Tax Levies and Collections-Last Three Fiscal Years Ratios of outstanding Debt by Type -Last Five Fiscal Y cars Direct and Overlapping Governmental Activity Debt Legal Debt Margin Information-Last Ten Fiscal Years Pledged- Revenue Coverage-Last Ten Fiscal Y cars Demographic and Economic Statistics-Last Ten Calendar Years Budgeted Full-Time Employees by Department Operation Indicators Capital Assets Statistics by Function/Program

106 107 109 111

113 114 115

116 117 119 121 123 124 125 126 127 128 129 130 131 132 133 134

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The People are the City

Mayor GREG SOWARDS Councllmembea:

JOSEPH V. AGUIRRE SCOTT W. NELSON CONSTANCE UNDERHILL JEREMY B. YAMAGUCHI

City~ TROY L. BUTZLAFF

401 Ea11t Chapman Avttnull • Pfacttntl•, Ca/Uorn/6 92870

May28, 2009

To the Honorable Mayor, Members ofthe City Council, and Citizens of Placentia

The City of Placentia Comprehensive Annual Financial Report (CAFR) as of June 30, 2008 is transmitted herewith in compliance with the City of Placentia Charter, Article XII, and Section 1214. The information contained in this report offers a comprehensive scope of information which can be utilized by a large segment of the community, and is presented in a manner which will enable each reader to better Wlderstand all of the City's financial activities. Responsibility for both the accuracy of the data, and the completeness and fairness of the presentation, including all disclosures, rests with the Finance Department.

This report has been prepared in accordance with generally accepted accounting principles (GAAP) as set forth in the pronouncements of the Government Accounting Standards Board (GASB). This report is also in compliance with the relevant requirements of Governmental Accounting, Auditing, and Financial Reporting published by the Government Finance Officers Association of the United States and Canada (GFOA).

GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD & A). This letter of transmittal is designed to complement the MD & A and should be read in conjunction with it. The City of Placentia MD & A can be found immediately following the report of the independent auditors.

The Comprehensive Annual Financial Report is presented in three sections and includes the following:

Introductory Section

The Introductory Section includes this Letter of Transmittal, the City's organizational chart, and a list of elected officials.

U Recycled Paper

Financial Section

The Financial Section includes the Basic Financial Statements and Required Supplementary Information Section which includes the Management's Discussion and Analysis, GovernmentWide Financial Statements, Fund Financial Statements, Notes to the Financial Statements, Supplementary Information and the auditor's report on the financial statements and schedules.

Statistical Section

The Statistical Section includes schedules on financial trends, revenue capacity, debt capacity, demographic and economic information and operating information.

Profile of the Government

Placentia incorporated December 2, 1926 and is located in Northern Orange County, twenty-four miles southeast of Los Angeles. Placentia currently occupies 6.7 square miles of land area and serves a population of over 50,000.

Placentia has operated under a charter form of government since 1965 and the City operates under a council-administrator form of government. Policy-making and legislative authority are vested in a governing council consisting of five council members one of which is elected by the council to a one year term as mayor and one as mayor pro-tem. The governing council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees and hiring both the City Administrator and a contract City Attorney. The City Administrator is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations and for appointing heads of departments. The Council members are elected to four-year terms which are staggered with two members of Council elected in one election and three in the succeeding election.

Placentia is a full service City including a Police Department, Public Works Department, Development Services Department and Community Services Department. The Public Works Department is responsible for engineering, street maintenance, building maintenance, vehicle maintenance and park maintenance. The Development Services Department is responsible for planning, building inspection and redevelopment. The Community Services Department is responsible for recreational activities, cultural events and public assistance. Fire services are contracted with the Orange County Fire Authority and refuse collection is franchised to a private hauler, Taormina Industries.

The annual budget serves as the foundation for the City of Placentia's financial planning and control. All departments are required to submit requests for appropriations to the City Administrator in late winter. These requests are the starting point in developing a proposed budget. The City Administrator submits the proposed budget to the City Council, usually in May, followed by a study session where staff presents their budget requests and discusses the reasons for their requests with Council. A public hearing is subsequently held and Council is required to approve a budget before the first day of the new fiscal year, July 1. During the fiscal year, budget amendments within a department are approved by the City Administrator and the Finance Director. Interdepartmental budget amendments and new requests for appropriations are approved by Council. Budget to actual expenditure comparisons are included in the accompanying financial statements.

ii

Factors Affecting Financial Condition

The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operates.

Local economy. In a challenging local economy over the past couple of years, the City has seen a decline in overall revenue generation, especially in sales taxes. The City has seen a slight increase in property taxes. Assessed value of secured real property increased by over 8 percent in FY2007/08. The property tax revenues increased by 7.0 percent, a result of increases in the value of properties sold. Sales and Use tax revenues decreased by 6.0 percent. The City is not overly dependent on any single business type for Sales and Use tax revenues. The City has businesses in the auto and transportation sector, business and industry sector, building and construction sector, restaurants and hotels sector as well as fuel and service stations sector. Further evidence of a recovering economy came in the form of increasing transient occupancy tax receipts.

Long-term Financial Plan

The City provides necessary funding for essential services for City Council and community identified priorities, while taking steps to address the City's financial health. Annually, the City prepares extended forecasts for the General Fund to determine the future impact of current actions.

The annual budget process includes long-range planning for the spending of money on the City's Capital Improvement Program (CIP). In many cases, unique funds were established to separate monies received for specific programs, and when fund balances reach the level necessary to implement such programs, the City plans, through the budget process, for the maintenance and replacement of infrastructure and capital improvements.

The budget for next fiscal year assumes minimal or flat economic growth given the current economic environment. Growth in the City's largest revenue sources, property tax and sales ands use taxes, are expected to be flat or even lower than in recent years. Franchise fees are also projected to be flat as the economy softens causing a shift in spending habits.

The City ended Fiscal Year 2007-08 with a negative General Fund balance of $4.56 million. To address the City's negative fund balance and systemic structural deficit, the City Council adopted a Fiscal Recovery Plan. The objectives of this plan are:

• Successfully resolve the issues pertaining to the CalTrans audit with minimal impact upon the General Fund;

• Establish an environment of fiscal stability, by setting the City on the path of eliminating its General Fund deficit.

• Implement a number of revenue enhancement ideas to further strengthen the City's fiscal position;

• Continue to provide core general fund services in the most efficient marmer possible;

iii

• Establish an Economic Uncertainty Fund to offset future financial problems;

• Address Retiree Health Costs;

• Expand economic opportunity, as well as the City's ability to retain and attract residents and businesses, through capital investment in projects to develop the City economy; and

• Develop a Five Year Capital Improvement Program to address the maintenance and replacement of the City's infrastructure.

While these objectives will help reduce the City's budget deficit, eliminating the deficit altogether will require additional financial resources. In order to generate these resources, the City Council has put forth a series of revenue enhancement ideas. These enhancements include:

• Issuing a Pension Obligation Bond;

• Establishing a 30-day Police Impound Yard;

• Restructuring Debt;

• Implementing an Emergency Medical Response Fee; and

• Selling Surplus Property.

It is estimated that the revenue from these enhancements will generate $2.8 Million in the first year and an additional $1,150,000 in subsequent years. These revenues will help to eliminate the City's general fund deficit and stabilize the City's financial position.

Although the City is currently undertaking steps to reduce its negative fund balance, there are still many serious internal and external threats to its long term fiscal sustainability. These threats include:

• The current economic crisis;

• Reduced rate of growth in sales tax revenues;

• Reduced number of local home sales combined with a drop in property values; and

• The State's structural budget deficit and threat of State raids on local revenues.

Despite these threats, the City's budget will continue to stress sound financial management and efficiency, effectiveness, and equity in public services. Emphasis will be given to bringing expenditures more in line with available revenues while also exploring new revenue enhancements that will further strengthen the City's fiscal position.

iv

Accomplishments/Initiatives

The City continues to emphasize delivery of focused public services in a way that provides efficiency, effectiveness and value to the citizens of Placentia. The City's major accomplishments for fiscal year 2007 and the initiatives planned for fiscal year 2008 and for the future are discussed below:

2007 Accomplishments

In 2007, the City achieved the following accomplishments:

• Secured over $19 million in funds from the Orange County Transportation Authority for the design and construction of the Placentia Metrolink Station;

• Secured $300 million in State and local transportation funds for the design and construction of five (5) grade separations;

• Prepared a major financial audit of the Orangethorpe Corridor Project for the California Department of Transportation and was successfully able to account and receive credit for $24.3 Million of $35.2 Million in grant funds. The next phase for the City will be to address the remaining $12 Million of grant funds allocated to the City.

2008 Initiatives

The City's main focus in 2008 will be to continue its efforts to revitalize and attract private investment into the community especially in the Historic Downtown and on major parcels of undeveloped land. As part of our revitalization/economic development efforts, the City will complete the Westgate-Placentia Specific Plan which is intended to facilitate a rejuvenation of our downtown area and to foster the development of a commercial/retail center with mixed-use components in the area south of Crowther A venue. The City will also pursue transit oriented developments with high density housing and support retail in and around the proposed Metrolink station to provide for additional economic stimulus.

In addition to stimulating economic development, the City will undertake a number of capital projects in 2008. These projects include:

• Design and construct a public parking lot in the Historic Downtown area;

• Install dual left tum lanes at Kraemer Blvd and Bastanchury Road;

• Improve sidewalk along Alta Vista Drive;

• Upgrade the storm drain system and complete repairs to individual private sewer lines along Walnut A venue;

• Widen of Richfield Road;

• Rehabilitate Alta Vista Drive and Placentia Avenue;

• Install curb ramps and other sidewalk improvements at various locations throughout the City to improve pedestrian access; and

• Improve the intersection of Madison Ave and Bradford Ave.

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Finally, the City plans to improve various internal controls and administrative procedures to enhance financial accountability and reporting. These improvements include:

Improve Contract Management Oversight

The City will establish an improved method of tracking financial performance of its numerous contracts. This process was established to:

• make ce1iain the City is receiving the highest quality of goods and services available;

• ensure that the City is not being overcharged for goods and services offered by outside contractors; and

• verify that contractors have required insurance coverage thus minimizing the risk to the City.

Further improving the process, the City now tracks all Professional Service Agreements (contracts) and Public Works Contracts to verify that all of the following items are within agreed upon terms and conditions:

• Start/stop dates;

• Not-to-exceed values;

• Scope of work; and

• Insurance requirements.

Deliver Accurate and Comprehensible Financial Reports

The Finance Department will create a monthly exceptions report to identify budget variances in a timelier manner so appropriate corrective actions can be talcen. The monthly exceptions report will be distributed to each department and reviewed monthly by an internal budget and personnel committee staffed by the City Administrator, Assistant City Administrator, Finance Director and Administrative Services Director. In addition, the Finance Department will prepare a quarterly financial report to reflect current revenues and expenditures in a meaningful way so nonfinancial types can understand the current financial standing of the City. The quarterly financial report will be reviewed by the recently created Finance and Investment Committee which is comprised of two members of the City Council, the elected City Treasurer and City stafi. The Finance and Investment Committee will provide updates on the state of the City's finances to the City Council and make appropriate recommendations as necessary.

Internal Controls

The Finance Department is responsible for establishing and maintammg an internal control structure designed to ensure that the assets of the City are protected from loss, theft or misuse, as well as to ensure that adequate accounting data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control

vi

should not exceed the benefits likely to be derived; and, (2) the valuation of costs and benefits requires estimates and judgments by management.

Budgeting Controls

The City maintains budgetary controls to ensure compliance with legal provisions embodied in the appropriated annual budget approved by the City Council

Activities of the General Fund, special revenue funds, debt service funds, and internal service funds are included in the appropriated annual budget. The level of budgetary control (that is the level at which expenditures cannot legally exceed the appropriated amount) is to departments within funds.

Only the City Council has the authority to increase total appropriations to departments within funds subject to only the appropriation limits established by State law. The City Council did approve supplemental appropriation increases during the year.

Cash Management Policies and Practices Idle cash held by the City has been invested mainly with the State Local Agency Investment Pool (LAIF) due to its high degree of liquidity and relatively competitive interest rates. The average annual return for LAJF investments was 3.15 percent for FY2007/08. As efforts are being made to rebuild reserves the amounts to be invested are still limited.

Risk Management The City is a member of a joint powers authority, Public Agency Risk Sharing Authority of California (PARSAC) for general liability. The City is self insured for the first $100,000, and various levels of greater claims are covered through PARSAC and reinsurance. The City is self insured for workers' compensation up to $300,000 and also belongs to the Local Agency Workers' Compensation Excess (LAWCX) joint powers authority for claims from $300,000 to $5 million. Additional information about risk management can be found in Note 18 of the financial statements.

Pension and Post Employment Benefits Full time City employees are enrolled in the California Public Employees Retirement System (CalPERS) for retirement purposes. Public safety employees are enrolled in the 3 percent at age 50 plan and miscellaneous employees are enrolled in the 2 percent at age 55 plan. Part-time and seasonal employees do not have a retirement benefit. Additional information about the City retirement plan can be found in Note 19 of the financial statements. In addition to providing pension benefits, the City provides certain health care and life insurance benefits for retired employees hired prior to November 21, 1995. These benefits are financed on a pay-as-you-go basis. Additional information about post employment benefits can be found in Note 17 of the financial statements.

VII

Acknowledgments

The City's Comprehensive Annual Financial Report was prepared by the personnel of the Finance Department in conjunction with our independent auditors, Vavrinek Trine Day & Company, LLP, whose dedication and efforts made this report possible. Special recognition is due to the staff of the Finance Department; whose day-to-day efforts assure timely and accurate recording of financial transactions is reflected in this report. In particular I would also like to thank Mike Matsumoto of Governmental Financial Services and Mike Nguyen, Senior Accountant, for their efforts and leadership throughout the audit engagement. Special acknowledgement is also due to Sara Salazar, Administrative Assistant, for typing and proofreading this document and Terrell Judd, Reproduction Technician, for printing and binding the CAFR.

I would also like to thank the Mayor, City Council, and the residents of this great community for their continuing interest and support in planning and conducting the financial operations of the City in a progressive and professional manner.

Respectfully submitted,

(\'~ ~~~ Butzl.t \ \ ~rministra;ki:MA-CM

viii

Terrence B. Beaman Director of Finance

CITY OF PLACENTIA OFFICIALS

June 30, 2008

CITY COUNCIL

Scott Nelson Greg Sowards Joseph V. Aguirre Scott P. Brady Constance Underhill

Mayor Mayor Pro Tern Councilmember Councilmem ber Councilmem ber

CITY OFFICIALS

Leland Castner Patrick J. Melia Troy Butzlaff Stephen D. Pischel

Krhti Caraveo Raynald F. Pascua Terrence B. Beaman Gerald Hubble Andrew Muth Jim Anderson

IX

City Treasurer City Clerk City Administrator Director of Administrative Services

Director of Community Services Director of Development Services Director of Finance Public Works Manager City Engineer Police Chief

l

PLACENTIA MUNICIPAL ORGANIZATION

• CASH RECEIPTS

• INVESTMENTS

CITY ATTORNEY I • L-EOAL DOCUMENTS

• LEGAL ADVICE

• LITIGATION

• PUBLIC MEETINGS

• ACCOUNTING SERVICES

e SUPPORT SERVICES

• INFORMATION TECHNOLOGY

• FlSCAL SERVICES

• CURRENT PLANNING

• ADVANCE PLANNir!G

• BUJLDIN'G .1\ND SAFETY

• CODE ENPORCEMENT

• RE:>EVELOPMEI-<1

o ECONOM;C DEVELOPMENT

• CODECOMPUANCE

• HCD/GRANTS

ELECTORATE

• INTERGOVERNMENTAL RELATIONS

o POUCY DEVELOPMENT

o SPECIAL PROGRAMS

• CmZEN RELATIONS

o CITIZEN ADVISORY BODIES

CITY ADMINISTRATOR

• ADMINISTRATION

• CENTRAL PERSONNEL

• CENTRAL RECORDS

• EMERGENCY PREPAREDNESS

• ENVlRONMENTAL PLANNING

• SPECIAL PROJECTS

• INFORMATION TECHNOLOGY

=-j_a CONTRACT POLICE FIRE SERVICES

• SUPPORT SERVICES

• ADMINISTRATIVE S~RVICES

o FlRE OPERATIONS

o AMBULANCE SERVl CES

• ENFORCEMENT SERVICES

• GENERAL COMMUNITY SERVlCES

• COMMUNITY INVOLVEMENT SERVICES

Major City Services by Contract:

• CITY COUNCIL M'E:T!NGS

• OFFlCLALCITY RECORDS

• OFFlCIAL ACTS

PLANNING COMl\USSION

PUBLIC WORKS

• STREET MAINH.HANCE

• VEHICLE MAINT"...NANCE

o PARKS ~LAINT~IIANCE

• BUILDING MAJNT!:'IANCE

• ENGINEERING

• RECREATION SERVICES

• HUMAN SERVICES

• CULTURALARTS

• FACILITIES MANAGEMENT

• CABLE SERVICES

• VETt.RAN~

ADVJSORY COMMITTEE

• HERITAGE COMMITTEE

Fire Protection: Orange County Fire Authority • Sf,NIOR ADVJSORY COMMITTEE

Trash Colledion. P!&cetJha Dtsposal, Inc. Animal Control County of Orange

• TRI CITY PARK

X

Vavrinek, Trine, Day & Co., LLP Certified Public Accountants

The Honorable City Council of the City ofPlacentia

Placentia, California

INDEPENDENT AUDITORS' REPORT

VALUE THE DIFFERENCE

We have audited the accompanying financial statements of the governmental actiVJtJes, the business-type activities, each major fund and the aggregate remaining fund information of the City of Placentia, California (the City) as of and for the year ended June 30, 2008, which collectively comprise the City's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the management of the City. Our responsibility is to express opinions on these financial statements based on our audit.

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

As discussed in Note 27, the City is currently in a severe financial crisis. The City has continued its deficit spending trend during the 2007-2008 fiscal year, and as a result, the City's financial position has declined when compared to the prior year. The City's General Fund has incurred an additional deficit of$1,553,224 resulting in a deficit Unreserved Fund Balance of $4,698,748 and a total deficit fund balance of $4,559,789 as of June 30, 2008. In addition the City's General Fund cash position has also declined. The General Fund ended the year with a negative cash balance of$4,494,215 when compared to a negative $3,642,141 in the prior year. The Orangethorpe fund ended the year with a deficit fund balance of $3, I 32,511. The Orangethorpe and two additional funds ended the year with negative cash balances (Note 2). As discussed within Note 25, the City has continued working with the California Department of Transportation (Ca!Trans) regarding disputed expenditures for the Ontrac Project. In a letter dated September 2008 from CalTrans it was noted that an estimated $24 million of the $36 million of previously disputed expenditures associated with the Ontrac Project have been satisfactorily addressed; thus leaving a balance of approximately $12 million of disputed costs (Note 25). In addition as discussed further at Note 25 the City has utilized section 1209 of the City's Charter to borrow from other City funds to allow it to continue to process the payment of demands against the City.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Placentia, California, as of June 30, 2008, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

8270 Aspen Street Rancho Cucamonga, GA 91730 Tel: 909.466.4410 Fax: 909.466.4431 www.vtdcpa.com

FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA

In accordance with Governmental Auditing Standards, we have also issued our report dated May 28, 2009 on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions oflaws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmental Auditing Standards and should be considered in assessing the results of our audit.

The information identified in the accompanying table of contents as management's discussion and analysis and required supplementary information are not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City of Placentia, California's basic financial statements. The introductory section, supplementary statements and schedules and statistical tables arc presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the bac;ic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.

Rancho Cucamonga, California May 28,2009

2

CITY OF PLACENTIA

MANAGEMENT'S DISCUSSION AND ANALYSIS

Fiscal Year Ended June 30,2008

This discussion and analysis section of the City of Placentia's comprehensive annual financial report provides a narrative overview of the City's financial activities for the fiscal year ended June 30, 2008. This information should be read in conjunction with the basic financial statements and the notes, which accompany the basic financial statements.

FINANCIAL IDGHLIGHTS

• Net assets, the amount by which total assets exceed total liabilities, equal $71,819,027. The governmental activities had net assets of $54,515,948, and business-type activities had net assets of $17,303,079.

• The City's total net assets increased by $1 ,924,239 over last years' totals. Governmental activities contributed $1,369,896, and business-type activities contributed $554,343.

OVERVIEW OF THE FINANCIAL STATEMENTS

The city's basic financial statements are presented in three parts:

1. Government-wide Financial Statements 2. Fund Financial Statements 3. Notes to the Financial Statements.

This section of the management's discussion and analysis is intended to introduce and explain the basic financial

statements.

Government-wide Financial Statements

The government-wide financial statements are designed to give the reader a picture of the City from the economic resources measurement focus using the accrual basis of accounting. This broad overview is similar to the

financial reporting used in private-sector business. The government-wide financial statements have separate columns for governmental activities and business-type activities. Governmental activities of the city include general government (administration, City Council, personnel), public safety (police, fire protection through contract with OCF A), public works, community services. and redevelopment. The city's business-type activities include refuse, compressed natural gas, and sewer maintenance. Governmental activities arc primarily supported by taxes, charges for services, and grants while business-type activities are self-supporting through user fees and

charges.

The Statement of Net Assets presents information on all of the City of Placentia's assets and liabilities; the difference between the two is reported as net assets. These assets include the City's infrastructure and all assets previously included in the General Fixed Asset Account Group. Over time, increases or decreases in net assets may be one indicator of improvement or deterioration in the city's overall financial health.

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CITY OF PLACENTIA

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)

Fiscal Year Ended June 30, 2008

OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Government-wide Financial Statements (continued)

The Statement of Activities presents information designed to show how the city's net assets changed during the year. This statement distinguishes revenue generated by specific functions from revenue provided by taxes and other sources not related to a specific function. The revenue generated by specific functions (charges for services, grants and contributions) is compared to the expenses for those functions to show how much each function either supports itself or relies on taxes and other general funding sources for support. All activity on this statement is reported on the accrual basis of accounting, which requires that revenues are reported when earned and expenses are reported when incurred, regardless of when cash is received or disbursed.

Fund Financial Statements

A fund is a fiscal and accounting entity with a self-balancing set of accounts used to account for specific activities or meet certain objectives. Funds are often set up in accordance with special regulations, restrictions or limitations. The City of Placentia, like other state and local governments, uses fund accounting to ensure and show compliance with finance-related legal requirements. The city's funds are divided into three categories: governmental funds, proprietary funds and fiduciary funds.

Governmental funds

Governmental Funds are used to account for the governmental actiVIties reported in the government-wide financial statements. Most of the City's basic services are included in governmental funds. The basis of accounting is different between the governmental fund statements and the government-wide financial statements. The governmental funds focus on near term revenues/financial resources and expenditures, while the governmentwide financial statements include both near term and long term revenues/financial resources and expenses. The information in the governmental fund statements can be used to evaluate the city's near term financing requirements and immediate fiscal health. Comparing the governmental fund statements with the governmentwide financial statements can help the reader better understand the long term impact of the city's current year financing decisions. To assist in this comparison, reconciliations between the governmental fund statements and the government-wide financial statements are included with the governmental fund halance sheet and the governmental fund statements of revenues, expenditures, and changes in fund balances.

4

CITY OF PLACENTIA



OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED)

Proprietary Funds

Proprietary funds are used by governments to account for their business-type activities. Business-type activities provide specific goods or services to a group of customers that are paid for by fees charged to those customers. There is a direct relationship between the fees paid and the services received.

Enterprise Funds

Enterprise funds of the city are used to report the same functions presented as business-type activities in the government-wide statements with the fund statements providing more detail than is reported in the governmentwide statements. The city has three enterprise funds.

Internal Service Funds

Internal service funds are an accounting device used to accumulate and allocate costs internally among the city's various functions. The internal service funds primarily benefits the governmental activities and, therefore, the internal service fund inforn1ation has been included with the governmental activities in the government-wide financial statements.

Fiduciary Funds

Fiduciary funds account for assets held by the city in a trustee capacity or as an agent for individuals, private organizations, other governments or other funds. Fiduciary funds are not included in the government-wide financial statements because their assets are not available to support the City's activities.

Notes to the Financial Statements

The notes to the financial statements provide additional information that is important to a full understanding of the data in the government-wide and fund financial statements. The notes are located immediately following the basic financial statements.

Other Information

In addition to the basic financial statement and accompanying notes, this report also presents certain required supplementary information. Required supplementary information may be found immediately following the notes to the financial statements. The combining statements for other governmental funds, the individual fund schedules, the internal service fund statements and agency-type fiduciary fund schedules are presented immediately following the required supplementary information.

5

CITY OF PLACENTIA



OVERVIEW OF TIIE FINANCIAL STATEMENTS (CONTINUED)

Net Assets

The statement of net assets can serve as a useful indicator ofthe city's financial position. The City of Placentia's net assets at June 30, 2008 total $71,819,027. Following is a condensed version of the government-wide statement of net assets.

Table 1 Net Assets

Governmental Governmental Business-type Business-type

Activities Activities Activities Activities Total Total

2008 2007 2008 2007 2008 2007

Assets.

Current and other assets $ 9,455,494 $ II ,045,564 $ 3,963,828 $ 3,035,803 $ 13,419,322 $ 14,081,367

Capital assets, net 70,870,917 84,215,430 13,724,646 474,194 84,595,563 84,689,624

Total Assets 80,326,411 95,260,994 17,688,474 ____129.9,997 98,014,885 98 770,991

Liabilities:

Current Liabilities 4.955,935 5,348,609 385,395 432,442 5,341,330 ·5,781,051

Long-term Liabilities 20,854,528 21,939,662 20,854,528 21,939,662

Total Liabilities 25,810,463 27,288,271 385,395 __ 432,442 26,195,858 27 720,713

Net assets:

Invested in capital assets.

net of related debt 69,880,543 82,805,093 13,724,646 474,194 83,605,189 83,279,287

Kestricted 5,315,937 6,104,234 5,315,937 6,104,234

Unrestricted (20,680,532) (20,936,604) 3,578,433 2,603,361 (17,102,099) (18,333,243)

Total Net Assets 54,515,948 67,972,723 17,303,079 3,077,555 71,819,027 71,050,278

The largest portion of the City's net assets is attributable to the investment in capital assets. The majority of the liabilities are certificates of participation and redevelopment tax allocation bonds. It is important to note that $13.6M of the Sewer Fund was reclassified from a governmental fund type to an enterprise fund type. This accounts for the significant increase/decrease in Business-Type Net Assets and Governmental Activities Net Assets, respectively.

Changes in Net Assets

The changes in net assets table illustrates the increases or decreases in net assets of the city resulting from its operating activities. The City of Placentia's net assets increased approximately $1.9 million in the fiscal year ended June 30, 2008. The increase was split between the governmental activities ($1,369,896) and business-type activities ($554,343).

Following is a condensed version ofthc city's changes in net assets. The table shows the revenues, expenses, and related changes in net assets in tabular form for the governmental activities separate from the business-type activities.

6

CITY OF PLACENTIA



GOVERNMENT-WIDE FINANCIAL ANALYSIS (CONTINUED)

CHANGES IN NET ASSETS (CONTINUED) Table 2

Changes in Net Assets Business- Business-

Governmental Governmental Type Type

Activities Activities Activ1tics Activities Total Total

2008 2007 2008 2007 2008 2007

Revenues:

Program revenues:

Charges for services $ 3,4·13,244 $ 3,316,148 $ 4,520,730 $ 4,478,654 $ 7,963,974 $ 7,794,802

Operating grants and

contributions 3,123,633 3,148,949 3,123,633 3,148,949

Capital grants and

contributions 4,238,236 4,234,240 4,238.236 4,234,240

General revenues:

Property taxes 13,790,561 12,917,576 13,790,561 12,917,576

Sales taxes 5,452,396 5,820,037 5,452,396 5,820,037

Utility use ta"<es 2,603,926 2,755,674 2,603,926 2,755,674

Other taxes 2,116,009 2,078,677 2,116,009 2,078,677

Motor vehicle in lieu 216,313 259,189 2I6,313 259,189

Investment income 45,863 261,624 85,648 65,621 131,51 I 327,245

Gain on sale of assets I 3,375 12,237 13,375 I2,237

Miscellaneous 337 279 202,046 15,100 1,945 352,379 203,99 I ··-··------. ~ "'

Total revenues 35,380.835 35,006,397 ~.6~~,:1_7_8 __ 4,546,220 40,002,3I3 39,552,617

Expenses:

General government 2,692,735 1,983,84 I 2,692,735 1,983,841

Public safety 17,481,156 16,342,010 17,481,156 16,342.010

Public works 8,434,834 8,812,151 8,434,834 8,812,15I

Commumty services 3,608.179 2,963,921 3,608,179 2,963,921

Redevelopment 68 I ,923 674,430 681,923 674,430

Interest on long-term

liabilities I ,361,265 I ,357,146 1,361,265 1,357,I46

Refuse 2,599,402 2,430,239 2,599,402 2,430,239

Compressed natural gas 410,092 362,989 4I0,092 362,989

Sewer maintenance 808,488 681,972 808,488 681,972

Total Expenses 34,260,092 32,I33,499 3,817,982 . -~,_475,200 38,078,074 35,608,699

Increase in net assets

before transfers 1,120,743 2,872,898 803,496 1,071,020 I ,924,239 3,943,918

Transfers 249,153 70,807 ___ __(249,153) (70,807) ··---··---~-

Ch3nge in net assets 1,369,896 2,943.705 554,343 I,000,213 I,924,239 3.943,9I8

Net assets - beginning -- ~~.j46,052 65,029,018 16,748,736 2,077,342 69,894,788 67,106,360

Net assets. ending 54,515,948 67,972,723 17,303,079 3,077,555 71,8I9,027 71,050,278

7

CITY OF PLACENTIA




CHANGES IN NET ASSETS (CONTINUED)

Revenues by Source - Governmental Activities Fiscal Year 2008

Other taxes

Utility user taxes 7%

Sales taxes 16%

M is cella ne ous 2%

Property taxes 39%

Charge for services

Operating 10% grants

9%

Capital grants 11%

Expenditures- Governmental Activities Fiscal Year 2008

Redevelopment 2% \

Community \ services

11%

Public Works 25%

\

Interest on long- General term debt , government

4% / 8%

/ /

8

,/

Public Safety 50%

CITY OF PLACENTIA




Changes in Net Assets (continued)

The City's total revenues were $40.0 million. A significant portion of the City's revenue came from property tax, accounting for 34.4% of total revenues, and sales and utility use tax, accounting for 20. I% of total revenues.

The total cost of all City programs and services during fiscal year ended June 30, 2008 was $38.1 million. Public safety was the largest portion, accounting for 49.9% of the total expenditures. General government accounted for 7% and public works accounted for 22.1% of total expenditures. Business-type activities accounted for 10% of total expenditures.

The difference between the City's total revenues and expenses, $1,924,239, represented the increase in total net assets for 2008.

Governmental activities contributed to $1,369,896 of the increase in net assets. The largest increases in revenues as compared to the prior year were attributable to property. Property tax increased $872,985.

Expenses increased $2.1 million primarily because of increases in general government. Public works expenditures decreased by $0.4 million primarily due to lower cost related to the Bradford Bridge and completion of the Quiet Zone. In addition, community services increased by $0.6 million primarily clue to improvement to parks.

Business-type activities contributed to $554,343 of the increase in net assets. The increase is mainly attributed to the Refuse revenue increase of$109,000.

FINANCIAL ANALYSIS OF THE CITY'S MAJOR FUNDS

The City's mqjor funds for the fiscal year ended June 30, 2008 were the General Fund, Low and Moderate Housing Special Revenue Fund, Redevelopment Agency Debt Service Fund, and Orangethorpe Corridor Capital

Projects Fund.

General Fund

The General Fund fund balance decreased by $1,553,224. The main reason for the decline is the overall economy which has affected sales tax revenues as well as slowed down the growth in the area of property taxes.

Low and Moderate Housing Fund

The fund balance increased by $299,104. There were no major projects underway in fiscal year 2007-08.

9

CITY OF PLACENTIA




Redevelopment Agency Fund

The fund balance decreased by $19,771.

Orangethorpe Corridor Capital Projects Fund

The fund balance decreased by $848,378. During fiscal year 2007-08, the City expended $2.7 million in capital projects. The largest single project was the Bradford Pedestrian Bridge.

General Fund Budgetary Highlights

The General Fund receives the most public attention since it is where local tax revenues are accounted for and where the most popular municipal services such as police and public works are funded.

Year-to-date revenues, including transfers-in, totaled $29.9 million. Total General Fund revenues and transfers in were lower than their adjusted budget amounts by $1.5 million. Property tax was the largest revenue source with $11.3 million in realized revenues. This amount was $46,867 more than the adjusted budget. The favorable variance was attributable to increased assessed valuations.

Transfers in totaled $5,229,572. Actual transfers were $268,726 under budget. The main reason was the decrease in utility users tax revenues which were transferred to the General Fund.

General Fund expenditures and transfers out totaled $31.5 million. Expenditures and transfers were projected at $29.1 million during the budget process; however, budget amendments increased the projections to $32.7 million.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

The City's investment in capital assets for its governmental and business-type activities as of June 30, 2008, totaled $84,595,563, net of depreciation. These assets include buildings, infrastructure, land, machinery and equipment, park facilities, vehicles, and construction in process.

10

CITY OF PLACENTIA



CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets

Governmental

Activities

2008

Land $ 17,692,402

Trees 3,114,540

Construction in Progress

streets 4,538,3!;0 Structures and improvements 7,258,21\4

Equipment J ,354,488

Infrastructure 36,912,823

Total assets $ 70,870,917

Table 3 Capital Assets

Governmental

Activities

2007

$ 18,847,892

3,114,540

3,943,052

7.466,149

1,324,846

49,274,772

$ 83,971,251

Business-type

Activities

$

2008

183,217

13,146,266

395,163

$ 13,724.646

Business-type

Activities

2007

$

474,194

$ 474,194

Total

2008

$ 17,692,402

3,! 14,540

4,721,597

20,404,550

1,749,651

36,912,823

$ 8,1,595,563

Total

2007 -------

$ 18,847,892

3,1 14,540

3,943,052

7,466,149

1,799,040

49,274,772

$ 84,445,445

The primary change in the City's Capital Assets was reclassification of sewer infrastructure m the Sewer Proprietary fund. These assets were previously recorded in the governmental activities financials. Additional information on the City's Capital Assets can be found in Note 7 to the basic financial statements.

DEBT ADMINISTRATION

Governmental

Activities

2008

Tax allocalion bonds $ 7,040,000

Certificates of Partictpation 9.950,143

Capital leases J 11,101

Compensated absences 3,753,284

Total assets $ 20,854,528

Table 4 Debt Administration

Governmental

Activities

2007

$ 7,170.000

II ,038,355

207.563

3,523,744

$ 21,939,662

Business· type

Activities

2008

s

$

Business-type

Activities

2007

$

Total

2008

s 7,040,000

9,950,143

I 11,10 I

3.753,2&4

s 20 85'1,528

Additional information on the City's debt can be found in Note 8 to the City's basic financial statements.

II

Total

2007

$ 7.170,000

I 1,038,355

207,563

3,523,744

$ 21,939,662

CITY OF PLACENTIA

MANAGEMI<:NT'S DISCUSSION AND ANALYSIS (CONTINUED)


ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS

In preparing the budget for 2008-09, management looked at the following economic factors:

• The impact to the City of Placentia's revenues due to possible negative effects as the State of California adopted its 2008-09 budget.

• The economic effects due to the slowdown of the housing market in California. • The economic effects due to the slowdown of retail activity in California.

Key budget assumptions for forecasting General Fund revenues include the following:

• The State of California's current fiscal situation may result in City revenue reductions. The Voters of California passed Proposition lA in November 2004, which strengthened the ability of local government to keep property taxes and transportation revenues earmarked for local use. This assumption will be severely tested as the State revises its current year budget and prepares to try and deliver a balanced 2009-10 budget. A State borrowing of local revenues is a possibility.

• Sales tax revenue will continue to decrease for the current year due to slowdown in auto sales and overall consumer confidence.

• Property tax revenues will grow by an estimated 6%. This equates to $349,800.

UEQUESTS FOR INFORMATION

This financial report is designed to provide a general overview of the City of Placentia's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Director of Finance at the City of Placentia, 401 East Chapman Avenue, Placentia, California 92870.

12

GOVERNMENT-WIDE FINANCIAL STATEMENTS

CITY OF PLACENTIA

STATEMENT OF NET ASSETS JUNE 30, 2008

Governmental Business-type Activities Activities Total

ASSETS Cash and investments $ (553,552) $ 3,667,379 $ 3,113,827 Cash and investments with fiscal agent 2,642,519 2,642,519 Receivables:

Accounts 4,547,000 296,449 4,843,449 Taxes 1,847,866 1,847,866 Interest 71,898 71,898

Due from other governments 216,204 216,204 Loans receivable 571,067 571,067 Deposits 35,000 35,000 Inventory of supplies 77,492 77,492 Capital Assets:

Non-depreciable capital assets 25,345,322 25,345,322 Depreciable capital assets, net

of accumulated depreciation 45,525,595 13,724,646 59,250,241

Total Assets 80,326,411 17,688,474 98,014,885

LIABILITIES Accounts payable 2,012,899 322,127 2,335,026 Retentions payable 206,255 206,255 Payroll payable 743,667 14,799 758,466 Interest payable 383,314 383,314 Insurance claims payable 1,203,713 1,203,713 Due to other governments 259,987 259,987 Unearned revenue 48,469 48,469 Deposits payable 146,100 146,100 Long-term Liabilities:

Portion due within one year 2,571,771 2,571,771

Portion due beyond one year 18,282,757 18,282,757

Total Liabilities 25,810,463 385,395 26,195,858

NET ASSETS Invested in capital assets net of related debt 69,880,543 13,724,646 83,605,189 Restricted for

Specific projects and programs 5,315,937 5,315,937

Unrestricted (20,680,532) 3,578,433 (I 7,1 02,099)

Total Net Assets $ 54,515,948 $ 17,303,079 $ 71,819,027

See accompanying notes to financial statements. 13

CITY OF PLACENTIA

STATEMENT OF ACTMTIES YEAR ENDED JUNE 30, 2008

Functions/Programs Governmental Activities

General government Public safety Public works Community services Redevelopment Interest on long-term debt

Total Governmental Activities

Business-type Activities Refuse Compressed natural gas Sewer maintenance

Total Business-Type Activities

Total

Charges for Expenses Services

$ 2,692,735 $ 745,397 17,481,156 875,772 8,434,834 l, 162,341 3,608,179 659,734

681,923 1,361,265

34,260,092 3,443,244

2,599,402 3,032,150 410,092 419,350 808,488 1,069,230

3,817,982 4,520,730

$ 38,078,074 $ 7,963,974

General Revenues Taxes:

Property taxes Sales and use taxes Utility users tax Real property transfer tax Transient occupancy tax Franchise taxes Other taxes

Motor vehicle in lieu Investment income Gain on sale of capital assets Other Transfers in and out

Program Revenues Operating

Contributions and Grants

$ 636,778 481,382

1,642,248 150,000 213,225

3,123,633

$ 3,123,633

Total General Revenues and Transfers

Change in Net Assets

Net Assets at beginning of year, as restated

Net Assets at end of year


Capital Contributions

and Grants

$

4,146,814 91,422

4,238,236

$ 4,238,236

Net (Expense) Revenue and Changes in Net Assets

Governmental Business-type Activities Activities Total

$ (I ,31 0,560) $ ( 16, 124,002)

(1,483,431) (2,707,023)

(468,698)

(1 ,361,265) ----

(23,454,979) -----

$

432,748 9,258

260,742

702,748

(23,454,979) 702,748 -----'---

13,790,561 5,452,396 2,603,926

123,095

762,038 1,226,354

4,522 216,313

45,863 85,648 13,375

337,279 15,100

249,153 (249,153)

24,824,875 (148,405)

I ,369,896 554,343

53,146,052 16,748,736

54,515,948 $ 17,303,079

$ (1 ,31 0,560) (16, 124,002)

(1,483,431) (2, 707,023)

(468,698) (1,361,265)

$

(23,454,979)

432,748 9,258

260,742

702,748

(22, 752,231)

13,790,561 5,452,396 2,603,926

123,095 762,038

1,226,354 4,522

216,313 131.511

13,375 352,379

24,676,470

1,924,239

69,894,788

71,819,027

15

FUND FINANCIAL STATEMENTS

GOVERNMENTAL FUNDS

GENERAL FUND

The General Fund has been classified as a major fund and is used to account for all of the general revenues of the City not specifically levied or collected for other City funds and for expenditures related to the rendering of general services by the City. The General Fund is generally used to account for all resources not required to be accounted for in another fund.

SPECIAL REVENUE FUNDS

The Special Revenue Funds are used to account for revenues derived from specific taxes or other earmarked revenue sources (other than special assessments, expendable trusts, or major capital projects) that are restricted by law or administrative action to expenditure for specified purposes. The following Special Revenue Fund has been classified as a major fund in the accompanying financial statements.

Low and Moderate HousiT1Sl'.!tn<f_- Used to account for financing and construction of low and moderate income housing. Financing is provided by 20% of tax revenue increment, in accordance with the California State Health and Safety Code Section 33334.2.

DEBT SERVICE FUND

The Debt Service Fund is used to account for the accumulation of resources for the payment of interest and principal on the general debt of the City and related entities. The following Debt Service fund has been classified as major in the accompanying fund financial statements:

.13-.edevelopment Agencv Fund - To accumulate monies for the payments of interest and principal on the Redevelopment Agency Certificates of Participation and Tax Allocation Bonds. Debt service is financed via property tax revenues.

The Capital Projects Funds arc established to account for resources used for the acquisition and construction of capital facilities in the City. The following Capital Projects Funds have been classified as major in the accompanying fund financial statements:

Orangethorpe Corridor Fund - Used to account for financing and construction of all rail projects within the boundaries of the City.

NONMAJOR GQY£RNME.~JAL_FUNDS

These funds constitute all other governmental funds that do not meet the major test of assets, liabilities, revenues or expenditures for 10% of the governmental funds and 5% of the total governmental and enterprise funds. These funds include other Special Revenue Funds and the Capital Projects Funds.

16

CITY OF PLACENTIA

GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2008

Special Debt Revenue Service Low and

General Moderate Redevelopment

Fund Housing Agency

ASSETS

Cash and investments $ $ 2,509,590 $ 1,037,311

Cash and investments with fiscal agent 35,635 1,144,279 1,417,316

Accounts receivable 742,892

Taxes receivable 1,249,472 62,747

Interest receivable 71,898

Due from other governments 94,373

Loans receivable 93,276 477,791

Inventory of supplies 10,048 Total Assets $ 2,297,594 $ 4,131,660 $ 2,517,374

LIABILITIES Negative cash and investments $ 4,494,215 $ $

Accounts payable 869,001 797

Retentions payable 14,828

Payroll payable 702,891 2,497

Due to other governments 259,987

Deferred revenue 655,579

Deposits payable 120,869

Total Liabilities 6,857,383 3,294 259,987

FUND BALANCES

Reserved for: Loans receivable 93,276 477,791

Inventory of supplies 10,048

Debt proceeds 35,635 1,144,279 1,417,316

Unreserved, reported in: General fund ( 4,698, 748)

Special revenue funds 2,506,296

Debt service funds 840,071

Capital projects funds Total Fund Balances (4,559,789) 4,128,366 2,257,387 Total Liabilities and Fund Balances $ 2,297,594 $ 4,131,660 $ 2,517,374


Capital

Projects

Non-Major Total

Orangethorpe Governmental Governmental

$

$

$

Corridor Funds

- $ 1,838,918

3,735,287 68,315

535,647

121,831

3,735,287 $ 2,564,71 I

2,790,592 $ 291,450

753,268 106,013

191,427 11,007

3,132,511 68,315

25,231

6,867,798 502,016

$

$

$

Funds

5,385,819

2,597,230

4,546,494

1,847,866

71,898

216,204

571,067

10,048 15,246,626

7,576,257

1,729,079

206,255

716,395 259,987

3,856,405

146,100

14,490,478

571,067 10,048

2,597,230

2,062,695

( 4,698, 748)

4,568,991

840,071

(3, 132,511) ----- ------'-(3__::,_13_2~,5_11--"-) (3, 132,511) 2,062,695 756,148

--::----'-----'=---$ 3,735,287 $ 2,564,711 $ 15,246,626

=======

18

CITY OF PLACENTIA

RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS

JUNE 30, 2008

Fund Balances of Governmental Funds

Amounts reported for governmental activities in the Statement of Net Assets are different because:

Capital assets net of accumulated depreciation have not been included as financial resources in governmental fund activity.

Capital assets

Accumulated depreciation

Long-term liabilities applicable to governmental activities are not due and payable in the current period and, accordingly, are not rep01ted as governmental fund liabilities. All liabilities (both current and Jong-tenn) are reported in the Statement of Net Assets.

Certificates of participation

Deferred refunding charge on certificates of participation

Tax allocation bonds

Compensated absences

Accrued interest payable for the current portion of interest due on long-term

liabilities has not been reported in the governmental funds.

Accrued interest-certificates of participation

Accrued interest-tax allocation bonds

Deferred revenue balances relating to certain loans receivable and accounts receivable are not reported as liabilities in the Statement ofNet Assets since revenue recognition is not based upon measurable and available criteria.

The Internal Service Funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the Internal Service Funds

must be added to the Statement of Net Assets.

Net Assets of Governmental Activities


$ 756,148

1 08,460,667

(38,580, 124)

(1 0,765,000)

814,857

(7,040,000)

(3,753,284)

(215,474)

(167,840)

3,856.405

!,149,593

$ 54,515,948

CITY OF PLACENTIA

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES

YEAR ENDED JUNE 30, 2008

Special Debt Revenue Service Low and

General Moderate Redevelopment Fund Housing Agency

REVENUES: Taxes:

Property taxes $ 11,371,081 $ $ 2,419,480

Sales and use taxes 5,300,514 Other taxes 2,116,009

Intergovernmental 1,527,873 Licenses and permits 1,441,263 Fines and forfeitures 765,264

Investment income 4,352 114,453 1,088,595

Charges for services 995,223

Miscellaneous 1,199,926 1,688

Total Revenues 24,721,505 116,141 3,508,075

EXPENDITURES: Current:

General government 3,262,926

Public safety 16,915,327

Public works 6,695,566

Community development 3,325,730

Redevelopment 64,230 1,132,962 Debt Service:

Principal 525,000 50,000 685,000 Interest 304,244 163,865 628,809

Total Expenditures 31,028,793 278,095 2,446,771 Excess (Deficiency) of Revenues

Over (Under) Expenditures (6,307,288) (161,954) I ,061,304

OTHER FINANCING SOURCES (USES): Transfers in 5,229,572 483,896 Transfers out ( 488,883) (22,838) (1 ,081 ,075) Proceeds from sale of land 13,375

Total Other Financing Sources (Uses) 4,754,064 461,058 (1,081,075) Net Change in Fund Balances (I ,553.224) 299,104 (19,771)

Fund Balances, Beginning of Year (3,006,565) 3,829,262 2,277,158 Fund Balances, End of Year $ (4,559,789) $ 4,128,366 $ 2,257,387


$

$

Capital

Projects

Orangethorpe

Corridor

1,650,969

1,650,969

2,732,346

2,732,346

(l ,081 ,377)

335,794

(1 02,795)

232,999

(848,378)

(2,284,133) (3,132,511)

Non-Major Total

Governmental

Funds

$

2,615,687

2,676,055

79,752

124,195

470,263 83,929

6,049,881

174,830

251,430

998,965

242,388

352,502

2,020,115

4,029,766

495,282

( 4, 7 44,300)

(4,249,018)

(219,252)

2,281,947 $ 2,062,695

Governmental

Funds

$ 13,790,561

5,300,514

4,731.696

5,854,897

1,441,263

845,016

1,331,595

I ,465,486

1,285,543

36,046,571

3,437,756

17,166,757

10,426,877

3,568,118

1,549,694

1,260,000 1,096,918

38,506,120

(2,459,549)

6,544,544

(6,439,891) 13,375

118,028

(2,341 ,521)

3,097,669 $ 756,148

2!

CITY OF PLACENTIA

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES


Net Change in Fund Balances- Total Governmental Funds

Amounts reported for governmental activities in the Statement of Activities are different because:

Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. As a result, fund balances decrease by the amount of financial resources expended, whereas net assets decrease by the amount of depreciation expense charged for the year

Capital outlay Depreciation expense, net of disposals

Repayment of long-term debt principal is an expenditure in the governmental funds and, thus, has the effect of reducing the fund balances because current financial resources have been used. For the City as a whole, however, the principal payments reduce the liabilities in the Statement of Net Assets and do not result in an expense in the Statement of Activities.

Debt service principal-certificates of participation Debt service principal-tax allocation bonds

Accrued interest expense related to long-term liabilities. This amount is the difference between the amount of interest paid and the amount of interest incurred on long-term liabilities

Compensated absences expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds.

Compensated absences-current year accrual Compensated absences-current year retirements

When long-term debt is issued, the proceeds of the new debt issuance and all related payments are reported as other financing sources and uses in the governmental funds. However, in the government-wide financial statements, the new debt is reported directly on the Statement of Net Assets and there is no effect on the change in Net Assets reported on the Statement of Activities. The net result are issuance costs, which are amortized over the life of the debt.

When long-term debt is refunded, the proceeds of the new debt issuance and all related payments are reported as other financing sources and uses in the governmental funds. However, in the government-wide financial statements, the new debt is reported directly on the Statement of Net Assets and there is no effect on the change in net assets reported on the Statement of Activities. The net result is a deferred refunding charge, which is then amortized over the life of the debt. This amount represents the current year's amortization of the deferred refunding charge on the 2003 Refunding and Improvement Project Certificates of Participation.

Certain loans and grants receivable that have been accrued but not collected are reflected as deferred revenue in the governmental funds. However, earned revenue is recognized in the Statement of Activities, regardless of when the receivables were collected.

Internal Service Funds are used by management to charge the costs of certain activities to individual funds. The net revenues (expenses) of the Internal Service Funds are reported with governmental activities.

Change in Net Assets of Governmental Activities

Sec accompanying notes to financial statements. 22

$(2,341,521)

3,654,824 (1 ,752,703)

1,130,000 130,000

21,620

(I ,021 ,857) 792,317

(244,179)

(41,788)

1,180,171

( 136,988)

$ 1,369,896

PROPRIETARY FUNDS

MAJOR AND NONMAJOR ENTERPRISE FUNDS

The Enterprise Funds are used to account for operations that are financed and operated in a manner similar to private business enterprise.

The following Enterprise Funds have been classified as major funds:

Refuse Fund- To account tor the provision of refuse services to the residents ofthe City. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operation, acquisition of equipment, and related debt service .

. C::.<?n.:!PL~ssed N~tural_Qas .(CN_Q}_ J..::t!pp - To account for the activity of a compressed natural gas station located within the City.

Sewer Maintenance Fund- To account for the operations and maintenance of the sewer lines located in the City's sewer system, including administration and capital improvements. Fees are computed from water consumption amounts provided by local water companies. All residents and businesses connected to the City's sewer system arc placed in categories based on a percentage of water consumption that is returned to the City sewer system.

INTERNAL SER VI~E FUNDS

The Internal Service Funds are used to account for the financing of goods and services provided by one City department to others, or to other governmental units, on a cost-reimbursement basis (including depreciation).

23

CITY OF PLACENTIA

PROPRIETARY FONDS STATEMENT OF NET ASSETS JUNE 30,2008

ASSETS

Current assets:

Cash and investments

Cash and investments with fiscal agent

Accounts receivable, net

Deposits

Inventory of supplies

Total Current Assets

Noncurrent assets: Equipment, net of accumulated depreciation

Total Assets

LIABILITIES

Current liabilities:

Accounts payable

Payroll payable Deferred revenue

Insurance claims payable

Total Current Liabilities

Non-current liabilities:

Capital lease payable

Total Liabilities

NET ASSETS

Invested in capital assets, net of related debt

Unrestricted

Total Net Assets

See accompanying notes to financial statements.

$

$

24

Business-type Activities

Sewer

Refuse CNG Maintenance

1,914,728 $ 93,134 $ 1,659,517

143,673 152,776

2,058,401 93,134 1,812,293

395,163 13,329,483

2,058,401 488,297 15,141,776

245,348 67,608 9,171

8,805 1,178 4,816

48,469

254,153 68,786 62,456

254,153 68,786 62,456

395,163 13,329,483 1,804,248 24,348 1,749,837

1,804,248 $ 419,511 $ 15,079,320

Business-type Governmental

$

Activities Activities-

Internal

Service

Total Funds

3,667,379 $ I,636,886

45,289

296,449 506

35,000

67,444

3,963,828 1,785,125

13,724,646 990,374

17,688,474 2,775,499

322,127 283,820 14,799 27,272

48A69 1,203,713

385,395 I ,5I4,805

111, I 01

385,395 1,625,906

13,724,646 990,374

3,578,433 159,219

$ 17,303,079 =$===1,=14=9,=5=93=

25

CITY OF PLACENTIA

PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS YEAR ENDED JUNE 30, 2008

Business-type Activities

Refuse CNG

OPERATING REVENUES Departmental charges $ $ $

Reimbursements Landfill 467,016

Contractor 1,752,134

Natural gas sales 419,350

Sewer service charges Miscellaneous 813,000 15,100

Total Operating Revenues 3,032,150 434,450

OPERATING EXPENSES Administration 248,739 318,505

Reinsurance premiums

Claims Medical and dental premiums Liability insurance premiums Depreciation expense 79,031

Landfill and contractor charges 2,350,663 12,556

Total Operating Expenses 2,599,402 410,092

Operating Income (Loss) 432,748 24,358

NON-OPERATING REVENUES (EXPENSES) Investment income 44,899

Interest expense

Total Non-operating Revenues (Expenses) 44,899

I nco me before transfers 477,647 24,358

Transfers in 26,047

Transfers out (200,000)

Change in Net Assets 277,647 50,405

Fund Net Assets at Beginning of Year, as restated 1,526,601 369,106

Fund Net Assets at End of Year $ 1,804,248 $ 419,511 $


Sewer

Maintenance

1,069,230

1,069.230

324,096

484,392

808,488

260,742

40,749

40,749

301,491

(75,200)

226,291

14,853,029

15,079,320

Business-type

Activities

Governmental

Activities -

Internal Total Service Fund

$ - $ 4,489,256

56,841

467,016 I ,752,134

419350 1,069,230

828,100

4,535,830 4,546,097

891,340 1,504,590

112,507 77,975

2,531,547 305,999

563,423 290,759 2,363,219

3,817,982 4,823,377

717,848 (277,280)

85,648 1,545

(5,753)

85,648 (4,208)

803,496 (281,488)

26.047 401,208

(275,200) (256,708)

554,343 ( 136,988)

16,748,736 1,286,581

$ 17,303,079 $ 1,149,593

27

CITY OF PLACENTIA

PHOPRIETARY FUNDS STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30,2008

Cash Flows from Operating Activities: Cash received from customers Cash received from user departments Cash payments to suppliers for goods and services

Net Cash Provided By (used for) Operating Activities

Cash Flows from Non-Capital Financing Activities: Cash received fi·om other funds Cash paid to other funds

Net Cash Provided By (used for) Non-Capital Financing Activities

Cash Flows from Capital and Related Financing Activities: Acquisition of equipment Principal payments Interest paid

Net Cash Provided By (used tor) Capital and Related Financing Activities

Cash Flows from Investing Activities: Interest received on investments

Net Cash Provided by (Used for) Investing Activities

Net Increase (Decrease) in Cash and Cash Equivalents

Cash and Cash Equivalents at Beginning of Year

Cash and Cash Equivalents at End of Y car

Reconciliation of Operating Income (loss) to Net Cash Provided by (Used for) Operating Activities: Operating income (loss): Adjustments to reconcile operating income to

net cash provided by (used for) operating activities: Depreciation (Increase) decrease in accounts receivable (Increase) decrease in deposits (Increase) decrease in inventory of supplies Increase (decrease) in accounts payable Increase (decrease) in payroll payable Increase (decrease) in insurance claims payable

Total Adjustments

Net Cash Provided By (used for) Operating Activities


$

$

$

$

Business-t)pe Activities-

Sewer Refuse CNG Maintenance

3,004,259 $ 421,110 $ 1,076,574

(2,604,259) (280,3542 ~450,362)

400,000 140,756 626,212

26,047 (200,000) (75,200)

(200,000) 26,047 (75,200)

(142,694)

(142,694)

44,899 40,749

44,899 40,749

244,899 166,803 449,067

1,669,829 (73,669) 1,210,450

1,914,728 $ 93,134 $ 1,659,517

432.748 s 24,358 $ 260,742

79,031 484.392 (27,891) 1,760 (41,125)

48,469 (7,265) 34,429 (117,751) 2,408 1,178 (8,515)

(32,748) 116,398 365,470

400,000 $ 140,756 $ 626,212

Buiness-type Governmental Activities Activities -

Internal Total Service Fund

$ 4,501,943 $ 4,492,484

(3,334,975) (4,326,404)

1,166,968 166,080

26,047 401,208 (275,200) (256,708)

(249, 153) 144,500

(142,694) (114,975) (96,462)

(5,753)

(142,694) (217,190)

85,648 1,545

85,648 1,545

860,769 94,935

2,806,610 1,587,240

$ 3,667,379 $ 1,682,175

$ 717,848 $ (277,280)

563,423 290,759 (67,256) (481)

(35,000) 48,469 128,785

(90,587) 174,428 (4,929) 1,573

(116,704}

449,120 443,360

$ 1,166,968 $ 166,080

29

FIDUCIARY FUNDS

AGENCY FUNDS

The Agency Funds are used to account for funds when the City is acting as an agent for other governmental units, private organizations or individuals.

30

CITY OF PLACENTIA

FIDUCIARY FUNDS STATEMENT OF NET ASSETS AND LIABILITIES JUNE 30, 2008

ASSETS Cash and investments Cash and investments with fiscal agent

Accounts receivable Notes receivable pledged as collateral for H.C.D. rehabilitation loans

Total Assets

LIABILITIES Due to other governments Deposits payable

Total Liabilities


$

$

$

$

Agency Funds

1,155,868 5,614,263

42,763 158,776

6,971,670

299,217 6,672,453

6,971,670

CITY OF PLACENTIA

NOTES TO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2008

NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The basic financial statements of the City of Placentia, California (the City) have been prepared in conformity with generally accepted accounting principles (GAAP), as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant City accounting policies are described below.

A. Reporting EnJi!y

The City of Placentia was incorporated December 2, 1926. The City operates under an elected Council/City Manager form of government and under provisions of a City Charter adopted on June 29, 1965.

As required by generally accepted accounting principles, these financial statements present the City of Placentia and its component units, entities for which the City is considered to be financially accountable. The City is considered to be financially accountable for an organization if the City appoints a voting majority of that organization's governing body, and the City is able to impose its will on that organization or there is a potential for that organization to provide specific financial benefits to or impose specific financial burdens on the City. The City is also considered to be financially accountable for an organization if that organization is fiscally dependent (i.e .. it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval from the City). In certain cases, other organizations arc included as component units if the nature and significance of their relationship with the City are such that their exclusion would cause the City's financial statements to be misleading or incomplete.

The two methods of reporting component unit data in the combined financial statements are blended and discrete presentation. Blending is limited exclusively to when the board of the component unit is substantively the same as that of the City or if the component unit serves the City exclusively, or almost exclusively.

Blended component units, although legally separate entities, are in substance, part of the government's operations. Data from these units are combined with data of the City. Component units that do not meet one of the two criteria for blending presented component units are reported in a separate column in the government-wide financial statements to emphasize they are legally separate from the government. Similar to the City, each blended component unit has a June 30 year-end. The City does not report any discretely presented component units.

Brief descriptions of the City's blended component units are as follows:

• The Placentia Redevelopment Agencv (the Agency) was established on December 7, 1982, pursuant to the State of California Health and Safety Code Section 33000 entitled, "Community Redevelopment Law." Although it is a legally separate entity from the City, the Agency is reported as if it were part of the City because of its purpose to encourage private redevelopment of property and to rehabilitate areas suffering from economic blight within the territorial limits of the City.

32

CITY OF PLACENTIA


NOTE 1 --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

• The Civic Center Authority (the Authority) was organized on May 22, 1972, under a joint exercise of powers agreement between the City and the Placentia Library District (the Library District), for the purpose of financing and constructing a new civic center building for lease to the City and a new library building for lease to the Library District. The joint exercise of powers agreement establishing the Authority is effective for forty years from May 22, 1972, and provided that at the end of the term all real and personal property shall vest in the respective parties which lease the property from the Authority, and that any surplus money shall be returned to the City and the Library District in proportion to the contributions made by each.

• The Placentia Public Financing Authority (the PF A) was formed in 1996 to issue Special Tax Revenue Bonds. The proceeds of the debt refunded the existing Mello-Roos Community Facilities District 89-l bonds originally issued in September 1996.

• The Orange North-American Tra_d~_~ail_A.~c.~ss CQITjdQ_r_Joi!lt PowersAuthority (the ONTRAC JPA) was established on April 1, 2000, to provide a lowered rail transportation corridor and to finance the construction of such facilities through grants and forms of financing approved by the ONTRAC board. Prior to the year ended June 30,2006, the City Council appointed the governing board of the ONTRAC JPA, and thus, it was reported as a discretely presented component unit of the City. However, during the 2005-2006 fiscal year, the governing board of the ONTRAC JPA was reorganized to include the City's Mayor Pro Tern and remaining three members of the City Council. Thus, the City began reporting the ONTRAC JPA as a blended component unit. During the year ended June 30,2007, the ONTRAC JPA was dissolved. As of June 30,2006 and 2007, the balances for ONTRAC JPA were closed, and therefore, the JPA is not presented in this financial statement.

Since the City Council serves as the governing board for these component units, they are considered to be blended component units. The Agency issued separate component unit financial statements that may be obtained through written request to the City Department of Finance or the City Clerk's office at City Hall, 401 East Chapman Avenue, Placentia, California 92870. The Civic Center Authority and the Public Financing Authority did not have any financial activity during the 2007-2008 fiscal year, and therefore, are not presented in the financial statements.

B. Fund Types

The following is a summary of the fund types utilized by the City:

(Jg_vernmental Fund Types

• The Gener?t fund is the general operating fund of the City. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. Expenditures of this fund include the general operating expenditures and capital improvement costs which are not paid through other funds.

33

CITY OF PLACENTIA


NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

B. Ftmd Tvpes, {Cont!nuccl)

(Jgyem_ment_al Fund Types, (Continued)

• Special Revenue Funds are used to account for the proceeds of specific revenue sources that are usually required by law or administrative regulation to be accounted for in separate funds.

• Debt Service Funds arc used to account for the accumulation of resources for and the payment of general long-term debt principal and interest.

• Capital Projects Funds are used to account for financial resources to be used for the acqmsJtlon or construction of major capital facilities other than those financed by Proprietary Fund Types.

Proprietary Fund Types

• Enterprise Funds are used to account for operations that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges.

• Internal Service Funds are used to account for the financing of goods or serv1ces provided by one department of the City to other departments on a cost-reimbursement basis.

Fiduciary Fund Types

• Agency Funds are used to account for assets held by the City as an agent for individuals or private organizations, other governmental units and/or other funds. Agency Funds are custodial in nature (assets equal liabilities) and do not involve the measurement ofresults of operations.

C. .Measurement Focus and Basis of AcfQ~I_ntLng

The basicfinancial statements of the City are composed of the following:

• Government-wide financial statements • Fund financial statements • Notes to the basic financial statements

Financial reporting is based upon all GASB pronouncements, as well as the Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins that were issued on or before November 30, 1989, that do not conflict with or contradict GASB pronouncements. FASB pronouncements issued after November 30, 1989 are not followed in the preparation of the accompanying financial statements.

34

CITY OF PLACENTIA

NOTES TO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED .JUNE 30, 2008

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

C. Measurement Focus and Basis of Accounting, (Continued)

Q_g_y£!21mert ~.Wide rinancial Statements

Government-wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business-type activities ofthe primary government (including its blended component units). Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the City.

Government-wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the governmentwide financial statements. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Under the accmal basis of accounting, revenues, expenses, gains, losses, assets and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transactions were recognized in accordance with the requirements of GASB Statement No. 33.

Program revenues include charges for services, special assessments, and payments made by parties outside the reporting government's citizenry if that money is restricted to a pmiicular program. Program revenues are netted with program expenses in the Statement of Activities to present the net cost of each program.

Amounts paid to acquire capital assets are capitalized as assets in the government-wide financial statements, rather than reported as an expenditure. Proceeds of long-tenn debt are recorded as a liability in the government-wide financial statements, rather than as an other financing source. Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure.

fund Financial Statement_~

The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.

Fund financial statements for the primary government's governmental, proprietary and fiduciary funds are presented after the government-wide financial statements. These statements display information about major funds individually and non-major funds in the aggregate for governmental and enterprise funds. Fiduciary statements include financial information for fiduciary funds and similar component units. Fiduciary funds of the City primarily represent assets held by the City in a custodial capacity for other individuals or organizations.

35

CITY OF PLACENTIA


NOTE 1 - SUMAlARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

C. Me11_surement Focus and Basis of Accounting, (Continuedj

Governmental Funds

In the fund financial statements, governmental funds are presented using the modified-accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The City generally considers revenues available if they are collected within sixty days after the fiscal year-end. Significant revenues subject to accrual under the measurable and available criteria include property taxes, sales taxes and motor vehicle in-lieu.

Revenue recognition is subject to the measurable and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place. Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government-mandated and voluntary non-exchange transactions are recognized as revenues when all applicable eligibility requirements have been met.

In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of "available spendable resources". Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period.

Noncurrent portions of long-term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, that they should not be considered "available spendable resources" since they do not represent net current assets. Recognition of governmental fund type revenue represented by noncurrent receivables arc deferred until they become current receivables. Noncurrent p01tions of long-term receivables either deferred or are offset by fund balance reserve accounts.

Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by non-current liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities.

Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as an other financing source rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures.

When both restricted and unrestricted resources arc combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources.

36

CITY OF PLACENTIA


NOTE 1 --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

C. M~1!_SJ![_e_!l1el}t Focus and Basis Qf Accounting. (Continued_)

Proprietary Funds

The City's Enterprise and Internal Service Funds are proprietary funds. In the fund financial statements, proprietary funds and fiduciary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net assets.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses result from providing goods and services related to the fund's ongoing operations. The principal operating revenue of the City's proprietary funds are charges for services, depmimcntal charges and reimbursements. Operating expenses include the cost of services provided, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition arc reported as nonoperating revenues and expenses.

Amounts paid to acquire capital assets are capitalized as assets in the proprietary funds financial statements, rather than reported as expenditures. Proceeds of long-term debt are recorded as a liability in the proprietary funds financial statements, rather than as an other financing source. Amounts paid to reduce long-term indebtedness of the proprietary funds are reported as a reduction of the related liability, rather than as an expenditure.

D. Major Funds

The City reports the following major governmental funds:

General Fund- Used to account for all of the general revenues of the City not specifically levied or collected for other City funds and for expenditures related to the rendering of general services by the City. The General Fund is generally used to account for all resources not required to be accounted for in another fund.

J,o\Y_and Moderate Housing Special Revenue Fund- Used to account for financing and construction of low and moderate income housing. Financing is provided by 20% of tax revenue increment, in accordance with the California State Health and Safety Code 33334.2.

Redevelopment Agencv Debt Service Fund - Used to accumulate monies for payment of interest and principal on the Redevelopment Agency Certificates of Participation and Tax Allocation Bonds. Debt service is financed via property tax revenues.

O.I!!Ilg~thorpe Corridor CaRl1al Project Fund - Used to account for financing and construction of all rail projects within the boundaries of the City.

37

CITY OF PLACENTIA



The City reports the following major enterprise funds;

Refuse Fund- Used to account for the provision of refuse services to the residents of the City. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operation, acquisition of equipment, and related debt service.

Compressed Natural Gas (~J:..j_QLEl!.n_d - To account for the activity of a compressed natural gas station located within the City.

S~~<!T Ma._intena_Q<,:e_F_und - To account for the operations and maintenance of the sewer lines located in the City's sewer system, including administration and capital improvements. Fees are computed from water consumption amounts provided by local water companies. All residents and businesses connected to the City's sewer system are placed in categories based on a percentage of water consumption that is returned to the City sewer system.

E. Cash and Investments

Investments are reported in the accompanying balance sheet at fair value, except for certain investment agreements that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. The fair value of the investments is generally based on pub! ished market prices and quotations from major investment firms.

Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity, or sale of investments.

The City pools cash and investments of all funds, except for assets held by fiscal agents. Each fund's share in this pool is displayed in the accompanying financial statements as cash and investments or as negative cash and investments. Investment income earned by the pooled investments is allocated to the various funds based on each fund's average cash and investment balance.

F. Cash Equivalents

For purposes of the statement of cash flows, cash equivalents are defined as short-term, highly liquid investments that are both readily convertible to known amounts of cash or so near their maturity that they present insignificant risk of changes in value because of changes in interest rates, and have an original maturity date of 3 months or Jess.

38

CITY OF PLACENTIA



G. Capital Assets

Capital assets are recorded at historical cost at the time of purchase. Assets acquired from gifts or contributions are recorded at fair market value on the date received. Generally, capital asset purchases in excess of $2,500 are capitalized if they have an expected useful life of I year or more. Capital assets include public domain (infrastructure) capital assets consisting of certain street improvements. Capital assets used in operations are depreciated in the government-wide financial statements and in the fund financial statements of the proprietary funds. Depreciation of such assets is computed using the straight-line method over the estimated useful lives noted below and is charged to operations:

Assets

Structures and improvements Civic Center structures and improvements

Automotive equipment

Computer equipment

Other equipment

Infrastructure:

Roadways

Street appurtenances Wastewater

Storm drain

Years

5 to 50

50 2 to 10

3 5

35

I 0 to 50

50 to 60

50

The City of Placentia implemented GASB Statement No. 34 during the year ended June 30, 2003, and opted to include only current year additions to infrastructure through the year ended June 30, 2006. In accordance with the provisions ofGASB 34, the City has, as of June 30, 2007, valued and recorded all infrastructure asset data in its entirety to retroactively include assets acquired from 2003 back to the year 1980.

H. Compe_!]sated Absences

In accordance with GASB Statement No. 16, a liability is recorded for compensated absences (unpaid vacation, sick leave and compensatory time) since the employees' entitlement to these balances are attributable to services already rendered and it is probable that virtually all of these balances will be liquidated by either paid time off or payments upon termination or retirement.

Under GASB Statement No. 16, a liability is recorded for unused sick leave balances only to the extent that it is probable that the unused balances will result in termination payments. This is estimated by including in the liability the unused balances of employees currently entitled to receive termination payment, as well as those who are expected to become eligible to receive termination benefits as a result of continuing their employment with the City. Other amounts of unused sick leave are excluded from the liability since their payment is contingent solely upon the occurrence of a future event (illness) which is outside the control of the City and the employee.

39

CITY OF PLACENTIA



I. Deferred Revenue

Deferred revenue represents receivables at year-end that will not be collected soon enough to finance current year expenditures, and grant reimbursement revenue received in advance of the recognition of a related fund expenditure. The General Fund, the Orangethorpe Corridor Capital Project Fund, and the aggregate nonmajor funds reported $655,579, $3,132,511, and $68,315 of deferred revenue, respectively as of June 30, 2008. Of these amounts $45,276 is for a loan receivable (See Note 4) and the remaining amounts represent accounts receivable.

J. Inventories

Inventories consist primarily of office supplies, automotive parts and fuel. The inventories are stated at average cost. Inventories arc accounted for under the consumption method, whereby the costs are capitalized and subsequently recorded as an expenditure at the time individual inventory items are consumed. Reported inventories are equally offset by a fund balance reserve, which indicates that they do not constitute available spendable resources.

K. Property Taxes

Under California law, property taxes are assessed and collected by the counties up to l% of assessed value and can increase the property tax rate no more than 2% per year. The property taxes go into a pool and are then allocated to the cities based on complex formulas. The City of Placentia accrues only those taxes which are received from the county within 60 days of the year end.

Lien date Levy date

Collection dates

L. Interfund Transfers

January 1

July I December 10 and April 10

Quasi-external transactions are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. All other interfund transactions, except quasi-external transactions and reimbursements, are reported as transfers.

M. Long-Term Obligations

In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities Statement of Net Assets. Bond premiums and discounts arc deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs arc reported as deferred charges and amortized over the term of the related debt using the straight line method.

40

CITY OF PLACENTIA


NOTE 1 -SUMMARY OF SIGNTFTCANT ACCOUNTING POLICIES, (Continued)

M. l.,.()ng~Jen!l_O_bligations, (Continued)

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances arc reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, arc reported as debt service expenditures.

N. Use of Estimates

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

0. GASB Pronouncements

lmplemef!!.~d .. during ,fOO_~

GASB Statement No. 48 - In September 2006, GASB issued Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Tramfers of Assets and Future Revenues. This statement addresses accounting and financial reporting standards for transactions where governments exchange an interest in their expected cash flows from collecting specific receivables or specific future revenues for immediate cash payments. This statement establishes criteria and reporting standards regarding the exchange as either a sale or collateralized borrowing, resulting in a liability. Implemented July 2007

GASB Statement No. 50 - In May 2008, GASB issued Statement No. 50, Pension Disclosures-an amendment of GASB Statements No. 25 and No. 27. This statement more closely aligns the financial reporting requirements for pensions with those for other postemployment benefits (OPEB) and, in doing so, enhances information disclosed in notes to financial statements or presented as required supplementary information (RSI) by pension plans and by employers that provide pension benefits. Implemented July 2007

Effective in Future Years

GASB Statement No. 43 - In April 2004, the GASB issued Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This statement establishes accounting and financial reporting standards for plans that provide postemp!oyment benefits other than pension benefits (known as other postemployment benefits or OPEB. This statement is not effective until June 30, 2009.

GASB Statement No. 45 - In June 2004, GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This statement establishes standards for the measurement, recognition, and display of other post employment benefits expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial reports of State and local governmental employers. This statement is not effective until June 30,2009.

41

CITY OF PLACENTIA

NOTES TO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2008

NOTE 1 -SUMMARY OF SIGNIFIC'ANT ACCOUN11NG POLICIES, (Continued)

0. GASB Pronouncements, (Continued)

f::ffective inFuture Years, {Continued)

GASB Statement No. 49 - In November 2006, GASB issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations. This statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. This statement is not effective until June 30, 2009.

GASB Statement No. 51 - In June 2007, GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets. This statement establishes accounting and financial reporting standards for many different types of assets that may be considered intangible assets, including easements, water rights, timber rights, patents, trademarks, and computer software. This statement is not effective until June 30, 2010.

GASB Statement No. 52- In November 2007, GASB issued Statement No. 52, Land and Other Real Estate Held as Investments by Endowments. This statement establishes consistent standards for the reporting of land and other real estate held as investments by essentially similar entities. This statement is not effective until June 30, 2009. The City bas not detennined its effect on the financial statements.

GASB Statement No. 53 - In June 2008, GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments. This statement addresses the recognition, measurement, and disclosure of information regarding derivative instruments entered into by state and local governments. This statement is not effective until June 20, 2010. The City has not determined its effect on the financial statements.

GASB Statement No. 54 - In April 2008, GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement enhances the usefulness offund balance infom1ation by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. This statement is not effective until June 15,2010. The City has not determined its effect on the financial statement.

GASB Statement No. 55- ln August 2008, GASB issued Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This statement incorporates the hierarchy of generally accepted accounting principles (GAAP) for state and local governments into the Governmental Accounting Standards Board's (GASB) authoritative literature. This statement is effective upon its issuance date which was on August 2008.

42

CITY OF PLACENTIA


NOTE 2 CASH AND INVESTMENTS

Cash and investments as of June 30, 2008, are classified as follows:

Statement ofNet Assets: Cash and investments Cash and investments held with fiscal agent

Fiduciary Funds Statement of Assets and Liabilities: Cash and investments Cash and investments held with fiscal agent

Total Cash and Investments

Cash and investments as of June 30, 2008 consisted ofthe following:

Petty cash Demand deposits

Total Cash

Investments

Investments held with fiscal agent

Total Investments


43

$ 3,113,827 2,642,519

1,155,868 5,614,263

$ 12,526,477

$ 22,300 658,710

681,010

3,588,685

8,256,782

11,845,467

$ 1225262477

CITY OF PLACENTIA


NOTE 2- CASH AND INVESTMENTS, (Continued)

Cash and investments as of June 30, 2008 by fund.

Major Governmental Funds: General Fund Low and Moderate Housing, Special Revenue Fund

Redevelopment Agency, Debt Service Fund Orangethorpe Corridor, Capital Projects Fund

Non-Major Governmental Funds: Park Development, Special Revenue Fund Utility Users Tax, Special Revenue Fund

Street Lightning, Special Revenue Fund

Gasoline Tax, Special Revenue Fund

Measure M, Special Revenue Fund

Sewer Construction, Special Revenue Fund Storm Drain Construction, Special Revenue Fund Thoroughfare Construction, Special Revenue Fund Undergrounding Utilities, Special Revenue Fund Asset Seizure, Special Revenue Fund Supplemental Law Enforcement, Special Revenue Fund

Air Quality, Special Revenue Fund

Total Major Governmental Funds

Landscape Maintenance District 92-1, Special Revenue Fund Housing and Community Development, Special Revenue Fund Redevelopment Area l, Capital Projects Fund

Capital Projects Fund

Major Proprietary Funds: Refuse, Enterprise Fund

CNG, Enterprise Fund Sewer Maintenance, Enterprise Fund

Internal Service Funds: Risk Management, Internal Service Fund

Health and Welfare. Internal Service Fund lnfmmation Technology, Internal Service Fund

Citywide Services, Internal Service Fund

Agency Funds: Special Deposits

Community Facilities District l-LC.D. Rehabilitation Loans Alta Vista 85-1 District


Total Non-Major Governmental Funds

Total Major Proprietary Funds

Total Non-Major Proprietary Funds

Total Agency Funds

44

$

$

(4,494,215)

2,509,590

1,037,31 I (2,790,592) (3,737,906)

393,455

(224,490) 120,310

189,994 (66,960) 14,291

45,851 288,241

5,374 277,145

5,115

264,436 164,993

175 61,826

7,712 1,547,468

1,914,728

93,134

I ,659,517

3,667,379

I ,350,237 102,505

20,881

163,263 I ,636,886

624,455

27,548 140,441 363,424

I, 155,868 4 269,695

CITY OF PLACENTIA


NOTE 2- C'ASH AND INVESTMENTS, (Continued)

Statement of Net Assets Cash and investments

Fiduciary Funds Statement of Assets and Liabilities: Cash and investments


Investments Authorized by the California Government Code and the Cil\/s Investment Policy

$ 3,113,827

1,155,868 $ 4,269,695

The table below identifies the investment types that are authorized for the City by the California Government Code and the City's investment policy. The table also identifies certain provisions of the California Government Code (or the City's investment policy, if more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. A separate table addresses investments of debt proceeds that are held by fiscal agents. Those investments are governed by the provisions of debt agreements rather than the general provisions of the California Government Code or the City's investment policy.

Authorized by Maximum Maximum Investment Types City Investment Maximum Percentage Investment

Authorized by State Law Policy Maturity of Portfolio in One Issuer

Local Agency Bonds No 5 years None None U.S. Treasury Obligations Yes 5 years None None U.S. Agency Securities Yes 5 years 30% 15% Banker's Acceptances Yes 180 days 30% 30% Commercial Paper No 270 days 25% 10% Negotiable Certificates of Deposit Yes 180 days 30% None Repurchase Agreements Yes 30 days 30% None Reverse Repurchase Agreements No 92 days 20% of base value None Medium-Term Notes No 5 years 30% None Mutual Funds Yes NIA 20% 10% Money Market Mutual Funds No N/A 20%* 10%* Mortgage Pass-Through Securities No 5 years 20% None County Pooled Investment Funds No N/A None None Local Agency Investment Fund (LAIF) Yes N/A None None JPA Pools (Other Investment Pools) No N/A None None

45

CITY OF PLACENTIA



Investment Authorized bv Debt Agreements -----~· ... --· •.. --- ·---~- ~--~- ·-··- ... o.;.J "··-····----

Investments of debt proceeds held by fiscal agent are govemed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The table below identifies the investment types that are generally authorized for investments held by fiscal agents. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk and concentration of credit risk.

Maximum Maximum Authorized Maximum Percentage Investment

Investment Type Maturity of Portfolio In One Issuer

U.S. Treasury Obligations None None None

U.S. Agency Securities None None None Banker's Acceptances 360 days None None

Commercial paper 270 days None None

Money Market Mutual Funds N/A None None

Certificates of Deposit None None None

Municipal Obligations None None None

Investment Agreements None None None

Repurchase Agreements 30 days None None Local Agency Investment Fund (LAIF) N/A None None Other State-Administered Investment Pools N/A None None

.Qisclosures .B.ctatiDg .!Q_lntcrcst Rate.RJ~h

Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. Information about the sensitivity of the fair values of the City's investments (including investments held by fiscal agent) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity:

Remaining Maturity

Fair 12 Months 13 months

Investment Type Value Or Less or greater

LA IF $ 3,578,398 $ 3,578,398 $ Money market mutual funds 10,287 10,287 Held by fiscal agent:

Money market mutual funds 4,946,294 4,946,294 Federal agency securities 542,488 542,488 Investment agreements 2,768,000 2,768,000

Total $ I 1,845,467 $ 9,077,467 $ 2,768,000

46

CITY OF PLACENTIA


NOTE 2 - CASH AND INVES1MAWTS, (Continued)

Pis.closure Relating to Credit Risk

Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligations to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City's investment policy or debt agreements and the actual rating as of year end for each investment type.

Minimum Rating as ofYear End Market Legal

Investment Type Value Rating AAA Unrated

LAIF $ 3,578,398 N/A $ $ 3,578,398 Money market mutual funds 10,287 A 10,287 Held by fiscal agent:

Money market mutual funds 4,946,294 AAA 4,946,294 Federal agency securities 542,488 N/A 542,488 Investment agreements 2.768.000 NIA 2,768,000

Total $ 11,845,467 $ 5,499,069 $ 6,346,398

An investment Agreement was entered into with MBlA with proceeds from the 1996 Special Tax Revenue Bonds Series A. These bonds are secured by the assessments levied within the assessment district. The City acts only in an agent capacity for the property owners within the Community Facilities District No. 89-1 (also see Note #13). In June 2008, Moody's Investor Services and Standard & Poor's, downgraded MBIA Insurance Corporation's ratings to A2 and AA, respectively. Because of these rating downgrades, the City could elect to either terminate or require MBIA to post collateral pursuant to the investment agreement. The City chose to terminate the agreement and invested the funds in money market funds with an AAA rating on July 3 I, 2008.

Co_ncen.tration of Cre.Qit_Risk

Investments in any one issuer (other than U.S. Treasury Securities, Mutual Funds, and external investment pools) that represent 5% or more of total City investments are as follows:

Issuer

Bayerische Landesbank Girozentralc MBIA

47

Investment Type

Investment contracts Investment contracts

$

Reported Amount

571,500 2,196,500

CITY OF PLACENTIA



Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterpa1ty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits.

The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.

The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. LAIF is not registered with the Securities and Exchange Commission. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis.

48

CITY OF PLACENTIA


NOTE 3- TRANSFERS

Transfers In

General Fund

General Fund

General Fund

General Fund

General Fund

General Fund General Fund

Orangethorpc Coridor

Low and Moderate Income 1 lousing

Non-Major Governmental Funds

Non-Major Governmental Funds

CNG Enterprise Fund


Internal Service Funds Total Interfund Transfers

Purposes of Interfi.md Transfers:

Transfers Out

Refuse Enterprise Fund


Sewer/Maintenance Enterprise Fund

Orangethorpe Coridor

Redevelopment Agency Debt Service

Low and Moderate Income Housing Nonmajor governmental funds

Nonmajor governmental funds



General Fund

General Fund

Nonmajor governmental funds

General Fund

Amount

$ 200,000

256,708

75,200

102,795

244,677

22,838 4,327,354

335,794

483,896

352,502

142,780

26,047

81,152

320,056 $ 6,971,799

(f)

(g)

(h)

(a)

(e)

(b)

(d)

(c)

(i)

a) Transfers totaling $4,327,354 were transferred from non-major governmental funds to the general fund and include transfer taxes from the Utility User Fund and the Gas Tax Fund which have been transferred to the General Fund for general operating purposes. The transfer from the Measure M Fund in the amount of $622,925 was to reimburse the General Fund for Debt Service on the 200 I Certificates of Participation.

b) The $483,896 transfer is for 20% of total tax increment revenue that is required to be set aside in the Low and Moderate Housing Fund.

c) The AQMD Fund transferred $81,152 to the Equipment Replacement Fund to cover Capital lease payments for two sweepers.

d) The $352,502 was made from the Redevelopment Agency's Debt Service Fund to cover expenditures in the Capital Projects Fund.

e) The State Gas Tax Fund transferred $335,794 to the Capital Projects Fund to cover expenditures that were made to support capital projects.

f) The Refuse Fund transferred $200,000 to the General Fund to cover administrative costs.

g) The Internal Service fund transferred $256,708 to the General Fund to assist with reducing the General Fund deficit.

h) The Redevelopment Agency transferred $244,677 to the General Fund to cover administrative costs.

i) The General Fund transferred $320,056 to the Equipment Replacement Fund and the Information Technology Fund to reduce the deficit positions of the funds.

49

CITY OF PLACENTIA

NOTES TO BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2008

NOTE 4 -LOANS RECEIVABLE

The Agency provides loans to persons or families of low or moderate income under its First

Time Home Buyer and New Construction Programs for purposes of increasing, improving or

preserving the Agency's supply of low and moderate income housing. The First-Time Home

Buyer Program is designed for low and moderate income home buyers who are residents of

the City of Placentia and who will use the house as their principal place of residence.

Assistance is provided through a mortgage interest subsidy, a deferred second trust deed or

down payment assistance. The New Construction Program provides funds for the

construction of either rental units or owner-occupied units. The occupants of the units must

meet required income guidelines. Loans under these programs are recorded in the Low and

Outstanding Balance at

June 30, 2008

Moderate Housing Fund. $ 363,625

The Agency entered into an owner participation agreement dated January 5, 200 I. Pursuant

to that agreement, the Agency loaned $150,000 to a businessman in Placentia. The tenn of

the loan is 30 years and does not bear interest, except upon default. The loan is recorded in

the Low and Moderate Housing Fund. During 2007-2008, $4,167 was repaid.

During the fiscal year ended June 30, 2002, the City made various capital improvements to

the Civic Center, which includes both the City Hall and Library buildings. The City recorded

a loan receivable in its General Fund from the Placentia Library District (District) for the

District's portion of a capital lease liability that funded the project. Annual interest of 6.50%

is added to the principal balance on the loan.

During the fiscal year 2005-2006 the City provided three down-payment assistance loans in

the amount of $18,000 each, to employees as part of an incentive program. The loans do not

accrue any interest and 111 Oth of the loan is forgiven at each anniversary year. During 2007-

2008, $6,000 was repaid to the City.

50

114,166

45,276

48,000

$ 571,067

CITY OF PLACENTIA


NOTE 5- HOUSING AND URBAN DEVELOPMENT LOAN PROGRAM

The City has Housing and Urban Development (HUD) funds available with the County of Orange to provide housing rehabilitation loans to eligible applicants. As loan applications are received, cash advances are requested from the County and deposited in an interest bearing savings account. Under one loan arrangement, the City approves the loan. disburses separate bank funds to the loan pa1iicipant, and transfers the HUD funds from the interest-bearing account to a non-interest bearing account which is collateral for the loans. Under a second arrangement, the City disburses the HUD funds directly for participant loans. The only collateral for these loans is the note receivable on each property, secured by a trust deed.

All cash advances from HUD arc reflected in the H.C.D. Rehabilitation Loans Agency Fund. During 2007-2008, $19,770 in repayments were received. At June 30, 2008, the fund reflected the following balances.

Cash in interest bearing account

Notes receivable, secured by deeds of trust

Total HUD advances through June 30, 2008

51

$

$

131,024

158,776

289,800

CITY OF PLACENTIA


NOTE 6- ORANGETHORPE ACCOUNTS RECEIVABLE

The City has accrued $3,735,287 of receivables from the California Department of Transportation (CalTrans) for various projects within the Orangethorpe fund and has deferred $3,132,511 as of June 30, 2008. The schedule provides a summary by project of the receivable amount, the amount received within the period of availability, the amounts received after the period of availability (deferred revenue), and the amount accrued as a receivable for expenditures that were incurred but still not billed to Can·rans (also deferred revenue).

Amounts Received Deferred Revenue Accounts Receivable within the period of

Project Name Project II as of 6/30/08 availability

Quiet Zone EA#I2-931664L $ 193,369 $ $

EA#12-931664L 391,856

EA# 12-931664L 505,359 1,090,583

Bradford Bridge Phase I ($2.2M State) EA# 12-402474L 141,467 141,467

EA# 12-402474L 191,483 191,483 EA#l2-402474L 269,826 269,826 EA# l2-402474L 129,325 EA#I2-402474L 104,463 EA#I2-402474L 197,986

1,034,550 602,776

Braford Bridge# I (Melrose $1.1 M) EA#12-402474L 950,000 EA#I2-402474L 150,000

1,100,000

Bradford Bridge Phase 2 EA# 12-931853L 76JI6 EAI/12-93 I 853L 265,642 EA#12-931853L 35,513 EA#12-931853L 37,973

415,244

Orange County Gateway EIR/EIS C-7-1180 53,386 C-7-1180 41,523

9·1,909

GRAND TOT AI, $ 3,735,287 $ 602,776 $

( 1) Amounts have been billed to CaiTrans, but no receipts as of the Auditors' opinion date. (2) Expenditures were incurred but amounts have not been billed to Ca!Trans ilS of the Auditors' opinion date.

Note: Items in the, Amount Received after the period ofavailiability, pending items, and unbilled items column: As indicated these amounts were deferred as of June 30, 2008. This column has been included to provide additional documentation of items received, billed but pending and/or unbilled through the opinion date of the Auditors' Report. As noted above $1,109,693 of the $3,132,51 I deferred at June 30, 2008 has been received.

52

as of 6/30/08

193,369 391,856

505,359 1,090,583

129,325 104,463 197,986 431,774

950,000 150,000

1,100,000

76.116 265,642

35,513 37,973

415,244

53,386 41,523 94,909

3,132,511

Amount Received after the period of

availiability, pending items, and

unbilled items

$ 193,369 391.856

(l) 585,225

141,467 191,483 269,826 129,325

(2) (2)

129,325

(I)

(1)

76,116 265,642

(2) (2)

341,758

53,386 (I)

53,386

$ 1,109.693

CITY OF PLACENTIA


NOTE 7- CAP !TAL ASSETS

A summary of capital asset activity for the year ended June 30, 2008, is as follows:

Adjustments Adjusted Balance at to Beginning Beginning

Governmental Activities: July 1, 2007 Balances Balances Additions

Capital Assets Not Being Depreciated: Land $I 8,675,004 $ (I, 155,490) $17,519,514 $ Land-Right of Way 172,888 172,888 Infrastructure-trees 3,114,540 3,114,540 Construction in progress:

Streets network 3,943,052 (40,523) 3,902,529 3,389,613 Total Capital Assets Not Being

Depreciated 25,905,484 (I ,196,013) 24,709,471 3.389,613

Capital Assets, Being Depreciated: Structures and improvements 10,202,729 10,202,729 Equipment 5,305,247 5,305,247 380,186 Land improvements 977,785 977,785 Infrastructure-streets network 31,236,355 (48,627) 31,137,728 Infrastructure-street appurtenances 15,825,309 48,626 15,873,935 2,753,762 Infrastructure-wastewater 26,467,060 (26,467,060) Infrastructure-storm drain 8,175,890 8,175,890

Total Capital Assets Being Depreciated 98,190,375 (26,467,061) 71,723,314 3,133,948

Less Accumulated Depreciation for: Structures and improvements (2,744,631) (2,744,631) (203,994)

Equipment (3,980,40 I) (3,980,401) (350,544)

Land improvements (969,734) (969,734) (3,871)

Infrastructure-streets network (8,791,255) 2.431 (8,788,824) (813,912)

Infrastructure-street appurtenances (6,468,963) (2,431) (6,471,394) (507,622)

Infrastructure-wastewater ( 12,836,402) 12,836,402 Infrastructure-storm drain ( 4,333,222) ( 4,333,222) (163,518)

Total Accumulated Depreciation ( 40, 124,608) 12,836,402 (27 ,288,206) (2,043,461)

Total Capital Assets, Being Depreciated, Net 58,065,767 ( 13,630,659) 44,435,108 1,090,487

Governmental Activities Capital Assets, Net $83,971,251 $ (14,826,672) $69,144,579 $4,480,100

(*See Note #26 for Restatements.)

53

Balance at Deletions June 30, 2008

s $17,519,514

172,888 3,114,540

(2,753,762) 4,538,380

(2,753,762) 25,345,322

10,202,729 (141 ,526) 5,543,907

977,785 31,187,728 18,627,697

8,175,890

( 141 ,526) 74,715,736

(2,948,625) 141,526 (4,189,419)

(973,605) (9,602,736) (6,979,016)

(4,496,740)

141,526 (29.190,141)

45,525,595

$ (2,753,762) $70,870,917

CITY OF PLACENTIA


NOTE 7 -·CAPITAL ASSETS, (Continued)

Adjustments Adjusted Halance at to Beginning Beginning

Business-type Activities July I, 2007 Balances Balances Additions Deletions

Sewer: Capital Assets Not Being Depreciated:

Construction in progress $ $ 40,523 $ 40,523 $ 142,694 $

Capital Assets Being Depreciated: Structures and improvements 26,467,060 26,467,060

Less Accumulated Depreciation for: Structures and improvements ( 12,836,402) ( 12,836,402) (484,392)

Refuse Capital Assets, Net 13,671,181 13,671,181 (341,698)

Refuse: Capital Assets Being Depreciated:

Equipment 1,911,953 1,911,953 Less Accumulated Depreciation for:

Equipment (1,911,953)

Refuse Capital Assets, Net 1,911,953

Compressed Natural Gas (CNG).· Capital Assets Being Depreciated:

Equipment 790,326 790,326 Less Accumulated Depreciation for:

Equipment (316,132) (79,031)

CNG Capital Assets, Net 474,194 790,326 (79,031) Business-type Activities

Total Capital Assets, Net $ 474,194 $ 13,671,181 $ 16,373,460 $ (420,729) $

Depreciation expense was charged to functions for the year ended June 30, 2008, is as follows:

Governmental Activities: General government Public safety Public works Community development

Total Depreciation Expense

Business-type Activities: Sewer Compressed natural gas

Total Depreciation Expense

$

$

$

$

54

Halance at June 30, 2008

$ 183,217

26,467,060

(13,320,794)

13,329,483

1,911,953

( 1,911,953)

790,326

(395,1631

395,163

$ 13,724,646

299,646 124,035

I ,605,244 14,536

2,043,461

484,392 79,031

563,423

CITY OF PLACENTIA


NOTE 8- CHANGES IN LONG-TERlvf LIABILITIES

A summary of changes in long-term liabilities tor the year ended June 30, 2008, is as follows:

Governmental Activities: Certificates of Participation:

2001 Certificates of Participation 2003 Refunding and

Improvement project Certificates of Participation

Deferred Refunding Charge - 2003 Refunding and

Improvement project

Certificates of Participation Subtotal

2002 Tax Allocation Bonds

Capital Leases: 2004 Capital Lease 2006 Capital Lease

Subtotal

Compensated Absences

Governmental Activity Longterm Liabilities

Balance at July 1, 2007

$ 2,290,000

9.605,000

(856,645) 11,038,355

7,170,000

168,274 39,289

207,563

3,523,744

$21,939,662

NOTE 9 -CERTIFICATES OF PARTICIP AT/ON

Additions

$

1,021,857

$1,021,857

Portion Balance at Due Within

Retirements June 30, 2008 One Year

$ (525,000) $ 1,765,000 $ 585,000

(605,000) 9,000,000 625,000

41,788 (814,857) ( 1 ,088,212) 9,950,143 1,210,000

(130,000) 7,040,000 135,000

(73,222) 95,052 75,722 (23,240) 16,049 16,049

(96,462) 111,101 91,771

(792,317) 3,753,284 1,135,000

$ (2, I 06,991) $ 20,854,528 $2,571,771

Portion Due Beyond

One Year

$ 1,180,000

8,375,000

(814,857) 8,740,143

6,905,000

19,330

19,330

2,618,284

$18,282,757

On July 11, 200 I, the City issued certificates of participation in the amount of $4,500,000 to finance traffic circulation improvements consisting of preliminary design, engineering and consultant costs relating to the railroad lowering project. The certificates are in denominations of $5,000 each and bear interest ranging from 2.75% to 4.12%. Principal is payable annually on January I. Interest is payable semiannually on January 1 and July 1. The amount of certificates outstanding as of June 30, 2008 was $1,765,000.

The City is required to establish a reserve fund in the amount of $450,000 or to obtain a Reserve Surety Bond in place offully funding the reserve fund. As of June 30, 2008, the City had acquired a Reserve Surety Bond.

55

CITY OF PLACENTIA


NOTE 9 -CERTIFICATES OF PARTICIPATION, (Continued)

2001 Certificates o_f_~artif.(p~tiQIJ, (Contin\J~d_)

Each certificate represents a direct, undivided fractional interest of the owner thereof in lease payments to be made by the City as rental for an existing corporate yard and an existing public park (the Project) pursuant to a Lease Agreement dated June 1, 200 I between the City and the Agency. Pursuant to the Lease Agreement, the City will sublease the property to the Agency and the Agency will sublease the property back to the City. The City had previously entered into a First Amended and Restated Lease Agreement (1994 Lease) dated April 1, 1994 for the Project relating to the 1994 Refunding Certificates of Participation. The Lease Agreement is a sublease under the 1994 Lease.

The City is legally required under the Lease Agreement to make lease payments from any source of available funds, including its general fund and Measure M Tumback Money, in each year the City has use and occupancy of the Project. Pursuant to Measure M of the County of Orange, the City receives a portion of sales tax revenues for transportation improvements based on population, arterial highway miles and total taxable sales. The City has pledged to use the proceeds of the lease of the Project to the Agency for transportation improvements and to pay lease payments from moneys received from the Orange County Transportation Authority pursuant to Measure M. The annual lease payments are equal to the annual principal and interest due with respect to the certificates. The City has covenanted that it will provide the necessary appropriations in each annual budget.

The annual debt service requirements for the 200 I Certificates of Participation as of June 30, 2008 are as follows:

200 I Certificates of Participation Year Ending June 30, Principal Interest Total

2009 $ 585,000 $ 71,269 $ 656,269 2010 645,000 47,869 692,869 201 I 535,000 22,068 557,068

Total $ 1,765,000 $ 14 I ,206 $ 1,906,206

On November 13,2003, the City issued certificates of participation in the amount of$11,145,000 to (a) refinance certain obligations relating to the Redevelopment Agency of the City of Placentia's (Agency's) 2003 Refunding Certificates of Participation (2003 Financing Project), which were originally issued at $3,800,000, of which $3,800,000 remains outstanding, (b) refinance certain obligations relating to the City's 2001 Certificates of Participation (Traffic Circulation Project) and (c) finance and refinance certain capital improvements in the City. The certificates are in denominations of $5,000 each and bear interest ranging from 2% to 4.4%.

Certificates maturing on or after January 1, 2014 are subject to call for prepayment at the option of the City at a price equal to principal plus accrued interest without premium. Certificates maturing on January 1, 2028 are subject to mandatory prepayment on January 1 each year commencing January 2, 2021 from lease payments made by the City at a price equal to the principal payment.

56

CITY OF PLACENTIA


NOTE 9-CERTIFICATESOF PARTICIPATION, (Continued)

Principal is payable annually on January I. Interest is payable semiannually on January 1 and July 1 commencing July I, 2004. The required reserve for the certificates of $820,774 was fully funded as of June 30, 2008. The amount of certificates outstanding as of June 30, 2008 was $9,000,000.

Each certificate represents a direct, undivided fractional interest of the owner thereof in lease payments to be made by the City as rental for an existing corporate yard and an existing public park (the Project) pursuant to a First Amended and Restated Lease Agreement (1994 Lease) with the Agency. The City is legally required under the 1994 Lease to make payments to the Redevelopment Agency from any source of available funds in each year the City has use and occupancy of the Project. The annual lease payments are equal to the annual principal and interest due with respect of the certificates. The City has covenanted that it will provide the necessary appropriations in each annual budget.

The certificates are reported in the Statement of Net Assets net of the deferred refunding charge in the amount of $814,857 as of June 30, 2008. The deferred refunding charge is amortized over the life of the debt. Amortization expense for the year ended June 30, 2008 was $41,788.

On April 17, 2007, the City Council of the City of Placentia and the Board of Directors of the Placentia Redevelopment Agency approved a reimbursement agreement between the City and the Agency. This agreement provides that the Agency will reimburse the City for a portion of the lease payment paid by the City to the Agency, with respect to the 2003 Certificates of Pa11ieipation. The portion reimbursed (87.52%) is based upon the portion of the capital improvements and improved facilities benefiting from the original proceeds of the related debt issue that were within the confines of the redevelopment project area.

The annual debt service requirements for the 2003 Refunding and Improvement Project Certificates of Participation as of June 30, 2008 are as follows:

Year Ending June 30, 2009 2010 2011 2012 2013

2014-2018 2019-2023 2024-2028

Total

2003 Refunding and Improvement Project COP Principal

$ 625,000 $

645,000 660,000

690,000 715,000

1,855,000 1,685,000 2,125,000

$ 9,000,000 $

57

Interest Total 371,386 $ 996,386 352,636 997,636 333,286 993,286 310,186 1 ,000,186 282,586 997,586

1,086,575 2,941,575 748,523 2,433,523 312,313 2,437,313

3,797,491 $ 12,797,491 ==========

CITY OF PLACENTIA


NOTE 10-2002 TAX ALLOC""'A 710N BONDS

On January 8, 2002, the Agency issued housing set-aside tax allocation bonds in the amount of $3, I 00,000 (Series A) and tax allocation bonds in the amount of $4,655,000 (Series B). Proceeds of the Series A and B bonds will be used to finance the Agency's low and moderate income housing program and its redevelopment program, respectively. The bonds are in denominations of $5,000 each and bear interest at rates ranging from 3.75% to 5.85% for Series A and 3.75% to 5.75% for Series B. Principal is payable annually on August 1. Interest is payable semiannually on February I and August l.

Bonds maturing on or before August 1, 2012 are not subject to call or redemption prior to maturity. The required reserves for the Series A and B bonds of $219,048 and $324,983, respectively, were fully funded as of June 30, 2008. The amount of bonds outstanding as of June 30,2008 was $7,040,000.

The annual debt service requirements for the 2002 Tax Allocation Bonds as of June 30, 2008 are as follows:

2002 Tax Allocation Bonds

Year Ending June 30, Principal Interest Total 2009 $ 135,000 $ 399,339 $ 534,339 2010 140,000 392,258 532,258 2011 150,000 384,790 534,790 2012 160,000 376,808 536,808 2013 165,000 368,439 533,439

2014-2018 980,000 1,684,885 2,664,885 2018-2023 1,300,000 1,357,760 2,657,760 2024-2028 1,725,000 922,206 2,647,206 2029-2033 2,285,000 345,524 2,630,524

Total $ 7,040,000 $ 6,232,009 $ 13,272,009

Debt.R.~l~ted Pled&e of Reve.nue

The City has pledged a portion of future tax increment revenues to repay the 2003 Refunding Certificates of Participation and the 2002 Tax Allocation Bonds as the source of repayment of this debt. Tax increment revenues were projected to produce 129 to 197 percent of the debt service requirements over the life of the debt for the 2002 Tax Allocation Bonds. Additionally, with respect to the 2003 Refunding Certificates of Deposit, tax increment revenues have been pledged to repay the City for lease payments as previously mentioned. Total principal and interest remaining on the debt is $12,990,747 for the 2003 Refunding Certificates of Participation and $13,473,595 for the 2002 Tax Allocation Bonds, payable through 2028 and 2003, respectively. For the current year, principal and interest paid and total increment tax revenues were $1,527,674 and $2,419,480, respectively.

58

CITY OF PLACENTIA


NOTE 11-CAPITALLEASEPAYABLE

2004 Capital Lease

On September 28, 2004, the City entered into an Equipment Lease/Purchase Agreement ("Agreement") with LaSalle Bank National Association ("LaSalle.") Under the terms of the Agreement, $357,419 was deposited into an escrow account with LaSalle, representing the price of the anticipated purchase of the two new street sweepers to be made by the City. Disbursements are made from the escrow account to reimburse the City for the Street Sweeper purchases made at the City's discretion. As of June 30, 2008, the escrow account had a remaining balance of $0.

The Assets acquired through Capital Leases are as follows:

Assets: Street sweepers Less: Accumulated depreciation

Governmental Activities Internal Service Fund

$

$

396,796 (132,926) 263,870

Under the terms of the Agreement, LaSalle leased back the two new Street Sweepers to the City. The lease has an annual interest rate of 3.360% and terminates on September 29, 2009. Rental payments are payable monthly in arrears of the period in which they relate to. During the term of the Agreement, title to the two Street Sweepers revest with the City. Accordingly, the lease has been recorded as a capital lease liability of the City.

The future minimum lease obligations for the capital lease payable as of June 30, 2008 are as follows:

Year Ending June 30,

2009 2010

Total

2006 Capital Lease

$

$

Governmental Activities Principal Interest

75,722 $ 2,034 $ 19,330 109

95,052 $ 2,143 $

Total

77,756 19,439

97,195

On February 23, 2006, the City entered into an Equipment Lease Purchase Agreement ("Agreement") with LaSalle Bank National Association ("LaSalle"). Under the terms of the Agreement, $68,781 was deposited into an escrow account with LaSalle representing the price of the anticipated purchase of the four new vehicles to be made by the City.

The Assets acquired through Capital Leases are as follows:

Assets: Street sweepers Less: Accumulated depreciation

59

Governmental Activities Internal Service Fund

$

$

68,780 (32,934) 35,846

CITY OF PLACENTIA


NOTE 11 CAPITAL LEASE PAYABLE, (Continued)

Disbursements are made from the escrow account to reimburse the City for the vehicle purchases made at the City's discretion. As of June 30, 2008, the escrow account had a remaining balance of $45,289 and was invested in a money market mutual fund.

Under the terms of the Agreement, LaSalle leased back the four new vehicles to the City. The lease has an annual interest rate of 4.250% and terminates on February 23, 2009. Rental payments are payable monthly in arrears of the period in which they relate to. During the term of the Agreement, title to the four vehicles revest with the City. Accordingly, the lease has been recorded as a capital lease liability of the City.

Governmental Activities


2009

Total

$

$

NOTE 12- TAX AND REVENUEANTICIPATIONNOTES

Principal

16,049 $

16,049 $

Interest Total

257 $ 16,306 _____ :...___

257 $ 16,306 ========

On July 2, 2007, the City issued 2007 Tax and Revenue Anticipation Notes totaling $5,000,000. The notes were intended as receipts for the City's General Fund and were available for the payment of current expenses and obligations of the City. The notes were issued in denominations of $1,000 each and bear an interest rate of 4.25%. By statute, the notes are general obligations of the City payable solely from taxes, income, revenues, cash receipts and other monies legally available for payment thereof. The notes were repaid on June 29, 2008 and the outstanding balance at June 30, 2008 was $0. Following is a summary of changes in short-term debt for the year ended June 30, 2008:

2007 Tax and Revenue Anticipation notes $

Balance at .July 1, 2007 Additions

$ 5,000,000 $

NOTE 13- DEBT WITHOUT GOVERNMENT COMMITMENT

SJ!9cial_Assessment Bonds .P.a,YabJ!:

Repayments

5,000,000 $

Balance at June 30, 2008

======

On August 27, 1996, $27,765,000 of Special Tax Revenue Bonds, Series A and B, were issued to refund the existing Mello-Roos Community Facilities District bonds originally issued on September 1990. On June 15, 2001, $5,715,000 of Special Tax Revenue Bonds, Series A, was issued to refund the 1996 Special Tax Revenue Bonds, Series 13. The bonds were issued to provide financing for the design, construction and installation of certain public improvements within Community Facilities District No. 89-1. The bonds are secured by the assessments levied against the private property within the assessment district. The bonds are not general obi igations of the City, and neither the faith and credit nor taxing power of the City is pledged to the payment of the bonds. The City is acting only in an agent capacity f()r the property owners. The liability of property owners or unpaid principal assessments at June 30, 2008 was $13,435,000 of the 1996 Special Tax Revenue Bonds Series A, and $5,020,000 ofthe 2001 Special Tax Revenue Bonds Series A. This bond liability has not been recorded in the accompanying Financial Statements, in accordance with GASB Statement No.6.

60

CITY OF PLACENTIA


N01El4-CO~TMENTS

Exclusive Negotiation Agreement

The City of Placentia (City) entered into an Exclusive Negotiation Agreement (ENA) with the Placentia Redevelopment Agency (RDA) and TOD Properties, LLC (TOD) effective April 5, 2004. These entities are currently studying and evaluating the feasibility of transit-oriented development and other projects within the City's redevelopment project area and the proposed expansion area. The terms of the ENA provide for exclusive negotiation between the parties for up to twenty-four months. All costs are to be funded and paid by TOD, which submitted a good faith deposit in the amount of$1,000,000 to the City on April 20, 2004. The remaining balance of that deposit held by the City was $118,369 as of June 30, 2008. That deposit is held in a trust account as security for TOO's obligations under the terms of the ENA.

,Lease Receivable/P.ID~able

As more fully described at Note #9, the City has covenanted to make rental payments for the full amount of the 2003 Certificates of Participation (COP) debt service payment; and the Agency has covenanted to reimburse the City for the 87.52% of the debt service payment. The 12.48% of the COP's are payable by a pledge of revenues consisting of payments of revenues by the City of Placentia pursuant to the Amended and Restated Reimbursement Agreement dated May 1, 2003. The following table shows the City's portion ofthe above noted COP (12.48%) due to the Agency as of June 30,2008.


2009

2010 2011 2012 2013

2014-2018 20 I 9-2023 2024-2028

Total future minimum lease payments to be received Less: unearned interest income

Total

Lease Receivable/Payable

$ 125,292 125,674 125,169 126.265 126,221 372,810 308,242 310,193

$

I ,619,866 (496,666)

I, 123,200

This transaction involved both the City of Placentia (the City) and the Redevelopment Agency (the Agency) of the City of Placentia. As discussed in Note 1-A, the Agency has been presented as a blended component unit within these financial statements. Because of the blended presentation, the above noted commitment of the City has not been reflected within the Fund Financial Statements or the Statement of Net Assets. The affect of blending the Agency into the City's financial statements requires the elimination of both the liability of the City and the receivable ofthe Agency.

61

CITY OF PLACENTIA


NOTE 15- FUND BALANCES

The City establishes "reserves" of fund equity to segregate fund balances which are not appropriable for expenditure in future periods, or which are legally set aside for a specific future use. Fund "designations" are established to indicate tentative plans for financial resource utilization in a future period. Each of the City's reserves and designations is described below:

Low and Debt Service

General Moderate Redevelopment

Fund Housing Agency

Reserved tor: Loans receivable $ 93,276 $ 477,791 $

Inventory of supplies 10,048

Debt proceeds 35,635 1,144,279 1,4I7,316

Total Reserved I38,959 1,622,070 1,417,316

Unreserved, designated for:

Special revenue purposes 2,506,296

Unreserved, undesignated ( 4,698, 7 48) 840,071

Total Fund Balances $ ( 4,559, 789) $ 4, I 28,366 $ 2,257,387

NOTE 16- DEFICIT FUND BALANCES

The following funds had deficit fund balances as of June 30, 2008:

Major Funds

General Fund

Capital Projects Fund: Orangethorpe Corridor

62

Capital Project Orangethorpe

Corridor

$

(3,I32,5I I)

$ (3,132,51 I)

Non-M~jor

Governmental

$

$

Funds Total

$ 571,067 10,048

2,597,230

3,I78,345

2,506,296 2,062,695 (1,795,982)

2,062,695 $ 756 148

Amount of Deficit

$ 4,559,789

$ 3,132,511

CITY OF PLACENTIA

NOTES TO BASIC FINANCIAL ST ATRMENTS FOR THE YEAR ENDED JUNE 30, 2008

NOTE 17- POSTEMPLOYMENT BENEFITS

In addition to providing pension benefits, the City provides certain health care and life insurance benefits for retired employees on a two-tiered system.

All employees hired prior to November 21, 1995 are in Tier I and become eligible for these benefits as long as they are 50 years of age or older and have worked for the City a minimum of five years. The health benefits for Tier I retirees include medical and dental.

Vision benefits are also provided to employees who retired afte.r September 30, 1990. The life insurance is available to all retirees until they reach age 70.

All employees hired on or after November 21, 1995 are in Tier 11 and, upon retirement, they have the option of participating in a post-retirement insurance benefit program at their own cost. The benefit plan was established by the City Council. The benefits are funded by expensing the annual insurance premiums, which were $1,119,161 for the year ended June 30, 2008. The cost of providing benefits for 76 retirees is not separable from the cost of providing benefits for the 129 active employees.

NOTE 18 -INSURANCE

Description of self-insurance pool pursuant to Joint Powers Agreement

The City is a member of the Public Agency Risk Sharing Authority of California (PARSAC). The PARSAC is composed of 36 California public entities and is organized under a joint powers agreement pursuant to California Government Code Section 6500, et seq. The purpose ofthe PARSAC is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group-purchased insurance for property and other coverages. Each member government has an elected official as its representative on the Board of Directors. Officers are elected annually by the Board members.

Self-insurance program ojthe PARSAC

General liability- Annual deposits are paid by member cities, and are adjusted retrospectively to cover cost. Each member city is self-insured for an amount of $1,000 to $500,000, based on the option chosen. The City of Placentia is self-insured for the first $100,000. Participating cities then share in the losses, up to $1,000,000 per loss occurrence. The California Affiliated Risk Management Authority (CARMA) provides excess coverage above $1,000,000 to $3,000,000. Losses exceeding $3,000,000 to $10,000,000 are reinsured by Am Re Managers. Specific coverage includes comprehensive and general liability, personal injury, contractual liability, errors and omissions, and certain other coverage. In addition, $1,000,000,000 of shared loss limits all risk insurance for real and personal property, as well as boiler and machinery insurance coverage, was brokered through Robert Driver Company.

Other Insurance Coverage

Due to the high cost of earthquake insurance, the City remained self-insured for this coverage. The City is also self-insured for $300,000 workers' compensation insurance and has obtained from an independent provider coverage for a total of $5,000,000 in workers' compensation insurance. Fidelity/Public Employee Dishonesty Bond insurance includes all employees (including elected officials) for coverage of$1,000,000.

63

CITY OF PLACENTIA


NOTE 18- INSURANCE, (Continued)

Adequacy of Protection

During the past three fiscal (claims) years none of the above programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year.

At June 30, 2008, $1,203,713 had been accrued for self-insurance losses. The amount represents an estimate of the amounts to be paid for claims reported through June 30, 2008 and claims which have been incurred but not reported as of June 30, 2008. While the ultimate amount of losses incurred through June 30, 2008 is dependent on future developments, based upon information from the City Attorney, the City's claims administrators and others involved in the administration of the programs, City management believes the accrual is adequate to cover such losses. A reconciliation of changes in aggregate liabilities for claims filed in the current and prior fiscal years is as follows:

Amount of accrued claims at June 30, 2006

Incurred claims, representing the total of provision for events of the current fiscal year and changes (increase or decrease) in the provision for events of prior fiscal years

Payments on claims attribute to events of both the current fiscal year and prior fiscal years


Incurred claims, representing the total of provision for events of the current fiscal year and changes (increase or decrease) in the provision for events of prior fiscal years

Payments on claims attribute to events of both the current fiscal year and pnor fiscal years


NOTE' 19- DEFINED BENEFIT PENSION PLAN (PERS)

A. Plan Description

$ 1,250,349

383,711

(313,643)

1,320,417

207,060

(323,764)

$ 1,203,713

The City of Placentia contributes to the California Public Employees Retirement System (CaiPERS), a cost sharing multiple employer public employee defined benefit pension plan. CalPERS provides retirement, disability benefits, and death benefits to plan members and beneficiaries. Ca!PERS acts as a common investment and administrative agent for participating public entities within the State of California. Copies of CaiPERS' annual financial report may be obtained from its executive office at 400 "P" Street, Sacramento, California 95814.

64

CITY OF PLACENTIA


NOTE 19-DEFINEDBENEFJTPENSJON PLAN (PERS), (Continued)

B. Funding Policy

The City of Placentia contributes to the California Public Employees Retirement System (CalPERS), Participants are required to contribute 7% of their annual covered payroll. The City makes this contribution on behalf of the employees. The City of Placentia is also required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the Ca!PERS Board of Administration. The required employer contribution rate for fiscal year 2007-2008 was 6.997% for miscellaneous employees and 37.239% for the safety plan. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by Ca!PERS. Benefit provisions and all other requirements are established by state statute and city contracts with employee bargaining groups.

C. Annual Pension Cost

Three Year-Tre_nd Jnform.a.tion

(Employer Contribution)

Fiscal Year Annual Percentage of Net Pension

Ending Pension Cost APC Contributed Obligation

6/30/2006 $ 1,400,994 100% 6/30/2007 2,024,130 100% 6/30/2008 2,798,192 100%

NOTE 20- DEFERRED COMPENSATION

The City has made available to its employees two deferred compensation plans, created in accordance with Internal Revenue Code Section 457, whereby employees authorize the City to defer a p01iion of their salary to be deposited in individual investment accounts. There are several options available for employees to invest, including annuities, life insurance, savings accounts and mutual funds. Funds may be withdrawn by participants upon termination of employment, retirement, or a certified emergency. The City makes no contribution under the plans.

Pursuant to changes in Internal Revenue Code (IRC) Section 457, the City amended its plans and established a trust into which all assets and income of the 457 plan were transferred during the year ended June 30, 1998. The assets and all income attributable to such amounts are held in trust for the exclusive benefit of the participant and their beneficiaries. These assets are no longer the property of the City, and therefore, are no longer subject to the claims of the City's general creditors. As a result, the assets of the 457 deferred compensation plans are no longer presented in an Agency Fund of the City's financial statements. The City has minimal involvement in the administration of the 457 plans, and therefore, lacks the fiduciary accountability that would require the 457 plan assets be recorded in an expendable trust fund.

65

CITY OF PLACENTIA

NOTES TO BASIC FlNANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2008

NOTE 21 -SEGMENT INFORMATION

The City entered into a capital lease agreement to finance, in part, a compressed natural gas (CNG) station. The activities of the compressed natural gas st~tion are accounted for in a single nonmajor Enterprise Fund. The p01iion of the capital lease recorded in the CNG Fund is repaid with revenues generated by the activities of the CNG station.

Summary financial information for the year ended June 30, 2008 is presented in the combining statements of net assets and combining statement of revenues, expenditures, and changes in fund net assets for non major enterprise funds.

NOTE 22- LITIGATION

The City is presently involved in other matters of litigation that have arisen in the normal course of the City's business. City management believes, based upon consultation with the City Attorney, that these cases, in the aggregate, are not expected to have a material adverse financial impact on the City. Additionally, City management believes that sufficient reserves are available to the City to cover any potential losses, should an unfavorable outcome materialize.

NOTE 23- JOINT VENTURE-· ORANGE COUNTY FIRE A UTHORJTY

The City entered into a joint powers agreement with 17 other cities and the County of Orange in January 1995, and subsequently amended on September 23, 1999, to create the Orange County Fire Authority (the Authority). Since 1995, other cities within the County have also joined the Authority to bring the total members in the Authority to 21. The purpose of the Authority is to provide for mutual fire protection, prevention and suppression services and related and incidental services including, but not limited to, emergency medical and transport services, hazardous materials regulation, as well as providing facilities and personnel for such services. The Authority's governing board consists of one representative from each city and two from the County. The operations of the Authority are funded with structural fire fees collected by the County through either the property tax roll or with cash contributions based on the Authority's annual budget. The County pays all structural fire fees it collects to the Authority.

No determination has been made as to each participants' proportionate share of fund equity as of June 30, 2008. However, The Orange County Fire Authority's Financial Statements for the year ending June 30, 2008, presented positive increase to their accumulating General Fund balance. Upon dissolution of the Authority, all surplus money and property of the Authority will be conveyed or distributed to each member in proportion to all funds provided to the Authority by that member or by the County on behalf of that member during its membership. Separate audited financial statements may be obtained from the Authority at I Fire Authority Road, Irvine, California 92602.

66

CITY OF I>LACENTIA


NOTE 2 4- JOiNT VENTURE- TRI-CITY PARK AUTHORITY

The City of Placentia, along with the Cities of Fullerton and Brea, established the Tri-City Park Authority on March 12, 1974. The purpose of the Authority is to oversee and maintain the 40-acre park site known as Tri-City Park. Each of the three city councils appoints two members to the governing board. The seventh member is appointed by the County of Orange Board of Supervisors. The cities share in management and financing decisions based on their proportionate interests. The Authority prepares an annual budget which is submitted for approval to each of the three cities. Each city's share of the annual budget is based on a population formula and other factors. For the year ended June 30, 2008, the percentages were as follows:

Brea Fullerton

Placentia

City Percentage

21.6% 35.6% 42.8% 100%

The City has an ongoing financial interest because the City is able to influence the operations of the Authority so that the Authority uses its resources on behalf of the City. Also, an ongoing financial responsibility exists because the Authority is dependent on continued funding from the City.

The condensed financial information of the Authority has not been reproduced in this report, but is available upon request from the Authority at the City of Brca, 1 Civic Center Circle, Brea, California 92821.

NOTE 25- CONTINGENCIES

The City receives a number of grants and allocations annually. The City's entitlement to these funds could be subject to audits by the funding agencies, these audits could generate disallowances. The amount of expenditures, if any, which could be disallowed by the grantor cannot be determined at this time although it is the opinion of the City that such amounts, if any, would be immaterial.

The California Department of Transportation has performed an audit relating to the ONTRAC projects of the City. A final determination with respect to their audit had been made and due to deficiencies identified by the audit, costs claimed and reimbursed totaling $36 million had been previously disallowed. Subsequent to the above, the City has since received another letter dated September of 2008 and May of 2009 indicating that $24 million of previously disallowed reimbursements are now considered satisfactorily addressed. The accompanying financial statements do not reflect any adjustments that may result from the City's disposition of findings relating to the above audit process.

As discussed at Note 27 and at Note 2 the City has four funds with deficit cash balances totaling $(7,575,257). In accordance with Section 1209 of the City's Charter the City has utilized this section to borrow from other City funds so that the City could continue to process the payment of demands against the City. The City has not specifically defined which funds were borrowed from to meet the required cash demands. Thus, the potential exists that the City borrowed from funds which could have specific laws and/or regulations relating to the use of the specific monies. As a result of the borrowing the City may be subject to conditions as a result of these borrowings, it is uncertain at this time what effect, if any, this will have on the City of Placentia.

67

CITY OF PLACENTIA


NOTE 25- CONTINGENCIES, (Continued)

State ofCalitornia

The State of California is currently experiencing financial difficulties. It is uncertain at this time what effect, if any, this will have on the City of Placentia.

NOTE 26- RESTATEMENT OF NET ASSETS

The following summarizes the effect of a restatement to beginning net assets as of July 1, 2007.

Government-wide net assets

as previously reported

To appropriately reflect sewer infrastructure in the Sewer Proprietary

fund as originally intended. This amount reflects net book value

of the assets as of June 30, 2008.

To reduce land parcels that were purchased in fiscal year 2006-2007,

but capitalized in fiscal year 2004-2005


Sewer Proprietary Fund Net assets

as previously reported

To appropriately reflect sewer infrastructure in the Sewer Proprietary

fund as originally intended. This amount reflects net book value

of the assets as of J unc 30, 2008.


NOTE 27- FINANCIAL CONDITION

As noted in the Auditor's Opinion on page 1, certain funds of the City have financial deficits.

The General Fund:

$

$

$

$

Governmental

Activities

67,972,723

(13,671 '181)

(I, 155,490)

53,146,052

Proprietary

Activities

1,181,848

13,671,181

14,853,029

The General Fund ended fiscal year 2007-08 in a deficit position. At June 30, 2008, the General Fund's cash balance was a deficit $4,494,215. and the unreserved fund balance was a deficit of $4,698,748.

68

CITY OF PLACENTIA


NOTE 27- FINANCIAL CONDITION, (Continued)

The unreserved fund balance of the General Fund had improved over the past three fiscal years. The unreserved fund balance was $(5,487,394) at the end of FY 2004-05, $(4,887,134) at the end of FY 2005-06, and $(3, 107,731) at the end of FY 2006-07. However, at the end of FY 2007-08, the unreserved fund balance decreased to $(4,698,748).

In fiscal year 2007-08 and in 2008-09, the City continued to take steps to reduce ongoing expenditures including deferral of one-time capital equipment purchases, deferring capital projects where funding or matching funds come from the General Fund, adopting a Fiscal Recovery Plan that addresses the City's structural deficit and revenue enhancement ideas that will strengthen the City's fiscal position.

For FY 2007-08, the expenditures for the General Fund was below the budgeted amount by $558,443.

Other Matters: As discussed in Note #25 the City has received a request from Cal Trans requiring reimbursement of $36 million of disallowed costs. This comes from a final audit report of the City's federal aid and Stated funded transportation projects dated December 2007. If CaiTrans were to prevail it would only worsen the General Funds and the City's overall position.

Financial Condition: The City recognizes the importance of monitoring their spending. It will likely take several years before the City can eliminate the deficit unreserved fund balance and deficit cash positions and establish even modest surpluses. The City realizes that surpluses are valuable because they can insulate the City from downturns in the economy.

NOTE 28- SUBSEQUENT EVENT

Investments: As noted at Note #2, the City received investment information on a rating downgrade (Aaa to A2) of MBIA Insurance Company. The City decided to terminate its GIC contract with MBIA and the City withdrew its investments from MBIA and invested the funds in money market funds with AAA rating on July 31,2008.

Tax and RevenlJ~~ Anticiuatjon Notes:

On July 7, 2008, the City issued 2008 Tax and Revenue Anticipation Notes totaling $5,000,000. The notes were intended as receipts for the City's General Fund and were available for the payment of current expenses and obligations of the City. The notes were issued in denominations of $1,000 each and bear an interest rate of 6%. By statute, the notes are general obligations of the City payable solely from taxes, income, revenues, cash receipts and other monies legally available for payment thereof. The notes were matured on June 30, 2009.

In addition, on April 29, 2009, the 2009 Tax Revenue Anticipate Note was authorized by the City council for the approximate amount of$5,000,000 and is expected to be issued in July 2009.

Tax Allocation Bonds: On December 16, 2008, the City Council authorized the City to issue $5,000,000 in Tax Allocation Bonds.

69

REQUIRED SUPPLEMENTARY INFORMATION

MAJOR FUNDS

GENERAL FUND

The General Fund has been classified as a major fund and is used to account for all of the general revenues of the City not specifically levied or collected for other City funds and for expenditures related to the rendering of general services by the City. The General Fund is generally used to account for all resources not required to be accounted for in another fund.

SPECIAL REVENUE FUNDS

The Special Revenue Funds are used to account for revenues derived from specific taxes or other earmarked revenue sources (other than special assessments, expendable trusts, or major capital projects) that are restricted by law or administrative action to expenditure for specified purposes. The following has been classified as a major fund. The budget-actual comparison for this fund has been presented in the accompanying financial statements as required supplementary information.

LOWJ.Il!9 Moderate Housing Fund- Used to account for financing and construction of low and moderate income housing. Financing was provided by 20% of tax revenue increment, in accordance with the California State Health and Safety Code Section 33334.2.

70

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

GENERAL FUND


Variance with Final Budget-

Budgeted Amounts Actual Positive Original Final Amounts (Negative)

REVENUES Taxes:

Property taxes $ I 0,818,257 $ 11,324,214 $11,371,081 $ 46,867

Sales and use taxes 5,776,952 5,549,952 5,300,514 (249,438)

Other taxes 2,286,595 2,164,229 2,116,009 (48,220) Intergovernmental 1,549,005 2,510,476 1,527,873 (982,603)

Licenses and pennits 1,711,184 1,268,184 1,441,263 173,079

Fines and forfeitures 850,000 850,000 765,264 (84,736)

Investment income 177,861 177,861 4,352 (173,509)

Charges tor services 1,215,697 1,183,697 995,223 (188,474)

Miscellaneous 918.598 918,598 1,199,926 281,328

Total Revenues 25,304,149 25,947,211 24,721,505 (1,225,706)

EXPENDITURES

Current: General government 3,088,209 3,367,480 3,262,926 104,554

Public safety 15,996,917 16,868,729 16,915,327 (46,598)

Public works 5,515,593 6,976,574 6,695,566 281,008

Community development 2,839,785 3,542,088 3,325,730 216,358

Debt service: Principal 525,000 525,000

Interest 534,440 307,365 304.244 3,121

Total Expenditures 27,974,944 31,587,236 31,028,793 558,443

Excess (Deficiency) of Revenues Over (Under) Expenditures (2,670, 795) (5,640,025) (6,307,288) (667,263)

OTHER fiNANCING SOURCES (USES)

Transfers in 4,375,778 5,498,298 5,229,572 (268.726)

Transfers out (1,123,331) (1,123,331) (488,883) 634,448 Proceeds from sale ofland 118,473 118,473 13,375 (I 05,098)

Total Other Financing Sources (Uses) 3,370,920 4,493,440 4,754,064 260,624

Net Change in Fund Balance 700,125 ( 1 '146,585) (1 ,553,224) (406,639)

Fund Balance, Beginning of Year (3,006,565) (3,006,565) (3,006,565)

Fund Balance, End of Year $ (2,306,440) $ (4,153, 150) $ (4.559,789) $ (406,639)

See accompanying note to required supplementary information.

71

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE- BUDGET AND ACTUAL

LOW AND MODERATE INCOME HOUSING FUND

YEAR ENDED JUNE 30,2008

Variance with

Final Budget-

Budgeted Amounts Actual Positive

Original Final Amounts (Negative)

REVENUES

Investment income $ 80,000 $ 80,000 $ 114,453 $ 34,453

Miscellaneous 10,000 10,000 1,688 (8,312)

Total Revenues 90,000 90,000 116,141 26,141

EXPENDITURES

Current

Redevelopment 677,235 677,235 64,230 613,005

Debt Service:

Principal 50,000 50,000 50,000

Interest 163,865 163,865 163,865

Total Expenditures 891,100 891,100 278,095 613,005

Excess (Deficiency) of Revenues Over (Under) Expenditures (801,100) (801,100) (161,954) 639,146

OTHER FINANCING SOURCES (USES)

Transfers in 410,327 483,896 483,896

Transfers out (22,838) (22,838)

Total Other Financing Sources (Uses) 410,327 461,058 461,058

Net Change in Fund Balance (390,773) (340,042) 299,104 639,146

Fund Balance, Beginning of Year 3,829,262 3,829,262 3,829,262

Fund Balance, End of Year $ 3,438,489 $ 3,489,220 $ 4,128,366 $ 639,146

See accompanying note to required supplementary information.

72

CITY OF PLACENTIA

NOTE TO REQUIRED SUPPLEMENTARY INFORMATION


NOTE 1 BUDGETARY CONTROL AND ACCOUNTING

The City prepares its budgets on the basis of estimated actual revenues and expenditures and, accordingly, the budget amounts included in the accompanying financial statements are presented on a basis substantially consistent with generally accepted accounting principles. Encumbrance accounting is utilized during the fiscal year, whereby purchase orders, contracts and other commitments are recorded in order to control appropriations. However, at fiscal year end all appropriations lapse. Accordingly, encumbrances are cancelled and generally are reappropriated as part of the following year's budget. Encumbrances are not included in reported expenditures.

Annual budgets are adopted for the General, Special Revenue, Debt Service, and Capital Projects Funds. The City does not adopt an annual budget for the Undergrounding Utilities Special Revenue Fund since revenues cannot be anticipated. The City Council approves total budgeted appropriations and any amendments to appropriations throughout the year.

The budgetary level of control for all governmental fund types is the fund level. The City administrator has the discretion to transfer appropriations between departments within a fund, but transfers between funds must be approved by City Council.

73

SUPPLEMENTARY SCHEDULES

CITY OF PLACENTIA

NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET

JUNE 30, 2008

ASSETS Cash and investments

Accounts receivable Taxes receivable

Due from other governments

Total Assets

LIABILI fiES

Negative cash and investments

Accounts payable

Payroll payable

Deferred revenue Deposits payable

Total Liabilities

FUND BALANCES Unreserved, reported in:

Special revenue funds

Total Fund Balances

Total Liabilities and Fund Balances

Special Revenue

$ 1,769,380

535,647 121,83 I

$ 2,426,858

$ 291,450

41,360

6,122

25,231

364,163

2,062,695

2,062,695

$ 2,426,858

74

Total Non-Major

Capital Governmental Projects Funds

$ 69,538 $ 1,838,918

68,315 68,315 535,647

121,831

$ 137,853 $ 2,564,711

$ $ 291,450

64,653 106,013

4,885 11,007

68,315 68,315 25,231

137,853 502,016

2,062,695

2,062,695

$ 137,853 $ 2,564,711

CITY OF PLACENTIA

NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE


Total Non-Major

Special Capital Governmental

Revenue Projects Funds

REVENUES Taxes:

Other taxes $ 2,615,687 $ $ 2,615,687 Intergovernmental 2,676,055 2,676,055

Fines and forfeitures 79,752 79,752 Investment income 117,364 6,831 124,195

Charges for services 470,263 470,263 Miscellaneous 81,455 2,474 83,929

Total Revenues 6,040,576 9,305 6,049,881

EXPENDITURES Current:

General govemment 174,830 174,830

Public safety 251,430 251,430 Public works 912,729 86,236 998,965

Community development 242,388 242,388 Redevelopment 352,502 352,502

Total Expenditures 1,581,377 438,738 2,020,115 Excess (Deficiency) of Revenues Over (Under) Expenditures 4,459,199 (429,433) 4,029,766

OTHER FINANCING SOURCES (USES) Transfers in 142,780 352,502 495,282 Transfers out (4,531,126) (213, 174) (4,744,300)

Total Other Financing Sources (Uses) (4,388,346) 139,328 (4,249,018)

Net change in fund balances 70,853 (290,105) (219,252)

Fund Balances, Beginning of Year 1,991,842 290,105 2,281,947

Fund Balances, End ofYear $ 2,062,695 $ $ 2,062,695

75

NON-MAJOR SPECIAL REVENUE FUNDS

The following Special Revenue Funds have been classified as non-major funds m the accompanying fund financial statements:

P!!rk, Pevelopl}1entF1])1Q - This fund is used to account for the construction and equipment of parks within the City. Revenues for this fund are derived from developer fees paid in lieu of park land dedications.

Utility Users Tax Fund- This fund is used at Council direction and can be used to pay civic center/police station bond debt service payments, capital equipment replacement, special capital projects or general City operations support. Revenues for this fund are derived fi-om a 3.5% users tax on electricity, telephone, gas, and cable TV.

Street Lighting Fund -The Special Street Lighting District established the street lighting fund in certain areas of the City not covered by the County Lighting District. The revenue source is a special assessment on property owners.

Gasoline Tax Fund- To account for funds collected under Sections 2105,2106,2107 and 2107.5 of the Streets and Highways Code which are distributed to cities, primarily on the basis of population, and are deposited into the Gasoline Tax Fund. Monies so received must generally be expended for the construction and maintenance of the State approved "Select aid system of Streets."

Measure M Fund - Revenues for this fund are derived from the one-half cent sales tax approved by Orange County voters in November 1990. Monies must be expended for countywide transportation improvements.

Sewer Construction Fund- To account for construction of sewers throughout the City. Revenues for this fund are derived from an acreage fee placed on developers at time of development.

Storm Drain Construction Fun9.- To account tor the construction of storm drains throughout the City. Revenues for this fund are derived from an acreage fee placed on developers at time of development.

Thoroughfare Construction_ Func;! - To account for the construction of traffic· signals, bridges and culverts. Revenues for this fund arc derived from an acreage fee placed on the developer at time of development.

1Jf1dergrotmgi}:lg L]tilitics Fund -To account for the construction of underground utilities within designated areas. Revenues for this fund are derived from monies paid by developers and property owners at time of development. An annual budget is not adopted for this fund since revenues cannot be anticipated.

Asset Seizure Fund - This fund can only be used tor the City's K-9 program, the City's contribution to the D.A.R.E. program (Drug Awareness Resistance Education) and for salaries of narcotic enforcement investigators. Revenues for this fund arc derived from the City's share of forfeited assets attributed to narcotics dealing .

. Supplcllf~f!t.aLLa\V ];nfor~::e..!JJ.~nt_f.:uf!_Q - To account for monies received from the County of Orange pursuant to Assembly Bill 3229. These funds must be utilized lor front-line municipal police services.

Air Quality Fund - To account for monies received from the South Coast Air Quality Management District pursuant to Assembly Bill 2766 to reduce air pollution from mobile sources. Revenues for this fund are derived from motor vehicle registration fees.

76

NON-MAJOR SPECIAL REVENUE FUNDS

Landscape Maintenance District 92-1 - Special landscape maintenance district established to provide for the maintenance, operation, and administration of landscape improvements in certain areas of the City. The revenue source is a special assessment on property owners.

}lousing a_r~d Community Development Fund - To account for Federal grants received for housing and community development. Revenues for this fund are derived from Federal grants for neighborhood rehabilitation in the deteriorating sections of the City.

77

CITY OF PLACENTIA

NON-MAJOR SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET

JUNE 30, 2008

Park Development

ASSETS

Cash and investments $ 393,455

Taxes receivable Due from other governments

Total Assets $ 393,455

LIABJLITJES

Negative cash and investments $

Accounts payable 1,386

Payroll payable

Deposits payable

Total Liabilities 1,386

FUND BALANCES Unreserved, reported in

Special revenue funds 392,069

Total Fund Balances 392,069

Total Liabilities and Fund Balances $ 393,455

$

$

$

$

Special Revenue Funds

Utility Street Gasoline Users Tax Lighting Tax

$ 120,310 $ 189,994 224,490 2,416 304,115

224,490 $ 122,726 $ 494,109

224,490 $ $ 12,752

224,490 12,752

109,974 494,109

109,974 494,109

224,490 $ 122,726 $ 494,109

SEecial Revenue Funds Storm Supplemental

Measure Sewer Drain 'T'horoughfare Undergrounding Asset Law

M Construction Construction Construction Utilities Seizure Enforcement

$ $ 14,291 $

105,727

$ 105,727 $ 14,291 $

$ 66,960 $ $

25,231

92,191

13,536 14,291

13,536 14,291

$ 105,727 $ 14,291 $

45,851 $ 288,241 $

45,851 $ 288,241 $

$ $

45,851 288,241

45,851 288,241

5,374 $ 277,145

5,374 $ 277,145

$

5,374 277,145

5,374 277,145

$

$

$

5,115

5,115

22 5,093

5,115

45,851 $ 288,241 $ 5,374 $ 277,145 $ 5,115 ======== ========

79

CITY OF PLACENTIA

NON-MAJOR SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET, (CONTINUED)

.JUNE 30, 2008

Special Revenue Funds Landscape Housing and

Air Maintenance Community Quality District 92-1 Development

ASSETS

Cash and investments $ 264,436 $ 164,993 $ !75 Taxes receivable 4,626 Due from other governments 16,104

Total Assets $ 280,540 $ 169,619 $ 175

LIABILITIES Negative cash and investments $ $

Accounts payable 27,025 175

Payroll payable 1,029

Deposits payable

Total Liabilities 28,054 175

FUND BALANCES Unreserved, reported in

Special revenue funds 280,540 141,565

Total Fund Balances 280,540 141,565

Total Liabilities and Fund Balances $ 280,540 $ 169.619 $ 175

80

Total Non-Major Special Revenue

Funds

$ 1,769,380 535,647 121,831

$ 2,426,858

$ 291,450 41,360

6,122 25,231

364,163

2,062,695

2,062,695

$ 2,426,858

ClTY OF PLACENTIA

NON-MAJOR SPECIAL REVENUE .FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCE


Special Revenue Funds

Park Utility Street Gasoline

Development Users Tax Lighting Tax

REVENUES Taxes:

Other taxes $ $ 2,603,926 $ $

Intergovernmental 1,742,056

Fines and forfeitures Investment income 9,967 33,106 3,074 18,377

Charges for services 125,908

Miscellaneous 81,455

Total Revenues 91,422 2,637,032 128,982 1,760,433


General government 8,363 157,516

Public safety Public works 137,346 358,212

Community development 90,288

Total Expenditures 90,288 145,709 515,728

Excess (Deficiency) of Revenues Over (Under) Expenditures 1,134 2,637,032 (16,727) 1,244,705

OTHER FINANCING SOURCES (USES) Transfers in

Transfers out (2,637,032) (1,126,139)

Total Other Financing Sources (Uses) (2,637,032) ( 1, 126, 139)

Net Change in Fund Balances 1,134 (16,727) 118,566

Fund Balances, Beginning of Year, as restated 390,935 126,701 375,543

Fund Balances, End of Year $ 392,069 $ $ 109,974 $ 494,109

81

--------------~SI?ecial Revenue Funds

$

$

Measure M

621,551

11,028

632,579

632,579

(622,925)

(622,925)

9,654

3,882

13,536

Storm Sewer Drain Thoroughfare Undcrgrounding Asset

Construction Construction Construction Utilities Seizure

$ 1,623 $ 5,262 $

346 1,110

1,969 6,372

1,969 6,372

1,969 6372

12,322 39,479

$ 14,291 $ 45,851 $

4,876 $

7,575 143

12,451 143

12,451 143

12,451 143

275,790 5,231

288,241 $ 5,374

82

$

$

79,752

14,892

94,644

191,773

191,773

(97,129)

(97,129)

374,274

277,145

Supplemental Law

Enforcement

$

100,002

119

100,121

2,429 37,668 79,065

119,162

(19,041)

23,562

23,562

4,521

(4,521)

$

CITY OF PLACENTIA

NON-MAJOR SPECIAL REVENUE FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCE, (CONTINUED)


Special Revenue Funds Landscape Housing and Total Non-Major

Air Maintenance Community Special Revenue

Quality District 92-1 Development Funds

REVENUES Taxes:

Other taxes $ $ $ $ 2,615,687

lnlergovernmental 62,446 150,000 2,676,055

Fines and forfeitures 79,752

Investment income 14,218 3,409 117,364

Charges for services 344,355 470,263

Miscellaneous 81,455

Total Revenues 76,664 347,764 150,000 6,040,576

EXPENDITURES

Current: General government 6,522 174,830

Public safety 21,989 251,430

Public works 338,106 912,729 Community development 152,100 242,388

Total Expenditures 21,989 344,628 !52, 100 I ,58 I ,377

Excess (Deficiency) ofRevenues Over (Under) Expenditures 54,675 3,136 (2, 100) 4,459,199

OTHER FINANCING SOURCES (USES) Transfers in 119,218 142,780 Transfers out (145,030) (4,531,126)

Total Other financing Sources (Uses) (145,030) 119,218 ( 4,388,346)

Net Change in Fund Balances (90,355) 3,136 117,118 70,853

Fund Balances, Beginning of Year, as restated 370,895 138,429 (1 17,118) I ,991,842

Fund Balances, End of Year $ 280,540 $ 141,565 $ $ 2,062,695

83

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL

PARK DEVELOPMENT FUND


Variance with Final Budget -


REVENUES

Investment income $ $ $ 9,967 $ 9,967 Miscellaneous 894,720 894,720 81.455 (813,265)

Total Revenues 894,720 894,720 91,422 (803,298)

EXPENDITURES

Current:

General govemment 115,800 35,800 35,800

Community development 38,570 118,570 90,288 28,282


Net Change in Fund Balance 740,350 740,350 1,134 (739,216)

Fund Balance, Beginning ofYear 390,935 390,935 390,935

Fund Balance, End ofYear $ 1,131,285 $ 1,131,285 $ 392,069 $ (739,216)

84

CITY OF PLACENTIA


UTILITY USERS TAX FUND

YEAR ENDED JlJNE 30, 2008

Budgeted Amounts Actual

Original Final Amounts

REVENUES Other taxes $ 2,806,750 $ 2,750,000 $ 2,603,926

Investment income 33,106

Total Revenues 2,806,750 2,750,000 2,637,032


Transfers out (2,806,750) (2, 750,000) (2,637,032)

Total Other Financing Sources (Uses) (2,806,750) (2,750,000) (2,637,032)

Net Change in Fund Balance

Fund Balance, Beginning ofYear

Fund Balance, End of Year $ $ $

85


Positive

(Negative)

$ (146,074)

33,106

(112,968)

112,968

112,968

$

CITY OF PLACENTIA


STREET LIGHTING FUND


Variance with

Final Budget -Budgeted Amounts Actual Positive

Original Final Amounts (Negative) REVENUES

Investment income $ $ $ 3,074 $ 3,074 Charges for services 128,000 128,000 125,908 (2,092)

Total Revenues 128,000 128,000 128,982 982


General government 17,100 8,363 8,363

Public works 113,200 137,346 137,346


Net Change in Fund Balance (2,300) (17,709) (16,727) 982

Fund Balance, Beginning of Year 126,701 126,701 126,701

Fund Balance, End of Year $ 124,401 $ 108,992 $ 109,974 $ 982

86

CITY OF PLACENTIA


GASOLINE TAX FUND


Variance with

Final Budget -



REVENUES

Intergovernmental $ 923,478 $ 923,478 $ 1,742,056 $ 818,578

Investment income 18,377 18,377

Total Revenues 923,478 923,478 1,760,433 836,955

EXPENDITURES

Current: General government 156,896 157,516 (620)

Public works 373,833 358,212 15,621


Excess (deficiency) of revenues over (under) expenditures 923,478 392,749 1 ,244, 705 851,956

OTHER riNANCING SOURCES (USES)

Transfers out (923,478) (1,126,139) (1,126,139)

Total Other Financing Sources (Uses) (923,478) (1 ,126,139) (1,126,139)

Net Change in Fund Balance (733,390) 118,566 851,956


Fund Balance, End of Year $ 375,543 $ (357,847) $ 494,109 $ 851,956

87

CITY OF PLACENTIA


MEASURE M FUND

YEAR ENDED .JUNE 30, 2008

Budgeted Amounts Actual Original Final Amounts

REVENUES Intergovernmental $ 645,553 $ 645,553 $ 621,551


Total Revenues 645,553 645,553 632,579

OTHER FINANCING SOURCES (USES) Transfers out (645,550) (649,765) (622,925)

Total Other Financing Sources (Uses) (645,550) (649,765) (622,925)

Net Change in Fund Balance 3 (4,212) 9,654

Fund Balance, Beginning ofYear 3,882 3,882 3,882

Fund Balance, End of Year $ 3,885 $ (330) $ 13,536

88


Positive (Negative)

$ (24,002)

11,028

(12,974)

26,840

26.840

13,866

$ 13,866

CITY OF PLACENTIA


SEWER CONSTRUCTION FUND




REVENUES Other taxes $ $ $ 1,623

Investment income 346

Total Revenues 1,969


Fund Balance, End of Year $ 12,322 $ 12,322 $ 14,291

89


Positive (Negative)

$ 1,623

346

1,969

$ 1,969

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUnGET AND ACTUAL

STORM DRAIN CONSTRUCTION FUND

YEAR ENDED .niNE 30, 2008



REVENUES

Taxes:

Other taxes $ 100,000 $ 100,000 $ 5,262

Investment income 1 '11 0

Total Revenues 100,000 100,000 6,372


Fund Balance, End ofYear $ 139,479 $ 139,479 $ 45,851

90

Variance with

Final Budget -

Positive

(Negative)

$ (94,738)

1,110

(93,628)

$ (93,628)

CITY OF PLACENTIA


THOROUGHFARE CONSTRUCTION FLJND




REVENUES

Taxes

Other taxes $ 100,000 $ 100,000 $ 4,876


Total Revenues 100,000 100,000 12,451


Fund Balance, End of Year $ 375,790 $ 375,790 $ 288,241

91

Variance with

Final Budget -

Positive (Negative)

$ (95,124)

7,575

(87,549)

$ (87,549)

CITY OF PLACENTIA


ASSET SEIZURE FUND


REVENUES Fines and forfeitures Investment income

Total Revenues

EXPENDITURES

Current:

Public safety

Total Expenditures


$

Budgeted Amounts

Original Final

$

13,500 253,552

253,552

(253,552)

374,274 374,274

$

Actual Amounts

79,752 14,892

94,644

191,773

191,773

(97,129)

374,274


Positive

(Negative)

$ 79,752 14,892

94,644

61,779

61,779

156,423

Fund Balance, Beginning of Year

Fund Balance, End of Year $ 374,274 $ 120,722 $ 277,145 $ 156,423

92

CITY OF PLACENTIA


SUPPLEMENTAL LAW ENFORCEMENT SERVICE FUND


Variance with

Final Budget-



REVENUES Intergovernmental $ 102,440 $ 102,440 $ 100,002 $ (2,438)

Investment income 119 119

Total Revenues 102,440 102,440 100,121 (2,319)

EXPENDITURES

Current:

General government 1,383 1,383 2,429 (1 ,046)

Public safety 37,708 38,550 37,668 882

Public works 78,143 79,793 79,065 728

Total Expenditures 117,234 119,726 119,162 564

Excess (Deficiency) of Revenues Over(Under) Expenditures (14,794) (17,286) (19,041) (1,755)

OTHER FINANCING SOURCES (USES) Transfers in 14,794 14,794 23,562 8,768

Total Other Financing Sources (Uses) 23,562 8,768

Net Change in Fund Balance (14,794) (17,286) 4,521 21,807

Fund Balance, Beginning of Year (4,521) (4,521) (4,521)

Fund Balance, End ofYear $ (19,315) $ (21 ,807) $ $ 21,807

93

CITY OF PLACENTIA


AIR QUALITY IMPROVEMENT FUND




REVENUES Intergovernmental $ 61,000 $ 61,000 $ 62,446 $ 1,446 Investment income 14,218 14,218

Total Revenues 61,000 61,000 76,664 15,664


Public safety 25,000 46,990 21,989 25,001


Excess (deficiency) of revenues over (under) expenditures 36,000 14,010 54,675 40,665

OTHER FINANCING SOURCES (USES) Transfers out (145,030) (145,030)

Total Other Financing Sources (Uses) (145,030) (145,030)

Net Change in Fund Balance 36,000 (131 ,020) (90,355) 40,665


Fund Balance, End ofYear $ 406,895 $ 239,875 $ 280,540 $ 40,665

94

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL LANDSCAPE MAINTENANCE DISTRICT 92-1 FUND- SPECIAL REVENUE FUND





REVENUES

Investment income $ $ $ 3,409 $ 3,409 Charges for services 351,000 351,000 344,355 (6,645)

Total Revenues 351,000 351,000 347,764 (3,236)


General government 8,000 8,000 6,522 1,478

Public works 402,579 404,106 338,106 66,000


Excess (Deficiency) of Revenues Over (Under) Expenditures (59,579) (61,106) 3,136 64,242


Transfers in 24,000 24,000 (24,000)

Total Other Financing Sources (Uses) 24,000 24,000 (24,000)

Net Change in Fund Balance (37,106) 3,136 40,242


Fund Balance, End ofYear $ 138,429 $ 101,323 $ 141,565 $ 40,242

95

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE -BUDGET AND ACTUAL HOUSING AND COMMUNITY DEVELOPMENT FUND- SPECIAL REVENUE FUND


Variance with

Final Budget -



REVENUES Intergovernmental $ 109,875 $ 109,875 $ 150,000 $ 40,125

Total Revenues 109,875 109,875 150,000 40,125

EXPENDITURES

Current

Community development 109,875 152,100 152,100


Excess (Deficiency) of Revenues Over (Under) Expenditures (42,225) (2, 1 00) 40,125


Transfers in 119.218 119,218

Total Other Financing Sources (Uses) 119,218 119,218

Net Change in Fund Balance 117,118 117,118

Fund Balance, Beginning ofYear (117,118) (117,118) (117,118)

Fund Balance, End of Year $ (117,1 18) $ ( 117' 118) $ $ 117,118

96

MAJOR DEBT SERVICE FUND

The Debt Service Fund is used to account for the accumulation of resources for the payment of interest and principal on the general debt of the City and related entities.

The following Debt Service Fund has been classified as major in the accompanying fund financial statements:

Redevelonm~nt Agency Fund ·· To accumulate monies for the payment of interest and principal on the Redevelopment Agency Certificates of Participation and Tax Allocation Bonds. Debt service is financed via property tax revenues.

97

CITY OF PLACENTIA


REDEVELOPMENT AGENCY FUND- DEBT SERVICE FUND


Budgeted Amounts Actual Original Final Amounts

REVENUES Taxes

Property taxes $ 2,163,000 $ 2,163,000 $ 2,419,480

Investment income 1,006,511 1,006,511 1,088,595

Total Revenues 3,169,511 3,169,511 3,508,075

EXPENDITURES Current

Redevelopment 1,073,816 1,132,962 1,132,962

Debt Service: Principal 685,000 685,000 685,000

Interest 628,809 628,809 628,809

Total Expenditures 2,387,625 2,446,771 2,446,771

Excess (Deliciency) of Revenues Over (Under) Expenditures 781,886 722,740 1,061,304

OTHER FINANCING SOURCES (USES) Transfers out (410,327) (1,081 ,075) (1,081 ,075)

Total Other Financing Sources (Uses) (41 0,327) (1,081,075) (1,081,075)

Net Change in Fund Balance 371,559 (358,335) (19,771)

Fund Balance, Beginning of Year 2,277,158 2,277,158 2,277,158

Fund Balance, End ofYear $ 2,648,717 $ 1,918,823 $ 2,257,387

98


Positive (Negative)

$ 256,480 82,084

338,564

338,564

338,564

$ 338,564

MAJOR CAPITAL PROJECT FUND

The Capital Projects Funds are established to account for resources used for the acquisition and constmction of capital facilities in the City. The following Capital Projects Funds have been classified as major in the accompanying fund financial statements:

Orangethorpe Corridor Fund - Used to account for financing and constmction of all rail projects within the boundaries of the City.

99

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE- BALANCE AND ACTUAL ORANGETHORPE CORRIDOR FUND- CAPITAL PROJECTS FUND


Budgeted Amounts

Original Final

REVENUES

Intergovernmental $ 4,795,000 $ 4,995,000

Charges for services 343,000 343,000

Total Revenues 5,138,000 5,338,000

EXPENDITURES

Current Public works 6,214,350 6,414,350

Total Expenditures 6,214,350 6,414,350 Excess (Deficiency) of Revenues Over (Under) Expenditures (1,076,350) (1,076,350)

OTHER FINANCING SOURCES (USES) Transfers in 1,084,537 1,287,198 Transfers out (102,795)

Total Other Financing Sources (Uses) 1,084,537 1,184,403

Net Change in Fund Balance 8,187 108,053

Fund Balance, Beginning ofYear (2,284, 133) (2,284,133)

Fund Balance, End ofYear $ (2,275,946) $ (2, 176,080)

100

Variance with Finall3udget -

Actual Positive Amounts (Negative)

$ 1,650,969 $ (3,344,031)

(343,000)

1,650,969 (3,687,031)

2,732,346 3,682,004

2,732,346 3,682,004

{1,081,377) (5,027)

335,794 (951,404)

(102,795)

232,999 (951,404)

(848,378) (956,431)

(2,284, 133)

$ (3,132,511) $ (956,431)

NONMAJOR CAPITAL PROJECTS FUNDS

The Capital Projects Funds are established to account for resources used for the acquisition and construction of capital facilities in the City. The following Capital Projects Funds have been classified as non-major in the accompanying fund financial statements:

Redevelopment Area Fund --- Used to account for the financing and construction within the boundaries of the Redevelopment Area I.

Capital Projects Fund- Used to account for financing and construction within the boundaries of the City.

101

CITY OF PLACENTIA

NON-MAJOR CAPITAL I>ROJECTS FUND COMBINING BALANCE SHEET

JUNE 30, 2008

ASSETS Cash and investments Accounts receivable

Total Assets

LIABILITIES Accounts payable Payroll payable Deferred revenue

Total Liabilities

FUND BALANCES Unreserved:

Capital projects funds

Total Fund Balances

Total Liabilities and Fund Balances

Redevelopment Area 1

$ 61,826

$ 61,826

$ 56,941 4,885

61,826

$ 61,826

102

Total Nonmajor Capital Capital Projects Projects Fund

$ 7,712 $ 69,538 68,315 68,315

$ 76,027 $ 137,853

$ 7,712 $ 64,653 4,885

68,315 68,315

76,027 137,853

$ 76,027 $ 137,853

CITY OF PLACENTIA

NONMAJOR CAPITAL PROJECTS FUND COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES


Redevelopment Capital

Area 1 Projects

REVENUES:

Investment income $ $ 6,831

Miscellaneous 2,474

Total Revenues 9,305

EXPENDITURES:

Current:

Public works 86,236

Redevelopment 352,502

Total Expenditures 352,502 86,236

Excess (Deficiency) of Revenues

Over (Under) Expenditures (352,502) (76,931)

OTHER FINANCING SOURCES (USES):

Transfers in 352,502

Transfers out (213.174)

Total Other Financing Sources (Uses) 352,502 (213,174)

Net Change in Fund Balances (290, lOS)

Fund Balances, Beginning of Year 290,105

Fund Balances, End ofYear $ $

103

Total Non-Major

Capital Projects

Funds

$ 6,831

2,474

9,305

86,236

352,502

438,738

(429,433)

352,502

(213,174)

139,328

(290, 105)

290,105

$

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE- BALANCE AND ACTUAL

REDEVELOPMENT AREA I- CAPITAL PROJECTS FUND


Budgeted Amounts

EXPENDITURES Current

Redevelopment

Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures

OTHER FINANCING SOURCES (USES) Transfers in Transfers out

Total Other Financing Sources (Uses)


Fund Balance, Beginning ofYear

Fund Balance, End of Year $

Original Final

305,426 357,427

305,426 357,427

(305,426) (357,427)

352,502

352,502

(4,925)

$ (4,925)

104


Actual Positive Amounts (Negative)

352,502 4,925

352,502 4,925

(352,502) 4,925

352,502

352,502

4,925

$ $ 4,925

CITY OF PLACENTIA

SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE- BALANCE AND ACTUAL CAPITAL PROJECTS- CAPITAL PROJECTS FUND




REVENUES

Intergovernmental $ $ 37,935 $ $ (37,935) Investment income 6,831 6,831 Miscellaneous 2,474 2,474

Total Revenues 9,305 (28,630)

EXPENDITURES

Current:

Public works 86,236 86,236

Total Expenditures 86,236 86.236

Excess (Deficiency) of Revenues Over (Under) Expenditures (86,236) (76,931) 9,305


Transfers in 4,215 (4,215)

Transfers out (213,174) (213,174)

Total Other Financing Sources (Uses) (213,174) (4,215)

Net Change in Fund Balance (86,236) (290, 1 05) (203,869)

Fund Balance, Beginning of Year 290,105 290,105 290, I 05

Fund Balance, End of Year $ 290,105 $ 203,869 $ $ (203,869)

105

INTERNAL SERVICE FUNDS

Internal Service Funds are used to account for the financing of goods and services provided by one City department to others, or to other governmental units, on a cost-reimbursement basis (including depreciation).

Risk Management:_t.l!lli! - To account for payments made for insurance services relative to workers' compensation, unemployment, and general liability.

Health an_d_\Yelfare fl1_1ld- To account for payments made for insurance services relative to health and welfare.

B.m!i_p___mcnt_I~eplacement Fund- To account for the acquisition of vehicles and other significant equipment, and to accumulate funds for equipment replacement.

Jnformatiq.n_:[~C:h.llQJ.QSY Fung -To account for the acquisition of computers and other technological equipment, and to accumulate funds for equipment replacement.

Citywide Services Fund- To account for reprographics, vehicle maintenance, and building maintenance.

106

CITY OF PLACENTIA

INTERNAL SERVICE FUNDS COMBINING STATEMENT OF FUND NET ASSETS

JUNE 30, 2008

Risk Health and Equipment Information Management Welfare Replacement Technology

ASSETS Current assets:

Cash and investments $ 1,350,237 $ 102,505 $ $ 20,881

Cash and investments with fiscal agent 45,289

Accounts receivable, net 506 Deposits 20,000 15,000

Inventory of supplies

Total Current Assets 1,370,743 117,505 45,289 20,881

Noncurrent assets Equipment, net of accumulated depreciation 653,581 315,520

Total Assets 1,370,743 117,505 698,870 336,401

LIABILITIES Current Liabilities:

Accounts payable 142,129 28,366 15,690 19,405

Payroll payable 1,476

Insurance claims payable 1,203,713

Total Current Liabilities 1,345,842 28,366 15,690 20,881

Noncurrent Liabilities Capital lease payable 111,101

Total Liabilities 1,345,842 28,366 126,791 20,881

NET ASSETS Invested in capital assets. net of related debt 653,581 315,520

Unrestricted 24.901 89,139 (81,502)

Total Net Assets $ 24,901 $ 89,139 $ 572,079 $ 315,520

107

$

Citywide

Services

163,263

67,444

230,707

21,273

251,980

78,230

25,796

104,026

104,026

21,273

126,681

$

Total

1,636,886

45,289

506

35,000

67,444

1,785,125

990,374 2,775,499

283,820

27,272

1,203,713

1,514,805

Ill, 101

1,625,906

990,374

159,219

$ 147,954 $ 1,149,593

108

CITY OF PLACENTIA

INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET ASSETS


Risk Health and Equipment

Management Welfare Replacement

OPERATING REVENUES Departmental charges $ 795,336 $ 2,528,559 $

Reimbursements 56,841

Total Operating Revenues 852,177 2,528,559

OPERATING EXPENSES

Administration 408,683

Reinsurance premiums 112,507

Claims 77,975

Medical and dental premiums 2,531,547

Liability insurance premiums 297,167 8,832

Depreciation expense 221,393

Total Operating Expenses 783,825 2,652,886 221,393

Operating Income (Loss) 68,352 (124,327) (221 ,393)

NONOPERATING REVENUES (EXPENSES) Investment income 1,545 Interest expense (5,753)

Total Nonoperating

Revenues (Expenses) (4,208)

Income (Loss) Before Transfers 68,352 (124,327) (225,601) Transfers in 375,967 Transfers out (139,208)

Net Income (Loss) (70,856) (124,327) 150,366

Fund Net Assets at Beginning of Year 95,757 213,466 421,713

Fund Net Assets at End of Year $ 24,901 $ 89,139 $ 572,079

109

Information Citywide Total Internal Technology Services Service Funds

$ 306,692 $ 858,669 $ 4,489,256 56,841

306,692 858,669 4,546.097

258,573 837,334 1,504,590 112,507

77,975 2,531,547

305,999 62,646 6,720 290,759

321,219 844,054 4,823377

(14,527) 14,615 (277,280)

1,545 (5,753)

(4,208)

(14,527) 14,615 (281 ,488) 25,241 401,208

(117,500) (256,708) 10,714 (102,885) (136,988)

304,806 250,839 1.286,581

$ 315,520 $ 147,954 $ 1,149,593

110

CITY OF PLACENTIA

INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS


Risk Health and Management Welfare

Cash Flows from Operating Activities:

Cash received from user departments $ 831,671 $ 2,513,584

Cash payments to suppliers for goods and services (772,880) (2,628,231)

Net Cash Provided by (Used for) Operating Activities 58,791 (114,647)

Cash Flows from Non-Capital Financing Activities: Cash received from other funds Cash paid to other funds (139,208)

Net Cash Provided by (Used for) Non-Capital Financing Activities (139,208)

Cash Flows from Capital and Related Financing Activities:

Acquisition of property and equipment Principal payments

Interest paid Net Cash Provided by (Used for) Capital and Related Financing Activities

Cash Flows from Investing Activities:

Interest received on investments Net Cash Provided by (Used for) Investing Activities

Net Increase (Decrease) in Cash and Cash Equivalents (80,417) (114,647)

Cash and Cash Equivalents at Beginning ofYcar 1,430,654 217,152

Cash and Cash Equivalents at End of Year $ 1,350,237 $ 102,505

Reconciliation of Operating Income (Loss) to Net Cash

Provided by (Used for) Operating Activities: Operating income (loss) $ 68,352 $ (124,327)

Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities:

Depreciation (Increase) decrease in accounts receivable (506) 25

(Increase) decrease in deposits (20,000) (I 5,000)

(Increase) decrease in inventory of supplies Increase (decrease) in accounts payable 127,649 24,655

Increase (decrease) in payroll payable Increase (decrease) in insurance claims payable (!16,704)

Total Adjustments (9,561) 9,680

Net Cash Provided By (used for) Operating Activities $ 58,791 $ (114,647)

111

Equipment Information Citywide Replacement Technology Services Total

$ 288,560 $ 858,669 $ 4,492,484

(17,769) (242,885) (664,639) ( 4,326,404)

(17,769) 45,675 194,030 166,080

375,967 25,241 401,208 (117,500) (256,708)

375,967 25,241 (117,500) 144,500

(96,843) (18,132) (114,975)

(96,462) (96,462)

(5,753) (5,753)

(199,058) (18, 132) (217, 190)

1,545 1,545

1,545 1,545

160,685 52,784 76,530 94,935

(115,396) (31 ,903) 86,733 I ,587,240

$ 45,289 $ 20,881 $ 163,263 $ 1,682,175

$

$ (221 ,393) $ (14,527) $ 14,615 $ (277,280)

221,393 62,646 6,720 290,759

(481)

(35,000)

128,785 128,785

(17,769) (2,582) 42,475 174,428

138 l ,435 1,573 (116,704)

203,624 60,202 179,415 443,360

$ (17,769) $ 45,675 $ 194,030 $ 166,080

112

AGENCY FUNDS

The Agency Funds are used to account for funds when the City is acting as an agent for other governmental units, private organizations, or individuals.

Special Deposits Fund - To account for monies held and disbursed by the City in the capacity of an agent for individuals, developers or other entities.

Communitv Facilities Distri.ctFt~nd - To account for monies held and disbursed by the city in the capacity of an agent for developers or other entities. Also, to account for the collection and payment to the holders of the Community Facilities District 89-1 Special Tax Bonds.

H.C.D. Rehabilitation Loans Fund_ - To account for monies held and disbursed by the City for the I-I.C.D. Rehabilitation Loan Program.

A.l~a Vista 85-1 District Fu11d - To account for the collection and payment to the holders of the 1915 Act Assessment 85-1 District Bonds.

113

CITY OF PLACENTIA

AGENCY FUNDS COMBINING STATEMENT OF ASSETS AND LIABILITIES

JUNE 30, 2008

Community H.C.D. Alta Vista Special Facilities Rehabilitation 85-1 Deposits District Loans District Total

ASSETS Cash and investments $ 624.455 $ 27,548 $ 140,441 $ 363,424 $1,155,868 Cash and investments with fiscal agent 5,614,263 5,614,263 Accounts receivable 42,763 42,763

for H.C.D. rehabilitation loans 158,776 158,776

Total Assets $ 624,455 $ 5,684,574 $ 299,217 $ 363,424 $6,971,670

LIABILITIES Due to other governments $ $ 299,217 $ 299,217 Deposits payable 624,455 $ 5,684,574 $ 363,424 6,672,453

Total Liabilities $ 624,455 $ 5,684,574 $ 299,217 $ 363,424 $6,971,670

114

CITY OF PLACENTIA

AGENCY FUNDS COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES

YEAR ENDED .JUNE 30,2008

Balance Balance Jul~ I, 2007 Additions Reductions June 30, 2008

SPECIAL DEPOSITS ASSETS

Cash and investments $ 814,867 $ (190,412) $ 624,455

LIABILITIES Deposits payable $ 814,867 $ $ (190,412) $ 624,455

COMMUNITY FACILITIES DISTRICT ASSETS

Cash and investments $ 1,932,648 $ $ {1,905,100) $ 27,548 Cash and investments with fiscal agent 1,367,441 4,246,822 5,614,263 Accounts receivable 43,209 (446) 42,763

Total Assets $ 3,343,298 $ 4,246,822 $ (1,905,546) $ 5,684,574

LIABILITIES Deposits payable 3,343,298 4,452,818 (2, Ill ,542) 5,684,574

$ 3,343,298 $ 4,452,818 $ (2,1 11,542) $ 5,684,574

H.C.D. REHABILITATION LOANS ASSETS Cash and Investments $ 130,951 $ 9,490 $ $ 140,441 Notes receivable pledged as collateral 178,546 (19,770) 158,776

Total Assets $ 309,497 $ 9,490 $ (19,770) $ 299,217

LIABILITIES Due to other governments $ 309,497 $ $ (10,280) $ 299,217

ALTA VISTA 85-1 DISTRICT ASSETS

Cash and Investments $ 349,784 $ 13,640 $ $ 363,424

Total Assets $ 349,784 $ 13,640 $ $ 363,424

LIABILITIES Deposits Payable $ 349,784 $ 13,640 $ $ 363,424

TOTALS-ALL AGENCY FUNDS ASSETS

Cash and investments $ 3,228,250 $ 23,130 s (2,095,512) $ 1,155,868 Cash and investments with fiscal agent 1,367,441 4,246,822 5,614,263 Accounts receivable 43,209 (446) 42,763 Cash and notes receivable pledged as collateral 178,546 (19,770) 158,776

Total Assets $ 4,817,446 $ 4,269,952 $ (2,1 15,728) $ 6,971,670

LIAI3ILITIES Due to other governments $ 309,497 $ (10,280) $ 299,217 Deposits payable 4,507,949 4,466,458 (2,30 1 ,954) 6,672,453

Total Liabilities $ 4,817,446 $ 4,466,458 $ (2,312,234) $ 6,971,670

115

STATISTICAL SECTION

Governmental activities

CITY OF PLACENTIA

Net Assets by Component

Last Five Fiscal Years (accrual basis of accounting)

(amounts expressed in thousands)

2004 2005

Invested in capital assets, net of related debt $ 68,255 $ 66,401 Restricted 3,871 7,047

Unrestricted (21,536) (25,373)

Total governmental activities net assets $ 50,590 $ 48,075

Business-type activities

Invested in capital assets, net of related debt $ 669 $ 579 Restricted Unrestricted 62 384

Total business-type activities net assets $ 731 $ 963

Primary government

Invested in capital assets, net of related debt $ 68,924 $ 66,980

Restricted 3,871 7,047

U nrestrictcd (21,474) (24,989)

Total primary government net asset<> $ 51,321 $ 49,038

116

2006 2007 2008

$ 71,954 $ 82,805 $ 69,881

7,234 6,104 5,316

(14,159) (20,936) (20,681)

$ 65,029 67,973 54,516

$ 535 $ 474 $ 13,725

1,542 2,603 3,578

$ 2,077 3,077 17,303

$ 72,489 $ 83,279 $ 83,606

7,234 6,104 5,316 (12,617) (18,333) (17,103)

$ 67,106 $71,050 $ 71,819

CITY OF PLACENTIA Changes in Net Assets Last Five Fiscal Years

(accmal basis of accounting) (amounts expressed in thousands)

2004 2005 2006 2007 2008 Expenses

Governmental activities: General government $ 3,111 $ 3,617 $ 4,117 $ 1,984 $ 2,693 Public safety 13,868 14,328 16,044 16,342 17,481 Public works 7,863 8,910 4,136 8,812 8,435 Community services 2,521 2,099 2,091 2,964 3,608 Redevelopment 766 599 2,109 674 682 Interest on long-term debt 626 1,392 1,378 1,357 1,361

Total governmental activites expenses 28,755 30,945 29,875 32,133 34,260 Business-type activities

Refuse 2,013 2,107 2,286 2,430 2,599 Compressed natural gas 222 324 347 363 410 Sewer maintenance 41 214 682 808

Total Business-type activities 2,235 2,472 2,847 3,475 3,817 Total primary government expenses $ 30,990 $ 33,417 $ 32,722 $ 35,608 $ 38,077

Program Revenues Governmental activities:

Charges for services General government $ 1,576 $ 1,584 $ 1,456 $ 761 $ 745 Public safety 486 795 714 1,085 876 Public works 418 420 469 925 1,162 Community services 387 468 466 545 660

Operating grants 2,833 2,402 3,149 3,124 Capital grants and contributions 10,502 423 4,234 4,238

Total governmental activites program revenues 16,202 6,092 3,105 10,699 10,805

Business-type activities: Charges for services

Refuse 2,513 2,503 2,701 2,923 3,032 Compressed natural gas 115 213 293 430 419 Sewer Maintenance 23 18 933 1,126 1,069

Total business-type a<.:tivities program revenues 2,651 2,734 3,927 4,479 4,520 Total primary government program revenues $ 18,853 $ 8,826 $ 7,032 $ 15,178 $ 15,325

Net (expense)/revenue Governmental activities $ (12,553) $ (24,853) $ (26,770) $(2! ,434) $(23,455) Business-type activities 416 262 1,080 1,004 703

Total primary govemmcnt net expeneses $ ( 12, 137) $ (24,591) $ (25,690) $(20,430) $(22,752)

117

CITY OF PLACENTIA Changes in Net Assets Last Five Fiscal Y cars

(accrual basis of accounting) (amounts expressed in thousands)

2004 2005 2006 2007 2008

General Revenues and Other Changes in Net Assets Governmental activities:

Taxes Property $ 6,796 $ 9,662 $ 11,078 $ 12,918 $ 13,791

Sales and use 5,682 5,372 5,704 5,820 5,452

Utility users tax 2,214 2,304 2,604 2,756 2,603

Franchise 1,127 1,253 1,156 1,077 1,226

Other 795 938 1,068 1,001 891

Motor vehicle in lieu 2,177 1,102 314 259 216 Investment income 151 296 642 261 46

Other 493 1.381 1,984 214 350

Transfers 284 29 14 71 249 Total governmental activities 19,719 22,337 24,564 24,377 24,824

Business-type activities Investment income 48 66 86 Unrestricted grants and contributions Gain on disposition of assets 2 Other 15 Transfers (284) (29) (14) (71) (249)

Total business-type activities (284) (29) 34 (3) (148) Total primary government $ 19,435 $ 22,308 $ 24,598 $ 24,374 $ 24,676

Changes in Net Assets Governmental activities 7,166 (2,516) 17,013 2,943 1,370 Business-type activities 132 2"" .).) I ,I 14 1,001 554

Total primary government $ 7,298 $ (2,283) $ 18,127 $ 3,944 $ 1,924

Source: City of Placentia, Finance Department

118

General Fund Reserved

Unreserved

Total General Fund

CITY OF PLACENTIA

Fund Balances of Governmental Funds

Last Ten Fiscal Years

(modified accrual basis of accounting)

(amounts expressed in thousands)

1999 2000

$ 247 $ 224

2,902 4,635

$ 3,149 $ 4,859

All Other Governmental Funds Reserved $ 1,930 $ 4,578

Unreserved, reported in:

Special revenue funds 1,635 (1 '117) Debt service funds 574 615

Capital projects funds

Total All Other Governmental Funds 4,139 4,076

Total All Governmental Funds $ 7,288 $ 8,935


119

2001 2002

$ 204 $ 5,252

4,958 1,969

$ 5,162 $ 7,221

$ 2,443 $ 10,799

388 (2,455)

732 (1 2) (571) (8,605)

2,992 (273)

$ 8,154 $ 6,948

2003

$ 9,419 (3,496)

$ 5,923

$ 6,755

(3,252) (236)

(5,774) (2,507)

$ 3,416

2004

$ 14,265 (2,015)

$ 12,250

$ 7,589

(3,815) 628

(19,35!) (14,949)

$ (2,699)

2005

$ 16,638 (5,487)

$ 11,151

$ 5,482

1,201 308

(22,083) (15,092)

$ (3,941)

2006

$ 7,503 (4,887)

$ 2,616

$ 5,254

2,568 637 943

9,402 $ 12,018

2007

$ 101 (3, 1 08)

$ (3,007)

$6,106

1,992

( 1 ,994) 6,104

$ 3,097

120

2008

$ 139 (4,698)

$ (4,559)

$3,039

4,569 840

(3, 133) 5,315

$ 756

CITY OF PLACENTIA Changes in Fund Balances of Governmental Funds


Revenues Property Tax Sales Tax Other Tax Intergovernmental Licenses and permits Fines and forfeitures Investment income

Charges for services Other

Total Revenues

Expenditures Current:

General government Public safety Public works Recreation & human services Redevelopment (1)

Capital outlay Debt Service

Principal Interest Other debt service

Other Total Expenditures

(modified accrual basis of accounting) (amounts expressed in thousands)

1999

$ 4,793 $

4,486 5,212 4,303

754 321 712

558 205

21,344

3,321 10,501 3,656 1,147

2,939

345 202

16

22,127

Excess of revenues ovcr/(undcr) expenditures (783)

Other Financing Sources/(Uses)

Transfers in 4,912

Transfers out (4,792)

Proceeds from long-term debt

Other Total other financing sources 120

Net change in fund balances $ (663) $

Debt service as a percentage of noncapital expenditures 3.0%

2000

5,555 4,761 5,028 4,341

487

363 787 582

2,289 24,193

3,570 10,914 4,209 1,254

4,592

325 200

25

25,089

(896)

4,610 (4,468)

2,401 2,543

1,647

3.0%

Note 1) The redevelopment expenditures were not segregated prior to fiscal year 2002-03

121

2001 2002

$ 5.873 $ 6,042 5,025 5,215 5,253 5,668 5,481 7,094

830 766 452 453 880 569

605 945 31 I 637

24,710 27,389

3,980 5,865 11,791 12,799 4,619 4,548 1,334 1,690

7,661 13.314

130 3,012 193 273

12 3,851

29,720 45,352

(5,0 I 0) (17,963)

4,550 10,326 (4,381) (10,211) 4,060 13,147

3,495 4,229 16,757

$ (781) $ (I ,206)

2.0% 12.0%

2003 2004 2005 2006 2007 2008

$ 6,423 $ 6,947 $ 9,835 $ 11,208 $ 12,918 $ 13,791 5,351 5,902 4,252 4,881 5,820 5,300 5,193 7,516 6,714 6,118 4,923 4,732

18,001 7,686 3,442 19,387 4,451 5,855

790 659 575 533 1,328 1,441 405 333 488 522 904 845 460 193 336 604 1,637 1,332 862 1,168 1,593 1,429 1,472 1,465 427 189 1,486 2,521 1,009 1,286

37,912 30,593 28,721 47,203 34,462 36,047

3,083 2,834 3,418 3,780 3,256 3,437 12,570 13,359 13,489 15,067 16,070 17,167 8,179 4,989 8,746 9,042 8,826 10,427 1,936 2,104 2,053 2,039 2,950 3,568 1,666 806 672 1,491 2,692 1,550

13,820 18,729 6,745 566

740 649 1,048 1,278 8,210 1,260 803 598 1,149 1,332 1,332 1,097 426 621 183

2,141 3,818 83 45,364 48,507 37,586 34,595 43,336 38,506

(7,452) (17,914) (8,865) 12,608 (8,874) (2,459)

6,976 20,057 8,327 22,887 6,581 6,545 (7,103) (19,596) (8,323) (22,912) (6,581) (6,440) 3,800 11,145 6,940

247 193 679 3,376 12 13 3,920 11,799 7,623 3,351 12 118

$ (3,532) $ (6,115) $ (I ,242) $ 15,959 $ (8,862) $ (2,341)

7.0%, 7.0% 8.0% 8.0'% 23.0% 6.0%

122

City Fiscal Year

Ended Public June 30 Secured Utility

1999 s 2,249,813 $ 3,099 2000 2,450,981 3,246 2001 2,667,945 3,284 2002 2,886,544 3,320 2003 3,117,311 3,135 2004 3,356,745 2,939 2005 3,649,241 2,900 2006 4,025,669 2,927 2007 4,475,589 2,838 2008 4,820,355 381

Note:

CITY OF PLACENTIA Assessed Value of Taxable Property

Last Ten Fiscal Years (amounts expressed in thousands)

Taxable Assessed

Unsecured Value Secured

$ 127,545 $2,380,457 $ 129,755 2,583,982 131,891 2,803,120 127,502 3,017,366 140,622 3,261,068 121,622 139,573 3,499,257 128,188 139,925 3,792,066 138,669 160,990 4,189,586 149,040 150,559 4,628,986 166,838 170,439 4,991,175 198,740

Redevelopment Agency

Public Utility Unsecured

$ $

(63) 25,098 (67) 27,215 (68) 29,363 (68) 24,390 (70) 30,587 (74) 35,414

The Redevelopment Agency assessed valuation is not available prior to fiscal year 2002-03.

Note:

In 1978, the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2%). With few exceptions, property is only re-asse~sed at the time that it is sold to a new owner. At that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above.

Source: County of Orange

123

Taxable Assessed

Value

$

146,657 155,336 167,964 173,362 197,355 234,080

CITY OF PLACENTIA Direct and Overlapping Property Tax Rates

Last Six Fiscal Years

2003

Placentia City 0.1340 Placentia City Lighting Reorganization 0.0304

Direct City Rate 0.1644

Overlapping Rates: O.C. Water District Water Reserve 0.0001 O.C. Vector Control 0.0011 O.C. Transportation Authority 0.0026 O.C. Water District 0.0080 O.C. Harbors, Beaches, Parks 0.0144 O.C. Department of Education 0.0171 O.C. Flood Control Dist General 0.0186 O.C.SanitationDistrict 2 Operating 0.0309 Placentia Library District 0.0376 O.C. General Fund 0.0579 North O.C.Community College General 0.0656 Education Revenue Augmentation Fund 0.1876 Placentia Unified General Fund 0.3943

Total Direct City and Overlapping Rate 1.0000

Metro Water District 0.0067 Placentia Schools 0.0475 North O.C.Community College Bonds 0.0000

Total Rate 1.0542

Note:

Proposition 13 which set the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property reasides within.

Source: HdL Coren & Cone

2004 2005

0.1340 0.1340 0.0304 0.0304

0.1644 0.1644

0.0001 0.0001 0.0011 0.0011 0.0026 0.0026 0.0080 0.0080 0.0144 0.0144 0.0171 0.0171 0.0186 0.0186 0.0309 0.0309 0.0376 0.0376 0.0579 0.0579 0.0656 0.0656 0.1876 0.1876 0.3943 0.3943

1.0000 1.0000

0.0061 0.0058 0.0299 0.0449 0.0000 0.0000

1.0360 1.0507

124

2006 2007 2008

0.1340 0.1340 0.1340 0.0304 0.0304 0.0300

0.1644 0.1644 0.1640

0.0001 0.0001 0.0001 0.0011 0.0011 0.0010 0.0026 0.0026 0.0026 0.0080 0.0080 0.0080 0.0144 0.0144 0.0144 0.0171 0.0171 0.0170 0.0186 0.0186 0.0190 0.0309 0.0309 0.0310 0.0376 0.0376 0.0380 0.0579 0.0579 0.0580 0.0656 0.0656 0.0660 0.1876 0.1876 0.1880 0.3943 0.3943 0.3940

1.0000 1.0000 1.0000

0.0052 0.0047 0.0045 0.0442 0.0265 0.0295 0.0000 0.0144 0.0150

1.0494 1.0457 1.0490

Taxpayer

OC of SD Holdings LLC (2) Placentia 422 ( 1) Reef Imperial Rose Inc. (8)

Inland Western Placentia LLC (5) Villa Tierra Apartments LLC (4)

CITY OF PLACENTIA Principal Property Tax Payers

Current Year and Nine Years Ago (amounts expressed in thousands)

2007-08 Percent of Total City

Taxable Taxable Assessed Assessed

Value Value

$ 78,837 1.51% 59,268 1.13% 26,204 0.50% 25,906 0.50% 23.846 0.46%

Donahue Schriber Realty Group (I 0) 23,470 0.45%

Realty Associates Fund VIII LP (4) 19,000 0.36%

AG BPG Placentia Inc. (2) 16,898 0.32%

Knott Family Company LLC (1) 11,628 0.22%

Carla Ann Petillo Trust (3) 11,343 0.22%

$ 296,400 5.67%

*Information Not Available

Note:

1999-99* Percent of Total City

Taxable Taxable Assessed Assessed

Value Value

$

$ 0.00%

The amounts shown above include assessed value data for both the City and the Redevelopement Agency.

Source: HdL Coren & Cone

125

Fiscal Year Taxes Levied Ended for the

June 30 Fiscal Year

2006 $ 10,509, 144

2007 12,096,749

2008 13,053,161

Note:

CITY OF PLACENTIA Property Tax Levies and Collections

Last Three Fiscal Years (amounts expressed in thousands)

Collected within the Collections Fiscal Year ofLevy 111

Percent Subsequent Amount of Levy Years

$ 10,356,565 98.55% N/A 12,009,298 99.28% N/A 12.753,432 97.70% N/A

Total Collections to Date Percent

Amount of Levy

N/A N/A N/A N/A N/A N/A

The amounts presented include City property taxes and Redevelopment Agency tax increment and ln·

Lieu VLF.

Source: County of Orange Auditor-Controller

126

Fiscal Year

2004 2005 2006 2007 2008

CITY OF PLACENTIA Ratio of Outstanding Debt by Type

Last Five Fiscal Years (amounts expressed in thousands, except per capita)

Governmental Activities Business-type Activities Redevelopment Certificates Tax Allocation Capital of Capital

Bonds Leases Participation Leases

$ 7,535 $ 879 $ 13,738 $ 92 7,420 808 19,965 53 7,295 471 19,002 18

7,170 208 11,038 7,040 111 10,765


127

Total Percent of Primary Assessed Per

Government Valuation Capita

$ 22,244 0.636% 445.85 28,246 0.745% 561.29 26,786 0.639% 522.80 18,416 0.398% 356.92 17,916 0.359% 346.36

2007-08Assessed Valuation:

CITY OF PI .ACENTIA Direct and Overlapping Governmental Activity Debt

As of June 30, 2008 (amounts in thousands)

Redevelopment Incremental Valuation: $4,991,175

234,080 Adjusted Assessed Valuation: $4,757,095

Total Debt DIRECT DEBT: 06/30/08 %Applicable (I)

Capital Leases Cet1ificates of Participation Tax Allocation Bonds

TOTAL DIRECT DEBT

OVERLAPPING DEBT: North Orange County Community College 2003 B North Orange County Community College 2002 A Placentia-Yorba Linda Unified School Dist. 2002 A Placentia-Yorba Linda Unified School Dist. 2004 B Placentia-Yorba Linda Unified School Dist. 2005 C North Orange County Community College 2005 Refunding Metropolitan Water District

TOTAL OVERLAPPING DEBT TOTAL DIRECT AND OVERLAPPING DEBT

GROSS COMBINED TOTAL DEBT NET COMBINED TOTAL DEBT

$ 1ll,099 100.000% 10,765,000 100.000% 7,040,000 100.000%

$ 56,492,659 5.457% 12,991,925 5.457% 35,264,681 22.946% 26,954,744 22.946% 26,849,610 22.946%

158,373,566 5.457% 66,198,355 0.1288%

( 1) Percentage of overlapping agency's assessed valuation located within boundaries of the city.

City's Share of Debt 6/30/08

$ 111,099 10,765,000 7,040,000

$ 17,916,099

$ 3,082,832 708.976

8,091,890 6,185,079 6,160,955 8,642,525

852,839 $ 33,725,096 $ 51,641,195

$ 125,895,209 $ 125,432,264

(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations.

Ratios to 2007-08 Assessed Valuatipn: Direct Debt Overlapping Debt Total Debt

0.34% 0.65% 0.99%

128

(2)

(2)

CITY OF PLACENTIA

Legal Debt Margin lnfonnation


(amounts in thousands)

Legal Debt Margin Calculation for the Current Year

Assessed value

Debt limit (3.75% of assessed value)

Debt applicable to limit

Legal debt margin - Current Year

Debt

Fiscal Debt Applicable

Year Limit to Limit

1999 $ 89,267,138 $ 0 2000 96,899,325 0

2001 105,117,000 0

2002 113,151,225 0

2003 122,290,050 0

2004 131,222,138 0

2005 142,202,480 0

2006 157,109,469 0

2007 173,586,979 0 2008 187,169,052 0

Note:

Legal

Debt

Margin

$ 89,267,138

96,899,325

105,117,000

113,151,225

122,290,050

13 I ,222,13 8

142,202,480

157,109,469

173,586,979

187,169,052

$ 4,991' 174,709 187,169,052

0

$ 187,169,052

Debt as

Percentage

of Limit

0

0

0

0

0

0

0

0

0

0

The City charter includes a debt limit of 15%; however, at the time the charter was established, only 25% of the market value was used. For the purpose of detennining the debt limit, the City is following the intent of the charter and reducing the debt limit to 3.75% of assessed valuation.


129

Fiscal Year

1999 2000 2001 2002 2003 2004 2005 2006

2007 2008

CITY OF PLACENTIA Pledged-Revenue Coverage

Last Ten Fiscal Years (amounts in thousands)

Redevelopment Tax Allocation Bonds

Property Tax Debt Service Increment Principal Interest Coverage

$ 911 $ $ 0.00 1,097 0.00 1,114 0.00 1,130 0.00 1,457 110 243 4.13 1,503 110 427 2.80 1,550 115 423 2.88 1,675 125 419 3.08

1,773 125 412 3.30

1,935 130 406 3.61


130

Calendar Year

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

CITY OF PLACENTIA Demographic and Economic Statistics

Last Ten Calendar Years (personal income in thousands, except per capita)

Los Angeles-Long Beach-Santa Ana Area Per Capita

City Area Personal Personal Unemployment Population Population Income Income Rate

46,488 12,253,223 $ 360,275,382 $ 29,402 5.1% 46,488 12,405,509 385,053,436 31,039 5.1% 47,619 12,561,218 403,518,592 32,124 5.2% 48,319 12,708,788 412,753,239 32,478 6.7% 49,097 12,824,025 427,549,556 33,340 6.9% 49,891 12,901,515 453,032,702 35,115 6.3% 50,323 12,933,839 4 7 5,262,940 36,746 5.0% 51,236 N/A 482,011,000 N/A 4.4% 51,597 N/A 513,123392 N/A 4.7% 51,727 N/A 539,163,000 41,875 7.7%

N/A- Not Available

Sources: City Population- State Department of Finance

Area Population and Area Personal Income- Bureau of Economic Activity Unemployment Rate- Bureau of Labor Statistics (October 2008)

131

CITY OF PLACENTIA Budgeted Full-Time Employees by Department

La~t Ten Fiscal Years

Department 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

City Clerk 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.50 !.50 !.50 Treasurer 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Administration 7.00 7.00 7.00 7.00 7.00 7.00 7.00 6.50 6.50 6.50 Finance 8.00 8.00 8.00 8.75 8.75 8.00 8.00 8.00 9.00 9.00 Community Development 9.00 9.00 9.75 10.00 10.00 7.00 7.00 8.00 8.00 7.00 Police 67.00 69.00 75.00 76.00 76.00 70.00 70.00 70.00 73.00 73.00 Public Works 36.00 36.00 37.00 37.00 37.00 31.50 34.00 34.00 36.00 37.00 Community Services 8.00 8.00 9.00 9.00 9.00 8.00 8.00 ~l.OO 9.00 9.00

Total 137.00 139.00 147.75 149.75 149.75 133.50 136.00 137.00 144.00 144.00

132

Function/Program

Police

Physical arrests

Parking violations

Traffic violations

CITY OF PLACENTIA

Operation Indicators

Last Two Fiscal Years

Community Development

Building Permits

Building and Zoning Inspections

Public Works

Feet of Sewer Main Cleaned

Streetsweeping Miles

Traffic Signals Maintained

Culture and Recreation

Picnic Shelters Reserved (Hrs.)

Recreation Classes

Source: Various City Departments

2007 2008

1,233 963 15,088 13,718

7,058 5,206

793 1,071

131 152

106,946

11,200

50

6,206 3,501 1,197 817

133

CITY OF PLACENTIA Capital Asset Statistics by Function/Program

Last Two Fiscal Years

Function/Program 2007

Public Safety

Police Stations Sworn Officers 55 Patrol Vehicles 24 Fire Stations 2

Highways and Streets Miles of Streets 107 Street Trees 9164 Traffic Signals 50 Street Lights 3649

Sewer Miles of Sanitary Sewers 76 Storm Drains 506

Recreation and Culture Parks 16 Area of Parks (Acres) 74.23 Community Buildings 2 Community Centers 4 Senior Center 1 Baseball Diamonds 5 Basketball Courts 4 Soccer Fields 2 Pools 2

Gymnasiums


134

2008

55 24 2

16 74.23

2 4

6 4 5 2

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APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE

THIS CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and delivered by the PLACENTIA PUBLIC FINANCING AUTHORITY (the “Issuer”) and the CITY OF PLACENTIA (the “City”). This Certificate is executed in connection with the issuance of the $4,390,000 Placentia Public Financing Authority 2009 Lease Revenue Bonds (Working Capital Financing) (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust dated as of June 1, 2009 (the “Indenture”) between the Issuer and U.S. Bank National Association, as trustee thereunder (the “Trustee”). The Issuer and the City hereby certify to the following:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Issuer and the City for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriters (as defined herein) in complying with S.E.C. Rule 15c2-12(b)(5).

Section 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” shall mean any Annual Reports provided by the Issuer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Disclosure Representative” shall mean the Finance Director of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Dissemination Agent from time to time.

“Dissemination Agent” shall mean the U.S. Bank National Association acting in its capacity as Dissemination Agent, or any successor Dissemination Agent designated in writing by the Issuer and the City and which have filed with the Issuer and the City a written acceptance of such designation.

“Fiscal Year” shall mean the twelve month period beginning on July 1 of each year and ending on June 30 of the following year.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

“Participating Underwriters” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with the offering of the Bonds.

“Repository” shall mean any Nationally Recognized Municipal Securities Information Repository for Purposes of the Rule. Effective July 1, 2009, the Repository approved by the Securities and Exchange Commission is the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (“EMMA”) site.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“Tax-exempt” shall mean that interest on the Bonds is excluded from gross income for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating any other tax liability, including any alternative minimum tax or environmental tax.

Section 3. Provision of Annual Reports.

(a) The Issuer and the City shall, or shall cause the Dissemination Agent to, not later than

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March 31 of each year, commencing March 31, 2010, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the Issuer and the City shall provide the Annual Report to the Dissemination Agent. Additionally, the Issuer and the City shall on November 1, of each year commencing November 1, 2010, provide to each Repository a calculation of Surplus Funds, as defined in the Indenture, and the current status of disallowed reimbursements by the California Department of Transportation, as of the end of the Fiscal Year. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate. The information contained or incorporated in each Annual Report shall be for the Fiscal Year which ended on the preceding June 30. The Issuer shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certifications of the Issuer and shall have no liability, duty or obligation whatsoever to review any such Annual Report. Further, the Dissemination Agent shall have no liability for the contents of any such Annual Report.

(b) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date specified in subsection (a), the Dissemination Agent shall send a notice to each Repository, or, in the alternative, the Municipal Securities Rulemaking Board, in substantially the form attached as Attachment A.

(c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each Repository, if any;

(ii) provide notice to the Issuer that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided; and

(iii) take any other action mutually agreed to between the Dissemination and the Issuer.

Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:

(a) Audited Financial Statements prepared in accordance with general 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 become available.

(b) To the extent not contained in the audited financial statements filed pursuant to the preceding clause (a), the Annual Report shall contain information showing the following:

(i) information contained in Tables 9, 18 and 19 of the Official Statement, together with information concerning the actual revenues, expenditures and beginning and ending fund balances relating to the General Fund of the City for the most recent completed Fiscal Year, including information showing tax revenue collections by source;

(ii) information showing the aggregate principal amount of long-term Bonds, leases and other obligations of the City which are payable out of the General Fund of the City, as of the

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close of the most recent completed Fiscal Year and information with respect to the disallowed reimbursements by the California Department of Transportation as of January 1;

(iii) information concerning the assessed valuation of properties within the City for the most recent completed Fiscal Year, showing the valuation for secured, public utility and unsecured property;

(iv) information showing the total secured property tax levy and actual amounts collected for the most recent completed Fiscal Year together with information regarding the current Sales Tax receipts for the then Fiscal Year; and

(v) information showing the balance sheet of the General Fund of the City as of the close of the most recent completed Fiscal Year, including categorized assets, liabilities and reserved and unreserved fund balances.

(c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Issuer or the City or related public entities, which have been submitted to each Repository or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Issuer shall clearly identify each such other document so incorporated by reference.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Issuer shall give or cause to be given, notice of the occurrence of any of the following event:

1. Delinquency in payment when due of any principal of or interest on the Bonds.

2. Occurrence of any default under the Indenture (other than as described in clause (1) above).

3. Amendment to or modification of the Indenture or this Disclosure Certificate modifying the rights of the Owners of the Bonds.

4. Giving of a notice of optional or unscheduled redemption of any of the Bonds.

5. Defeasance of the Bonds or any portion thereof.

6. Any change in any rating on the Bonds.

7. Adverse tax opinions or events affecting the Tax-exempt status of the Bonds.

8. Any unscheduled draw on the Reserve Fund or Reserve Facility reflecting financial difficulties.

9. Unscheduled draws on credit enhancements reflecting financial difficulties.

10. Substitution of credit or liquidity providers, or their failure to perform.

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11. The release, substitution or sale of property securing repayment of the Bonds (including property leased, mortgaged or pledged as such security).

(b) The Dissemination Agent shall, within ten (10) Business Days of obtaining actual knowledge of the occurrence of any of the events listed in paragraph (a) of this Section (except events listed in clauses (a)(1), (4) or (5)), with no obligation to determine the materiality thereof, notify the Disclosure Representative and the Insurer of such event, and request that the Issuer promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f). For the purpose of this Disclosure Certificate “actual knowledge” means the actual knowledge of the officer of the Dissemination Agent with primary responsibility for matters related to the administration of the Indenture at the principal corporate trust office of the Dissemination Agent.

(c) Whenever the Issuer or the City obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Dissemination Agent pursuant to subsection (b) or otherwise, the Issuer or the City shall as soon as possible, but in no event later than three (3) Business Days, determine if such event would constitute material information for Owners of the Bonds under applicable Federal securities law, provided that any event under subsection (a) (6) will always be deemed to be material.

(d) If the Issuer or the City has determined that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Issuer or the City shall promptly notify the Dissemination Agent and the Insurer in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f).

(e) If in response to a request under subsection (b), the Issuer or the City determines that the Listed Event would not be material, the Issuer or the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f).

(f) If the Dissemination Agent has been instructed by the Issuer or the City to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and each Repository. Notwithstanding the foregoing:

(i) Notice of the occurrence of a Listed Event described in subsections (a)(1), (4) or (5) shall be given by the Dissemination Agent unless the Issuer gives the Dissemination Agent affirmative instructions not to disclose such occurrence; and

(ii) Notice of Listed Events described in subsections (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of the affected Bonds pursuant to the Indenture.

Section 6. Termination of Reporting Obligation. The Issuer’s and the City’s respective obligations under this Disclosure Certificate shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds.

Section 7. Dissemination Agent. The Issuer and the City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the U.S. Bank National Association. The Dissemination Agent may resign by providing thirty (30) days written notice to the Issuer and the City and the Trustee. If at any time there is no designated Dissemination Agent appointed by the Issuer and the City, or if the Dissemination Agent so appointed is unwilling or unable to perform the duties of the Dissemination Agent hereunder, the Issuer shall be the Dissemination Agent and undertake or assume its obligations hereunder.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure

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Certificate, the Issuer and the City may amend this Disclosure Certificate (and the Dissemination Agent shall agree to any amendment requested by the Issuer and the City, provided the Dissemination Agent shall not be obligated to enter into any amendment increasing or affecting its duties or obligations), and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities law, acceptable to the Issuer, the City and the Dissemination Agent, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule.

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Issuer and 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 Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Issuer and the City choose to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Issuer and the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the Issuer, the City or the Dissemination Agent to comply with any provision of this Disclosure Certificate, the Dissemination Agent may, and, at the request of any Participating Underwriter or the Owners of at least 25% of the aggregate principal amount of the outstanding Bonds, shall (but only to the extent funds in any amount satisfactory to the Dissemination Agent have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges whatsoever related thereto, including without limitation, fees and expenses of its attorneys), or any Bondowner may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer and the City to comply with their 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 Issuer and the City or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of the Dissemination Agent. The Indenture is hereby made applicable to this Disclosure Certificate as if this Disclosure Certificate were (solely for this purpose) contained in the Indenture. The Dissemination Agent shall be entitled to the protections and limitations afforded to the Trustee under said Indenture. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Issuer and the City agree to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Issuer and the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and shall be reimbursed by the Issuer and the City all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. Neither the Dissemination Agent nor the Trustee shall have any duty or obligation to review any information provided to it hereunder or shall be deemed to be acting in any fiduciary capacity for the Issuer and the City, the owners of the Bonds or any other party. The obligations of the Issuer and the City under this section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any document or any further act.

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Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Issuer, the City, the Dissemination Agent, the Participating Underwriters and the Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 13. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Dated: June 30, 2009

PLACENTIA PUBLIC FINANCING AUTHORITY By:______________________________________ Authorized Officer CITY OF PLACENTIA By:______________________________________ Authorized Officer

ACCEPTANCE OF DISSEMINATION AGENT: The undersigned hereby accepts the designation of Dissemination Agent and agrees to the duties set forth in Section 3(c) of the foregoing Continuing Disclosure Certificate U.S. BANK NATIONAL ASSOCIATION By:__________________________________ Authorized Signatory

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ATTACHMENT A NOTICE TO REPOSITORIES

OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: PLACENTIA PUBLIC FINANCING AUTHORITY

Name of Bond Issue: Placentia Public Financing Authority 2009 Lease Revenue Bonds (Working Capital Financing)

Date of Issuance: June 30, 2009

NOTICE IS HEREBY GIVEN that the Placentia Public Financing Authority and the City of Placentia have not provided an Annual Report with respect to the above-referenced Bonds as required by the Indenture of Trust dated as of June 1, 2009 between the Authority and U.S. Bank National Association, as Trustee. The Authority and the City anticipate that the Annual Report will be filed by _____________.

Dated: ________________

U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent on Behalf of the Issuer By: Authorized Signatory

APPENDIX D

FORM OF BOND COUNSEL’S OPINION

June 30, 2009

Placentia Public Financing Authority 401 East Chapman Avenue Placentia, California 92870

OPINION: $4,390,000 Placentia Public Financing Authority 2009 Lease Revenue Bonds (Working Capital Financing)

Members of the Authority:

We have acted as bond counsel to the Placentia Public Financing Authority (the “Authority”) in connection with the issuance by the Authority of its Placentia Public Financing Authority 2009 Lease Revenue Bonds (Working Capital Financing) in the aggregate principal amount of $4,390,000 (the “Bonds”), under an Indenture of Trust dated as of June 1, 2009 (the “Indenture”), between the Authority and U.S. Bank National Association, as trustee, and under the provisions of Article 4 (commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the “Bond Law”). The Bonds are secured by Revenues as defined in the Indenture, including certain lease payments made by the City of Placentia (the “City”) under a Lease Agreement dated as of June 1, 2009 (the “Lease”) between the Authority as lessor and the City as lessee. We have examined the Indenture, the Lease, the Bond Law and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon

representations of the Authority and the City contained in the Indenture, the Lease and in the certified proceedings, and upon other certifications furnished to us, without undertaking to verify the same by independent investigation. Based upon our examination, we are of the opinion, under existing law, as follows:

1. The Authority is a public body corporate and politic duly organized and

existing under the Bond Law and under the laws of the State of California, with power to enter into the Indenture and the Lease, to perform the agreements on its part contained therein and to issue the Bonds.

2. The Bonds constitute legal, valid and binding special obligations of the

Authority enforceable in accordance with their terms and payable solely from the sources provided therefor in the Indenture.

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City of Placentia June 30, 2009 Page 2

3. The Indenture and the Lease have been duly approved by the Authority and constitute the legal, valid and binding obligations of the Authority enforceable against the Authority in accordance with their respective terms.

4. The Indenture establishes a valid first and exclusive lien on and pledge of the

Revenues (as that term is defined in the Indenture) and other funds pledged thereby for the security of the Bonds, in accordance with the terms of the Indenture.

5. The City is a municipal corporation duly organized and existing under the

laws of the State of California, with power to enter into the Lease and to perform the agreements on its part contained therein. The Lease has been duly approved by the City and constitutes a legal, valid and binding obligation of the City enforceable against the City in accordance with its terms.

6. Interest on the Bonds is excluded from gross income for federal income tax

purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. The Bonds are “qualified tax-exempt obligations” within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the “Tax Code”), and, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Tax Code), a deduction is allowed for 80% of that portion of such financial institutions’ interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentences are subject to the condition that the Authority and the City comply with all requirements of the Tax Code which must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The Authority and the City have covenanted in the Indenture, the Lease and in other instruments relating to the Bonds to comply with each of such requirements, and the Authority and the City have full legal authority to make and comply with such covenants. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

7. Interest on the Bonds is exempt from California personal income taxation. The rights of the owners of the Bonds and the enforceability of the Bonds, the

Indenture and the Lease may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.

Respectfully submitted, A Professional Law Corporation

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APPENDIX E DTC AND THE BOOK-ENTRY-ONLY SYSTEM

The following description of the Depository Trust Company (“DTC”), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the issuer of the Bonds (the “Issuer”) nor the trustee, fiscal agent or paying agent appointed with respect to the Bonds (the “Agent”) take any responsibility for the information contained in this Appendix.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each issue of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.

2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its

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Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information contained on this Internet site is not incorporated herein by reference.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of

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DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. Issuer may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.