es817918-es641782-es1037044cdiacdocs.sto.ca.gov/2016-2523.pdf · of the depository trust company,...

NEW ISSUE – BOOK ENTRY ONLY NO RATING In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Bond Counsel”),

under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the Bonds is exempt from State of California personal income tax. See the caption “TAX MATTERS.”

$5,615,000 CITY OF LOMA LINDA

WATER REVENUE REFUNDING BONDS, SERIES 2016

Dated: Date of Issuance Due: July 1, as set forth on the inside front cover page

The 2016 Bonds are being issued in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Purchasers of the 2016 Bonds will not receive securities representing their beneficial ownership in the 2016 Bonds purchased. Interest on the 2016 Bonds is payable on January 1 and July 1 of each year, commencing July 1, 2017, until the maturity thereof. The principal of and interest on the 2016 Bonds are payable by the Trustee to Cede & Co. and such interest and principal payments are to be disbursed to the Beneficial Owners of the 2016 Bonds through their nominees.

The 2016 Bonds are subject to optional, mandatory sinking fund, and extraordinary redemption as more fully described herein.

The 2016 Bonds are being issued to provide funds, together with certain other moneys: (i) to currently refund the $10,000,000 City of Loma Linda 1995 Variable Rate Water Revenue Refunding Bonds of which $5,075,000 is currently outstanding; (ii) to fund a reserve fund for the 2016 Bonds; and (iii) to pay costs of issuance of the 2016 Bonds, all as more fully described herein.

The 2016 Bonds are being issued pursuant to the Indenture of Trust, dated as of September 1, 2016, by and between the City of Loma Linda and U.S. Bank National Association, as trustee. The 2016 Bonds are limited obligations of the City payable solely from Net Revenues, which consist of Revenues of the City’s municipal Water System remaining after payment of Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts created under the Indenture. To provide further security for holders of the 2016 Bonds, a reserve fund will be established for the 2016 Bonds.

The City may incur additional obligations payable from Net Revenues on a parity with the obligation to pay principal of and interest on the 2016 Bonds, subject to the terms and conditions of the Indenture, as more fully described herein.

THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES AND CERTAIN OTHER AMOUNTS HELD UNDER THE INDENTURE, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.

_______________________________________________

MATURITY SCHEDULE – See Inside Front Cover Page _______________________________________________

The 2016 Bonds are offered when, as and if issued and received by the Underwriter, subject to the approval of the valid, legal and binding nature of the 2016 Bonds by Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and by Robbins & Holdaway, Inc., City Attorney, for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, and for the Trustee by its counsel. It is anticipated that the 2016 Bonds will be available for delivery through the facilities of The Depository Trust Company on or about September 14, 2016.

Dated: August 30, 2016

#2016-2523

MATURITY SCHEDULE

BASE CUSIP®† 541493



Maturity Date (July 1) Principal Amount Interest Rate Yield Price

CUSIP®†

Suffix

2017 $245,000 2.000% 0.750% 100.991 BF8 2018 215,000 2.000 1.000 101.776 BG6

$675,000 – 2.375% Term Bonds due July 1, 2021 - Yield: 1.700%, Price 103.095, CUSIP®† Suffix BH4 $1,265,000 – 3.750% Term Bonds due July 1, 2026 - Yield: 2.500%, Price 110.799, CUSIP®† Suffix BJ0

$1,490,000 – 2.750% Term Bonds due July 1, 2031 - Yield: 3.000%, Price 97.027(c), CUSIP®† Suffix BK7 $1,725,000 – 3.000% Term Bonds due July 1, 2036 - Yield: 3.250%, Price 96.368(c), CUSIP®† Suffix BL5

† CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2016 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. Neither the City nor the Underwriter takes any responsibility for the accuracy of such numbers.(c) Priced to first optional redemption date of July 1, 2026 at par.

CITY OF LOMA LINDA COUNTY OF SAN BERNARDINO

STATE OF CALIFORNIA

MAYOR AND MEMBERS OF THE CITY COUNCIL

Rhodes Rigsby, Mayor Phill Dupper, Mayor Pro Tem

Ovidiu Popescu, Council Member Ron Dailey, Council Member John Lenart, Council Member

STAFF

T. Jarb Thaipejr, City Manager Diana De Anda, Finance Director/Treasurer

Russ Handy, Utilities SuperintendentPamela Byrnes-O’Camb, City Clerk

SPECIAL SERVICES

City Attorney

Robbins & Holdaway, Inc. Ontario, California

Bond Counsel and Disclosure Counsel

Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California

Municipal Advisor

A.M. Miller & Co., Inc. San Diego, California

Trustee

U.S. Bank National Association Los Angeles, California

No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement in connection with the offering made hereby and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the 2016 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the 2016 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.

The Underwriter has provided the following sentence for inclusion in this Official Statement:

The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expression of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2016 BONDS AT A LEVEL THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE 2016 BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND “FORWARD-LOOKING STATEMENTS.” NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS “ESTIMATE,” “PROJECT,” “ANTICIPATE,” “EXPECT,” “INTEND,” “BELIEVE” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SECTION 21E OF THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.

The 2016 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in such act. The 2016 Bonds have not been registered or qualified under the securities laws of any state. The Indenture has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon an exemption contained in such act.

The City maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2016 Bonds.

TABLE OF CONTENTS Page

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SUMMARY STATEMENT .................................................................................................................................. i

WATER REVENUE REFUNDING BONDS, SERIES 2016 .............................................................................. 1

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

REFUNDING PLAN ............................................................................................................................................ 2General ........................................................................................................................................................... 2

THE 2016 BONDS ............................................................................................................................................... 2General Provisions ......................................................................................................................................... 2Transfers and Exchanges Upon Termination of Book Entry Only System .................................................... 3Redemption of the 2016 Bonds ...................................................................................................................... 3Notice of Redemption .................................................................................................................................... 5Book Entry Only System ............................................................................................................................... 6

DEBT SERVICE PAYMENT SCHEDULE ........................................................................................................ 6

SECURITY FOR THE 2016 BONDS .................................................................................................................. 7Limited Obligations Payable From Net Revenues ......................................................................................... 7Rate Covenant ................................................................................................................................................ 7Additional Indebtedness ................................................................................................................................. 7Reserve Fund ................................................................................................................................................. 8Insurance; Reconstruction, Repair and Replacement ..................................................................................... 9

ESTIMATED SOURCES AND USES OF FUNDS .......................................................................................... 10

THE CITY OF LOMA LINDA .......................................................................................................................... 10General ......................................................................................................................................................... 10Land Use; Water System Customers ............................................................................................................ 11City Council ................................................................................................................................................. 11Employees and Management ....................................................................................................................... 11Defined Benefit Pension Plan ...................................................................................................................... 12Postretirement Benefits ................................................................................................................................ 16Budget Process ............................................................................................................................................. 18City Insurance .............................................................................................................................................. 18Outstanding Obligations of the Water System ............................................................................................. 20Seismic Considerations ................................................................................................................................ 20Financial Statements .................................................................................................................................... 21

THE WATER SYSTEM OF THE CITY ............................................................................................................ 21General ......................................................................................................................................................... 21Service Area ................................................................................................................................................. 21Water Supply ............................................................................................................................................... 21Drought Measures ........................................................................................................................................ 24The Water System ........................................................................................................................................ 26Largest Water System Customers ................................................................................................................ 30Water System Rates and Charges ................................................................................................................ 31Future Water System Improvements ............................................................................................................ 33Historic Water System Operating Results and Debt Service Coverage ....................................................... 33Projected Water System Operating Results and Debt Service Coverage ..................................................... 34

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES ......................................... 35Article XIIIB ................................................................................................................................................ 35Proposition 218 ............................................................................................................................................ 36Proposition 26 .............................................................................................................................................. 38Future Initiatives .......................................................................................................................................... 38

TABLE OF CONTENTS (continued)

Page

II

CERTAIN RISKS TO BONDHOLDERS .......................................................................................................... 38Limited Obligations ..................................................................................................................................... 38Accuracy of Assumptions ............................................................................................................................ 38Water System Demand ................................................................................................................................. 39Water System Expenses ............................................................................................................................... 39Acceleration ................................................................................................................................................. 39Rate-Setting Process under Proposition 218 ................................................................................................ 39Statutory and Regulatory Compliance ......................................................................................................... 39Natural Disasters .......................................................................................................................................... 40Limitations on Remedies ............................................................................................................................. 40Loss of Tax Exemption ................................................................................................................................ 41Secondary Market ........................................................................................................................................ 41Parity Obligations ........................................................................................................................................ 41

APPROVAL OF LEGAL PROCEEDINGS ....................................................................................................... 41

LITIGATION ..................................................................................................................................................... 41

TAX MATTERS................................................................................................................................................. 42

NO RATING ...................................................................................................................................................... 43

UNDERWRITING ............................................................................................................................................. 43

MUNICIPAL ADVISOR ................................................................................................................................... 44

CONTINUING DISCLOSURE UNDERTAKING ............................................................................................ 44

FINANCIAL INTERESTS ................................................................................................................................. 44

MISCELLANEOUS ........................................................................................................................................... 45

APPENDIX A FINANCIAL STATEMENTS ........................................................................................... A-1APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE ............................................. B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL ................................................................... C-1 APPENDIX D INFORMATION CONCERNING DTC ............................................................................ D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT ............................................. E-1

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SUMMARY STATEMENT

This Summary Statement is subject in all respects to the more complete information contained in this Official Statement, and the offering of the 2016 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement.

Purpose. The 2016 Bonds are being issued to provide funds, together with certain other moneys: (i) to currently refund the $10,000,000 City of Loma Linda 1995 Variable Rate Water Revenue Refunding Bonds (the “1995 Bonds”) of which $5,075,000 is currently outstanding; (ii) to fund a reserve fund for the 2016 Bonds; and (iii) to pay costs of issuance of the 2016 Bonds, all as more fully described herein. See the captions “REFUNDING PLAN” and “ESTIMATED SOURCES AND USES OF FUNDS.”

Security for the 2016 Bonds. The 2016 Bonds are limited obligations of the City payable solely from Net Revenues, which consist of Revenues of the City’s municipal Water System remaining after payment of Operation and Maintenance Costs of the Water System, and from amounts on deposit in certain funds and accounts created under the Indenture. The City may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2016 Bonds in the future as described herein.

As further security for the payment of the 2016 Bonds, a reserve fund will be established under the Indenture. See the caption “—Reserve Fund” below.

THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES AND CERTAIN OTHER AMOUNTS HELD UNDER THE INDENTURE, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

See the caption “SECURITY FOR THE 2016 BONDS.”

The Refunding Plan. A portion of the proceeds of the 2016 Bonds, together with moneys held in certain funds and accounts established in connection with the 1995 Bonds, will be transferred to The Bank of New York Mellon Trust Company, N.A., as trustee with respect to the 1995 Bonds, on the date of issuance of the 2016 Bonds. The amount transferred to The Bank of New York Mellon Trust Company, N.A. will be applied on September 14, 2016 such date to prepay the $5,075,000 principal amount outstanding under the 1995 Bonds, plus accrued interest with respect thereto. See the caption “REFUNDING PLAN.”

Rate Covenant. The Indenture requires the City, at all times while any of the 2016 Bonds remain unpaid, to the maximum extent permitted by law, to fix, prescribe and collect rates, fees and charges and manage the operation of the Water System for each Fiscal Year so as to yield Net Revenues during such Fiscal Year equal to at least 115% of the Annual Debt Service in such Fiscal Year. See the caption “SECURITY FOR THE 2016 BONDS—Rate Covenant.”

Additional Contracts and Bonds. The Indenture permits the City to execute any Contracts or issue any Bonds on a parity with the obligation to pay principal of and interest on the 2016 Bonds, provided that certain conditions are satisfied as described herein. See the caption “SECURITY FOR THE 2016 BONDS—Additional Indebtedness.” The Indenture also permits the City to execute or issue obligations payable on a subordinate basis to the 2016 Bonds.

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Reserve Fund. A Reserve Fund for the Bonds is established pursuant to the Indenture in an amount equal to the Reserve Requirement. Moneys in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest due on the 2016 Bonds in the event that no other moneys of the City are available therefore or to pay such amounts at maturity. See the caption “SECURITY FOR THE 2016 BONDS—Reserve Fund.”

Redemption. The 2016 Bonds are subject to optional, mandatory sinking fund and extraordinary redemption prior to maturity as described herein. See the caption “THE 2016 BONDS—Redemption of the 2016 Bonds.”

The City and the Water System. The City encompasses approximately 7.6 square miles and is located in the southwestern part of San Bernardino County, between the cities of Riverside and San Bernardino, approximately 60 miles east of downtown Los Angeles. The City is a municipal corporation and a charter city organized and existing under the Constitution and the laws of the State of California, and was incorporated in 1970. The City operates under a City Council/City Manager form of government. As of January 1, 2016, the City had an estimated population of 24,649.

In Fiscal Year 2015-16, the Water System supplied approximately 3,958 acre feet of potable water through approximately 5,474 single family residential, multi-family residential, commercial/industrial and landscape connections. Approximately 90% of the City’s connections are to single family or multi-family residences. The Water System includes seven active wells in the San Bernardino Basin Area with a combined capacity of approximately 19.5 million gallons per day.

The Water System serves an area of approximately 10.6 square miles, including approximately 7.6 square miles within the City and approximately 3 square miles in unincorporated areas surrounding the City.

The City’s primary source of water is groundwater extracted from seven active wells owned by the City in the San Bernardino Basin Area. The City also has access to a supplemental supply of water as needed from: (i) the City of San Bernardino Municipal Water Department pursuant to contract; and (ii) the City’s interest in Bear Valley Mutual Water Company.

For information concerning the Water System, see the caption “THE WATER SYSTEM OF THE CITY.” For general information regarding the City, see the caption “THE CITY OF LOMA LINDA” and Appendix A.

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INTRODUCTION

This Official Statement, including the front cover page, the inside front cover page and all appendices hereto, provides certain information concerning the sale and delivery of the City of Loma Linda Water Revenue Refunding Bonds, Series 2016 (the “2016 Bonds”). The 2016 Bonds are being issued pursuant to an Indenture of Trust, dated as of September 1, 2016 (the “Indenture”), by and between the City of Loma Linda (the “City”) and U.S. Bank National Association, Los Angeles, California, as trustee (the “Trustee”). Descriptions and summaries of various documents set forth in this Official Statement do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. Capitalized terms used and not otherwise defined herein have the meanings ascribed to them in Appendix B.

The 2016 Bonds are being issued to provide funds, together with certain other moneys: (i) to currently refund the $10,000,000 City of Loma Linda 1995 Variable Rate Refunding Bonds (the “1995 Bonds”), currently outstanding in the principal amount of $5,075,000; (ii) to fund a reserve fund for the 2016 Bonds; and (iii) to pay costs of issuance of the 2016 Bonds. See the captions “REFUNDING PLAN” and “ESTIMATED SOURCES AND USES OF FUNDS.”

The 2016 Bonds are limited obligations of the City payable solely from Net Revenues, which consist of Revenues of the City’s municipal water system (the “Water System”) remaining after payment of Operation and Maintenance Costs of the Water System, as such terms are defined in Appendix B, and from amounts on deposit in certain funds and accounts created under the Indenture.

A Reserve Fund for the 2016 Bonds is established pursuant to the Indenture in an amount equal to the Reserve Requirement. Moneys in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of paying the principal and interest due on the 2016 Bonds in the event that no other moneys of the City are available therefore or to pay such amounts at maturity. See the caption “SECURITY FOR THE 2016 BONDS—Reserve Fund.”

The City may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2016 Bonds in the future as described under the caption “SECURITY FOR THE 2016 BONDS—Additional Indebtedness.”

The 2016 Bonds are subject to optional, mandatory sinking fund, and extraordinary redemption prior to maturity as described herein. See the caption “THE 2016 BONDS—Redemption of the 2016 Bonds.”

The summaries and references to the Indenture and all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary or reference is qualified in its entirety by reference to the full Indenture or the respective document, statute, report or instrument, copies of which are available for inspection at the offices of the City in Loma Linda, California and will be available from the Trustee upon request and payment of duplication cost. The capitalization of any word not conventionally capitalized or otherwise defined herein indicates that such word is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unless otherwise indicated, all financial and statistical information herein has been provided by the City.

The City regularly prepares a variety of reports, including audits, budgets and related documents. Any registered owner of the 2016 Bonds may obtain a copy of such reports, as available, from the Trustee or the City. Additional information regarding the Official Statement may be obtained by contacting the Trustee or

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the City of Loma Linda, 25541 Barton Road, Loma Linda, California 92354, Attn: Finance Director/Treasurer.

Changes have been made to this Official Statement since the Preliminary Official Statement dated August 19, 2016: (i) under the caption “THE 2016 BONDS—General Provisions” to reflect clarifying edits to provisions in the Indenture relating to the payment of interest on the 2016 Bonds; and (ii) under the caption “CONTINUING DISCLOSURE UNDERTAKING” to reflect the posting of a supplemental continuing disclosure filing prior to the pricing of the 2016 Bonds.

REFUNDING PLAN

General

The City issued the 1995 Bonds, which are currently outstanding in the principal amount of $5,075,000, to finance certain capital improvements to the Water System and to refund the City of Loma Linda 1993 Water Reserve Refunding Bonds (the “1993 Bonds”). The City plans to apply a portion of the proceeds of the 2016 Bonds, together with moneys held in certain funds and accounts established in connection with the 1995 Bonds, to currently refund the 1995 Bonds which are due and outstanding as of the date of issuance of the 2016 Bonds (the “Redemption Date”) at a redemption price equal to the outstanding principal amount thereof, plus accrued interest with respect thereto, without premium (the “Redemption Price”).

The 1995 Bonds were issued by the City under a Trust Indenture, dated as of May 1, 1995 (the “1995 Indenture”), by and between the City and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the “1995 Trustee”). The City plans to apply a portion of the proceeds of the 2016 Bonds to currently refund all outstanding obligations with respect to the 1995 Bonds on the Redemption Date.

THE 2016 BONDS

General Provisions

The 2016 Bonds will be issued in the aggregate principal amount of $5,615,000. The 2016 Bonds will be dated as of the date of initial issuance thereof (the “Issuance Date”), will bear interest from such date at the rates per annum set forth on the inside cover page hereof, payable on January 1 and July 1 of each year, commencing July 1, 2017 (each, an “Interest Payment Date”), and will mature on the dates set forth on the inside cover page hereof. Interest on the 2016 Bonds will be computed on the basis of a 360 day year composed of twelve 30 day months.

The 2016 Bonds will be issued only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the 2016 Bonds. Ownership interests in the 2016 Bonds may be purchased in book entry form, in denominations of $5,000 or any integral multiple thereof. See the caption “—Book Entry Only System” below and Appendix D.

In the event that the book entry only system described below is discontinued, the principal of and redemption premium (if any) on the 2016 Bonds are payable by check or draft of the Trustee upon presentation and surrender thereof at maturity or upon prior redemption at the office of the Trustee in Los Angeles, California (the “Office of the Trustee”). Interest on the 2016 Bonds is payable on each Interest Payment Date to the person whose name appears on the registration books maintained by the Trustee (the “Registration Books”) as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding the Interest Payment Date (the “Record Date”), such interest to be paid by check of the Trustee, sent by first class mail on the applicable Interest Payment Date to the Owner at such Owner’s address as it appears on the Registration Books. An Owner of $1,000,000 or more in principal amount of 2016 Bonds may, at such Owner’s option, be paid by wire transfer of immediately available funds to an account in the United States in

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accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record Date. The principal of and interest and premium, if any, on the 2016 Bonds will be payable in lawful money of the United States.

In addition, in the event that the book entry only system described below is discontinued, each 2016 Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof to which interest has been duly paid or provided for, unless a 2016 Bond is authenticated before the first Record Date, in which case interest will accrue from the date of issuance of the 2016 Bonds, or unless authenticated as of a date during the period from the Record Date to and including the next Interest Payment Date, in which case it will bear interest from such Interest Payment Date. Each 2016 Bond will bear interest on overdue principal at the rate then in effect on such 2016 Bond. In the event of any default in the payment of interest, such defaulted interest will be payable to the Owner of such 2016 Bond on a special Record Date for the payment of such defaulted interest, which date will be established by the Trustee, in accordance with the Indenture.

Transfers and Exchanges Upon Termination of Book Entry Only System

In the event that the book entry system described above is abandoned, the 2016 Bonds will be printed and delivered as provided in the Indenture. Thereafter, any 2016 Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such 2016 Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee is not required to register the transfer of any 2016 Bond during the period in which the Trustee is selecting 2016 Bonds for redemption and any 2016 Bond that has been selected for redemption.

Whenever any 2016 Bond or 2016 Bonds are surrendered for transfer, the City will execute and the Trustee will authenticate and deliver a new 2016 Bond or 2016 Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee will require the 2016 Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2016 Bonds, the Trustee will cancel and destroy the 2016 Bonds that it has received.

2016 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee is not required to exchange any 2016 Bond during the period in which the Trustee is selecting 2016 Bonds for redemption and any 2016 Bond that has been selected for redemption. The Trustee will require the 2016 Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2016 Bonds, the Trustee will cancel and destroy the 2016 Bonds that it has received.

Redemption of the 2016 Bonds

Optional Redemption. The 2016 Bonds with stated maturities on or after July 1, 2027, are subject to redemption prior to their respective stated maturities, as a whole or in part on July 1, 2026, or any date thereafter, as directed by the City and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium.

Mandatory Sinking Fund Redemption. The 2016 Bonds that are Term Bonds maturing July 1, 2021, July 1, 2026, July 1, 2031, and July 1, 2036 are also subject to mandatory redemption in whole, or in part by lot, on July 1 in each year, commencing July 1, 2019, July 1, 2022, July 1, 2027, and July 1, 2032, respectively, as set forth below, from sinking fund payments made by the City to the Principal Account pursuant to the Indenture, at a redemption price equal to the principal amount thereof to be redeemed, without

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premium, in the aggregate respective principal amounts and on July 1 in the respective years as set forth in the following tables; provided however, that if some but not all of such 2016 Term Bonds have been redeemed pursuant to the optional redemption provisions described above, the total amount of all future sinking fund payments will be reduced by the aggregate principal amount of such 2016 Term Bonds so redeemed, to be allocated among such sinking fund payments in integral multiples of $5,000 as determined by the City (notice of which determination will be given by the City to the Trustee).

2016 Term Bonds Maturing July 1, 2021

Sinking Fund Redemption Date (July 1) Principal Amount

2019 $220,000 2020 225,000 2021* 230,000

________________ * Maturity.



2022 $235,000 2023 245,000 2024 255,000 2025 260,000 2026* 270,000

________________ * Maturity.



2027 $280,000 2028 290,000 2029 300,000 2030 305,000 2031* 315,000

________________ * Maturity.

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2032 $325,000 2033 335,000 2034 345,000 2035 355,000 2036* 365,000

________________ * Final Maturity.

Extraordinary Redemption. The 2016 Bonds are subject to extraordinary redemption prior to their respective stated maturities, as a whole or in part on any date in the order of maturity and within maturities as directed by the City prior to such date and by lot within each maturity in integral multiples of $5,000 from Net Proceeds of insurance or condemnation, upon the terms and conditions of, and as provided for in, the Indenture, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium.

Notice of Redemption

Notice of redemption will be mailed by first class mail at least 20 days but not more than 60 days before any Redemption Date, to the respective Owners of any 2016 Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and the Information Services; provided that, in the case of notice of optional redemption not related to an advance or current refunding, such notice may be given only if sufficient funds have been deposited with the Trustee to pay the applicable Redemption Price of the 2016 Bonds to be redeemed; and provided further that such notice may be cancelled by the City upon Written Request delivered to the Trustee not less than five days prior to such Redemption Date. Each notice of redemption will state the date of notice, the Redemption Date, the place or places of redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, if less than all 2016 Bonds of any such maturity are to be redeemed, the serial numbers of the 2016 Bonds of such maturity to be redeemed by giving the individual number of each 2016 Bond or by stating that all 2016 Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2016 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on the Redemption Date there will become due and payable on each of said 2016 Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2016 Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon will cease to accrue, and will require that such 2016 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2016 Bond. Notice of redemption of 2016 Bonds will be given by the Trustee, at the expense of the City, for and on behalf of the City.

With respect to any notice of optional redemption of 2016 Bonds, such notice may state that such redemption will be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2016 Bonds to be redeemed and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required to redeem such 2016 Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received.

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Book Entry Only System

One fully-registered 2016 Bond of each maturity will be issued in the principal amount of the 2016 Bonds of such maturity. Such 2016 Bond will be registered in the name of Cede & Co. and will be deposited with DTC.

The City may decide to discontinue use of the system of book entry transfers through DTC (or a successor securities depository). In that event, the 2016 Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer. See the caption “—Transfers and Exchanges Upon Termination of Book Entry Only System.”

The City cannot and does not give any assurances that DTC Participants or others will distribute payments of principal of and interest on the 2016 Bonds received by DTC or its Nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners (as such term is defined in Appendix D), or that they will do so on a timely basis, or that DTC will service and act in the manner described in this Official Statement. See Appendix D for additional information concerning DTC.

DEBT SERVICE PAYMENT SCHEDULE

Set forth below is an annualized schedule of principal of and interest on the 2016 Bonds for the period ending July 1 in each of the years indicated.

Period Ending July 1 Principal Interest Total

2017 $ 245,000.00 $ 131,855.57 $ 376,855.57 2018 215,000.00 160,493.76 375,493.76 2019 220,000.00 156,193.76 376,193.76 2020 225,000.00 150,968.76 375,968.76 2021 230,000.00 145,625.00 375,625.00 2022 235,000.00 140,162.50 375,162.50 2023 245,000.00 131,350.00 376,350.00 2024 255,000.00 122,162.50 377,162.50 2025 260,000.00 112,600.00 372,600.00 2026 270,000.00 102,850.00 372,850.00 2027 280,000.00 92,725.00 372,725.00 2028 290,000.00 85,025.00 375,025.00 2029 300,000.00 77,050.00 377,050.00 2030 305,000.00 68,800.00 373,800.00 2031 315,000.00 60,412.50 375,412.50 2032 325,000.00 51,750.00 376,750.00 2033 335,000.00 42,000.00 377,000.00 2034 345,000.00 31,950.00 376,950.00 2035 355,000.00 21,600.00 376,600.00 2036 365,000.00 10,950.00 375,950.00

TOTAL $ 5,615,000.00 $ 1,896,524.35 $ 7,511,524.35

(1) See the caption “THE CITY OF LOMA LINDA—Outstanding Obligations of the Water System.” Period ending July 1, 2017 excludes debt service on the 1995 Bonds, which are being refunded from proceeds of the 2016 Bonds as described under the caption “REFUNDING PLAN.”

Source: Newcomb Williams Financial Group.

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SECURITY FOR THE 2016 BONDS

Limited Obligations Payable From Net Revenues

The City is obligated to make payments of principal of and interest on the 2016 Bonds solely from Net Revenues. The term “Net Revenues” means, for any period, the Revenues for such period less the Operation and Maintenance Costs for such period. When held by the Trustee in any funds or accounts established under the Indenture, Net Revenues will include all interest or gain derived from the investment of amounts in any of such funds or accounts. See Appendix B for a detailed discussion of the terms of the Indenture.

THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES AND CERTAIN OTHER AMOUNTS HELD UNDER THE INDENTURE, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

Rate Covenant

To the fullest extent permitted by law, the City will fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Water Service provided by the Water System which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during each Fiscal Year Net Revenues equal to 115% of Debt Service for such Fiscal Year.

The City may make or permit to be made adjustments from time to time in such rates, fees and charges and may make or permit to be made such classification thereof as it deems necessary, but will not reduce or permit to be reduced such rates, fees and charges below those then in effect unless the Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements.

Additional Indebtedness

The City may at any time execute any Contracts or issue any Bonds payable from Net Revenues on a parity with the obligation to pay principal of and interest on the 2016 Bonds provided that the following conditions are satisfied:

(i) The Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the City and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the City, produce a sum equal to at least 115% of the Debt Service for such Fiscal Year; and

(ii) The Net Revenues for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Water Service approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the City, produce a sum equal to at least 115% of the Debt Service for such Fiscal Year, plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year, assuming that such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the Debt Service which would have accrued had

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such proposed additional Contract been executed or proposed additional Bonds been issued at the beginning of such Fiscal Year.

(iii) Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding.

Nothing contained in the Indenture limits the issuance of any revenue bonds of the City payable from the Net Revenues and secured by a lien and charge on the Revenues if, after the issuance and delivery of such revenue bonds, none of the 2016 Bonds will be unpaid. Furthermore, nothing contained in the Indenture limits the issuance of any obligations payable from Net Revenues on a subordinate basis to the Contracts and Bonds.

Reserve Fund

Pursuant to the Indenture, upon the issuance of the 2016 Bonds the Trustee will deposit $377,162.50 in the Reserve Fund. Thereafter, the Reserve Fund will be funded as of any date of calculation, in an amount equal to the least of: (i) “10% of the proceeds of the issue” of the 2016 Bonds within the meaning of Section 148 of the Code; (ii) the maximum amount of debt service on the 2016 Bonds payable in any one year; and (iii) 125% of the average amount of debt service on the 2016 Bonds payable in each year (the “Reserve Requirement”).

If one day prior to any Interest Payment Date the moneys in the Payment Fund are insufficient to make the payments required by the Indenture with respect to the 2016 Bonds on such Payment Date, the Trustee will transfer from the Reserve Fund to the Payment Fund the amount of such insufficiency.

In the event that the Trustee has transferred moneys from the Reserve Fund to the Payment Fund in accordance with the Indenture, upon receipt of the moneys from the City to increase the balance in the Reserve Fund to the Reserve Requirement, the Trustee will deposit such moneys in the Reserve Fund.

If the amount available and contained in the Reserve Fund exceeds an amount equal to the Reserve Requirement and if the City is not then in default under the Indenture, the Trustee will semiannually on or before January 1 and July 1 withdraw the amount of such excess from the Reserve Fund and deposit such amount in the Payment Fund, and for this determination the Trustee will make a valuation of the Reserve Fund as often as it may deem appropriate, and in any event on or before January 1 and July 1 in each year. In addition, the Trustee will, on the date all or any portion of the 2016 Bonds are discharged in accordance with the Indenture, value the Reserve Fund in accordance with the Indenture and withdraw the excess, if any, on deposit in the Reserve Fund and transfer such amount to or in accordance with the written direction of the City. Except for such withdrawals, all moneys in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of paying principal and interest on the 2016 Bonds in the event that no other moneys of the City are available therefor. For the purpose of determining the amount in the Reserve Fund, all Permitted Investments credited to the Reserve Fund will be valued at the lower of cost (inclusive of all interest accrued but not paid), or market value. To the extent of any valuation of Permitted Investments made by the Trustee, notwithstanding anything to the contrary contained in the Indenture, the Trustee may utilize computerized securities pricing services that may be available to it, including those available through its regular accounting system.

The City may satisfy the Reserve Requirement in whole or part by the deposit of a reserve fund surety policy or similar credit instrument in the Reserve Fund.

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Insurance; Reconstruction, Repair and Replacement

The City has covenanted to maintain insurance on the Water System with responsible insurers in amounts and against such risks (including accident to or destruction of the Water System) as are usually covered in connection with facilities similar to the Water System so long as such insurance is available from reputable insurance companies at reasonable rates. The City maintains insurance coverages as described under the caption “THE CITY OF LOMA LINDA—City Insurance,” including earthquake insurance. See Appendix B under the caption “PARTICULAR COVENANTS—Insurance” for a description of the insurance coverages required by the Indenture.

In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance, the Net Proceeds thereof will be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Water System. The City will begin such reconstruction, repair or replacement promptly after such damage or destruction occurs, and will continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and will pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same are completed and the Water System is free and clear of all claims and liens.

If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of the Water System, and/or the cost of the construction of additions, betterments, extensions or improvements to the Water System, then the excess Net Proceeds will be applied in part to the redemption of 2016 Bonds as provided in the Indenture (see the caption “THE 2016 BONDS—Redemption of the 2016 Bonds—Extraordinary Redemption”) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2016 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts. If such Net Proceeds are sufficient to enable the City to retire the entire obligation evidenced by the Indenture prior to the final due date of the 2016 Bonds as well as the entire obligations evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the City may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Water System, and/or not to construct other additions, betterments, extensions or improvements to the Water System; and thereupon such Net Proceeds will be applied to the redemption of 2016 Bonds as provided in the Indenture and to the retirement of such Bonds and Contracts. See the captions “CERTAIN RISKS TO BONDHOLDERS—Water System Expenses” and “CERTAIN RISKS TO BONDHOLDERS—Natural Disasters.”

If all or any part of the Water System is taken by eminent domain proceedings, the Net Proceeds thereof will be applied as follows:

(a) If: (1) the City files with the Trustee a certificate showing: (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the City by reason of such eminent domain proceedings; (ii) a general description of the additions, betterments, extensions or improvements to the Water System proposed to be acquired and constructed by the City from such Net Proceeds; and (iii) an estimate of the additional annual Net Revenues to be derived from such additions, betterments, extensions or improvements; and (2) the City, on the basis of such certificate filed with the Trustee, determines that the estimated additional annual Net Revenues will sufficiently offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so that the ability of the City to meet its obligations under the Indenture will not be substantially impaired (which determination will be final and conclusive), then the City will promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds will be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the City for such purpose will be deposited in the Revenue Fund.

(b) If the foregoing conditions are not met, then such Net Proceeds will be applied by the City in part to the redemption of 2016 Bonds as provided in the Indenture (see the caption “THE 2016 BONDS—

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Redemption of the 2016 Bonds—Extraordinary Redemption”) and in part to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid principal balance of 2016 Bonds then bears to the aggregate unpaid principal amount of such Bonds and Contracts.

ESTIMATED SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds:

Sources(1):

Principal Amount $ 5,615,000 Plus Net Original Issue Premium 56,795 Total Sources $ 5,671,795

Uses(1):

Redemption of 1995 Bonds $ 5,096,631 Deposit to Reserve Fund(2) 377,162 Costs of Issuance(3) 198,002 Total Uses $ 5,671,795

(1) All amounts rounded to the nearest dollar. Totals may not add due to rounding. (2) Reflects an amount equal to the Reserve Requirement. (3) Includes Underwriter’s discount, certain legal, consultant, and other financing-related costs.

THE CITY OF LOMA LINDA

General

The City encompasses approximately 7.6 square miles and is located in the southwestern part of San Bernardino County (the “County”), between the cities of Riverside and San Bernardino, approximately 60 miles east of downtown Los Angeles. The City is a municipal corporation and a charter city organized and existing under the Constitution and the laws of the State of California, and was incorporated in 1970. The City operates under a City Council/City Manager form of government. As of January 1, 2016, the City had an estimated population of 24,649 per the California Department of Finance. For Fiscal Year 2016-17, the City has an assessed valuation of $1,899,888,091.

The City provides fire, public works, community development, economic development, library, public works and parks and recreation services, potable water delivery, flood control, storm drainage, refuse collection (which is contracted to a third party) and other services to residents. Police protection is provided by the County. The City’s water utility (referred to herein as the “Water System”) is operated by the Utilities Division of the Public Works Department. The Water System primarily serves residential customers (including single family and multi-family residences). Approximately 10% of Water System customers consist of light commercial/industrial users and landscape users.

The City’s primary source of water is groundwater, which is extracted from seven active, City-owned wells within the Bunker Hill Basin of the Santa Ana River Watershed, which is managed by the San Bernardino Valley Municipal Water District (“Valley District”). See the caption “THE WATER SYSTEM OF THE CITY—Water Supply—Plume Contamination” for a discussion of contaminated groundwater plumes that affect the City’s groundwater supply. The Bunker Hill Basin also serves other communities in the eastern San Bernardino Valley.

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The City also has access to a supplemental supply of water as needed from: (i) the City of San Bernardino Municipal Water Department (the “Department”) pursuant to contract; and (ii) the City’s interest in Bear Valley Mutual Water Company (the “Water Company”).

Over the past five Fiscal Years, over 99% of the water delivered by the City has been supplied by the City’s wells, and less than 1% of the water delivered by the City has been supplied by the Department or the Water Company. See the caption “THE WATER SYSTEM OF THE CITY.”

Land Use; Water System Customers

The City is substantially built out and significant new development is not expected in the future, with the exception of certain infill multi-family housing projects that are currently under construction. Land use within the City is primarily residential with some commercial/industrial and landscape uses. Currently, approximately 90% of the City’s metered customers are residential (92% single family and 8% multi-family). The City’s commercial/industrial customers account for approximately 6% of the total metered customers. The City’s landscape customers account for approximately 4% of the total metered customers.]

City Council

The City is governed by a five member City Council. City Councilmembers are elected at large and serve staggered four-year terms. The current City Councilmembers, their occupations and the expiration dates of their terms are set forth below.

CouncilmemberExpiration

of Term Occupation

Rhodes Rigsby, Mayor June 2020 Physician Phill Dupper, Mayor Pro Tem June 2018 Sergeant, San Bernardino County Sheriff

Ovidiu Popescu, Council Member June 2020 Small Business Owner Ron Dailey, Council Member June 2018 Dean, Loma Linda University School of Dentistry John Lenart, Council Member June 2020 Physician

Employees and Management

As of June 30, 2016, the City had approximately 72 full-time equivalent employees, of which approximately 12 work for the Utilities Division of the Public Works Department. Non-management Public Works Department employees are represented by the Loma Linda Public Works Employees Association (the “LLPWEA”) and certain Public Works Department managers are unrepresented. Relations between the City and the LLPWEA are governed by a memorandum of understanding (the “MOU”). The current MOU with the LLPWEA expires on June 30, 2017. The City has never experienced a strike, slowdown or work stoppage.

The Water System is overseen by the City Manager, the Director of Public Works, the Finance Director/Treasurer and the Utilities Superintendent of the City. Legal services are provided to the City by Richard Holdaway of Robbins & Holdaway, Inc., City Attorney.

Day-to-day management of the City is delegated to the City Manager, T. Jarb Thaipejr. Mr. Thaipejr has served as the City Manager since July 2009 and has over 23 years of experience in municipal administration. In his role as City Manager, Mr. Thaipejr serves as the administrative head of the City and is responsible for the operation of all City departments. Under the policy direction of the City Council, Mr. Thaipejr is responsible for the enforcement of all laws and ordinances adopted by the City and preparation of the annual budget. Mr. Thaipejr has also served as the City’s Director of Public Works Director since May 2011.

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Diana De Anda serves as the City’s Finance Director/Treasurer. Ms. De Anda has been with the City since December 2002. Ms. De Anda has over 14 years of experience in municipal financial administration.

Russ Handy serves as the City’s Utilities Superintendent. Mr. Handy has been with the City since March 1990 and has over 10 years of experience in the management of utility systems.

Richard Holdaway of Robbins & Holdaway serves as the City Attorney. Mr. Holdaway has served as the City Attorney since 1996 and previously served as Deputy City Attorney from 1989 to 1996. Mr. Holdaway has practiced law since 1981 and has represented the Cities of Upland, Norco and Montclair, among other municipal clients. In addition to his role as City Attorney, he currently serves as Deputy City Attorney for the City of Montclair.

Defined Benefit Pension Plan

This caption contains certain information relating to the California Public Employees Retirement System (“CalPERS”). The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries. The City has not independently verified the information provided by CalPERS and neither makes any representations nor expresses any opinion as to the accuracy of the information provided by CalPERS.

The comprehensive annual financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference herein. The City cannot guarantee the accuracy of such information. Actuarial assessments are forward-looking statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans.

Plan Description. The City contributes to CalPERS, an agent multiple-employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State, including the City. Benefit provisions and all other requirements are established pursuant to State statute and City ordinance.

CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.

The City’s CalPERS plans operate under the provisions of the California Public Employees’ Retirement Law (“PERL”), the California Public Employees’ Pension Reform Act of 2013 (“PEPRA”), and the regulations, procedures and policies adopted by the CalPERS Board of Administration. The plans’ authority to establish and amend the benefit terms are set by the PERL and PEPRA, and may be amended by the State legislature and in some cases require approval by the CalPERS Board of Administration.

The City participates in two Miscellaneous Plans that govern Public Works Department employees: (i) a 2.0% at 55 Plan for employees hired prior to January 1, 2013 and (ii) a 2.0% at 62 PEPRA Plan for employees hired after January 1, 2013. Participants in the 2.0% at 55 Plan and 2.0% at 62 Plan are required by State statute to contribute 7.0% of their annual covered salary. The City’s Miscellaneous Plans each have fewer than 100 members and are accordingly part of risk pools that are administered by CalPERS.

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Funding Policy. Required employer and employee contributions are determined from rates established by CalPERS based upon various actuarial assumptions which are revised annually. The City currently funds the normal pension costs, which are determined by CalPERS using the Entry Age Normal Actuarial Cost Method, as well as an amortization of the City’s unfunded actuarial liability. For Fiscal Years 2013-14, 2014-15 and 2015-16, the City’s required and actual employer contributions to CalPERS for the City’s Miscellaneous Plans (from all funds, including the Water Fund) was $573,091, $389,455 and $525,208, respectively. Such contributions were equal to the respective annual required contribution described below.

Based on the actuarial valuation of CalPERS assets, the City’s required employer contribution to the 2.0% at 55 Miscellaneous Plan for Fiscal Years 2013-14, 2014-15 and 2015-16 was 12.485%, 13.663% and 8.512%, respectively, of annual covered payroll. Based on the actuarial valuation of CalPERS assets, the City’s required employer contribution to the 2.0% at 62 Miscellaneous Plan for Fiscal Years 2013-14, 2014-15 and 2015-16 was 6.25%, 6.25% and 6.237%, respectively, of annual covered payroll The City made contributions to CalPERS in such amounts.

The required employer contribution for Fiscal Year 2015-16 was determined as part of the June 30, 2014 actuarial valuation using the entry age actuarial cost method. The actuarial assumptions for the June 30, 2014 valuation included: (a) 7.5% investment rate of return (net of administrative expenses); (b) projected annual salary increases that vary from 3.30% to 14.20%; and (c) a 2.75% inflation component. The actuarial value of CalPERS assets was determined using a technique that smooths the effect of volatility in the market value of investments over a fifteen-year period. CalPERS’ initial unfunded liabilities are amortized over a closed period that depends on the plan’s date of entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period.

The City’s annual pension cost for Fiscal Years 2011-12 through 2015-16 for Miscellaneous Plan members (including both the 2.0% at 55 and the 2.0% at 62 Miscellaneous Plans) is shown below:

Fiscal Year Annual Pension Cost

(APC)(1)Percentage of APC

Contributed Net Pension Obligation

06/30/2012 $357,829 100% - 06/30/2013 374,499 100 - 06/30/2014 389,455 100 - 06/30/2015 429,201 100 - 06/30/2016 525,208 100 -

(1) Includes City-funded employee contributions. Annual pension cost (the “APC”) is equal to the annual required contribution plus an adjustment for the cumulative difference between the APC and the City’s actual plan contributions for the year. The cumulative difference is called the net pension obligation. The City does not have a net pension obligation; its annual pension cost is equal to its annual required contribution.

Source: Audited Financial Statements for Fiscal Year 2014-15, Note 8.

AB 340, Public Employee Pension Reform Act of 2013 (PEPRA). On September 12, 2012, the California Governor signed Assembly Bill 340 (PEPRA), which implements pension reform in California. Effective January 1, 2013, AB 340: (i) requires public retirement systems and their participating employers to share equally with employees the normal cost rate for such retirement systems; (ii) prohibits employers from paying employer-paid member contributions to such retirement systems for employees hired after January 1, 2013; (iii) establishes a compulsory maximum non-safety benefit formula of 2.5% at age 67; (iv) defines final compensation as the highest average annual pensionable compensation earned during a 36-month period; and (v) caps pensionable income at $110,100 ($132,120 for employees not enrolled in Social Security) subject to Consumer Price Index increases. Other provisions reduce the risk of the City incurring additional unfunded liabilities, including prohibiting retroactive benefits increases, generally prohibiting contribution holidays, and prohibiting purchases of additional non-qualified service credit.

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CalPERS Plan Actuarial Methods. The staff actuaries at CalPERS prepare annually an actuarial valuation which is typically delivered in October of each year, approximately 15 months following the valuation date (thus, the actuarial valuation dated October 2015 covered CalPERS’ Fiscal Year ended June 30, 2014). The actuarial valuations express the City’s required contribution rates in percentages of covered payroll, which percentages the City must contribute in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the City’s contribution rate derived from the actuarial valuation as of June 30, 2014 affects the City’s Fiscal Year 2016-17 required contribution rate). CalPERS rules require the City to implement the actuary’s recommended rates.

The annual actuarially required contribution rates consist of two components: the normal cost and the unfunded actuarial accrued liability (“UAAL”). The normal cost represents the actuarial present value of benefits that CalPERS will fund under the CalPERS plans that are attributed to the current year, and the actuarial accrued liability (the “AAL”) represents the actuarial present value of benefits that CalPERS will fund that are attributed to past years. The UAAL represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at CalPERS and the present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement. The UAAL is based on several assumptions such as, among others, the expected rate of investment return, average life expectancy, average age of retirement, inflation, salary increases and occurrences of disabilities. In addition, the UAAL includes certain actuarial adjustments such as, among others, the actuarial practice of smoothing losses and gains over multiple years (which is described in more detail below). As a result, the UAAL may be considered an estimate of the unfunded actuarial present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement and not as a fixed expression of the liability the City owes to CalPERS under its CalPERS plans.

In the June 30, 2014 actuarial valuation, the CalPERS actuary estimated the actuarial value of the assets (the “Actuarial Value”) of the CalPERS plans at the end of the Fiscal Year (which assumes, among other things, that the rate of return during that Fiscal Year equaled the assumed rate of return of 7.5%). The CalPERS actuary uses a smoothing technique to determine Actuarial Value that is calculated based on certain policies. As described below, these policies and actuarial assumptions have changed significantly in recent years and are expected to change or be modified further by CalPERS in the future. Certain significant recent changes in assumptions include the following:

1. On March 14, 2012, the CalPERS Board approved a change in the inflation assumption used in the actuarial assumptions used to determine employer contribution rates. This reduced the assumed investment return from 7.75% to 7.50%, reduced the long-term payroll growth assumption from 3.25% to 3.0%, and adjusted the inflation component of individual salary scales from 3.25% to a merit scale varying by duration of employment, an assumed annual inflation component of 3% and an annual production growth of 0.25%. Although the full impact of such changes is not yet clear, CalPERS has estimated that they could result in net increases in future contribution levels of approximately 1% to 2%.

2. On April 17, 2013, the CalPERS Board of Administration approved a plan: (i) to replace the 15-year asset-smoothing policy with a 5-year direct-rate smoothing process; and (ii) to replace the current 30-year rolling amortization of unfunded liabilities with a 30-year fixed amortization period. CalPERS’ Chief Actuary has stated that the revised approach provides a single measure of funded status and unfunded liabilities, less rate volatility in extreme years, a faster path to full funding and more transparency to employers such as the City about future contribution rates. These changes are expected to accelerate the repayment of unfunded liabilities (including CalPERS’ Fiscal Year 2008-09 market losses described below) of the City’s plans in the near term; the exact magnitude of the potential contribution rate increases is not known at this time, but may be significant. These changes will be reflected beginning with the June 30, 2014 actuarial valuation affecting contribution rates for Fiscal Year 2016 and thereafter. As a preliminary estimate, the City has currently budgeted for annual increases in its pension contributions of approximately $82,100 per year through Fiscal Year 2019.

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3. On February 18, 2014, the CalPERS Board approved changes to actuarial assumptions and methods based upon a recently completed experience study. These changes include: moving from using smoothing of the market value of assets to obtain the actuarial value of assets to direct smoothing of employer contribution rates; increased life expectancy; changes to retirement ages (earlier for some groups and later for others); lower rates of disability retirement; and other changes.

Under Governmental Accounting Standards Board Statement No. 68 (“GASB 68”) which has been implemented for Fiscal Year 2014-15, an employer reports the net pension liability, pension expense and deferred outflows/deferred inflows of resources related to pensions in its financial statements as part of its financial position. In preparation for this reporting, CalPERS prepared a GASB 68 Accounting Valuation Report for the City, with a measurement date of June 30, 2014. Because GASB 68 allows a measurement date of up to 12 months before the employer’s fiscal year-end, the CalPERS Accounting Valuation Report was used for financial reporting for Fiscal Year 2014-15. The pension expense applicable to the City’s CalPERS Miscellaneous Plans is for the measurement period of July 1, 2013 through June 30, 2014 and the net pension liability is measured as of June 30, 2014. Liabilities are based on the results of the actuarial calculations performed as of June 30, 2013 and adjusted for changes in market conditions through June 30, 2014. Fiduciary net position is based on fair value of investments as of June 30, 2014. Deferred outflows and deferred inflows of resources related to pensions are certain changes in total pension liability and fiduciary net position that are to be recognized in future pension expense. The net pension liability is the plan’s total pension liability based on the Entry Age Normal Actuarial Cost Method less the plan’s fiduciary net position. The pension expense is the change in net pension liability from the previous fiscal year to the current fiscal year, less adjustments. Under GASB 68, deferred inflows and deferred outflows of resources related to pensions are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year in which the gain or loss occurs. The remaining amounts are categorized as deferred inflows and deferred outflows to be recognized in future pension expense.

GASB 68 is a change in accounting reporting standards but it does not change the City’s CalPERS plan funding obligations.

Funded Status. The following table sets forth the schedule of funding progress for the City’s 2.0% at 55 Miscellaneous Plan. The employer contribution rate for Fiscal Year 2016-17 is 8.880% of annual covered payroll.

Valuation Date

Entry Age Normal Accrued

Liability Market Value

of Assets

Unfunded Actuarial

Accrued Liability FundedRatio(1)

AnnualCovered Payroll

06/30/2011 $21,184,844 $16,831,800 $4,353,044 79.5% $3,281,002 06/30/2012 22,262,444 16,633,507 5,628,937 74.7 3,005,831 06/30/2013 23,723,742 18,710,600 5,013,142 78.9 3,013,666 06/30/2014 25,387,642 20,798,628 4,589,014 81.9 2,989,702

(1) Based on the market value of assets. Source: CalPERS Actuarial Report Dated October 2015, as of June 30, 2014.

The following table sets forth the schedule of funding progress for the City’s 2.0% at 62 Miscellaneous Plan since such plan’s inception in Fiscal Year 2013-14. The employer contribution rate for Fiscal Year 2016-17 is 6.555% of annual covered payroll.

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Valuation Date

Entry Age Normal Accrued

Liability Market Value

of Assets

Unfunded Actuarial

Accrued Liability FundedRatio(1)

AnnualCovered Payroll

06/30/2013 $ 178 $ 239 $ 61 134.3% $ 33,405 06/30/2014 10,323 10,854 531 105.1 186,417

(1) Based on the market value of assets. Source: CalPERS Actuarial Report Dated October 2015, as of June 30, 2014.

For additional information relating to the City’s CalPERS Plan, see Note 8 to the City’s financial statements set forth in Appendix A.

Postretirement Benefits

The City provides other postemployment benefits (“OPEB”) for all of its employee groups through the California Public Employees’ Retirement System Health Care Plan (the “OPEB Plan”), a cost-sharing multiple-employer, defined benefit OPEB plan that covers all general and public safety retirees, spouses and eligible dependents. The OPEB Plan provides medical insurance benefits to eligible retirees and their spouses and dependents. The benefit provisions and all other requirements are established by State statute and City resolution. Copies of CalPERS’ annual financial report may be obtained from CalPERS.

Eligibility. Employees are eligible for retiree health benefits if they retire from the City on or after age 50 with at least 5 years of service, and are eligible for CalPERS pension. Membership of the OPEB Plan consisted of the following at June 30, 2013, the date of the latest actuarial valuation:

Participants as of June 30, 2013 Total

Active employees 70 Retirees 50 Total 126

Benefits are based on the statutory minimum which is adjusted each year in accordance with the California Government Code. For 2016, the minimum was $125 per month.

Funding Policy. There is no statutory requirement for the City to prefund its OPEB Plan obligation. The City has established an OPEB trust fund in accordance with Governmental Accounting Standards Board Statement No. 43 through the California Employers’ Retiree Benefit Trust Program (“CERBT”), an agent multiple-employer post-employment healthcare plan that is administered by the CalPERS Board of Administration. CalPERS issues a publicly available financial report that includes financial statements and required supplementary information for CERBT. Such report may be obtained by contacting CalPERS.

Contributions are not required by OPEB Plan members. Total contributions (including contributions from the Water Fund) of $52,513, $86,328 and $59,265 were made during Fiscal Years 2013-14, 2014-15 and 2015-16 to cover current OPEB Plan benefits, based on a current contribution rate of 1.032% of annual covered payroll. The Fiscal Year 2013-14 contribution was equal to 99% of the actuarially determined annual required contribution (the “OPEB ARC”), the Fiscal Year 2014-15 contribution was equal to 163% of the OPEB ARC and the Fiscal Year 2015-16 contribution was equal to 100% of the OPEB ARC.

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

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The following table shows the components of the City’s annual OPEB Plan cost, the amount actually contributed to the OPEB Plan, and changes in the City’s net OPEB Plan obligation for Fiscal Year 2014-15:

June 30, 2015

Annual required contribution $ 52,513 Interest on net OPEB obligation 2,680 Adjustment to annual required contribution (2,158) Annual OPEB cost 53,035 Contributions made (86,328) Increase in net OPEB obligation (33,293) Net OPEB obligation – beginning of year 35,219 Net OPEB obligation – end of year $ 1,926


The City’s annual OPEB Plan cost, the percentage of annual OPEB Plan cost contributed, and the net OPEB Plan obligation for the last three Fiscal Years through June 30, 2015 are as follows (dollar amounts in thousands):

Year Ended

OPEBCost

OPEBCost Contributed

OPEBObligation

06/30/2013 $50,981 99% $34,828 06/30/2014 52,904 99 35,219 06/30/2015 53,035 163 1,926 06/30/2016 59,265 100 1,935


Funded Status and Funding Progress. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the possibility of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of the City are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future.

The schedule of funding progress below presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. An actuarial valuation is received every two years, with the City’s last actuarial valuation having been received as of July 1, 2015.

Actuarial Valuation

Date

Actuarial Value of Assets

Actuarial AccruedLiability

Entry Age

Unfunded Actuarial AccruedLiability (UAAL)

Funded Ratio

CoveredPayroll

UAAL as a % of Payroll

06/01/2010 $ 29,594 $600,942 $(571,348) 5.18% $6,018,956 9.49% 06/30/2011 69,957 579,635 (509,678) 13.73 5,747,688 8.87 06/30/2013 146,043 651,515 (523,669) 27.89 5,556,816 9.42 06/30/2015 296,705 814,575 (537,548) 55.20 5,650,750 9.51


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Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in the actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the July 1, 2015 actuarial valuation, the Entry Age Normal Actuarial Cost method was used. The actuarial assumptions include an investment rate of return of 6.6% per year, which is based on assumed long-term return on plan assets or employer assets, as appropriate. The assessment of long-term returns for employer assets is based on long-term historical returns for surplus funds invested pursuant to California Government Code Sections 53601 et seq. The annual healthcare cost trend rate of 4% is assumed, with payroll assumed to increase at 2.75% per year. The unfunded actuarial accrued liability is being amortized as a level percentage of payroll, but the City has not made an election to do this on an open or closed basis. The remaining amortization period at June 30, 2015, was 22 years.

For additional information relating to the City’s postretirement benefit plan, see Note 9 to the City’s financial statements set forth in Appendix A.

Budget Process

The City prepares and adopts a budget for each Fiscal Year. The budgeting process generally spans a five-month timeframe beginning in January of each year, and involves extensive coordination with all City departments. Prior to June 30 of each year, the City Manager submits to the City Council a proposed budget for the Fiscal Year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. Prior to June 30, public hearings and budgetary review sessions are conducted to obtain public comments and the budget is legally enacted through the passage of a resolution.

The City Council approves total budgeted appropriations and any amendments to appropriations throughout the year. This “appropriated budget” (as defined by Governmental Accounting Standards Board Code Section 2400.109) covers City expenditures in all governmental funds. The City Manager is authorized to transfer budgeted appropriations within the control accounts, provided that no change is made to the total amount provided for any one fund. Actual expenditures may not exceed budgeted appropriations at the fund level.

The City Council adopted the budget for Fiscal Year 2016-17 on May 24, 2016.

City Insurance

The City is exposed to various risks of losses related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. The City is a member of the California Joint Powers Insurance Authority (the “Authority”). The Authority is composed of 118 California public entities and is organized under a joint powers agreement pursuant to California Government Code Section 6500 et seq. The purpose of the Authority 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 lines of coverage. The Authority began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a nine-member Executive Committee.

Each member pays an annual contribution at the beginning of the coverage period. A retrospective adjustment is then conducted annually thereafter, for coverage years 2012-13 and prior. Retrospective adjustments are scheduled to continue indefinitely on coverage years 2012-13 and prior, until all claims incurred during those coverage years are closed, on a pool-wide basis. This subsequent cost re-allocation

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among members, based on actual claim development, can result in adjustments of either refunds or additional deposits required. Coverage years 2013-14 and forward are not subject to routine annual retrospective adjustment.

The total funding requirement for self-insurance programs is estimated using actuarial models and pre-funded through the annual contribution. Costs are allocated to individual agencies based on exposure (payroll) and experience (claims) relative to other members of the risk-sharing pool. Additional information regarding the cost allocation methodology is provided below.

In the liability program claims are pooled separately between police and general government exposures. (1) The payroll of each member is evaluated relative to the payroll of other members. A variable credibility factor is determined for each member, which establishes the weight applied to payroll and the weight applied to losses within the formula. (2) The first layer of losses includes incurred costs up to $30,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the first layer. (3) The second layer of losses includes incurred costs from $30,000 to $750,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. (4) Incurred costs from $750,000 to $50 million, are distributed based on the outcome of cost allocation within the first and second loss layers.

For Fiscal Year 2015-16, the Authority’s pooled retention was $2 million per occurrence, with reinsurance to $20 million, and excess insurance to $50 million. The Authority’s reinsurance contracts are subject to the following additional pooled retentions: (a) 50% of the $2.5 million annual aggregate deductible in the $3 million times $2 million layer, (b) 50% quota share of the $3 million times $2 million layer, and (c) $3 million annual aggregate deductible in the $5 million times $10 million layer.

The overall coverage limit for each member, including all layers of coverage, is $50 million per occurrence. Costs of covered claims for subsidence losses have a sub-limit of $30 million per occurrence.

In the workers’ compensation program claims are pooled separately between public safety (police and fire) and general government exposures. (1) The payroll of each member is evaluated relative to the payroll of other members. A variable credibility factor is determined for each member, which establishes the weight applied to payroll and the weight applied to losses within the formula. (2) The first layer of losses includes incurred costs up to $50,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the first layer. (3) The second layer of losses includes incurred costs from $50,000 to $100,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. (4) Incurred costs from $100,000 to statutory limits are distributed based on the outcome of cost allocation within the first and second loss layers.

For Fiscal Year 2015-16, the Authority’s pooled retention was $2 million per occurrence, with reinsurance to statutory limits under the California Workers’ Compensation Law.

Employer’s Liability losses are pooled among members to $2 million. Coverage from $2 million to $5 million is purchased as part of a reinsurance policy, and Employer’s Liability losses from $5 million to $10 million are pooled among members.

The City participates in the pollution legal liability insurance program (formerly called environmental insurance) which is available through the Authority. The policy covers sudden and gradual pollution of scheduled property, streets, and storm drains owned by the City of Fillmore. Coverage is on a claims-made basis. There is a $50,000 deductible. The Authority has a limit of $50 million for the 3-year period from July 1, 2014 through July 1, 2017. Each member of the Authority has a $10 million sub-limit during the 3-year term of the policy.

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The City participates in the all-risk property protection program of the Authority. This insurance protection is underwritten by several insurance companies. City property is currently insured according to a schedule of covered property submitted by the City to the Authority. City property currently has all-risk property insurance protection in the amount of $47,576,820. There is a $5,000 deductible per occurrence except for non-emergency vehicle insurance which has a $1,000 deductible. Premiums for the coverage are paid annually and are not subject to retrospective adjustments. The City maintains earthquake insurance for direct physical losses or damage up to $150 million annual aggregate and flood insurance up to $10 million annual aggregate.

The City purchases crime insurance coverage in the amount of $1,000,000 with a $2,500 deductible. The fidelity coverage is provided through the Authority. Premiums are paid annually and are not subject to retrospective adjustments.

The City further protects against liability damages by requiring tenant users of certain property to purchase low-cost tenant user liability insurance for certain activities on agency property. The insurance premium is paid by the tenant user and is paid to the City according to a schedule. The City then pays for the insurance. The insurance is arranged by the Authority.

The City’s property insurance covers all Water System treatment facilities and pipelines within one mile of City facilities. Except as described in the preceding sentence, the Water System pipelines are not insured.

There can be no assurance that incurred losses of the City will be covered up to the amount of loss, if at all. See the caption “CERTAIN RISKS TO BONDHOLDERS—Natural Disasters.”

For additional information relating to the City’s insurance coverages, see Note 10 to the City’s financial statements set forth in Appendix A.

Outstanding Obligations of the Water System

Upon the defeasance of the 1995 Bonds as described under the caption “REFUNDING PLAN,” the Water System will have no other obligations payable from Revenues on a parity with the 2016 Bonds.

Seismic Considerations

The City is located in a seismically active region in Southern California. Significant faults are located near the City. There is significant potential for destructive ground shaking during the occurrence of a major seismic event. In addition, land along fault lines may be subject to liquefaction during the occurrence of such an event. In the event of a severe earthquake, there may be significant damage to both property and infrastructure within the City.

Newer Water System facilities are designed to withstand earthquakes with minimal damage, as earthquake loads are taken into consideration in the design of project structures. The impact of lesser magnitude events is expected by the City to be temporary, localized and repairable. To date, no City facilities have suffered any significant earthquake damage.

The City maintains earthquake insurance on certain Water System facilities. However, there can be no assurance that coverage will be provided under such insurance in sufficient amounts to cover losses in the event of an earthquake. See the captions “—City Insurance” and “CERTAIN RISKS TO BONDHOLDERS—Natural Disasters.”

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Financial Statements

Copies of the most recent audited financial statements of the City prepared by Rogers, Anderson, Malody & Scott, LLP, Certified Public Accountants, San Bernardino, California (the “Auditor”) are attached as Appendix A hereto (the “Financial Statements”). The Auditor’s letter dated December 8, 2015 is set forth therein. The Financial Statements should be read in their entirety.

The Financial Statements are public documents and the City has not sought the approval of the Auditor to append the Financial Statements to this Official Statement. The Auditor has neither performed any post-audit review of the financial condition of the City nor reviewed or audited this Official Statement.

THE WATER SYSTEM OF THE CITY

General

The City has provided water service to City residents since its incorporation in 1970. The Water System’s primary source of supply is groundwater from City-owned wells. In addition, the City purchases water from time to time from the Department and the Water Company. See the caption “—Water Supply.”

Groundwater from City-owned wells is generally of high quality, although extracted water is chlorinated prior to delivery to Water System customers. In addition, an arsenic removal facility reduces arsenic levels in water extracted from two of the City’s wells and treatment facilities remove perchlorate and volatile organic compounds from two other City wells. See the caption “THE WATER SYSTEM OF THE CITY—Water Supply—Plume Contamination.” The City monitors arsenic, fluoride and dibromochropropane in its wells and undertakes blending of water from certain of its wells to meet arsenic and nitrate limitations.

The City purchases treated water from the Department, while water that is purchased from the Water Company is untreated by either the Water Company or the City; such untreated water is primarily used for landscape irrigation of parks. Except for water that is purchased from the Water Company, the water that is delivered by the Water System meets all applicable State and federal drinking water and health standards.

The Water System includes 77.2 miles of pipelines and 6 storage reservoirs, which have a collective storage capacity of approximately 14.9 million gallons.

All City accounts are metered and billed bi-monthly. See the caption “—Water System Rates and Charges.”

Service Area

The Water System serves an area of approximately 10.6 square miles, including approximately 7.6 square miles within the City’s boundaries and approximately 3 square miles within certain unincorporated areas that are outside the City limits but within the City’s sphere of influence. The Water System does not serve areas within City limits that are currently served by the independent system of Loma Linda University for itself and certain affiliated entities.

The City currently has a population of approximately 24,649. The Water System primarily serves residential customers (including single family and multi-family residences). Approximately 10% of Water System customers consist of light commercial/industrial users and landscape users.

Water Supply

City Wells. The City’s primary source of water is groundwater, which is extracted from seven active City-owned wells in the Bunker Hill Basin of the Santa Ana River Watershed. The Water System’s wells

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provide a combined capacity of approximately 13,600 gallons per minute, or 19.5 million gallons per day (“mgd”). Groundwater conditions in the Bunker Hill Basin are influenced by the natural hydrologic conditions of rainfall and natural stream inflow. The Bunker Hill Basin is part of the San Bernardino Basin Area, which is managed by Valley District in order to ensure an adequate supply of water for the City and other users and to replenish groundwater as necessary. The Bunker Hill Basin also serves other communities in the eastern San Bernardino Valley. The amount of storage in the Bunker Hill Basin is estimated to be approximately 5,976,000 acre feet.

The Water System maintains two additional wells on a standby basis. These wells can only be used during an extreme emergency condition because of the presence of nitrates which exceed allowable public health standards. The standby wells have a combined potential capacity of approximately 4.97 mgd. The City has not utilized these wells during the recent Statewide drought that is discussed under the caption “—Drought Measures.”

Groundwater Management. Water used for agricultural and domestic use within the present boundaries of the Water System historically originated exclusively in the Santa Ana River watershed, an area embracing approximately 2,000 square miles in the Counties of Orange, Riverside and San Bernardino. The Santa Ana River originates in the San Bernardino Mountains northeast of the City and flows to the southwest through the County to the County of Riverside. Near the northern County of Riverside border, the Santa Ana River flows through a geologic formation known as the Riverside Narrows, which acts to confine the river and the groundwater flow beneath the river to a narrow flow. The Santa Ana River then flows from the Riverside Narrows through the County of Riverside in a southwesterly direction, passing into the County of Orange in the Corona area, flowing through the Santa Ana Canyon and then onto the coastal plain that constitutes most of the northwestern portion of the County of Orange. Except during periods of storm flows, the Santa Ana River flows underground for most of its length.

Early settlers along the Santa Ana River constructed facilities in the Santa Ana Canyon area and the Anaheim area to divert the surface and flood flows of the Santa Ana River, primarily for irrigation purposes. As agricultural and domestic water use along the Santa Ana River increased, farmers, ranchers and municipal and private corporations began pumping water from the groundwater basin underlying the coastal plain of the County of Orange, which was recharged by the sub-surface flow of the Santa Ana River.

In 1941, the United States Army Corp of Engineers (the “Corps”) constructed a flood control dam on the Santa Ana River just north of the river’s entrance into Santa Ana Canyon (“Prado Dam”). Since Prado Dam was completed, the Corps has operated it primarily as a flood control facility, with certain incidental water conservation activities.

In the years leading up to 1969, Santa Ana River water users above Prado Dam in the Counties of Riverside and San Bernardino (the “Upper Basin”) and in the Orange County groundwater basin came increasingly into conflict over water flows in the Santa Ana River. These conflicts led to a series of lawsuits between various Upper Basin and Orange County groundwater basin water users. Valley District, on behalf of many Upper Basin water users, became involved in these lawsuits.

Litigation between Upper Basin and Orange County groundwater basin water users culminated in two stipulated judgments, one entered by the Superior Court for the County of Orange (“Orange County Superior Court”) and the other entered by the Superior Court for Riverside County in 1969 (the “1969 Stipulations”), affirming a negotiated settlement of Santa Ana River water rights disputes between the Upper Basin and the Orange County groundwater basin, involving over 4,000 parties, of which the principal parties included Valley District, the Chino Basin Municipal Water District (“Chino Basin MWD”), the Orange County Water District (“OCWD”) and the Western Municipal Water District of Riverside County (“Western MWD”). Under the 1969 Stipulations, Valley District is obligated to deliver an average annual supply of 15,250 acre feet of Santa Ana River base flow to the Riverside Narrows (subject to certain adjustments which could reduce such obligated amount but in no event below 12,420 acre feet annually). Valley District’s obligation can increase

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under certain circumstances, if necessary to maintain water quality at Riverside Narrows. In addition, Valley District is responsible for providing replenishment water to offset excess extractions by non-plaintiffs in order to maintain safe yield in the San Bernardino Basin Area and for maintaining certain specified key wells in the Colton-Rialto groundwater basin at an average of 822 feet above sea level. If the conditions of the 1969 Stipulations are not met by the natural water supply, Valley District is required to deliver supplemental water to offset the deficiency.

The 1969 Stipulations by their terms superseded a number of previous water rights determinations relating to the Santa Ana River and created a watermaster for the Santa Ana River (the “Watermaster”). The Watermaster is a committee of five court-appointed members, one each nominated by Valley District, Chino Basin MWD and Western MWD and two members nominated by OCWD. The Watermaster is charged with administration and reporting with respect to the 1969 Stipulations. If the Watermaster, which can act only upon the unanimous vote of its five members, fails to or is unable to make necessary findings or determinations, such questions must be certified by the Watermaster to the Orange County Superior Court for determination.

The 1969 Stipulations established an entitlement of Valley District to 232,000 acre feet per year from the Bunker Hill Basin, but did not adjudicate the water rights of individual water users within the Bunker Hill Basin. Valley District and other parties to the 1969 Stipulations, however, have been operating in accordance with the 1969 Stipulations since they were approved and entered as court judgments. The City is not currently involved in, and is unaware of, any material litigation between Santa Ana River water users in the Upper Basin, or between Upper Basin and Orange County groundwater basin water users. Under Watermaster determinations, the current safe yield within the Water System service area is approximately 4,366 acre feet per year, although such amount varies each year depending upon precipitation. Groundwater production in excess of the annual safe yield is permitted by determination of Valley District, with recharges made from imported water purchases rather than from precipitation.

As an adjudicated groundwater basin, the San Bernardino Basin Area is not subject to the provisions of Assembly Bill No. 1739 and Senate Bill Nos. 1168 and 1319 (collectively, the Sustainable Groundwater Management Act, or “SGMA”), which was enacted on September 16, 2014. The SGMA constitutes a legislative effort to regulate groundwater on a Statewide basis.

Plume Contamination. A significant issue facing the Bunker Hill Basin generally is the proper management of two large contaminated plumes: the Redlands plume and the Norton plume. Both plumes are contaminated by trichloroethylene, tetrachloroethylene and other compounds as a result of prior industrial activity by defense contractors dating back to the 1950s and prior use of agricultural soil fumigants. Remediation work on the plumes has been ongoing for over a decade, led by Lockheed Martin, Inc. (“Lockheed”) and the United States Air Force (the “USAF”) as designated responsible parties.

The Redlands plume is approximately seven miles long, extending from Judson Avenue to California Street in the City. The plume affects groundwater near certain of the City’s wells and had previously been moving in a westerly direction toward the City at a pace of about two to three feet per day. Lockheed has been designated as the responsible party for cleanup. Lockheed has constructed treatment facilities to remove contaminants from the groundwater that is extracted from City wells prior to delivery of such water to customers. The City is operating such facilities subject to reimbursement from Lockheed, which have ensured that the City’s water supply meets all State and federal standards. Additional facilities prevent the westward movement of the plume into areas of the Bunker Hill Basin in and around the City.

The Norton plume emanates from the former site of Norton Air Force Base north and east of the City. The Norton plume is approximately five miles long and approximately 200,000 acre feet of water is estimated to be contaminated. A plan has been developed to provide wellhead treatment to wells as the plume moves westward. The USAF has been designated as the responsible party for cleanup. The Norton plume is almost

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entirely within the pressure area of the Bunker Hill Basin and is following the Santa Ana River as it moves westward toward the City. However, the Norton plume does not currently affect the City’s water supply.

There can be no assurance that the remediation and treatment efforts that are currently being undertaken with respect to the plumes will continue to be successful. The City cannot predict whether the City’s water supply will face additional contamination from the plumes in the future if remediation efforts are unsuccessful or, if so affected, the cost or impact on water rates or Revenues of required City or regional efforts to address such contamination.

Other Sources. Under an agreement with the City of San Bernardino, the City may purchase up to 5,100 acre feet of potable water year from the Department at the rate that the Department charges domestic customers in effect at the time of purchase. The availability of the water supply from the Department is dependent on the water level of the Bunker Hill Basin from June 1 to October 1 and flow is limited to 1,000 gallons per minute. The agreement has expired, but the parties are operating under the terms thereof while an extension is being negotiated. The Department may terminate the agreement upon 30 days’ written notice. In the past five Fiscal Years, the City has purchased a total of approximately 7 acre feet from the Department, primarily to test pumps and associated interconnection facilities in order to ensure the proper operation of this supply source.

In addition, the City owns 1,020 shares of the Water Company, which entitles the City to purchase up to 163.2 acre feet of water produced by the Water Company each year at a rate that is set by the Water Company. The Water Company’s water supply comes from the Santa Ana River and is affected by seasonal and annual variations. In the past five Fiscal Years, the City has purchased a total of approximately 180 acre feet from the Water Company. Such water is not treated by the Water Company or the City and is primarily used for landscape irrigation in parks.

Recycled Water. The City does not currently produce or purchase recycled water for delivery to Water System customers. The City and the nearby City of Redlands are currently evaluating the potential for the City of Redlands to provide recycled water to the City. There can be no assurance that the City will elect to purchase recycled water in the future. The projected water sales and operating information set forth in this Official Statement does not reflect recycled water deliveries or any revenues therefrom, or the capital costs associated with the development of a recycled water system.

Drought Measures

State Orders. On January 17, 2014, the California Governor declared a drought state of emergency (the “Declaration”) with immediate effect. The Declaration includes the following orders, among others: (a) local urban water suppliers, including the City, are encouraged to implement their local water shortage contingency plans; the City’s plan is discussed under the caption “—City Response to Drought;” (b) local urban water suppliers, including the City, are encouraged to update their urban water management plans to prepare for extended drought conditions; (c) The California Department of Water Resources (“DWR”) and the State Water Resources Control Board (the “SWRCB”) are directed to expedite the processing of water transfers; (d) the SWRCB is directed to put water rights holders on notice that they may be required to cease or reduce water diversions in the future; (e) the SWRCB is directed to consider modifying requirements for reservoir releases or diversion limitations; and (f) DWR is directed to take necessary actions to protect water quality and supply in the Sacramento-San Joaquin River Delta/San Francisco Bay Estuary (the “Bay-Delta”), including the installation of temporary barriers or temporary water supply connections, while minimizing impacts to aquatic species. In addition, on July 15, 2014, the SWRCB adopted emergency measures requiring water suppliers to implement mandatory Statewide water conservation actions.

On March 17, 2015, the SWRCB adopted additional emergency regulations limiting outdoor irrigation to two days per week, extending certain measures set forth in the July 15, 2014 action for an additional 270

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days, prohibiting outdoor potable water irrigation for 48 hours following rain and prohibiting restaurants from serving water to customers unless requested.

On April 1, 2015, the California Governor issued an executive order extending the measures set forth in the Declaration and adopting the following additional orders, among others: (i) the SWRCB is directed to impose restrictions to reduce potable urban water usage, including usage by commercial, industrial and institutional properties and golf courses, by 25% from 2013 amounts through February 28, 2016; portions of a water supplier’s service area with higher per capita use must achieve proportionally greater reductions than areas with lower per capita use; (ii) DWR is directed to lead a statewide initiative to replace 50 million square feet of lawns with drought tolerant landscaping; (iii) the California Energy Commission is directed to implement a rebate program for replacement of inefficient appliances; (iv) urban water suppliers are required to provide monthly water usage, conservation and enforcement information; (v) service providers are required to monitor groundwater basin levels in accordance with California Water Code § 10933; (vi) permitting agencies are required to prioritize approval of water infrastructure and supply projects; and (vii) DWR is required to plan salinity barriers in the Bay-Delta.

On May 6, 2015, the SWRCB adopted regulations in response to the Governor’s executive order that required the City to effect a 32% reduction from 2013 water usage. On November 13, 2015, the Governor issued Executive Order B-36-15, which calls for an extension of urban water use restrictions until October 31, 2016.

On May 9, 2016, the Governor issued Executive Order B-37-16, which required the SWRCB to adjust its emergency regulation and extend it through the end of January 2017. On May 18, 2016 the SWRCB adopted a revised regulation that recognized improved and differing water supply conditions across the State. The revised regulation gives water agencies the ability to establish their own conservation standards based on a “stress test” of supply reliability. By June 22, 2016, water agencies were required to submit self-certifications to the SWRCB demonstrating that they have sufficient supplies to withstand three additional years of severe drought. Any identified percentage gap between supplies and demands would become the water agency’s updated mandatory conservation target.

As a result of the City’s investment in groundwater resources, the City demonstrated to SWRCB that it has more than sufficient supplies to meet its projected demands, even if the State endures three more years of drought. See the caption “—Water Supply.” Consequently, the City’s mandatory conservation target was eliminated, retroactive to June 1, 2016. The City intends to continue to encourage its customers to conserve and meet a voluntary reduction target of up to 10% for the duration of the term of the emergency regulation.

City Response to Drought. Under the City’s water conservation plan (the “Plan”), as set forth in its Municipal Code, the City responds to a water shortage in stages. Under Stage No. 1 (Normal Conditions), the City encourages voluntary conservation and discourages water waste. Under Stage No. 2 (Threatened Water Supply Shortage), the City Council may declare a water shortage condition by resolution, which will cause the following measures to come into effect: (i) exterior landscape plans for all new commercial and industrial development must provide for timed irrigation and consider the use of drought resistant varieties of flora; (ii) no customer will use water for outdoor use in amounts that cause runoff or other waste; (iii) commercial and industrial users may be required to provide the City with a water conservation plan for their properties; (iv) parks, golf courses, swimming pools and school grounds must use water for irrigation and pool filling between the hours of 6:00 p.m. and 6:00 a.m. only; (v) upon notice and public hearing, the City may determine that the outdoor irrigation may be conducted only during specified hours and/or days, and may impose other restrictions on the use of water for such irrigation; (vi) all residential, public and recreational swimming pools, must use evaporation-resistant covers during periods of nonuse and recirculate water; (vii) washdown of impervious areas is prohibited; (viii) washing of vehicles is prohibited without an automatic shut-off device; and (ix) restaurants are requested not to provide drinking water to patrons except by request. Under Stage No. 3 (Water Shortage Emergency), a public hearing will be held to consider the following additional measures: (i) outdoor irrigation and ornamental uses of water may be prohibited; (ii) no new construction meter permits may

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be issued by the City and all existing construction meters will be removed and/or locked; and (iii) commercial nurseries must discontinue all watering and irrigation. The City’s Municipal Code authorizes the imposition of penalties to enforce restrictions under the Plan, including monetary fines for second and third violations and the installation of a flow restrictor and discontinuance of service for third and fourth violations,

As noted above, in response to the Declaration and related State orders, the City is currently encouraging voluntary conservation, with the goal of reducing water usage by 10%.

In some cases, actions taken pursuant to the Declaration could result in additional groundwater being made available to the City, while in other cases, actions taken pursuant to the Declaration could reduce water supplies. While implementation of the Plan has resulted in lower water sales revenues, it has also resulted in lower operating costs, in particular groundwater pumping costs and energy costs for water deliveries. In addition, as described under the caption “—Water System Rates and Charges,” the City collects fixed charges per metered connection as well as water consumption revenues. The projected operating results set forth under the caption “—Projected Water System Operating Results and Debt Service Coverage” reflect the continued implementation of Stage No. 2 of the Plan. The City does not believe that the implementation of the Plan will have a material adverse effect on its ability to generate sufficient Net Revenues to pay the principal of and interest on the 2016 Bonds when due. See the caption “SECURITY FOR THE 2016 BONDS—Limited Obligations Payable from Net Revenues.”

If a water shortage should arise, legal issues exist as to whether different California Water Code provisions should be invoked to require reasonable regulations for the allocation of water in time of shortage. Any curtailment that is accompanied by an increase in groundwater pumping costs could necessitate an increase in the City’s water rates. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.”

The Water System

Historic Water Production. The following table shows historic water production of the Water System for the five most recent calendar years. The below information does not directly correspond to the City’s water sales set forth under the caption “—Historic Water Sales” because such information is provided by Fiscal Year.

CITY OF LOMA LINDA WATER SYSTEM Historic Water Production in Acre Feet

Calendar Year Groundwater Production Other Sources(2) Total

% Increase/ (Decrease)

2012 5,800 36 5,836 N/A% 2013 5,587 36 5,623 (3.65) 2014 5,525 36 5,561 (1.10) 2015(1) 4,670 36 4,706 (15.37) 2016(1) 4,454 36 4,490 (4.59)

(1) Decreases in water production reflect water conservation measures. See the caption “—Historic Water Sales Revenues” for historic water sales revenues in such years.

(2) Reflects water purchased from the Department or supplied from the City’s interest in the Water Company. See the caption “—Water Supply—Other Sources.”

Source: City.

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Historic Water Sales. The following table shows historic water sales of the Water System for the five most recent Fiscal Years. Reductions in water sales in recent years reflect the effect of mandatory water conservation measures arising from the drought Declaration and related State actions.

CITY OF LOMA LINDA WATER SYSTEM Historic Water Sales in Acre Feet

Fiscal Year

SingleFamily

Residential Water Sales

Multi-Family Residential Water Sales

Commercial / Industrial Water Sales

Landscape / Other Water

SalesTotal Water

Sales(1)% Increase/ (Decrease)

2011-12 2,739 834 607 921 5,101 N/A% 2012-13 2,668 806 547 820 4,841 (5.10) 2013-14 2,683 786 582 926 4,977 2.81 2014-15 2,545 799 583 821 4,748 (4.60) 2015-16 2,063 771 500 624 3,958 (16.64)

(1) The above water sales amounts and the water production amounts set forth under the caption “—Historic Water Production” do not directly correspond because the above water sales amounts are provided by Fiscal Year, while water production information is provided by calendar year. The City reports that Water System losses arise from metering inaccuracies, reservoir overflows, fire hydrant testing and fire hydrant use in emergencies.

Source: City.

Historic Water System Connections. The following table shows historic billed connections to the Water System for the five most recent Fiscal Years:

CITY OF LOMA LINDA WATER SYSTEM Historic Water System Connections(1)

Fiscal Year Water System Connections

2011-12 5,432 2012-13 5,471 2013-14 5,441 2014-15 5,451 2015-16 5,474

(1) Approximately 90% of the City’s customers have single family or multi-family residential connections as of Fiscal Year 2016.

Source: City.

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Historic Water Sales Revenues. The following table shows historic water sales revenues of the Water System for the five most recent Fiscal Years:

CITY OF LOMA LINDA WATER SYSTEM Historic Water Sales Revenues

Fiscal Year

Residential Water Sales Revenues

Commercial/Industrial Water Sales Revenues Total Water Sales

Revenues(1)% Increase/ (Decrease)

2011-12 $3,258,766 $1,383,756 $4,642,522 N/A% 2012-13 3,341,777 1,341,387 4,683,164 0.88 2013-14 3,383,544 1,356,925 4,740,469 (1.22) 2014-15(2) 3,467,138 1,406,638 4,873,776 2.81 2015-16(3) 3,203,179 1,284,826 4,488,005 (7.92)(4)

(1) These numbers differ from the Sales and Service Charges shown in the table “Historic Water System Operating Results and Debt Service Coverage” under the caption “—Historic Water System Operating Results and Debt Service Coverage” because the above numbers exclude utility services (revenues from developer construction meters), new connection fees and other revenues.

(2) Increases in revenues reflect the effect of rate increases. (3) Reflects unaudited actual amounts. (4) Decrease reflects reduced water use as a result of mandatory conservation orders in light of Statewide drought. See the

caption “—Drought Measures.” Source: City.

Water sales revenue is the primary source of revenue received by the City’s Water Fund. Other sources of revenue include lease income, meter installations, fees, reimbursement for groundwater treatment, miscellaneous income and interest income.

Projected Water Production. The following table shows projected water production of the Water System for the current and next four Fiscal Years:

CITY OF LOMA LINDA WATER SYSTEM Projected Water Production in Acre Feet

Fiscal Year GroundwaterProduction

Water Purchases(1) Total


2016-17 4,904 36 4,940 10.02%(2)

2017-18 4,944 36 4,980 0.81 2018-19 4,944 36 4,980 0.00 2019-20 4,944 36 4,980 0.00 2020-21 4,944 36 4,980 0.00

(1) Reflects water purchased from the Department or supplied from the City’s interest in the Water Company. See the caption “—Water Supply—Other Sources.”

(2) Increase from Fiscal Year 2015-16 amount reflects new connections, including single family residences, Veterans Administration outpatient clinics and an extended stay hotel.

Source: City.

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Projected Water Sales. The following table shows projected water sales of the Water System for the current and next four Fiscal Years:

CITY OF LOMA LINDA WATER SYSTEM Projected Water Sales in Acre Feet(1)

Fiscal Year

SingleFamily

Residential Water Sales

Multi-Family Residential Water Sales

Commercial / Industrial Water Sales

Landscape / Other Water

SalesTotal Water

Sales(1)% Increase/ (Decrease)

2016-17 2,067 781 719 644 4,211 6.39% 2017-18 2,073 804 739 647 4,263 1.23 2018-19 2,087 804 739 647 4,277 0.33 2019-20 2,101 804 739 647 4,291 0.33 2020-21 2,101 804 739 647 4,291 0.00

(1) Differences between water sales and water production set forth under the caption “—Projected Water Production” reflect Water System losses, evaporation, internal water use for City purposes, fire hydrant testing and fire hydrant use in emergencies.

Source: City.

Projected Water System Connections. The following table shows projected billed connections to the Water System for the current and next four Fiscal Years. Increases in connections include certain infill multi-family housing projects that are currently under construction.

CITY OF LOMA LINDA WATER SYSTEM Projected Water System Connections

Fiscal Year Water System Connections

2016-17 5,498 2017-18 5,533 2018-19 5,581 2019-20 5,629 2020-21 5,629

Source: City.

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Projected Water Sales Revenues. The following table shows projected water sales revenues of the Water System for the current and next four Fiscal Years:

CITY OF LOMA LINDA WATER SYSTEM Projected Water Sales Revenues

Fiscal Year

Residential Water Sales Revenues

Commercial/Industrial Water Sales Revenues

Total Water Sales Revenues(1)


2016-17 $3,288,992 $1,541,551 $4,830,544 7.63%(2)

2017-18 3,390,313 1,593,576 4,983,889 3.17 2018-19 3,455,187 1,621,235 5,076,422 1.86 2019-20 3,507,855 1,649,420 5,157,275 1.59 2020-21 3,561,338 1,678,144 5,239,482 1.59

(1) These numbers differ from the projected Sales and Service Charges shown in the table “Projected Water System Operating Results and Debt Service Coverage” under the caption “—Projected Water System Operating Results and Debt Service Coverage” because the above numbers exclude utility services (revenues from developer construction meters), new connection fees and other revenues.

(2) Increase from Fiscal Year 2015-16 reflects additional connections and previously adopted rate increases that are scheduled to go into effect on January 1, 2017. See the captions “—Projected Water System Connections” and “—Water System Rates and Charges—General.”

Source: City.

Projected water sales revenues assume continued drought conditions and the continued implementation of the City’s water conservation Plan, the projected increases in Water System connections set forth under the caption “—Projected System Connections,” implementation of the adopted rate increases described under the caption “—Water System Rates and Charges—General” and projected rate increases of approximately 3% per annum beginning in Fiscal Year 2019. All water rate increases are subject to the notice, hearing and protest provisions of Proposition 218 described under the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” There can be no assurance that the City Council will adopt additional rate increases in the future. See the caption “CERTAIN RISKS TO BONDHOLDERS—Accuracy of Assumptions.”

Largest Water System Customers

The following table sets forth the ten largest customers of the Water System as of June 30, 2016, as determined by the amount of their respective payments. These ten customers accounted for approximately 14.37% of total unaudited actual Water System Revenues of $5,275,227 for Fiscal Year 2015-16.

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CITY OF LOMA LINDA WATER SYSTEM Largest Water System Customers—Fiscal Year 2015-16

Customer Revenues(1)Hundred

Cubic Feet % of

Total(2)

United States Veterans Administration Hospital $ 163,559 81,243 3.10% Westwind Oasis Townhomes 141,626 59,251 2.68 Loma Linda Heritage 107,887 43,479 2.05 Monterey Pines LLC 75,990 26,208 1.44 Barton Vineyards Apartments 70,394 28,141 1.33 Mt. View Gardens 58,067 30,365 1.10 Sierra Vista 41,243 17,942 0.78 University Mobile Estates 34,743 17,135 0.66 Alto Camino Mobile Homes 34,364 14,542 0.65 Janzen Mobile Village 30,393 14,789 0.58

TOP TEN TOTAL $ 758,265 333,095 14.37%

(1) Reflects unaudited actual amount. (2) Percentage of total unaudited actual Water System Revenues. Source: City.

Water System Rates and Charges

General. Water System Revenues are derived from water sales (consumption charges) and fixed charges. Consumption charges are dependent on water tiers, with each customer assigned a water budget and charges increasing as customers use amounts of water that exceed their budget. Fixed charges are dependent on a customer’s meter size.

The City Council has rate setting authority and the City’s rates are not subject to review or approval by the California Public Utilities Commission or any other agency. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218” for a discussion of certain limitations of the rate setting authority of the City Council.

On February 25, 2014, the City adopted five-year rate increases for the Water System in compliance with the notice, hearing and protest provisions of Proposition 218. Water rates effective January 1, 2016 are set forth below.

CITY OF LOMA LINDA WATER SYSTEM Schedule of Existing Bi-Monthly Water Services Charges and Rates(1)

Bi-Monthly Fixed Charges Bi-Monthly Volume Charge(2) Bi-Monthly Fire Protection

Meter Size Tier

(in ccf) Inside City ($ per ccf)

Outside City ($ per ccf) Size Charge

¾” $ 24.29 0 to 10 $1.15 $1.33 2” $17.47 1” 44.45 10 to 400 1.54 1.76 2½” 20.51

1½” 91.53 400 to 800 1.69 1.94 3” 25.06 2” 213.11 Over 800 1.84 2.12 4” 33.13 3” 436.86 6” 49.69 4” 663.36 8” 68.65 6” 895.92 10” 92.30 8” 1,012.18

10” 1,128.49

(1) Existing rates became effective January 1, 2016. (2) Charge per hundred cubic feet (“ccf”) of water consumed. Source: City.

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Water System customers also pay a fixed bimonthly charge that varies depending upon meter size, as set forth below. Most residential customers have a 1” or smaller diameter meter.

CITY OF LOMA LINDA WATER SYSTEM Schedule of Water Service Charges and Rates

Bi-Monthly Fixed Charges

ClassificationMeter Size

(inches)

ExistingCharge(1)

($/bi-month)

Bi-Monthly Fixed Charges Apr. 1, 2014 ($/bi-month)

Jan. 1, 2015 ($/bi-month)




All Customers ¾” $ 24.29 $ 25.38 $ 26.52 $ 27.71 $ 28.96 $ 30.26 1” 44.45 46.45 48.54 50.72 53.00 55.39 1½” 91.53 95.65 99.95 104.45 109.15 114.06 2” 213.11 222.70 232.72 243.19 254.13 265.57 3” 436.86 456.52 477.06 498.53 520.96 544.40 4” 663.36 693.21 724.40 757.00 791.07 826.67 6” 895.92 936.24 978.37 1,022.40 1,068.41 1,116.49 8” 1,102.18 1,057.73 1,105.33 1,155.07 1,207.05 1,261.37 10” 1,128.49 1,179.27 1,232.34 1,287.80 1,345.75 1,406.31

Bi-Monthly Volume Rates

ClassificationRate Block

(in Ccf)

ExistingRates(1)

($/Ccf)

Volume Rates Apr. 1, 2014

($/Ccf) Jan. 1, 2015

($/Ccf)Jan. 1, 2016

($/Ccf) Jan. 1, 2017

($/Ccf) Jan. 1, 2018

($/Ccf)

All Customers First 10 $ 1.15 $ 1.20 $ 1.25 $ 1.31 $ 1.37 $ 1.43 Next 390 1.54 1.61 1.68 1.76 1.84 1.92 Next 400 1.69 1.77 1.85 1.93 2.02 2.11 Over 800 1.84 1.92 2.01 2.10 2.19 2.19

Bi-Monthly Fire Protection Charges

ClassificationSize

(inches)

ExistingCharge(1)

($/bi-month)

Bi-Monthly Fixed Charges Apr. 1, 2014 ($/bi-month)





All Customers 2” $ 17.47 $ 18.26 $ 19.08 $ 19.94 $ 20.84 $ 21.78 2½” 20.51 21.43 22.39 23.40 24.45 25.55 3” 25.06 26.19 27.37 28.60 29.89 31.24 4” 33.13 34.62 36.18 37.81 39.51 41.29 6” 49.69 51.93 54.27 56.71 59.26 61.93 8” 68.65 71.74 74.97 78.34 81.87 85.55 10” 92.30 96.45 100.79 105.33 110.07 115.02

(1) Existing rates became effective April 1, 2014. Source: City.

The projected water sales revenues set forth under the caption “—The Water System—Projected Water Sales Revenues” reflect the implementation of adopted water rate increases of approximately 4.5% and 4.5% in Fiscal Years 2016-17 and 2017-18, and projected water rate increases of approximately 3% per annum thereafter. All water rate increases are subject to the notice, hearing and protest provisions of Proposition 218 described under the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” There can be no assurance that the City Council will adopt additional rate increases in the future. However, the City has covenanted to set rates and charges in amounts that are expected to be sufficient to pay debt service while the 2016 Bonds are outstanding. See the caption “SECURITY FOR THE 2016 BONDS—Rate Covenant.”

Comparative Water Rates. Set forth below is a schedule of comparative water rates for the City and water service providers located near the City effective as of July 2016. Because each service provider has a different rate structure, an average monthly water bill was calculated based on 44 hundred cubic feet of usage per single family residence per month.

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CITY OF LOMA LINDA WATER SYSTEM Comparative Water Rates

Water Service Provider

AverageMonthly Water

Charge(1)

City of Fontana $157.00 West Valley Water District 135.57 City of Highland 128.61 City of Redlands 127.39 Yucaipa Valley Water District 124.05 City of Loma Linda 123.66 City of Colton 121.09 City of San Bernardino Water Department 104.60

(1) Charge applicable to 1” meter. Source: City.

Collection Procedures. All charges for water service are billed every eight weeks. If payment is not received 30 days after billing, a late charge of 10% of the unpaid balance will be assessed and a delinquent bill will be sent allowing seven more days for payment. A 24-hour shut-off door hanger notice is hand-delivered the next working day after the due date of the delinquency notice. If payment is not received, service is shut off. Service is not restored until all charges, including a restoration charge, have been paid in full.

Currently, approximately 4% of customer accounts are delinquent in the total amount of approximately $41,000. The City reports that most customers pay delinquent bills prior to shut-off.

Future Water System Improvements

The City projects capital improvements to the Water System of approximately $1.1 million over the current and next three Fiscal Years, including replacement of meters and water valves, and replacement of certain 6” water lines with 8” water lines. The City currently projects funding such capital improvements through a combination of grants, water development impact fees, Net Revenues remaining after payment of the 2016 Bonds and Water System reserves. The City does not expect to issue additional bonds or enter into additional contracts to finance such improvements in the next five Fiscal Years.

Historic Water System Operating Results and Debt Service Coverage

The following table is a summary of operating results of the Water System for the last five Fiscal Years. These results have been derived from the Financial Statements and audited financial statements of the City for prior Fiscal Years but exclude certain non-cash items and include certain other adjustments. The table has not been reviewed or audited by the Auditor.

The City accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to governmental agencies such as the City (“GAAP”). In certain cases, GAAP requires or permits moneys collected in one Fiscal Year to be recognized as revenue in a subsequent Fiscal Year and requires or permits expenses paid or incurred in one Fiscal Year to be recognized as expenses in a subsequent Fiscal Year. See Appendix A. Except as otherwise expressly noted herein, all financial information derived from the City’s audited financial statements reflect the application of GAAP.

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CITY OF LOMA LINDA WATER SYSTEM Historic Water System Operating Results and Debt Service Coverage

Fiscal Year Ended June 30

2012 2013 2014 2015 2016(1)(2)

Revenues Sales and Service Charges(3) $ 4,721,866 $ 4,734,114 $ 4,813,653 $ 4,970,004 $ 4,609,262 Interest and Investment Revenue 7,109 6,958 4,456 3,674 3,264 Transfers In - - 21,517 255,653 - Miscellaneous(4) 598,636 554,263 580,626 603,855 662,701 Total Revenues $ 5,327,611 $ 5,295,335 $ 5,420,252 $ 5,833,186 $ 5,275,227 Operation and Maintenance Costs Administration and General $ 1,533,211 $ 1,559,436 $ 1,566,682 $ 1,627,991 $ 1,222,100 Transmission and Collection 2,997,201 3,078,918 3,069,603 3,498,599 3,511,700 Total Operation and Maintenance Costs $ 4,530,412 $ 4,638,354 $ 4,636,285 $ 5,126,590 $ 4,733,800 Net Revenues $ 797,199 $ 656,981 $ 783,967 $ 706,596 $ 541,427 Debt Service 1995 Bonds(5) $ 345,130 $ 361,610 $ 377,350 $ 399,439 $ 421,785 Total Debt Service $ 345,130 $ 361,610 $ 377,350 $ 399,439 $ 421,785 Debt Service Coverage(6) 2.31 1.82 2.08 1.77 1.28 Remaining Revenues(7) $ 452,069 $ 295,371 $ 406,617 $ 307,157 $ 119,642

(1) Reflects unaudited actual amounts. (2) Decrease in water sales and service charge revenues reflects effect of reduced water sales resulting from the Statewide

drought and related State orders. See the caption “—Drought Measures.” (3) These numbers differ from historic water sales revenues set forth under the caption “—The Water System—Historic Water

Sales Revenues” because the above numbers include utility services (revenues from developer construction meters), new connection fees and other revenues.

(4) Includes cellular tower lease income, refunds and reimbursements from Lockheed for water treatment (as discussed under the caption “—Water Supply—Plume Contamination” and other miscellaneous revenues.

(5) This obligation will be defeased with proceeds of the 2016 Bonds. (6) Net Revenues divided by Total Debt Service. (7) Net Revenues less Total Debt Service. Source: City.

Projected Water System Operating Results and Debt Service Coverage

The estimated projected operating results for the Water System for the current and next four Fiscal Years are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the estimate of projected financial results of the City based upon its judgment of the most probable occurrence of certain important future events. The projections of Water System Revenues reflect City estimates of water use set forth under the caption “—The Water System—Projected Water Sales” adopted rate increases and projected water rate increases described under the caption “—Water System Rates and Charges—General.” All water rate increases are subject to the notice, hearing and protest provisions of Proposition 218 described under the caption “CONSTITUTIONAL PROVISIONS AFFECTING WATER SYSTEM REVENUES AND EXPENDITURES—Proposition 218.” There can be no assurance that the City Council will adopt additional rate increases as currently projected.

The assumptions set forth herein and in the footnotes to the chart below are material in the development of the financial projections of the City, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material. See the caption “BONDOWNERS’ RISKS—Accuracy of Assumptions.”

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CITY OF LOMA LINDA WATER SYSTEM Projected Water System Operating Results and Debt Service Coverage

Fiscal Year Ending June 30

2017 2018 2019 2020 2021 Revenues Sales and Service Charges(1) $ 4,959,566 $ 5,118,272 $ 5,215,519 $ 5,298,967 $ 5,383,751 Interest and Investment Revenue(2) 2,800 2,814 2,828 2,842 2,888 Miscellaneous(3) 522,300 532,746 543,401 554,269 565,354 Total Revenues $ 5,484,666 $ 5,653,832 $ 5,761,748 $ 5,856,079 $ 5,951,993 Operation and Maintenance Costs Administration and General(4) $ 1,285,700 $ 1,311,414 $ 1,337,642 $ 1,364,395 $ 1,391,683 Transmission and Collection(5) 3,188,700 3,268,418 3,350,128 3,433,881 3,519,728 Total Operation and Maintenance Costs $ 4,474,400 $ 4,579,832 $ 4,687,770 $ 4,798,276 $ 4,911,411 Net Revenues $ 1,010,266 $ 1,074,001 $ 1,073,978 $ 1,057,802 $ 1,040,582 Debt Service 1995 Bonds(6) $ - $ - $ - $ - $ - 2016 Bonds 376,856 375,494 376,194 375,969 375,625 Total Debt Service $ 376,856 $ 375,494 $ 376,194 $ 375,969 $ 375,625 Debt Service Coverage(7) 2.68 2.86 2.85 2.81 2.77 Remaining Revenues(8) $ 633,410 $ 698,507 $ 697,784 $ 681,833 $ 664,957

(1) These numbers differ from projected water sales revenues set forth under the caption “—The Water System—Projected Water Sales Revenues” because the above numbers include utility services (revenues from developer construction meters), new connection fees and other revenues. Projected to increase approximately 3% from Fiscal Year 2016-17 budgeted amount in Fiscal Year 2017-18, approximately 2% from Fiscal Year 2017-18 amount in Fiscal Year 2018-19 and approximately 1.6% per annum thereafter.

(2) Projected to increase approximately 0.5% per annum from Fiscal Year 2016-17 budgeted amount. (3) Includes cellular tower lease income, refunds and reimbursements from Lockheed for water treatment (as discussed under the

caption “—Water Supply—Plume Contamination” and other miscellaneous revenues. Projected to increase approximately 2% per annum from Fiscal Year 2016-17 budgeted amount.

(4) Projected to increase approximately 2% per annum from Fiscal Year 2016-17 budgeted amount. (5) Projected to increase approximately 2% per annum from Fiscal Year 2016-17 budgeted amount. (6) This obligation will be defeased from proceeds of the 2016 Bonds. See the caption “REFUNDING PLAN.” (7) Net Revenues divided by Total Debt Service. (8) Net Revenues less Total Debt Service. Source: City.

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES

Article XIIIB

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

Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by or for the State or other entity of local government, exclusive of certain State subventions, refunds of taxes and benefit

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payments from retirement, unemployment, insurance and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from: (a) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost reasonably borne by the entity in providing the service or regulation); and (b) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

Certain expenditures are excluded from the appropriations limit, including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by a vote of electors of the issuing entity and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the provision of existing services more costly.

The City is of the opinion that its charges for Water Service do not exceed the costs that it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The City has covenanted in the Indenture that it will, at all times while any of the 2016 Bonds remain unpaid, to the maximum extent permitted by law, fix, prescribe and collect rates, fees and charges and manage the operation of the Water System for each Fiscal Year so as to yield Net Revenues during such Fiscal Year equal to at least 115% of the Debt Service in such Fiscal Year. See the caption “SECURITY FOR THE 2016 BONDS—Rate Covenant.”

Proposition 218

General. An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the “Title and Summary” of the Initiative prepared by the California Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.”

Article XIIID. Article XIIID defines the terms “fee” and “charge” to mean “any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service.” A “property-related service” is defined as “a public service having a direct relationship to property ownership.” Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership.

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

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

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or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted.

Based upon the California Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the State Supreme Court, it was generally believed that Article XIIID did not apply to charges for water services that are “primarily based on the amount consumed” (i.e., metered water rates), which had been held to be commodity charges related to consumption of the service, not property ownership. The Supreme Court stated in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (2006) (the “Bighorn Case”), however, that fees for ongoing water service through an existing connection were property-related fees and charges. The Supreme Court specifically disapproved the holding in Howard Jarvis Taxpayers Association v. City of Los Angeles that metered water rates are not subject to Proposition 218. The City has complied with the notice and public hearing requirements of Article XIIID in determining whether to change Water System rates and charges since April 2009.

On April 20, 2015, the California Court of Appeal, Fourth District, issued an opinion in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (2015) (the “SJC Case”) upholding tiered water rates under Proposition 218 provided that the tiers correspond to the actual cost of furnishing service at a given level of usage. The opinion was specific to the facts of the case, including a finding that the City of San Juan Capistrano did not attempt to calculate the actual costs of providing water at various tier levels. The City’s tiered rates are described under the caption “THE WATER SYSTEM OF THE CITY—Water System Rates and Charges—General.” The City does not expect the decision in the SJC Case to affect its water rate structure. The City believes that its current water rates comply with the requirements of Proposition 218 and expects that any future water rate increases will comply with Proposition 218’s procedural and substantive requirements to the extent applicable thereto.

Article XIIIC. Article XIIIC provides that the initiative power may not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges is applicable to all local governments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge,” so it was unclear whether the definitions set forth in Article XIIID referred to above were applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the State Supreme Court held in the Bighorn Case that the provisions of Article XIIIC included rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. In any event, the City does not believe that Article XIIIC grants to the voters within the City the power to repeal or reduce rates and charges for the Water Service in a manner which would be inconsistent with the contractual obligations of the City. However, there can be no assurance of the availability of particular remedies adequate to protect the Beneficial Owners of the 2016 Bonds. Remedies available to Beneficial Owners of the 2016 Bonds in the event of a default by the City are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. So long as the 2016 Bonds are held in book-entry form, DTC (or its nominee) will be the sole registered owner of the 2016 Bonds and the rights and remedies of the 2016 Bond Owners will be exercised through the procedures of DTC.

In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the 2016 Bonds and the Indenture are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix C), will be similarly qualified.

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Proposition 26

On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 applies to charges imposed or increased after November 2, 2010 and provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. The City believes that its water rates and charges are not taxes under Proposition 26.

Future Initiatives

Articles XIIIB, XIIIC and XIIID and Proposition 26 were adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiatives could be proposed and adopted affecting the City’s revenues or ability to increase revenues.

CERTAIN RISKS TO BONDHOLDERS

The following information should be considered by prospective investors in evaluating the 2016 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations may be relevant to making an investment decisions with respect to the 2016 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks.

Limited Obligations

The obligation of the City to pay the 2016 Bonds is a limited obligation of the City and is not secured by a legal or equitable pledge or charge or lien upon any property of the City or any of its income or receipts, except the Net Revenues and certain other amounts held under the Indenture. The obligation of the City to pay the 2016 Bonds does not constitute an obligation of the City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation.

Accuracy of Assumptions

To estimate the revenues available to pay debt service on the 2016 Bonds, the City has made certain assumptions with regard to the rates and charges to be imposed in future years, the expenses associated with operating the Water System and the interest rate at which funds will be invested. The City believes these assumptions to be reasonable, but to the extent that any of these assumptions fail to materialize, the Net Revenues available to pay debt service on the 2016 Bonds will, in all likelihood, be less than those projected herein. See the caption “THE WATER SYSTEM OF THE CITY—Projected Water System Operating Results

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and Debt Service Coverage.” The City may choose, however, to maintain compliance with the rate covenant set forth in the Indenture in part by means of contributions from available reserves or resources. In such event, Net Revenues may generate amounts which are less than 1.15 times Annual Debt Service in any given Fiscal Year. See the caption “SECURITY FOR THE 2016 BONDS—Rate Covenant.”

Water System Demand

There can be no assurance that the demand for Water Service will occur as described in this Official Statement. Reduction in levels of demand could require an increase in rates or charges in order to comply with the rate covenant. Demand for water services has and could in the future be reduced as a result of hydrological conditions, conservation efforts (including in response to the current drought as described under the caption “THE WATER SYSTEM OF THE CITY—Drought Measures” or future droughts) and other factors.

Water System Expenses

There can be no assurance that the City’s expenses will be consistent with the projections in this Official Statement. Operation and Maintenance Costs may vary in the future with labor costs (including costs related to pension liabilities), treatment costs, regulatory compliance costs and other factors. Increases in expenses could require an increase in rates or charges in order to comply with the rate covenant. See the caption “SECURITY FOR THE 2016 BONDS—Rate Covenant.”

Acceleration

If the City defaults on its obligation to pay the principal of and interest on the 2016 Bonds, the Trustee has the right to declare the total unpaid principal of the 2016 Bonds, together with the accrued interest thereon to be immediately due and payable. However, in the event of a default and such acceleration there can be no assurance that the City will have sufficient funds to pay the accelerated amounts due on the 2016 Bonds from Net Revenues.

Rate-Setting Process under Proposition 218

Proposition 218, which added Articles XIIIC and XIIID to the State Constitution, affects the City’s ability to maintain existing rates and impose rate increases, and no assurance can be given that future rate increases will not encounter majority protest opposition or be challenged by initiative action authorized under Proposition 218. In the event that future proposed rate increases cannot be imposed as a result of majority protest or initiative, the City might thereafter be unable to generate Net Revenues in the amounts required by the Indenture to pay the 2016 Bonds. The City believes that the current water rates approved by the City Council were effected under the public hearing and majority protest provisions of Proposition 218. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.”

Statutory and Regulatory Compliance

Laws and regulations governing the treatment and delivery of water are enacted and promulgated by federal, State and local government agencies. Compliance with these laws and regulations is and will continue to be costly, and, as more stringent standards are developed, such costs will likely increase.

Claims against the Water System for failure to comply with applicable laws and regulations could be significant. Such claims may be payable from assets of the Water System or from other legally available sources. In addition to claims by private parties, changes in the scope and standards for public agency water systems such as that operated by the City may also lead to administrative orders issued by federal or State regulators. Future compliance with such orders can also impose substantial additional costs on the City. No

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assurance can be given that the cost of compliance with such laws, regulations and orders would not adversely affect the ability of the City to generate Net Revenues sufficient to pay the 2016 Bonds.

Natural Disasters

The occurrence of any natural disaster in the City, including, without limitation, fire, earthquake, landslide, drought or flood, could have an adverse material impact on the economy within the City, the Water System and the revenues available for the payment of the 2016 Bonds. Portions of the Water System may be at risk of damage or destruction from wildfires or subject to unpredictable seismic activity. The City maintains earthquake and flood insurance for parts of the Water System. See the caption “THE CITY OF LOMA LINDA—City Insurance.”

The occurrence of natural disasters in the area of the Water System could result in substantial damage to the Water System which, in turn, could substantially reduce revenue generated by the Water System and affect the ability of the City to pay the 2016 Bonds. The City maintains liability insurance for the Water System and property casualty insurance for certain portions of the Water System. However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers.

Furthermore, as described under the caption “THE CITY OF LOMA LINDA—City Insurance,” significant portions of the Water System, including pipelines, are not covered by property casualty insurance. Damage to such portions of the Water System as a result of natural disasters would result in uninsured losses to the City.

Limitations on Remedies

The ability of the City to comply with its covenants under the Indenture and to generate Net Revenues sufficient to pay principal of and interest on the 2016 Bonds may be adversely affected by actions and events outside of the control of the City or actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay assessments, fees and charges. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES—Proposition 218.” Furthermore, the remedies available to the owners of the 2016 Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain.

In addition, usual equity principles may limit the specific enforcement under State law of certain remedies, as may the exercise by the United States of America of the powers delegated to it by the federal Constitution, and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the 2016 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations, or modification of their rights. Remedies may be limited because the Water System serves an essential public purpose.

In addition to the limitations on remedies contained in the Indenture, the rights and obligations under the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against cities in the State. The opinion to be delivered by Bond Counsel concurrently with the issuance of the 2016 Bonds will be subject to such limitations and the various other legal opinions to be delivered concurrently with the issuance of the 2016 Bonds will be similarly qualified. See Appendix C. In the event that the City fails to comply with its covenants under the Indenture or fails to pay principal of and interest on the 2016 Bonds, there can be no assurance of the availability of remedies adequate to protect the interest of the holders of the 2016 Bonds.

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Loss of Tax Exemption

In order to maintain the exclusion from gross income for federal income tax purposes of interest on the 2016 Bonds, the City has covenanted in the Indenture to comply with the applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”), and not to take any action or fail to take any action if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the 2016 Bonds under Section 103 of the Code. Interest on the 2016 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of such 2016 Bonds as a result of acts or omissions of the City in violation of this or other covenants in the Indenture applicable to the 2016 Bonds. The 2016 Bonds are not subject to redemption or any increase in interest rates should an event of taxability occur and will remain outstanding until maturity or prior redemption in accordance with the provisions contained in the Indenture. See the caption “TAX MATTERS.”

Secondary Market

There can be no guarantee that there will be a secondary market for the 2016 Bonds or, if a secondary market exists, that the 2016 Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.

Parity Obligations

The Indenture permits the City to enter into additional Contracts or issue Bonds payable from Net Revenues on a parity with the 2016 Bonds, subject to the terms and conditions set forth therein. The entry into of additional Contracts or the issuance of Bonds could result in reduced Net Revenues available to pay the 2016 Bonds. The City has covenanted to maintain Maximum Annual Debt Service coverage of 115%, as further described under the caption “SECURITY FOR THE 2016 BONDS—Additional Indebtedness.”

APPROVAL OF LEGAL PROCEEDINGS

The valid, legal and binding nature of the 2016 Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, acting as Bond Counsel. The form of such legal opinion is attached hereto as Appendix C, and such legal opinion will be attached to each 2016 Bond. Certain legal matters will be passed upon for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and by Robbins & Holdaway, Inc., City Attorney, for the Underwriter by its counsel, Jones Hall, A Professional Law Corporation, and for the Trustee by its counsel.

From time to time Bond Counsel represents the Underwriter on matters unrelated to the issuance of the 2016 Bonds or other City obligations.

LITIGATION

At the time of delivery of and payment for the 2016 Bonds, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the City affecting the existence of the City or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the 2016 Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the 2016 Bonds, the Indenture, or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its

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authority with respect to the 2016 Bonds or any action of the City contemplated by any of said documents, nor to the knowledge of the City, is there any basis therefor.

TAX MATTERS

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2016 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2016 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations.

Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2016 Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2016 Bonds to assure that interest (and original issue discount) on the 2016 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2016 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2016 Bonds. The City has covenanted to comply with all such requirements.

The amount by which a 2016 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2016 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2016 Bond Owner’s basis in the applicable 2016 Bond (and the amount of tax-exempt interest received with respect to the 2016 Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2016 Bond Owner realizing a taxable gain when a 2016 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2016 Bond to the Owner. Purchasers of the 2016 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.

In the opinion of Bond Counsel, the difference between the issue price of a 2016 Bond (the first price at which a substantial amount of the 2016 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2016 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner’s basis in the applicable 2016 Bond. The amount of original issue discount that accrues to the Beneficial Owner of the 2016 Bonds is excluded from the gross income of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2016 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2016 Bonds might be affected as a result of such an audit of the 2016 Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2016 Bonds to the extent that it

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adversely affects the exclusion from gross income of interest (and original issue discount) on the 2016 Bonds or their market value.

SUBSEQUENT TO THE ISSUANCE OF THE 2016 BONDS, THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE 2016 BONDS OR THE MARKET VALUE OF THE 2016 BONDS. LEGISLATIVE CHANGES HAVE BEEN PROPOSED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME TAX BEING IMPOSED ON CERTAIN OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2016 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2016 BONDS. NO ASSURANCE CAN BE GIVEN THAT, SUBSEQUENT TO THE ISSUANCE OF THE 2016 BONDS, SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE 2016 BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE 2016 BONDS.

Bond Counsel’s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2016 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any 2016 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.

Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the 2016 Bonds and the accrual or receipt of interest (and original issue discount) on the 2016 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2016 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2016 Bonds.

Should interest (including original issue discount) on the 2016 Bonds become includable in gross income for federal income tax purposes, the 2016 Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed in accordance with the Indenture.

A complete copy of the proposed opinion of Bond Counsel is set forth in Appendix C.

NO RATING

The 2016 Bonds have not been rated by any credit rating agency.

UNDERWRITING

The 2016 Bonds will be purchased by Newcomb Williams Financial Group, Securities offered through Stinson Securities, LLC (the “Underwriter”) pursuant to a Purchase Contract, dated August 30, 2016, by and between the City and the Underwriter (the “Purchase Contract”). Under the Purchase Contract, the Underwriter has agreed to purchase all, but not less than all, of the 2016 Bonds for an aggregate purchase price of $5,615,645.25 (representing the principal amount of the 2016 Bonds, less Underwriter’s discount of

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$56,150.00, plus net original issue premium of $56,795.25). The Purchase Contract provides that the Underwriter will purchase all of the 2016 Bonds if any are purchased, the obligation to make such a purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions.

The initial public offering prices stated on the inside cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2016 Bonds to certain dealers (including dealers depositing 2016 Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices.

MUNICIPAL ADVISOR

A. M. Miller & Co., Inc., San Diego, California (the “Municipal Advisor”) has assisted the City in matters relating to the planning, structuring, and sale of the 2016 Bonds and the preparation of this Official Statement, and has provided general financial advisory services to the City with respect to the sale of the 2016 Bonds. The Municipal Advisor provides financial advisory services only and does not engage in the underwriting, marketing, or trading of municipal securities or other negotiable instruments. The payment of fees of the Municipal Advisor is contingent upon the closing of the 2016 Bond transaction.

CONTINUING DISCLOSURE UNDERTAKING

The City has covenanted in a Continuing Disclosure Agreement for the benefit of the holders and Beneficial Owners of the 2016 Bonds to provide certain financial information and operating data relating to the City by not later than April 1 following the end of the City’s Fiscal Year (currently its Fiscal Year ends on June 30) (the “Annual Report”), commencing with the report for Fiscal Year ending June 30, 2016, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the City with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures (“EMMA”), maintained on the Internet at http://emma.msrb.org/. The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E. These covenants have been made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission.

The City’s audited financial statements and certain annual financial information and operating data for the City and its former redevelopment agency for Fiscal Years 2012 and 2015 were filed approximately five months after the required filing dates. In addition, certain housing tax revenue and tax increment revenue information for Fiscal Years 2011 through 2015 was omitted from continuing disclosure annual report filings of the City’s former redevelopment agency. The City also did not timely file notice of two bond insurer upgrades in 2013 and 2014. The City filed the omitted information with EMMA prior to the sale of the 2016 Bonds.

Except as disclosed in the prior paragraph, the City has not in the past five years failed to comply with any previous continuing disclosure undertaking in any material respect. The City has retained U.S. Bank National Association as dissemination agent to ensure compliance with its continuing disclosure filings going forward.

FINANCIAL INTERESTS

The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel, counsel to the Underwriter, the Municipal Advisor and the Trustee are contingent upon the issuance and delivery of the 2016 Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the 2016 Bonds.

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MISCELLANEOUS

Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2016 Bonds.

The execution and delivery of this Official Statement have been duly authorized by the City.

CITY OF LOMA LINDA

By: /s/T. Jarb Thaipejr City Manager

THIS PAGE INTENTIONALLY LEFT BLANK

A-1

APPENDIX A

FINANCIAL STATEMENTS

City of Loma Linda Fiscal Year End June 30, 2015

Comprehensive Annual Financial Report

New Development

COMPREHENSIVEANNUAL FINANCIAL REPORT

CITY OF LOMA LINDA, CALIFORNIA For the Fiscal Year Ended June 30, 2015

Prepared by:

City Manager’s Office Finance Department

25541 Barton Road, Loma Linda, CA 92354 Telephone: (909) 799-2840 – Fax: (909) 799-2893

http://www.lomalinda-ca.gov

CITY OF LOMA LINDA Comprehensive Annual Financial Report For the year ended June 30, 2015

Table of Contents

PageINTRODUCTORY SECTION

Letter of Transmittal i GFOA Certificate of Achievement for Excellence in Financial Reporting xiii Principal Officers xiv Organizational Chart xv

FINANCIAL SECTION

Independent Auditor’s Report 1

Management’s Discussion and Analysis 5

Basic Financial Statements:

Government-Wide Financial Statements: Statement of Net position 17 Statement of Activities 18

Fund Financial Statements: Governmental Fund Financial Statements: Balance Sheet 22 Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position 25 Statement of Revenues, Expenditures, and Changes in Fund Balance 26 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Government-Wide Statement of Activities and Changes in Net Position 28 Proprietary Fund Financial Statements: Statement of Net Position 30 Statement of Revenues, Expenses, and Changes in Fund Net Position 31 Statement of Cash Flows 32 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Position 35 Statement of Changes Fiduciary Net Position 36

Notes to Basic Financial Statements 37

Required Supplementary Information (Unaudited) Budget and Budgetary Accounting 90 Budgetary Comparison Schedules

General Fund 91 Loma Linda Housing Authority Fund 92

CITY OF LOMA LINDA Comprehensive Annual Financial Report For the year ended June 30, 2015

Table of Contents

Page

Schedule of Funding Progress – Other Post Employment Benefits 93 Schedule of the plan's proportionate share of the plan's net pension liability 94 Related ratios as of the measurement date, schedule of plan contributions 95

Supplementary Information:

Major Governmental Fund Budgetary Comparison Schedule: Special Projects Construction Capital Projects Fund 100 Park Development Capital Projects Fund 101 Nonmajor Governmental Fund Financial Statements: Combining Balance Sheet 108 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 116 Nonmajor Governmental Budgetary Comparison Schedule: Nonmajor Governmental Funds – Special Revenue Funds: Traffic Safety 126 Gas Tax 127 Measure I 128 Street Lighting District 129 Landscape Maintenance District 130 Air Quality Management District 131 Public Improvement Per MOU Fund 132 Community Development 133 Grant Fund 134 Citizens Option for Public Safety 135 Development Agreement Consideration 136 Nonmajor Governmental Funds – Capital Projects Funds Storm Drain 137 Traffic Impact 138 Fire Facilities 139 General Facilities 140 Public Meeting Facilities 141 Public Library Facilities 142 Art in Public Places 143 Regional Traffic Development Impact 144

CITY OF LOMA LINDAComprehensive Annual Financial Report For the year ended June 30, 2015

Table of Contents

PageSupplementary Information:

Nonmajor Governmental Funds – Debt Service Funds: Loma Linda Public Financing Authority 145 All Agency Funds: Combining Statement of Changes in Assets and Liabilities 149

STATISTICAL SECTION (UNAUDITED)

Net Position by Component 152 Changes in Net Position 154 Governmental Activities Tax and Assessments Revenues by Source 158 Fund Balances of Governmental Funds 160 Changes in Fund Balances of Governmental Funds 162 General Governmental Tax Revenues by Source 165 Assessed Value and Estimated Actual Value of Taxable Property 166 Direct and Overlapping Property Tax Rate 169 Principal Property Taxpayers 170 Property Tax Levies and Collections 171 Ratios of Outstanding Debt by Type 172 Ratios of General Bonded Debt Outstanding 174 Governmental Activities Debt 175 Computation of Legal Debt Margin 176 Pledged-Revenue Coverage 178 Demographic and Economic Statistics 180 Principal Employers 181 Full-Time Equivalent City Government Employees by Function 182 Operating Indicators by Function 183 Capital Asset Statistics by Function 184

Government Finance Officers Association

Certificate of Achievement for Excellence

in Financial Reporting

Presented to

City of Loma Linda

California

For its Comprehensive Annual Financial Report

for the Fiscal Year Ended

June 30, 2014

Executive Director/CEO

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CITY OF LOMA LINDA

PRINCIPAL OFFICIALS

ELECTED OFFICIALS

Rhodes Rigsby Mayor

Phill Dupper Ovidiu Popescu Mayor pro tempore Councilmember

Ron Dailey John Lenart Councilmember Councilmember

APPOINTED OFFICIALS

Jarb Thaipejr City Manager/Public Works Director

Richard Holdaway City Attorney

Pamela Byrnes O’Camb..………......….………………………City Clerk

Konrad Bolowich……..………………………...Assistant City Manager

Diana De Anda………………………….….Finance Director/Treasurer

Jeff Bender……..………………….…….……………………Fire Chief

City of Loma Linda 25541 Barton Road, Loma Linda. California 92354-3160 • (909) 799-2800 • FAX (909) 790-2890

Sister Cities Manipur Karnataka, India - Libertadore, San Martin, Argentina • www lomalinda-ca.gov

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December 8, 2015

To the Honorable Mayor, Members of the City Council, and Citizens of Loma Linda:

It is with great pleasure that we present to you the City of Loma Linda’s audited Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2015. The financial statements contained in this report are presented in conformity with generally accepted accounting principles (GAAP) and have been audited in accordance with generally accepted auditing standards (GAAS) and Government Auditing Standards (GAGAS) by an independent certified public accountants firm.

The Comprehensive Annual Financial Report includes the financial activity for all funds of the City and the Redevelopment Agency. The report is organized into three major sections which include the Introductory Section, the Financial Section, and the Statistical Section.

Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal control that it has established for this purpose, which include an array of administrative procedures. These controls are designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against loss from unauthorized use or disposition, as well as the reliability of financial records for accurate and fair presentation of financial reports. The concept of reasonable assurance recognizes that the cost of specific controls should not exceed the benefits likely to be derived from exercising the controls, and that this evaluation involves estimates and judgments by management. It is believed that the City’s internal accounting controls adequately safeguard City assets and provide reasonable assurance of proper recording of financial transactions.

Rogers, Anderson, Malody and Scott, LLP, Certified Public Accountants, have issued an unqualified (“clean”) opinion on the City of Loma Linda’s financial statements for the year ended June 30, 2015. The independent auditor’s report is located at the front of the financial section of this report.

Management’s discussion and analysis (MD&A) immediately follows the independent auditor’s report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complement this letter of transmittal and should be read in conjunction with it.

PROFILE OF THE GOVERNMENT

The City of Loma Linda (City), incorporated in September 29, 1970, is located on the south side of Interstate 10, east of the 215 Freeway. Loma Linda is home to the world famous Loma Linda University and Medical Center with over 12,968 employees, the one of the largest employer in San Bernardino County. Loma Linda (“Beautiful Hill”), originally known as “Mound City”, has a history of being a health-conscious community, and in 1993 became the first “smoke free” city in San Bernardino County. The Seventh-Day Adventist Church purchased the Loma Linda Resort Hotel from a group of businessmen and physicians from Los Angeles hospitals and converted it into the Loma Linda Sanitarium in 1905. The Sanitarium eventually became a full service medical facility and medical college, the forerunners of the Loma Linda University and Medical Center.

City of Loma Linda June 30, 2015 Comprehensive Annual Financial Report

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Loma Linda covers an area of 7.56 square miles and has a resident population of 23,751, as certified by the State Department of Finance, as of June 30, 2015. The City once ranked one of the largest growing cities in San Bernardino County has only increased by 137 residents, mainly due to the economic downturn and very limited new residential construction. Loma Linda’s median income is $58,741, 11% higher than the average for San Bernardino County.

As presented in the ten year population history chart, Loma Linda’s population has begun to plateau over the past few years. As of the 2010 Census which measured the population at 23,261, the State Department of Finance has estimated a growth of 490 to its current total of 23,751, with the growth of 137 from 2014 to 2015.

The City is governed under charter by a City Council/City Manager plan. The people of Loma Linda elect five Council Members, from which the City Council chooses the Mayor and the Mayor pro tempore. The City

Council appoints the City Manager, who is responsible for the daily operations of all City departments and the Council also appoints the City Attorney.

The City’s operating departments are Fire Department, Public Works, Community Development, Economic Development, City Clerk, Finance, Information Systems and Administration.

The City of Loma Linda is a full service Municipal Government. Services provided by the City include police (through contract with San Bernardino Sheriff’s) and fire protection; utilities services of water, sewer and refuse (under contract with a private hauler); internet connection services; street and park maintenance; storm and waste water drainage maintenance; planning and zoning management; general administrative services; a senior center and a library branch (staffed by the County of San Bernardino).

Financial administration of the City is the responsibility of the Finance Director/City Treasurer, who supervises the City’s fiscal administration, which includes the day-to-day accounting, budgetary and reporting compliance, business licensing, utility billing operations and cash management.

THE REPORTING ENTITY (Activities included in the report)

The report includes all activities carried out by the City as a legal entity, and also includes the activities of the Loma Linda Successor Agency to the Redevelopment Agency (Successor Agency), the Loma Linda Housing Authority (LLHA) and the Public Financing Authority (PFA), for which the City Council, acting in the capacity of Board to the Successor Agency and both Authorities, is financially accountable as determined under the guidelines of the Governmental Accounting Standards Board (GASB).

ACCOUNTING SYSTEMS AND BUDGETARY CONTROL

The City’s fund accounting records are maintained using a modified accrual basis of accounting as explained in the Notes to the Financial Statements, following the accounting practices for

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governmental units as mandated by the Governmental Accounting Standards Board. Basic City operations are accounted for in the City’s General Fund, with other activities accounted for in separate funds as required by law or determined by management discretion.

The Government-Wide financial statements (Statement of Net Assets and Statement of Activities) follow the accrual basis of accounting. As required by GASB, an accompanying summary reconciliation schedule is presented following the Governmental fund financial statements. These reconciliation schedules are presented on pages 25 and 28 in the body of the financial statements.

The Finance Director/City Treasurer is charged with the responsibility for the receipt and disbursement of all monies and to maintain control over all expenditures to insure that budget appropriations are not exceeded. The level of budgetary control, that is, the level at which expenditures are not to exceed Council approved appropriations is established at the fund, department, division and categories (personnel, maintenance and operations, and capital outlay) of expenditure levels. Adjustments at the object level within major categories of expenditures are permissible at the department and division level, however, adjustments involving transfers between major categories of expenditures, between departmental and division budgets or between departments within the same fund, require Finance Director recommendation and City Manager approval. Adjustments between funds and additional supplemental appropriation funding require City Council approval. An encumbrance (commitment) accounting system is utilized as a technique to enhance budgetary control during the year. All appropriations lapse at year-end and become available for re-appropriation the following year, upon recommendation by the City Manager. Furthermore, the Citizen’s Budget Committee plays a major role in the budgetary recommendations to the City Council.

SIGNIFICANT EVENTS AND ACCOMPLISHMENTS

During 2014/2015 the City achieved many accomplishments that may not be evident from a review of the financial statements. Some of the more important accomplishments as well as on-going projects are summarized below.

Community Development:

During the period, the Community Development Department’s Planning Division completed the following projects:

Precise Plan of Design Applications 20,000 sf Ronald McDonald House Expansion 3,260 square foot Restaurant Building 6,700 square foot office/warehouse Remodel of commercial office building

Conditional Use Permit Applications Digital Monument Sign Digital Freeway Sign 57-foot high wireless telecommunication facility 60 foot high wireless telecommunication facility

Variance Applications 8-foot high monument sign 8-foot high monument sign 57-foot high wireless telecommunication

Annexation Applications


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Annexation of approximately 20 acres of land General Plan Amendment Applications

Change the land use designation from Business Park to Low Density Residential for 9.5 acres of land.

Pre-Zone Applications To establish the Single Family Residence (R-1) Zone for 20 acres of land to be annexed.

Tentative Tract Map ApplicationsApproval of Tentative Tract Map (TTM) to subdivide the approximate 9.5-acre 35 single-family residences and four (4) common lettered lots.

In addition, the Department processed several small project applications, home occupations, special event permits, sign plan reviews, fence and patio permits, land use permits.

Commensurate with the level of entitlement activity experienced by the community, the Building Division checked plans, issued building permits, and conducted inspections for permit requests.

The Code Enforcement section was very active during the 2014/2015 fiscal year. Animal licensing compliance continues to dramatically increase, animal impounds were maintained at the record low levels, and rabies vaccination compliance was improved. The City continues to utilize the City of San Bernardino for shelter services.

Fire Department

During the fiscal year, City of Loma Linda Fire Department resources responded to 4,005 calls for service. 130 of these responses were for fires. Fire Department resources were successful in containing the majority of all residential structure fires to the room of origin and all residential structure fires to the building/residence of origin. Fires in commercial occupancies were also contained as small to medium sized incidents. All vegetation fire incidents in the city boundaries were controlled with the alarm response resources. Aggressive and successful fire attack operations have not only mitigated the loss of personal property of our residents, but also protected vital property & sales tax revenues that the community relies on to fund essential services. Sixty-four percent of our responses were for emergency medical incidents or traffic collisions to which the department deploys resources with rescue and Advanced Life Support capabilities. The Department is realizing an enhancement in its management depth through the resource sharing agreement with our neighboring jurisdiction. The consolidated command staff concept with the City of Colton Fire Department has allowed the combined command staff to dedicate managers to the functional divisions of Training and EMS (Emergency Medical Services) which were previously managed as secondary assignments of the Operational Battalion Chiefs. Both agencies are experiencing in increase in both quantity and quality of training opportunities above the company level. In addition the EMS section is now able to begin exploring service opportunities that are being defined by the National Affordable Healthcare Act and the emerging concepts of transitional health care in the pre-hospital environment. A primary focus of our work in this area is creating alternatives to traditional transport of all EMS patients to emergency departments in order to reduce unnecessary health care costs. Alternatively we would explore redirecting a portion of health care savings to support the health care services delivered by the Fire Department.

Information Systems Department

The City of Loma Linda continues to prepare for the future with its Loma Linda Connected Community Program (LLCCP). The Program includes the deployment of an advanced city-wide


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fiber optic network as well as modifications to building regulations to ensure that development will be designed to meet the needs of future communication technologies. The City building code requires all new commercial and residential developments (or re-models involving greater than 50% of the structure) to equip the new structures with a fiber-optics interface and copper cabling throughout. The network is expanding into commercial areas via organic growth at existing locations.

The City continues to expand services to commercial customers through focused network expansion and custom designed services. Existing businesses are utilizing the service, and new businesses are locating to the area as well as expanding to take advantage of the service. The existing fiber infrastructure has been completed to provide traffic signal coordination at all thoroughfares. Fiber infrastructure is also being utilized in monitoring and control of water production, street lights, energy usage, and distributed computing throughout the City.

Additional, IT projects include the completion of an extension of the fiber optic line to the City of grand terrace, new work station rollouts, phone switch improvements, server upgrades, and improvements to the physical infrastructure. Management continues to work with outside organizations that desire to tap into the infrastructure as a means of expanding their communication abilities. The City continues to provide IT support services to the City of Grand Terrace to leverage these assets to continue to grow a vibrant, economically strong community and region.

Successor Agency, Oversight Board and Loma Linda Housing Authority:

Successor Agencies

On February 1, 2012, Successor Agency replaced Redevelopment Agency. On this date all assets, property contracts, and leases of the former redevelopment agency transferred to the Successor Agency. Loma Linda elected to become the Successor Agency for its former redevelopment agency. The Successor Agency created a Redevelopment Obligation Retirement Fund, which continues to make payments on approved the Recognized Enforceable Obligation Schedules (ROPS), maintain reserves, perform obligations required by Enforceable Obligations, enforce all rights for the benefit of taxing agencies and will eventually dispose of assets and property based on an approved Property Management Plan. Annually the Successor Agency must submit two ROPS for a fiscal year’s operating periods of 1) June – December, and 2) January – June. These ROPS must be approved by the Oversight Board, and submitted to the Department of Finance (DOF), State Controller’s Office (SCO) and County Administration Office (CAO) for final review and approval before funds are disbursed to the Successor Agency. In 2016, the ROPS process will transition to one annual submission. During fiscal year 2014/2015 the City continued to pursue its litigation suit against the Department of Finance, and in July of 2015 was able to reach a settlement regarding all matters in the suit.

Oversight Board

The Oversight Board is composed of one member each appointed by the County Board of Supervisors, Mayor, the largest Special District by property tax share, the County Supervisor of Education, the Chancellor of the California Community Colleges, a public member appointed by the County Board of Supervisors and a member representing employees of the former Redevelopment Agency appointed by the Mayor or the Chair of the County Board of Supervisors. The Oversight Board directs staff of the Successor Agency, has fiduciary responsibilities to holders of enforceable obligations, approves actions of the Successor Agency and establishes the Recognized Obligations Payment Schedules. It takes a majority of the


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Oversight Board to constitute a quorum and to vote to take action. On, or after July 1, 2016, a single Oversight Board for the County shall be appointed.

Loma Linda Housing Authority

On February 1, 2012, all redevelopment agencies in the State of California, including the Loma Linda Redevelopment Agency (the “Agency”), were dissolved. As part of the dissolution of the Agency, a successor agency (“Successor Agency”) was established to administer the wind-up of the business of the Agency. An oversight board (“Oversight Board”) was established to oversee the operations of the Successor Agency. In accordance with the laws applicable to the dissolution of redevelopment agencies, the City of Loma Linda designated the Loma Linda Housing Authority (“LLHA”) as the entity to receive the housing assets of the Agency. The transfer of housing assets of the Agency to the LLHA was reviewed and approved by the Oversight Board, as reported to the California Department of Finance (which, in turn, reviewed the matter). Housing assets of the Agency that were transferred include property assets, land, improvements, contracts, loan agreements, leases, rights to enforce agreements and covenants, among other items.

During Fiscal Year 2014/2015, the LLHA operated programs, including ongoing monitoring and enforcement of affordability covenants, leases and agreements related to housing matters as previously entered into by the Agency, similar contracts as entered into by the LLHA, and provided certain assistance to homebuyers of low income. Units that are monitored for ongoing affordability include 47 single-family ownership units and 238 privately-owned rental units (most of which are operated under ground leases made by the Agency, with respect to which the LLHA has assumed the role as landlord).

In addition, the LLHA facilitated the re-sale/purchase of five (5) single-family homes to income qualified buyers and is negotiating with a potential buyer for the sale and development of affordable housing on various small sites dispersed in various parts of the City (and commonly referred to as “scattered sites.”

Economic Development:

The Veterans Administration (VA) continues construction of a new 300,000 sq. ft. medical clinic due to open in spring 2016. A national brand hotel has been completed, with a second hotel in development review. A new gas station opened in late 2014. Efforts are continuing to attract retail, commercial and hospitality customers to parcels adjacent to the VA clinic. The unoccupied Fresh & Easy has been repurposed as a Dollar Tree and is open. Large areas of residential land in and around Special Planning Area “D” are in the entitlement process. Additionally, there are several other commercial projects in the preliminary stages of building plan checks and permitting that will bring much needed businesses to the community.

Capital Improvement Program (CIP) Projects:

Public Works

During fiscal year 2014/2015, the Public Works Department focused on several projects. The Stewart Street widening/underpass and pedestrian bridge completed construction. The City also repaired sidewalk as needed at various locations throughout the City. The pavement maintenance program rehabilitated Barton Road from the UPRR crossing to San Timoteo Canyon Road and Mountain View Avenue between Barton Road and Lawton Avenue. The next phase of the Corporation Yard fire alarm system upgrade was completed. The Water Division


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continued with the meter replacement program. The water treatment facilities continue being refined for maximum efficiency. Project plan checking is completed on an as needed basis. The Department continues with required State and Federal regulation compliance, including air quality, storm water, water conservation, and solid waste diversion.

LOCAL ECONOMY AND PROSPECTS FOR THE FUTURE

As presented in the Loma Linda General Plan (2009), Loma Linda is a unique community with strong ties to its religious, educational and healing arts roots. The Loma Linda University Medical Center (LLUMC) and the Jerry L. Pettis Memorial Veterans Medical Center (VA Medical Center) provide much of the economic base of the community through the employment of a highly trained local labor force. The City is seeking to expand upon this economic base with medical support services, research facilities, professional offices and lodging accommodations for visitors to the medical centers and community. In addition to increasing commercial and industrial opportunities, Loma Linda is in the process of managing residential growth to provide an appropriate range of housing opportunities to accommodate the diverse work force needed by the medical facilities. The vision for the future of Loma Linda is for the City to have a balanced economy that meets the needs of the community and is a great place to live and do business. The goal is to attract high-tech industries to the City and create a diverse mix of high paying job opportunities to maintain the City’s high quality standard of living and complement the LLUMC.

In 2015, the median price of a home in Loma Linda was $358,000, an increase of $53,250 or 18.3%, from $305,750 in 2014, according to the San Bernardino County Recorder. This is an overall decrease of 21.7% to the median price since peaking at $457,200, in 2006. After several years of fluctuations in home values due to uncertain economic conditions, Loma Linda is seeing a steady increase in the year to year data for 2015. The City of Loma Linda is expected to continue attracting skilled and educated residents that can be provided with local jobs as well as access to surrounding job markets via Internet technology. The LLCCP has established building requirements to enhance technological access as part of each new development project, providing the technological infrastructure for

local residents to stay “connected” from home.

The Sales Tax History chart is a ten year historical presentation of the City’s sales tax revenue through fiscal year ending June 30, 2015. In 2015, the City received $5,721,938 in sales tax revenues, an increase of 53.28% or $1,988,778 from $3,733,160 in 2014, primarily due to a new economic incentive agreement generating significant taxable sales. Overall, sales tax revenue has grown steadily since the dips in 2004/2005;

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City of Loma LindaSales Tax History

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City of Loma LindaMedian Housing Prices


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City of Loma LindaProperty Tax History

General Fund

with a slight dip in 2009/2010 due to lack of consumer confidence and drops in business and industry taxable sales in that year.

The City of Loma Linda continues to rely heavily on retail sales to fund its general government services. In order to improve the availability of retail shopping facilities and attract more shoppers to buy locally, the City is hoping to continue expanding its sales tax base through economic development like recent commercial projects that have been added to our community and additional commercial development projects planned over the next few years.

Property taxes are collected by the City and the Successor Agency to the Redevelopment Agency, with the bulk of the property tax collected by the Agency. The chart to the right is a 10-year history of the City’s General Fund property tax revenues through fiscal year ending June 30, 2015. As shown here, General Fund property taxes had declined sharply over fiscal years 2010 through 2012, as the result of the housing market collapse and the ongoing economic recession, but over the last three years have been steadily increasing. On June 30, 2015, property tax revenues were reported at $1,643,750, an increase of $28,013 or 1.73% from fiscal year 2014. The majority of the increase ($152,830 or 78%) is attributed to the dissolution of the Redevelopment Agency, and the City receiving pass-through and residual receipts of property taxes not needed to meet enforceable obligations by the Successor Agency. Property tax revenue is reported in the attached Statistical table on pages 170-172.

Median housing prices are just one factor in citywide assessed values. Tax-exempt properties continue to be a significant factor in the overall assessed values for the City and the former Redevelopment Agency, now the Successor Agency, in Loma Linda. As of June 30, 2015, the San Bernardino County’s Assessor reported an increase in city wide assessed property values of 1.74%, with Loma Linda showing a 1.77% increase.

Overall property tax revenues are showing signs of stabilizing and starting to increase as foreclosures decline and are resold, signs of growth in the sales of existing homes, and the fact that the majority of recently developed and available undeveloped land is within the merged redevelopment project areas. As a taxing entity, the City will receive pass-through taxes from

the Successor Agency as property values increase and vacant land gets developed.

In fiscal year 2004/2005, as part of the Governor’s Budget/Constitutional Protection package, a VLF swap was approved. What the swap boils down to is an exchange of the current VLF backfill from the State’s general fund for an equivalent amount of property tax revenues in fiscal year 2004/2005. Any future growth in VLF revenue would be calculated in proportion to the growth in gross assessed valuation,

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City of Loma Linda Vehicle License Fee (VLF)

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including the than merged Redevelopment Agency valuation. As presented in the ten year history chart, VLF had been steadily since fiscal year 2009/2010, with slight fluctuations up and down. In fiscal year 2014/2015, the City collected $1,798,631, in VLF revenue, an increase of $110,191 or 6.53% due to a slight increase in property values within the City.

ACTUAL OPERATING RESULTS – GENERAL FUND

The following discussion summarizes the annual operating results of the City’s General Fund, for the fiscal year ended June 30, 2015. Further details are presented in the individual financial statements attached to this transmittal letter.

The chart on the left illustrates the ten year history of total revenues, expenditures and net change in fund balance for the General Fund through June 30, 2015. The Net Change in Fund Balance figure in the chart includes operating revenues, operating

expenditures, transfers to and from other funds and gain on sale of capital assets. For further detail and breakdown, please refer to the statistical section of this CAFR.

ANNUAL OPERATING RESULTS – ENTERPRISE FUNDS

The City accounts for its Water, Sewer and LLCCP operations on an “enterprise” basis, meaning that the activity is treated more like a commercial business, separate and apart from general City operations. In fiscal year 2014/2015, Enterprise Fund operating revenues for Water, Sewer and LLCCP combined, totaled $10,113,859, an increase of 8.3% over fiscal year 2013/2014, while operating expenses increased by $370,228, or about 3.4%, over the same period.

Water Operations

For Water Operations specifically, the Water fund operating expenses exceeded operating revenues by $952,454 this year, mainly attributable to the increase in cost of services. Last year the Water Fund showed an operating deficit of $1,016,036 for the year. Note that this chart does includes any “non-operating” revenues or expenses, such as interest revenue of $3,674, transfers in, $255,653, interest expense of $4,439 and loss of disposal of capital assets of $15,435. Interest expense in the Water Fund has decreased by 27.1% or $1,202, due to the progressive decreases of interest rates on the 1995 Variable Rate

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City of Loma LindaWater Operations Fund History

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City of Loma Linda10-Year General Fund History

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Water Revenue Refunding bonds. Market interest rates have remained at historic lower levels resulting in lower interest costs for the Water Fund on the variable rate interest bond. The bond issue continues to be monitored by the City’s financial advisor in order to determine if and when the cost vs. benefit of converting from a variable rate to a fixed rate obligation will be beneficial to the City.

In efforts to reduce operational cost and increase water conservation, the City is in the fourth year of a City-wide meter replacement project that will reduce the loss of revenue and make monitoring water usage more efficient. Additionally, the City conducted, and in February of 2014, adopted an updated rate study to address the ongoing operating needs of the water system. New rates were effective April of 2014, with annual increases of 4.5% through fiscal year 2017/2018.

Sewer Operations

For the operating period ending June 30, 2015, the Sewer Fund ended the year with a net operating loss of $237,944. Sewer revenues increased by $422,633, or 12.2%, and operating expenses decreased by $18,387 or 0.4% (see the MD&A for an explanation to this decrease). The chart to the left shows the ten-year financial operating history of the Sewer Enterprise Fund. Note that this chart includes any “non-operating”

revenues or expenses (i.e., interest revenue or interest expenses, etc.) or contributions and transfers. Interest revenue has increased minimally from prior year due to low cash balances in the fund and increased treatment expenses relate to the contractual services agreement with the City of San Bernardino implemented as a rate increase for treatment services provided. Because the Sewer Fund has no outstanding debt, interest expense is zero. In conjunction with the water rate update, a sewer rate update was also performed and adopted. New rates were effective April of 2014, with annual increases of 12.5% through fiscal year 2017/2018. The increases were deemed necessary in order to eliminate annual operating losses, repay cash loans and build an emergency reserve fund.

Loma Linda Connected Communities

In Fiscal year 2003/2004 a new Enterprise fund was set up for the purpose of establishing requirements for standardized residential and commercial telecommunications cabling systems. This new system provides some Loma Linda residents and businesses the opportunity to have voice, data, multimedia, home automation systems, environmental control, security, audio, television, sensors, alarms, and intercom services. The revenues and expenses for 2003/2004 and 2004/2005 were minimal as these were the starting years of the program. Fiscal Year 2012/2013 was the ninth full year of operations for the LLCCP with major infrastructure construction activity occurring in the fiscal year’s 2006/2007 and 2007/2008. For the operating period ending June 30, 2015, LLCCP ended the year with operating revenues of $400,978 compared to $414,429 in 2013/2014. Operating expenses of $617,179 are $255,174 or 70.5% higher than expenses for fiscal year 2013/2014. Due to the significant upfront investment in infrastructure, and the annual depreciation of those capital assets, operating revenues are slightly over expenses, resulting in an operating deficit in net position of $216,201. Additionally, net non-operating expenses, interest revenue and interest expense, is higher as interest on

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City of Loma LindaSewer Enterprise History

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outstanding loans to construct the Fiber Optic Network, continues to go unpaid and gets added to the outstanding loan balance.

PENSION FUNDING STATUS

The City provides its full-time and certain part-time employees retirement and disability benefits through two defined benefit pension plans; Miscellaneous and Fire groups. The plans are all part of the California Public Employees’ Retirement System (PERS). The City makes required employer contributions to the plans based on the amounts determined by CalPERS actuaries. All the City employees pay their required employee contribution based on the employees’ group/individual retirement plan formulas. Effective January 1, 2013, Public Employees’ Pension Reform Act (PEPRA) implanted new benefit formulas and final compensation period, as well as new contribution requirements for new employees hired after that date who meet the definition of new member as per PEPRA. This regulation greatly reduces the City of Loma Linda’s cost of new employee pension through the modification of benefits and greater employee contribution. As this change only affects new CalPERS members, the City’s long-term future pension liability is anticipated to decrease.

For this year, the City paid $1,047,183 in employer pension costs to PERS. In fiscal year 2014/2015, the “City’s” share of retirement costs decreased from 17.485% to 13.663% for Miscellaneous employees, increased from 6.25% to 6.5% for Miscellaneous PEPRA, increased from 21.337% to 27.813% for Safety plans and increased from 6.5% to 11.50% for Safety PERA. The reason for the changes in the City’s (employer) share of retirement costs is due to decreases in pool asset values, and differences between projected rate of returns and actual returns on pooled assets.

DEBT ADMINISTRATION

As of June 30, 2015, the City and the Successor Agency had debt outstanding in the amount of $43 million. The Successor Agency has bonded debt principal as follows: (1) the 2003 Tax Allocation Refunding Bonds of $7,040,000, (2) the Subordinate 2005 A Tax Allocation Bonds of $14,095,000, (3) the Subordinate 2005 B Tax Allocation Bonds of $6,870,000 (not including unamortized issuance costs), and (4) the 2008 Taxable Housing Tax Allocation Bonds of $7,855,000. The City had $5,500,000 in debt outstanding as follows: (1) 1978 Water bonds (general obligation) of $10,000 and (2) 1995 Water revenue refunding bonds of $5,490,000 at June 30, 2015. Also, the Loma Linda Public Financing Authority had no debt outstanding as it exercised an optional full redemption and has paid the balance of the Lease Revenue Refunding Bonds issued in 2002. Other debt recorded in footnote 7 - “Non-City Obligation” of the financial statements is not a legal obligation of the City and therefore not included here.

INDEPENDENT AUDIT

An independent audit of the City’s records was performed for the year ended June 30, 2015 by the certified public accounting firm of Rogers, Anderson, Malody and Scott, LLP. The auditors report on the basic financial statements, and combining and individual fund statements and schedules is included in the Financial Section of the CAFR.

In general, the auditors concluded that the financial statements and schedules referred to above present fairly, in all material respects, the financial position of the City of Loma Linda, the Loma Linda Housing Authority and the Loma Linda Redevelopment Agency Successor Agency, as of June 30, 2015, and the results of its operations and cash flows of its proprietary fund types for the year then ended in conformity with generally accepted accounting principles generally


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accepted in the United States of America. The professionalism and knowledge exhibited by Rogers, Anderson, Malody and Scott, LLP during the audit is appreciated.

AWARD

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Loma Linda for its comprehensive annual financial report for the fiscal year ended June 30, 2014. This was the eleventh consecutive year the City of Loma Linda has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish as easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both the generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

ACKNOWLEDGMENTS

The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Department and other City Departments that provided data for preparation of the Statistical section of the Report. We would like to express our appreciation to members of all departments who assisted and contributed to the preparation of this report.

We would like to extend our appreciation to the Mayor, City Council, and each City Department for their cooperation and support in conducting the fiscal operations of the City.

Respectfully submitted,

___________________ _

T. Jarb Thaipejr Diana De Anda City Manager Finance Director/Treasurer

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735 E. Car negie Dr. Suite I 00 San Bernardino. CA 92408 909 889 0871 T 909 889 5361 F ramscpa.net

PARTNERS Brenda L. Odle. CPA. MST

Terry P Shea. CPA Kirk A. Franks. CPA Scott W. Manno, CPA. CGMA

Leena Shanbhag. CPA. MST. CGMA Jay H. Zercher, CPA (Partner Emeritus} Phil hp H. Waller. CPA (Partner Emernus)

DIRECTORS Bradferd A. Welebir. CPA. MBA

MANAGERS/ STAFF

Jenny Liu, CPA. MST Seong-Hyea Lee. CPA. MBA Charles De Simon,, CPA

Yiann Fang. CPA Nathan Statham. CPA. MBA Brigitta Bartha, CPA

Gardenya Duran. CPA Juan Romero. CPA Ivan Gonzales. CPA. MSA Brianna Pascoe. CPA Dan,el Hernandez, CPA. MBA

MEMBERS American Institute of Cert1f1ed Public Accountants

PCPS The A/CPA Alliance (or CPA Firms

Governmental Audit Quality Center

Cal1forn,a Society of Certified Public Accountants

ROGERS. ANDERSON . MALODY & SCOTT, LLP CERTIFIED PUBLIC ACCOUNTANTS, SINCE 1948

INDEPENDENT AUDITOR'S REPORT

To the Honorable Mayor and Members of the City Council Of the City of Loma Linda Loma Linda, California

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, business type activities, each major fund, and the aggregate remaining fund information of City of Loma Linda (City), California , as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. According ly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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STABILITY. ACCURACY. TRUST.

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

OpinionsIn our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter Change in Accounting Principle

As discussed in Note 1 of the financial statements, the City adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions – An Amendment of GASB Statement No. 27 and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date - An Amendment of GASB Statement No. 68. Our opinion is not modified with respect to this matter.

Other Matters Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, schedule of funding progress, schedule of the plan's proportionate share of the plan's net pension liability and related ratios as of the measurement date, schedule of plan contributions, respectively be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Loma Linda's basic financial statements. The introductory section, supplementary schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining and individual nonmajor fund financial statements and supporting schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such

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information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing StandardsIn accordance with Government Auditing Standards, we have also issued our report dated December 8, 2015 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Loma Linda’s, internal control over financial reporting and compliance.

San Bernardino, California December 8, 2015

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Our discussion and analysis of the City of Loma Linda’s financial performance provides an overview of the City’s financial activities for the fiscal year ended June 30, 2015. Please read it in conjunction with the accompanying transmittal letter and the accompanying basic financial statements.

FINANCIAL HIGHLIGHTS

In the Government-Wide – Statement of Net Position: The City’s assets exceeded its liabilities by $100,363,046 (net position); of this amount $76,820,930 is from governmental activities and $23,542,116 is from business-type activities, with $6,245,613 and $13,846,636 in negative unrestricted net position, respectively.

In the Government-Wide – Statement of Net Position: The City’s net position decreased less than 1.0% or $614,419, from $100,977,465 (as restated, see note 19) at the beginning of the year, to $100,363,046 at the end of the year. The decrease is the net result of positive $1,137,533 change in governmental activities and a negative $1,751,952 change in business-type activities.

In the Government-Wide – Statement of Activities: During the current year, Governmental activities program revenues were down $5,524,501, with the major decreases in capital contributions and grants for public works ($4,179,928) and charges for services in community development ($1,351,079). Business-type program revenues, specifically, charges for services, were up $717,333, with the only decrease in the Loma Linda Connected Community Program of $14,451.

In the Governmental Fund – Statement of Revenues, Expenditures, and Changes in Fund Balance: During the year, the General Fund reported a positive net change in fund balance of $1,182,820 due to revenues exceeding expenditures by $785,581, plus other financing sources of $397,239. The major increase in revenue was sales taxes as a result of a new economic incentive agreement.

In the Required Supplementary Information – Budgetary Comparison Schedule: For the General Fund, the actual revenues available for appropriation were more than the final budget by $1,068,525, while actual expenditures were $899,856 less than the final budget. Net actual other financing sources were $44,239 more than the final budget, resulting in a positive $1,182,820 net change in fund balance.

In the 2015/2016 Adopted Budget: The City continues to maintain an overall solid financial position, with the operations of the City’s general fund projected to result in a net positive change to net position of $29,600. City Council and management annually make great efforts to adopt a balanced budget that preserves, and adds to the general fund - fund balance. The City has committed $5,500,000 of general fund balance for emergency contingency and assigned $1,250,000 for capital equipment replacement. In the adopted budget for fiscal year 2015/2016, combined reserves represent 42% of the general fund annual budget.

USING THIS ANNUAL REPORT

The discussion and analysis is intended to serve as an introduction to the City of Loma Linda’s basic financial statements. The basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements.

The government-wide statements provide information about the activities of the City as a whole and present a longer-term view of the City’s finances. These statements consist of the statement of net position and statement of activities.

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Fund financial statements, which consist of the governmental funds, proprietary funds and fiduciary funds,report the City’s operations in more detail than the government-wide statements by providing information about the City’s most significant (major) funds. The governmental fund statements also tell how City services were financed in the short term as well as what remains for future spending. The proprietary funds statements use the same accounting method as the business-type activities, but provide more detail of the activities. The fiduciary fund statements provide financial information about activities for which the City acts solely as a trustee or agent for the benefit of those outside of the government.

Reporting the City as a Whole

The Government-Wide Financial Statements

One of the most important questions asked about the City’s finances is, “Is the City as a whole better off or worse off as a result of this year’s activities?” The statement of net position and the statement of activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting,which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid.

These two statements report the City’s net position and changes in it. The reader can think of the City’s net position - the difference between assets and liabilities - as one way to measure the City’s financial health. Over time, increases or decreases in the City’s net position is one indicator of whether its financial health is improving or deteriorating. However, to assess the overall health of the City the reader will need to consider other non-financial factors, such as changes in the City’s property tax base and the condition of the City’s roads and other infrastructure.

The statement of net position and the statement of activities present information about the following:

Governmental activities - All of the City’s basic services are considered to be governmental activities, including general government, community development, public safety and public works. Property taxes, motor vehicle in lieu, sales taxes, and franchise fees, finance most of these activities.

Business-type activities – All Proprietary Funds (enterprise funds), water acquisition, water enterprise, sewer capital, and Loma Linda connected communities program, which receive funding through service charges and developer contributions.

Component units - The City’s governmental activities include the Public Financing Authority (Authority) and the Loma Linda Housing Authority (LLHA).

Reporting the City’s Most Significant Funds

Fund Financial Statements

The fund financial statements provide detailed information about the most significant funds - not the City as a whole. Some funds are required to be established by State Law and by bond covenants. However, the City Council establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. The City’s three kinds of funds – governmental, proprietary and fiduciary - use different accounting approaches.

Governmental funds - Most of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted into cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. We describe the relationship (or differences) between governmental activities (reported in the

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statement of net position and the statement of activities) and governmental funds in a reconciliation schedule accompanying the fund financial statements.

The City of Loma Linda maintains twenty nine individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental statement of revenues, expenditures and changes in fund balances for the general fund, Loma Linda Housing Authority, public improvement per mou, special projects construction fund, and the park development fund; which are considered to be major funds. The remaining twenty four non-major funds are combined and presented in the non-major governmental funds column. Individual fund detail for the nonmajor funds is presented in the combining statements located on pages 109-124 of this report.

Proprietary funds - When the City charges customers for certain services it provides, these services are generally reported in proprietary funds. There are two types of proprietary funds: enterprise fund (business-type activities) and internal service funds (internal allocation of costs). Proprietary funds are reported on the full accrual basis of accounting, which is the same method that all activities are reported in the statement of net position and the statement of activities.

The City of Loma Linda maintains four enterprise funds to account for Water, Sewer and the LLCCP activities. The four funds are considered to be major funds and as such detail activity is presented in the statement of net position, statement of revenues, expenditures and changes in net position, and statement of cash flows on pages 30-33.

Fiduciary Funds - The City is the trustee, or fiduciary, for certain amounts held on behalf of developers, property owners, and others. The City’s fiduciary activities are reported in separate statement of fiduciary net position and changes in fiduciary net position. We exclude these activities from the City’s other financial statements because the City cannot use these assets to finance its operations. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. The statement of fiduciary net position can be found on page 35.

Fiduciary Fund - Private Purpose Trust Fund - The City acting as Successor Agency to the Redevelopment Agency is the trustee, or fiduciary, for amounts held on behalf of bond holders, enforceable obligations, and taxing entities. The City’s fiduciary activities are reported in separate statement of private purpose trust fund net position and changes in net position. We exclude these activities from the City’s other financial statements because the City cannot use these assets to finance its operations. The City acting as the Successor Agency is responsible for ensuring that the assets reported in these funds are used for their intended purposes. The statement of private purpose trust fund net position can be found on page 35-36.

Notes to the financial statements – Additional information that is crucial to a full understanding of the figures provided in the government-wide and fund financial statements is provided in the notes to the financial statements. The notes to the financial statements can be found on pages 37-87 of this report.

Required supplementary information - The budget and budgetary accounting and defined benefit pension plan information can be found on pages 91-95 of this report.

Government-Wide Financial Analysis

Our analysis focuses on the net position (Table 1) and changes in net position (Table 2) of the City’s governmental and business-type activities reported in the government-wide statements.

Net Position

As shown in Table 1, the City’s net position from governmental activities decreased over 10% from $85,206,286 to $76,820,930, as the result of a negative $9,522,889 restatement of net position for the implementation of GASB Statement No. 68 (see Note 19) and positive change in current year net position of $1,137,533. While the decrease in net position in the business-type activities was 17%, changing from $28,410,783 to $23,542,116, primarily as the result of a negative $3,116,715, restatement of net position for the implementation of GASB Statement No. 68 (see Note 19) and as the result of a decrease in net

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capital assets, resulting from depreciation expense exceeding new capital additions by approximately $1.2 million. These changes are recorded in the statement of activities (Table 2) which flows through to the statement of net position.

2015 2014 2015 2014 2015 2014

39,111,611$ 39,096,337$ 5,562,033$ 5,947,619$ 44,673,644$ 45,043,956$ 56,099,116 55,755,801 42,847,912 44,081,940 98,947,028 99,837,741

95,210,727 94,852,138 48,409,945 50,029,559 143,620,672 144,881,697

Deferred Outflow of Resources 953,325 - 241,539 - 1,194,864 -

10,493,603 4,322,705 22,658,803 20,469,698 33,152,406 24,792,403 6,757,153 5,323,147 1,652,843 1,149,078 8,409,996 6,472,225

17,250,756 9,645,852 24,311,646 21,618,776 41,562,402 31,264,628

Deferred Inflow of Resources 2,092,366 - 797,722 - 2,890,088 -

Net Invested in Capital Assets 55,885,140 53,642,388 37,347,912 38,186,940 93,233,052 91,829,328 Restricted 27,181,403 29,305,083 40,840 40,839 27,222,243 29,345,922 Unrestricted (6,245,613) 2,258,815 (13,846,636) (9,816,996) (20,092,249) (7,558,181)

76,820,930$ 85,206,286$ 23,542,116$ 28,410,783$ 100,363,046$ 113,617,069$

Total Assets

Long-term liabilitiesOther liabilities

Total Liabilities

Net Position:

Total Net Position

Table 1City of Loma Linda's Net Position

Current and other assetsCapital assets

Business-Type Activities Total Governmental Activities

As shown in Table 2, the change in net position is a negative $8,358,356 for governmental activities (netcurrent year activity and restatement) and negative $4,868,667 for business-type activities (net current year activity and restatement), with a combined total decrease in net position of $13,254,023 for the fiscal year ending June 30, 2015. Governmental activity program revenues were lower than last year by $5,524,501, and general revenues were higher by $2,436,469. The net decrease in program revenues is the result of decreases in charges for services of $1,334,611, mainly for Community Development development impact fees, and a decrease in Public Works infrastructure expansion capital contributions and grants of $4,179,928 for the Stewart Street widening project. General revenues were up by $2,436,469, mainly due to the increases in sales taxes, miscellaneous revenues, and property taxes. Sales taxes revenues increased due to a new business locating within the City as part of an economic incentive agreement. Property taxes increases are due to increases in assessed valuations throughout the City and increase in statutory pass-through taxes coming to the local taxing entities after the dissolution of the Merged Redevelopment Agency in 2012. Business-type program revenues were up $717,333, when compared to last year. In April of 2014, both the Water and Sewer Enterprise Funds adopted a five year schedule for annual rate increases of 4.5% and 12.5%, respectively, to offset the costs of providing services to the community. General business-type revenues increased by $149,404, due to no outflow of capital contributions to governmental activities, and an increase in refunds and reimbursement for the treatment of ground water, as shown in the statement of activities.

Overall governmental activities expenses increased by $685,694, resulting from the net of a $1.56 million increase in General Government and a $1.5 million decrease in Public Works. The majority of the increase in General Government program costs relate to a new economic incentive agreement. The decrease in Public Works program costs come as the result of the completion of the Stewart Street underpass and pedestrian overcrossing. The business-type activities expenses reflected a net increase of $399,639; in the water fund there was an increase cost of sales and services both in personnel (wages and benefits), and maintenance and operations netted with an associated decrease in depreciation

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expense. In the Loma Linda Connected Communities Program, increases in cost of services, were the result of increases in contractual services and investment in technology systems. In comparison to fiscal year 2014, the overall change in net position for governmental activities was an increase of $1,137,533 and business-type activities decreased by $1,751,952, resulting in an overall City net position decrease of $614,419 for fiscal year 2015.

2015 2014 2015 2014 2015 2014

5,577,698$ 6,912,309$ 9,463,269$ 8,745,936$ 15,040,967$ 15,658,245$ 227,592 238,064 - - 227,592 238,064

1,276,451 5,425,257 - - 1,276,451 5,425,257

9,825,974 9,495,933 - - 9,825,974 9,495,933 2,205,319 213,852 - - 2,205,319 213,852

503,598 227,033 7,932 8,608 511,530 235,641 36,389 228,605 650,590 500,510 686,979 729,115

19,653,021 22,741,053 10,121,791 9,255,054 29,774,812 31,996,107

3,387,169 1,818,573 - - 3,387,169 1,818,573 8,772,658 8,430,753 - - 8,772,658 8,430,753 2,278,470 1,948,836 - - 2,278,470 1,948,836 3,948,235 5,451,342 - - 3,948,235 5,451,342

128,956 180,289 - - 128,956 180,289

- - 32,458 - 32,458 - - - 6,529,987 6,414,771 6,529,987 6,414,771 - - 4,128,121 4,135,446 4,128,121 4,135,446 - - 1,183,177 923,887 1,183,177 923,887

18,515,488 17,829,793 11,873,743 11,474,104 30,389,231 29,303,897

Changes in Net Position before1,137,533 4,911,260 (1,751,952) (2,219,050) (614,419) 2,692,210

Transfers - - - - - - 1,137,533 4,911,260 (1,751,952) (2,219,050) (614,419) 2,692,210

Net Position at Beginning of Year 85,206,286 80,356,601 28,410,783 30,669,833 113,617,069 111,026,434

Restatements (9,522,889) (61,575) (3,116,715) (40,000) (12,639,604) (101,575)

Net Position at End of Year 76,820,930$ 85,206,286$ 23,542,116$ 28,410,783$ 100,363,046$ 113,617,069$

Table 2

Program Revenues: Charges for services

Governmental Activities Business-Type Activities

City of Loma Linda's Changes in Net Position

Total

Taxes

Total Revenues

Capital grants and contributionsGeneral Revenues:

Interest on long-term debt

Other

Community development

Change in Net Position

Transfers

Water

Public works

LL Connected Communities

Total Expenses

Operating grants and contributions

Intergovernmental-Motor Vehicle in Lieu Use of money and property

Water acquisition Business-Type Activities:

Sewer

Expenses: Governmental Activities: General government Public safety

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Government Activities

Table 3 presents the total cost (expenses) of each of the City’s major public services in general government, community development, public safety, public works, and interest expense. Also included is each program’s net cost (total cost less program revenues generated by the activities). The net costshows the financial burden that was placed on the City’s taxpayers by each of these functions.

2015 2014 2015 2014Functions: General government 3,387,169$ 1,818,573$ 1,157,047$ (199,003)$ Public safety 8,772,658 8,430,753 8,103,600 7,754,932 Community development 2,278,470 1,948,836 1,030,821 (649,891) Public works 3,948,235 5,451,342 1,043,934 (1,832,164) Interest on long-term debt 128,956 180,289 128,956 180,289

Total Governmental Activities 18,515,488$ 17,829,793$ 11,464,358$ 5,254,163$

Net Cost of Governmental Activities

Table 3

Net Cost Total Cost

City of Loma Linda

In 2015, total costs increased by $685,694, a result of increases in general government programs and decreases in public works infrastructure project. In looking at table 3 you will note the major changes both in total cost and net cost are attributed to general government increase and public works decrease, as was previously discussed in the Changes to Net Position - Tables 2 section.

FINANCIAL ANALYSIS OF THE CITY’S FUNDS

At year-end, the City’s governmental funds reported combined fund balances of $29,747,697, a net decrease of $1,759,001 in fund balance; included in this amount are increases in fund balance for the General Fund of $1,182,820, combined with decreases in the Housing Authority of $146,308, the Special Projects Construction Fund of $430,394, the Park Fund of $46,445 and Non-Major Funds of $2,318,674. The General Fund had a net increase in fund balance of $1,182,820, resulting from net revenues exceeding expenditures by $785,581, and other financing sources (net) of $397,239. Although, the final adopted budget projected an $829,800 negative change in fund balance, favorable results in revenues of $1,068,525, expenditures of $899,856 and other financing uses of $40,239, resulted in the combined favorable results of $2,012,620. When comparing final budget to actual results for the fiscal year higher property taxes, refunds and reimbursements and overhead revenues were realized. Expenditure saving were realized in unemployment costs, legal costs, public safety salaries and benefits, and public works contractual services.

In total the Proprietary Funds reported a negative change in net position of $1,751,952, with all funds reporting a negative net change. The Water Enterprise ended with a negative change in net position of $696,801, as a result of ongoing operating expenses excessing operating revenues with the continuation of the city-wide water meter replacement program, and repairs and maintenance. For the seventh year in a row, the Sewer Fund ended the year with a negative change of $237,944, current revenues of $3,889,671 are not sufficient to cover operating expenses of $4,117,059; rate increases have been adopted and ongoing efforts continue to be made to reduce repairs and maintenance of the facilities. The Loma Linda Connected Communities Fund reported a negative change of $781,334 reflects the ongoing operational gap between charges for services (revenues), and operating expenses and interest expenses. Efforts to reduce operational expenses have been implemented, but annual depreciation expense and non-operational expenses continue to exceed revenues adding to the negative net position.

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General Fund Budgetary Highlights

The actual expenditures of the General Fund at year-end were $785,581 lower than the actual revenues. The positive budget-to-actual variance of $899,856 in appropriations was due to conservative spending city wide as previously discussed. In addition, to the unspent budget actual revenues were $1,068,525 higher than anticipated compared to the final budget, with the majority increases occurring in property taxes, charges for services and miscellaneous. Specifically, significant increases occurred in residual receipts from the Successor Agency distributions to local taxing entities, as well as in refunds and reimbursements related to fire strike team activity and prior year state mandate funding. Budget amendments and supplemental appropriations were made during the year to diminish budget overruns and to increase appropriations for unanticipated expenditures after adoption of the original budget. The original revenue budget was decreased by $577,300, primarily for charges for services relating to development activity; while the expenditure appropriations budget was increased by $359,100 for general government, public safety and public works anticipated needs (including legal services for litigation, economic incentive, police contractual services, fire personnel and public works maintenance and operational budgets), as of the final budget on June 30, 2015.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets

2015 2014 2015 2014 2015 2014

Asset Type: Land 14,204,929$ 14,204,929$ 1,387,764$ 1,387,764$ 15,592,693$ 15,592,693$ Construction in progress 1,061,732 6,094,538 - - 1,061,732 6,094,538 Structures, machinery & equipment 13,164,183 14,132,641 9,649,736 9,874,929 22,813,919 24,007,570 Infrastructure 27,668,273 21,323,693 31,810,412 32,819,247 59,478,685 54,142,940

Total 56,099,117$ 55,755,801$ 42,847,912$ 44,081,940$ 98,947,029$ 99,837,741$

Governmental Activities Business-Type Activities Total

Table 4

Capital Assets at Year EndNet of Depreciation

City of Loma Linda

At the end of fiscal year 2015, the City had $99,947,029 invested in a broad range of capital assets, including fire and public safety equipment, buildings, land, park facilities, and roads (See Table 4 above). The total increase in the City of Loma Linda investment in capital assets for fiscal year 2015 was .89% (a .62% increase in governmental activities and 2.8% decrease in business-type activities). The major capital assets added for governmental activities and business-type activities are highlighted in explanation of Table 5.

2015 2014 2015 2014 2015 2014Asset Type: Land -$ -$ -$ -$ $ - $ - Construction in progress 711,714 4,080,830 - - 711,714 4,080,830 Structures, machinery and equipment 323,647 180,917 541,560 97,663 865,207 278,580 Infrastructure 7,364,542 803,010 - 244,174 7,364,542 1,047,184

Total Additions 8,399,903 5,064,757 541,560 341,837 8,941,463 5,406,594

Less: Decreases and depreciation (8,056,587) (2,164,463) (1,775,588) (2,281,578) (9,832,175) (4,446,041)

Capital Asset Increase/(Decrease) 343,316$ 2,900,294$ (1,234,028)$ (1,939,741)$ (890,712)$ 960,553$

GovernmentalActivities Total

Table 5

Schedule of Changes in Capital Assets/Infrastructure

Business-Type Activities

City of Loma Linda

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As shown in Table 5, above, capital assets current year activity increased $343,316 (net of depreciation) for governmental activities and decreased $1,234,028 (net of depreciation) for business-type activities for a total decrease of $890,712. In the governmental activities the increase includes the completion of widening of Stewart Street with a major contribution from the Loma Linda University shown as a decrease of Work in Progress and the addition of Infrastructure. The City also purchased two utility trucks for the Public Works department and one Suburban for the Fire department. Over the last few years, decreases in business-type activities capital assets (mainly in water operations) is a result of annual accumulated depreciation exceeding the amount of additions. Some of the Water enterprise major asset additions included the purchase of a Vactor truck, a Diesel Dump Truck and two utility trucks. Deletions and depreciation totaled $9,832,175 combined. Detailed information regarding capital assets activities can be found in Notes 1i and 5 of the financial statements. Long-Term Debt

Governmental Activities - Governmental Activities - The City governmental funds have $9,897,607 in outstanding long-term debt as of June 30, 2015. In fiscal year 2003, the City of Loma Linda and the Loma Linda Redevelopment Agency formed the Loma Linda Public Financing Authority, pursuant to a joint exercise of powers agreement dated September 10, 2002. This action allowed the City to issue $10.2 million in Lease Revenue Refunding Bonds (to refund 1994 Certificates of Participation), which reduced annual debt service payments. During fiscal year 2014-2015, using money held in reserve with the fiscal agent (in the amount of $955,000) the City elected to exercise a full redemption of the outstanding principal, as of June 30, 2015 there is no outstanding bonds. Note 6 to the financial statements offers a more detailed view of governmental Long-Term Debt.

Business-type Activities - The enterprise funds have $8,574,127 in outstanding long-term debt as of June 30, 2015. The water enterprise fund has bonded debt of $5,500,000 consisting of the 1995 Variable Rate Water Revenue Refunding Bonds issued for $10,000,000 with an outstanding balance of $5,490,000; and the 1978 Water Bonds (General Obligation) with a current outstanding balance of $10,000. Both bond issues are paid with water operating revenues and a portion of water development impact fees for excess capacity previous built into the water system. Additional detailed information for Bonds Payable is shown in Note 6 to the financial statements.

In June 2012, GASB (Governmental Accounting Standards Board) issued Statement No. 68, requiring public employers to comply with new accounting and financial reporting standards. Statement No. 68 outlines a different approach to the recognition and calculation of pension obligations. Under the new GASB standards, employers that participate in a defined benefit pension plan administered as a trust or equivalent arrangement are required to record the net pension liability, pension expense, and deferred outflows/deferred inflows of resources related to pensions in their financial statements as part of their financial position. As a result, a Net Pension Liability of $8,321,369 is shown in the Governmental Activities and $2,537,668 in the Business Type Activities. Prior period adjustments were necessary to establish the June 30, 2014 ending balances.

2015 2014 2015 2014 2015 2014

2002 Lease Revenue Refunding Bonds -$ 1,875,000$ -$ -$ -$ 1,875,000$ Master Lease Purchase - Fire apparatus 211,922 242,515 - - 211,922 242,515 1978 Water Bonds (General Obligation) - - 10,000 10,000 10,000 10,000 1995 Water Revenue Refunding Bonds - - 5,490,000 5,885,000 5,490,000 5,885,000 Compensated absences 503,805 505,201 306,316 286,721 810,121 791,922 JPIA Retrospective deposit 857,399 738,370 229,277 132,987 1,086,676 871,357 OPEB liability 1,060 19,371 866 15,848 1,926 35,219 Net Pension liability 8,321,369 10,342,587 2,537,668 3,310,302 10,859,037 13,652,889 Add: Unamortized bond premium 2,052 4,102 - - 2,052 4,102

Total 9,897,607$ 13,727,146$ 8,574,127$ 9,640,858$ 18,471,734$ 23,368,004$

Governmental Activities Business-Type Activities Total

Table 6

Long-Term Debt at Year EndCity of Loma Linda

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ECONOMIC FACTORS AND NEXT YEAR’S BUDGET

According to the Los Angeles County Economic Development Corp. (LAEDC), the Inland Empire (Riverside-San Bernardino) which suffered more severely the effects of the Great recession, but is now outpacing the State and other Southern California regions in job growth, is experiencing steady economic growth. The largest area of growth in the labor market is coming from goods movement which includes transportation and warehousing. The unemployment rate has continued to drop, with it averaging at 6.7% for the first half of 2015. The Inland Empire is projected to continue down the path of economic growth, fueled by continued job and population growth, gains in personal income leading to consumer spending and need for population service industries which in turn will contribute to growth in taxable sales.

Similar to what has been seen regionally, Loma Linda has experienced the impacts of job growth with two major medical facilities within the community and seeing future growth with the addition of a new Veteran Administration (VA) medical facility under construction. In 2015, the City celebrated the opening of a major hotel and is already in discussions with developers for possible expansion of these facilities. The City is experiencing economic growth as employment starts to stabilize consumer confidence increases resulting in consumer spending, property valuations increasing, leading to increases in City revenues (property taxes, building permits and business licenses). The challenge still faced by the City is balancing the resources available to meet the increasing demands on city services (fire, police and general community services), and the ongoing maintenance of infrastructure (parks, landscaping, streets, and utility services). In the past few years Loma Linda implemented operational cost cutting efforts to improve the overall financial health of the City through benefit cost sharing with employees, and deferred capital outlay purchases. Although, the City has seen growth in revenues it continues to operate in a lean, conservative capacity and is working on addressing the demands for services, with staff and designated committees implementing new policies and working on economic development project proposals to maintain solid economic growth for the community, while preserving the necessary level of services.

On June 9, 2015, the City Council adopted the City of Loma Linda Operating and Capital Improvement Program (CIP) Budget for the Fiscal Year beginning July 1, 2015 and ending June 30, 2016. The General Fund operating budget totals $16,392,400, and is funded by operating revenue of $15,713,300, and transfers in and other financing sources of $708,700, yielding net increase to fund balance of $29,600. The fund balance in the General Fund is expected to increase to $10,180,500 with $3,430,500 available and $6,750,000 designated (committed or assigned) as budgetary reserves. The total City operating budget amounts to $32,040,400, with total estimated resources available for budget purposes of $29,710,300, for fiscal year 2015/2016. The approved CIP budget for fiscal year 2015/2016 totals $2,904,600 with a five-year CIP investment plan estimated at $22,038,000.

CONTACTING THE CITY’S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the City’s finances and to show the City’s accountability for the money it receives. For any questions about this report or additional financial information, please contact the City Manager and/or Finance Director/Treasurer of the City of Loma Linda, located at 25541 Barton Road, Loma Linda, CA 92354, (909) 799-2840, or visit their website at www.lomalinda-ca.gov.

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GOVERNMENT-WIDE FINANCIAL STATEMENTS

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CITY OF LOMA LINDA Statement of Net Position June 30, 2015

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Governmental Business-typeActivities Activities Total

Cash and investments 19,925,486$ 2,702,256$ 22,627,742$Receivables:

Accounts 425,587 1,001,220 1,426,807Taxes 524,333 - 524,333Interest 15,084 2,212 17,296Contracts and loans 15,308,284 - 15,308,284

Internal balances (1,546,667) 1,546,667 - Due from other governments 734,921 - 734,921Inventories 18,966 189,395 208,361Prepaid items 49,241 79,443 128,684Land held for resale 3,619,794 - 3,619,794Restricted assets:

Cash and investments with fiscal agents 36,582 40,840 77,422Capital assets:

Non-depreciable 15,266,661 1,387,764 16,654,425Depreciable, net 40,832,455 41,460,148 82,292,603

Total capital assets 56,099,116 42,847,912 98,947,028Total assets 95,210,727 48,409,945 143,620,672

DEFERRED OUTFLOWS OF RESOURCESPension related items 953,325 241,539 1,194,864

Accounts payable 2,459,806 585,041 3,044,847Interest payable - bonds 46,479 - 46,479Accrued liabilities 257,836 104,076 361,912Due to other governments 1,224 - 1,224Due to Successor Agency 2,273,000 - 2,273,000Deposits payable 884,525 347,379 1,231,904Unearned revenue 451,883 - 451,883Noncurrent liabilities:

Advances from the Loma Linda Successor Agency 978,396 14,701,023 15,679,419Due within one year 382,400 616,347 998,747Due in more than one year 1,192,778 5,419,246 6,612,024Net pension liability 8,321,369 2,537,668 10,859,037Net OPEB obligation 1,060 866 1,926

Total liabilities 17,250,756 24,311,646 41,562,402

DEFERRED INFLOWS OF RESOURCESPension related items 2,092,366 797,722 2,890,088

Net investment in capital assets 55,885,140 37,347,912 93,233,052Restricted for:

Public works project 5,261,624 - 5,261,624Public safety 3,952,514 - 3,952,514Community development 17,810,779 - 17,810,779General government 18,872 - 18,872Debt service 137,614 40,840 178,454

Unrestricted (6,245,613) (13,846,636) (20,092,249)Total Net Position 76,820,930$ 23,542,116$ 100,363,046$

LIABILITIES

NET POSITION

Primary Government

ASSETS

The accompanying notes are an integral part of these financial statements.

CITY OF LOMA LINDA Statement of Activities For the year ended June 30, 2015

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Operating CapitalCharges for Contributions Contributions

Expenses Services and Grants and Grants TotalPrimary Government:Governmental activities:

General government 3,387,169$ 2,230,122$ -$ 30,612$ 2,260,734$ Public safety 8,772,658 576,908 92,150 - 669,058 Community development 2,278,470 1,247,138 - 510 1,247,648 Public works 3,948,235 1,523,530 135,442 1,245,329 2,904,301 Interest on long-term debt 128,956 - - - -

Total governmental activities 18,515,488 5,577,698 227,592 1,276,451 7,081,741

Business-type activities:Water acquisition 32,458 249,351 - - 249,351 Water enterprise 6,529,987 4,970,004 - - 4,970,004 Sewer capital 4,128,121 3,843,936 - - 3,843,936 Loma Linda Connected Communities 1,183,177 399,978 - - 399,978

Total business-type activities 11,873,743 9,463,269 - - 9,463,269

Total primary government 30,389,231$ 15,040,967$ 227,592$ 1,276,451$ 16,545,010$

General revenues:Taxes:

Property tax, levied for general purposeSales taxFranchise taxOther taxes

Intergovernmental revenuesInvestment revenueMiscellaneous

Total general revenues

Change in net position

Net position at beginning of year, as restated (Note 19)

Net position, end of year

Functions/Programs

Program Revenues


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Governmental Business-typeActivities Activities Total

(1,126,435)$ -$ (1,126,435)$ (8,103,600) - (8,103,600) (1,030,822) - (1,030,822) (1,043,934) - (1,043,934)

(128,956) - (128,956) (11,433,747) - (11,433,747)

- 216,893 216,893 - (1,559,983) (1,559,983) - (284,185) (284,185) - (783,199) (783,199) - (2,410,474) (2,410,474)

(11,433,747) (2,410,474) (13,844,221)

2,424,066 - 2,424,066 5,721,938 - 5,721,938

848,712 - 848,712 831,258 - 831,258

2,205,319 - 2,205,319 503,598 7,932 511,530 36,389 650,590 686,979

12,571,280 658,522 13,229,802

1,137,533 (1,751,952) (614,419)

75,683,397 25,294,068 100,977,465

76,820,930$ 23,542,116$ 100,363,046$

Net (Expense) Revenue and Changes in Net PositionPrimary Government

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Governmental Fund Financial Statements

General Fund is the City's primary operating fund. It accounts for all financial resources of the general government except those required to be accounted for in another fund.

Loma Linda Housing Authority – Special Revenue Fund accounts for low/mod housing activities and is funded through re-payments of existing housing loans.

Special Projects Construction – Capital Projects Fund accounts for special or extraordinary projects, activities and allocations that might be recommended by staff and determined needed by the City Council.

Park Development – Capital Projects Fund accounts for developer fees collected and expended for future park development and acquisition.

CITY OF LOMA LINDA Balance Sheet Governmental Funds June 30, 2015

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Special Revenue FundLoma Linda

General Housing Authority

Cash and investments 12,947,807$ 479,867$ Receivables:

Accounts 358,418 7,120 Taxes 513,455 - Interest 7,675 3,229 Contract and loans 9,659 15,298,625

Due from other funds 561,203 - Due from other governments 42,561 - Inventories 18,966 - Prepaid items 8,569 - Land held for resale - 3,619,794 Advances to other funds - - Restricted assets:

Cash and investments with fiscal agents - - Total assets 14,468,313$ 19,408,635$

Liabilities:Accounts payable 1,395,379$ 21,003$ Accrued liabilities 253,734 - Due to other funds 59 - Due to other governments 1,224 - Due to Successor Agency - - Deposits payable 828,403 40,281 Unearned revenue - 300,000 Advances from other funds - - Advances from the Loma Linda Successor Agency - -

Total liabilities 2,478,799 361,284

Deferred inflows of resources:Unavailable revenue - 1,436,703

Fund balances (deficit):Non spendable:

Inventories 18,966 - Prepaid items 8,569 -

Restricted for:Cultural and recreational - - Public safety - - Street improvements - - Storm drains - - Municipal facilities - - Air quality management - - General government 18,872 - Debt service - - Low/mod housing programs - 17,610,648

Committed for: Emergency contingency 3,500,000 -

Assigned for:Refuse services 95,832 - Fire equipment replacement 270,040 - Capital equipment replacement 1,250,000 -

Unassigned 6,827,235 - Total fund balances (deficit) 11,989,514 17,610,648

14,468,313$ 19,408,635$ TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES

LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES

ASSETS


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Nonmajor TotalSpecial Projects Park Governmental Governmental

Construction Development Funds Funds

-$ 514,139$ 5,983,673$ 19,925,486$

60,049 - - 425,587 - - 10,878 524,333 - 336 3,844 15,084 - - - 15,308,284 - - - 561,203 - - 692,360 734,921 - - - 18,966

40,583 - 89 49,241 - - - 3,619,794

3,253,769 - 500,000 3,753,769

- - 36,582 36,582 3,354,401$ 514,475$ 7,227,426$ 44,973,250$

-$ 84,098$ 959,326$ 2,459,806$ - - 4,102 257,836

35,445 - 372,366 407,870 - - - 1,224

2,273,000 - - 2,273,000 1,500 - 14,341 884,525

- - 151,883 451,883 2,200,000 3,250,000 3,769 5,453,769

978,396 - - 978,396 5,488,341 3,334,098 1,505,787 13,168,309

- - 620,541 2,057,244

- - - 18,966 40,583 - 89 49,241

- - 332,436 332,436 - - 452,514 452,514 - - 4,295,300 4,295,300 - - 771,018 771,018 - - 195,306 195,306 - - 86,456 86,456 - - - 18,872 - - 137,614 137,614 - - 200,131 17,810,779

- - - 3,500,000

- - - 95,832 - - - 270,040 - - - 1,250,000

(2,174,523) (2,819,623) (1,369,766) 463,323 (2,133,940) (2,819,623) 5,101,098 29,747,697

3,354,401$ 514,475$ 7,227,426$ 44,973,250$

Capital Projects Funds

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CITY OF LOMA LINDA Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position June 30, 2015

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Fund Balances - Total Governmental Funds 29,747,697$

Amounts reported for governmental activities in the statement of Net Position are different because:

Capital assets used in governmental activities are not current financial resources. Therefore, they are not reported in the governmental funds. 56,099,116

Long-term Liabilities are not due and payable in the current period. Therefore they are not reported in the governmental funds:

Long term liabilities, net of premium and discount (1,071,373) Compensated absences (503,805) Net pension liability (8,321,369) Net OPEB liability (1,060)

(9,897,607)

Interest payable on long-term debt does not require current financial resources. Therefore, interest payable is not reported as a liability in the governmental funds

Interest Payable - Bonds (37,748) Interest Payable - Capital Lease (8,731)

(46,479)

Deferred outflow and inflow of resources in governmental activities are not financial resources and, therefore, are not reported in the governmental funds

Deferred outflow of resources - pension related items 953,325 Deferred inflow of resources - pension related items (2,092,366)

(1,139,041)

Revenues are recorded as unavailable revenue in the governmental fundsbecause they do not meet the revenue recognition criteria. However,they are classified as revenues in the Governement-Wide Financial Statements 2,057,244

Net Position of Governmental Activities 76,820,930$


CITY OF LOMA LINDA Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds For the year ended June 30, 2015

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Special Revenue FundHousing

General Authority REVENUES

Taxes 10,516,083$ -$ Licenses and permits 629,954 - Intergovernmental 35,320 - Charges for services 1,775,441 1,438 Use of money and property 245,536 188,945 Fines and forfeitures 10,377 - Miscellaneous 2,271,214 22,738 Developer fees - -

Total revenues 15,483,925 213,121

EXPENDITURESCurrent:

General government 2,815,174 - Public safety 8,469,203 - Community development 1,310,731 244,419 Public works 1,862,888 -

Capital outlay 240,348 979 Debt service:

Principal retirement - - Interest and fiscal charges - -

Total expenditures 14,698,344 245,398

REVENUES OVER (UNDER) EXPENDITURES 785,581 (32,277)

OTHER FINANCING SOURCES (USES):Gain on disposal of assets, net 20,000 - Gain (loss) on disposal of land held for resale, net - (114,031) Transfers in 1,297,839 - Transfers out (920,600) -

Total other financing sources (uses) 397,239 (114,031)

Net change in fund balances 1,182,820 (146,308)

FUND BALANCE (Deficit):Beginning of year, 10,806,694 17,756,956

End of year 11,989,514$ 17,610,648$


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Non major Total Special Projects Park Governmental Governmental

Construction Fund Funds Funds

-$ -$ 1,108,522$ 11,624,605$ - - - 629,954 - - 925,994 961,314 - - 12,446 1,789,325 441 1,214 14,973 451,109 - - 144,265 154,642 - 510 516,883 2,811,345 - 71,563 447,393 518,956 441 73,287 3,170,476 18,941,250

- - 1,358 2,816,532 - - 25,320 8,494,523 - 19,955 422,763 1,997,868 - - 372,202 2,235,090 - 99,777 2,683,247 3,024,351

30,590 - 1,875,000 1,905,590 50,245 - 82,021 132,266 80,835 119,732 5,461,911 20,606,220

(80,394) (46,445) (2,291,435) (1,664,970)

- - - 20,000 - - - (114,031) - - 920,600 2,218,439

(350,000) - (947,839) (2,218,439) (350,000) - (27,239) (94,031)

(430,394) (46,445) (2,318,674) (1,759,001)

(1,703,546) (2,773,178) 7,419,772 31,506,698

(2,133,940)$ (2,819,623)$ 5,101,098$ 29,747,697$


CITY OF LOMA LINDA Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Government-Wide Statement of Activities and Changes in Net Position For the year ended June 30, 2015

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Net change in Fund Balance - Total Governmental Funds (1,759,001)$

Amounts reported for governmental activities in the Statement of Activities were different because:

Governmental funds report capital outlays as expenditures. However, in the Government Wide Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense.This is the amount of capital assets recorded in the current period:

Capital outlays 2,624,770$ Capital asset contributions 30,612 2,655,382

Depreciation expense on capital assets is reported in the Government-Wide Statement of Activities, but it does not require the use of current financial resources.Therefore, depreciation expense is not reported as an expenditure in the governmental funds. (2,312,067)

Amortization expense is reported in the Government-Wide Statement of Activies, but it does not require the use of current financial resources. Therefore, amortization expense is not reported as an expenditure in the governmental funds.

Amortization of bond premium 2,050$ 2,050

Proceeds from long-term debt provide current financial resources to governmental funds, but issuing debt increased long-term liabilities in the Government-Wide Statement of Net Position. Repayment of bond principalis an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Government-Wide Statement of Net Position.

Principal payment of capital lease 30,590$ Principal payment of bonds 1,875,000 1,905,590

Governmental funds report revenues and expenditures primarily pertaining to long-term liabilities, which are not reported in the statement of activities. At the government-wide level,these activities are reported in the statement of net position. This is the net expenditurereported in the governmental funds, which is not reported in the statement of activities.

Pension related net of adjustments 62,479$ OPEB liability decrease 18,311 JPIA insurance rolling retro increase (119,026) (38,236)

Long-term compensated absences is reported in the Government-WideStatement of Activities, but it does not require the use of current financial resources. Therefore, long-term compensated absences is not reported as an expenditure in the governmental funds. The reconciling amount is thechange in long term compensated absences from the prior year. 1,396

Accrued interest expense on long-term debt is reported in the Government-Wide Statement of Activities, but it does not require the useof current financial resources. Therefore, interest expense isnot reported as an expenditure in the governmental funds. The reconciling amount is the change in accrued interest from the prior year. 1,260

Certain revenues are recorded as unavailable revenue in the governmentalfunds because they do not meet the revenue recognition criteria of availability. However, they are included as revenue in theGovernmental-Wide Statement of Activities. 681,159

Change in Net Position of Governmental Activities 1,137,533$


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Proprietary Fund Financial Statements

Water Acquisition Fund accounts for developer fees collected to pay for the expansion of the water system and for debt service on qualifying projects.

Water Enterprise Fund is used to account for water production, distribution and meters.

Sewer Capital Fund accounts for the operation and maintenance of the City's sewer, storm drain and catch basin systems.

Loma Linda Connected Communities Program Fund provides Loma Linda residents and businesses with the opportunities for voice, data, video, multimedia, home automation systems, environmental control, security, audio, television, sensors, alarms and intercom services. The program establishes the standardized requirements for residential and commercial telecommunications cabling systems. The initial intent is to connect new development to the system, but the long-term goal is to eventually retrofit and extend these services to the entire community.

CITY OF LOMA LINDA Statement of Net Position Proprietary Funds June 30, 2015

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Loma LindaWater Water Sewer Connected

Acquisition Enterprise Capital Communities Total

Current assets:Cash and cash equivalents 1,259,080$ 871,069$ 241,337$ 330,770$ 2,702,256$ Receivables:

Accounts - 425,442 531,012 44,766 1,001,220 Interest 762 1,078 149 223 2,212

Inventories - 188,854 541 - 189,395 Due from other funds - 306,253 3,549 865 310,667 Prepaid items - 77,277 823 1,343 79,443

Total current assets 1,259,842 1,869,973 777,411 377,967 4,285,193

Noncurrent assets:Advances to other funds 1,700,000 1,162,021 - - 2,862,021 Restricted assets:

Cash and investments with fiscal agents - 40,840 - - 40,840 Capital assets:

Non-depreciable - 1,387,764 - - 1,387,764 Depreciable, net - 32,855,352 3,636,829 4,967,967 41,460,148

Total capital assets - 34,243,116 3,636,829 4,967,967 42,847,912 Total noncurrent assets 1,700,000 35,445,977 3,636,829 4,967,967 45,750,773 Total assets 2,959,842 37,315,950 4,414,240 5,345,934 50,035,966

Pension related items - 167,995 58,099 15,445 241,539

Current liabilities:Accounts payable - 201,520 375,484 8,037 585,041 Accrued liabilities - 66,237 28,686 9,153 104,076 Deposits payable 16,581 91,846 221,766 17,186 347,379 Due to other funds - 8,625 455,338 37 464,000 Long-term debt - due within one year - 572,247 33,352 10,748 616,347

Total current liabilities 16,581 940,475 1,114,626 45,161 2,116,843

Noncurrent liabilities:Advances from other funds - - 1,152,395 9,626 1,162,021 Advances from Loma Linda Successor Agency - - - 14,701,023 14,701,023 Long-term debt - due in more than one year - 5,282,127 120,575 16,544 5,419,246 Net pension liability - 1,776,367 609,040 152,261 2,537,668 Net OPEB obligation - 520 251 95 866

Total noncurrent liabilities - 7,059,014 1,882,261 14,879,549 23,820,824 Total liabilities 16,581 7,999,489 2,996,887 14,924,710 25,937,667

Pension related items - 558,405 191,453 47,864 797,722

Net investment in capital assets - 28,743,116 3,636,829 4,967,967 37,347,912 Restricted for: debt service - 40,840 - - 40,840 Unrestricted 2,943,261 142,095 (2,352,830) (14,579,162) (13,846,636)

Total net position (deficit) 2,943,261$ 28,926,051$ 1,283,999$ (9,611,195)$ 23,542,116$

LIABILITIES

NET POSITION (DEFICIT)

Enterprise Funds

ASSETS

DEFERRED OUTFLOWS OF RESOURCES

DEFERRED INFLOWS OF RESOURCES

The accompanying notes are an integral part of these financial statements

CITY OF LOMA LINDA Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds For the year ended June 30, 2015

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Acquisition Enterprise Capital Communities TotalOPERATING REVENUESCharges for services 249,351$ 4,970,004$ 3,843,936$ 399,978$ 9,463,269$ Miscellaneous - 603,855 45,735 1,000 650,590

Total operating revenues 249,351 5,573,859 3,889,671 400,978 10,113,859

OPERATING EXPENSESTreatment - - 3,224,143 - 3,224,143 Cost of sales and services 32,458 3,483,164 - 252,872 3,768,494 Administration and general - 1,623,552 720,849 194,795 2,539,196 Depreciation - 1,403,397 172,067 169,512 1,744,976

Total operating expenses 32,458 6,510,113 4,117,059 617,179 11,276,809

Operating change in net position (deficit) 216,893 (936,254) (227,388) (216,201) (1,162,950)

NONOPERATING REVENUES (EXPENSES)Interest revenue 2,887 3,674 506 865 7,932 Interest expense - (4,439) - (561,882) (566,321) Loss on disposal - (15,435) (11,062) (4,116) (30,613)

Net nonoperating revenues (expenses) 2,887 (16,200) (10,556) (565,133) (589,002)

Net position (deficit) before contributions and transfers 219,780 (952,454) (237,944) (781,334) (1,751,952)

OPERATING TRANSFERSTransfer in - 255,653 - - 255,653 Transfer out (255,653) - - - (255,653)

Total operating transfers (255,653) 255,653 - - -

change in net position (35,873) (696,801) (237,944) (781,334) (1,751,952)

NET POSITION (DEFICIT):

Beginning of year, as restated (Note 19) 2,979,134 29,622,852 1,521,943 (8,829,861) 25,294,068

End of year 2,943,261$ 28,926,051$ 1,283,999$ (9,611,195)$ 23,542,116$

Enterprise Funds


CITY OF LOMA LINDA Statement of Cash Flows Proprietary Funds For the year ended June 30, 2015

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Acquisition Enterprise Capital Communities TotalCASH FLOWS FROM OPERATING ACTIVITIES

Cash received from customers and users 249,351$ 6,262,913$ 3,105,778$ 377,443$ 9,995,485$ Payments to suppliers for operations (32,458) (3,534,628) (3,284,982) (240,608) (7,092,676) Payments for general and administrative expenses - (1,550,128) (714,477) (196,294) (2,460,899)

Net cash provided (used) byoperating activities 216,893 1,178,157 (893,681) (59,459) 441,910

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIESAdvances to other funds - (952,395) - 561,881 (390,514) Advances from other funds - - 952,395 - 952,395 Transfer in - 255,653 - - 255,653 Transfer out (255,653) - - - (255,653)

Net cash provided (used) bynoncapital financing activities (255,653) (696,742) 952,395 561,881 561,881

CASH FLOWS FROM CAPITAL ANDRELATED FINANCING ACTIVITIESAcquisition of capital assets - (513,787) (11,062) (16,711) (541,560) Customer deposits - - (1,919) 478 (1,441) Principal paid on long-term debt - (395,000) - - (395,000) Interest paid on long-term debt - (4,439) - (561,882) (566,321)

Net cash provided (used) by capital and relatedfinancing activities - (913,226) (12,981) (578,115) (1,504,322)

CASH FLOWS FROM INVESTING ACTIVITIESInterest received 2,833 3,679 462 816 7,790

Net cash provided by investingactivities 2,833 3,679 462 816 7,790

Net increase (decrease) in cash and equivalents (35,927) (428,132) 46,195 (74,877) (492,741)

CASH AND CASH EQUIVALENTSBeginning of year 1,295,007 1,340,041 195,142 405,647 3,235,837

End of year 1,259,080$ 911,909$ 241,337$ 330,770$ 2,743,096$

COMPRISED AS FOLLOWSCash and cash equivalents 1,259,080$ 871,069$ 241,337$ 330,770$ 2,702,256$ Cash and investments with fiscal agents - 40,840 - - 40,840 Total cash and investments with fiscal agents 1,259,080$ 911,909$ 241,337$ 330,770$ 2,743,096$


CITY OF LOMA LINDA Statement of Cash Flows Proprietary Funds For the year ended June 30, 2015

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RECONCILIATION OF CHANGE IN NET POSITION(DEFICIT) TO NET CASH PROVIDED (USED)BY OPERATING ACTIVITESOperating change in net position 216,893$ (936,254)$ (227,388)$ (216,201)$ (1,162,950)$ Adjustments to reconcile operating change in net position

to net cash provided (used) by operating activities:Depreciation - 1,403,397 172,067 169,512 1,744,976 Actuarial pension expense - 132,019 45,276 11,342 188,637 Pension contributions subsequent to measurement date - (147,223) (50,860) (13,418) (211,501) (Increase) decrease in accounts receivable - 64,353 (133,899) (21,707) (91,253) (Increase) decrease in due from other funds - 646,385 (3,549) (865) 641,971 (Increase) decrease in inventories - (39,762) (30) - (39,792) (Increase) decrease in prepaid items - 2,054 (667) 18,457 19,844 Increase (decrease) in accounts payable - (13,756) (60,142) (6,193) (80,091) Increase (decrease) in accrued liabilities - 88,628 11,956 (423) 100,161 Increase (decrease) in deposits payable - (30,309) - - (30,309) Increase (decrease) in due to other funds - 8,625 (646,445) 37 (637,783)

Total adjustments - 711,014 (838,360) (12,770) (140,116)

Net cash provided (used) byoperating activities 216,893$ 1,178,157$ (893,681)$ (59,459)$ 441,910$

DISCLOSURE OF NON-CASH TRANSACTIONSCapital contribution to governmental funds -$ 15,435$ 11,062$ 4,115$ 30,612$


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Fiduciary Fund Financial Statements

Fiduciary Funds - The Fiduciary Funds are used to account for resources held for the benefit of parties outside the City. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City's own programs.

Agency Funds - The Agency Funds are used to report resources held by the City in a purely custodial capacity, which involves only the receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations or other governments.

Private Purpose Trust Fund - The Private Purpose Trust Fund is used to report resources of other trust arrangements in which principal and income benefit individuals, private organizations, or other governments. The Private Purpose Trust Fund reflects the activities of the Successor Agency to the former Loma Linda Redevelopment Agency.

CITY OF LOMA LINDA Statement of Fiduciary Net Position Fiduciary Funds June 30, 2015

-35-

Private PurposeAgency Funds Trust Fund

Cash and investments 76,574$ 4,947,915$ Receivables:

Accounts 20 - Interest - 4,580Contract and loans - 79,862

Due from City of Loma Linda - 2,273,000Prepaid items - 384,047Land held for resale - 6,845,514Advances to the City of Loma Linda - 15,679,419Restricted assets:

Cash and investments with fiscal agents - 3,422,416Total assets 76,594$ 33,636,753

Loss on debt refunding -$ 152,926

Accounts payable 44 5,373 Interest payable - 1,062,414 Deposits payable 76,550 30,986 Long term debt - 36,044,461

Total liabilities 76,594$ 37,143,234

Deficiency in net position held in trust (3,353,555)$

ASSETS

LIABILITIES

NET POSITION (DEFICIT)

DEFERRED OUTFLOWS OF RESOURCES


CITY OF LOMA LINDA Statement of Changes in Fiduciary Net Position Fiduciary Funds – Private Purpose Trust Fund For the year ended June 30, 2015

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Private Purpose Trust Fund

ADDITIONSProperty taxes 3,852,832$ Use of money and property 617,274

Total additions 4,470,106

DEDUCTIONSGeneral and administrative 307,449Debt service:

Interest and fiscal charges 2,153,170

Total deductions 2,460,619

Change in net position 2,009,487

NET POSITION (DEFICIT):Beginning of year (5,363,042)

End of year (3,353,555)$


CITY OF LOMA LINDA Notes to Basic Financial Statements For the year ended June 30, 2015

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Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The basic financial statements of the City of Loma Linda, California (City) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the City’s accounting policies are described below.

A. Reporting Entity

The City of Loma Linda, California (City), was incorporated on September 29, 1970 under the laws of the State of California. The City became a chartered City in 1981. It is governed by an elected five-member City Council. As required by generally accepted accounting principles (GAAP), the accompanying financial statements present the City and its component units. GASB Statement No. 14, The Financial Reporting Entity, defines component units as legally separate entities that meet any one of the following tests:

The City appoints the voting majority of the board of the component unit and: o is able to impose its will on the component unit and/or o is in a relationship of financial benefit or burden with the component unit.

The component unit is fiscally dependent upon the City. The financial statements of the City would be misleading if data from the component unit

were omitted.

Component units are entities for which the City is considered to be financially accountable, in accordance with generally accepted accounting principles. 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 (1) it is able to impose its will on that organization, or (2) there is a potential for the organization to provide specific financial benefits to or impose specific financial burdens on the City. The City is also considered to be financially accountable if an 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 are 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. Blended component units, although legally separate entities, are, in substance, part of the City's operations, and data from these units are combined with data of the primary government.

Based on the criteria above, the City has two component units, both of which are blended component units. These component units are described as follows:

Loma Linda Public Financing Authority - The Loma Linda Public Financing Authority (Authority) was established on September 10, 2002 pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the California Government Code in order to jointly exercise powers of the Agency and the City and to establish a vehicle to reduce local borrowing costs and promote greater use of existing and new financial instruments


-38-

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

A. Reporting Entity, Continued

Loma Linda Housing Authority - The City of Loma Linda Housing Authority (the Housing Authority) was established by the City Council on January 10, 2012, and is responsible for the administration of providing affordable housing in the City. The Housing Authority is governed by a five-member Board of Directors which consists of members of the City Council. The Housing Authority is considered a blended component unit due to the financial benefit or burden relationship the Housing Authority shares with the City as its financial transactions are reported in the Special Revenue Fund.

Since the City Council serves as the governing board for these component units, all of the City's component units are considered to be blended component units. Blended component units, although legally separate entities, are in substance, part of the City's operations and so data from these units are reported with the interfund data of the primary government. These component units do not issue separate component unit financial statements.

B. Basis of Accounting and Measurement Focus

The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for in a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. City resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled.

Government-Wide Financial Statements

The City’s Government-Wide Financial Statements include a Statement of Net Position and a Statement of Activities. These statements present summaries of Governmental and Business-Type Activities for the City accompanied by a total column. Fiduciary activities of the City are not included in these statements.

The Government-Wide Financial Statements are presented on an “economic resources” measurement focus and the accrual basis of accounting. Accordingly, all of the City’s assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The types of transactions reported as program revenues for the City are reported in three categories: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions.


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B. Basis of Accounting and Measurement Focus, Continued

Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund activities, payables and receivables including the corresponding deferred revenues. All internal balances in the Statement of Net Position have been eliminated except those representing balances between the governmental activities and the business-type activities, which are presented as internal balances and eliminated in the total primary government column. In the Statement of Activities, internal service fund transactions have been eliminated. However, transactions between governmental and business-type activities have not been eliminated.

Government-Wide Financial Statements, continued

Due to and from other funds Advances to and from other funds Transfers in and out

Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted-net position and unrestricted-net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted-net position to have been depleted before unrestricted-net position is applied.

Governmental Fund Financial Statements

Governmental Fund Financial Statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balance for all major governmental funds and nonmajor funds aggregated. An accompanying schedule is presented to reconcile and explain the differences in net position as presented in these statements to the net position presented in the Government-Wide financial statements. The City has presented all major funds that met the qualifications for major fund reporting.

All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheets. The Statement of Revenues, Expenditures and Changes in Fund Balance presents increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current position. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period.


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Governmental Fund Financial Statements, continued

Revenues are recorded when received in cash, except that revenues subject to accrual (generally 60 days after year-end, except sales tax which is considered available if collected within 90 days) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property tax, taxpayer-assessed tax revenues (transient occupancy taxes, franchise taxes, etc.), certain grant revenues and earnings on investments. Expenditures are recorded in the accounting period in which the related fund liability is incurred.

Unearned revenues arise when the government receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods when both revenue recognition criteria are met or when the government has a legal claim to the resources, the unearned revenue is removed from the balance sheet and revenue is recognized.

Reconciliations of the Fund Financial Statements to the Government-Wide Financial Statements are provided to explain the differences created by the integrated approach of GASB Statement No. 34.

Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted fund balance to have been depleted before using any of the unrestricted components of fund balance. Furthermore, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last.

Proprietary Fund Financial Statements

Proprietary Fund Financial Statements include a Statement of Net Position, a Statement of Revenues, Expenses and Changes in Fund Net Position, and a Statement of Cash Flows for each major proprietary fund.


-41-



Proprietary Fund Financial Statements, continued

Proprietary funds are accounted for using the "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the Statement of Net position. The Statement of Revenues, Expenses and Changes in Fund Net Position presents increases (revenues) and decreases (expenses) in total net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. In these funds, receivables have been recorded as revenue and provisions have been made for uncollectible amounts.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the proprietary funds are charges to customers for sales and services. Operating expenses for the proprietary funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

Fiduciary Fund Financial Statements

Fiduciary Fund Financial Statements include a Statement of Fiduciary Net Position. The City's Fiduciary Funds represent:

Agency Funds – are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The Agency Funds are accounted for using the accrual basis of accounting.

Private Purpose Trust Fund – report resources of all other trust arrangements in which principal and income benefit individuals, private organizations, or other governments. Private purpose trust funds are reported using the economic resources measurement focus and the accrual basis of accounting. This fund is used to report the assets, liabilities, and activities of the City of Loma Linda Redevelopment Agency Successor Agency.

Major Funds

The City reports the following major governmental funds:

The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general government except those required to be accounted for in another fund.


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Major Funds continued

The Loma Linda Housing Authority is responsible for the administration of providing affordable housing in the City.

The Special Projects Construction Capital Projects Fund accounts for special or extraordinary projects, activities and allocations that might be recommended by staff and determined needed by the City Council.

The Park Development Capital Projects Fund accounts for developer fees collected and expended for future park development and acquisition.

The City reports the following major proprietary funds:

The Water Acquisition Fund accounts for developer fees collected to pay for the expansion of the water system and for debt service on qualifying projects.

The Water Enterprise Fund is used to account for water production, distribution and meters.

The Sewer Capital Fund accounts for the operation and maintenance of the City’s sewer, storm drain and catch basin systems.

The Loma Linda Connected Communities Fund provides Loma Linda residents and businesses with the opportunities for voice, data, video, multimedia, home automation systems, environmental control, security, audio, television, sensors, alarms and intercom services. The program establishes the standardized requirements for residential and commercial telecommunications cabling systems. The initial intent is to connect new development to the system, but the long-term goal is to eventually retrofit and extend these services to the entire community.

Additionally, the City reports the following fiduciary funds:

Agency Funds – These funds are used to report resources held by the City in a purely custodial capacity, which involves only the receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations or other governments.

Private Purpose Trust Fund – This fund is used to account for the assets, liabilities, and activities of the Successor Agency to the former City of Loma Linda Redevelopment Agency.


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C. Use of Restricted/Unrestricted Net Position

When an expense is incurred for purposes for which both restricted and unrestricted net position is available, the City’s policy is to apply restricted net position first.

D. Cash, Cash Equivalents and Investments

The City pools its available cash for investment purposes. The City’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturity of three months or less from the date of acquisition. Cash and cash equivalents are combined with investments and displayed as Cash and Investments.

All cash and investments of proprietary funds are held in the City’s investment pool. Therefore, all cash and investments in the proprietary funds are considered cash and cash equivalents for the purpose of the statement of cash flows as these cash pools have the general characteristics of a demand deposit account. In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, highly liquid market investments with maturities of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available.

The City participates in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF) which has invested a portion of the pool funds in structured notes and asset-backed securities. LAIF’s investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these structured notes and asset-backed securities are subject to market risk as to change in interest rates.

In accordance with GASB Statement No. 40, Deposit and Investment Disclosures (Amendment of GASB No. 3), certain disclosure requirements, if applicable, for Deposits and Investment Risks are specified in the following areas:

Interest Rate Risk Credit Risk

o Overall o Custodial Credit Risk o Concentrations of Credit Risk

Foreign Currency Risk

In addition, other disclosures are specified including use of certain methods to present deposits and investments, highly sensitive investments, credit quality at year-end and other disclosures.


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E. Receivables

All receivables, contracts, loans and accounts are shown net of an allowance for doubtful accounts. In the proprietary funds, the City accrues for unbilled water and sewer services at year-end.

F. Interfund Transactions

Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the noncurrent portion of interfund loans).” Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.”

Interfund services provided and used are accounted for as revenue, expenditures or expenses, as appropriate. 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 reimbursed fund. All other interfund transactions, except interfund services provided and used, are reported as transfers. Nonrecurring or non-routine permanent transfers of equity are reported as residual equity transfers. All other interfund transfers are reported as transfers.

G. Inventories and Prepaid Items

All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories in the General Fund consist of expendable supplies held for consumption, whereas in the Enterprise Funds it represents water supplies in the water utility. Inventory costs are recorded as expenditures when used.

The General Fund inventory is accounted for on the consumption method and is equally offset by a reservation of fund balance in the fund-level statements, which indicates that it does not constitute “available spendable resources”.

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements.

H. Restricted Cash and Investments with Fiscal Agents

Certain restricted cash and investments are held by fiscal agents for the redemption of bonded debt and for acquisition and construction of capital projects.


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I. Capital Assets

Government-Wide Financial statements - capital assets, which include land, structures and improvements, machinery and equipment, infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), and construction in progress are reported in the applicable governmental or business-type activity columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $1,000 and an estimated useful life in excess of one year. Such assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed and donated capital assets are valued at their estimated fair market value on the date contributed.

For infrastructure systems, the City elected to use the “Basic Approach” as defined by GASB Statement No. 34 for infrastructure reporting.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of the capital assets of business-type activities is included as part of the capitalized value of the assets constructed.

Depreciation is recorded on a straight-line basis over estimated useful lives of the assets as follows:

Type of asset YearsStructures and improvements 15-50Machinery and equipment 3-10Infrastructure 20-50

Fund Financial Statements - The fund financial statements do not present capital assets. Consequently, capital assets are presented as reconciling items in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position.


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J. Interest Payable

In the Government-Wide Financial Statements, interest payable on long-term debt is recognized as the liability is incurred for all fund types.

K. Unearned Revenues

In the Government-Wide Financial Statements, unearned revenue is recognized for transactions for which revenue has not yet been earned. Typical transactions recorded as unearned revenues in the Government-Wide Financial Statements are prepaid charges for services.

L. Compensated Absences

Vacation pay is payable to employees at the time a vacation is taken or upon termination of employment. Normally an employee cannot accrue more than 26 to 46 days depending on length of employment.

Sick leave is payable when an employee is unable to work because of illness. Upon termination an employee will be paid one-third of unused sick leave up to 344 hours for miscellaneous employees and 516 hours for safety employees. Sick leave hours earned above the maximum are paid out on a one-for-one basis.

All vacation and one-third of sick leave pay is accrued when incurred in the Government-Wide Financial Statements and Proprietary Funds.

M. Long-Term Debt

Government-Wide Financial Statements - Long-term debt and other financial obligations are reported as liabilities in the appropriate funds. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable premium or discount.

Fund Financial Statements - The fund financial statements do not present long-term debt. As such, long-term debt is shown as a reconciling item in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position.

Governmental funds 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 financial sources. Premiums received on debt issuance are reported as other financing sources while discounts on debt issuance are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

Proprietary Fund Financial Statements use the same principles as those used in the Government-Wide Financial Statements.


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N. Pension Plans

For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, and pension expense, information about the fiduciary net position and additions to/deductions from the fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. CalPERS audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications.

GASB 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used.

Valuation Date (VD) June 30, 2013 Measurement Date (MD) June 30, 2014 Measurement Period (MP) July 1, 2013 to June 30, 2014

O. Net Position

In the Government-Wide Financial Statements, Net Position are classified in the following categories:

Net Investment in Capital Assets – This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that is attributed to the acquisition, construction, or improvement of the assets.

Restricted Net Position – This amount is restricted by external creditors, grantors, contributors, or laws or regulations of other governments.

Unrestricted Net Position – This amount is all net position that does not meet the definition of “net invested in capital assets” or “restricted net position.”

P. Fund Balance

In the Governmental Fund Financial Statements, fund balances are classified in the following categories:

Nonspendable – Items that cannot be spent because they are not in spendable form, such as prepaid items and inventories, items that are legally or contractually required to be maintained intact, such as principal of an endowment or revolving loan funds.


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P. Fund Balance, Continued

Restricted – Restricted fund balances encompass the portion of net fund resources subject to externally enforceable legal restrictions. This includes externally imposed restrictions by creditors, such as through debt covenants, grantors, contributors, laws or regulations of other governments, as well as restrictions imposed by law through constitutional provisions or enabling legislation.

Committed – Committed fund balances encompass the portion of net fund resources that can only be used for specific purposes pursuant to constraints imposed by formal action of the City Council. Those committed amounts cannot be used for any other purpose unless the City Council removes or changes the specified use by taking the same type of action that it employed to previously commit those amounts. If the Council action that limits the use of the funds was separate from the action that initially created the revenues that form the basis for the fund balance, then the resultant fund balance is considered to be committed, not restricted. The City Council considers a resolution to constitute a formal action of the City Council for the purposes of establishing committed fund balance.

Assigned – Assigned fund balances encompass the portion of net fund resources reflecting the government’s intended use of resources. Assignment of resources can be done by the highest level of decision making or by a committee or official designated for that purpose. The City Council has established a resolution that authorized the City Manager for that purpose.

Unassigned – This category is for any balances that have no restrictions placed upon them.

When expenditures are incurred for purposes for which all restricted, committed, assigned and unassigned fund balances are available, the City’s policy is to apply in the following order, except for instances wherein an ordinance specifies the fund balance:

Restricted Committed Assigned Unassigned

A City Council Action is the formal action required by the Government to establish and modify or rescind a fund balance commitment.


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Q. Property Taxes

Property tax revenue is recognized on the modified accrual basis, that is, in the fiscal year for which the taxes have been levied providing they become available. Available means due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter (not to exceed 60 days) to be used to pay liabilities of the current period. The County of San Bernardino collects property taxes for the City. Tax liens attach annually as of 12:01 A.M. on the first day in January preceding the fiscal year for which the taxes levied. Taxes are levied on both real and personal property, as it exists on that date. The tax levy covers the fiscal period July 1 to June 30. All secured personal property taxes and one-half of the taxes on real property are due November 1; the second installment is due February 1. All taxes are delinquent if unpaid on December 10 and April 10, respectively. Unsecured personal property taxes become due on the first of March each year and are delinquent, if unpaid, on August 31.

R. Use of Estimates

The preparation of the basic financial statements in conformity with GAAP generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

S. New GASB Pronouncements

GASB has issued Statement No. 68, Accounting and Financial Reporting for Pensions – An Amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pension plans, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service.

GASB has issued Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – An Amendment of GASB Statement No. 68. The objective of this Statement is to address an issue regarding application of the transition provisions of Statement No. 68, Accounting and Financial Reporting for Pensions. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined benefit pension plan after the measurement date of the government’s beginning net pension liability.


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S. New GASB Pronouncements, Continued

These pronouncements have been implemented for purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense/expenditures. Information about the fiduciary net position of the City’s California Public Employees’ Retirement System (CalPERS) plans (Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

Note 2: CASH AND INVESTMENTS

The City maintains a cash and investment pool, which includes cash balances and authorized investments of all funds. This pooled cash is invested by the City Treasurer to enhance interest earnings. The City has the following cash and investments at June 30, 2015:

Governmental Business-Type Agency Private PurposeActivities Acitvities Funds Trust Fund Totals

Cash and investments 19,925,486$ 2,702,256$ 76,574$ 4,947,915$ 27,652,231$

Restricted cash and investments 36,582 40,840 - 3,422,416 3,499,838 19,962,068$ 2,743,096$ 76,574$ 8,370,331$ 31,152,069$

Fiduciary Funds StatementsGovernment-Wide Statements

The City’s cash and investments at June 30, 2015 in more detail were as follows:

Cash and Cash equivalentsPetty Cash 1,350$Demand Deposits 2,016,909Total Cash and Cash equivalents 2,018,259

InvestmentsLocal Agency Investment Fund 25,633,972

Total Cash and Investments 27,652,231

Cash and Investments with Fiscal Agents 3,499,838

Total 31,152,069$


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Note 2: CASH AND INVESTMENTS, Continued

A. Deposits

The carrying amounts of the City’s demand deposits were $2,016,909 at June 30, 2015. Bank balances before reconciling items were $2,384,913 at that date, the total amount of which was collateralized or insured with securities held by the pledging financial institutions in the City’s name as discussed below.

The California Government Code (Code) requires California banks and savings and loan associations to secure the City’s cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the City's name.

The market value of pledged securities must equal at least 110% of the City's cash deposits. California law also allows institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the City’s total cash deposits. The City may waive collateral requirements for cash deposits, which are fully insured up to $250,000 by the Federal Deposit Insurance Corporation. The City, however, has not waived the collateralization requirements.

B. Investments

Under the provisions of the City’s investment policy, and in accordance with the Code, the following investments were authorized:

Securities of the U.S. Government, or its agencies Certificates of Deposits (or Time Deposits) State of California Local Agency Investment Fund (LAIF) Other investments that are approved through the State of California Government Code

As of June 30, 2015, the City had $25,633,972 invested in LAIF. The City has complied with the provisions of GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investments Pools. No current adjustments have been made to the accompanying basic financial statements, because the City’s investments were only in LAIF and the fair value adjustment was immaterial.

The City’s investments with LAIF at June 30, 2015 included 2.08% of the pooled funds invested in structured notes and asset-backed securities. This is a decrease of 1.61% from the prior year. These investments included the following:

Structured Notes: debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or have embedded forwards or options.


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B. Investments, Continued

Asset-Backed Securities: generally mortgage-backed securities that entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (for example, Collateralized Mortgage Obligations) or credit card receivables.

LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute.

C. Investments Authorized by Debt Agreements

Investment of debt proceeds held by a bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the Code or the City’s investment policy.

D. Risk Disclosures

Interest Rate Risk – The City’s investment policy does not limit investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The City has elected to invest all in LAIF which has a maturity of less than one year.

External Pool: Fair Value Less than 1 YearState of California - Local Agency Investment Fund 25,633,972$ 25,633,972$

Invested Maturities in Years

Credit Risk – As of June 30, 2015, the City’s investments in external investment pools are unrated.

Custodial Credit Risk – For deposits, custodial credit risk is the risk that, in the event of the failure of a deposit 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. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party.

The City’s investment policy does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the provision for deposits stated in Note 2A. $2,134,913 of the City’s deposits with financial institutions was in excess of the FDIC limits however, the City’s bank participates in the FDIC‘s temporary Transaction Account Guarantee Program which provides unlimited coverage. Of the City and Successor Agency’s investments, $3,499,838 of securities was held by the counterparty’s trust department, the trustee for the bonds, not in the name of the City as of June 30, 2015.


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D. Risk Disclosures, Continued

Concentration of Credit Risk – The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the Code. Although the City’s policy allows other forms of investments, per City Council direction, the City currently only invests in LAIF.

Note 3: CONTRACTS AND LOANS RECEIVABLE

Contracts and loans receivable consisted of the following at June 30, 2015:

Balance BalanceJune 30, 2014 Additions Deletions June 30, 2015

Big Bear Valley Water Stock 1,075$ -$ -$ 1,075$ LL Chamber of Commerce Loan 8,584 - - 8,584 Deferred Housing Plan 89,778 - (13,241) 76,537 Developers Loans 10,485,121 274,471 (41,128) 10,718,464 First Time Homebuyers 4,127,509 897,604 (524,249) 4,500,864 Housing Loans/Grants 5,640 - (2,880) 2,760

Total 14,717,707$ 1,172,075$ (581,498)$ 15,308,284$

Note 4: INTERFUND TRANSACTIONS

A. Fund Financial Statements

Due To/Due From Other Funds - At June 30, 2015, the City had the following due to/from other funds:

Loma LindaSpecial Projects Nonmajor Water Sewer Connected

Due From Other Funds General Construction Governmental Enterprise Capital Communities Total

Governmental Funds:

General Fund -$ 35,445$ 372,366$ 4,248$ 149,144$ -$ 561,203$Enterprise Funds:Water Enterprise 59 - - - 306,194 - 306,253Sewer Capital - - - 3,512 - 37 3,549LL Connected Communities - - - 865 - - 865

Total 59$ 35,445$ 372,366$ 8,625$ 455,338$ 37$ 871,870$

Governmental Funds Enterprise Funds

Due To Other Funds

The Due to the General fund, $35,445 from Special Projects Construction Fund, Nonmajor Governmental Funds totaling $372,366, $149,144 from Sewer Capital Fund, and $4,248 from Water Enterprise Fund were to assist with negative cash during operations.


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Note 4: INTERFUND TRANSACTIONS, Continued

A. Fund Financial Statements, Continued

Of $306,194 from Sewer Capital Fund to Water Enterprise Fun, $224,216 was to cover overhead on capital asset depreciation. The remaining amounts of $81,978 as well as other due to other various funds totaling $4,473 were adjustments for water overpayment/underpayment.

Advances To/From Other Funds - At June 30, 2015, the City had the following advances to/from other funds:

Special Loma LindaProjects Park Nonmajor Sewer Connected

Advances To Other Funds Construction Development Governmental Capital Communities Total

Governmental Funds:Special Projects Construction -$ 3,250,000$ 3,769$ -$ -$ 3,253,769$Nonmajor Governmental 500,000 - - - - 500,000

Enterprise Funds:Water Acquisition 1,700,000 - - - - 1,700,000 Water Enterprise - - - 1,152,395 9,626 1,162,021 Total 2,200,000$ 3,250,000$ 3,769$ 1,152,395$ 9,626$ 6,615,790$

Enterprise FundsGovernmental FundsAdvance From Other Funds

$3,769 from Special Projects Construction Fund to Nonmajor Governmental Funds, $1,152,395 and $9,626 from Water Enterprise Fund to Sewer Capital Fund and LL Connected Communities Fund, respectively, were to cover negative cash at year end.

The remaining receivables to and from governmental funds and enterprise funds were to acquire funds to assist the Parks Fund with the acquisition of the open space property in the City’s South Hills.

Transfers - At June 30, 2015, the City had the following transfers in and out:

Fund receiving transfers Fund making transfers Amount

General Fund Special Projects Construction Fund 350,000$ Nonmajor funds 947,839

1,297,839

Water Enterprise Fund Water Acquisition Fund 255,653

Nonmajor funds General Fund 920,600

Total transfers 2,474,092$

During the year certain Nonmajor Governmental funds made payments in the amount of $947,839 to the General Fund for funding traffic safety expenses, reimburse grant expenditures incurred, and reimburse debt service payments associated with capital project funds.

$350,000 Transfer from Special Projects Construction Fund to the General Fund was to make the Civic Center lease payment.


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Note 4: INTERFUND TRANSACTIONS, Continued

B. Fund Financial Statements, Continued

Transfer from the Water Acquisition Fund in the amount of $89,200 to the Water Enterprise Fund was used to reimburse development impact fees incurred. The remaining transfer was to fund purchase of a utility truck.

Transfers from the General Fund to non major funds consist of $920,600 to make the Civic Center Lease payment.

Note 5: CAPITAL ASSETS

The following is a summary of capital assets for the governmental activities:

Beginning EndingBalance Additions Transfers Deletions Balance

Governmental activities:Capital assets, not being depreciated:

Land 14,204,929$ -$ -$ -$ 14,204,929$Construction in progress 6,094,538 711,714 (5,744,520) - 1,061,732

Total capital assets, not being depreciated 20,299,467 711,714 (5,744,520) - 15,266,661

Capital assets, being depreciated:Structures and improvements 24,533,636 68,793 - - 24,602,429Machinery and equipment 8,183,402 224,242 30,612 (114,802) 8,323,454 Infrastructure 43,430,551 1,620,021 5,744,520 - 50,795,092

Total capital assets, being depreciated 76,147,589 1,913,056 5,775,132 (114,802) 83,720,975

Less accumulated depreciation/amortization for:Structures and improvements (12,218,074) (998,233) - - (13,216,307)Machinery and equipment (6,366,323) (293,872) - 114,802 (6,545,393) Infrastructure (22,106,858) (1,019,962) - - (23,126,820)

Total accumulated depreciation (40,691,255) (2,312,067) - 114,802 (42,888,520)

Total capital assets, being depreciated net 35,456,334 (399,011) 5,775,132 - 40,832,455

Governmental activities capital assets, net 55,755,801$ 312,703$ 30,612$ -$ 56,099,116$

Depreciation expense was charged to functions of the primary government's governmental activities as follows:

Governmental activities:General government 554,283$ Public safety 219,160 Community development 124,524 Public works 1,414,100

Total depreciation - governmental activities 2,312,067$


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Note 5: CAPITAL ASSETS, Continued

The following is a summary of capital assets for the business-type activities:

Beginning EndingBalance Additions Transfers Deletions Balance

Business-type activities:Capital assets, not being depreciated:

Land and improvements 1,387,764$ -$ -$ -$ 1,387,764$ Construction in progress - - - - -

Total capital assets, not being depreciated 1,387,764 - - - 1,387,764

Capital assets, being depreciated:Structures and improvements 28,033,498 6,120 - (14,928) 28,024,690Machinery and equipment 5,880,129 535,440 (30,612) - 6,384,957 Infrastructure 36,743,698 - - - 36,743,698

Total capital assets, being depreciated 70,657,325 541,560 (30,612) (14,928) 71,153,345

Less accumulated depreciation for:Structures and improvements (18,691,038) (538,493) - 14,928 (19,214,603)Machinery and equipment (5,347,660) (197,648) - - (5,545,308)Infrastructure (3,924,451) (1,008,835) - - (4,933,286)

Total accumulated depreciation (27,963,149) (1,744,976) - 14,928 (29,693,197)

Total capital assets, being depreciated net 42,694,176 (1,203,416) (30,612) - 41,460,148

Business-type activities capital assets, net 44,081,940$ (1,203,416)$ (30,612)$ -$ 42,847,912$

Depreciation expense was charged to functions of the primary government's business-type activities as follows:

Business-type activities:Water Enterprise 1,403,397$ Sewer Capital 172,067 Loma Linda Connected Communities 169,512

Total depreciation - business-type activities 1,744,976$

Note 6: LONG-TERM DEBT

The following is a summary of long-term debt transactions for the fiscal year ended June 30, 2015:

Balance Balance Due within Governmental activities: July 1, 2014 Additions Deletions June 30, 2015 One Year

Master Lease Purchase - fire aparatus 242,515$ -$ (30,590)$ 211,925$ 31,853$ 2002 Lease Revenue Refunding Bonds 1,875,000 - (1,875,000) - - Insurance Retrospective Deposit 738,370 198,301 (79,275) 857,396 136,369 Compensated absences 505,201 472,566 (473,962) 503,805 212,126 Unamortized bond premium 4,102 - (2,050) 2,052 2,052 Net pension liability* 10,342,587 3,436,458 (5,457,676) 8,321,369 - OPEB liability 19,371 29,170 (47,481) 1,060 -

Total governmental activities 13,727,146$ 4,136,495$ (7,966,034)$ 9,897,607$ 382,400$


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Note 6: LONG-TERM DEBT, Continued

Balance Balance Due within Business-Type Activities July 1, 2014 Additions Deletions June 30, 2015 One Year

Revenue Bonds: 1978 Water Bonds (General Obligation) 10,000$ -$ -$ 10,000$ 10,000$ 1995 Variable Rate Water Revenue Refunding Bonds 5,885,000 - (395,000) 5,490,000 415,000 Insurance Retrospective Deposit 132,987 110,321 (14,031) 229,277 94,710 Compensated absences 286,721 218,734 (199,139) 306,316 96,637 Net pension liability* 3,310,302 1,170,166 (1,942,800) 2,537,668 - OPEB liability 15,848 23,866 (38,848) 866 -

Total business-type activities 9,640,858$ 1,523,087$ (2,589,818)$ 8,574,127$ 616,347$

*The beginning balance of the net pension liability resulted from the implementation of GASB Statement No. 68.

A. Governmental Activities Long-Term Debt

2002 Lease Revenue Refunding Bonds – Original Issue $10,840,000

On October 26, 2002, the Authority issued 2002 lease revenue refunding bonds in the amount of $10,840,000. The purpose of the bonds was to refund all the outstanding 1994 Certificates of Participation in the amount of $10,255,000.

The bonds mature from January 1, 2003 to January 1, 2016 in varying amounts. The bonds accrue interest at rates between 2.00% and 4.25%. Interest on the bonds is payable semiannually on each January 1 and July 1, commencing January 1, 2003. Principal is payable in annual installments ranging from $630,000 to $955,000, commencing January 1, 2003. The bonds are subject to optional and special mandatory redemption prior to maturity.

The bonds are secured by lease revenues between the Authority and the City. Annual principal and interest payments on the bonds are expected to require the full amount of available lease revenues. Principal and interest paid for the current year was $1,792,979, and the lease revenue received was $890,600. The bond was paid off as of June 30, 2015.

Capital Lease

On October 9, 2010 the City entered into a ten year capital lease agreement with Oshkosh Capital to acquire a new Fire Incident Support Apparatus in the amount of $330,513. Payments in the amount of $40,584 are due on July 9th of each year with the first payment due on July 9, 2011. Payments include interest of 4.12%. The principal balance at June 30, 2015 was $211,925.


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A. Governmental Activities Long-Term Debt, Continued

Year EndingJune 30, Principal Interest Total

2016 31,853$ 8,731$ 40,584$ 2017 33,165 7,419 40,584 2018 34,532 6,053 40,585 2019 35,955 4,630 40,585 2020 37,436 3,148 40,584 2021 38,984 1,606 40,590 Total 211,925$ 31,587$ 243,512$

The total leased assets by major asset class consisted of the following:

June 30, 2015Equipment 333,273$ Equipment under capitalized lease, at cost 333,273

Accumulated depreciation 74,987 Equipment under capitalized lease, net 258,286$

JPIA Retrospective Deposit

Since its inception, the California JPIA, “Authority,” has operated under a retrospective funding model for its liability and workers’ compensation programs. Historically, members have paid for retrospective deposit adjustments and received retrospective refunds in annual rolling installments of up to eight years in duration. A change to the funding model was adopted in 2010 that fully implemented during fiscal year 2013-14 coverage period. The unpaid portion of all retrospective adjustments on coverage periods up to and including fiscal year 2009-10 have been consolidated into a single aggregate retrospective balance and temporarily deferred from payment. Payments resumed beginning July 1, 2014 for the Liability program and are schedule to resume July 1, 2015 for the Workers’ Compensation program. The City of Loma Linda’s portion owed for the General Liability program is $601,724 and $255,672 for the Worker’s compensation portion.

Compensated absences

The City’s liability for vested and unpaid compensated absences in the governmental activities has been accrued and amounted to $503,805. This amount is made up of accrued vacation, one third sick pay plus any amount over the maximum sick hours accrued, and any comp time earned. Compensated absences are primarily liquidated by the General Fund. For further explanation see Note 1.


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B. Business-Type Activities Long-Term Debt

1978 Water Bonds (General Obligation) – Original Issue $1,000,000

On February 14, 1978, the City issued $1,000,000 of 1978 Water Bonds (General Obligation). The purpose of the bonds was to finance water system improvements.

The bonds matured from April 1, 1979 to April 1, 2003 in varying amounts. The bonds accrued interest at rates between 4.80% and 6.75%. Interest on the bonds was payable semiannually on each April 1 and October 1. Principal was payable in annual installments commencing April 1, 1979. The revenues of the Water Fund were being used to pay the annual debt service requirements of the bonds. The bonds matured in fiscal year 2003; however, at June 30, 2010, not all bonds have been presented for payment. The amount outstanding as of June 30, 2015 was $10,000. Interest no longer accrues on these bonds.

1995 Variable Rate Water Revenue Refunding Bonds – Original Issue $10,000,000

On December 1, 1995, the City issued 1995 variable rate water revenue refunding bonds in the amount of $10,000,000. The purpose of the bonds was to refund the City’s outstanding water revenue refunding bonds of 1993 and to provide funds to finance an expansion of the storage capacity of the City’s water enterprise.

The bonds mature from June 1, 1998 to June 1, 2025 in varying amounts. The bonds have a variable rate of interest not to exceed 12.00%. Interest is payable monthly and based on the rate per annum equal to the minimum rate necessary, as determined by the Remarketing Agent, for the Remarketing Agent to sell the Bonds on the date the variable rate is set at 100% of the principal amount thereof plus accrued interest, provided however, that in no event the interest rate exceeds the maximum rate. The variable interest rate can be converted to a fixed rate on any date (conversion date) decided upon by the City and approved by bond Counsel, at which time the rate will be fixed and payable semi-annually each June 1 and December 1. Principal is payable in annual installments ranging from $145,000 to $705,000, commencing January 1, 1998. The bonds are subject to redemption, optional render and mandatory tender prior to maturity.

The bonds are secured by a pledge, charge and lien upon, the gross revenues derived by the City from the operations of the water enterprise and payable from the net revenues of the enterprise. In the official statement net revenues are defined as gross revenues less maintenance and operation costs. The net revenues shall be at least 1.25 times of the annual debt service on the bonds (coverage ratio). Although the City currently does not meet the required coverage ratio, annual principal and interest payments on the bonds required less than 10% of gross revenues.


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B. Business-Type Activities Long-Term Debt, Continued

1995 Variable Rate Water Revenue Refunding Bonds – Original Issue $10,000,000, Continued

Operating Revenue 5,573,859$ Interest Income 3,674

Gross Revenues 5,577,533$Operating Expenses 6,510,113 Less: Depreciation (1,403,397) 5,106,716

Excess Revenues 470,817$

Debt Service (Annual Debt Service) 1995 Water Refunding Bonds 399,439$

Coverage Ratio 118%

1995 Water Bonds - Debt Service Coverage

Annual principal and interest payments on the bonds required less than 10% of gross revenues. The amount of principal and interest outstanding at June 30, 2015 totaled $5,565,311. Principal and interest paid for the current year is $399,439, and gross revenues are $5,577,533.

The annual debt service requirements on these bonds have been calculated based on the interest rate in effect as of the report rate and are as follows:


2016 415,000$ 12,592$ 427,592$2017 440,000 11,640 451,6402018 470,000 10,631 480,6312019 495,000 9,553 504,5532020 525,000 8,418 533,418

2021-2025 3,145,000 22,477 3,167,477Total 5,490,000$ 75,311$ 5,565,311$


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B. Business-Type Activities Long-Term Debt, Continued

JPIA Retrospective Deposit

Since its inception, the California JPIA, “Authority,” has operated under a retrospective funding model for its liability and workers’ compensation programs. Historically, members have paid for retrospective deposit adjustments and received retrospective refunds in annual rolling installments of up to eight years in duration. A change to the funding model was adopted in 2010 that fully implemented during fiscal year 2013-14 coverage period. The unpaid portion of all retrospective adjustments on coverage periods up to and including fiscal year 2009-10 have been consolidated into a single aggregate retrospective balance and temporarily deferred from payment. Payments resumed beginning July 1, 2014 for the Liability program and are schedule to resume July 1, 2015 for the Workers’ Compensation program. In proprietary funds, portions owed for the General Liability program are $143,943 and $85,334 for the Worker’s Compensation portion.

Compensated absences

In proprietary funds, the liability for vested and unpaid compensated absences is reported in the fund as the benefits are vested and earned. The compensated absences accrued in the proprietary funds amounted to $306,316 at June 30, 2015. This amount is made up of accrued vacation, one third sick pay plus any amount over the maximum sick hours accrued, and any comp time earned. For further explanation see Note 1.

Note 7: NON-CITY OBLIGATIONS

The following bond issues are not reflected as City long-term debt because these debts are solely payable from and secured by specific revenue sources not related to the City as described in the official statements of the respective issues. Neither the faith and credit nor the taxing power of the City, the Agency, the State of California or any political subdivision thereof, is pledged for payment of these bonds. The City is acting only as an agent.


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Note 7: NON-CITY OBLIGATIONS, Continued

Loma Linda University Original Outstanding atMedical Center Project Amount June 30, 2015

Series 1999A 109,335,000$ 5,960,000$ Series 2005A 158,345,000 133,645,000

Series 2007 B-1 40,000,000 - Series 2007 B-2 40,000,000 - Series 2008 A 70,000,000 70,000,000 Series 2008 C 15,000,000 10,195,639

Total 432,680,000$ 219,800,639$

Multifamily Housing Revenue Bonds Original Outstanding atPoplar Street Apartments Amount June 30, 2015

Series 2008 A 9,000,000$ 1,110,000$

Multifamily Housing Revenue Bonds Original Outstanding atLoma Linda Commons Project Amount June 30, 2015

Series 2009 A 13,275,000$ 6,690,637$

Note 8: EMPLOYEE RETIREMENT PLAN

A. General Information about the Pension Plans

Plan Descriptions

The Plans are cost-sharing, multiple-employer defined benefit pension plans administered by the California Public Employees’ Retirement System (CalPERS). A full description of the pension plans regarding number of employees covered, benefit provisions, assumptions (for funding, but not account purposes), and membership information are listed in the June 30, 2013 Annual Actuarial Valuation Report. Details of the benefits provided can be obtained in Appendix B of the actuarial valuation report. The actuarial valuation report and CalPERS’ audited financial statements are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications, at www.calpers.ca.gov.

Benefits Provided

CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.


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Note 8: EMPLOYEE RETIREMENT PLAN, Continued

A. General Information about the Pension Plans, Continued

The Plans operate under the provisions of the California Public Employees’ Retirement Law (PERL), the California Public Employees’ Pension Reform Act of 2013 (PEPRA), and the regulations, procedures and policies adopted by the CalPERS Board of Administration. The Plans’ authority to establish and amend the benefit terms are set by the PERL and PEPRA, and may be amended by the California state legislature and in some cases require approval by the CalPERS Board.

The Plans’ provisions and benefits in effect at June 30, 2014 are summarized as follows:

Hire datePrior to

January 1, 2013On or after

January 1, 2013Benefit formula 2 % @ 55 2% @ 62Benefit vesting schedule 5 years service 5 years service

Benefit payments monthly for life monthly for lifeRetirement age 50-63 52 - 67Monthly benefits, as a % of eligible compensation 1.426% to 2.418% 1.0% to 2.5%Required employee contribution rates 7.00% 7.00%Required employer contribution rates 12.485% 12.485%

Hire datePrior to

January 1, 2013On or after

January 1, 2013Benefit formula 2 % @ 55 2% @ 62Benefit vesting schedule 5 years service 5 years service

Benefit payments monthly for life monthly for lifeRetirement age 50-63 52 - 67Monthly benefits, as a % of eligible compensation 1.426% to 2.418% 1.0% to 2.5%Required employee contribution rates 9.00% 9.00%Required employer contribution rates 27.337% 27.337%

Miscellaneous

Safety

Contributions

Section 20814(c) of the California Public Employees’ Retirement Law (PERL) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. For public agency cost-sharing plans covered by either the Miscellaneous or Safety risk pools, the Plan’s actuarially determined rate is based on the estimated amount necessary to pay the Plan’s allocated share of the risk pool’s costs of benefits earned by employees during the year, and any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2014 (the measurement date), the average active employee contribution rate for the respective miscellaneous, miscellaneous PEPRA, and safety plans, safety PEPRA is 7.0%, 7.0%, 9.0%, and 9.0% of annual pay, and the employer’s contribution rate is 12.485%, 12.485%, 27.337% and 27.337% of annual payroll, respectively. Employer contribution rates may change if plan contracts are amended. Employer Contributions for the measurement period ended June 30, 2014 for the respective miscellaneous, miscellaneous PEPRA, safety, safety PEPRA plans are $383,448, $6,007, $615,683, and $8,147.


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A. General Information about the Pension Plans, Continued

Contributions, Continued

The actual employer payments total of $389,455 for Miscellaneous plan and $623,830 for Safety plan made to CalPERS by the City during the measurement period ended June 30, 2014 differed from the City’s proportionate share of the employer’s contributions total of $573,091 for Miscellaneous plan and $507,746 for Safety plan by $183,636 and by $116,084, which are being amortized over the expected average remaining service lifetime in the City Cost-Sharing Multiple Employer Plan

B. Net Pension Liability

The City’s net pension liability for each Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of each of the Plans is measured as of June 30, 2014, using an annual actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. GASB 68 Accounting Report was not available for Safety PEPRA as of June 30, 2014. A summary of principal assumptions and methods used to determine the net pension liability is as follows.

Actuarial Methods and Assumptions Used to Determine Total Pension Liability

For the measurement period ended June 30, 2014 (the measurement date), the total pension liability was determined by rolling forward the June 30, 2013 total pension liability. The June 30, 2013 and June 30, 2014 total pension liabilities were based on the following actuarial methods and assumptions:

Miscellaneous SafetyValuation Date 6/30/2013 6/30/2013Measurement Date 6/30/2014 6/30/2014Actuarial Cost Method Entry Age Normal Entry Age NormalAsset Valuation Method Market Value of Assets Market Value of AssetsActuarial Assumptions:Discount Rate 7.50% 7.50%Inflation 2.75% 2.75%Salary Increases (1) 3.30% to 14.20% 3.30% to 14.20%Investment Rate of Return (2) 7.50% 7.50%Mortality Rate Table (3)

(1) Annual increases vary by category, entry age, and duration of service(2) Net of pension plan investment and administrative expenses; includes inflation(3) The mortality table used was developed based on CalPERS’ specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer

Deriverd using CALPERS' membership data for all FundsContract COLA up to 2.75% until purchasing power protection allowance floor on purchasing power applies, 2.75% thereafter

Post Retirement Benefit Increase

All other actuarial assumptions used in the June 30, 2013 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. The Experience Study report can be obtained at CalPERS’ website under Forms and Publications.


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B. Net Pension Liability, Continued

Discount Rate

The discount rate used to measure the total pension liability was 7.50 percent for each Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.50 percent discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.50 percent is applied to all plans in the Public Employees Retirement Fund. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained at CalPERS’ website under the GASB 68 section.

According to Paragraph 30 of Statement 68, the long-term discount rate should be determined without reduction for pension plan administrative expense. The 7.50 percent investment return assumption used in this accounting valuation is net of administrative expenses. Administrative expenses are assumed to be 15 basis points. An investment return excluding administrative expenses would have been 7.65 percent. Using this lower discount rate has resulted in a slightly higher total pension liability and net pension liability. This difference was deemed immaterial to the Public Agency Cost-Sharing Multiple-Employer Defined Benefit Pension Plan. Refer to the sensitivity of the net pension liability to changes in the discount rate section of this note, which provides information on the sensitivity of the net pension liability to changes in the discount rate.

CalPERS is scheduled to review all actuarial assumptions as part of its regular Asset Liability Management review cycle that is scheduled to be completed in February 2018. Any changes to the discount rate will require Board action and proper stakeholder outreach. For these reasons, CalPERS expects to continue using a discount rate net of administrative expenses for GASB 67 and 68 calculations through at least the 2017-18 fiscal year. CalPERS will continue to check the materiality of the difference in calculation until such time as they have changed their methodology.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.


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Discount Rate, Continued

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

The following table reflects long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses.

Asset ClassNew Strategic

AllocationReal Return Years 1 - 101

Real Return Years 11+2

Global Equity 47.0% 5.25% 5.71%Global Fixed Income 19.0% 0.99% 2.43%Inflation Sensitive 6.0% 0.45% 3.36%Private Equity 12.0% 6.83% 6.95%Real Estate 11.0% 4.50% 5.13%Infrastructure and Forestland 3.0% 4.50% 5.09%Liquidity 2.0% -0.55% -1.05%

Total 100%

1 An expected inflation of 2.5% used for this period2 An expected inflation of 3.0% used for this period

Pension Plan Fiduciary Net Position

Information about the pension plans’ assets, deferred outflows of resources, liabilities, deferred inflows of resources, and fiduciary net position are presented in CalPERS’ audited financial statements, which are publicly available reports that can be obtained at CalPERS’ website under Forms and Publications, at www.calpers.ca.gov. The Plans’ fiduciary net position and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis used by the pension plan, which is the economic resources measurement focus and the accrual basis of accounting. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. Investments are reported at fair value.


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Pension Plan Fiduciary Net Position, Continued

The plan fiduciary net position disclosed in the GASB 68 accounting valuation report may differ from the plan assets reported in the funding actuarial valuation report due to several reasons. First, for the accounting valuations, CalPERS must keep items such as deficiency reserves, fiduciary self-insurance and Other Post-Employment Benefits (OPEB) expense included as assets. These amounts are excluded for rate setting purposes in the funding actuarial valuation. In addition, differences may result from early Comprehensive Annual Financial Report closing and final reconciled reserves.

C. Proportionate Share of Net Pension Liability

The following table shows the Plans’ proportionate share of the net pension liability over the measurement period.

Miscellaneous Plan:

Plan Total Pension Liability

(a)

Plan Fiduciary Net Position

(b)

Plan Net Pension Liability

(c ) = (a) - (b)Balance at: 6/30/2013 (VD) 24,792,870$ 18,172,250$ 6,620,620$Balance at: 6/30/2014 (MD) 26,268,285$ 21,192,934$ 5,075,351$Net changes during 2013-14 1,475,415$ 3,020,684$ (1,545,269)$

Increase(Decrease)

Safety Plan:

Plan Total Pension Liability

(a)

Plan Fiduciary Net Position

(b)

Plan Net Pension Liability

(c ) = (a) - (b)Balance at: 6/30/2013 (VD) 22,620,722$ 15,588,453$ 7,032,269$Balance at: 6/30/2014 (MD) 23,718,152$ 17,934,466$ 5,783,686$Net changes during 2013-14 1,097,430$ 2,346,013$ (1,248,583)$

Increase(Decrease)

Valuation Date (VD), Measurement Date (MD).


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C. Proportionate Share of Net Pension Liability, Continued

The City’s net pension liability for each Plan is measured as the proportionate share of the net pension liability. The net pension liability of the each of the Plans is measured as of June 30, 2014, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. The City’s proportion of the net pension liability was determined by CalPERS using the output from the Actuarial Valuation System and the fiduciary net position, as provided in the CalPERS Public Agency Cost-Sharing Allocation Methodology Report, which is a publicly available report that can be obtained at CalPERS’ website under Forms and Publications, at www.calpers.ca.gov. The City’s proportionate share of the net pension liability for each Plan as of June 30, 2013 and 2014 was as follows:

Miscellaneous SafetyProportionate Share - June 30, 2013 0.20205% 0.14699%Proportionate Share - June 30, 2014 0.08156% 0.09295%

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents the City’s proportionate share of the net pension liability for each Plan as of the measurement date, calculated using the discount rate of 7.50 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.50 percent) or 1 percentage-point higher (8.50 percent) than the current rate:

Discount Rate - 1%(6.50%)

Current DiscountRate (7.50%)

Discount Rate + 1%(8.50%)

Miscellaneous Plan's Net Pension Liability/(Asset) 8,560,175$ 5,075,353$ 2,183,282$

Subsequent Events

There were no subsequent events that would materially affect the results presented in this disclosure.


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Note 8: EMPLOYEE RETIREMENT PLAN, Continued.

C. Proportionate Share of Net Pension Liability, Continued

Recognition of Gains and Losses

Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time.

The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense.

The amortization period differs depending on the source of the gain or loss:

Difference between projected and actual earnings

5 year straight-line amortization

All other amounts Straight-line amortization over the average expected remaining service lives of all members that are provided with benefits (active, inactive and retired) as of the beginning of the measurement period

The expected average remaining service lifetime (EARSL) is calculated by dividing the total future service years by the total number of plan participants (active, inactive, and retired) in the Public Agency Cost-Sharing Multiple-Employer Plan (PERF C).

The EARSL for each of the Plan for the 2013-14 measurement period is 3.8 years, which was obtained by dividing the total service years of 460,700 (the sum of remaining service lifetimes of the active employees) by 122,789 (the total number of participants: active, inactive, and retired). Note that inactive employees and retirees have remaining service lifetimes equal to 0. Also note that total future service is based on the members’ probability of decrementing due to an event other than receiving a cash refund.


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D. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions

Miscellaneous

As of the start of the measurement period (July 1, 2013), the net pension liability for the plan is $6,620,620 (the net pension liability of the aggregate plan as of June 30, 2013 is $3,276,668,431).

For the measurement period ending June 30, 2014 (the measurement date), the City incurred a pension expense of $377,488 for the Miscellaneous Plan (the pension expense for the aggregate plan for the measurement period $239,824,465). A complete breakdown of the pension expense for the Miscellaneous Plan is as follows:

Description Risk Pool AmountsEmployer's

Share

Percentage of Employer's

ShareService Cost 338,829,351$ 496,501$ 0.14653%Interest on the Total Pension Liability 921,162,366 1,845,584 0.20035%Recognized Differences between Expected andActual Experience - - N/ARecognized Changes of Assumptions - - N/AEmployee Contributions (159,834,203) (218,444) 0.13667%Projected Earnings on Pension Plan Investments (678,133,636) (1,354,515) 0.19974%Recognized Differences between Projected andActual Earnings on Plan Investments (182,199,413) (363,929) 0.19974%Other Changes in Fiduciary Net Position - - N/ARecognized Portion of Adjustment due to

Differences in Proportions - 20,616 N/ARecognized Differences Between Contributions

and Proportionate Share of Contributions - (48,325) N/ASubtotal: Employer's Share of Expense

Components 239,824,465$ 377,488 0.15740%Changes of Benefit Terms -

Employer's Proportionate Share ofPension Expense 377,488$

Note: Plan administrative expenses are not displayed in the above pension expense table. Since the expected investment return of 7.50 percent is net of administrative expenses, administrative expenses are excluded from the above table, but implicitly included as part of investment earnings.


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D. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, Continued

Safety

As of the start of the measurement period (July 1, 2013), the net pension liability for the plan is $7,032,269 (the net pension liability of the aggregate plan as of June 30, 2013 is $4,784,321,560).

For the measurement period ending June 30, 2014 (the measurement date), the City incurred a pension expense of $582,207 for the Safety Plan (the pension expense for the aggregate plan for the measurement period $351,644,102). A complete breakdown of the pension expense for the Safety Plan is as follows:

Description Risk Pool AmountsEmployer's

Share

Percentage of Employer's

ShareService Cost 369,638,880$ 589,640$ 0.15952%Interest on the Total Pension Liability 1,251,259,652 1,674,899 0.13386%Recognized Differences between Expected andActual Experience - - N/ARecognized Changes of Assumptions - - N/AEmployee Contributions (131,938,305) (226,316) 0.17153%Projected Earnings on Pension Plan Investments (897,207,655) (1,154,458) 0.12867%Recognized Differences between Projected andActual Earnings on Plan Investments (240,108,470) (308,953) 0.12867%Other Changes in Fiduciary Net Position - - N/ARecognized Portion of Adjustment due to

Differences in Proportions - (21,009) N/ARecognized Differences Between Contributions

and Proportionate Share of Contributions - 30,548 N/ASubtotal: Employer's Share of Expense

Components 351,644,102$ 584,351 0.16618%Changes of Benefit Terms -

Employer's Proportionate Share ofPension Expense 584,351$

Note: Plan administrative expenses are not displayed in the above pension expense table. Since the expected investment return of 7.50 percent is net of administrative expenses, administrative expenses are excluded from the above table, but implicitly included as part of investment earnings.


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D. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions, Continued

As of June 30, 2015, the City has deferred outflows and deferred inflows of resources related to pensions as follows:

Deferred Outflows of Resources

Deferred Inflows of Resources

Employer Contribution Made SubsequentTo Measurement Date 1,047,182$ -$

Net Difference between Projected andActual Earnings on Pension PlanInvestments - (2,691,526)

Adjustment Due To Differences InProportions 57,724 (58,827)

Difference Between Contributions And Proportionate Share Of Contributions 89,958 (139,735)

Total 1,194,864$ (2,890,088)$

These amounts above are net of outflows and inflow recognized in the 2013-14 measurement period expense. $1,047,182 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2016. Amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as follows:

Measurement Period Ended

June 30:

Deferred Outflows/(Inflows)

of Resources2015 (691,052)$ 2016 (691,052) 2017 (687,420) 2018 (672,882) 2019 -

Thereafter -

E. Payable to the Pension Plan

At June 30, 2015, the City reported a payable of $38,291 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2015.


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Note 9: OTHER POSTEMPLOYMENT BENEFITS (OPEB)

Plan Description - The City provides other postemployment benefits (OPEB) for all of its employee groups through the California Public Employees’ Retirement System Health Care Plan (Plan), a cost-sharing multiple-employer, defined benefit OPEB plan that covers all general and public safety retirees, spouses and eligible dependents. The Plan provides medical insurance benefits to eligible retirees and their spouses and dependents. The benefit provisions and all other requirements are established by State statute and City resolution. Copies of CalPERS’ annual financial report may be obtained from their executive office at 400 P Street, Sacramento, CA 95814.

Eligibility - Employees are eligible for retiree health benefits if they retire from the City on or after age 50 with at least 5 years of service, and are eligible for CalPERS pension. Membership of the Plan consisted of the following at June 30, 2013, the date of the latest actuarial valuation:

Participantsas of June 30, 2013 Total

Active employees 76Retirees 50

Total 126

Medical Plans

Retirees may enroll in any of the CalPERS medical plans.

Funding Policy - The contribution requirements are established and amended by the City. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year 2015, the City contributed for employees and retirees the total amount of $52,513. Net OPEB obligation is expected to be liquidated by the General Fund and all the enterprise funds in the future periods.

Annual OPEB Cost and Net OPEB Obligation - The City’s annual OPEB cost (expense) is calculated based on the Annual Required Contribution of the Employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excesses) over a period not to exceed thirty years. The following table shows the components of the City’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City’s Net OPEB obligation to the Plan:

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Note 9: OTHER POSTEMPLOYMENT BENEFITS (OPEB), Continued

June 30, 2015

Annual required contribution 52,513$ Interest on net OPEB obligation 2,680 Adjustment to annual required contribution (2,158) Annual OPEB cost 53,035 Contributions made (86,328) Increase in net OPEB obligation (33,293) Net OPEB obligation - beginning of year 35,219 Net OPEB obligation - end of year 1,926$

The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the last three years were as follows:

Year OPEB OPEB Cost OPEB Ended Cost Contributed Obligation

6/30/2015 53,035$ 163% 1,926$ 6/30/2014 52,904 99% 35,219 6/30/2013 50,981 99% 34,828

Funded Status and Funding Progress - As of June 30, 2013, the most recent actuarial valuation date, the plan was 27.89% funded, the actuarial accrued liability for benefits was $651,515, and the actuarial value of assets was $146,043, resulting in an UAAL of $523,669. The covered payroll (annual payroll of active employees covered by the plan) was $5,556,816 and the ratio of UAAL to the covered payroll was 9.42%.

Actuarial (Unfunded)Actuarial Actuarial Accrued Actuarial Valuation Value of Liability Accrued Funded Covered UAAL as

Date Assets Entry Age Liability (UAAL) Ratio Payroll % of Payroll

6/30/2013 146,043$ 651,515$ (523,669)$ 27.89% 5,556,816$ 9.42%6/30/2011 69,957 579,635 (509,678) 13.73% 5,747,688 8.87%6/1/2010 29,594 600,942 (571,348) 5.18% 6,018,956 9.49%

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as Required Supplementary Information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

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Note 9: OTHER POSTEMPLOYMENT BENEFITS (OPEB), Continued

Actuarial Methods and Assumptions - Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

In the June 30, 2013, actuarial valuation, the “entry age normal” actuarial cost method was used. The actuarial assumptions include a 7.25% investment rate of return which is based on the expected return on funds invested by CalPERS, an annual inflation factor of 2.75% and an annual healthcare cost trend rate of 4%. Loma Linda did not use an assets smoothing formula to determine the actuarial asset valuations at this time. The UAAL is being amortized as level percentage of projected payroll over an open 30 years amortization period.

Note 10: LIABILITY, PROPERTY AND WORKERS’ COMPENSATION PROTECTION

A. Description of Self-Insurance Pool Pursuant to Joint Powers Agreement

The City of Loma Linda is a member of the California Joint Powers Insurance Authority (Authority). The Authority is composed of 118 California public entities and is organized under a joint powers agreement pursuant to California Government Code §6500 et seq. The purpose of the Authority 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 lines of coverage. The California JPIA began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a nine-member Executive Committee.

B. Self-Insurance Programs of the Authority

Each member pays an annual contribution at the beginning of the coverage period. A retrospective adjustment is then conducted annually thereafter, for coverage years 2012-13 and prior. Retrospective adjustments are scheduled to continue indefinitely on coverage years 2012-13 and prior, until all claims incurred during those coverage years are closed, on a pool-wide basis. This subsequent cost re-allocation among members, based on actual claim development, can result in adjustments of either refunds or additional deposits required. Coverage years 2013-14 and forward are not subject to routine annual retrospective adjustment.

The total funding requirement for self-insurance programs is estimated using actuarial models and pre-funded through the annual contribution. Costs are allocated to individual agencies based on exposure (payroll) and experience (claims) relative to other members of the risk-sharing pool. Additional information regarding the cost allocation methodology is provided below.

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Note 10: LIABILITY, PROPERTY AND WORKERS’ COMPENSATION PROTECTION, Continued

B. Self-Insurance Programs of the Authority, Continued

Liability

In the liability program claims are pooled separately between police and general government exposures. (1) The payroll of each member is evaluated relative to the payroll of other members. A variable credibility factor is determined for each member, which establishes the weight applied to payroll and the weight applied to losses within the formula. (2) The first layer of losses includes incurred costs up to $30,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the first layer. (3) The second layer of losses includes incurred costs from $30,000 to $750,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. (4) Incurred costs from $750,000 to $50 million, are distributed based on the outcome of cost allocation within the first and second loss layers.

For 2014-15 the Authority’s pooled retention is $2 million per occurrence, with reinsurance to $20 million, and excess insurance to $50 million. The Authority’s reinsurance contracts are subject to the following additional pooled retentions: (a) 50% of the $2.5 million annual aggregate deductible in the $3 million times $2 million layer, (b) 50% quota share of the $3 million times $2 million layer, and (c) $3 million annual aggregate deductible in the $5 million times $10 million layer.

The overall coverage limit for each member, including all layers of coverage, is $50 million per occurrence. Costs of covered claims for subsidence losses have a sub-limit of $30 million per occurrence.

Workers’ Compensation

In the workers’ compensation program claims are pooled separately between public safety (police and fire) and general government exposures. (1) The payroll of each member is evaluated relative to the payroll of other members. A variable credibility factor is determined for each member, which establishes the weight applied to payroll and the weight applied to losses within the formula. (2) The first layer of losses includes incurred costs up to $50,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the first layer. (3) The second layer of losses includes incurred costs from $50,000 to $100,000 for each occurrence and is evaluated as a percentage of the pool’s total incurred costs within the second layer. (4) Incurred costs from $100,000 to statutory limits are distributed based on the outcome of cost allocation within the first and second loss layers.

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B. Self-Insurance Programs of the Authority, Continued

For 2014-15 the Authority’s pooled retention is $2 million per occurrence, with reinsurance to statutory limits under California Workers’ Compensation Law.

Employer’s Liability losses are pooled among members to $2 million. Coverage from $2 million to $5 million is purchased as part of a reinsurance policy, and Employer’s Liability losses from $5 million to $10 million are pooled among members.

C. Purchased Insurance

Pollution Legal Liability Insurance

The City of Loma Linda participates in the pollution legal liability insurance program (formerly called environmental insurance) which is available through the Authority. The policy covers sudden and gradual pollution of scheduled property, streets, and storm drains owned by the City of Fillmore. Coverage is on a claims-made basis. There is a $50,000 deductible. The Authority has a limit of $50 million for the 3-year period from July 1, 2014 through July 1, 2017. Each member of the Authority has a $10 million sub-limit during the 3-year term of the policy.

Property Insurance

The City of Loma Linda participates in the all-risk property protection program of the Authority. This insurance protection is underwritten by several insurance companies. City of Loma Linda property is currently insured according to a schedule of covered property submitted by the City of Loma Linda to the Authority. City of Loma Linda property currently has all-risk property insurance protection in the amount of $47,576,820. There is a $5,000 deductible per occurrence except for non-emergency vehicle insurance which has a $1,000 deductible. Premiums for the coverage are paid annually and are not subject to retrospective adjustments.

Crime Insurance

The City of Loma Linda purchases crime insurance coverage in the amount of $1,000,000 with a $2,500 deductible. The fidelity coverage is provided through the Authority. Premiums are paid annually and are not subject to retrospective adjustments.

Special Event Tenant User Liability Insurance

The City of Loma Linda further protects against liability damages by requiring tenant users of certain property to purchase low-cost tenant user liability insurance for certain activities on agency property. The insurance premium is paid by the tenant user and is paid to the City of Loma Linda according to a schedule. The City of Loma Linda then pays for the insurance. The insurance is arranged by the Authority.

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D. Adequacy of Protection

During the past three fiscal years, none of the above programs of protection experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured liability coverage in 2014-15.

Note 11: JOINTLY GOVERNED ORGANIZATIONS

A. San Bernardino International Airport Authority

The City is a member of the San Bernardino International Airport Authority (SBIAA), a joint powers authority of the County of San Bernardino and the Cities of Colton, Highland, Loma Linda and San Bernardino. The SBIAA was formed May 12, 1992 for the purpose of acquiring, operating, maintaining, repairing and administering the aviation related portions of Norton Air Base as a public airport.

The governing board consists of two elected officials from the City of San Bernardino and one elected official from each of the County of San Bernardino and the Cities of Colton, Highland and Loma Linda. Each member has one vote.

The City has no significant equity interest in the San Bernardino International Airport Authority, and accordingly neither assets nor liabilities have been recorded in the City’s basic financial statements.

A copy of the financial statements of the San Bernardino International Airport Authority can be obtained by contacting them directly at 294 South Leland Norton Way, Suite 1, San Bernardino, California 92408, (909) 388-1144.

B. Inland Valley Development Agency

The City is a member of the Inland Valley Development Agency (IVDA), a joint powers authority of three cities and the County of San Bernardino. The member agencies have the following number of board members:

City of San Bernardino 3 County of San Bernardino 2 City of Colton 2 City of Loma Linda 2

Each board member has one vote.

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Note 11: JOINTLY GOVERNED ORGANIZATIONS, Continued

B. Inland Valley Development Agency, Continued

The IVDA was formed for the purpose of acquiring, owning, maintaining, leasing and operating the Norton Air Force Base property, and for the purpose of reusing and redeveloping the Norton Air Force Base, the adjacent property and the other properties in proximity thereto. As of June 30, 2015, the City has no significant equity interest in the IVDA, and accordingly neither assets nor liabilities have been recorded in the City’s basic financial statements.

A copy of the financial statements of the IVDA can be obtained by contacting the IVDA directly at 298 South Leland Norton Way, San Bernardino, California, 92408.

Note 12: JOINT VENTURES

A. San Bernardino/Colton/Loma Linda Joint Powers Financing Authority

The Agency is a member of the San Bernardino/Colton/Loma Linda Joint Powers Financing Authority (Financing Authority), a joint powers authority of the Redevelopment Agencies of the Cities of San Bernardino, Colton, Loma Linda and the County of San Bernardino. The Financing Authority was formed September 30, 1991 for the purpose of issuing debt.

Tax Allocation Notes for $7,500,000 were issued November 1, 1991 and the proceeds were used to make a loan to the Inland Valley Development Agency (IVDA), of which the three cities and the County of San Bernardino are members. The loan was used to pay certain operating and redevelopment costs of the Inland Valley Redevelopment Project Area. Since 1991, the original obligation has been refunded twice and in 1997 expanded to incorporate monies for school district purposes. The total 1997 refunding was $44,485,000 of which 63% ($28,025,550) is applicable to IVDA.

These obligations are secured by loan repayments made by the IVDA to the Financing Authority. The obligation of the IVDA under the loan agreement will be payable from the IVDA’s tax revenues from the project area. In the event that such tax revenues are unavailable, the obligations are further secured by commitments from the member agencies in the following percentages:

Redevelopment Agency of the City of San Bernardino 92.08% Redevelopment Agency of the City of Colton 3.06% Redevelopment Agency of the City of Loma Linda 4.86%

The governing board of the Financing Authority is composed of the Executive Directors of the City of Colton and the City of Loma Linda Redevelopment Agencies, the Agency Administrator of the Economic Development Agency of the City of San Bernardino and representatives of the County of San Bernardino.

Since the City is not directly liable for repayment of these bonds, they have not been reflected in the accompanying financial statements.

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Note 12: JOINT VENTURES, Continued

A. San Bernardino/Colton/Loma Linda Joint Powers Financing Authority, Continued

On October 13, 1999, the IVDA’s Board adopted a motion stating that the use of its cash balance is necessary to pay for scheduled debt service obligations and that suspension of further disbursements of 20% set-aside funds for affordable housing is necessary until further notice. At the end of fiscal year 2011-12, a receivable has been set-up reflecting the current Agency’s portion of tax increment set-aside revenues.

B. CONFIRE Joint Powers Authority

The City is a member of the CONFIRE Joint Powers Authority, a regional fire agency of the Cities of Redlands, Colton, Rialto, Rancho Cucamonga, Loma Linda and the Central Valley Fire Protection District and the San Bernardino County Consolidated Fire Agency. The CONFIRE JPA was formed August 20, 1990 for the purpose of providing hardware, software, services and other items necessary and appropriate for the establishment, operation, and maintenance of a joint centralized public safety communications system and a cooperative program of fire related functions for the mutual benefit of the members of the CONFIRE JPA, to provide such services on a contract basis to other governmental units, and to provide a forum for discussion, study, development, and implementation of recommendations of mutual interest regarding public safety communications and related matters within member agencies.

The activities of the CONFIRE JPA are financed by a cost-sharing formula, which requires prorating among the participating members based on the demand percentage on the system by the members to be determined by the CONFIRE JPA Board of Director’s Administrative Committee and approved by their Board of Directors. In fiscal year 2014 the City of Loma Linda’s contribution totaled $201,356. The City has no other significant equity interest in CONFIRE JPA, and accordingly neither assets nor liabilities of CONFIRE JPA have been recorded in the City’s basic financial statements.

A copy of the financial statements of the CONFIRE JPA can be obtained by contacting the authority directly at 1743 W. Miro Way, Rialto, CA 92376-8630, (909) 356-2375.

Note 13: DEFICIT FUND BALANCES

At June 30, 2015, the following governmental funds had deficit fund balances:

Fund Type Deficit Major funds:

Special Projects Construction Capital Projects (2,133,940)$Park Development Capital Projects (2,819,623)

Nonmajor governmental fundsLandscape Maintenance District Special Revenues (120,753)Public Improvement Per MOU Special Revenues (437,376)Community Development Special Revenues (1,489) Grant Special Revenues (604,500)

Funds

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Note 13: DEFICIT FUND BALANCES, Continued

Special Projects Construction – The Special Projects Construction has a deficit balance of $2,133,940. This is a deficit fund balance carryover from fiscal year 2011-2012 due to extraordinary loss recorded for the assets transferred to the Successor Agency.

Park Development – The Park Development has a deficit balance of $2,819,623 as a result from the purchase of open space property in the City’s South Hills with advances from other funds.

Landscape Maintenance District – The Landscape Maintenance District has a deficit balance of $120,753 as a result of operating expenditures being higher than property taxes received to cover such expenditures.

Public Improvement Per MOU– The Public Improvement Per MOU has a deficit balance of $437,376 as a result of the contribution from Loma Linda University being received after the Year-end.

Community Development– The Community Development Fund has an accumulated deficit of $1,489 which resulted from monies being spent before receiving the grant reimbursement.

Grant – The Grant Fund has a deficit balance of $604,500 which resulted from monies being spent before receiving the grant reimbursement.

Note 14: EXCESS OF EXPENDITURES OVER APPROPRIATIONS

Excess of expenditures over appropriations of the General Fund and the Housing Authority Fund (budgeted major special revenue fund) on a function level occurred during the fiscal year 2015 as follows:

Fund Appropriated Expended ExcessHousing Authority:Community development 176,500$ 244,419$ (67,919)$Nonmajor Funds:Public Improvement Per MOU 865,400 1,447,848 (582,448)Grant Fund - 617,866 (617,866)General Facilities 3,900 8,911 (5,011)

The excesses of expenditures over appropriations were financed with available fund balances.

No other material violations of budgeted or appropriated amounts occurred in other major or nonmajor funds of the City during the year.

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Note 15: ENCUMBRANCES

Encumbrances are estimations of costs related to unperformed contracts for goods and services. These commitments are recorded for budgetary control purposes in the General, Special Revenue, Capital Projects and Debt Service funds. They represent the estimated amount of the expenditure ultimately to result if unperformed contracts in process at year-end are completed. They do not constitute expenditures or estimated liabilities for the current year.

Nonmajor Funds 1,260,372$

Significant Encumbrances as of June 30, 2015

Note 16: COMMITMENTS AND CONTINGENCIES

Commitments

The City is presently involved in certain matters of litigation that have arisen in the normal course of conducting City business. City management believes, based upon consultation with the City Attorney, that these cases, in the aggregate, are not expected to result in a material adverse financial impact on the City. Additionally, City management believes that the City’s insurance programs are sufficient to cover any potential losses should an unfavorable outcome materialize.

As of June 30, 2015, in the opinion of City management, there were no additional outstanding matters that would have a significant effect on the financial position of the funds of the City.

Federal and State Grant Programs

The City participates in Federal and State grant programs. These programs are audited by the City’s independent accountants in accordance with the provisions of the Federal Single Audit Act as amended in 1996, and applicable State requirements. No cost disallowance is expected as a result of these audits; however, these programs are subject to further examination by the grantors. Expenditures which may be disallowed by the granting agencies cannot be determined at this time; however, the City management expects such amounts, if any, to be immaterial.

Note 17: SUBSEQUENT EVENT

The California State Controller issued their asset transfer review report and the Department of Finance issued their Due Diligence report. In their review, both agencies concluded that the City had unallowable transfers totaling $2,273,000 that should be turned over to the Successor Agency. As of June 30, 2015, the City’s position was that this was a valid repayment of outstanding RDA loans and is pursuing it as a legal suit with the State of California Department of Finance.

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Note 17: SUBSEQUENT EVENT, Continued

On July 31, 2015 the City signed a settlement agreement with the State of California regarding its legal suit relating to the winding down of the Redevelopment Agency dissolution. All claims were resolved and both the Department of Finance and the State Controller’s Office would issue revised final determination letters of their reviews authorizing the City to retain the $2,273,000 loan repayment. Additionally the State will uphold the actions of the Oversight Board made on May 8, 2012 approving the re-entry of the 2011 Loan Agreement between the City and the Loma Linda RDA recognizing principal balance of $21,175,012.28 in outstanding obligations. As part of its settlement the Successor Agency received its Finding of Completion on August 14, 2015.

Note 18: SUCCESSOR AGENCY

On December 29, 2011, the California Supreme Court upheld Assembly Bill 1X26 (Bill) that provides for the dissolution of all redevelopment agencies in the State of California. This action impacted the reporting entity of the City of Loma Linda that previously had reported a redevelopment agency within the reporting entity of the City as a blended component unit. The Bill provided that upon dissolution of a redevelopment agency, either the City or another unit of local government will agree to serve as the “successor agency” to hold the assets until they are distributed to other units of state and local government. On January 10, 2012 the City Council of the City of Loma Linda elected to become the Successor Agency for the former Redevelopment Agency (RDA) in accordance with the Bill as part of City Resolution No. 2722. The activities of the Successor Agency are reported under a Private Purpose Trust Fund on the Fiduciary Financial Statements of the City.

In future fiscal years, successor agencies will only be allocated revenue in the amount that is necessary to pay the estimated annual installment payments on enforceable obligations of the former redevelopment agency until all enforceable obligations of the prior redevelopment agency have been paid in full and all assets have been liquidated.

The bill directs the State Controller of the State of California to review the propriety of any transfers of assets between redevelopment agencies and other public bodies that occurred after January 1, 2011. If the public body that received such transfers is not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller is required to order the available assets to be transferred to the public body designated as the successor agency by the Bill. Management believes, in consultation with legal counsel, that the obligations of the former RDA due to the City are valid enforceable obligations payable by the successor agency trust under the requirements of the Bill. The city’s position on this issue is not a position of settled law and there is considerable legal uncertainty regarding this issue. It is reasonably possible that a legal determination may be made at a later date by the appropriate judicial authority that would resolve this issue unfavorably to the City. As of June 30, 2015 the California Department of Finance had not issued its final Finding of Completion letter to the Successor Agency.

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Note 18: SUCCESSOR AGENCY, Continued

In accordance with the provisions of the AB X1 26 and the California Supreme Court’s decision to uphold the Bill, the obligations of the former redevelopment agency became vested with the funds established for the Successor Agency upon the date of dissolution. Former tax increment revenues pledged to fund the debts of the former redevelopment agency will be distributed to the Successor Agency subject to the reapportionment of such revenues as provided by the Bill.

Successor Agency long-term debt

The bonded debt of the Successor Agency as of June 30, 2015 is as follows:

2003 Tax Allocation Refunding Bonds – Original Issue $12,610,000

On May 7, 2003, the Agency issued tax allocation bonds in the amount of $12,610,000. The purpose of the bonds was to refund the Agency’s 1993 Tax Allocation Bonds and 1994 Tax Allocation Refunding Bonds and to finance the Agency’s redevelopment project.

The bonds accrue interest at rates between 2.00% and 5.125%. Interest on the bonds is payable semiannually on each January 1 and July 1, commencing January 1, 2004. Principal is payable in annual installments ranging from $340,000 to $600,000, commencing July 1, 2004 through July 1, 2030. The bonds are subject to optional and mandatory redemption prior to maturity.

The bonds are secured by a first and prior lien on tax increment revenues excluding any portion of revenues that are required to be deposited to the Agency’s Low and Moderate Income Housing Funds, the County of San Bernardino pass-thru agreement, and County administration fees. The amount of principal at June 30, 2015 totaled $7,040,000.

Subordinate 2005A Tax Allocation Bonds – Original Issue $15,100,000

On December 14, 2005, the Agency issued subordinate 2005A tax allocation bonds in the amount of $15,100,000. The purpose of the bonds was to finance the Agency’s redevelopment project.

The bonds mature from July 1, 2006 to July 1, 2030 in varying amounts. The bonds accrue interest at rates between 3.00% and 5.25%. Interest on the bonds is payable semiannually on each January 1 and July 1, commencing July 1, 2006. Principal is payable in annual installments ranging from $70,000 to $1,980,000, commencing July 1, 2006. The bonds are subject to optional and mandatory redemption prior to maturity.

The bonds are secured by tax revenues, which consist of a portion of the ad valorem taxes levied upon all taxable property within the Loma Linda Redevelopment Agency Project Areas to be allocated to the Agency and available after payment of the 2003 tax allocation bond’s debt service, any portion of revenues that are required to be deposited to the Agency’s Low and Moderate Income Housing Funds, any tax increment revenue pledged to a taxing entity based upon a pass-thru agreement, and County administration fees. The amount of principal outstanding at June 30, 2015 totaled $14,095,000.

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Successor Agency long-term debt, Continued

Subordinate 2005B Taxable Tax Allocation Bonds – Original Issue $10,435,000

On December 14, 2005, the Agency issued subordinate 2005B taxable tax allocation bonds in the amount of $10,435,000. The purpose of the bonds was to finance the Agency’s redevelopment project.

The bonds mature from July 1, 2006 to July 1, 2025 in varying amounts. The bonds accrue interest at rates between 5.00% and 5.65%. Interest on the bonds is payable semiannually on each January 1 and July 1, commencing July 1, 2006. Principal is payable in annual installments ranging from $315,000 to $810,000, commencing July 1, 2006. The bonds are subject to optional and mandatory redemption prior to maturity.

The bonds are secured by tax revenues, which consist of a portion of the ad valorem taxes levied upon all taxable property within the Loma Linda Redevelopment Agency Project Areas to be allocated to the Agency and available after payment of the 2003 tax allocation bond’s debt service, any portion of revenues that are required to be deposited to the Agency’s Low and Moderate Income Housing Funds, any tax increment revenue pledged to a taxing entity based upon a pass-thru agreement, and County administration fees. The amount of principal outstanding at June 30, 2015 totaled $6,870,000.

2008 Taxable Housing Tax Allocation Bonds – Original Issue $8,900,000

On March 1, 2009, the Agency issued 2008 taxable housing tax allocation bonds in the amount of $8,900,000. The purpose of the bonds was to finance Low-Mod Housing projects.

The bonds mature from January 1, 2010 to July 1, 2029 in varying amounts. The bonds accrue interest at rates between 4.50% and 9.277%. Interest on the bonds is payable semiannually on each January 1 and July 1, commencing January 1, 2010. Principal is payable in annual installments ranging from $50,000 to $895,000, commencing July 1, 2010. The bonds are subject to optional and mandatory redemption prior to maturity.

The bonds are secured by Housing Tax Revenues, which consist of a portion of the ad valorem taxes levied upon all taxable property within the Loma Linda Redevelopment Agency Project Area, and allocated to the Agency’s Low and Moderate Housing fund. The amount of principal outstanding at June 30, 2015 totaled $7,855,000.

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Successor Agency long-term debt, Continued

The following is a summary of the bonded debt activity of the Successor Agency as of June 30, 2015:

Balance Balance Due within TAX ALLOCATION BONDS June 30, 2014 Additions Deletions June 30, 2015 One Year

2003 Tax Allocation Refunding Bonds 7,640,000$ -$ (600,000)$ 7,040,000$ 580,000$ 2005A Subordinated Tax Allocation Bonds 14,185,000 - (90,000) 14,095,000 135,000 2005B Subordinated Tax Allocation Bonds 7,315,000 - (445,000) 6,870,000 470,000 2008 Taxable Housing Tax Allocation Bonds 8,125,000 - (270,000) 7,855,000 285,000 Unamortized bond premium 438,710 - (27,245) 411,465 27,245 Unamortized bond discount (244,400) - 17,396 (227,004) (17,396)

Total 37,459,310$ -$ (1,414,849)$ 36,044,461$ 1,479,849$

The following amount was reclassified as deferred outflow of resources:

Balance Balance Due within Deferred outflows of resources July 1, 2014 Additions Deletions June 30, 2015 One Year

Unamortized loss on defeasance (163,236)$ -$ 10,310$ (152,926)$ (10,310)$

The debt service requirement to maturity for all bonded debt combined, including interest, is as follows:


2016 1,470,000$ 2,087,928$ 3,557,928$ 2017 1,540,000 2,009,614 3,549,614 2018 1,630,000 1,924,014 3,554,014 2019 1,710,000 1,833,223 3,543,2232020 1,805,000 1,737,135 3,542,135

2021-2025 10,745,000 6,897,520 17,642,5202026-2030 14,475,000 3,039,700 17,514,700

2031 2,485,000 64,916 2,549,916

Total 35,860,000$ 19,594,050$ 55,454,050$

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Note 19: CHANGE IN ACCOUNTING PRINCIPLE

Change in Accounting Principle

As discussed in Note 1, the City implemented GASB Statements No. 68 and 71 effective July 1, 2014. GASB Statements No. 68 and 71, among other provisions, amended prior guidance with respect to the reporting of pensions, and established standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, the City’s net pension liability/(asset) was not previously recorded on the statement of net position. GASB 68 requires that accounting changes adopted to conform to the provisions of the Statement be applied retroactively by restating financial statements.

Accordingly, beginning net position on the Statement of Activities has been restated for changes related to GASB 68 as follows:

Government Wide Statement of Activities

Beginning net position, as previously reported 85,206,286$Restatement due to change in accounting principle (9,522,889) Beginning net position, as restated 75,683,397$

Proprietary Funds Statement of Revenue, Expenses, and Changes in Net Position

Water Enterprise Fund

Sewer Capital Fund

Loma Linda Connected Communities Fund

Beginning net position, as previously reported 31,804,833$ 2,269,921$ (8,643,105)$ Restatement due to change in accounting principle (2,181,981) (747,978) (186,756) Beginning net position, as restated 29,622,852$ 1,521,943$ (8,829,861)$

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REQUIRED SUPPLEMENTARY INFORMATION

CITY OF LOMA LINDA Required Supplementary Information For the year ended June 30, 2015

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1. BUDGET AND BUDGETARY ACCOUNTING

A. General Budget Policies

The City Council approves each year’s budget submitted by the City Manager prior to the beginning of the new fiscal year. Public hearings are conducted prior to its adoption by the Council. Supplemental appropriations, where required during the period, are also approved by the Council. Intradepartmental budget changes are approved by the City Manager. In most cases, expenditures may not exceed appropriations at the department level. At fiscal year-end, all operating budget appropriations lapsed.

B. Basis of Accounting

Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles (GAAP). Budgets were legally adopted for all governmental funds with the exception of the Asset Forfeiture Fund, Traffic Congestion Relief Fund, Federal State Construction Fund, Water Bond Redemption Fund, and Assessment District 72-1 Fund.


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1. BUDGET AND BUDGETARY ACCOUNTING, Continued

C. Budgetary Comparison Schedule

The following is the budgeted comparison schedule for the General Fund.

Variance withFinal Budget

Actual PositiveOriginal Final Amounts (Negative)

REVENUESTaxes 9,966,100$ 10,054,500$ 10,516,083$ 461,583$ Licenses and permits 748,900 624,900 629,954 5,054 Intergovernmental 28,300 22,000 35,320 13,320 Charges for services 2,226,000 1,650,000 1,775,441 125,441 Use of money and property 235,200 210,700 245,536 34,836 Fines and forfeitures 8,200 6,900 10,377 3,477 Miscellaneous 1,780,000 1,846,400 2,271,214 424,814

Total revenues 14,992,700 14,415,400 15,483,925 1,068,525


General government 2,830,000 3,144,300 2,815,174 329,126 Public safety 8,561,100 8,761,000 8,469,203 291,797 Community development 1,586,400 1,406,900 1,310,731 96,169 Public works 1,966,200 2,016,800 1,862,888 153,912

Capital outlay 295,400 269,200 240,348 28,852

Total expenditures 15,239,100 15,598,200 14,698,344 899,856

REVENUES OVER (UNDER) EXPENDITURES (246,400) (1,182,800) 785,581 1,968,381

OTHER FINANCING SOURCES (USES)Gain on disposal of assets, net - - 20,000 20,000 Transfers in 1,191,700 1,273,600 1,297,839 24,239 Transfers out (920,700) (920,600) (920,600) -

Total other financing sources (uses) 271,000 353,000 397,239 44,239

Net change in fund balance 24,600 (829,800) 1,182,820 2,012,620

FUND BALANCE Beginning of year 10,806,694 10,806,694 10,806,694 -

End of year 10,831,294$ 9,976,894$ 11,989,514$ 2,012,620$

Budgeted Amounts


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1. BUDGET AND BUDGETARY ACCOUNTING, Continued

C. Budgetary Comparison Schedule, Continued

The following is the budgeted comparison schedule for the Loma Linda Housing Authority Fund.



REVENUESCharges for services 700$ 1,400$ 1,438$ 38$ Use of money and property 176,300 213,600 188,945 (24,655) Miscellaneous 1,100 3,000 22,738 19,738

Total revenues 178,100 218,000 213,121 (4,879)


Community development 143,500 176,500 244,419 (67,919) Capital outlay 21,000 20,600 979 19,621

Total expenditures 164,500 197,100 245,398 (48,298)

REVENUES OVER (UNDER) EXPENDITURES 13,600 20,900 (32,277) (53,177)

OTHER FINANCING SOURCES (USES)Gain (loss) on disposal of land held for resale, net - - (114,031) (114,031)

Total other financing sources (uses) - - (114,031) (114,031)

Net change in fund balance 13,600 20,900 (146,308) (167,208)

FUND BALANCE: Beginning of year 17,756,956 17,756,956 17,756,956 -

End of year 17,770,556$ 17,777,856$ 17,610,648$ (167,208)$

Budgeted Amounts


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2. SCHEDULE OF FUNDING PROGRESS (Unaudited)

Funded Status of Plan – Other Post Employment Benefits

Actuarial (Unfunded)Actuarial Actuarial Accrued Actuarial Valuation Value of Liability Accrued Funded Covered UAAL as

Date Assets Entry Age Liability (UAAL) Ratio Payroll % of Payroll

6/30/2013 146,043$ 651,515$ (523,669)$ 27.89% 5,556,816$ 9.42%6/30/2011 69,957 579,635 (509,678) 13.73% 5,747,688 8.87%6/1/2010 29,594 600,942 (571,348) 5.18% 6,018,956 9.49%


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3. SCHEDULE OF THE PLAN'S PROPORTIONATE SHARE OF THE PLAN'S NET PENSION LIABILITY AND RELATED RATIOS AS OF THE MEASUREMENT DATE

LAST 10 YEARS*

Miscellaneous Safety

Plan's Proportion of the Net Pension Liability (1) 0.08156% 0.09295%

Plan's Proportionate Share of the Net Pension Liability 5,075,353$ 5,783,686$

Plan's Covered-Employee Payroll(2) 3,219,015$ 2,323,044$

Plan's Proportionate Share of the Net Pension Liability as a percentage ofits Covered-Employee Payroll 157.67% 248.97%

Plan’s Proportion of the Fiduciary Net Position(3) 0.19974% 0.12867%

Plan’s Share of Risk Pool Fiduciary Net Position(3) 21,192,932$ 17,934,466$

Plan’s Additional Payments to Side Fund During Measurement Period 0.00000% -$

Plan’s Proportionate Share of the Fiduciary Net Position (sum of the two preceding lines) 21,192,932$ 17,934,466$

Plan's Proportionate Share of the Fiduciary Net Position as a percentage of the Plan’s Total Pension Liability 81.70% 75.61%

Plan's Proportionate Share of Aggregate Employer Contributions(4) 573,091$ 507,746$

Measurement Date

* Measurement period 2013-14 (fiscal year 2015) was the 1st year of implementation, therefore, only one year is shown.

6/30/2014

(1) Proportion of the net pension liability represents the plan's proportion of PERF C, which includes both the Miscellaneous and Safety Risk Pools excluding the 1959 Survivors Risk Pool.

(4) The plan’s proportionate share of aggregate contributions may not match the actual contributions made by the employer during the Measurement Period. The plan’s proportionate share of aggregate contributions is based on the plan’s proportion of Fiduciary Net Position shown on line 5 of the table above as well as any additional side fund (or unfunded liability) contributions made by the employer during the

t i d

(3) The term Fiduciary Net Position (FNP) as used in this line denotes the aggregate risk pool’s FNP at June 30, 2014 less the sum of all employers’ additional side fund contributions made during the measurement period.

(2) Covered-Employee Payroll represented above is based on the total payroll of employees that are provided pensions through the pension plan in accordance with GASB 68.


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4. SCHEDULE OF PLAN CONTRIBUTIONS LAST 10 YEARS*

Miscellaneous SafetyActuarially Determined Contribution 392,378$ 623,830$Contributions in Relation to the Actuarially Determined Contribution (392,378) (623,830)Contribution Deficiency (Excess) - -

Covered-Employee Payroll(1) 3,219,015$ 2,323,044$

Contributions as a Percentage of Covered-Employee Payroll 12.19% 26.85%

Notes to Schedule:

Change in Benefit Terms: None

Change in Assumptions: None

(1) Covered-Employee Payroll represented above is based on the total payroll of employees that are provided pensions through the pension plan in accordance with GASB 68. Payroll based on total earnings for covered employees, as of fiscal year ended June 30, 2015 is $5,542,059 Contributions as a percentage of total earnings for covered employees is 18.34% in aggregate.* Measurement period 2013-14 (fiscal year 2015) was the 1st year of implementation, therefore, only one year is shown.

Measurement Period 2013-14

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SUPPLEMENTARY INFORMATION

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MAJOR GOVERNMENTAL FUNDS BUDGETARY COMPARISON SCHEDULES

CITY OF LOMA LINDA Special Projects Construction Capital Projects Fund Major Governmental Fund Budgetary Comparison Schedule For the year ended June 30, 2015

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REVENUESUse of money and property 500$ 500$ 441$ (59)$ Miscellaneous 20,000 20,000 - (20,000)

Total revenues 20,500 20,500 441 (20,059)

EXPENDITURESDebt service:

Principal retirement 30,600 30,600 30,590 10 Interest and fiscal charges 10,000 10,000 50,245 (40,245)


REVENUES OVER (UNDER) EXPENDITURES (20,100) (20,100) (80,394) (60,294)

OTHER FINANCING SOURCES (USES)Transfers out (350,000) (350,000) (350,000) -

Total other financing source (uses) (350,000) (350,000) (350,000) -

Net change in fund balance (370,100) (370,100) (430,394) (60,294)

FUND BALANCE (DEFICIT):Beginning of year (1,703,546) (1,703,546) (1,703,546) -

End of year (2,073,646)$ (2,073,646)$ (2,133,940)$ (60,294)$

Budgeted Amounts

CITY OF LOMA LINDA Park Development Capital Projects Fund Major Governmental Fund Budgetary Comparison Schedule For the year ended June 30, 2015

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REVENUESUse of money and property 1,000$ 1,000$ 1,214$ 214$ Miscellaneous - - 510 510 Developer fees 98,400 44,200 71,563 27,363

Total revenues 99,400 45,200 73,287 28,087


Community development 24,000 24,000 19,955 4,045 Capital outlay 120,000 120,000 99,777 20,223

Total expenditures 144,000 144,000 119,732 24,268

REVENUES OVER (UNDER) EXPENDITURES (44,600) (98,800) (46,445) 52,355

Net change in fund balance (44,600) (98,800) (46,445) 52,355

FUND BALANCE (DEFICIT):Beginning of year (2,773,178) (2,773,178) (2,773,178) -

End of year (2,817,778)$ (2,871,978)$ (2,819,623)$ 52,355$

Budgeted Amounts

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NONMAJOR GOVERNMENTALFUNDS

COMBINING SCHEDULES

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Nonmajor Governmental Funds

Special Revenue Funds

The Special Revenue Funds account for the proceeds of specific revenue sources that are legally restricted for expenditures related to specific purposes.

Traffic Safety Fund – This fund is to account for monies received from parking control violation fines.

Gas Tax Fund – This fund is to account for monies received and expended from the state and county gas allocation.

Measure I Fund – This fund is to account for monies received from the County is one-half of one percent retail transaction and use tax.

Street Lighting District Fund – This fund is to account for monies received from property assessments restricted to fund district street lighting activities.

Landscape Maintenance District Fund – This fund is to account for monies received from property assessments restricted to fund district landscaping activities.

Air Quality Management District Fund – This fund is to account for monies received from AB2766 license fees.

Public Improvement Per MOU Fund – This fund is to manage the Stewart Street Pedestrian Bridge project. The funding will be received from the Loma Linda University.

Asset Forfeiture Fund – This fund is to account for assets seized by law enforcement.

Community Development Block Grant Fund – This fund is to account for Federal grants received from the Department of Housing and Urban Development and expended in community development.

Grant Fund – This fund is to account for miscellaneous grants provided by Federal, State and County agencies such as the Code Enforcement Grant Program to purchase capital items related to Code Enforcement and California Healthy Cities to promote health and physical activity for Loma Linda residents.

Citizens Option for Public Safety Fund – This is to account for AB3229 Public Safety Grant revenue received from the State and expended for front-line law enforcement.

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Special Revenue Funds, Continued

Traffic Congestion Relief Fund – This fund is to account for allocation from the state for street or road maintenance or reconstruction. The City is required to maintain existing commitment of general funds for street or roadwork in order to remain eligible for allocation of the specified funds.

Development Agreement Consideration Fund – This fund is to account for the monies received from developers to produce, improve, or preserve affordable housing within Redevelopment Project Areas that meet the needs to those whose income is 80% of the county median or below.

Capital Project Funds

The Capital Project Funds account for financial resources to be used for the acquisition or construction of major capital facilities by the City except for those financed by Proprietary Funds. The Capital Project Funds account for the following projects:

Storm Drain Fund – This fund is to account for developer fees collected and expended for improving and expanding the storm drain system city-wide.

Traffic Impact Fund – This fund is to account for developer fees collected and expended for major traffic control devices necessitated by development.

Fire Facilities Fund – This fund is to account for developer fees collected and expended for major fire facilities and equipment necessitated by development.

General Facilities Fund – This fund is to account for developer fees collected and expended for major general facilities necessitated by development.

Federal/State Construction Grants Fund – This fund is to account for miscellaneous grants provided by Federal, State and County agencies and expended for various street, park and recreation purposes.

Public Meeting Facilities Fund – This fund is to account for developer fees collected and expended for public meeting facilities as necessitated by development.

Public Library Facilities Fund – This fund is to account for developer fees collected and expended for public library facilities as necessitated by development.

Art in Public Places Fund – This fund is to account for developer fees collected and expended for art in public places as necessitated by development.

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Capital Project Funds, Continued

Regional Traffic Development Impact – This fund is for the portion of Transportation Projects identified by SANBAG (San Bernardino Associated Governments) that will serve the regional area. SANBAG came up with an allocation of Loma Linda’s share.

Debt Service Funds

The Debt Service Funds account for the accumulation of resources and the payment of general long-term debt principal and interest of the City's related entities in the following funds:

Water Bond Redemption Fund – This fund is to account for the contribution from the Water Operations Fund and Water Acquisition Fund for the payment of principal and interest on Water Enterprise general obligation bonds issued to complete water system capital projects.

Assessment District 72-1 Fund – This fund is to account for the accumulation of funds for the payment of principal and interest on bonds issued in 1973, for sewer line improvements on Redlands Blvd.

Loma Linda Public Financing Authority Fund – This fund is used to jointly exercise powers of the City and Redevelopment Agency and to establish a vehicle to reduce local borrowing costs and promote greater use of existing and new financial instruments.

CITY OF LOMA LINDA Combining Balance Sheet Nonmajor Governmental Funds June 30, 2015

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Traffic Gas Safety Tax Measure I

Cash and investments -$ -$ 235,696$ Receivables:

Taxes - - - Interest - - 128

Due from other governments 5,424 - 58,595Prepaid items - - -

Advances to other funds - - - Restricted assets:

Cash and investments with fiscal agents - - -

Total assets 5,424$ -$ 294,419$

Liabilities:Accounts payable -$ -$ -$ Accrued liabilities - - - Due to other funds - - - Deposits payable - - - Unearned revenue - - - Advances from other funds - - -

Total liabilities - - -

Deferred inflows of resources:Unavailable revenue - - -

Fund balance:Non Spendable

Prapaid items - - - Restricted for:

Cultural and recreational - - - Public safety - - - Street improvements 5,424 - 294,419 Storm drains - - - Municipal facilities - - - Air quality management - - - Debt service - - - Low mod housing programs - - -

Unassigned - - - Total fund balances 5,424 - 294,419

5,424$ -$ 294,419$

ASSETS



TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES

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Street Landscape Air QualityLighting Maintenance ManagementDistrict District District

158,364$ 30,000$ 83,240$

5,835 5,043 - 125 - 53 - - 7,688 68 21 -

- - -

- - -

164,392$ 35,064$ 90,981$

14,974$ 14,008$ 4,525$ 2,975 1,127 -

- 128,141 - - 12,541 - - - - - - -

17,949 155,817 4,525

- - -

68 21 -

- - - - - -

146,375 - - - - - - - - - - 86,456 - - - - - - - (120,774) -

146,443 (120,753) 86,456

164,392$ 35,064$ 90,981$



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PublicImprovement Asset Community Grant

Per MOU Forfeiture Development Fund

Cash and investments 113,858$ 3,813$ 2,166$ -$ Receivables:

Taxes - - - - Interest - 2 2 -

Due from other governments - - 2,787 617,866 Prepaid items - - - - Advances to other funds - - - - Restricted assets:

Cash and investments with fiscal agents - - - -

Total assets 113,858$ 3,815$ 4,955$ 617,866$

Liabilities:Accounts payable 551,234$ -$ -$ 346,875$ Accrued liabilities - - - - Due to other funds - - - 244,225Deposits payable - - - - Unearned revenue - - - 13,400 Advances from other funds - - 3,769 -

Total liabilities 551,234 - 3,769 604,500

Deferred inflows of resources:Unavailable revenue - - 2,675 617,866


Prapaid items - - - - Restricted for:

Cultural and recreational - - - - Public safety - 3,815 - - Street improvements - - - 205,627 Storm drains - - - - Municipal facilities - - - - Air quality management - - - - Debt service - - - - Low mod housing programs - - - -

Unassigned (437,376) - (1,489) (810,127) Total fund balances (437,376) 3,815 (1,489) (604,500)

113,858$ 3,815$ 4,955$ 617,866$

ASSETS




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Citizens Option Traffic Development for Public Congestion Agreement

Safety Fund Relief Grant Consideration

139,599$ 1,617$ 199,999$ 968,352$

- - - 10,878 125 2 132 569 - - - 692,360 - - - 89 - - - -

- - - -

139,724$ 1,619$ 200,131$ 1,672,248$

1,241$ -$ -$ 932,857$ - - - 4,102 - - - 372,366 - - - 12,541

138,483 - - 151,883 - - - 3,769

139,724 - - 1,477,518

- - - 620,541

- - - 89

- - - - - - - 3,815 - 1,619 - 653,464 - - - - - - - - - - - 86,456 - - - - - - 200,131 200,131 - - - (1,369,766) - 1,619 200,131 (425,811)

139,724$ 1,619$ 200,131$ 1,672,248$


Total Special Revenue Funds


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Storm Traffic FireDrain Impact Facilities

Cash and investments 272,640$ 2,203,645$ 448,403$ Receivables:

Taxes - - - Interest 178 1,442 296

Due from other governments - - - Prepaid items - - - Advances to other funds 500,000 - - Restricted assets:


Total assets 772,818$ 2,205,087$ 448,699$

Liabilities:Accounts payable -$ -$ -$ Accrued liabilities - - - Due to other funds - - - Deposits payable 1,800 - - Unearned revenue - - - Advances from other funds - - -

Total liabilities 1,800 - -

Unavailable revenue - - -


Prapaid items - - - Restricted for:Cultural and recreational - - -

Public safety - - 448,699 Street improvements - 2,205,087 - Storm drains 771,018 - - Municipal facilities - - - Air quality management - - - Debt service - - - Low mod housing programs - - -

Unassigned - - - Total fund balances 771,018 2,205,087 448,699

772,818$ 2,205,087$ 448,699$


ASSETS


Deferred inflows of resources:


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Public Public General Federal/State Meeting LibraryFacilities Construction Facilities Facilities

22,947$ 53,517$ 195,643$ 164,047$

- - - - 18 34 137 108

- - - - - - - - - - - -

- - - -

22,965$ 53,551$ 195,780$ 164,155$

21,293$ -$ 2,146$ 3,030$ - - - - - - - - - - - - - - - - - - - -

21,293 - 2,146 3,030

- - - -

- - - -

- - - 161,125 - - - - - 53,551 - - - - - -

1,672 - 193,634 - - - - - - - - - - - - - - - - -

1,672 53,551 193,634 161,125

22,965$ 53,551$ 195,780$ 164,155$



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TotalArt in Regional Traffic CapitalPublic Development ProjectsPlaces Impact Funds

Cash and investments 171,203$ 1,382,311$ 4,914,356$ Receivables:

Taxes - - - Interest 108 887 3,208

Due from other governments - - - Prepaid items - - - Advances to other funds - - 500,000 Restricted assets:


Total assets 171,311$ 1,383,198$ 5,417,564$

Liabilities:Accounts payable -$ -$ 26,469$ Accrued liabilities - - - Due to other funds - - - Deposits payable - - 1,800 Unearned revenue - - - Advances from other funds - - -

Total liabilities - - 28,269

Unavailable revenue - - -


Prapaid items - - - Restricted for:

Cultural and recreational 171,311 - 332,436 Public safety - - 448,699 Street improvements - 1,383,198 3,641,836 Storm drains - - 771,018 Municipal facilities - - 195,306 Air quality management - - - Debt service - - - Low mod housing programs - - -

Unassigned - - - Total fund balances 171,311 1,383,198 5,389,295

171,311$ 1,383,198$ 5,417,564$


ASSETS


Deferred inflows of resources:


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Total TotalWater Bond Loma Linda Debt NonmajorRedemption Assessment Financing Service Governmental

Fund District 72-1 Authority Funds Funds

34,770$ 62,777$ 3,418$ 100,965$ 5,983,673$

- - - - 10,878 23 41 3 67 3,844

- - - - 692,360 - - - - 89 - - - 500,000

- - 36,582 36,582 36,582

34,793$ 62,818$ 40,003$ 137,614$ 7,227,426$

-$ -$ -$ -$ 959,326$ - - - - 4,102 - - - - 372,366 - - - - 14,341 - - - - 151,883 - - - - 3,769 - - - - 1,505,787

- - - - 620,541

- - - - 89

- - - - 332,436 - - - - 452,514 - - - - 4,295,300 - - - - 771,018 - - - - 195,306 - - - - 86,456

34,793 62,818 40,003 137,614 137,614 - - - - 200,131 - - - - (1,369,766)

34,793 62,818 40,003 137,614 5,101,098

34,793$ 62,818$ 40,003$ 137,614$ 7,227,426$

Debt Service Funds

CITY OF LOMA LINDA Combining Statement of Revenues, Expenditures and Changes in Fund Balance Nonmajor Governmental Funds For the year ended June 30, 2015

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Traffic GasSafety Tax Measure I

REVENUESTaxes -$ -$ 375,753$ Intergovernmental - 598,660 - Charges for services - - - Use of money and property - - 441 Fines and forfeitures 144,265 - - Miscellaneous - - 11,608 Developer fees - - -

Total revenues 144,265 598,660 387,802


General government - - - Public safety - - - Community development - - - Public works - - -

Capital outlay - - 345,082 Debt service:

Principal retirement - - - Interest and fiscal charges - - -

Total expenditures - - 345,082

REVENUES OVER (UNDER) EXPENDITURES 144,265 598,660 42,720

OTHER FINANCING SOURCES (USES)Transfers in - - - Transfers out (147,998) (712,235) -

Total other financing sources (uses) (147,998) (712,235) -

Net change in fund balances (3,733) (113,575) 42,720

FUND BALANCE (DEFICIT):

Beginning of year 9,157 113,575 251,699 End of year 5,424$ -$ 294,419$


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Street Landscape Air QualityLighting Maintenance ManagementDistrict District District

343,106$ 389,663$ -$ - - 29,298 - - - 343 - 190 - - -

5,275 - - - - -

348,724 389,663 29,488

- - - - - 24,020 - 422,763 -

354,399 - - 15,221 257 -

- - - - - -

369,620 423,020 24,020

(20,896) (33,357) 5,468

- 30,000 - - - -

- 30,000 -

(20,896) (3,357) 5,468

167,339 (117,396) 80,988 146,443$ (120,753)$ 86,456$



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Public Improvement Asset Community Grant

Per MOU Forfeiture Development FundREVENUES

Taxes -$ -$ -$ -$ Intergovernmental - - 218,515 - Charges for services - - - - Use of money and property 843 9 2 - Fines and forfeitures - - - - Miscellaneous 500,000 - - - Developer fees - - - -

Total revenues 500,843 9 218,517 -


General government - - - - Public safety - - - - Community development - - - - Public works - - 8,892 -

Capital outlay 1,447,848 - - 617,866 Debt service:

Principal retirement - - - - Interest and fiscal charges - - - -

Total expenditures 1,447,848 - 8,892 617,866

REVENUES OVER (UNDER) EXPENDITURES (947,005) 9 209,625 (617,866)

OTHER FINANCING SOURCES (USES)Transfers in - - - - Transfers out - - - -

Total other financing sources (uses) - - - -

Net change in fund balances (947,005) 9 209,625 (617,866)


Beginning of year 509,629 3,806 (211,114) 13,366

End of year (437,376)$ 3,815$ (1,489)$ (604,500)$


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TotalCitizens Option Traffic Development Special

for Public Congestion Agreement RevenueSafety Fund Relief Fund Consideration Funds

-$ -$ -$ 1,108,522$79,521 - - 925,994

- - - -285 4 495 2,612- - - 144,265- - - 516,883- - - -

79,806 4 495 2,698,276

- - - -1,300 - - 25,320

- - - 422,763- - - 363,291- - - 2,426,274

- - - -- - - -

1,300 - - 3,237,648

78,506 4 495 (539,372)

- - - 30,000(78,506) - - (938,739)

(78,506) - - (908,739)

- 4 495 (1,448,111)

- 1,615 199,636 1,022,300-$ 1,619$ 200,131$ (425,811)$



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Storm Traffic FireDrain Impact Facilities

REVENUESTaxes -$ -$ -$ Intergovernmental - - - Charges for services 12,446 - - Use of money and property 653 5,341 1,100 Fines and forfeitures - - - Miscellaneous - - - Developer fees - 97,916 22,866

Total revenues 13,099 103,257 23,966


General government - - - Public safety - - - Community development - - - Public works - - -

Capital outlay - - - Debt service:


Total expenditures - - -


OTHER FINANCING SOURCES (USES)Transfers in - - - Transfers out - - (4,100)

Total other financing sources (uses) - - (4,100)

Net change in fund balances 13,099 103,257 19,866


Beginning of year 757,919 2,101,830 428,833 End of year 771,018$ 2,205,087$ 448,699$


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Public PublicGeneral Federal/State Meeting LibraryFacilities Construction Facilities Facilities

-$ -$ -$ -$ - - - - - - - - 85 132 536 411

- - - - - - - -

9,316 - - -

9,401 132 536 411

- - - - - - - - - - - -

8,911 - - - 45,697 - 26,115 5,510

- - - - - - - -

54,608 - 26,115 5,510

(45,207) 132 (25,579) (5,099)

- - - - (5,000) - - -

(5,000) - - -

(50,207) 132 (25,579) (5,099)

51,879 53,419 219,213 166,224 1,672$ 53,551$ 193,634$ 161,125$



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TotalArt in Regional Traffic Capital Public Development ProjectsPlaces Impact Funds

REVENUESTaxes -$ -$ -$ Intergovernmental - - - Charges for services - - 12,446 Use of money and property 378 3,389 12,025 Fines and forfeitures - - - Miscellaneous - - - Developer fees 32,446 284,849 447,393

Total revenues 32,824 288,238 471,864


General government - - - Public safety - - - Community development - - - Public works - - 8,911

Capital outlay - 179,651 256,973 Debt service:


Total expenditures - 179,651 265,884


OTHER FINANCING SOURCES (USES)Transfers in - - - Transfers out - - (9,100)

Total other financing sources (uses) - - (9,100)

Net change in fund balances 32,824 108,587 196,880


Beginning of year 138,487 1,274,611 5,192,415 End of year 171,311$ 1,383,198$ 5,389,295$


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Total TotalWater Bond Loma Linda Debt NonmajorRedemption Assessment Financing Service Governmental

Fund District 72-1 Authority Funds Funds

-$ -$ -$ -$ 1,108,522$ - - - - 925,994 - - - - 12,446 86 155 95 336 14,973

- - - - 144,265 - - - - 516,883 - - - - 447,393

86 155 95 336 3,170,476

- - 1,358 1,358 1,358 - - - - 25,320 - - - - 422,763 - - - - 372,202 - - - - 2,683,247

- - 1,875,000 1,875,000 1,875,000 - - 82,021 82,021 82,021

- - 1,958,379 1,958,379 5,461,911

86 155 (1,958,284) (1,958,043) (2,291,435)

- - 890,600 890,600 920,600 - - - - (947,839)

- - 890,600 890,600 (27,239)

86 155 (1,067,684) (1,067,443) (2,318,674)

34,707 62,663 1,107,687 1,205,057 7,419,772 34,793$ 62,818$ 40,003$ 137,614$ 5,101,098$

Debt Service Funds

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NONMAJOR GOVERNMENTAL BUDGETARY COMPARISON SCHEDULES

CITY OF LOMA LINDA Budgetary Comparison Schedule Traffic Safety For the year ended June 30, 2015

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REVENUESFines and forfeitures 143,500$ 153,500$ 144,265$ (9,235)$

Total revenues 143,500 153,500 144,265 (9,235)

EXPENDITURES

Total expenditures - - - -

REVENUES OVER (UNDER) EXPENDITURES 143,500 153,500 144,265 (9,235)

OTHER FINANCING SOURCES (USES)Transfers out (143,500) (153,500) (147,998) 5,502

Total other financing sources (uses) (143,500) (153,500) (147,998) 5,502

Net change in fund balance - - (3,733) (3,733)

FUND BALANCE:Beginning of year 9,157 9,157 9,157 -

End of year 9,157$ 9,157$ 5,424$ (3,733)$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Gas Tax For the year ended June 30, 2015

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REVENUESIntergovernmental 592,400$ 677,100$ 598,660$ (78,440)$

Total revenues 592,400 677,100 598,660 (78,440)

EXPENDITURES


REVENUES OVER EXPENDITURES 592,400 677,100 598,660 (78,440)

OTHER FINANCING SOURCES (USES)Transfers out (592,400) (677,100) (712,235) (35,135)

Total other financing sources (uses) (592,400) (677,100) (712,235) (35,135)

Net change in fund balance - - (113,575) (113,575)


End of year 113,575$ 113,575$ -$ (113,575)$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Measure I For the year ended June 30, 2015

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REVENUESTaxes 360,400$ 360,400$ 375,753$ 15,353$ Use of money and property 1,000 1,000 441 (559) Miscellaneous - - 11,608 11,608

Total revenues 361,400 361,400 387,802 26,402

EXPENDITURESCapital outlay 250,000 456,300 345,082 111,218


REVENUES OVER (UNDER) EXPENDITURES 111,400 (94,900) 42,720 137,620

Net change in fund balance 111,400 (94,900) 42,720 137,620


End of year 363,099$ 156,799$ 294,419$ 137,620$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Street Lighting District For the year ended June 30, 2015

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REVENUESTaxes 352,900$ 352,900$ 343,106$ (9,794)$ Use of money and property 500 500 343 (157) Miscellaneous - - 5,275 5,275

Total revenues 353,400 353,400 348,724 (4,676)


Public works 376,000 370,700 354,399 16,301 Capital outlay 15,400 15,400 15,221 179





End of year 129,339$ 134,639$ 146,443$ 11,804$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Landscape Maintenance District For the year ended June 30, 2015

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REVENUESTaxes 398,300$ 398,300$ 389,663$ (8,637)$

Total revenues 398,300 398,300 389,663 (8,637)


Community development 450,900 460,900 422,763 38,137 Capital outlay 400 400 257 143



OTHER FINANCING SOURCES (USES)Transfers in 30,000 30,000 30,000 -

Total other financing sources (uses) 30,000 30,000 30,000 -


FUND BALANCE (DEFICIT):Beginning of year (117,396) (117,396) (117,396) -

End of year (140,396)$ (150,396)$ (120,753)$ 29,643$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Air Quality Management District For the year ended June 30, 2015

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REVENUESIntergovernmental 28,500$ 28,500$ 29,298$ 798$ Use of money and property 100 100 190 90

Total revenues 28,600 28,600 29,488 888


Public safety 27,800 27,800 24,020 3,780


REVENUES OVER (UNDER) EXPENDITURES 800 800 5,468 4,668

Net change in fund balance 800 800 5,468 4,668


End of year 81,788$ 81,788$ 86,456$ 4,668$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Public Improvement Per MOU For the year ended June 30, 2015

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REVENUESUse of money and property 1,000$ 1,000$ 843$ (157)$ Miscellaneous 865,400 865,400 500,000 (365,400)

Total revenues 866,400 866,400 500,843 (365,557)

EXPENDITURESCapital outlay 865,400 865,400 1,447,848 (582,448)

Total expenditures 865,400 865,400 1,447,848 (582,448)

REVENUES OVER (UNDER) EXPENDITURES 1,000 1,000 (947,005) (948,005)

Net change in fund balance 1,000 1,000 (947,005) (948,005)

FUND BALANCE (DEFICIT):Beginning of year 509,629 509,629 509,629 -

End of year 510,629$ 510,629$ (437,376)$ (948,005)$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Community Development For the year ended June 30, 2015

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REVENUESIntergovernmental 8,900$ 8,900$ 218,515$ 209,615$ Use of money and property - - 2 2

Total revenues 8,900 8,900 218,517 209,617


Public works 8,900 8,900 8,892 8

Total expenditures 8,900 8,900 8,892 8

REVENUES OVER (UNDER) EXPENDITURES - - 209,625 209,625

Net change in fund balance - - 209,625 209,625

FUND BALANCE (DEFICIT):Beginning of year (211,114) (211,114) (211,114) -

End of year (211,114)$ (211,114)$ (1,489)$ 209,625$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Grant Fund For the year ended June 30, 2015

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REVENUESIntergovernmental -$ 673,000$ -$ (673,000)$

Total revenues - 673,000 - (673,000)

EXPENDITURESCapital outlay - - 617,866 (617,866)

Total expenditures - - 617,866 (617,866)

REVENUES OVER (UNDER) EXPENDITURES - 673,000 (617,866) (1,290,866)

Net change in fund balance - 673,000 (617,866) (1,290,866)

FUND BALANCE (DEFICIT):Beginning of year 13,366 13,366 13,366 -

End of year 13,366$ 686,366$ (604,500)$ (1,290,866)$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Citizen Option for Public Safety Fund For the year ended June 30, 2015

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REVENUESIntergovernmental 82,600$ 82,600$ 79,521$ (3,079)$ Use of money and property 100 100 285 185

Total revenues 82,700 82,700 79,806 (2,894)


Public safety 1,900 1,900 1,300 600

Total expenditures 1,900 1,900 1,300 600




Net change in fund balance 100 100 - (100)

FUND BALANCE:Beginning of year - - - -

End of year 100$ 100$ -$ (100)$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Development Agreement Consideration For the year ended June 30, 2015

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REVENUESUse of money and property 500$ 500$ 495$ (5)$

Total revenues 500 500 495 (5)

EXPENDITURESCapital outlay 10,000 10,000 - 10,000

Total expenditures 10,000 10,000 - 10,000

REVENUES OVER (UNDER) EXPENDITURES (9,500) (9,500) 495 9,995

Net change in fund balance (9,500) (9,500) 495 9,995


End of year 190,136$ 190,136$ 200,131$ 9,995$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Storm Drain For the year ended June 30, 2015

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REVENUESCharges for services 7,300$ 4,000$ 12,446$ 8,446$ Use of money and property 600 600 653 53

Total revenues 7,900 4,600 13,099 8,499

EXPENDITURES


REVENUES OVER (UNDER) EXPENDITURES 7,900 4,600 13,099 8,499

Net change in fund balance 7,900 4,600 13,099 8,499


End of year 765,819$ 762,519$ 771,018$ 8,499$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Traffic Impact For the year ended June 30, 2015

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REVENUESUse of money and property 3,000$ 5,000$ 5,341$ 341$ Developer fees 130,300 83,700 97,916 14,216

Total revenues 133,300 88,700 103,257 14,557


Public works 5,900 5,900 - 5,900 Capital outlay 30,000 - - -

Total expenditures 35,900 5,900 - 5,900



FUND BALANCE:Beginning of year 2,101,830 2,101,830 2,101,830 -

End of year 2,199,230$ 2,184,630$ 2,205,087$ 20,457$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Fire Facilities For the year ended June 30, 2015

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REVENUESUse of money and property 900$ 1,000$ 1,100$ 100$ Developer fees 79,500 39,200 22,866 (16,334)

Total revenues 80,400 40,200 23,966 (16,234)

EXPENDITURES





Net change in fund balance 66,100 33,200 19,866 (13,334)


End of year 494,933$ 462,033$ 448,699$ (13,334)$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule General Facilities For the year ended June 30, 2015

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REVENUESUse of money and property 200$ 100$ 85$ (15)$ Developer fees 19,800 9,800 9,316 (484)

Total revenues 20,000 9,900 9,401 (499)


Public works 3,900 3,900 8,911 (5,011) Capital outlay - 46,500 45,697 803


REVENUES OVER (UNDER) EXPENDITURES 16,100 (40,500) (45,207) (4,707)

OTHER FINANCING SOURCES (USES)Transfers out (10,800) (5,300) (5,000) 300

Total other financing sources (uses) (10,800) (5,300) (5,000) 300

Net change in fund balance 5,300 (45,800) (50,207) (4,407)


End of year 57,179$ 6,079$ 1,672$ (4,407)$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Public Meeting Facilities For the year ended June 30, 2015

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REVENUESUse of money and property -$ 500$ 536$ 36$

Total revenues - 500 536 36

EXPENDITURESCapital outlay - 28,700 26,115 2,585

Total expenditures - 28,700 26,115 2,585

REVENUES OVER (UNDER) EXPENDITURES - (28,200) (25,579) 2,621

Net change in fund balance - (28,200) (25,579) 2,621


End of year 219,213$ 191,013$ 193,634$ 2,621$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Public Library Facilities For the year ended June 30, 2015

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REVENUESUse of money and property -$ 400$ 411$ 11$

Total revenues - 400 411 11

EXPENDITURESCapital outlay - 6,000 5,510 490

Total expenditures - 6,000 5,510 490

REVENUES OVER (UNDER) EXPENDITURES - (5,600) (5,099) 501

Net change in fund balance - (5,600) (5,099) 501


End of year 166,224$ 160,624$ 161,125$ 501$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Art in Public Places For the year ended June 30, 2015

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REVENUESUse of money and property 200$ 300$ 378$ 78$ Developer fees 43,000 26,200 32,446 6,246

Total revenues 43,200 26,500 32,824 6,324

EXPENDITURES





End of year 181,687$ 164,987$ 171,311$ 6,324$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Regional Traffic Development Impact For the year ended June 30, 2015

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REVENUESUse of money and property 5,000$ 4,000$ 3,389$ (611)$ Developer fees 457,200 293,800 284,849 (8,951)

Total revenues 462,200 297,800 288,238 (9,562)

EXPENDITURESCapital outlay 1,500,000 1,500,000 179,651 1,320,349

Total expenditures 1,500,000 1,500,000 179,651 1,320,349

REVENUES OVER (UNDER) EXPENDITURES (1,037,800) (1,202,200) 108,587 1,310,787

Net change in fund balance (1,037,800) (1,202,200) 108,587 1,310,787


End of year 236,811$ 72,411$ 1,383,198$ 1,310,787$

Budgeted Amounts

CITY OF LOMA LINDA Budgetary Comparison Schedule Loma Linda Public Financing Authority For the year ended June 30, 2015

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REVENUESUse of money and property -$ -$ 95$ 95$

Total revenues - - 95 95


General government 4,000 7,000 1,358 5,642 Debt service:

Principal retirement 920,000 1,875,000 1,875,000 - Interest and fiscal charges 75,500 82,100 82,021 79

Total expenditures 999,500 1,964,100 1,958,379 5,721

REVENUES OVER (UNDER) EXPENDITURES (999,500) (1,964,100) (1,958,284) 5,816

OTHER FINANCING SOURCES (USES)Transfers in 890,600 890,600 890,600 -

Total other financing sources (uses) 890,600 890,600 890,600 -

Net change in fund balance (108,900) (1,073,500) (1,067,684) 5,816


End of year 998,787$ 34,187$ 40,003$ 5,816$

Budgeted Amounts

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-147-

FIDUCIARY FUNDS AGENCY FUNDS COMBINING SCHEDULE

-148-


CITY OF LOMA LINDA Combining Statement of Changes in Assets and Liabilities Agency Funds For the year ended June 30, 2015

-149-

Agency Funds include Association Fire Equipment Fund and Customer Deposits Fund.

Balance BalanceJune 30, 2014 Additions Deductions June 30, 2015

AssetsCash and investments 23$ 499$ 498$ 24$ Accounts Receivable - 20 - 20

Total assets 23$ 519$ 498$ 44$

LiabilitiesAccounts payable 23$ 1,038$ 1,017$ 44$

Total liabilities 23$ 1,038$ 1,017$ 44$

AssetsCash and investments 75,540$ 61,475$ 60,465$ 76,550$

Total assets 75,540$ 61,475$ 60,465$ 76,550$

LiabilitiesDeposits payable 75,540$ 61,575$ 60,565$ 76,550$

Total liabilities 75,540$ 61,575$ 60,565$ 76,550$

AssetsCash and investments 75,563$ 61,974$ 60,963$ 76,574$ Accounts Receivable - 20 - 20

Total assets 75,563$ 61,994$ 60,963$ 76,594$

LiabilitiesAccounts payable 23$ 1,038$ 1,017$ 44$ Deposits payable 75,540 61,575 60,565 76,550

Total liabilities 75,563$ 62,613$ 61,582$ 76,594$

Total - All Agency Funds

Customer Deposits Fund

Association Fire Equipment Fund

-150-


Contents Page

Financial Trends 152

Revenue Capacity 169

Debt Capacity 172

Demographic and Economic Information 180

Operating Information 183

STATISTICAL SECTION

This part of the City of Loma Linda's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government's overall financial health.

These schedules contain trend information to help the reader understand how the city's financial performance and well-being have changed over time.

These schedules contain information to help the reader assess the city's most significant local revenue source, the property tax.

These schedules present information to help the reader assess the affordability of the city's current levels of outstanding debt and the city's ability to issue additional debt in the future.

These schedules offer demographic and economic indicators to help the reader understand the environment within which the city's financial activities take place.

These schedules contain service and infrastructure data to help the reader understand how the information in the city's financial report relates to the services the city provides and the activities it performs.

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CITY OF LOMA LINDANet Position by ComponentLast Ten (10) Fiscal Years(accrual basis of accounting)

2006 2007 2008 2009Governmental activities

Invested in capital assets, net of related debt (2,238,756)$ 4,975,776$ 9,961,165$ 16,968,226$ Restricted 22,285,014 27,709,242 31,758,576 19,130,521 Unrestricted 8,935,756 11,225,817 13,733,716 25,652,784

Total governmental activities net position 28,982,014$ 43,910,835$ 55,453,457$ 61,751,531$

Business-type activitiesInvested in capital assets, net of related debt 14,302,367$ 16,858,045$ 25,693,455$ 24,955,400$ Restricted - 39,545 40,711 45,458 Unrestricted 9,121,887 5,252,503 972,171 378,488

Total business-type activities net position 23,424,254$ 22,150,093$ 26,706,337$ 25,379,346$

Primary governmentInvested in capital assets, net of related debt 12,063,611$ 21,833,821$ 35,654,620$ 41,923,626$ Restricted 22,285,014 27,748,787 31,799,287 19,175,979 Unrestricted 18,057,643 16,478,320 14,705,887 26,031,272

Total primary government net position 52,406,268$ 66,060,928$ 82,159,794$ 87,130,877$

Source: City of Loma Linda Finance Department

-152-

2010 2011 2012 2013 2014 2015

18,709,538$ 18,369,944$ 49,487,378$ 49,923,947$ 53,642,388$ 55,885,140$ 16,885,933 23,907,544 28,038,083 29,617,713 29,305,083 27,181,403 26,978,589 20,904,231 4,777,504 814,941 2,258,815 (6,245,613) 62,574,060$ 63,181,719$ 82,302,965$ 80,356,601$ 85,206,286$ 76,820,930$

23,804,734$ 23,350,947$ 23,001,645$ 39,756,680$ 38,186,940$ 37,347,912$ 40,839 40,839 40,839 40,839 40,839 40,840

988,991 389,888 (8,290,772) (9,127,686) (9,816,996) (13,846,636) 24,834,564$ 23,781,674$ 14,751,712$ 30,669,833$ 28,410,783$ 23,542,116$

42,514,272$ 41,720,891$ 72,489,023$ 89,680,627$ 91,829,328$ 93,233,052$ 16,926,772 23,948,383 28,078,922 29,658,552 29,345,922 27,222,243 27,967,580 21,294,119 (3,513,268) (8,312,745) (7,558,181) (20,092,249) 87,408,624$ 86,963,393$ 97,054,677$ 111,026,434$ 113,617,069$ 100,363,046$

-153-

CITY OF LOMA LINDAChanges in Net PositionLast Ten (10) Fiscal Years(accrual basis of accounting)

2006 2007 2008 2009 2010ExpensesGovernmental activities:

General government 3,421,268$ 3,889,933$ 5,432,837$ 5,512,029$ 7,461,716$Public safety 5,202,552 6,502,549 8,044,524 8,591,174 8,440,270 Community development 3,242,959 2,291,977 3,569,755 3,544,732 1,742,926 Public works 3,609,940 5,355,288 5,572,912 5,979,986 5,255,534 Interest on long-term debt 2,940,179 3,447,775 3,471,503 3,135,872 3,985,993

Total governmental activities expenses 18,416,898 21,487,522 26,091,531 26,763,793 26,886,439

Business-type activities:Water acquisition 590,177 598,016 2,058,812 302,374 118,725 Water enterprise 4,872,363 5,375,914 5,741,631 5,530,470 4,924,009 Sewer capital 2,901,877 2,936,897 4,546,958 3,256,407 3,383,138 Loma Linda Connected Communities 866,377 1,363,025 1,465,591 1,515,573 1,358,470

Total business-type activities expenses 9,230,794 10,273,852 13,812,992 10,604,824 9,784,342 Total primary government expenses 27,647,692$ 31,761,374$ 39,904,523$ 37,368,617$ 36,670,781$

Program RevenuesGovernmental activities:

Charges for services:General Government 1,947,006$ 1,958,298$ 2,439,242$ 2,342,942$ 2,121,447$Public Safety 819,202 1,263,056 1,020,328 854,242 814,147 Community development 4,597,148 4,238,388 3,715,068 1,692,862 1,428,685 Public works 3,117,229 3,360,417 3,267,751 3,163,162 2,474,807

Operating contributions and grants 628,309 709,911 1,916,422 2,893,550 1,359,023 Capital contributions and grants 648,198 676,140 4,930,738 2,271,371 1,714,499

11,757,092 12,206,210 17,289,549 13,218,129 9,912,608

Business-type activities:Charges for services:

Water acquisition 1,084,782 249,092 267,849 258,956 357,588 Water enterprise 3,484,542 3,823,839 3,915,160 4,165,368 4,429,351 Sewer capital 2,630,238 2,850,657 2,869,202 2,899,140 2,995,452 Loma Linda Connected Communities 111,773 105,332 180,717 279,430 279,829

Capital Grants and Contributions 559,548 633,609 9,008,653 292,384 36,887

7,870,883 7,662,529 16,241,581 7,895,278 8,099,107 Total primary government revenues 19,627,975$ 19,868,739$ 33,531,130$ 21,113,407$ 18,011,715$

Net (expense)/revenueGovernmental activities (6,659,806)$ (9,281,312)$ (8,801,982)$ (13,545,664)$ (16,973,831)$Business-type activities (1,359,911) (2,611,323) 2,428,589 (2,709,546) (1,685,235)

(8,019,717)$ (11,892,635)$ (6,373,393)$ (16,255,210)$ (18,659,066)$

Total governmental activities program revenues

Total business-type activities program revenues

Total primary government net (expense)/revenue

-154-

2011 2012 2013 2014 2015

5,336,891$ 3,371,844$ 1,770,611$ 1,818,573$ 3,387,169$ 8,541,168 9,042,727 8,747,342 8,430,753 8,772,658 3,762,903 2,007,651 1,944,724 1,948,836 2,278,470 5,743,794 4,156,836 4,488,436 5,451,342 3,948,235 3,905,417 1,474,252 246,905 180,289 128,956

27,290,173$ 20,053,310$ 17,198,018$ 17,829,793$ 18,515,488$

208,277 221,075 152,932 - 32,458 4,984,606 5,474,845 6,113,936 6,414,771 6,529,987 3,724,961 3,969,359 4,420,067 4,135,446 4,128,121 1,263,763 1,046,444 981,448 923,887 1,183,177

10,181,607 10,711,723 11,668,383 11,474,104 11,873,743 37,471,780$ 30,765,033$ 28,866,401$ 29,303,897$ 30,389,231$

2,286,843$ 2,181,892$ 2,265,114$ 2,017,576$ 2,230,122$ 739,729 611,087 601,899 566,346 576,908 767,424 571,252 1,538,226 2,598,727 1,247,138

2,798,225 2,146,378 1,728,971 1,729,660 1,523,530 249,880 287,260 244,822 238,064 227,592

2,649,689 855,530 1,633,410 5,425,257 1,276,451 9,491,790 6,653,399 8,012,442 12,575,630 7,081,741

- 27,254 132,044 60,113 249,351 4,551,954 4,721,866 4,734,114 4,813,653 4,970,004 3,071,818 3,388,248 3,592,431 3,457,741 3,843,936

287,402 275,905 287,944 414,429 399,978 372,616 185,000 18,249,598 - -

8,283,790 8,598,273 26,996,131 8,745,936 9,463,269 17,775,580$ 15,251,672$ 35,008,573$ 21,321,566$ 16,545,010$

(17,798,383)$ (13,399,911)$ (9,185,576)$ (5,254,163)$ (11,433,747)$(1,897,817) (2,113,450) 15,327,748 (2,728,168) (2,410,474)

(19,696,200)$ (15,513,361)$ 6,142,172$ (7,982,331)$ (13,844,221)$

-155-

CITY OF LOMA LINDAChanges in Net PositionLast Ten (10) Fiscal Years(accrual basis of accounting)

2006 2007 2008 2009 2010General Revenues and Other Changes in

Net PositionGovernment activities:

TaxesProperty taxes 8,381,521$ 9,448,129$ 10,438,820$ 11,020,163$ 10,037,882$Sales taxes 2,848,890 3,302,260 3,401,593 3,487,985 3,105,936 Franchise tax 6,995 544,195 558,975 730,413 648,690 Other taxes 81,050 340,460 504,173 592,561 590,867

Motor vehicle in lieu 1,511,940 1,601,282 1,804,250 1,914,908 1,780,141 IntergovernmentalTransfers - - - 661 -

Total taxes and transfers 12,830,396 15,236,326 16,707,811 17,746,691 16,163,516Investment income 1,856,519 2,971,594 2,894,447 1,934,823 1,525,652 Capital ContributionMiscellaneous 408,670 54,424 459,167 173,657 107,192 Gain (Loss) on sale of capital assets - - (20,090) - - Gain (Loss) on Land Held for Resale - (248,831) 359,800 - -

Total governmental activities 15,095,585 18,013,513 20,401,135 19,855,171 17,796,360

Business-type activities:Investment income 986,355 1,125,012 1,007,390 594,823 607,164 Capital ContributionMiscellaneous 300,206 212,150 1,116,271 800,450 533,289 Transfers - - - (661) - Gain (Loss) on sale of capital assets - - 3,994 - -

Total business-type activities 1,286,561 1,337,162 2,127,655 1,394,612 1,140,453 Total primary government 16,382,146$ 19,350,675$ 22,528,790$ 21,249,783$ 18,936,813$

Extraordinary Item (Disolution of Redevelopment Agency)Disolution of Redevelopment AgencyGovernmental activities -$ -$ -$ -$ -$ Business-type activities - - - - - Total primary government -$ -$ -$ -$ -$

Change in Net PositionGovernmental activities 8,435,779$ 8,732,201$ 11,599,153$ 6,309,507$ 822,529$ Business-type activities (73,350) (1,274,161) 4,556,244 (1,314,934) (544,782) Total primary government 8,362,429$ 7,458,040$ 16,155,397$ 4,994,573$ 277,747$


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2011 2012 2013 2014 2015

9,461,659$ 5,774,870$ 2,205,347$ 2,391,993$ 2,424,066$ 3,681,608 4,040,073 3,864,216 3,733,160 5,721,938

664,672 756,527 778,424 811,238 848,712 941,937 641,707 734,611 871,103 831,258

1,762,104 1,648,468 1,661,319 1,688,439 - 213,852 2,205,319

161,951 - - - - 16,673,931 12,861,645 9,243,917 9,709,785 12,031,293

1,672,572 936,266 208,226 227,033 503,598 89,413 -

59,539 652,079 60,069 139,192 36,389 - - - -

18,406,042 14,449,990 9,512,212 10,165,423 12,571,280

545,228 12,986 11,789 8,608 7,932 (89,413) -

461,650 602,448 578,584 589,923 650,590 (161,951) - - - -

- - 844,927 615,434 590,373 509,118 658,522

19,250,969$ 15,065,424$ 10,102,585$ 10,674,541$ 13,229,802$

-$ 18,071,167$ -$ -$ -$ - (7,531,946) - - - -$ 10,539,221$ -$ -$ -$

607,659$ 19,121,246$ 326,636$ 4,911,260$ 1,137,533$ (1,052,890) (9,029,962) 15,918,121 (2,219,050) (1,751,952)

(445,231)$ 10,091,284$ 16,244,757$ 2,692,210$ (614,419)$

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CITY OF LOMA LINDAGovernmental Activities Tax and Assessments Revenues by SourceLast Ten (10) Fiscal Years(modified accrual basis of accounting)

Fiscal Property Sales & Use Franchise Transfer Transient BusinessYear Taxes Tax Fees Tax Tax License

2006 6,942,748$ 3,197,232$ 522,074$ 116,371$ 57,665$ 272,075$

2007 8,449,778 3,636,421 544,195 162,082 67,951 265,664

2008 9,689,326 3,739,084 558,975 59,050 68,876 275,322

2009 10,327,373 3,773,847 730,413 79,266 69,879 287,370

2010 9,433,706 3,348,460 648,690 39,368 58,933 261,340

2011 9,043,574 3,988,042 664,672 37,615 57,274 298,108

2012 5,190,613 4,382,549 756,527 31,919 52,938 236,453

2013 1,420,706 4,203,905 778,424 42,622 33,676 349,911

2014 3,294,218 4,083,824 811,238 40,926 39,262 368,358

2015 3,432,704 6,097,691 848,712 47,546 49,442 390,291

Includes General, Special Revenue, Debt Service and Capital Projects Funds.

Source: City of Loma Linda Finance Department.

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Misc. Taxes Assessments Total

6,994$ 700,472$ 11,815,631$

6,845 777,152 13,910,088

6,829 769,705 15,167,167

8,280 805,642 16,082,070

8,649 817,654 14,616,800

9,469 747,374 14,846,128

9,841 727,518 11,388,358

11,335 742,019 7,582,598

25,236 735,329 9,398,391

25,449 732,770 11,624,605

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CITY OF LOMA LINDAFund Balances of Governmental FundsLast Ten (10) Fiscal Years(modified accrual basis of accounting)

2006 2007 2008 2009 2010 2011 1

General fundReserved 436,551$ 345,346$ 344,667$ 852,770$ 387,155$ -$ Unreserved 5,700,458 7,407,201 7,409,050 7,196,063 7,456,030 - Non Spendable:

Inventories - - - - - 21,879 Prepaid items - - - - - 328,518

Restricted for:- - - - - -

General government - - - - - 5,317 Committted for:

Emergency contingency - - - - - 3,500,000 Assigned for:

Disaster recovery - Federal/State reimbursements - - - - - 426,308 Refuse services - - - - - 242,106 Fire equipment replacement - - - - - 67,419 Capital equipment replacement - - - - - 1,250,000

Unassigned - - - - - 2,803,075 Total general fund 6,137,009$ 7,752,547$ 7,753,717$ 8,048,833$ 7,843,185$ 8,644,622$

All other governmental fundsReserved 36,492,184$ 39,536,595$ 35,823,580$ 40,390,640$ 39,678,336$ -$ Unreserved, reported in: -

Special revenue funds 1,484,918 2,624,532 2,154,291 2,596,448 1,574,735 - Debt service funds (5,879,054) (8,287,557) (11,992,439) (12,371,088) (17,758,767) - Capital project funds 9,181,061 4,991,028 14,418,515 9,032,230 9,298,902 -

Undesignated - - - - - - Non Spendable:

Prepaid items - - - - - 82,884 Sewer capacity rights - - - - - 79,862

Restricted for:Cultural and recreational - - - - - 669,281 Public safety - - - - - 267,955 Street improvements - - - - - 5,938,787 Storm drains - - - - - 763,498 Municipal facilities - - - - - 447,301 Public works projects - - - - - 217,694 Landscape Maintenance District - - - - - 43,328 Air quality management - - - - - 55,169 Development projects - - - - - 6,381,957 General government - - - - - 4,626,779 Debt service - - - - - 4,523,861 Low/mod hosing programs - - - - - 30,804,510

Unassigned - - - - - (11,943,938) Total all other governmental funds 41,279,109$ 38,864,598$ 40,403,947$ 39,648,230$ 32,793,206$ 42,958,928$


Note1:

Public Safety

Implementation of GASB 54 changed the classifications of fund balance. Prior year audits were not reissued therefore comparative data is not available prior to fiscal year 2011

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2012 2013 2014 2015

-$ -$ -$ -$ - - - -

22,355 22,630 22,934 18,966 432,648 1,319 764 8,569

- 35,743 - - 5,317 2,232 15,768 18,872

3,500,000 3,500,000 3,500,000 3,500,000

- - - - 83,658 87,941 91,540 95,832 70,779 78,102 88,812 270,040

1,250,000 1,250,000 1,250,000 1,250,000 3,703,420 5,071,179 5,836,876 6,827,235 9,068,177$ 10,049,146$ 10,806,694$ 11,989,514$

-$ -$ -$ -$ - - - - - - - - - - - - - - - - - - - -

9,913 20 - 40,672 - - - -

362,256 284,673 304,711 332,436 337,819 369,068 442,199 452,514

5,736,844 5,561,625 5,156,456 4,295,300 740,443 749,230 757,919 771,018 273,249 336,519 271,092 195,306

- - - - - - - -

66,244 73,431 80,988 86,456 -

1,563,163 1,220,343 1,207,017 1,205,057 137,614

17,873,700 17,856,279 17,956,592 17,810,779 (3,277,365) (4,693,591) (5,475,010) (6,363,912) 24,906,609$ 21,744,271$ 20,700,004$ 17,758,183$

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CITY OF LOMA LINDA

2006 2007 2008 2009Revenues

Taxes 11,815,631$ 13,910,088$ 15,167,167$ 16,082,070$Licenses and permits 949,820 630,675 455,181 349,510Intergovernmental revenues 2,780,168 2,756,637 4,543,759 5,371,461Charges for services 2,970,018 3,333,503 3,597,448 2,966,451Use of money and property 1,731,566 3,059,857 2,025,727 1,086,977Fines, forfeitures, and penalties 518,953 1,078,676 781,862 577,392Contributions 1,000 - - -Miscellaneous 2,187,198 2,185,391 2,628,355 2,696,649Developer fees 3,320,882 3,315,656 3,124,891 1,282,017

Total Revenues 26,275,236 30,270,483 32,324,390 30,412,527

ExpendituresGeneral government 3,119,238 3,483,268 5,031,935 5,141,936Public safety 5,474,848 6,298,806 7,700,185 8,315,993Community development 5,074,483 1,980,250 2,183,352 2,086,901Public works 4,857,384 4,221,178 4,315,575 3,824,026Capital outlay 466,557 9,588,564 6,810,787 15,340,849Debt service

Principal retirement 1,266,003 2,226,133 1,650,065 1,640,000Interest and fiscal charges 2,144,106 3,450,010 3,394,241 3,144,540Bond issuance costs 899,273 - - 268,111Refunding costs - - - -

Total Expenditures 23,301,892 31,248,209 31,086,140 39,762,356

Excess of revenuesover (under) expenditures 2,973,344 (977,726) 1,238,250 (9,349,829)

Other Financing Sources (Uses)Capital leases - - - -Bond proceeds 25,535,000 - - 8,900,000Premium on bonds 313,969 - - -Discount on bonds (79,798) - - -Gain on disposal of assets - 25,775 361,005 -Loss of disposal of assets - (274,606) (2,205) -Transfers in 2,457,919 7,362,812 10,310,331 4,968,940Transfers out (2,457,919) (7,362,812) (10,310,331) (4,968,279)

Total Other Financing Sources (Uses) 25,769,171 (248,831) 358,800 8,900,661

Net Change in Fund Balances Before Extraordinary Item 28,742,515$ (1,226,557)$ 1,597,050$ (449,168)$ Extraordinary Item - - - - Net Change in Fund Balances $28,742,515 ($1,226,557) $1,597,050 ($449,168)

Debt Service as a percentage ofnon-capital expenditures 18.9% 26.0% 23.2% 18.9%

* The presentation of capital outlay expenditures changed in fiscal year 2007, therefore creating a significant change from fiscal year 2006.Source: City of Loma Linda Finance Department

**Extraordinary item did not apply to prior years.

Changes in Fund Balances of Governmental FundsLast Ten (10) Fiscal Years(modified accrual basis of accounting)

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2010 2011 2012 2013 2014 2015

14,616,800$ 14,846,128$ 11,388,358$ 7,582,598$ 9,398,391$ 11,624,605$ 210,643 252,975 1,345,307 318,636 532,046 629,954

3,263,909 6,833,823 1,680,953 2,539,554 900,263 961,3142,549,378 2,780,285 5,344,456 1,653,891 1,921,614 1,789,325

835,776 10,419,520 660,304 624,686 468,283 451,109478,763 281,957 980 179,157 166,014 154,642

- - - - - -2,265,551 2,768,474 3,411,401 3,479,196 6,976,393 2,811,3451,192,558 412,271 308,677 1,127,775 814,556 518,956

25,413,378 38,595,433 24,140,436 17,505,493 21,177,560 18,941,250

7,041,600 5,083,333 2,756,072 1,010,432 1,269,463 2,816,5328,057,199 7,869,002 8,249,467 8,333,007 8,372,894 8,494,5231,310,589 1,427,226 1,618,015 1,635,429 1,834,266 1,997,8683,329,567 3,348,479 2,696,647 2,225,653 2,338,243 2,235,0907,407,909 4,811,468 1,521,014 3,137,662 6,668,468 3,024,351

1,695,000 1,805,000 2,080,400 883,220 914,378 1,905,5903,684,121 3,798,820 2,571,604 207,619 164,563 132,266

- - - - - -- - - - - -

32,525,985 28,143,328 21,493,219 17,433,022 21,562,275 20,606,220

(7,112,607) 10,452,105 2,647,217 72,471 (384,715) (1,664,970)

- 330,513 - - - -- - - - - -- - - - - -- - - - - -

51,935 22,590 315,539 19,160 97,996 20,000- - - - (114,031)

5,766,813 20,922,495 3,541,336 2,366,876 2,438,425 2,218,439(5,766,813) (20,760,544) (3,541,336) (2,366,876) (2,438,425) (2,218,439)

51,935 515,054 315,539 19,160 97,996 (94,031)

(7,060,672)$ 10,967,159$ 2,962,756$ 91,631$ (286,719)$ (1,759,001)$ - - (20,591,520) - - -

($7,060,672) $10,967,159 ($17,628,764) $91,631 ($286,719) ($1,759,001)

20.7% 21.2% 22.9% 7.1% 6.4% 11.4%

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CITY OF LOMA LINDAGeneral Governmental Tax Revenues by SourceLast Ten (10) Fiscal Years(modified accrual basis of accounting)

Fiscal Property Sales & Use Franchise Transfer Transient Business Misc.Year Taxes Tax Fees Tax Tax License Taxes Total

2006 843,211$ 2,848,889$ 522,074$ 116,371$ 57,665$ 272,076$ 6,995$ 4,667,281$

2007 1,078,634 3,302,261 544,195 162,082 67,951 265,664 6,845 5,427,632

2008 1,105,974 3,401,593 558,975 59,050 68,876 275,322 6,829 5,476,620

2009 1,342,091 3,487,985 730,413 79,266 69,879 287,370 8,280 6,005,284

2010 1,130,074 3,105,936 648,690 39,368 58,933 261,340 8,649 5,252,990

2011 1,089,990 3,681,608 664,672 37,615 57,274 298,108 9,469 5,838,736

2012 1,016,418 4,040,073 756,527 31,919 52,938 236,453 9,840 6,144,168

2013 1,420,706 3,864,216 778,424 42,622 33,676 349,911 11,335 6,500,890

2014 3,294,217 3,733,160 811,238 40,926 39,262 368,358 25,236 8,312,397

2015 3,432,704 5,721,938 848,712 47,546 49,442 390,291 25,450 10,516,083


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CITY OF LOMA LINDAAssessed Value and Estimated Actual Value of Taxable PropertyLast Ten (10) Calendar Years

Calendar EstimatedYear Actual Less:

Ended Residential Commercial Personal Taxable Tax ExemptDecember 31 Property Property Property Value Real Property

2006 1,535,266,197$ 192,876,945$ 124,296,187$ 1,852,439,329$ 601,900,034$

2007 1,774,871,539 195,611,256 136,262,411 2,106,745,206 695,769,974

2008 2,018,220,773 211,531,280 147,259,104 2,377,011,157 739,556,873

2009 2,110,749,880 239,277,898 228,432,426 2,578,460,204 809,676,020

2010 2,098,046,340 262,992,114 215,052,700 2,576,091,154 928,430,644

2011 2,087,990,031 266,608,473 234,245,941 2,588,844,445 1,006,245,563

2012 2,105,355,263 267,171,958 235,765,375 2,608,292,596 1,023,319,642

2013 2,195,002,151 271,001,950 216,780,215 2,682,784,316 1,096,986,069

2014 2,064,942,248 276,960,178 222,628,537 2,564,530,963 950,702,460

2015 2,252,005,169 285,082,390 214,346,968 2,751,434,527 1,031,386,807

Real Property

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Total AssessedTotal Direct Value as a

Assessed Tax Percentage ofValue Rate Actual Value

1,250,539,295$ 0.4958 100%

1,410,975,232 0.5310 100%

1,637,454,284 0.5435 100%

1,768,784,184 0.5459 100%

1,647,660,510 0.5294 100%

1,582,598,882 0.5185 100%

1,584,972,954 0.5155 100%

1,585,798,247 0.5192 100%

1,613,828,503 0.1179 100%

1,720,047,720 0.1179 100%

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CITY OF LOMA LINDADirect and Overlapping Property Tax Rates(Rate per $100 of Taxable Value)Last Ten (10) Fiscal Year

San Bernardino San Bernardino Total RDA TotalFiscal Basic Debt Colton Redlands Community Tax Incremental DirectYear Levy Service Unified Unified College Water Rate Rate 1 Rate 2

2006 1.0000 0.04420 0.04270 0.04490 0.01660 0.16000 1.30840 1.16000 0.491662007 1.0000 0.04230 0.07530 0.03760 0.01950 0.15500 1.32970 1.15500 0.524732008 1.0000 0.04120 0.08060 0.03220 0.01270 0.16500 1.33170 1.16500 0.534092009 1.0000 0.03810 0.06880 0.05190 0.03930 0.16500 1.36310 1.65000 0.544492010 1.0000 0.03550 0.09850 0.05410 0.02800 0.16500 1.38110 1.65000 0.529402011 1.0000 0.00000 0.13040 0.06170 0.04670 0.16500 1.40380 1.16500 0.518522012 1.0000 0.00000 0.14030 0.05820 0.03730 0.16500 1.40080 1.16500 0.515532013 1.0000 0.00000 0.14880 0.06410 0.04590 0.16250 1.42130 0.00000 0.519172014 1.0000 0.00000 0.11870 0.06290 0.04190 0.16250 1.38600 0.00000 0.117932015 1.0000 0.00000 0.09730 0.05940 0.03930 0.16250 1.35850 0.00000 1.11792

Sources: HdL Coren & Cone, San Bernardino County Assessor combined tax rolls

Note: In 1978 California voters passed Proposistion 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% isshared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property ownersare charged taxes as a percentage of assessed property values for the payment of any voter approved bonds.

1 RDA rate is based on the largest RDA tax rate area and includes only the rate(s) from indebtedness adopted prior to 1989 perCalifornia State Statute. RDA Direct and Overlapping rates are applied only to the incremental property values.

2 Total Direct Rate is the weighted average of all individual direct rates.

Schools

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CITY OF LOMA LINDAPrincipal Property Tax Payersas of June 30, 2015

Emerikeyt Palms of Loma Linda Inc2 Percentage of Percentage of Assessed Total Taxable Assessed Total Taxable

Taxpayer Valuation Rank Assessed Value Valuation Rank Assessed Value

Timber Hills Associates LP2 41,893,310$ 2 2.44%General American Life Insurance Company 38,259,392 3 2.22% 34,514,952$ 2 2.71%Loma Linda University1 51,535,109 1 3.00% 45,266,813 1 3.55%Loma Linda Heritage Associates 27,031,475 4 1.57% 19,485,650 4 1.53%Oasis Townhomes LLC 25,070,517 5 1.46% 22,047,914 3 1.73%Granite Lakes Apartments2 16,000,000 6 0.93%Chancellor Properties LLC 12,309,568 7 0.72%Monterey Pines LLC 10,604,024 9 0.62% 9,304,578 9 0.73%Spreen Investment Company II 10,563,302 8 0.61%Loma of California Health Center LLC 10,211,917 10 0.59% 8,980,728 10 0.70%RK Multifamily Income Fund XII LLC 11,934,000 5 0.94%Emeritus Properties XVI 9,484,309 8 0.74%Lewis Investment ompanyLoma Linda Plaza PartnersMTB Inland Empire Properties LLC 10,073,000 6 0.79%Ryland Homes of California Inc 9,792,286 7 0.77%

243,478,614$ 14.16% 180,884,230$ 14.19%

Note: The amounts shown above includes assessed value data for both the City and the Redevelopment Agency.

1 Loma Linda University is a learning institution; therefore, a large portion of their property is exempt.2 Pending Appeals on Parcels

Source: The HdL Companies, San Bernardino County Assessor Combined Tax Rolls

20062015

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CITY OF LOMA LINDAProperty Tax Levies and CollectionsLast Ten (10) Calendar Years

Fiscal Year Total Tax Current Percent of CollectionsEnded Levy for Tax Current Taxes in Subsequent Percentage

June 30 Fiscal Year Collections Collected Years Amount of Levy

2006 844,135$ 814,547$ 96.5% 130,276$ 944,823$ 111.9%

2007 870,726 821,738 94.4% 61,764 883,502 101.5%

2008 960,752 884,158 92.0% 18,040 902,198 93.9%

2009 1,043,893 976,077 93.5% 13,107 989,184 94.8%

2010 980,792 933,687 95.2% 9,708 943,395 96.2%

2011 963,843 927,289 96.2% 11,234 938,523 97.4%

2012 983,808 941,122 95.7% 36,101 977,223 99.3%

2013 989,037 944,831 95.5% 36,462 981,293 99.2%

2014 1,015,851 987,067 97.2% 23,239 1,010,306 99.5%

2015 1,038,813 1,012,206 97.4% - 1,012,206 97.4%

Source: San Bernardino County Auditor-ControllerProperty Tax Division

Note:In FY 2012, penalties started to be excluded from amounts collected in subsequent years.

Fiscal Year of the Levy Total Collections to DateCollected within the

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CITY OF LOMA LINDARatio of Outstanding Debt by TypeLast Ten (10) Fiscal Years

Tax General Fiscal Capital Loans Allocation Revenue Obligation Capital Water Year Leases Payable Bonds Bonds Bonds Leases Bonds

2006 176,174$ -$ 37,305,000$ 8,185,000$ 20,000$ 115,737$ 8,320,000$

2007 60,041 - 35,905,000 7,475,000 20,000 39,469 8,075,000

2008 - - 35,040,000 6,750,000 20,000 - 7,815,000

2009 - - 43,045,000 6,005,000 20,000 - 7,540,000

2010 - - 42,120,000 5,235,000 20,000 - 7,245,000.

2011 330,513 - 41,110,000 4,440,000 20,000 - 6,935,000

2012 300,113 - - 3,615,000 20,000 - 6,605,000

2013 271,894 - - 2,760,000 10,000 - 6,255,000

2014 242,515 - - 1,875,000 10,000 - 5,885,000

2015 211,922 - - - 10,000 - 5,490,000

1 See the Schedule of Demographic and Economic Statistics on page 137 for personal income and population.


Note: Details regarding the government's outstanding debt can be found in the notes to the financial statements.

Business-Type ActivitiesGovernmental Activities

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Total Percentage Primary of Personal Per

Government Income Capita1

54,121,911$ 7.72% 2470

51,574,510 7.07% 2297

49,625,000 6.27% 2193

56,610,000 7.29% 2503

54,620,000 7.05% 2400

52,835,513 N/A 2258

10,540,113 N/A 451

9,296,894 1% 396

8,012,515 1% 339

5,711,922 1% 240

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CITY OF LOMA LINDARatios of General Bonded Debt OutstandingLast Ten (10) Fiscal Years

Less: amounts Percentage ofGeneral Available in Debt Estimated

Fiscal Obligation Service Actual Taxable PerYear Bonds Fund Total Value of Property1 Capita2

2006 20,000$ - 20,000$ 0.001% 1

2007 20,000 - 20,000 0.001% 1

2008 20,000 - 20,000 0.001% 1

2009 20,000 - 20,000 0.001% 1

2010 20,000 - 20,000 0.001% 1

2011 20,000 - 20,000 0.001% 1

2012 20,000 - 20,000 0.001% 1

2013 10,000 - 10,000 0.000% 0

2014 10,000 - 10,000 0.000% 0

2015 10,000 - 10,000 0.000% 0

Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements.

1 See the Schedule of Assessed Value and Estimated Actual Value of Taxable Property on page 167 for the property value data.

2 Population data can be found in the schedule of Demographic and Economic Statistics on page 181.


1 See the Schedule of Assessed Value and Estimated Actual Value of Taxable Property on page 167 for the property value data.

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CITY OF LOMA LINDADirect and OverlappingGovernmental Activities Debtas of June 30, 2015

2014-2015 Assessed Valuation 1,720,047,720$

Total Debt PercentDIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: 6/30/15 Applicable (1) Debt 6/30/15 San Bernardino Valley Joint Community College District 436,185,141$ 3.061% 13,351,627$ Colton Joint Unified School District 173,651,963 0.936% 1,625,382 Colton Joint Unified School District Community Facilities District No.2 4,285,000 25.190% 1,079,392 Redlands Unified School District 95,797,733 12.094% 11,585,778 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT 27,642,179$

DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT: San Bernardino County General Fund Obligations 470,135,000$ 0.963% 4,527,400$ San Bernardino Country Pension Obligations 455,796,704 0.963% 4,389,322 San Bernardino County Flood Control District General Fund Obligations 97,230,000 0.963% 936,325 Colton Joint Unified School District Certificates of Participation 3,378,942 0.936% 31,627 Redlands Unified School District Certificates of Participation 5,000,000 12.094% 604,700 City of Loma Linda Certificates of Participation 955,000 100.000% 955,000 City of Loma Linda Capital Lease 211,922 100.000% 211,922 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT 11,656,296$

OVERLAPPING TAX INCREMENT DEBT: 275,730,000$ 3.780-100% 44,927,086$

TOTAL DIRECT DEBT 1,166,922 TOTAL OVERLAPPING OBLIGATION DEBT 83,058,639

COMBINED TOTAL DEBT 84,225,561$ (2)

Ratios to 2014-15 Assessed Valuation: Total Overlapping Debt (excluding tax increment)…….……………… 1.61% Total Direct Debt ($1,166,922)…………….………………………… 0.07% Combined Total Debt (excluding tax increment)……………………… 4.90%

Ratios to Redevelopment Incremental Valuation ($845,390,259): Total Overlapping Tax Increment Debt………………………………… 5.31%

Source: California Municipal Statistics and City of Loma Linda Finance Department

(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity.

(1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value.

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CITY OF LOMA LINDAComputation of Legal Debt MarginLast Ten (10) Fiscal Years

1 2006 2007 2008 2009

Debt Limit 47,509,395$ 53,525,684$ 62,019,478$ 66,983,735$

Total net debt applicable to limit 31,484,160 30,750,296 27,724,666 36,236,452

Legal debt margin 16,025,235$ 22,775,388$ 34,294,812$ 30,747,283$

Total net debt applicable to the limit as a percentage of debt limit 66.27% 57.45% 44.70% 54.10%

1 Information prior to Fiscal Year 2003 is not available

Note:California Government Code, Section 43605 sets the debt limit at 15%. The code section was enacted when assessed values were based on 25% of full market value. This has since changed to 100% of full market value. Thus, the limit shown is 3.75% (one-forth the limit of 15%).

Source: California Municipal Statistics, San Bernardino County Auditor-Controller Property Tax Division

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2010 2011 2012 2013 2014 2015

62,443,494 59,998,424 60,087,454 60,098,744 61,135,079 65,100,609

35,465,342 34,152,880 33,799,049 89,011,770 87,512,815 84,225,561

26,978,152 25,845,544 26,288,405 (28,913,026) (26,377,736) (19,124,952)

56.80% 56.92% 56.25% 148.11% 143.15% 129.38%

Net Assessed Value 1,720,047,720 Plus Exempt Property 15,968,512 Total Assessed Value 1,736,016,232$

Debt Limit: 3.75 percent of Total Assessed Value 65,100,609

Debt applicable to Limitation:Net Combined applicable to Limitation 84,225,561

Total Debt applicable to Limitation 84,225,561

Legal Debt Margin (19,124,952)$

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CITY OF LOMA LINDAPledged-Revenue CoverageLast Ten (10) Fiscal Years

Operating Net RevenueFiscal Gross Expenses Available for Debt ServiceYear Revenues Less Depreciation Debt Service Requirements Coverage

2006 4,187,141$ 3,800,678$ 386,463$ 770,681$ 50.1%

2007 4,737,038 4,244,330 492,708 770,681 63.9%

2008 5,128,815 4,588,068 540,747 733,200 73.8%

2009 5,406,102 4,476,532 929,570 733,200 126.8%

2010 5,042,031 3,898,139 1,143,892 733,200 156.0%

2011 5,014,970 4,018,175 996,795 733,200 136.0%

2012 5,327,611 4,530,412 797,199 345,130 231.0%

2013 5,295,335 4,638,354 656,981 361,610 181.7%

2014 5,398,735 4,636,285 762,450 377,350 202.1%

2015 5,577,533 5,106,716 470,817 399,439 117.9%

Note: Details regarding the city's outstanding debt can be found in the notes to the financial statements. Operating expenses do not include interest or depreciation


*Amounts are zero due to the disolution of the Redevelopment Agency

Water Revenue Bonds

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Tax Increment Principal Interest Coverage

4,772,247$ 460,000$ 509,875$ 4.92

6,035,332 1,400,000 1,836,658 1.86

6,744,163 865,000 1,735,889 2.59

8,369,076 895,000 1,704,240 3.22

7,628,983 925,000 1,773,160 2.83

7,325,280 1,010,000 2,387,538 2.16

N/A * N/A * N/A * N/A *

N/A * N/A * N/A * N/A *

N/A * N/A * N/A * N/A *

N/A * N/A * N/A * N/A *

Debt Service

Tax Allocation Bonds

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CITY OF LOMA LINDADemographic and Economic Statistics

Per Loma Linda RedlandsCapita Academy Bryn Mawr Mission School Unemployment

Fiscal Personal Personal (Private) Elementary Elementary District RateYear Population 1 Income 2 Income 3 Enrollment 4 Enrollment 5 Enrollment 5 Enrollment 5 (percentage) 7

2006 21,912 701,072,034$ 31,995$ 1,511 880 0 21,936 4.9

2007 22,451 729,430,221 32,490 1,554 855 0 21,220 5.9

2008 22,632 791,379,095 34,967 1,572 899 0 21,200 8.3

2009 22,619 776,633,000 33,388 1,469 921 0 21,142 13.3

2010 22,760 774,946,263 34,048 1,348 951 0 21,293 14.4

2011 23,395 805,449,502* 34,428* 1,400 988 0 21,398 8.7

2012 23,389 n/a n/a 1,306 776 217 21,408 8.0

2013 23,476 721,065,000 ** 30,715 ** 1,312 730 509 21,379 5.8

2014 23,614 728,563,000 ** 30,853 ** 1,242 666 550 21,233 5.0

2015 23,751 717,247,000 ** 30,406 ** 1,255 681 538 21,326 4.6

Sources: 1 State of California, Department of Finance2 Calculation based on the 2000 Census: Loma Linda's personal income is 1.3% of the total

County of San Bernardino's income; therefore, the City used the constant 1.3 percentage of the County's incometo determine the City's personal income amount.

* Per Bureau of Economic Analysis: Per capita personal income was computed using Census Bureau midyearpopulation estimates. Estimates for 2000-2011 reflect county population estimates available as of April 2012.

3 Per Capita personal income is calculated by dividing personal income by population4 Loma Linda Academy's registrar's office (except in 2011 the City used www.trulia.com)5 California Department of Education7 US Department of Labor, Bureau of Labor Statisitics

** As of FY 2015 Data provided by HdL Companies

Last Ten (10) Fiscal Years

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CITY OF LOMA LINDAPrincipal EmployersCurrent Fiscal Year

2015 2006 *Percentage Percentageof total City of total City

Employer Employees Rank Employment Employees Rank Employment

Loma Linda University Medical Center 8,075 1 45.31% 6,211 1 41.86%

Loma Linda University 3,290 2 18.46% 2,403 2 16.20%

Jerry L. Pettis VA Med. Ctr. 3,148 3 17.60% 1,484 3 10.00%

University Health Care 1,603 4 8.99% N/A N/A N/A

Total 16,116 90.36% 10,098 68.06%

Veterans Affairs Personnel Department Total number of jobs within City limits provided by Employment Development Department, Labor Market Information Division *Principal employer information available for FY 2006, as required by GASB-S44:33

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CITY OF LOMA LINDAFull-Time Equivalent City Government Employees by Function

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Function

General government 44 44.5 44 39 36 34 29 29.5 30.5 31.5

Public safety* Sheriff

Officers 11.9 13.3 14.5 14.5 14.48 13.48 12.77 12.77 12.77 12.77Civilians 3.2 4.4 4.5 4.5 4.74 4.24 5.03 5.03 5.03 5.03

FireFirefighters and officers 27 26 29 29 29 29 29 23 23 23Civilians 2 1 1 2 3 3.5 4 4 5 5

Highways and streetsMaintenance 3 3 5.5 6 6 6 4 4 4 4

LL Connected Communities 4.5 4.5 4.5 4.5 3.5 3.5 3.5 3.5 3.5 2.5

Sewer 2 2 2 2 2 2 2 2 2 2

Water 10 10 10 10 11 11 11 11 12 11

Total: 107.6 108.7 115 112 109.72 106.7 100.3 94.8 97.8 96.8

* Sheriff services are contracted through the County of San Bernardino Sheriff's Dept.

Source: City of Loma Linda Human Resources


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CITY OF LOMA LINDAOperating Indicators by Function

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Function

SheriffCalls for service 16,070 24,561 25,196 22,916 21,072 20,626 18,084 20,846 21,673 22,759Citations issued by Deputies 1,571 1,810 2,009 1,455 2,164 2,922 1,703 1,653 5,988 1,034Red light camera citations 0 9,490 6,501 5,720 3,243 1,084 0 0 0 0Physical arrests 414 727 755 560 557 722 1,078 790 730 669

FireTotal number of calls answered 2,788 2,977 3,075 3,185 3,090 3,309 3230 3213 3797 4005

% of calls for medical aid 72.8 72.1 65.8 67.3 73.8 63.7 64.7 63 65.3 63.8

Highways and streetsStreet resurfacing (miles) 8.81 1.36 4.97 3.55 4.5 7.88 3.85 5.1 1.95 1.15Potholes repaired 24 22 29 221 31 7 12 11 7 18

WaterNew connections 194 82 106 229 346 32 0 3 1 0Water main breaks 23 17 32 56 15 34 24 10 21 8Average daily consumption 14.77 14.46 14.35 14.21 11.78 12.96 13.54 13.73 13.75 13.00 (acre foot)

WastewaterAverage daily sewage treatment 3 6 5.5 5.5 4.1 3.9 4.0 4.1 4.0 4.0 (million gallons)

Note: Sheriff services are contracted through the County of San Bernardino Sheriff's Dept. Potholes repaired are reported in tons prior to 2009. Sewer treatment is contracted through the City of San Bernardino

Sources: City of Loma Linda Public Works and Fire Departments, and San Bernardino Sheriff's Department


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CITY OF LOMA LINDACapital Asset Statistics by Function

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Function

Public safety * Sheriff

Stations 1 1 1 1 1 1 1 1 1 1Patrol Units 5 7.5 9.5 9.5 10.5 10.5 10.5 10.5 11.77 11.77

Fire Stations 1 1 1 2 2 2 2 2 2 2Vehicles 13 15 12 15 15 15 15 17 16 15

Highways and streetsStreets (miles) 62.97 63 63 63 63 63.8 63.89 64.64 64.64 64.64Streetlights 1,359 1,429 1,458 1,458 1,458 1,456 1,470 1,470 1,472 1,483

Culture and recreationParks 12 12 13 13 13 13 13 13 13 13Park acreage 84.39 84.39 85.13 90.33 90.33 90.33 90.33 90.33 90.33 90.33Tennis courts 4 4 4 4 4 4 4 4 4 4Senior center 1 1 1 1 1 1 1 1 1 1

WaterWater mains (miles) 52.65 53.71 74.5 77 77 77 77 77 77 77Fire hydrants 894 892 892 892 892 956 957 964 997 917Maximum daily capacity 8,220 8,250 8,375 8,375 10,875 13,300 12,982 11,305 12,220 12,220 (gallons per minute)

SewerSanitary sewers (miles) 52.88 52.88 64.9 64.9 65.6 67.1 67.5 67.5 67.5 67.5Storm sewers (miles) 20.15 20.38 22.5 22.5 22.5 18.3 20.5 20.8 20.8 20.8

* Sheriff services are contracted through the County of San Bernardino Sheriff's Dept.

Sources: City of Loma Linda Public Works and Fire Departments, San Bernardino County Sheriff's Department


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Loma Linda University Expansion

N e w D e v e l o p m e n t

City of Loma Linda

Finance Department

25541 Barton Road

Loma Linda, CA 92354

B-1

APPENDIX B

DEFINITIONS AND SUMMARY OF THE INDENTURE

The following is a summary of certain provisions of the Indenture which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the Indenture for a full and complete statement of the provisions thereof.

DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS

Definitions. Unless the context otherwise requires, the terms defined in the Indenture will, for all purposes of the Indenture and of any indenture supplemental to the Indenture and of any certificate, opinion or other document mentioned in the Indenture, have the meanings specified in the Indenture, to be equally applicable to both the singular and plural forms of any of the terms defined in the Indenture.

Accountant’s Report. The term “Accountant’s Report” means a report signed by an Independent Certified Public Accountant.

Authorized Representative. The term “Authorized Representative” means, with respect to the City, its Mayor, Vice-Mayor, City Clerk, City Manager, Finance Director or any other person designated as an Authorized Representative of the City by a Certificate of the City signed by its Mayor, Vice-Mayor, City Clerk, City Manager or Finance Director and filed with the Trustee.

Bond Counsel. The term “Bond Counsel” means Stradling Yocca Carlson & Rauth, a Professional Corporation, or another firm of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code.

Bonds. The term “Bonds” means all revenue bonds or notes of the City authorized, executed, issued and delivered by the City, the payments of which are payable from Net Revenues on a parity with the 2016 Bonds and which are secured by a pledge of and lien on Revenues as described in the Indenture.

Bond Year. The term “Bond Year” means the period beginning on the date of issuance of the 2016 Bonds and ending on June 30, 2017, and each successive one year or, during the last period prior to maturity or the last period prior to redemption of all 2016 Bonds Outstanding at such time, shorter period thereafter, until there are no Outstanding 2016 Bonds.

Business Day. The term “Business Day” means: (i) a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed; or (ii) a day on which the New York Stock Exchange is not closed.

Certificate; Direction; Request; Requisition. The terms “Certificate,” “Direction,” “Request” and “Requisition” of the City mean a written certificate, direction, request or requisition signed in the name of the City by an Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined will be read and construed as a single instrument. If and to the extent required by the Indenture, each such instrument will include the statements provided for in the Indenture.

City. The term “City” means the City of Loma Linda, a municipal corporation and chartered city duly organized and existing under and by virtue of the Constitution and the laws of the State.

Closing Date. The term “Closing Date” means the date on which the 2016 Bonds are delivered to the original purchaser thereof.

Code. The term “Code” means the Internal Revenue Code of 1986, as amended.

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Continuing Disclosure Agreement. The term “Continuing Disclosure Agreement” means the Continuing Disclosure Agreement, by and between the City and U.S. Bank National Association, as dissemination agent, relating to the 2016 Bonds, dated the Closing Date, as originally executed or as it may be from time to time amended or supplemented in accordance with its terms.

Contracts. The term “Contracts” means all contracts of the City previously or later authorized and executed by the City, the payments under which are payable from Net Revenues on a parity with the 2016 Bonds and which are secured by a pledge and lien on Revenues as described in the Indenture; but excluding contracts entered into for operation and maintenance of the Water System.

Credit Facility. The term “Credit Facility” means a letter of credit, insurance policy, surety bond or other such funding instrument, issued by an entity the long-term unsecured obligations of which are rated (at the time of issuance) “AA” or better by S&P and deposited with the Trustee into the Reserve Fund pursuant to the Indenture.

Debt Service. The term “Debt Service” means, for any period of calculation, the sum of: (1) the interest payable during such period on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are redeemed or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111 5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); (2) those portions of the principal amount of all outstanding serial Bonds maturing in such period; (3) those portions of the principal amount of all outstanding term Bonds required to be redeemed or paid in such period; and (4) those portions of the Contracts on which payments are required to be made during such period, (except to the extent that the interest evidenced and represented thereby is capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111 5, 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); but less the earnings to be derived from the investment of moneys on deposit in the Reserve Fund or debt service reserve funds established for Bonds or Contracts; provided that, as to any such Bonds or Contracts bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service will, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Bonds or Contracts plus 1%; and (ii) the highest variable rate borne over the preceding 24 months by outstanding variable rate debt issued by the City or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; provided further, that if 25% or more of the aggregate principal amount of any series or issue of such Bonds or Contracts is due in any one year, Debt Service will be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of 25 years from the date of calculation; and provided further, that as to any such Bonds or Contracts or portions thereof bearing no interest but which are sold at a discount and which such discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount will be treated as interest in the calculation of Debt Service; and provided further, that if the Bonds or Contracts constitute Paired Obligations, the interest rate on such Bonds or Contracts will be the resulting linked rate or the effective fixed interest rate to be paid by the City with respect to such Paired Obligations, but only if the applicable Paired Obligations satisfy the requirements set forth in the Indenture; and provided further, that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service will be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established, and to the extent that the amount in such debt service reserve fund is in excess of such amount of principal, such excess will be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted.

Depository; DTC. The term “Depository” or “DTC” means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York, in its capacity as securities depository for the 2016 Bonds.

Event of Default. The term “Event of Default” means any of the events specified as such in the Indenture.

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Federal Securities. The term “Federal Securities” means any non-callable direct 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).

Fiscal Year. The term “Fiscal Year” means the twelve month period beginning on July 1 of each year and ending on the next succeeding June 30, both dates inclusive, or any other twelve month period later selected and designated as the official fiscal year period of the City.

Generally Accepted Accounting Principles. The term “Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Governmental Accounting Standards Board or its successor.

Indenture. The term “Indenture” means the Indenture of Trust, dated as of September 1, 2016, by and between the City and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture.

Independent Certified Public Accountant. The term “Independent Certified Public Accountant” means any firm of certified public accountants appointed by the City, each of whom is independent of the City pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants.

Independent Municipal Advisor. The term “Independent Municipal Advisor” means a financial consultant or firm of such consultants appointed by the City, which may, for purposes of the certification described in the definition of “Paired Obligations” be an interest rate swap adviser, and who, or each of whom: (i) is in fact independent and not under domination of the City; (ii) does not have any substantial interest, direct or indirect, with the City; and (iii) is not connected with the City as an officer or employee thereof, but who may be regularly retained to make reports thereto.

Information Services. The term “Information Services” means the Municipal Securities Rulemaking Board; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the City may specify in a certificate to the Trustee and as the Trustee may select.

Initial Rating Requirement. The term “Initial Rating Requirement” means the rating requirement described in clause (a) under the caption “MISCELLANEOUS—Paired Obligation Provider Guidelines.”

Interest Account. The term “Interest Account” means the account by that name in the Payment Fund established pursuant to the Indenture.

Interest Payment Date. The term “Interest Payment Date” means July 1, 2017 and each January 1 and July 1 thereafter.

Investment Agreement. The term “Investment Agreement” means an investment agreement by a provider, supported by appropriate opinions of counsel; provided that, without limiting the foregoing, any such Investment Agreement must: (i) be from a provider rated by S&P or Moody’s at “A-” or “A3”, respectively, or above; (ii) require the City to terminate such agreement and immediately reinvest the proceeds thereof in other Permitted Investments if the rating assigned to such provider by S&P or Moody’s falls to “BBB+” or “Baa1”, respectively, or below; and (iii) expressly permit the withdrawal, without penalty, of any amounts necessary at any time to fund any deficiencies on account of debt service requirements with respect to the 2016 Bonds, together with such amendments as may be approved by the City and the Trustee from time to time.

Letter of Representations. The term “Letter of Representations” means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the 2016 Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, as originally executed or as it may be supplemented or revised or replaced by a letter from the City delivered to and accepted by the Depository.

B-4

Minimum Rating Requirement. The term “Minimum Rating Requirement” means the rating requirement described in clause (b) under the caption “MISCELLANEOUS—Paired Obligation Provider Guidelines.”

Moody’s. The term “Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

Net Proceeds. The term “Net Proceeds” means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys’ fees) incurred in the collection of such proceeds.

Net Revenues. The term “Net Revenues” means, for any period, the Revenues for such period less the Operation and Maintenance Costs for such period. When held by the Trustee in any funds or accounts established under the Indenture, Net Revenues will include all interest or gain derived from the investment of amounts in any of such funds or accounts.

Nominee. The term “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture.

Office. The term “Office” means with respect to the Trustee, the principal corporate trust office of the Trustee at 633 West Fifth Street, 24th Floor, Los Angeles, CA 90071, Attention: Global Corporate Trust Services, Re: City of Loma Linda Series 2016, or such other or additional offices as may be specified in writing by the Trustee to the City, except that, with respect to the presentation of 2016 Bonds for payment or for registration of transfer and exchange, such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business is conducted.

Operation and Maintenance Costs. The term “Operation and Maintenance Costs” means the reasonable and necessary costs and expenses paid or incurred by the City to maintain and operate the Water System, determined in accordance with Generally Accepted Accounting Principles, including all reasonable expenses of management and repair and all other expenses necessary to maintain and preserve the Water System in good repair and working order, all administrative costs of the City that are charged directly or apportioned to the operation of the Water System, such as salaries and wages of employees, pension and other post-employment benefit obligations, overhead, taxes (if any) and insurance premiums (including payments required to be paid into any self-insurance funds), and including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the Indenture, any Supplemental Indenture or any Contracts or Bonds, such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of Independent Certified Public Accountants; but excluding in all cases: (i) payment of Debt Service on Contracts, Bonds and obligations payable from Revenues on a subordinate basis to Contracts and Bonds; (ii) costs of capital additions, replacements, betterments, extensions or improvements which under Generally Accepted Accounting Principles are chargeable to a capital account; and (iii) depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles.

Outstanding. The term “Outstanding,” when used as of any particular time with reference to 2016 Bonds, means (subject to the provisions of the Indenture) all 2016 Bonds theretofore or thereupon being authenticated and delivered by the Trustee under the Indenture except: (i) 2016 Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2016 Bonds with respect to which all liability of the City has been discharged in accordance with the Indenture, including 2016 Bonds (or portions thereof) described therein; and (iii) 2016 Bonds subject to transfer or exchange, or in lieu of or in substitution for which other 2016 Bonds have been authenticated and delivered by the Trustee pursuant to the Indenture.

Owner; 2016 Bond Owner. The term “Owner” or “2016 Bond Owner,” whenever used in the Indenture with respect to a 2016 Bond, means the person in whose name the ownership of such 2016 Bond is registered on the Registration Books.

Paired Obligation Provider. The term “Paired Obligation Provider” means a party to a Paired Obligation other than the City.

B-5

Paired Obligations. The term “Paired Obligations” means any Bond or Contract (or portion thereof) designated as Paired Obligations in the resolution, indenture or other document authorizing the issuance or execution and delivery thereof, which are simultaneously issued or executed and delivered: (i) the principal of which is of equal amount maturing and to be redeemed or prepaid (or cancelled after acquisition thereof) on the same dates and in the same amounts; and (ii) the interest rates which, taken together, are reasonably expected to result in a fixed interest rate obligation of the City for the term of such Bond or Contract, as certified by an Independent Municipal Advisor in writing, and which comply with the provisions of the Indenture.

Participants. The term “Participants” means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book entry certificates as securities depository.

Payment Fund. The term “Payment Fund” means the fund by that name established pursuant to the Indenture.

Permitted Investments. The term “Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein. The Trustee is entitled to rely upon the written investment direction of the City as a representation that such investment constitutes a legal investment under the laws of the State.

(a) for all purposes, including but not limited to defeasance investments in refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in part (2) below); and (2) Federal Securities; and

(b) for all purposes other than defeasance investments in refunding escrow accounts: (1) obligations of any of the following federal agencies that represent the full faith and credit of the United States of America, including the Export Import Bank, Farmers Home Administration, General Services Administration, U.S. Maritime Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development (PHAs) and Federal Housing Administration; (2) bonds, notes or other evidences of indebtedness rated at least “AA-” or “Aa3” by the applicable Rating Agency at the time of purchase issued by Fannie Mae or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (3) U.S. dollar denominated deposit accounts, certificates of deposit, federal funds and banker’s acceptances with domestic commercial banks (including the Trustee) which are either insured by the Federal Deposit Insurance Corporation or have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-1+” by S&P and “P-1” by Moody’s and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (4) commercial paper which is rated at the time of purchase in the single highest classification, “A-1+” by S&P and “P-1” by Moody’s and which matures not more than 270 days after the date of purchase; (5) investments in a money market fund rated “AAm”, “AAm-G”, “AAAm” or “AAAm-G” or better by S&P at the time of purchase, including such funds for which the Trustee or an affiliate acts as investment advisor or provides other services; (6) pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice and which are rated, based on the escrow, in the highest rating category of S&P and Moody’s at the time of purchase; (7) any Investment Agreement; (8) the California Investment Trust; and (9) the State of California Local Agency Investment Fund.

Principal Account. The term “Principal Account” means the account by that name in the Payment Fund established pursuant to the Indenture.

Rating. The term “Rating” means any currently effective rating on the 2016 Bonds issued by a Rating Agency.

Rating Agencies. The term “Rating Agencies” means S&P and any other nationally recognized statistical rating organization then rating the 2016 Bonds.

Rebate Fund. The term “Rebate Fund” means the fund by that name established pursuant to the Indenture.

B-6

Record Date. The term “Record Date” means, with respect to any Interest Payment Date, the 15th day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day.

Redemption Date. The term “Redemption Date” means the date fixed for an optional redemption prior to maturity of the 2016 Bonds.

Redemption Fund. The term “Redemption Fund” means the fund by that name established pursuant to the Indenture.

Redemption Price. The term “Redemption Price” means, with respect to any 2016 Bond (or portion thereof), the principal amount of such 2016 Bond (or portion) plus the interest accrued to the applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such 2016 Bond and the Indenture.

Registration Books. The term “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2016 Bonds pursuant to the Indenture.

Reserve Fund. The term “Reserve Fund” means the fund by that name established in accordance with the Indenture.

Reserve Requirement. The term “Reserve Requirement” means, as of the Closing Date, $377,162.50, and thereafter, as of the date of calculation, an amount equal to the least of: (i) “10% of the proceeds of the issue” of the 2016 Bonds within the meaning of Section 148 of the Code; (ii) the maximum amount of debt service on the 2016 Bonds payable in any one year; and (iii) 125% of the average amount of debt service on the 2016 Bonds payable in each year.

Responsible Officer of the Trustee. The term “Responsible Officer of the Trustee” means any officer within the corporate trust division (or any successor group or department of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time are such officers, respectively, with responsibility for the administration of the Indenture.

Revenue Fund. The term “Revenue Fund” means the Water Fund of the City, or such other enterprise fund of the City in which Revenues are deposited.

Revenues. The term “Revenues” means all gross income and revenue received or receivable by the City from the ownership or operation of the Water System, determined in accordance with Generally Accepted Accounting Principles, including all fees (including connection fees, facility capacity fees and standby charges), rates, charges, amounts paid under any contracts received by or owed to the City in connection with the operation of the Water System, proceeds of insurance relating to the Water System, investment income allocable to the Water System and other income and revenue howsoever derived by the City from the ownership or operation of the Water System or arising from the Water System, subject to and after satisfaction of any obligations payable on a senior basis to Bonds and Contracts, and investment earnings on amounts held in the Revenue Fund; but excluding in all cases: (i) customer deposits or any other deposits or advances that are subject to refund until such deposits or advances have become the property of the City; and (ii) any proceeds of taxes or assessments that are restricted by law to be used by the City to pay bonds or other obligations later issued.

S&P. The term “S&P” means S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, or any successor thereto.

Securities Depositories. The term “Securities Depositories” means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Request of the City deliver to the Trustee.

State. The term “State” means the State of California.

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Supplemental Indenture. The term “Supplemental Indenture” means any indenture later duly authorized and entered into between the City and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

Tax Certificate. The term “Tax Certificate” means the Tax Certificate dated the Closing Date concerning certain matters pertaining to the use and investment of proceeds of the 2016 Bonds, including any and all exhibits attached thereto.

Term Bonds. The term “Term Bonds” means the 2016 Bonds maturing on July 1, 2021, July 1, 2026, July 1, 2031, and July 1, 2036, and that portion of any other Bonds payable from mandatory sinking account payments.

Trustee. The term “Trustee” means Wells Fargo Bank, National Association, a national banking association duly organized and existing under the laws of the United States of America, or its successor as Trustee under the Indenture as provided in the Indenture.

2016 Bonds. The term “2016 Bonds” means the City of Loma Linda Water Revenue Refunding Bonds, Series 2016 issued by the City and at any time Outstanding pursuant to the Indenture.

Valuation Date. “Valuation Date” means the fifth Business Day preceding the date of redemption.

Value. The term “Value,” which will be determined as of the end of each month, means that the value of any investments will be calculated as follows: (a) for the purpose of determining the amount of any fund, all Permitted Investments credited to such fund will be valued at fair market value. The Trustee will determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Bank of America Merrill Lynch and Morgan Stanley Smith Barney. (b) As to certificates of deposit and bankers’ acceptances: the face amount thereof, plus accrued interest. (c) As to any investment not specified above: market value, or, if the market value is not ascertainable by the City or the Trustee, at cost.

Water Service. The term “Water Service” means the water distribution service made available or provided by the Water System.

Water System. The term “Water System” means the whole and each and every part of the water system of the City, including the portion thereof existing on the Closing Date, and including all additions, betterments, extensions and improvements to such water system or any part thereof later acquired or constructed; but not including the City’s wastewater system or recycled water system unless otherwise designated by the City Council of the City.

Written Consent of the City; Written Order of the City; Written Request of the City; Written Requisition of the City. The terms “Written Consent of the City,” “Written Order of the City,” “Written Request of the City” and “Written Requisition of the City” mean, respectively, a written consent, order, request or requisition signed by or on behalf of the City by an Authorized Representative or by any two persons (whether or not members of the City Council) who are specifically authorized by resolution of the City to sign or execute such a document on its behalf.

Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for therin, with respect to compliance with any provision of the Indenture must include: (1) a statement that the person making or giving such certificate or opinion has read such provision and the definitions in the Indenture relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such person he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with.

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Any such certificate or opinion made or given by an officer of the City may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant or Independent Municipal Advisor, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an Independent Certified Public Accountant or Independent Municipal Advisor may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the City) upon a certificate or opinion of or representation by an officer of the City, unless such counsel, Independent Certified Public Accountant or Independent Municipal Advisor knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person’s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the City, or the same counsel or Independent Certified Public Accountant or Independent Municipal Advisor, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants or Independent Municipal Advisors may certify to different matters, respectively.

THE 2016 BONDS

Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the 2016 Bonds, which will upon reasonable notice and at reasonable times be open to inspection during regular business hours by the City and the Owners; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register, transfer or cause to be registered or transferred, on such records, the ownership of the 2016 Bonds as provided in the Indenture.

The person in whose name any 2016 Bond is registered will be deemed the Owner thereof for all purposes of the Indenture, and payment of or on account of the interest on and principal and Redemption Price of by such 2016 Bonds will be made only to or upon the order in writing of such registered Owner, which payments will be valid and effectual to satisfy and discharge liability upon such 2016 Bond to the extent of the sum or sums so paid.

2016 Bonds Mutilated, Lost, Destroyed or Stolen. If any 2016 Bond becomes mutilated, the City, at the expense of the Owner of said 2016 Bond, will execute, and the Trustee will thereupon authenticate and deliver, a new 2016 Bond of like tenor, series and authorized denomination in exchange and substitution for the 2016 Bonds so mutilated, but only upon surrender to the Trustee of the 2016 Bond so mutilated. Every mutilated 2016 Bond so surrendered to the Trustee will be canceled by it and disposed of in a manner deemed appropriate by the Trustee. If any 2016 Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee is given, the City, at the expense of the Owner, will execute, and the Trustee will thereupon authenticate and deliver, a new 2016 Bond of like tenor, series and authorized denomination in lieu of and in substitution for the 2016 Bond so lost, destroyed or stolen (or if any such 2016 Bond has matured or is about to mature, instead of issuing a substitute 2016 Bond, the Trustee may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2016 Bond and of the expenses which may be incurred by the City and the Trustee with respect thereto. Any 2016 Bond issued under the provisions of the Indenture in lieu of any 2016 Bond alleged to be lost, destroyed or stolen will constitute an original additional contractual obligation on the part of the City, whether or not the 2016 Bond so alleged to be lost, destroyed, or stolen is at any time enforceable by anyone, and will be entitled to the benefits of the Indenture with all other 2016 Bonds secured by the Indenture. Notwithstanding any other provision of the Indenture, in lieu of delivering a new 2016 Bond for a 2016 Bond which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for redemption, the Trustee may make payment of such 2016 Bond upon receipt of indemnity satisfactory to the Trustee.

Book Entry System.

(a) Election of Book Entry System. Prior to the issuance of the 2016 Bonds, the City may provide that such 2016 Bonds will be initially issued as book entry bonds. If the City elects to deliver any 2016 Bonds in book entry form, the City will cause the delivery of a separate single fully registered bond (which may be

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typewritten) for each maturity date of such 2016 Bonds in an authorized denomination corresponding to the total principal amount of the 2016 Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2016 Bond will be registered in the 2016 Bond Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the 2016 Bonds, or any portion thereof may not thereafter be transferred except as provided in the Indenture.

With respect to book entry 2016 Bonds, the City and the Trustee have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book entry 2016 Bonds. Without limiting the immediately preceding sentence, the City and the Trustee have no responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book entry 2016 Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the 2016 Bond Registration Books, of any notice with respect to book entry 2016 Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book entry 2016 Bonds to be redeemed in the event that the City redeems the 2016 Bonds in part; or (iv) the payment by the Depository or any Participant or any other person, of any amount of principal of, premium, if any, or interest on book entry 2016 Bonds. The City and the Trustee may treat and consider the person in whose name each book entry 2016 Bond is registered in the 2016 Bond Registration Books as the absolute Owner of such book entry 2016 Bond for the purpose of payment of principal of, premium and interest on such 2016 Bond, for the purpose of giving notices of redemption and other matters with respect to such 2016 Bond, for the purpose of registering transfers with respect to such 2016 Bond, and for all other purposes whatsoever. The Trustee will pay all principal of, premium, if any, and interest on the 2016 Bonds only to or upon the order of the respective Owner, as shown in the 2016 Bond Registration Books, or such Owner’s respective attorney duly authorized in writing, and all such payments will be valid and effective to fully satisfy and discharge the City’s obligations with respect to payment of principal of, premium, if any, and interest on the 2016 Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the 2016 Bond Registration Books, may receive a 2016 Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the 2016 Bonds. Upon delivery by the Depository to the City and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions in the Indenture with respect to Record Dates, the word Nominee in the Indenture will refer to such nominee of the Depository.

(b) Delivery of Letter of Representations. In order to qualify the book entry 2016 Bonds for the Depository’s book entry system, the City and the Trustee (if required by the Depository) will execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations does not in any way impose upon the City or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2016 Bonds other than the Owners, as shown on the 2016 Bond Registration Books. By executing a Letter of Representations, the Trustee will agree to take all action necessary at all times so that the Trustee will be in compliance with all representations of the Trustee in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the City and the Trustee will take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2016 Bonds for the Depository’s book entry program.

(c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2016 Bonds; or (ii) the City determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2016 Bonds or the City, then the City will discontinue the book entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City will prepare or direct the preparation of a new single, separate, fully registered 2016 Bond for each of the maturity dates of such book entry 2016 Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in clause (e) below. If the City fails to identify another qualified securities depository to replace the Depository, then the 2016 Bonds will no longer be restricted to being registered in such 2016 Bond Registration Books in the name of the Nominee, but may be registered in whatever name or names the Owners transferring or exchanging such 2016 Bonds designate, in accordance with the provisions of the Indenture.

(d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2016 Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such 2016 Bonds and all notices with respect

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to such 2016 Bonds will be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions in the Indenture.

(e) Transfer of 2016 Bonds to Substitute Depository.

(i) The 2016 Bonds will be initially issued as provided in the Indenture. Registered ownership of such 2016 Bonds, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) below (“Substitute Depository”); provided that any successor of DTC or Substitute Depository is qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository is qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository.

(ii) In the case of any transfer pursuant to clauses (i)(A) or (i)(B) above, upon receipt of all Outstanding 2016 Bonds by the Trustee, together with a Written Request of the City to the Trustee designating the Substitute Depository, a single new 2016 Bond, which the City will prepare or cause to be prepared, will be issued for each maturity of 2016 Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such Written Request of the City. In the case of any transfer pursuant to clause (i)(C) abve, upon receipt of all Outstanding 2016 Bonds by the Trustee, together with a Written Request of the City to the Trustee, new 2016 Bonds, which the City will prepare or cause to be prepared, will be issued in such denominations and registered in the names of such persons as are requested in such Written Request of the City, subject to the limitations of the Indenture, provided that the Trustee is not required to deliver such new 2016 Bonds within a period of less than 60 days from the date of receipt of such Written Request from the City.

(iii) In the case of a partial redemption or an advance refunding of any 2016 Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) will make an appropriate notation on such 2016 Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee is not liable for such Depository’s failure to make such notations or errors in making such notations and the records of the Trustee as to the Outstanding principal amount of such 2016 Bonds will be controlling.

(iv) The City and the Trustee are entitled to treat the person in whose name any 2016 Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and the City and the Trustee have no responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2016 Bonds. Neither the City nor the Trustee have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), except to the Owner of any 2016 Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2016 Bonds.

ISSUANCE OF 2016 BONDS; APPLICATION OF PROCEEDS

Validity of 2016 Bonds. The validity of the authorization and issuance of the 2016 Bonds is not dependent on and will not be affected in any way by any proceedings taken by the City or the Trustee with respect to any other agreement. The recital contained in the 2016 Bonds that the same are issued pursuant to the Constitution and laws of the State is conclusive evidence of the validity and of compliance with the provisions of law in their issuance.

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REDEMPTION OF 2016 BONDS

Selection of 2016 Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2016 Bonds, the Trustee will select the 2016 Bonds for redemption as a whole or in part on any date as directed by the City and by lot within each maturity in integral multiples of $5,000 in accordance with the Indenture, and in the absence of such direction, in inverse order of maturity. The Trustee will promptly notify the City in writing of the numbers of the 2016 Bonds or portions thereof so selected for redemption.

Partial Redemption of 2016 Bonds. Upon surrender of any 2016 Bond redeemed in part only, the City will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the City, a new 2016 Bond or 2016 Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 2016 Bonds surrendered and of the same series, interest rate and maturity.

Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the date fixed for redemption on, the 2016 Bonds (or portions thereof) so called for redemption being held by the Trustee, on the Redemption Date designated in such notice, the 2016 Bonds (or portions thereof) so called for redemption will become due and payable, interest on the 2016 Bonds so called for redemption will cease to accrue, said 2016 Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2016 Bonds will have no rights in respect thereof except to receive payment of the Redemption Price thereof. The Trustee will, upon surrender for payment of any of the 2016 Bonds to be redeemed on their Redemption Dates, pay such 2016 Bonds at the Redemption Price. All 2016 Bonds redeemed pursuant to the foregoing provisions will be canceled upon surrender thereof.

REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST

Pledge and Assignment; Revenue Fund.

(a) All of the Revenues, all amounts held in the Revenue Fund described in clause (b) below, the Reserve Fund described in the Indenture and any other amounts (including proceeds of the sale of the 2016 Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund) have been irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2016 Bonds in accordance with their terms and the provisions of the Indenture, and the Revenues may not be used for any other purpose while the 2016 Bonds remain Outstanding; provided that out of the Revenues there may be apportioned such sums for such purposes as are expressly permitted in the Indenture. The foregoing pledge, together with the pledge created by all other Contracts and Bonds, constitutes a first lien on and security interest in Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted in the Indenture, the Revenue Fund and other funds and accounts created under the Indenture for the payment of the principal of and interest, and the premium, if any, on the 2016 Bonds and all Contracts and Debt Service on Bonds in accordance with the terms of the Indenture. Such pledge will attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act, and will be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice of the Indenture.

(b) In order to carry out and effectuate the pledge and lien contained in the Indenture, the City has agreed and covenanted that all Revenues will be received by the City in trust and deposited when and as received in the Revenue Fund, which fund the City has agreed and covenanted to maintain and to hold separate and apart from other funds so long as the 2016 Bonds and any Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fund will be used and applied by the City as provided in the Indenture. All moneys in the Revenue Fund will be held in trust and applied, used and withdrawn for the purposes set forth in the Indenture.

The City will, from the moneys in the Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund will be set aside by the City at the following times for the transfer to the following respective special funds in the following order of priority:

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(i) Interest and Principal Payments. Not later than the fifth Business Day prior to each Interest Payment Date, the City will, from the moneys in the Revenue Fund, transfer to the Trustee for deposit in the Payment Fund or the Redemption Fund the payments of interest and principal or mandatory sinking fund payments, as applicable, on the 2016 Bonds due and payable on such Interest Payment Date. The City will also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract.

(ii) Reserve Funds. On or before each Interest Payment Date, the City will, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the Trustee for deposit in the Reserve Fund and to the applicable trustee for such reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the Reserve Requirement with respect to the 2016 Bonds or the reserve requirement with respect to Bonds or Contracts; provided, however, that the City may provide for the Reserve Fund by means other than cash and Permitted Investments as described in the Indenture.

(iii) Surplus. Moneys on deposit in the Revenue Fund on any date when the City reasonably expects that such moneys will not be needed for the payment of Operation and Maintenance Costs or any of the purposes described in clauses (i) or (ii) above may be expended by the City at any time for any purpose permitted by law.

(iv) Investments. All moneys held by the City in the Revenue Fund may be invested in Permitted Investments, and the investment earnings thereon will remain on deposit in such fund, except as otherwise provided in the Indenture.

Allocation of Revenues. There has established with the Trustee the Payment Fund, which the Trustee has covenanted to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2016 Bonds remain unpaid. Except as directed in the Indenture, all payments of interest and principal on the 2016 Bonds received by the Trustee pursuant to the Indenture will be promptly deposited by the Trustee upon receipt thereof into the Payment Fund; except that all moneys received by the Trustee and required by the Indenture to be deposited in the Redemption Fund will be promptly deposited therein, including pursuant to mandatory sinking fund redemption. All payments of interest and principal on the 2016 Bonds deposited with the Trustee will be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee will establish and hold an Interest Account and a Principal Account within the Payment Fund.

The Trustee will transfer from the Payment Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

(a) Not later than the Business Day preceding each Interest Payment Date, the Trustee will deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2016 Bonds then Outstanding. No deposit needs to be made into the Interest Account if there is in such account an amount sufficient to pay the interest becoming due and payable on such date on all 2016 Bonds then Outstanding.

(b) Not later than the Business Day preceding each date on which the principal of the 2016 Bonds becomes due and payable under the Indenture, the Trustee will deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2016 Bonds coming due and payable on such date. No deposit needs to be made into the Principal Account if there is in such account moneys sufficient to pay the principal becoming due and payable on such date on all 2016 Bonds then Outstanding.

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Application of Interest Account. All amounts in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2016 Bonds as it becomes due and payable (including accrued interest on any 2016 Bonds purchased or accelerated prior to maturity pursuant to the Indenture).

Application of Principal Account. All amounts in the Principal Account will be used and withdrawn by the Trustee solely to pay the principal amount of the 2016 Bonds at maturity, purchase or acceleration; provided, however, that at any time prior to selection for redemption of any such 2016 Bonds, upon written direction of the City, the Trustee may apply such amounts to the purchase of 2016 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 directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2016 Bonds.

Application of Redemption Fund. There has been established with the Trustee a special fund designated as the “Redemption Fund.” All amounts in the Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of paying the Redemption Price of the 2016 Bonds to be redeemed on any Redemption Date pursuant to the Indenture; provided, however, that at any time prior to selection for redemption of any such 2016 Bonds, upon written direction of the City, the Trustee may apply such amounts to the purchase of 2016 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 directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2016 Bonds.

Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture will be invested by the Trustee solely in Permitted Investments. Such investments will be directed by the City pursuant to a Written Request of the City filed with the Trustee at least two Business Days in advance of the making of such investments (which directions will be promptly confirmed to the Trustee in writing). In the absence of any such directions from the City, the Trustee will invest any such moneys in Permitted Investments described in clause (b)(5) of the definition thereof; provided, however, that any such investment will be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee has received a written direction from the City specifying a specific money market fund and, if no such written direction from the City is so received, the Trustee will hold such moneys uninvested. Obligations purchased as an investment of moneys in any fund will be deemed to be part of such fund or account.

All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Indenture will be deposited in the Reserve Fund to the extent that the amount therein is less than the Reserve Requirement, and otherwise in the Interest Account unless otherwise provided in the Indenture. For purposes of acquiring any investments under the Indenture, the Trustee may commingle funds (other than the Rebate Fund) held by it upon the Written Request of the City. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee will not be responsible or liable for losses arising from any investments made pursuant to the Indenture.

The Trustee will furnish the City with periodic cash transaction statements which include detail for all investment transactions effected by the Trustee or brokers selected by the City. Upon the City’s election, such statements will be delivered via the Trustee’s online service and upon electing such service, paper statements will be provided only upon request. The City waives the right to receive brokerage confirmations of security transactions effected by the Trustee as they occur, to the extent permitted by law. The City further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker.

The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. The City will invest, or cause to be invested, all moneys in any fund or accounts established with the Trustee as provided in the Tax Certificate. For investment purposes, the Trustee may commingle the funds and accounts established under the Indenture, but will account for each separately. In making any valuations of investments under the Indenture, the Trustee may utilize and rely on computerized securities pricing services that may be available to the Trustee, including those available through the accounting system utilized by the Trustee.

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Rebate Fund.

(a) Establishment. The Trustee will establish a fund for the 2016 Bonds designated the “Rebate Fund” when required in accordance with the Indenture. Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2016 Bonds will not be adversely affected, the City will cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Indenture and the Tax Certificate. All money at any time deposited in the Rebate Fund will be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the 2016 Bonds will be governed by the Indenture and the Tax Certificate, unless and to the extent that the City delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2016 Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained in the Indenture or in the Tax Certificate, the Trustee: (i) will be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the City; (ii) has no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate; (iii) may rely conclusively on the City’s calculations and determinations and certifications relating to rebate matters; and (iv) has no responsibility to independently make any calculations or determinations or to review the City’s calculations or determinations thereunder.

(i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the City will calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3 of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the “1½% Penalty”) has been made), for such purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section 1.148-1(b) of the Treasury Regulations (the “Rebatable Arbitrage”). The City will obtain expert advice as to the amount of the Rebatable Arbitrage to comply with the foregoing provisions.

(ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the Written Request of the City, an amount will be deposited to the Rebate Fund by the Trustee from any Net Revenues legally available for such purpose (as specified by the City in the aforesaid Written Request), if and to the extent required so that the balance in the Rebate Fund equals the amount of Rebatable Arbitrage so calculated in accordance with clause (i) above. In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the City, the Trustee will withdraw the excess from the Rebate Fund and credit the excess to the Payment Fund.

(iii) Payment to the Treasury. The Trustee will pay, as directed by Written Request of the City, to the United States Treasury, out of amounts in the Rebate Fund: (A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all the 2016 Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations.

In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City will calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to the foregoing provisions will be made to the Internal Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due, and will be accompanied by Internal Revenue Service Form 8038-T (prepared by the City), or will be made in such other manner as provided under the Code.

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(b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2016 Bonds and the payments described in clause (a) above being made may be withdrawn by the City and utilized in any manner by the City.

(c) Survival of Defeasance. Notwithstanding anything in the Indenture to the contrary, the obligation to comply with the Rebate Fund requirements of the Indenture will survive the defeasance or payment in full of the 2016 Bonds.

Application of Funds and Accounts When No 2016 Bonds are Outstanding. On the date on which all 2016 Bonds are retired or provision made therefor pursuant to the Indenture, and after payment of all amounts due the Trustee under the Indenture, all moneys then on deposit in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to the Indenture will be withdrawn by the Trustee and paid to the City for use by the City at any time for any purpose permitted by law.

PARTICULAR COVENANTS

Punctual Payment. The City will punctually pay, or cause to be paid, the principal and interest to become due in respect of all of the 2016 Bonds, in strict conformity with the terms of the 2016 Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Net Revenues and other assets pledged for such payment as provided in the Indenture.

Extension of Payment of 2016 Bonds. The City will not directly or indirectly extend or assent to the extension of the maturity of any of the 2016 Bonds or the time of payment of any claims for interest by the purchase of such 2016 Bonds or by any other arrangement, and in case the maturity of any of the 2016 Bonds or the time of payment of any such claims for interest is extended, such 2016 Bonds or claims for interest will not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full for the principal of all of the 2016 Bonds then Outstanding and of all claims for interest thereon which have not been so extended. Nothing in the Indenture will be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding 2016 Bonds, and such issuance will not be deemed to constitute an extension of maturity of 2016 Bonds.

Against Encumbrances. The City will not make any pledge of, or place any lien on, Revenues or the moneys in the Revenue Fund except as provided in the Indenture. The City may at any time, or from time to time, execute Contracts or issue Bonds as permitted in the Indenture. The City may also at any time, or from time to time, incur evidences of indebtedness, or incur other obligations, for any lawful purpose which are payable from and secured by a pledge of lien on Revenues on any moneys in the Revenue Fund as may from time to time be deposited therein, provided that such pledge and lien is subordinate in all respects to the pledge of and lien thereon provided in the Indenture.

Power to Issue 2016 Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to law to issue the 2016 Bonds, to enter into the Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2016 Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Trustee will at all times, subject to the provisions of the Indenture and to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the 2016 Bond Owners under the Indenture against all claims and demands of all persons whomsoever.

Accounting Records and Financial Statements.

(a) The Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries are made of all transactions made by it relating to the proceeds of 2016 Bonds and all funds and accounts established by it pursuant to the Indenture. Such books of record and account will be available for inspection by the City upon reasonable prior notice during business hours and under reasonable circumstances.

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(b) The City will keep appropriate accounting records in which complete and correct entries are made of all transactions relating to the Water System, which records will be available for inspection by the Trustee (which has no duty to inspect such records) at reasonable hours and under reasonable conditions.

(c) The City will prepare and file with the Trustee within 270 days of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2016), financial statements of the City for the preceding Fiscal Year prepared in accordance with Generally Accepted Accounting Principles, together with an Accountant’s Report thereon. The Trustee has no duty to review such financial statements.

Tax Covenants. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2016 Bonds will not be adversely affected for federal income tax purposes, the City has covenanted to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2016 Bonds, and has specifically covenanted, without limiting the generality of the foregoing, as follows:

(a) Private Activity. The City will take no action or refrain from taking any action or make any use of the proceeds of the 2016 Bonds or of any other moneys or property which would cause the 2016 Bonds to be “private activity bonds” within the meaning of Section 141 of the Code;

(b) Arbitrage. The City will make no use of the proceeds of the 2016 Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2016 Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code;

(c) Federal Guarantee. The City will make no use of the proceeds of the 2016 Bonds or take or omit to take any action that would cause the 2016 Bonds to be “federally guaranteed” within the meaning of Section 149(b) of the Code;

(d) Information Reporting. The City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the 2016 Bonds pursuant to Section 103(a) of the Code;

(e) Hedge Bonds. The City will make no use of the proceeds of the 2016 Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the 2016 Bonds to be considered “hedge bonds” within the meaning of Section 149(g) of the Code unless the City takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2016 Bonds for federal income tax purposes; and

(f) Miscellaneous. The City will take no action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the City in connection with the issuance of the 2016 Bonds and will comply with the covenants and requirements stated therein and incorporated by reference in the Indenture.

The foregoing covenants are not applicable to, and nothing contained in the Indenture will be deemed to prevent the City from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the 2016 Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation.

Waiver of Laws. The City will not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time later in force that may affect the covenants and agreements contained in the Indenture or in the 2016 Bonds, and all benefit or advantage of any such law or laws is expressly waived by the City to the extent permitted by law.

Further Assurances. The City will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the 2016 Bonds of the rights and benefits provided in the Indenture.

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Budgets. On or prior to the fifteenth day of each Fiscal Year, the City will certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the 2016 Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of the principal of and interest on the 2016 Bonds due under the Indenture, the City will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the City in the then ensuing Fiscal Year for the payment of the principal of and interest on the 2016 Bonds due under the Indenture and will notify the Trustee of the proceedings then taken or proposed to be taken by the City.

Observance of Laws and Regulations. To the extent necessary to assure its performance under the Indenture, the City will well and truly keep, observe and perform all valid and lawful obligations or regulations now or later imposed on the City by contract, or prescribed by any law of the United States of America, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or later acquired by the City, respectively, including its right to exist and carry on its business, to the end that such contracts, rights and franchises will be maintained and preserved, and will not become abandoned, forfeited or in any manner impaired.

Compliance with Contracts. The City will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the City to pay principal of or interest on the 2016 Bonds; and the City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Water System, to the extent that the City is a party thereto.

Prosecution and Defense of Suits. The City will promptly, upon request of the Trustee or any 2016 Bond Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Water System or any part thereof, whether now existing or later developing, prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and indemnify and save the Trustee (including all of its employees, officers and directors) and every 2016 Bond Owner harmless from all loss, cost, damage and expense, including attorneys’ fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding.

The City will defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or any 2016 Bond Owner upon any claim arising out of the receipt, application or disbursement of any of the payments of principal of or interest on the 2016 Bonds or involving the rights of the Trustee or any 2016 Bond Owner under the Indenture; provided that the Trustee or any 2016 Bond Owner at such party’s election may appear in and defend any such suit, action or proceeding. The City will indemnify, protect and hold harmless the Trustee and the 2016 Bond Owners against any and all losses, damages and liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and will indemnify and hold harmless the 2016 Bond Owners against any attorneys’ fees or other expenses which any of them may incur in connection with any litigation (including pre-litigation activities) to which any of them may become a party by reason of ownership of 2016 Bonds. The City will promptly reimburse any 2016 Bond Owner in the full amount of any attorneys’ fees or other expenses which such Owner may incur in litigation or otherwise in order to enforce such party’s rights under the Indenture or the 2016 Bonds, provided that such litigation is concluded favorably to such party’s contentions therein. The foregoing indemnification obligations of the City will survive the termination of the Indenture and the resignation or removal of the Trustee.

Continuing Disclosure. The City has covenanted and agreed that it will comply with and carry out all of its obligations under the Continuing Disclosure Agreement to be executed and delivered by the City in connection with the issuance of the 2016 Bonds. Notwithstanding any other provision of the Indenture, failure of the City to comply with the Continuing Disclosure Agreement will not be considered an Event of Default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with the foregoing obligations. For purposes of the Indenture, “Beneficial Owner” means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2016 Bonds (including persons holding 2016 Bonds through nominees, depositories or other intermediaries).

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Against Sale or Other Disposition of Property. The City will not enter into any agreement or lease which impairs the operation of the Water System or any part thereof necessary to secure adequate Revenues for the payment of the principal of and interest on the 2016 Bonds, or which would otherwise impair the operation of the Water System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Water System, or any material or equipment which has become worn out, may be sold so long as such sale will not impair the ability of the City to pay the principal of and interest on the 2016 Bonds and if the proceeds of such sale are deposited in the Revenue Fund.

Nothing in the Indenture restricts the ability of the City to sell any portion of the Water System so long as such portion is immediately repurchased by the City, and so long as such arrangement cannot by its terms result in the purchaser of such portion of the Water System exercising any remedy which would deprive the City of, or otherwise interfere with, its right to own and operate such portion of the Water System.

Against Competitive Facilities. To the extent that it can so legally obligate itself, the City has covenanted that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the Water Service area any water system competitive with the Water System.

Maintenance and Operation of the Water System. The City will maintain and preserve the Water System in good repair and working order at all times, operate the Water System in an efficient and economical manner and pay all Operation and Maintenance Costs as they become due and payable.

Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the funds or accounts created under the Indenture or on any funds in the hands of the City pledged to pay the principal of or interest on the 2016 Bonds or to the Owners prior or superior to the lien under the Indenture.

Payment of Taxes and Compliance with Governmental Regulations. The City will pay and discharge all taxes, assessments and other governmental charges which may be lawfully imposed upon the Water System or any part thereof or upon the Revenues when the same become due. The City will duly observe all valid regulations and requirements of any governmental authority relative to the operation of the Water System, or any part thereof, but the City is not required to comply with any regulations or requirements so long as the validity or application thereof is contested in good faith.

Collection of Rates and Charges. The City will have in effect at all times by laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Water Service and providing for the billing thereof and for a due date and a delinquency date for each bill.

Enforcement of Contracts. The City will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with, any contracts previously or later entered into if such rescission or amendment would in any manner impair or adversely affect the ability of the City to pay principal of and interest on the 2016 Bonds.

EVENTS OF DEFAULT AND REMEDIES OF 2016 BOND OWNERS

Events of Default. The following events are Events of Default under the Indenture:

(a) Default by the City in the due and punctual payment of the principal of any 2016 Bonds, the principal of any Bonds or the principal with respect to any Contract, when and as the same become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration or otherwise.

(b) Default by the City in the due and punctual payment of any installment of interest on any 2016 Bonds, any installment of interest on any Bond or any installment of interest with respect to any Contract, when and as the same become due and payable.

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(c) Default by the City in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2016 Bonds, or required by any Bond or indenture relating thereto or by any Contract, if such default continues for a period of 60 days after written notice thereof, specifying such default and requiring the same to be remedied, has been given to the City by the Trustee or by the Owners of not less than a majority in aggregate principal amount of 2016 Bonds Outstanding, a majority in principal amount of such Bonds outstanding, or a majority in principal amount outstanding with respect to such Contract, as applicable; provided, however, that if in the reasonable opinion of the City the default stated in the notice can be corrected, but not within such 60 day period, and corrective action is instituted by the City within such 60 day period and diligently pursued in good faith until the default is corrected, such default will not be an Event of Default.

(d) The City files a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction approves a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction assumes custody or control of the City or of the whole or any substantial part of its property.

(e) Payment of the principal of any Bond or with respect to any Contract is accelerated in accordance with its terms.

Remedies Upon Event of Default. If any Event of Default specified in the Indenture occurs and is continuing, the Trustee may, upon being indemnified to its reasonable satisfaction therefor, upon notice in writing to the City, declare the principal of all of the 2016 Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same will become and be immediately due and payable, anything in the Indenture or in the 2016 Bonds contained to the contrary notwithstanding.

Nothing contained in the Indenture permits or requires the Trustee to accelerate payments due under the Indenture if the City is not in default of its obligation thereunder.

Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due has been obtained or entered, the City deposits with the Trustee a sum sufficient to pay all of the principal of and installments of interest on the 2016 Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2016 Bonds to the extent permitted by law, and the reasonable charges and expenses of the Trustee, or deposits with the applicable trustee with respect to any Contract a sum sufficient to pay all of the principal and installments of interest with respect to such Contract payment of which is overdue, with interest on such overdue principal at the rate borne by such Contract to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Contract, or deposits with the applicable trustee with respect to any Bond a sum sufficient to pay all of the principal of and installments of interest on such Bond payment of which is overdue, with interest on such overdue principal at the rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Bonds, and any and all other Events of Default known to the Trustee or the applicable trustee with respect to such Contract or Bonds (other than in the payment of principal of and interest on the 2016 Bonds, payment of principal and interest with respect to such Contract or payment of principal and interest on such Bond, as applicable, due and payable solely by reason of such declaration) has been made good or cured to the satisfaction of the Trustee, or provision deemed by the Trustee to be adequate has been made therefor, then, and in every such case the Trustee will, on behalf of the Owners of all of the 2016 Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment will extend to or affect any subsequent Event of Default, or impair or exhaust any right or power consequent thereon.

Application of Revenues and Other Funds After Default. If an Event of Default occurs and is continuing, all Revenues held or thereafter received by the Trustee and all amounts in any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund) will be applied in the following order:

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(a) To the payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture and any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the 2016 Bonds, Contract or Bonds;

(b) To the payment of Operation and Maintenance Costs; and

(c) To the payment of the principal of and interest then due on the 2016 Bonds (upon presentation of the 2016 Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid), in accordance with the provisions of the Indenture, the payment of the principal and interest then due with respect to such Contract in accordance with the provisions thereof and the payment of the principal of and interest then due on such Bonds in accordance with the provisions thereof and of any indenture related thereto, in the following order of priority:

First: To the payment to the persons entitled thereto of all installments of interest then due on the 2016 Bonds, with respect to such Contract or on such Bonds, as applicable, in the order of the maturity of such installments, and, if the amount available 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 2016 Bonds, principal with respect to such Contract or principal of any Bonds, as applicable, which have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate of 8% per annum, and, if the amount available is not sufficient to pay in full all the 2016 Bonds, all amounts due under such Contract or all of the Bonds, as applicable, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; and

Third: If there is any remainder after the foregoing payments, such remainder will be paid to the City.

Trustee to Represent 2016 Bond Owners. The Trustee has been irrevocably appointed (and the successive respective Owners of the 2016 Bonds, by taking and holding the same, will be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney in fact of the Owners of the 2016 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 2016 Bonds or the Indenture and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2016 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 2016 Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, will 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, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power granted in the Indenture, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in such Owners under the 2016 Bonds or the Indenture or any law; and upon instituting such proceeding, the Trustee will be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the 2016 Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2016 Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee will be brought in the name of the Trustee for the benefit and protection of all of the Owners of such 2016 Bonds, subject to the provisions of the Indenture.

2016 Bond Owners’ Direction of Proceedings. The Owners of a majority in aggregate principal amount of the 2016 Bonds then Outstanding have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction to direct the method of conduct in all remedial proceedings taken by the Trustee under the Indenture, provided that such direction must be in accordance with law and the provisions of the Indenture, and that the Trustee has the right to decline to follow

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any such direction which in the opinion of the Trustee would be unjustly prejudicial to 2016 Bond Owners not parties to such direction.

Suit by Owners. No Owner of any 2016 Bonds has the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture with respect to such 2016 Bonds, unless: (a) such Owners have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than 50% in aggregate principal amount of the 2016 Bonds then Outstanding have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee has failed to comply with such request for a period of 60 days after such written request has been received by, and said tender of indemnity has been made to, the Trustee; and (e) 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 2016 Bonds then Outstanding.

Such notification, request, tender of indemnity and refusal or omission are, in every case, conditions precedent to the exercise by any Owner of 2016 Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of 2016 Bonds have any right in any manner whatever by their actions to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of 2016 Bonds, or to enforce any right under the 2016 Bonds, the Indenture, or applicable law with respect to the 2016 Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right will be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding 2016 Bonds, subject to the provisions of the Indenture.

Absolute Obligation of the City. Nothing in the Indenture or in the 2016 Bonds affects or impairs the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the 2016 Bonds to the respective Owners of the 2016 Bonds at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only out of the Revenues and other assets pledged therefor in the Indenture, or affects or impairs the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the 2016 Bonds.

Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Owners of the 2016 Bonds in the Indenture is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, will be cumulative and in addition to any other remedy given under the Indenture or now or later existing at law or in equity or otherwise.

No Waiver of Default. No delay or omission of the Trustee or of any Owner of the 2016 Bonds to exercise any right or power arising upon the occurrence of any Event of Default will impair any such right or power or be construed to be a waiver of any such Event of Default or an acquiescence therein.

THE TRUSTEE

Duties, Immunities and Liabilities of Trustee.

(a) The Trustee will, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture, and no implied covenants or duties will be read into the Indenture against the Trustee. The Trustee will, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

(b) The City may remove the Trustee at any time, unless an Event of Default has occurred and is then continuing, and will remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2016 Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee ceases to be eligible in

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accordance with the Indenture or becomes incapable of acting, or is adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property is appointed, or any public officer takes control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee. The City will thereafter promptly appoint a successor Trustee by an instrument in writing.

(c) The Trustee may at any time resign by providing a 45-day written notice of such resignation to the City and by giving the 2016 Bond Owners notice of such resignation by first class mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the City will promptly appoint a successor Trustee by an instrument in writing.

(d) Any removal or resignation of the Trustee and appointment of a successor Trustee will become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee has been appointed and accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any 2016 Bond Owner (on behalf of such Owner and all other 2016 Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture will signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, will become vested with all of the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the Written Request of the City or the request of the successor Trustee, such predecessor Trustee will execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all of the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and will pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon request of the successor Trustee, the City will execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in the Indenture, the City will mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts under the Indenture to each rating agency which is then rating the 2016 Bonds and to the 2016 Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee will cause such notice to be mailed at the expense of the City. The Trustee’s rights to indemnity and reimbursement of outstanding fees and expenses will survive the Trustee’s resignation or removal.

(e) Any Trustee appointed under the provisions of the Indenture in succession to the Trustee must be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least $75,000,000, and subject to supervision or examination for federal or state authority. If such bank, banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of the Indenture the combined capital and surplus of such trust company, banking association or bank will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee ceases to be eligible in accordance with the provisions of the Indenture, the Trustee will resign immediately in the manner and with the effect specified in the Indenture.

Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated, or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it is a party, or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such trust company, banking association or bank is eligible under the Indenture, will be the successor to such Trustee, without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding.

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Liability of Trustee.

(a) The recitals of facts in the Indenture and in the 2016 Bonds will be taken as statements of the City, and the Trustee does not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or the 2016 Bonds, nor will the Trustee incur any responsibility in respect thereof, other than as expressly stated in the Indenture in connection with the respective duties or obligations therein or in the 2016 Bonds assigned to or imposed upon it. The Trustee is, however, responsible for its representations contained in its certificate of authentication on the 2016 Bonds. The Trustee will not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2016 Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of 2016 Bond Owners, whether or not such committee represents the Owners of a majority in principal amount of the 2016 Bonds then Outstanding.

(b) The Trustee is not liable for any error of judgment made in good faith by a responsible officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.

(c) The Trustee is not liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for in the Indenture) in aggregate principal amount of the 2016 Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture.

(d) The Trustee is not liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture.

(e) The Trustee will not be deemed to have knowledge of any default or Event of Default under the Indenture or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default under the Indenture unless and until a Responsible Officer of the Trustee has actual knowledge of such event or the Trustee has been notified in writing, in accordance with the Indenture, of such event by the City or the Owners of not less than 50% of the 2016 Bonds then Outstanding. In the absence of such notice, the Trustee may conclusively assume that no Event of Default exists. Except as otherwise expressly provided in the Indenture, the Trustee is not bound to ascertain or inquire as to the performance or observance by the City of any of the terms, conditions, covenants or agreements of the Indenture, any of the documents executed in connection with the 2016 Bonds or the existence of an Event of Default thereunder or an event which would, with the giving of notice, the passage of time, or both, constitute an Event of Default thereunder. The Trustee is not responsible for the validity, effectiveness or priority of any collateral given to or held by it.

(f) No provision of the Indenture requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties thereunder, or in the exercise of any of its rights or powers.

(g) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Owners pursuant to the Indenture, unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee under the Indenture will be construed to impose a duty to exercise such power, right or remedy.

(h) Whether or not expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to all provisions of the Indenture.

(i) The Trustee has no responsibility or liability with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2016 Bonds.

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(j) The immunities extended to the Trustee also extend to its directors, officers, employees and agents.

(k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and is not answerable for the negligence or willful misconduct of any attorney, agent or receiver if appointed by it with reasonable care.

(l) The Trustee will not be considered in breach of or in default in its obligations under the Indenture or progress in respect thereto in the event of delay in the performance of such obligations due to unforeseeable causes beyond its control and without its willful misconduct or negligence, including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Water System, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee.

(m) The Trustee has agreed to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured electronic mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee must have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate will be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions will be deemed controlling. The Trustee is not liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding the fact that such instructions conflict or are inconsistent with a subsequent written instruction. The City has agreed to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties.

(n) The Trustee is not responsible for the application of the 2016 Bond proceeds, for the use or application of any property or for any moneys which are released or withdrawn in accordance with the provisions of the Indenture.

(o) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Owners pursuant to the provisions of the Indenture unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby.

(p) The permissive right of the Trustee to do things enumerated in the Indenture will not be construed as a duty, and the Trustee is not answerable for other than its negligence or willful misconduct.

(q) Under no circumstances will the Trustee be liable in its individual capacity (as opposed to its capacity as Trustee under the Indenture) for the obligations evidenced by the 2016 Bonds.

Right to Rely on Documents. The Trustee will be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the City, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture in good faith and in accordance therewith.

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The Trustee may treat the Owners of the 2016 Bonds appearing in the Trustee’s Registration Books as the absolute owners of the 2016 Bonds for all purposes and the Trustee will not be affected by any notice to the contrary.

Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee deems it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof is specifically prescribed in the Indenture) may be deemed to be conclusively proved and established by a Certificate, Request or Requisition of the City, and such Certificate, Request or Requisition will be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable.

Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture will be retained in the Trustee’s possession and will be subject at all reasonable times to the inspection of the City and any 2016 Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions.

Compensation and Indemnification. The City will pay to the Trustee from time to time all reasonable compensation for all services and will reimburse the Trustee for all advances and expenditures, including but not limited to advances, fees and all reasonable expenses, charges, legal and consulting fees and other disbursements and those of the Trustee’s attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture.

The City will indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or willful misconduct on its part, arising out of or in connection with the execution of the Indenture, acceptance or administration of the trust therein, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers thereunder. The rights of the Trustee and the obligations of the City under the foregoing provisions will survive removal or resignation of the Trustee or the discharge of the 2016 Bonds and the Indenture.

MODIFICATION OR AMENDMENT OF THE INDENTURE

Amendments Permitted.

(a) The Indenture and the rights and obligations of the City, the Owners of the 2016 Bonds and the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the City and the Trustee may enter into when the prior written consent of the Owners of a majority in aggregate principal amount of all 2016 Bonds then Outstanding, exclusive of 2016 Bonds disqualified as provided in the Indenture, have been filed with the Trustee. No such modification or amendment may: (1) extend the fixed maturity of any 2016 Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, extend the time of payment of interest thereon or adversely affect the rights and interest of the Owner of each 2016 Bond so affected; or (2) reduce the aforesaid percentage of 2016 Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the 2016 Bonds of the lien created by the Indenture on such Revenues and other assets except as permitted in the Indenture, without the consent of the Owners of all of the 2016 Bonds then Outstanding. It is not necessary for the consent of the 2016 Bond Owners to approve the particular form of any Supplemental Indenture, but it is sufficient if such consent approves the substance thereof. Promptly after the execution by the City and the Trustee of any Supplemental Indenture pursuant to the foregoing provisions, the Trustee will mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency and the Owners of the 2016 Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such Supplemental Indenture.

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(b) The Indenture and the rights and obligations of the City, the Trustee and the Owners of the 2016 Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into without the consent of any 2016 Bond Owners, if the Trustee receives an opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture do not materially adversely affect the interests of the Owners of the Outstanding 2016 Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the City contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2016 Bonds (or any portion thereof), or to surrender any right or power reserved to or conferred upon the City in the Indenture; (2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable; (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and (4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2016 Bonds to remain excludable from gross income under the Code.

(c) The Trustee may in its discretion, but is not obligated to, enter into any such Supplemental Indenture authorized by the Indenture which materially adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise.

(d) Prior to the Trustee entering into any Supplemental Indenture, there will be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the 2016 Bonds from federal income taxation and from state income taxation.

Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to the Indenture, the Indenture will be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Indenture of the City, the Trustee and all Owners of 2016 Bonds Outstanding will thereafter be determined, exercised and enforced thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture will be deemed to be part of the terms and conditions of the Indenture for any and all purposes.

Endorsement of 2016 Bonds; Preparation of New 2016 Bonds. 2016 Bonds delivered after the execution of any Supplemental Indenture pursuant to the Indenture may, and if the Trustee so determines will, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2016 Bonds Outstanding at the time of such execution and presentation of his or her 2016 Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation is made on such 2016 Bonds. If the Supplemental Indenture so provides, new 2016 Bonds so modified as to conform, in the opinion of the City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, will be prepared and executed by the City and authenticated by the Trustee, and upon demand on the Owners of any 2016 Bonds then Outstanding will be exchanged at the Office of the Trustee, without cost to any 2016 Bond Owner, for 2016 Bonds then Outstanding, upon surrender for cancellation of such 2016 Bonds, in equal aggregate principal amount of the same maturity.

Amendment of Particular 2016 Bonds. The provisions of the Indenture do not prevent any 2016 Bond Owner from accepting any amendment as to the particular 2016 Bonds held by such Owner.

DEFEASANCE

Discharge of Indenture. The 2016 Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable under the Indenture by the City: (a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 2016 Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, or with an escrow agent, at or before maturity,

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money or securities in the necessary amount (as provided in the Indenture) to pay or redeem all 2016 Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the 2016 Bonds then Outstanding.

If the City also pays or causes to be paid all other sums payable under the Indenture by the City, then and in that case, at the election of the City (as evidenced by a Certificate of the City, filed with the Trustee, signifying the intention of the City to discharge all such indebtedness and the Indenture), and notwithstanding the fact that any 2016 Bonds have not been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the City under the Indenture will cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the City, the Trustee will execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee will pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment or redemption of 2016 Bonds not theretofore surrendered for such payment or redemption to the City.

Discharge of Liability on 2016 Bonds. Upon the deposit with the Trustee, or with an escrow agent, at or before maturity, of money or securities in the necessary amount (as provided in the Indenture) to pay or redeem any Outstanding 2016 Bonds (whether upon or prior to the maturity or the Redemption Date of such 2016 Bonds), provided that, if such Outstanding 2016 Bonds are to be redeemed prior to maturity, notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee have been made for the giving of such notice, then all liability of the City in respect of such 2016 Bonds will cease, terminate and be completely discharged, and the Owners thereof will thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject however, to the provisions of the Indenture.

The City may at any time surrender to the Trustee for cancellation by it any 2016 Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such 2016 Bonds, upon such surrender and cancellation, will be deemed to be paid and retired.

Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any 2016 Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and will be:

(a) lawful money of the United States of America in an amount equal to the principal amount of such 2016 Bonds and all unpaid interest thereon to maturity, except that, in the case of 2016 Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption has been given as provided in the Indentureor provisions satisfactory to the Trustee have been made for the giving of such notice, the amount to be deposited or held will be the principal amount of such 2016 Bonds and all unpaid interest and premium, if any, thereon to the Redemption Date; or

(b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant or Independent Municipal Advisor filed with the City and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the Redemption Date (with premium, if any), as the case may be, on the 2016 Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 2016 Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee have been made for the giving of such notice;

provided, in each case, that: (i) the Trustee will be irrevocably instructed (by the terms of the Indenture or by Written Request of the City) to apply such money to the payment of such principal, interest and premium, if any, with respect to such 2016 Bonds; and (ii) the City will delivered to the Trustee an opinion of Bond Counsel addressed to the City and the Trustee to the effect that such 2016 Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant’s or Independent Municipal Advisor’s opinion referred to above).

Payment of 2016 Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2016 Bonds and

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remaining unclaimed for two years after the principal of all of the 2016 Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the 2016 Bonds became due and payable, will be repaid to the City free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the City and the Trustee indemnifying the Trustee with respect to claims of Owners of 2016 Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys will thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Trustee will at the written direction of the City (at the cost of the City) first mail to the Owners of 2016 Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2016 Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof.

MISCELLANEOUS

Liability of City Limited to Revenues. Notwithstanding anything in the Indenture or the 2016 Bonds, but subject to the priority of payment with respect to Operation and Maintenance Costs, the City is not required to advance any moneys derived from any source other than the Revenues, the Revenue Fund and other moneys pledged under the Indenture for any of the purposes of the Indenture, whether for the payment of the principal of or interest on the 2016 Bonds or for any other purpose of the Indenture. Nevertheless, the City may, but is not required to, advance for any of the purposes of the Indenture any funds of the City which may be made available to it for such purposes.

The obligation of the City to pay interest and principal on the 2016 Bonds is a special obligation of the City payable solely from the Net Revenues, and does not constitute a debt of the City or of the State of California or of any political subdivision thereof (other than the City) in contravention of any constitutional or statutory debt limitation or restriction.

Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the City or the Trustee is named or referred to, such reference will be deemed to include the successors or assigns thereof, and all of the covenants and agreements in the Indenture contained by or on behalf of the City or the Trustee will bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not.

Limitation of Rights to Parties and 2016 Bond Owners. Nothing in the Indenture or in the 2016 Bonds expressed or implied is intended or will be construed to give to any person other than the City, the Trustee and the Owners of the 2016 Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein contained; and all such covenants, conditions and provisions are and will be held to be for the sole and exclusive benefit of the City, the Trustee and the Owners of the 2016 Bonds.

Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice, and in any such case the giving or receipt of such notice is not a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice is required to be given by mail, such requirement may be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail.

Destruction of 2016 Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee, the Trustee will cancel and dispose of such 2016 Bonds in a manner deemed appropriate by the Trustee.

Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2016 Bonds are for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions will be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability will not affect any other provision of the Indenture, and the Indenture will be construed as if such invalid or illegal or unenforceable provision had never been contained in the Indenture. The City has declared that it would have entered into the Indenture and each and every other Section, paragraph, sentence, clause or phrase thereof and authorized the issuance of the 2016 Bonds pursuant thereto irrespective of the fact that any one

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or more Sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable.

Evidence of Rights of 2016 Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2016 Bond Owners may be in any number of concurrent instruments of substantially similar tenor and will be signed or executed by such 2016 Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any person of 2016 Bonds transferable by delivery, will be sufficient for any purpose of the Indenture and will be conclusive in favor of the Trustee and the City if made in the manner provided in the Indenture.

The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to such notary public or other officer the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The Ownership of 2016 Bonds will be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any 2016 Bond will bind every future Owner of the same 2016 Bond and the Owner of every 2016 Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the City in accordance therewith or reliance thereon.

Disqualified 2016 Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2016 Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2016 Bonds which are known by the Trustee to be owned or held by or for the account of the City, or by any other obligor on the 2016 Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2016 Bonds, will be disregarded and deemed not to be Outstanding for the purpose of any such determination. 2016 Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of the Indenture if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right to vote such 2016 Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2016 Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel will be full protection to the Trustee. Upon request, the City will certify to the Trustee those 2016 Bonds that are disqualified pursuant to the Indenture and the Trustee may conclusively rely on such certificate.

Money Held for Particular 2016 Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2016 Bonds (or portions of 2016 Bonds in the case of registered 2016 Bonds redeemed in part only) will, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2016 Bonds entitled thereto, subject, however, to the provisions of the Indenture but without any liability for interest thereon.

Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts will at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of the Indenture and for the protection of the security of the 2016 Bonds and the rights of every Owner thereof.

Waiver of Personal Liability. No member, officer, agent, employee, consultant or attorney of the City will be individually or personally liable for the payment of the principal of or premium or interest on the 2016 Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing contained in the Indenture relieves any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture.

CUSIP Numbers. Neither the Trustee nor the City is liable for any defect or inaccuracy in the CUSIP number that appears on any 2016 Bond or in any redemption notice. The Trustee may, in its discretion, include in

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any redemption notice a statement to the effect that the CUSIP numbers on the 2016 Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the 2016 Bond Owners and that neither the City nor the Trustee is liable for any inaccuracies in such numbers.

Choice of Law. THE INDENTURE WILL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.

Paired Obligation Provider Guidelines. For purposes of the Indenture, Paired Obligations must comply with the following conditions: (a) A Paired Obligation Provider must initially have a long-term rating of “A-” or better by S&P and “A3” or better by Moody’s. (b) So long as the long-term rating of the Paired Obligation Provider is not reduced below “Baa2” by S&P or “BBB” by Moody’s, the interest rate of such Paired Obligation will be deemed to be equal to the irrevocable fixed interest rate attributable thereto for purposes of the Indenture.

In the event that a Paired Obligation Provider does not maintain the Minimum Rating Requirement and the City does not replace such Paired Obligation Provider with another Paired Obligation Provider which maintains the Initial Rating Requirement within ten Business Days of notice that the Paired Obligation Provider has not maintained the Minimum Rating Requirement, interest with respect to such Paired Obligations will be computed for purposes of the Indenture without regard to payments to be received from the Paired Obligation Provider.

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APPENDIX C

FORM OF OPINION OF BOND COUNSEL

Upon issuance of the 2016 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form:

September 14, 2016

City of Loma Linda 25541 Barton Road Loma Linda, California 92354

Re: City of Loma Linda Water Revenue Refunding Bonds, Series 2016

Members of the City Council:

We have examined a certified copy of the record of the proceedings of the City of Loma Linda (the “City”) relative to the issuance of the $5,615,000 City of Loma Linda Water Revenue Refunding Bonds, Series 2016 (the “2016 Bonds”), dated the date hereof, and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the City, the initial purchaser of the 2016 Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us.

The 2016 Bonds are being issued pursuant to an Indenture of Trust, dated as of September 1, 2016 (the “Indenture”), by and between the City and U.S. Bank National Association, as trustee (the “Trustee”). The 2016 Bonds mature on the dates and in the amounts referenced in the Indenture. The 2016 Bonds are dated their date of delivery and bear interest at the rates per annum referenced in the Indenture. The 2016 Bonds are registered in the form set forth in the Indenture.

Based on our examination as Bond Counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that:

1. The proceedings of the City show lawful authority for the issuance and sale of the 2016 Bonds under the laws of the State of California now in force, and the Indenture has been duly authorized, executed and delivered by the City, and, assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2016 Bonds and the Indenture are valid and binding obligations of the City enforceable against the City in accordance with their terms.

2. The obligation of the City to make the payments of principal of and interest on the 2016 Bonds from Net Revenues (as such term is defined in the Indenture) is an enforceable obligation of the City and does not constitute an indebtedness of the City in contravention of any constitutional or statutory debt limit or restriction.

3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest

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may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations.

4. Interest (and original issue discount) on the 2016 Bonds is exempt from State of California personal income tax.

5. The amount by which a 2016 Bond Owner’s original basis for determining loss on sale or exchange in the applicable 2016 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the “Code”); such amortizable bond premium reduces the 2016 Bond Owner’s basis in the applicable 2016 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2016 Bond premium may result in a 2016 Bond Owner realizing a taxable gain when a 2016 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2016 Bond to the Owner. Purchasers of the 2016 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.

6. The difference between the issue price of a 2016 Bond (the first price at which a substantial amount of the 2016 Bonds of the same series and maturity is to be sold to the public) and the stated redemption price at maturity with respect to such 2016 Bonds constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2016 Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by the 2016 Bond Owner will increase the 2016 Bond Owner’s basis in the 2016 Bond. In the opinion of Bond Counsel, the amount of original issue discount that accrues to the Owner of the 2016 Bond is excluded from the gross income of such Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

The opinions expressed herein as to the exclusion from gross income of interest on the 2016 Bonds are based upon certain representations of fact and certifications made by the City and are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2016 Bonds to assure that such interest (and original issue discount) on the 2016 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2016 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2016 Bonds. The City has covenanted to comply with all such requirements.

The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement ends as of the date of issuance of the 2016 Bonds. The Indenture and the Tax Certificate relating to the 2016 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (or original issue discount) on the 2016 Bonds for federal income tax purposes with respect to any 2016 Bond if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the 2016 Bonds.

The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture and the 2016 Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of

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judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California.

Our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2016 Bonds or other offering material relating to the 2016 Bonds and expressly disclaim any duty to advise the owners of the 2016 Bonds with respect to matters contained in the Official Statement.

Respectfully submitted,

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APPENDIX D

INFORMATION CONCERNING DTC

The information in this section concerning DTC and DTC’s book entry only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2016 Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the 2016 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2016 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2016 Bonds. The 2016 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2016 Bond will be issued for each annual maturity of the 2016 Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC is rated AA+ by Standard & Poor’s. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of 2016 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2016 Bonds on DTC’s records. The ownership interest of each actual purchaser of each 2016 Bonds (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2016 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive bonds representing their ownership interests in 2016 Bonds, except in the event that use of the book entry system for the 2016 Bonds is discontinued.

To facilitate subsequent transfers, all 2016 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2016 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2016 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose

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accounts such 2016 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by 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 2016 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2016 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2016 Bonds documents. For example, Beneficial Owners of 2016 Bonds may wish to ascertain that the nominee holding the 2016 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the 2016 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2016 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts 2016 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments on the 2016 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

A 2016 Bond Owner shall give notice to elect to have its 2016 Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2016 Bond by causing the Direct Participant to transfer the Participant’s interest in the 2016 Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of 2016 Bond in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2016 Bond are transferred by Direct Participants on DTC’s records and followed by a book entry credit of tendered 2016 Bond to the Trustee’s DTC account.

DTC may discontinue providing its services as depository with respect to the 2016 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered.

The City may decide to discontinue use of the system of book entry only transfers through DTC (or a successor securities depository). In that event, 2016 Bonds will be printed and delivered to DTC.

THE TRUSTEE, AS LONG AS A BOOK ENTRY ONLY SYSTEM IS USED FOR THE 2016 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2016 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.

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APPENDIX E

FORM OF CONTINUING DISCLOSURE AGREEMENT

Upon issuance of the 2016 Bonds, the City proposes to enter into a Continuing Disclosure Agreement in substantially the following form:

This Continuing Disclosure Agreement (the “Disclosure Agreement”) is executed and delivered by the City of Loma Linda (the “City”) in connection with the issuance of the $5,615,000 City of Loma Linda Water Revenue Refunding Bonds, Series 2016 (the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of September 1, 2016 (the “Indenture”), by and between U.S. Bank National Association, as trustee (the “Trustee”) and the City. The City covenants and agrees as follows:

1. Purpose of this Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule.

2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

Annual Report. The term “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

Beneficial Owner. The term “Beneficial Owner” means any person which: (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income tax purposes.

Dissemination Agent. The term “Dissemination Agent” means, initially, U.S. Bank National Association, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/.

Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year.

Holder. The term “Holder” means a registered owner of the Bonds.

Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Agreement.

Official Statement. The term “Official Statement” means the Official Statement dated August 30, 2016 relating to the Bonds.

Participating Underwriter. The term “Participating Underwriter” means Newcomb Williams Financial Group Securities offered through Stinson Securities, LLC, the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.

Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

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3. Provision of Annual Reports.

(a) The City shall, or upon delivery of the Annual Report to the Dissemination Agent (if other than the City), shall cause the Dissemination Agent to, provide not later than April 1 following the end of its Fiscal Year (commencing with Fiscal Year 2015-16) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Agreement, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement.

(b) Not later than fifteen (15) business days prior to each April 1, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If the City is unable to provide to EMMA an Annual Report by the date required in subsection (a), the City shall, or shall cause the Dissemination Agent to, send a notice to EMMA in a timely manner in the form prescribed by the Municipal Securities Rulemaking Board.

(c) The Dissemination Agent shall: (i) determine each year prior to April 1 the then-applicable rules and electronic format prescribed by the Municipal Securities Rulemaking Board for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, certify to the City that the Annual Report has been filed with the Municipal Securities Rulemaking Board pursuant to this Disclosure Agreement, and stating, to the extent that it can confirm such filing of the Annual Report, the date that it was filed.

4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following:

(a) The audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available;

(b) Principal amount of the Bonds outstanding;

(c) Number of connections to the Water System in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption “THE WATER SYSTEM OF THE CITY—The Water System—Historic Water System Connections,” although the City may provide connections by classifications of users;

(d) Historic water production in acre feet, in substantially the form set forth in the Official Statement under the caption “THE WATER SYSTEM OF THE CITY—The Water System—Historic Water Production;”

(e) Historic water sales in acre feet, in substantially the form set forth in the Official Statement under the caption “THE WATER SYSTEM OF THE CITY—The Water System—Historic Water Sales;”

(f) Revenues by class of user, in substantially the form set forth in the Official Statement under the caption “THE WATER SYSTEM OF THE CITY—The Water System—Historic Water Sales Revenues;”

(g) Ten largest Water System customers, in substantially the form set forth in the Official Statement under the caption “THE WATER SYSTEM OF THE CITY—Largest Water System Customers;” and

(h) Summary of historical operating results (with debt service and coverage ratio shown), in substantially the form set forth in the Official Statement under the caption “THE WATER SYSTEM OF THE CITY—Historic Water System Operating Results and Debt Service Coverage.”

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Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to EMMA; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the City shall clearly identify each such document so included by reference.

5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the occurrence of the event:

1. principal and interest payment delinquencies;

2. unscheduled draws on debt service reserves reflecting financial difficulties;

3. unscheduled draws on credit enhancements reflecting financial difficulties;

4. substitution of credit or liquidity providers, or their failure to perform;

5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB);

6. tender offers;

7. defeasances;

8. ratings changes; and

9. bankruptcy, insolvency, receivership or similar proceedings.

Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

(b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds;

2. modifications to the rights of Bond holders;

3. bond calls;

4. release, substitution or sale of property securing repayment of the Bonds;

5. non-payment related defaults;

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6. the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; and

7. appointment of a successor or additional trustee or the change of the name of a trustee.

(c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the City shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the occurrence of the event.

(c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, and if the Dissemination Agent is other than the City, the City shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to file a notice of such occurrence on EMMA in an electronic format as prescribed by the Municipal Securities Rulemaking Board in a timely manner not more than ten (10) Business Days after the event. Notwithstanding the foregoing, notice of Listed Events described in Sections 5(a)(7) and 5(b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture.

(d) If the City determines that a Listed Event under Section 5(b) would not be material under applicable federal securities laws and if the Dissemination Agent is other than the City, the City shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence.

(e) The City hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the City and, if the Dissemination Agent is other than the City, the Dissemination Agent shall not be responsible for determining whether the City’s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule.

6. Customarily Prepared and Public Information. Upon request, the City shall provide to any person financial information and operating data regarding the City which is customarily prepared by the City and is publicly available.

7. Termination of Obligation. The City’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule, and provided further that the Dissemination Agent shall have first consented to any amendment that modifies or increases its duties or obligations hereunder.

9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall not thereby have any obligation under this Disclosure Agreement to update such information or include it in any future notice of occurrence of a Listed Event.

10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, any Holders or Beneficial Owners of at least 50% aggregate principal amount of the Bonds may take

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such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the City or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time.

11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

12. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the form or content of any notice or report prepared by the City pursuant to this Disclosure Agreement. The Dissemination Agent may resign by providing thirty days’ written notice to the City and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the Issuer and shall have no duty to review any information provided to it by the City. The Dissemination Agent shall have no duty to prepare any information report, nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Issuer in a timely manner and in a form suitable for filing.

13. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees, to the extent permitted by law, to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s 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 City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. In performing its duties hereunder, the Dissemination Agent shall not be deemed to be acting in any fiduciary capacity for the City, the Owners, or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

14. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given to the Dissemination Agent (if other than the City) at such address provided by the Dissemination Agent to the City, and to the City as follows: City of Loma Linda, 25542 Barton Road, Loma Linda, California 92354, Attention: Finance Director.

Dated: September 14, 2016 CITY OF LOMA LINDA

By: Its: City Manager