HomeMy WebLinkAbout2021-02-01 City Council Agenda PacketBOARD OF DIRECTORS
PUBLIC IMPROVEMENT CORPORATION
Monday, February 1, 2021
Special Meeting
5:00 P.M. or As Soon Thereafter
1 February 1, 2021
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Call to Order
Oral Communications
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Action Items
1.Adoption of a Resolution Authorizing the Delivery and Sale of
Certificates of Participation (COPs) in a Principal Amount
Not-to-Exceed $120 Million to Finance the Construction of the Public
Safety Building; Declaring the Intention to Reimburse Expenditures
Related to the Public Safety Building From Proceeds of the COPs;
Approving, Authorizing, and Directing the Execution of Certain Lease
Financing Documents; Approving a Preliminary Official Statement; and
Authorizing and Directing Certain Related Actions
Adjournment
2 February 1, 2021
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City of Palo Alto (ID # 11665)
City Council Staff Report
Report Type: Action Items Meeting Date: 2/1/2021
City of Palo Alto Page 1
Summary Title: Execution and Delivery of Public Safety Building Bonds
Certificates of Participation
Title: Adoption of a Resolution Authorizing the Delivery and Sale of
Certificates of Participation (COPs) in a Principal Amount Not -to-Exceed $120
Million to Finance the Construction of the Public Safety Building; Declaring
the Intention to Reimburse Expenditures Related to the Public Safety
Building From Proceeds of the COPs; Approving, Authorizing and Directing
the Execution of Certain Lease Financing Docum ents; Approving a
Preliminary Official Statement; and Authorizing and Directing Certain Related
Actions
From: City Manager
Lead Department: Administrative Services
Recommendation
1. Staff recommends that the City Council:
a. Adopt a Resolution Approving, Authorizing, and Directing Execution of Certain Lease
Financing Documents, Approving a Preliminary Official Statement, Declaring the
Intention to Reimburse Expenditures, and Authorizing and Directing Certain Actions with
Respect Thereto.
b. Authorize execution and delivery of one series of Certificates of Participation (COPs) in
an amount not to exceed $120 million to finance the Public Safety Building
construction.
2. Staff recommends that the Council, acting as the Board of Directors of the Palo Alto Public
Improvement Corporation (Corporation):
a. Adopt a Resolution Approving, Authorizing, and Directing Execution of Certain Lease
Financing Documents and Authorizing and Directing Certain Actions with Respect
Thereto.
Immediately after Council’s consideration of Item 1, Council will temporarily adjourn and
convene a meeting of the Corporation to hear Item 2. Thereafter, the regular Council meeting
City of Palo Alto Page 2
will continue.
Background
The Public Safety Building (PSB) Project and the California Avenue Parking Garage are part of
the 2014 Council approved Infrastructure Plan. Both are considered, for the Environmental
Impact Report (EIR), as a single project because the public parking garage will mitigate for the
loss of approximately 326 existing public surface parking spaces on both sites. A Request for
Proposal for solicitating the lowest responsible construction firm was issued, bids have been
received, and the bid results and request for the Cit y Council to award the construction
contract for the PSB is being done at tonight’s meeting via a separate report (CMR ID # 11752).
The construction of the PSB is a key step in the continued delivery of public safety services. The
new PSB will be built at 250 Sherman Avenue that currently provides approximately 150 public
parking stalls, adjacent to the new California Avenue Parking Garage at 350 Sherman Avenue.
The existing PSB at 275 Forest Avenue opened in 1970. Due to the growth of public safety
services and changes in regulations, the existing building no longer meets current seismic,
accessibility, or regulatory code requirements that are required to meet the Essential Services
Buildings Seismic Safety Act (ESBSSA). The new PSB is approximately 56,000 square feet and will
house the Police Department, 911 Emergency Dispatch Center, the Emergency Operations
Center, the Office of Emergency Services, the administration needs of the F ire Department and
include external support spaces in the basement and operational yard. The PSB construction
will include three levels above grade, two levels below grade, and a one-story operational
accessory structure. Construction will include a cut -off wall to limit groundwater impact, cast-
in-place structural concrete frame, specialty communication systems, and communications
tower.
The newly constructed California Avenue Parking Garage is four levels above grade and two
stories below grade, with 636 public parking spaces serving the needs of the California Avenue
business district. The new garage replaced existing stalls at the two locations and provide
approximately 310 new parking stalls to the California Avenue business district (see following
map).
City of Palo Alto Page 3
Discussion
1) Public Safety Building (PSB)
Council approval is required to sell an amount not to exceed $120 million in COPs through a
competitive sale process in March/April 2021. Staff is recommending the Council delegate to
the City Manager the issuance of tax-exempt COPs. The execution and delivery of a single series
of tax-exempt COPs (where the interest with respect to the COPs when received by investors
would not be subject to federal income taxation) would require that most of the facility remain
for public use during the term of the COPs. Since taxable securities (where the interest received
by investors is included in the gross income for federal tax law purposes) impose a greater
borrowing cost on the City, they are not being recommended thoug h they would have provided
greater operational flexibility for private use of the PSB.
To minimize interest expense, staff will deliver rating presentations to Standard and Poor’s
(S&P) and Moody’s in February/March 2021. City staff, along with the City’s bond counsel and
financial advisor will participate in the presentation. Information such as the City’s economic
overview, the General Fund (GF) financial standing, the City’s ability to pay the schedule lease
payments, COVID-19/recession impacts, and the PSB project will be discussed. The expectation
is that S&P and Moody’s will give the highest possible rating for the COPs; AA+ and Aa1,
respectively. The California Avenue Parking Garage COPs bonds, issued in March 2019, have the
AA+ rating by S&P and were not rated by Moody’s. Since this will be a larger financing, the
City’s municipal/financial advisor is recommending we also get a rating from Moody’s to
enhance the marketing of the COPs. A high rating from S&P and Moody’s will represent their
City of Palo Alto Page 4
opinion that the COPs will be a safe issue for investors and will produce lower interest costs for
the City. The interest rates and costs cited in this report are based on th ese expected ratings.
Because municipal COPs are commonly used investment vehicles in the financial community
and the COPs are expected to be highly rated, the City’s municipal/financial advisor
recommends a competitive sale to optimize the chances of a successful sale at the lowest cost
to the City. The COPs will be offered at a competitive sale around March/April 2021. A
competitive sale means that underwriters or investment banking firms will be asked to bid on
the COPs at a particular time and day. The bidding process is designed to achieve the lowest
interest cost for the City and to maintain an open process. Proceeds from the sale will be
delivered to the City in early or mid-April. As in prior COP issues, the City will contract with a
trustee, in this case U.S. Bank National Association (Trustee), to make debt service payments
and hold all the COP proceeds in the required funds.
2) Financing Structure and Related Documents
COPs are certificates that represent the right of investors to receive a share of a stream of
future lease payments to be made by the City. The City’s lease payments ca n be made from any
available source of funds (e.g. transient occupancy, property, sales tax revenues, etc.). The
financing structure will involve the following:
a. The City will initially lease an asset, most likely City Hall, during the PSB construction
period and, upon completion of the building, the newly built PSB (Leased Property) to
a lease counterparty (the Palo Alto Public Improvement Corporation) under a Property
Lease (Attachment A-1). The City established the Palo Alto Public Improvement
Corporation (Corporation) as a separate legal entity in 1983 to help the City with COPs.
Members of the City Council are the Board members of the Corporation.
b. Under a Lease Agreement (Attachment A-2), the Corporation will lease the Leased
Property back to the City. The City will agree to make lease payments to the
Corporation for use and occupancy of the Leased Property.
c. The Corporation will assign certain of its rights under the Lease Agreement to the
Trustee, pursuant to an Assignment Agreement (Attachment B-1). The assigned rights
include the right to collect lease payments from the City and to enforce payment of
the City’s lease payments.
d. Pursuant to a Trust Agreement among the City, the Corporation and the Trustee
(Attachment A-3), the Trustee will execute and deliver the COPs, which represent the
right to receive a portion of the City’s lease payments. In this agreement, the Trustee is
instructed to deposit the proceeds of the COPs into separate funds for construction of
the Public Safety Building and it will also establish a fund for the City’s lease payments.
e. The City will issue an official notice of sale to the investment community soliciting bids
City of Palo Alto Page 5
to purchase the COPs (Attachment A-4). The sale proceeds of the COPs will be used to
construct the Public Safety Building and pay issuance costs and capitalized interest
during the Public Safety Building construction period.
f. To market the COPs, the City’s disclosure counsel has prepared a Preliminary Official
Statement (POS) and the City’s municipal advisor will distribute the POS to potential
investors (Attachment A-5). The POS is the offering document for municipal securities
and it is considered to be in in preliminary form because it does not contain pricing
information. The POS discloses the security for the COPs and describes the financial
condition of the City’s general fund. After the COPs have been sold to the underwriter,
the City will prepare a final Official Statement, which should be identical to the POS
except that it will include the final pricing information about the COPs, including
principal amount, interest rate, and prepayment terms.
The distribution of the POS by the City is subject to federal securities laws, including the
Securities Act of 1933 and the Securities Exchange A ct of 1934. These laws require the
POS to include all facts that would be material to an investor in the COPs. Material
information is information that there is a substantial likelihood would have actual
significance in the deliberations of the reasonable investor when deciding whether to
buy or sell the COPs. If the Council concludes that the POS includes all facts that would
be material to an investor in the COPs, it must adopt a resolution that authorizes staff to
execute a certificate to the effect that the Preliminary Official Statement has been
“deemed final.”
The Securities and Exchange Commission (the “SEC”), the agency with regulatory
authority over the City’s compliance with the federal securities laws, has issued
guidance as to the duties of the Council with respect to its approval of the POS. In its
“Report of Investigation in the Matter of County of Orange, California as it Relates to the
Conduct of the Members of the Board of Supervisors” (Release No. 36761 / January 24,
1996) (the “Release”), the SEC stated that, if a member of the Council has knowledge of
any facts or circumstances that an investor would want to know about prior to investing
in the COPs, whether relating to their repayment, tax-exempt status (if applicable),
undisclosed conflicts of interest with interested parties, or otherwise, they should
endeavor to discover whether such facts are adequately disclosed in the POS. In the
Release, the SEC stated that the steps that a member of the Council could take include
becoming familiar with the POS and questioning staff and consultants about the
disclosure of such facts.
Appendix G to the POS is the Continuing Disclosure Certificate, under which the City will
agree to provide certain financial and operating data of the type included in the POS to
owners of the COPs on an annual basis, and information about certain enumerated
events when they occur.
City of Palo Alto Page 6
3) Approval of Documents
Staff from the Administrative Services and Public Works Departments and the City
Attorney’s Office has worked with the City’s municipal financial advisor (Public Financial
Management or PFM), bond counsel (Jones Hall) and disclosure counsel (Quint & Thimmig,
LLP) to structure the financing and draft the financing documents attached to this staff
report.
The following documents need the Council’s approval before the COPs can be sold by a
competitive sale in March/April 2021. The documents below are grouped according to
actions that the City Council must approve, and those that the City Council members acting
as the Board of Directors of the Corporation must approve.
CITY COUNCIL APPROVAL: Resolution Approving, Authorizing and Directing Execution of
Certain Lease Financing Documents, Approving a Preliminary Official Statement, Declaring the
Intention to Reimburse Expenditures, and Authorizing and Directing Certain Actions with
Respect Thereto (Attachment A).
The resolution authorizes the Mayor, City Manager, the Administrative Services Director/Chief
Financial Officer or their designee to sign and execute various documents, and to make any
changes to those documents that are minor in nature. Council is also approving as to form the
POS containing information material to the offering and sale of the COPs. The documents staff
will sign with Council’s approval are:
• Property Lease (Attachment A-1)
• Lease Agreement (Attachment A-2)
• Trust Agreement (Attachment A-3)
• Notice of Sale (Attachment A-4)
• Preliminary Official Statement (POS) (Attachment A-5)
APPROVAL BY THE CITY COUNCIL ACTING AS BOARD OF DIRECTORS OF THE PUBLIC
IMPROVEMENT CORPORATION: Resolution Approving, Authorizing, and Directing Execution of
Certain Lease Financing Documents, and Authorizing and Directing Certain Actions with Respect
Thereto (Attachment B)
• Assignment Agreement (Attachment B-1)
• Property Lease (Attachment A-1)
• Lease Agreement (Attachment A-2)
• Trust Agreement (Attachment A-3)
Timeline (2021)
February/March Standard and Poor’s (S&P) and Moody’s Rating
Presentation
Late February/Early March Receive S&P and/or Moody’s Rating
City of Palo Alto Page 7
Late February/Early March Final Official Statement Printed and Posted
March Bond Pricing / Bond Sale
March/April Closing
Resource Impact
The results of a request for proposals have been received for the PSB construction costs and
are reflected in the project bond financing amount. The City’s lease payments will not be
known until competitive bids are received for the COPs. Based on the bid results for the
main construction contract and the City Engineer’s estimate for other construction costs, the
COPs are expected to finance approximately $102 million of the PSB project costs. Assuming
a 30-year amortization period, a tax-exempt bond issuance, an estimated True Interest Cost
(TIC) of 2.34 percent, and around $108.9 million in total bond proceeds, the estimated
maximum annual lease/debt service payment is around $5.2 million. In comparison, the
2019 California Avenue Parking Garage COPs’ actual TIC for the tax-exempt certificates with
a par amount of $26.8 million was 3.52 percent and for the taxable certificates with a par
amount of $10.6 million was 4.32 percent. With a historically low interest rate environment,
it’s a favorable time to finance capital projects such as the PSB.
Issuance costs (underwriter’s fees, bond and disclosure counsel fees, municipal advisory fees,
rating agency fees, etc.) will be paid through the sale of the COPs, in much the same way that
closing costs are paid in a home sale escrow process. The estimated tax-exempt bond issuance
cost is $1.98 million which conservatively includes $1.5 million in underwriter’s discount fee
(cost breakdown is shown in Attachment C). In addition, $4.89 million in capitalized interest
costs will be bond financed by the COPs. The capitalized interest borrowed is anticipated to
pay the City’s first three (interest only) semiannual lease payments for approximately 18
months during the PSB construction so the first lease payment from the City’s General Fund
will be around 2-years after the COPs are executed and delivered (the first payment from the
infrastructure TOT funds will occur in FY 2023 of approximately $1.5 million). Though the
financing is supported by the General Fund (through a lease payment structure) internally, the
City is allocating the infrastructure portion of the tran sient occupancy tax (TOT) as the main
source of the lease/debt service payment. As of the writing of this report, staff (very
conservatively) is forecasting TOT receipts to be around $7.4 million in FY 2023, $8.7 million in
FY 2024 and higher amounts in the beyond years. Historically, in FY 2019 (pre-COVID-19)
actual infrastructure TOT receipts were $8.7 million. With the expectation of the two Marriott
hotels with around 301 rooms opening in February 2021 with all of their TOT dedicated to the
infrastructure, their TOT revenue (again, very conservatively) is forecasted to be $3.36 million
in FY 2023 and $4.08 million in FY 2024 which is part of the total infrastructure TOT forecast
amount cited above. As a result, staff is confident the infrastructure TOT receipts in the outer
years will be more than sufficient to cover the PSB and the 2019 California Avenue Parking
Garage COPs lease/debt service payments. The combined debt service payment for both these
COPs that is paid with infrastructure TOT funds is $3.85 million in FY 2023, $7.55 million in FY
2024, and beyond years.
City of Palo Alto Page 8
Policy Implications
This report is consistent with prior policy direction received from the Council.
Environmental Review
On June 11, 2018, Council certified the Environmental Impact Report (EIR) for the Public Sa fety
Building and the California Avenue Parking Garage (ID # 8967) by adoption of Resolution No.
9772. The Notice of Determination (NOD) reflecting the approval of the EIR was filed with the
County of Santa Clara on June 14, 2018.
Attachments:
• Attachment A: City Resolution
• Attachment A-1: Property Lease
• Attachment A-2: Lease Agreement
• Attachment A-3: Trust Agreement
• Attachment A-4: Notice of Sale
• Attachment A-5: Preliminary Official Statement (POS)
• Attachment B: Public Impvt Corporation Resolution Approving Authorizing Directing
Execution of Certain Lease Refianncing Documents
• Attachment B-1: Assignment Agreement
• Attachment C: Cost of Issuance
Attachment A
NOT YET APPROVED
Resolution No. _____
A Resolution of the City of Palo Alto Approving, Authorizing and Directing
Execution of Certain Lease Financing Documents, Approving a Preliminary
Official Statement, Declaring the Intention to Reimburse Expenditures, and
Authorizing and Directing Certain Related Actions
WHEREAS, the City desires to finance the costs of acquiring and constructing a public
safety building located at 250 Sherman Avenue (the “Public Safety Building”);
WHEREAS, in order to finance the Public Safety Building, the City has determined to
provide for the execution and delivery of City of Palo Alto 2021 Certificates of Participation (Public
Safety Building) (the “Certificates”);
WHEREAS, staff has recommended that the City cause the Certificates to be executed and
delivered in a single series the interest on which would be exempt from taxation under federal
tax law; however, in order to ensure that the financing is ultimately structured in the most cost‐
effective manner, the City Council wishes to delegate to the City Manager or the Administrative
Services Director the final determination of whether it is desirable and in the City’s best interest
to have the City cause to be executed and delivered a second series of certificates of participation
the interest on which would be subject to taxation under federal tax law;
WHEREAS, staff has recommended that the City cause the Certificates to be sold on a
competitive basis; however, in order to ensure that the financing is ultimately structured in the
most cost‐effective manner, the City Council wishes to delegate to the City Manager or the
Administrative Services Director the final determination of whether it is desirable and in the City’s
best interest to sell the Certificates on a negotiated basis;
WHEREAS, the City further proposes to lease a City asset, initially City Hall, located at 250
Hamilton Avenue (or another property identified by staff) (the “Leased Property”), to the Palo
Alto Public Improvement Corporation, a nonprofit public benefit corporation duly formed,
organized, operating and acting pursuant to the laws of the State of California
(the “Corporation”), under a Property Lease by and between the City, as lessor, and the
Corporation, as lessee (the “Property Lease”), and to cause the Corporation to lease the Leased
Property back to the City under a Lease Agreement, by and between the City, as lessee, and the
Corporation, as lessor (the “Lease Agreement”), in consideration of the payment by the City of
semi‐annual lease payments (the “Lease Payments”);
WHEREAS, the City further proposes to cause the Corporation to assign its right to receive
the Lease Payments to U.S. Bank National Association, as trustee (the “Trustee”), under an
Assignment Agreement (the “Assignment Agreement”), by and between the Corporation and the
Trustee, and in consideration of such assignment the Trustee has agreed to execute and deliver
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the Certificates, each evidencing a direct, undivided fractional interest in the Lease Payments, in
accordance with a Trust Agreement to be executed by and among the Trustee, the City and the
Corporation (the “Trust Agreement”);
WHEREAS, pursuant to the City's authorization, Quint & Thimmig LLP, as disclosure
counsel to the City, has prepared and presented to the City a form of preliminary official
statement containing information material to the offering and sale of the Certificates
(the "Preliminary Official Statement");
WHEREAS, the documents described below have been filed with the City, the members
of the City Council, with the aid of its staff, have reviewed said documents, and it is in the public
interest and for the public benefit that the City authorize and direct execution of such documents;
WHEREAS, United States Income Tax Regulations section 1.150‐2 provides generally that
proceeds of tax‐exempt obligations are not deemed to be expended when such proceeds are
used for reimbursement of expenditures made prior to the date of issuance of such obligations
unless certain procedures are followed, one of which is a requirement that prior to the payment
of any such expenditure, the issuer declares an intention to reimburse such expenditure;
WHEREAS, it is in the public interest and for the public benefit that the City declares its
official intent to reimburse expenditures related to the acquisition and construction of the Public
Safety Building; and
WHEREAS, pursuant to Government Code Section 5852.1, certain information relating to
the Certificates is set forth in Appendix A attached to this Resolution, and such information is
hereby disclosed and made public.
NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE, as follows:
1.The below‐enumerated documents be and are hereby approved, and the Mayor,
the City Manager, the Administrative Services Director or a designee appointed by any such
officer (in each case, an "Authorized Officer") are hereby separately authorized and directed,
acting alone, to execute said documents, with such changes, insertions and omissions as may be
approved by such official, and the City Clerk is hereby authorized and directed to attest to such
Authorized Officer's signature:
(a)the Property Lease, relating to the lease of the Leased Property by the City to
the Corporation, by and between the City, as lessor, and the Corporation, as lessee;
(b)the Lease Agreement, relating to the lease of the Leased Property by the
Corporation back to the City, between the Corporation, as lessor, and the City, as lessee;
(c)the Trust Agreement, by and among the Corporation, the City and the Trustee,
relating to the execution and delivery of the Certificates, evidencing the fractional
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interests of the owners thereof in the Lease Payments to be made by the City under the
Lease Agreement; and
(d)a continuing disclosure certificate under which the City will agree to provide
certain information on a continuing basis.
2.The Council hereby authorizes the execution and delivery of the Certificates for
the purpose of providing funds to finance the acquisition and construction of the Public Safety
Building. The aggregate principal amount of the Certificates shall not exceed $120 million, the
true interest cost of the Certificates may not exceed 3.5% and the Underwriter’s discount may
not exceed 2.5% of the principal amount of the Certificates.
3.The City Manager or the Administrative Services Director is hereby authorized and
directed to determine whether it is desirable and in the City’s best interest for the City to cause
to be executed and delivered a second series of certificates of participation the interest on which
would be subject to taxation under federal tax law to finance all or a portion of the Public Safety
Building, either in lieu of or in addition to the tax‐exempt series. If the City Manager or
Administrative Services Director determines that a second series should be executed and
delivered, all references to the Certificates in this resolution shall refer to both series and the City
Council hereby authorizes any necessary changes to the documents approved by this Resolution
to reflect such second series.
4.The Council hereby authorizes and directs the competitive public sale of the
Certificates. The Certificates shall be sold in accordance with the Official Notice of Sale in
substantially the form on file with the City, together with any changes therein or additions
thereto deemed advisable by an Authorized Officer. The Authorized Officers are hereby
authorized and directed to accept the best bid for the sale of the Certificates, as determined in
accordance with the Notice of Sale. Pursuant to Section 53692 of the Government Code, Jones
Hall, as bond counsel, is hereby authorized and directed to cause a Notice of Intention, in form
and substance acceptable to said firm, to be published in the manner required by applicable law.
The City Manager or the Administrative Services Director is hereby authorized and
directed, following consultation with the City’s municipal advisor and bond counsel, to determine
whether it is desirable and in the City’s best interest for the City to sell the Certificates on a
negotiated basis, to select an underwriter to purchase the Certificates and to negotiate a
purchase contract with the underwriter. The Authorized Officers are hereby separately
authorized and directed to execute a purchase agreement with the underwriter as long as the
Certificates will meet the parameters set forth in Section 2.
5.The City hereby approves the Preliminary Official Statement describing the
Certificates, in the form on file with the Director of Administrative Services. The City’s municipal
advisor, PFM Financial Advisors LLC, is hereby authorized to distribute the Preliminary Official
Statement in connection with the sale of the Certificates. An Authorized Officer is hereby
authorized and directed to (a) execute and deliver a certificate deeming the Preliminary Official
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Statement to be final as of its date within the meaning of Rule 15c2‐12 of the Securities Exchange
Act of 1934 and (b) approve any changes in or additions to cause such Preliminary Official
Statement to be put in final form.
6.The Authorized Officers are separately authorized to approve corrections and
additions to the Preliminary Official Statement by supplement or amendment thereto, or
otherwise as appropriate, provided that any such corrections or additions shall be necessary to
cause the information contained therein to conform with facts material to the Certificates, or to
the proceedings of the City.
7.The Authorized Officers are separately authorized and directed to cause the
Preliminary Official Statement to be brought into the form of a final official statement (the “Final
Official Statement”) and to execute said Final Official Statement, dated as of the date of the sale
of the Certificates, and the City Manager and Administrative Services Director are separately
authorized and directed to execute a statement that the facts contained in the Final Official
Statement, and any supplement or amendment thereto (which shall be deemed an original part
thereof for the purpose of such statement) were, at the time of sale of the Certificates, true and
correct in all material respects and that the Final Official Statement did not, on the date of sale
of the Certificates, and does not, as of the date of delivery of the Certificates, contain any untrue
statement of a material fact with respect to the City or omit to state material facts with respect
to the City required to be stated where necessary to make any statement made therein not
misleading in the light of the circumstances under which it was made. The Mayor, the City
Manager or the Administrative Services Director shall take such further actions prior to the
signing of the Final Official Statement as are deemed necessary or appropriate to verify the
accuracy thereof.
The Final Official Statement, when prepared, is approved for distribution by the purchaser
of the Certificates in connection with the offering and sale of the Certificates.
8.The City hereby declares that it reasonably expects (i) to pay certain costs of
acquiring and constructing the Public Safety Building prior to the date of execution and delivery
of the Certificates, and (ii) to use a portion of the proceeds of the Certificates for reimbursement
of expenditures related to the acquisition and construction of the Public Safety Building that are
paid before the date of execution and delivery of the Certificates.
9.The City hereby approves the selection of Jones Hall, A Professional Law
Corporation, as bond counsel, Quint & Thimmig LLP, as disclosure counsel, and PFM Financial
Advisors LLC, as financial advisor. Each Authorized Officer and other appropriate officials of the
City are authorized to execute a professional services agreement with such firms in connection
with the proposed financing, and the execution of such agreements on behalf of the City shall be
conclusive evidence of such approval.
10.Each Authorized Officer, the City Clerk and all other officials of the City are hereby
authorized and directed to execute such other agreements, documents and certificates as may
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be necessary to effect the purposes of this resolution and the lease financing and refinancing
herein authorized, and to revise the identity of the initial Leased Property as necessary in order
to accomplish the purposes of this Resolution. Whenever in this resolution any officer of the City
is authorized to execute or countersign any document or take any action, such execution,
countersigning or action may be taken on behalf of such officer by any person designated by such
officer to act on his or her behalf in the case such officer shall be absent or unavailable.
This resolution shall take effect immediately upon its adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST: APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:
Jones Hall, City Manager
A Professional Law Corporation
_______________________________________________
Director of Public Works
By:
Christopher K. Lynch,
Jones Hall, A Professional Law Corporation
Bond Counsel ____________________________________
Director of Administrative Services
City Attorney
Attachment A
NOT YET APPROVED
APPENDIX A
Government Code Section 5852.1 Disclosure
The following information consists of estimates that have been provided by the City’s municipal
advisor which has been represented by such party to have been provided in good faith:
(A)True Interest Cost of the Certificates: 2.34%
(B)Finance Charge of the Certificates (Sum of all fees/charges paid to third parties):
$1,975,200
(C)Net Proceeds to be Received (net of finance charges, reserves and capitalized interest, if
any): $102,000,000
(D)Total Payment Amount Through Maturity: $151,488,586
The foregoing estimates constitute good faith estimates only. They assume a single, tax‐exempt
series of Certificates is sold. The principal amount of the Certificates, the true interest cost of
the Certificates, the finance charges thereof, the amount of proceeds received therefrom and
total payment amount with respect thereto may differ from such good faith estimates due to
(a)the actual date of the sale of the Certificates being different than the date assumed for
purposes of such estimates, (b) the actual principal amount of Certificates sold being different
from the estimated amount used for purposes of such estimates, (c) the actual amortization of
the Certificates being different than the amortization assumed for purposes of such estimates,
(d)the actual market interest rates at the time of sale of the Certificates being different than
those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations
in the City’s financing plan (including the mix of tax‐exempt and taxable Certificates), or a
combination of such factors. The actual date of sale of the Certificates and the actual principal
amount of Certificates sold will be determined by the City based on the timing of the need for
proceeds of the Certificates and other factors. The actual interest rates borne by the Certificates
will depend on market interest rates at the time of sale thereof. The actual amortization of the
Certificates will also depend, in part, on market interest rates at the time of sale thereof. Market
interest rates are affected by economic and other factors beyond the control of the City.
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Christopher K. Lynch, Esq.
Jones Hall, A Professional Law Corporation
475 Sansome Street, Suite 1700
San Francisco, California 94111
THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT
TO SECTION 11922 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS
EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA
GOVERNMENT CODE.
PROPERTY LEASE
Dated as of April 1, 2021
by and between the
CITY OF PALO ALTO,
as Lessor
and the
PALO ALTO PUBLIC IMPROVEMENT CORPORATION,
as Lessee
Attachment A-1
TABLE OF CONTENTS
PROPERTY LEASE
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions ...................................................................................................................................................... 2
Section 1.02. Article and Section Headings ................................................................................................................. 2
Section 1.03. References to Agreement ........................................................................................................................ 3
Section 1.04. Number and Gender .................................................................................................................................. 3
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.01. Representations, Covenants and Warranties of the City ............................................................. 4
Section 2.02. Representations, Covenants and Warranties of Corporation .................................................... 4
ARTICLE III
AGREEMENT TO LEASE; TERM OF
PROPERTY LEASE; PROPERTY LEASE PAYMENT
Section 3.01. Lease................................................................................................................................................................. 6
Section 3.02. Term ................................................................................................................................................................. 6
Section 3.03. Property Lease Payment ........................................................................................................................... 6
Section 3.04. Title ................................................................................................................................................................... 6
Section 3.05. No Merger ..................................................................................................................................................... 6
Section 3.05. Substitution of Leased Property ............................................................................................................ 6
ARTICLE IV
EMINENT DOMAIN; NET PROCEEDS
Section 4.01. Eminent Domain .......................................................................................................................................... 8
Section 4.02. Application of Net Proceeds ................................................................................................................... 8
ARTICLE V
MISCELLANEOUS
Section 5.01. Liens .................................................................................................................................................................. 9
Section 5.02. Assignment and Subleasing by the Corporation............................................................................ 9
Section 5.03. Amendment................................................................................................................................................... 9
Section 5.04. Notices ............................................................................................................................................................ 9
Section 5.05. Binding Effect ............................................................................................................................................. 10
Section 5.06. Severability ................................................................................................................................................. 10
Section 5.07. Further Assurances and Corrective Instruments .......................................................................... 10
Section 5.08. Execution in Counterparts .................................................................................................................... 10
Section 5.09. Applicable Law .......................................................................................................................................... 10
Section 5.10. Corporation and City Representatives ............................................................................................. 10
Section 5.11. Captions ....................................................................................................................................................... 10
EXHIBIT A DESCRIPTION OF LEASED PROPERTY ............................................................................................ A-1
PROPERTY LEASE
THIS PROPERTY LEASE, dated for convenience as of April 1, 2021, by and between the
CITY OF PALO ALTO, a chartered municipal corporation duly organized and existing under the
Constitution and laws of the State of California, as lessor (the "City"), and the PALO ALTO PUBLIC
IMPROVEMENT CORPORATION, a nonprofit public benefit corporation duly formed, organized
and acting pursuant to the laws of the State of California (the "Corporation"), as lessee; and
W I T N E S S E T H:
WHEREAS, the City desires to finance the costs of acquiring and constructing a public
safety building to be located at 250 Sherman Avenue (the “Public Safety Building”);
WHEREAS, in order to finance the Public Safety Building, the City has determined to
provide for the execution and delivery of City of Palo Alto 2021 Certificates of Participation
(Public Safety Building) (the “Certificates”);
WHEREAS, the City shall lease a City asset, initially the land and improvements
constituting [Initial Leased Property], as more particularly described in Exhibit A hereto
(the “Leased Property”) to the Corporation pursuant to this Property Lease, and the Corporation
shall lease the Leased Property back to the City pursuant to a lease agreement by and between
the City, as lessee, and the Corporation, as lessor (the “Lease Agreement”) which is recorded
concurrently herewith, in consideration of the payment by the City of semi-annual Lease
Payments (as defined in the Lease Agreement); and
WHEREAS, the Corporation has assigned its right to receive such Lease Payments to U.S.
Bank National Association, as trustee (the “Trustee”), pursuant to an Assignment Agreement,
dated as of February 1, 2021, by and between the Corporation and the Trustee (the “Assignment
Agreement”) which is recorded concurrently herewith, and in consideration of such assignment
the Trustee will execute and deliver the Certificates, each evidencing a direct, undivided
fractional interest in such Lease Payments, in accordance with a Trust Agreement, dated as of
February 1, 2021, by and among the City, the Corporation and the Trustee (the “Trust
Agreement”).
NOW, THEREFORE, in consideration of the above premises and of the mutual covenants
hereinafter contained and for other good and valuable consideration, the parties hereto agree
as follows:
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ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions. All terms specifically defined in the Trust Agreement dated as
of February 1, 2021 by and among U.S. Bank National Association, as trustee, the Corporation
and the City (the "Trust Agreement") shall have the same respective meanings when used herein.
In addition, the following terms defined in this Section 1.01 shall have the respective meanings
herein set forth when used herein.
"Lease Agreement" means the Lease Agreement, dated as of April 1, 2021, and recorded
concurrently herewith, by and between the Corporation as lessor and the City as lessee, together
with any duly authorized and executed amendments thereto.
"Leased Property" means certain real property, as more particularly described in Exhibit A
hereto.
"Permitted Encumbrances" means, as of any particular time: (i) liens for general ad
valorem taxes and assessments, if any, not then delinquent; (ii) the Assignment Agreement;
(iii) this Property Lease and the Lease Agreement; (iv) the Trust Agreement; (v) any right or claim
of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner
prescribed by law; (vi) easements, rights of way, mineral rights, drilling rights and other rights,
reservations, covenants, conditions or restrictions which exist of record as of the date on which
the Certificates are delivered to the purchasers thereof; (vii) easements, rights of way, mineral
rights, drilling rights and other rights, reservations, covenants, conditions or restrictions
established following the date of recordation of this Property Lease and to which the
Corporation and the City consent in writing and which the City certifies in writing will not
materially impair the use of the Leased Property; and (viii) any items listed in the title report
issued by Stewart Title Guaranty on the date of execution and delivery of the Certificates or
pursuant to Section 3.5 hereof.
"Property Lease" means this Property Lease, together with any duly authorized and
executed amendments hereto.
"Property Lease Payment" means the payment required to be paid by the Corporation on
the Closing Date pursuant to Section 3.03.
"Public Safety Building" means the parking garage to be located at 250 Sherman Avenue.
Section 1.02. Article and Section Headings. Unless otherwise specified, references to
Articles, Sections, and other subdivisions of this Property Lease are to be designated Articles,
Sections, and other subdivisions of this Property Lease as originally executed. The headings or
titles of the several articles and sections, and the table of contents appended to copies hereof,
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shall be solely for convenience of reference and shall not affect the meaning, construction or
effect of the provisions hereof.
Section 1.03. References to Agreement. The words "hereof", "herein", "hereunder", and
words of similar import refer to this Property Lease as a whole.
Section 1.04. Number and Gender. The singular form of any word used herein,
including terms defined as provided in Section 1.01, shall include the plural, and vice versa. The
use of a word of any gender shall include all genders.
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ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.01. Representations, Covenants and Warranties of the City. The City
represents, covenants and warrants to the Corporation as follows:
(a) Due Organization and Existence. The City is a chartered municipal
corporation duly organized and existing under the Constitution and laws of the State.
(b) Authorization. The laws of the State authorize the City to enter into this
Property Lease and to enter into the transactions contemplated by and to carry out its
obligations under this Property Lease, and the City has duly authorized and executed this
Property Lease.
(c) No Violations. Neither the execution and delivery of this Property Lease
nor the fulfillment of or compliance with the terms and conditions hereof nor the
consummation of the transactions contemplated hereby, conflicts with or results in a
breach of the terms, conditions or provisions of any restriction or any agreement or
instrument to which the City is now a party or by which the City is bound, or constitutes
a default under any of the foregoing, or results in the creation or imposition of any lien,
charge or encumbrances whatsoever upon any of the property or assets of the City, or
upon the Leased Property, except Permitted Encumbrances.
Section 2.02. Representations, Covenants and Warranties of Corporation. The
Corporation represents, covenants and warrants to the City as follows:
(a) Due Organization and Existence. The Corporation is a nonprofit public
benefit corporation duly formed, operating and existing under the laws of the State; has
power to enter into the Property Lease; is possessed of full power to sublease real and
personal property; and has duly authorized the execution and delivery of this Property
Lease.
(b) Authorization. The laws of the State authorize the Corporation to enter
into this Property Lease and to enter into the transactions contemplated by and to carry
out its obligations under this Property Lease, and the Corporation has duly authorized
and executed this Property Lease.
(c) No Violations. Neither the execution and delivery of this Property Lease
nor the fulfillment of or compliance with the terms and conditions hereof, nor the
consummation of the transactions contemplated hereby, conflicts with or results in a
breach of the terms, conditions or provisions of any restriction or any agreement or
instrument to which the Corporation is now a party or by which the Corporation is
-5-
bound, or constitutes a default under any of the foregoing, or results in the creation or
imposition of any lien, charge or encumbrance whatsoever upon any of the property or
assets of the Corporation, or upon the Leased Property, except Permitted Encumbrances.
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ARTICLE III
AGREEMENT TO LEASE; TERM OF PROPERTY LEASE; PROPERTY LEASE PAYMENT
Section 3.01. Lease. The City hereby leases the Leased Property to the Corporation, and
the Corporation hereby leases the Leased Property from the City, upon the terms and conditions
set forth in this Property Lease.
Section 3.02. Term. The term of this Property Lease shall commence on the Closing
Date and shall end on November 1, 2051, unless such term is extended as hereinafter provided.
If on November 1, 2051, the Trust Agreement shall not be discharged by its terms, then the
Term of this Property Lease shall be extended until the Trust Agreement shall be discharged by
its terms (but in no event beyond November 1, 2061). If prior to November 1, 2051, the Trust
Agreement shall be discharged by its terms, the Term of this Property Lease shall thereupon
end.
Section 3.03. Property Lease Payment. The Corporation hereby agrees to pay to the
City, as rental for the use and occupancy of the Leased Property during the term of this Property
Lease, the amount of $___________, which shall be due and payable on the Closing Date, and
which shall be deemed to have been paid when the proceeds of the Certificates are deposited
with the Trustee. No further amounts shall be due and payable by the Corporation to the City
under this Property Lease.
Section 3.04. Title. Title to the Leased Property shall reside in the City, and during the
term of this Property Lease, the City shall hold title to the Leased Property and any and all
additions which comprise fixtures, repairs, replacements or modifications to the Leased Property,
including those fixtures, repairs, replacements or modifications which are added to the Leased
Property by the City at its own expense and which may be removed without damaging the
Leased Property and including any items added to the Leased Property by the City pursuant to
Section 5.8 of the Lease Agreement.
Section 3.05. No Merger. It is the express intention of the parties hereto that this
Property Lease and the obligations of the parties hereunder shall be and remain separate and
distinct from the Lease Agreement and the obligations of the parties thereunder, and that
during the term of the Lease Agreement no merger of title or interest occur or be deemed to
occur as a result of the position of the City as lessee under the Lease Agreement and as lessor
under this Property Lease, or the position of the Corporation as lessee under this Property Lease.
Section 3.06. Substitution of Leased Property. As set forth in Section 3.5 of the Lease
Agreement, upon Final Completion (as defined in the Lease Agreement) of the Public Safety
Building, the City shall have the absolute right to make the Public Safety Building and its related
site, as described in Exhibit A hereto, the Leased Property subject to this Property Lease and the
Lease Agreement, and to release the [Initial Leased Property] from this Property Lease and the
Lease Agreement. The City shall effectuate such release by (1) certifying, in a certificate of
-7-
completion provided to the Trustee, that the Final Completion of the Public Safety Building has
occurred and that the fair rental value of the Public Safety Building is at least equal to the Lease
Payments, (2) causing a certificate of the City to be delivered to the Trustee evidencing that the
insurance policies required by the Lease Agreement are in full force and effect with respect to
the Public Safety Building, and (3) causing a Notice of Substitution and Release of Leased
Property, substantially in the form attached as Exhibit D to the Lease Agreement, to be recorded
in the real property records of Santa Clara County. Subsequent to the execution and recordation
of such Notice of Substitution and Release of Leased Property, subject to any future authorized
substitution or release of the Leased Property pursuant to Section 3.5 and 3.6 of the Lease
Agreement, references to the Leased Property herein shall be deemed to refer to the Public
Safety Building and the related site and shall not be deemed to refer to the Initial Leased
Property so released.
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ARTICLE IV
EMINENT DOMAIN; NET PROCEEDS
Section 4.01. Eminent Domain. If all of the Leased Property shall be taken permanently
under the power of eminent domain or sold to a government threatening to exercise the power
of eminent domain, the term of this Property Lease shall cease as of the day possession shall be
so taken. If less than all of the Leased Property shall be taken permanently, or if all of the
Leased Property or any part thereof shall be taken temporarily, under the power of eminent
domain, this Property Lease shall continue in full force and effect and shall not be terminated by
virtue of such taking and the parties waive the benefit of any law to the contrary.
Section 4.02. Application of Net Proceeds. The Net Proceeds of any insurance award
resulting from any damage to or destruction of the Leased Property or any improvements
thereon by fire or other casualty, and the Net Proceeds of any eminent domain award resulting
from any event described in Section 4.01 hereof, shall be applied as set forth in Section 6.2 of
the Lease Agreement. All such Net Proceeds shall be paid to the City or the Trustee as their
interests may appear under the Lease Agreement, and the Corporation hereby waives any and
all right, title and interest which it may have in and to any such Net Proceeds by virtue of its
estate in the Leased Property under this Property Lease.
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ARTICLE V
MISCELLANEOUS
Section 5.01. Liens. The Corporation shall not, directly or indirectly, create, assume or
suffer to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to
the Leased Property, other than the respective rights of the Corporation and the City as herein
provided and Permitted Encumbrances.
Section 5.02. Assignment and Subleasing by the Corporation. For the purpose of
providing funds to enable the Corporation to pay the Property Lease Payment on the Closing
Date, the Corporation has leased the Leased Property to the City pursuant to the Lease
Agreement. The Corporation shall not have the right to further sublease or to assign any of its
interests under this Property Lease in and to the Leased Property or any portion thereof.
Section 5.03. Amendment. Without the prior written consent of the Trustee, the
Corporation and the City will not alter, modify or cancel, or agree or consent to alter, modify or
cancel this Property Lease, excepting only such alteration or modification as may be permitted
by Article IX of the Trust Agreement.
Section 5.04. Notices. All notices, certificates or other communications hereunder shall
be sufficiently given and shall be deemed to have been received 48 hours after deposit in the
United States mail in registered or certified form with postage fully prepaid:
If to the City: City Clerk
250 Hamilton Avenue, 7th Floor
Palo Alto, CA 94301
If to the Corporation: Palo Alto Public Improvement Corporation
c/o City Clerk
250 Hamilton Avenue, 7th Floor
Palo Alto, CA 94301
If to the Trustee: U.S. Bank National Association
Attn: Global Corporate Trust Services
One California Street, Suite 1000
San Francisco, CA 94111
Fax: 415-677-3768
The Corporation, the Trustee and the City, by notice given hereunder, may designate
different addresses to which subsequent notices, certificates or other communications will be
sent.
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Section 5.05. Binding Effect. This Property Lease shall inure to the benefit of and shall
be binding upon the Corporation and the City and their respective successors and assigns.
Section 5.06. Severability. In the event any provision of this Property Lease shall be held
invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate
or render unenforceable any other provision hereof.
Section 5.07. Further Assurances and Corrective Instruments. The Corporation and the
City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such supplements hereto and such further instruments
as may reasonably be required for correcting any inadequate or incorrect description of the
Leased Property hereby leased or intended so to be or for carrying out the expressed intention
of this Property Lease.
Section 5.08. Execution in Counterparts. This Property Lease may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
Section 5.09. Applicable Law. This Property Lease shall be governed by and construed in
accordance with the laws of the State.
Section 5.10. Corporation and City Representatives. Whenever under the provisions of
this Property Lease the approval of the Corporation or the City is required, or the Corporation or
the City is required to take some action at the request of the other, such approval or such
request shall be given for the Corporation by an Corporation Representative and for the City by
an Corporation Representative, and any party hereto shall be authorized to rely upon any such
approval or request.
Section 5.11. Captions. The captions or headings in this Property Lease are for
convenience only and in no way define, limit or describe the scope or intent of any provisions or
Section of this Property Lease.
* * * * *
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IN WITNESS WHEREOF, the Corporation has caused this Property Lease to be executed in
its name by its duly authorized officers; and the City has caused this Property Lease to be
executed in its name by its duly authorized officers, as of the date first above written.
CITY OF PALO ALTO, as Lessor
By
Kiely Nose
Administrative Services Director
Attest:
By
Beth Minor
City Clerk
PALO ALTO PUBLIC IMPROVEMENT
CORPORATION, as Lessee
By
Adrian Fine
President
Attest:
By
Beth Minor
Secretary
ACKNOWLEDGMENT
A notary public or other office completing
this certificate verifies only the identity of the
individual who signed the document to which
this certificate is attached, and not the
truthfulness, accuracy, or validity of that
document.
State of California
County of __________________________)
On _______________________ before me, _________________________________________
(insert name and title of the officer)
personally appeared ___________________________________________________________,
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________ (Seal)
A-1
EXHIBIT A
DESCRIPTION OF LEASED PROPERTY
The land referred to herein is situated in the State of California, County of Santa Clara,
City of Palo Alto and described as follows:
Initial Leased Property: [Initial Leased Property]
[Description]
APN:
Leased Property Upon Final Completion: Public Safety Building
[Description]
APN:
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Christopher K. Lynch, Esq.
Jones Hall, A Professional Law Corporation
475 Sansome Street, Suite 1700
San Francisco, California 94111
THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT
TO SECTION 11922 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS
EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA
GOVERNMENT CODE.
LEASE AGREEMENT
Dated as of April 1, 2021
by and between the
PALO ALTO PUBLIC IMPROVEMENT CORPORATION,
as Lessor
and the
CITY OF PALO ALTO,
as Lessee
Attachment A-2
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-i-
TABLE OF CONTENTS
LEASE AGREEMENT
ARTICLE I
DEFINITIONS AND EXHIBITS
Section 1.1. Definitions ...................................................................................................................................................... 2
Section 1.2. Article and Section Headings ................................................................................................................. 3
Section 1.3. References to Agreement ........................................................................................................................ 3
Section 1.4. Number and Gender .................................................................................................................................. 4
Section 1.5. Exhibits ............................................................................................................................................................ 4
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.1. Representations, Covenants and Warranties of the City ............................................................. 4
Section 2.2. Representations, Covenants and Warranties of Corporation .................................................... 5
ARTICLE III
DEPOSIT OF MONEYS; ACQUISITION AND CONSTRUCTION OF
THE PROJECT; SUBSTITUTION AND REMOVAL OF LEASED
PROPERTY
Section 3.1. Deposit of Moneys ..................................................................................................................................... 6
Section 3.2. Acquisition and Construction of the Project .................................................................................... 6
Section 3.3. Payment of Construction Costs ............................................................................................................. 6
Section 3.4. Payment of Costs of Issuance ................................................................................................................ 6
Section 3.5. Substitution of Leased Property ............................................................................................................ 6
Section 3.6. Removal of Property from Leased Property ..................................................................................... 8
ARTICLE IV
AGREEMENT TO LEASE; TERM OF LEASE AGREEMENT;
LEASE PAYMENTS
Section 4.1. Agreement to Lease ................................................................................................................................... 9
Section 4.2. Term of Lease Agreement ....................................................................................................................... 9
Section 4.3. Lease Payments ........................................................................................................................................... 9
Section 4.4. Quiet Enjoyment ....................................................................................................................................... 10
Section 4.5. Title ................................................................................................................................................................ 11
Section 4.6. Additional Payments ............................................................................................................................... 11
Section 4.7. No Merger .................................................................................................................................................. 11
ARTICLE V
MAINTENANCE; TAXES; INSURANCE; AND OTHER MATTERS
Section 5.1. Maintenance, Utilities, Taxes and Assessments ........................................................................... 12
Section 5.2. Modification of Leased Property ........................................................................................................ 12
Section 5.3. Public Liability Insurance ....................................................................................................................... 13
Section 5.4. Fire and Extended Coverage Insurance; Title Insurance ........................................................... 13
-ii-
Section 5.5. Rental Interruption Insurance ............................................................................................................. 14
Section 5.6. Insurance Net Proceeds; Form of Policies ...................................................................................... 14
Section 5.7. Advances ..................................................................................................................................................... 14
Section 5.8. Installation of City's Equipment .......................................................................................................... 14
Section 5.9. Liens ............................................................................................................................................................... 15
Section 5.10. Compliance With Property Lease....................................................................................................... 15
ARTICLE VI
DAMAGE, DESTRUCTION AND EMINENT DOMAIN;
USE OF NET PROCEEDS
Section 6.1. Eminent Domain ....................................................................................................................................... 16
Section 6.2. Application of Net Proceeds ................................................................................................................ 16
Section 6.3. Abatement of Rental in the Event of Damage or Destruction ............................................... 16
ARTICLE VII
OTHER COVENANTS
Section 7.1. Disclaimer of Warranties ....................................................................................................................... 18
Section 7.2. Access to the Leased Property ............................................................................................................ 18
Section 7.3. Release and Indemnification Covenants ......................................................................................... 18
Section 7.4. Tax Covenants ........................................................................................................................................... 18
ARTICLE VIII
ASSIGNMENT, LEASING AND AMENDMENT
Section 8.1. Assignment by the Corporation ......................................................................................................... 20
Section 8.2. Assignment and Leasing by the City ................................................................................................ 20
Section 8.3. Amendment of Lease Agreement ..................................................................................................... 20
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default Defined ..................................................................................................................... 22
Section 9.2. Remedies on Default .............................................................................................................................. 22
Section 9.3. No Remedy Exclusive.............................................................................................................................. 24
Section 9.4. Agreement to Pay Attorneys' Fees and Expenses ....................................................................... 24
Section 9.5. No Additional Waiver Implied by One Waiver ............................................................................. 24
Section 9.6. Application of Proceeds ........................................................................................................................ 24
Section 9.7. Trustee and Certificate Owners to Exercise Rights ..................................................................... 25
ARTICLE X
PREPAYMENT OF LEASE PAYMENTS
Section 10.1. Security Deposit ........................................................................................................................................ 26
Section 10.2. Prepayment; Purchase Option. ........................................................................................................... 26
Section 10.3. Mandatory Prepayment. ........................................................................................................................ 26
Section 10.4. Credit for Amounts on Deposit. ......................................................................................................... 27
ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices ......................................................................................................................................................... 28
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Section 11.2. Binding Effect ............................................................................................................................................. 28
Section 11.3. Severability ................................................................................................................................................. 28
Section 11.4. Net-net-net Lease .................................................................................................................................... 28
Section 11.5. Further Assurances and Corrective Instruments .......................................................................... 28
Section 11.6. Execution in Counterparts. ................................................................................................................... 29
Section 11.7. Applicable Law .......................................................................................................................................... 29
Section 11.8. Corporation and City Representatives ............................................................................................. 29
Section 11.9. Captions ....................................................................................................................................................... 29
EXHIBIT A-1 SCHEDULE OF TAX-EXEMPT LEASE PAYMENTS ........................................................................ A-1
EXHIBIT A-2 SCHEDULE OF TAXABLE LEASE PAYMENTS………………………………………A-2
EXHIBIT B DESCRIPTION OF LEASED PROPERTY ............................................................................................ B-1
EXHIBIT C FORM OF NOTICE OF SUBSTITUTION AND RELEASE
OF LEASED PROPERTY……………………………………………….…………………D-1
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated for convenience as of April 1, 2021, is by and between the
PALO ALTO PUBLIC IMPROVEMENT CORPORATION, a nonprofit public benefit corporation
formed, operating and acting pursuant to the laws of the State of California (the "Corporation")
as lessor, and the CITY OF PALO ALTO, a chartered municipal corporation duly organized and
existing under the Constitution and laws of the State of California, as lessee (the "City").
RECITALS
WHEREAS, the City desires to finance the costs of acquiring and constructing a public
safety building to be located at 250 Sherman Avenue (the “Public Safety Building”);
WHEREAS, in order to finance the Public Safety Building, the City has determined to
provide for the execution and delivery of City of Palo Alto 2021 Certificates of Participation (Public
Safety Building) (the “Certificates”);
WHEREAS, the City has concurrently leased a City asset, initially the land and
improvements constituting [Initial Leased Property], as more particularly described in Exhibit B
hereto (the “Leased Property”) to the Corporation under a Property Lease, dated as of
February 1, 2021, by and between the City, as Lessor, and the Corporation, as Lessee
(the “Property Lease”) which is recorded concurrently herewith, and the Corporation shall lease
the Leased Property back to the City pursuant to this Lease Agreement, in consideration of the
payment by the City of semi-annual Lease Payments (as defined below);
WHEREAS, the Corporation has assigned its right to receive such Lease Payments to
U.S. Bank National Association, as trustee (the “Trustee”), pursuant to an Assignment Agreement,
dated as of February 1, 2021, by and between the Corporation and the Trustee (the “Assignment
Agreement”) which is recorded concurrently herewith, and in consideration of such assignment
the Trustee will execute and deliver the Certificates, each evidencing a direct, undivided fractional
interest in such Lease Payments, in accordance with a Trust Agreement, dated as of February 1,
2021, by and among the City, the Corporation and the Trustee (the “Trust Agreement”); and
WHEREAS, the City is authorized under its charter and the Constitution and the laws of the
State of California to enter into this Lease Agreement for the purposes and subject to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the above premises and of the mutual covenants
hereinafter contained and for other good and valuable consideration, the parties hereto agree as
follows:
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ARTICLE I
DEFINITIONS AND EXHIBITS
Section 1.1. Definitions. All terms specifically defined in the Trust Agreement shall have
the same respective meanings when used herein. In addition, the following terms defined in this
Section 1.1 shall have the respective meanings herein set forth when used herein.
"Code" means the Internal Revenue Code of 1986 as in effect on the date of delivery of
this Lease Agreement or (except as otherwise referenced herein) as it may be amended to apply
to obligations issued on the date of delivery of this Lease Agreement, together with applicable
temporary and final regulations promulgated, and applicable official public guidance published,
under the Code
"Final Completion" means, with respect to the acquisition and construction of the Public
Safety Building with the proceeds of the Certificates, the substantial readiness of the Public Safety
Building for use and occupancy by the City, as evidenced by the delivery to the Trustee of a
certificate of completion.
"Lease Agreement" means this Lease Agreement, together with any duly authorized and
executed amendments hereto.
"Lease Payment Date" means April 15 and October 15 of each year during the term of this
Lease Agreement, commencing October 15, 2021.
"Leased Property" means certain real property, as more particularly described in Exhibit B
hereto.
"Lease Payments" means the Lease Payments shown on Exhibit A.
"Original Purchaser" means the first purchaser of the Certificates upon their delivery by
the Trustee.
"Permitted Encumbrances" means, as of any particular time: (i) liens for general ad valorem
taxes and assessments, if any, not then delinquent; (ii) the Assignment Agreement; (iii) the
Property Lease and this Lease Agreement; (iv) the Trust Agreement; (v) any right or claim of any
mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed
by law; (vi) easements, rights of way, mineral rights, drilling rights and other rights, reservations,
covenants, conditions or restrictions which exist of record as of the Closing Date and which the
City certifies in writing will not materially impair the use of the Leased Property; (vii) easements,
rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or
restrictions established following the date of recordation of this Lease Agreement and to which
the Corporation and the City consent in writing and (viii) any items listed in the title report issued
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by Stewart Title Guaranty on the date of execution and delivery of the Certificates or such other
date pursuant to Section 3.5.
"Property Lease" means the Property Lease, dated as of April 1, 2021, recorded
concurrently herewith, by and between the City, as lessor, and the Corporation, as lessee, together
with any duly authorized and executed amendments thereto.
"Property Lease Payment" means the payment required to be paid by the Corporation on
the Closing Date pursuant to Section 3.03 of the Property Lease.
"Public Safety Building Costs" means all costs of payment of, or reimbursement for, design,
acquisition, construction, installation and equipping of the Public Safety Building, including but
not limited to, architect and engineering fees, construction contractor payments, costs of
feasibility and other reports, inspection costs, performance bond premiums and permit fees, and
includes Costs of Issuance not paid out of the Costs of Issuance Fund.
"Public Safety Building Construction Fund" means the fund by that name established and
held by the Trustee pursuant to Section 3.03 of the Trust Agreement.
"Public Safety Building" means the public safety building to be located at 250 Sherman
Avenue.
"Regulations" means temporary and permanent regulations promulgated under the Code.
"Rental Period" means each twelve-month period during the term of this Lease Agreement
commencing on November 2 in any year and ending on the next succeeding November 1, except
that the first rental period shall commence on the Closing Date.
"Trust Agreement" means the Trust Agreement dated as of April 1, 2021 by and among
Trustee, the Corporation and the City, relating to the Certificates.
"Trustee" means U.S. Bank National Association, and its successors and assigns.
Section 1.2. Article and Section Headings. Unless otherwise specified, references to
Articles, Sections, and other subdivisions of this Lease Agreement are to be designated Articles,
Sections, and other subdivisions of this Lease Agreement as originally executed. The headings or
titles of the several articles and sections, and the table of contents appended to copies hereof,
shall be solely for convenience of reference and shall not affect the meaning, construction or effect
of the provisions hereof.
Section 1.3. References to Agreement. The words "hereof", "herein", "hereunder", and
words of similar import refer to this Lease Agreement as a whole.
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Section 1.4. Number and Gender. The singular form of any word used herein, including
terms defined as provided in Section 1.1, shall include the plural, and vice versa. The use of a
word of any gender shall include all genders.
Section 1.5. Exhibits. The following Exhibits are attached to, and by reference made a part
of, this Lease Agreement:
Exhibit A: The schedule of Lease Payments to be paid by the City hereunder with
respect to the Leased Property, showing the date and amount of each such Lease Payment.
Exhibit B: The description of the Leased Property.
Exhibit C: The Form of Notice of Substitution and Release of Leased Property
ARTICLE II
REPRESENTATIONS, COVENANTS AND WARRANTIES
Section 2.1. Representations, Covenants and Warranties of the City. The City represents,
covenants and warrants to the Corporation as follows:
(a) Due Organization and Existence. The City is a chartered municipal
corporation duly organized and existing under the Constitution and laws of the State.
(b) Authorization. The laws of the State authorize the City to enter into the
Property Lease, this Lease Agreement and the Trust Agreement and to enter into the
transactions contemplated by and to carry out its obligations under all of the aforesaid
Agreements, and the City has duly authorized and executed all of the aforesaid
Agreements.
(c) No Violations. Neither the execution and delivery of the Property Lease,
this Lease Agreement or the Trust Agreement, nor the fulfillment of or compliance with
the terms and conditions hereof or thereof, nor the consummation of the transactions
contemplated hereby or thereby, conflicts with or results in a breach of the terms,
conditions or provisions of any restriction or any agreement or instrument to which the
City is now a party or by which the City is bound, or constitutes a default under any of the
foregoing, or results in the creation or imposition of any lien, charge or encumbrance
whatsoever upon any of the property or assets of the City, or upon the Leased Property,
except Permitted Encumbrances.
(d) Possession of Leased Property. The City is in possession of the Leased
Property.
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Section 2.2. Representations, Covenants and Warranties of Corporation. The Corporation
represents, covenants and warrants to the City as follows:
(a) Due Organization and Existence. The Corporation is a nonprofit public
benefit corporation duly organized, operating and existing under the laws of the State of
California; has power to enter into the Property Lease, this Lease Agreement, the
Assignment Agreement and the Trust Agreement; is possessed of full power to lease real
and personal property; and has duly authorized the execution and delivery of all of the
aforesaid Agreements.
(b) No Encumbrances. The Corporation will not pledge the Lease Payments or
any other amounts derived from the Leased Property and from its other rights under this
Lease Agreement, and will not mortgage or encumber the Leased Property, except as
provided under the terms of the Property Lease, this Lease Agreement, the Assignment
Agreement or the Trust Agreement.
(c) No Violations. Neither the execution and delivery of the Property Lease,
this Lease Agreement, the Assignment Agreement or the Trust Agreement, nor the
fulfillment of or compliance with the terms and conditions hereof or thereof, nor the
consummation of the transactions contemplated hereby or thereby, conflicts with or
results in a breach of the terms, conditions or provisions of any restriction or any
agreement or instrument to which the Corporation is now a party or by which the
Corporation is bound, or constitutes a default under any of the foregoing, or results in the
creation or imposition of any lien, charge or encumbrance whatsoever upon any of the
property or assets of the Corporation, or upon the Leased Property, except Permitted
Encumbrances.
(d) No Assignments. Except as provided herein, the Corporation will not assign
this Lease Agreement, its right to receive Lease Payments from the City, or its duties and
obligations hereunder to any other person, firm or corporation so as to impair or violate
the representations, covenants and warranties contained in this Section 2.2.
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ARTICLE III
DEPOSIT OF MONEYS; ACQUISITION AND CONSTRUCTION OF THE PUBLIC SAFETY BUILDING;
SUBSTITUTION AND REMOVAL OF LEASED PROPERTY
Section 3.1. Deposit of Moneys. On the Closing Date, the Corporation shall cause to be
deposited with the Trustee the proceeds of the sale of the Certificates, which shall be applied as
set forth in Section 3.01 of the Trust Agreement.
Section 3.2. Acquisition and Construction of the Public Safety Building. The Corporation
hereby appoints the City as its agent for the purposes of acquisition, construction, installation and
equipping of the Public Safety Building. The City, as agent of the Corporation, shall cause the
acquisition, construction, installation and equipping of the Public Safety Building to be performed
diligently.
Section 3.3. Payment of Public Safety Building Costs. Payment of the Public Safety
Building Costs shall be made from the moneys deposited in the Public Safety Building
Construction Fund, which moneys shall be disbursed for such purpose in accordance and upon
compliance with Section 3.03 of the Trust Agreement.
Section 3.4. Payment of Costs of Issuance. Payment of Costs of Issuance shall be made
from the moneys deposited in the Costs of Issuance Fund, which moneys shall be disbursed for
such purpose in accordance and upon compliance with the Trust Agreement.
Section 3.5. Substitution of Leased Property. The City shall have, and is hereby granted,
the option at any time and from time to time during the term of this Lease Agreement, to
substitute other land, facilities, improvements or other property (a "Substitute Property") for the
Leased Property or any portion thereof (a "Former Property"), provided that the City shall satisfy
all of the following requirements which are hereby declared to be conditions precedent to such
substitution:
(a) The City shall notify S&P in writing of such substitution, which notice shall
contain the certification that all conditions set forth in this Section 3.5 are met with respect
to such substitution;
(b) The City shall take all actions and shall execute all documents required to
subject such Substitute Property to the terms and provisions of this Lease Agreement,
including the filing with the Corporation and the Trustee of an amended Exhibit B which
adds thereto a description of such Substitute Property and deletes therefrom the
description of such Former Property, and including the recordation of this Lease
Agreement or a memorandum hereof with respect to such Substitute Property in the office
of the Santa Clara County Recorder;
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(c) The City shall certify in writing to the Corporation and the Trustee that the
estimated fair market value of such Substitute Property is at least equal to the aggregate
principal components of the unpaid Lease Payments;
(d) The City shall certify in writing to the Corporation and the Trustee that such
Substitute Property serves the public purposes of the City and constitutes property which
the City is permitted to lease under the laws of the State of California;
(e) The City shall certify in writing to the Corporation and the Trustee that the
estimated useful life of such Substitute Property at least extends to the date on which the
final Lease Payment becomes due and payable hereunder;
(f) The City shall obtain a CLTA policy of title insurance meeting the
requirements of Section 5.4 with respect to such Substitute Property; and
(g) The City shall certify in writing to the Corporation and the Trustee that the
Substitute Property shall not cause the City to violate any of its covenants, representations
and warranties made herein or in the Trust Agreement.
From and after the date on which all of the foregoing conditions precedent to such
substitution are satisfied, the term of this Lease Agreement shall cease with respect to the Former
Property and shall be continued with respect to the Substitute Property, and all references herein
to the Former Property shall apply with full force and effect to the Substitute Property. The City
shall not be entitled to any reduction, diminution, extension or other modification of the Lease
Payments whatsoever as a result of such substitution.
Notwithstanding any other provision hereof, including the provisions of this Section 3.5,
or any provision of the Trust Agreement, upon Final Completion of the Public Safety Building, the
City shall have the absolute right to make the Public Safety Building and its related site, as
described in Exhibit B hereto, the Leased Property subject to this Lease Agreement and the
Property Lease, and to release the [Initial Leased Property] from this Lease Agreement and the
Property Lease without meeting the conditions set forth in subsections (a) through (g) above. The
City shall effectuate such release by (1) certifying, in a certificate of completion provided to the
Trustee, that the Final Completion of the Public Safety Building has occurred, (2) causing a
certificate of the City to be delivered to the Trustee evidencing that the insurance policies required
by this Lease Agreement are in full force and effect with respect to the Public Safety Building, and
(3) causing a Notice of Substitution and Release of Leased Property, substantially in the form
attached hereto as Exhibit C, to be recorded in the real property records of Santa Clara County.
Subsequent to the execution and recordation of such Notice of Substitution and Release of Leased
Property, subject to any future authorized substitution or release of the Leased Property pursuant
to Section 3.5 or 3.6, references to the Leased Property herein shall be deemed to refer to the
Public Safety Building and the related site and shall not be deemed to refer to the [Initial Leased
Property] so released.
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Section 3.6. Removal of Property from Leased Property. The City shall have, and is hereby
granted, the option at any time and from time to time during the term of this Lease Agreement,
to remove any property from the description of the Leased Property, provided that the City shall
satisfy all of the following requirements which are hereby declared to be conditions precedent to
such removal:
(a) The City shall notify S&P in writing of such removal, which notice shall
contain the certification that all conditions set forth in this Section 3.6 are met with respect
to such removal;
(b) The City shall file with the Corporation and the Trustee an amended Exhibit
B, which deletes therefrom the description of the property to be removed;
(c) The City shall certify in writing to the Corporation and the Trustee that the
estimated fair market value of the Leased Property that will remain following such removal
is at least equal to the aggregate principal components of the unpaid Lease Payments,
and that the useful life of the Leased Property is not less than the final payment date of
the unpaid Lease Payments; and
(d) The City shall obtain and cause to be filed with the Trustee and the
Corporation an opinion of Bond Counsel stating that such removal is permitted hereunder
and does not cause interest with respect to the Certificates to become includable in the
gross income of the Certificate owners for federal income tax purposes.
From and after the date on which all of the foregoing conditions precedent to such
removal are satisfied, the term of this Lease Agreement shall cease with respect to the property
which is so removed. The City shall not be entitled to any reduction, diminution, extension or
other modification of the Lease Payments whatsoever as a result of such removal.
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ARTICLE IV
AGREEMENT TO LEASE; TERM OF LEASE AGREEMENT; LEASE PAYMENTS
Section 4.1. Agreement to Lease. The Corporation hereby subleases the Leased Property
to the City, and the City hereby subleases the Leased Property from the Corporation, upon the
terms and conditions set forth in this Lease Agreement.
Section 4.2. Term of Lease Agreement. The term of this Lease Agreement shall commence
on the Closing Date and shall end on November 1, 2051, unless such term is extended as
hereinafter provided. If on November 1, 2051, the Trust Agreement shall not be discharged by its
terms, then the term of this Lease Agreement shall be extended until the Trust Agreement shall
be discharged by its terms (but in no event beyond November 1, 2061). If prior to
November 1, 2051, the Trust Agreement shall be discharged by its terms, the term of this Lease
Agreement shall thereupon end. The provisions of this Section 4.2 are subject to the provisions of
Section 6.1 relating to the taking in eminent domain of the Leased Property or any portion thereof.
Section 4.3. Lease Payments. (a) Obligation to Pay. Subject to the provisions of Articles VI
and X, the City agrees to pay to the Corporation, its successors and assigns, as rental for the use
and occupancy of the Leased Property hereunder during each Rental Period, the Lease Payments
(denominated into components of principal and interest) for the Leased Property in the amounts
specified in Exhibit A, to be due and payable on the Lease Payment Dates specified in Exhibit A.
Any amount held in the Lease Payment Fund on any Lease Payment Date (other than
amounts resulting from the prepayment of the Lease Payments in part but not in whole pursuant
to Article X and other than amounts required for payment of past due principal or interest
represented by any Certificates not presented for payment) shall be credited towards the Lease
Payment then due and payable; and no Lease Payment need be made on any Lease Payment Date
if the amounts then held in the Lease Payment Fund and available for such purpose are at least
equal to the Lease Payment then required to be paid. The Lease Payments for the Leased Property
payable in any Rental Period shall be for the use of the Leased Property during such Rental Period.
(b) Effect of Prepayment. In the event that the City prepays all remaining Lease
Payments, including any premium, if any, in full pursuant to Article X, the City's obligations under
this Lease Agreement shall thereupon cease and terminate, including but not limited to the City's
obligation to pay Lease Payments under this Section 4.3; subject however, to the provisions of
Section 10.1 in the case of prepayment by application of a security deposit. In the event that the
City purchases the Leased Property pursuant to Section 10.2, the amount paid pursuant to Section
10.2 shall be credited entirely towards the prepayment in full or in part of the Lease Payments. In
the event that the City prepays the Lease Payments in part but not in whole pursuant to Section
10.3 as a result of any insurance award or condemnation award with respect to the Leased
Property, such prepayment shall be credited entirely towards the prepayment of the Lease
Payments as follows: (i) the principal components of the remaining Lease Payments shall be
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reduced on a pro rata basis in integral multiples of $5,000; and (ii) the interest component of the
remaining Lease Payments shall be reduced by the aggregate corresponding amount of interest
which would otherwise be payable with respect to the Certificates thereby prepaid pursuant to
Section 4.01(A) and Section 4.01(B) of the Trust Agreement.
(c) Fair Rental Value. The Lease Payments for the Leased Property for each Rental
Period shall constitute the total rental for the Leased Property during each Rental Period and shall
be paid by the City in each Rental Period for and in consideration of the right of the use and
occupancy of, and the continued quiet use and enjoyment of the Leased Property during each
Rental Period. The parties hereto have agreed and determined that the total Lease Payments for
the Leased Property do not exceed the fair rental value of the Leased Property. In making such
determination, consideration has been given to the estimated value of the Leased Property, the
obligations of the parties under the Property Lease and this Lease Agreement, the uses and
purposes which may be served by the Leased Property and the benefits therefrom which will
accrue to the City and the general public.
(d) Budget and Appropriation. The City covenants to take such action as may be
necessary to include all Lease Payments due hereunder in each of its budgets during the term of
this Lease Agreement and to make the necessary annual appropriations for all such Lease
Payments, except to the extent such Lease Payments are payable from amounts on deposit in the
Lease Payment Fund. During the term of this Lease Agreement, the City will furnish to the Trustee
a certificate that the Lease Payments due in the applicable Fiscal Year have been included in the
City's budget for such Fiscal Year within thirty (30) days after the adoption of each budget. The
covenants on the part of the City herein contained shall be deemed to be and shall be construed
to be duties imposed by law and it shall be the duty of each and every public official of the City
to take such action and do such things as are required by law in the performance of the official
duty of such officials to enable the City to carry out and perform the covenants and agreements
in this Lease Agreement agreed to be carried out and performed by the City.
(e) Assignment. The City understands and agrees that all Lease Payments have been
assigned by the Corporation to the Trustee in trust, pursuant to the Assignment Agreement, for
the benefit of the Owners of the Certificates, and the City hereby assents to such assignment. The
Corporation hereby directs the City, and the City hereby agrees to pay to the Trustee at its
Corporate Trust Office, all payments payable by the City pursuant to this Section 4.3 and all
amounts payable by the City pursuant to Article X.
Section 4.4. Quiet Enjoyment. The Corporation shall provide the City with quiet use and
enjoyment of the Leased Property, and the City shall, for the remainder of the term of this Lease
Agreement, peaceably and quietly have and hold and enjoy the Leased Property, without suit,
trouble or hindrance from the Corporation, except as expressly set forth in this Lease Agreement.
The Corporation will, at the request of the City and at the City's cost, join in any legal action in
which the City asserts its right to such possession and enjoyment to the extent the Corporation
may lawfully do so. Notwithstanding the foregoing, the Corporation shall have the right to inspect
the Leased Property as provided in Section 7.2.
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Section 4.5. Title. During the term of this Lease Agreement, the City shall hold title to the
Leased Property and any and all additions which comprise fixtures, repairs, replacements or
modifications to the Leased Property, including those fixtures, repairs, replacements or
modifications which are added to the Leased Property by the City at its own expense and which
may be removed without damaging the Leased Property and including any items added to the
Leased Property by the City pursuant to Section 5.8 hereof. Such title shall be governed by the
provisions of Section 3.04 of the Property Lease during the term of the Property Lease.
If the City prepays the Lease Payments in full pursuant to Article X, or makes the security
deposit permitted by Section 10.1, or pays all Lease Payments during the term of this Lease
Agreement as the same become due and payable, all right, title and interest of the Corporation
under the Property Lease in and to the Leased Property (determined in accordance with
Sections 3.01 or 3.04 thereof) shall be terminated. The Corporation agrees to take any and all
steps and execute and record any and all documents reasonably required by the City to
consummate any such termination of leasehold estate.
Section 4.6. Additional Payments. In addition to the Lease Payments, the City shall pay
when due, during the term of the Lease Agreement, all costs and expenses incurred by the
Corporation to comply with the provisions of the Trust Agreement, including without limitation
all Costs of Issuance (to the extent not paid from amounts on deposit in the Costs of Issuance
Fund), compensation or indemnification due to the Trustee and all reasonable costs and expenses
of auditors, engineers and accountants.
Section 4.7. No Merger. It is the express intention of the parties hereto that this Lease
Agreement and the obligations of the parties hereunder shall be and remain separate and distinct
from the Property Lease and the obligations of the parties thereunder, and that during the term
of the Property Lease no merger of title or interest shall occur or be deemed to occur as a result
of the position of the City as lessor under the Property Lease and as lessee hereunder, or as a
result of the position of the Corporation as lessee under the Property Lease and as lessor under
this Lease Agreement.
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ARTICLE V
MAINTENANCE; TAXES; INSURANCE; AND OTHER MATTERS
Section 5.1. Maintenance, Utilities, Taxes and Assessments. Throughout the term of this
Lease Agreement, as part of the consideration for the rental of the Leased Property, all
improvement, repair and maintenance of the Leased Property shall be the responsibility of the
City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied
to the Leased Property, which may include, without limitation, janitor service, security, power, gas,
telephone, light, heating, water and all other utility services, and shall pay for or otherwise arrange
for the payment of the cost of the repair and replacement of the Leased Property resulting from
ordinary wear and tear or want of care on the part of the City or any assignee or lessee thereof.
In exchange for the Lease Payments herein provided, the Corporation agrees to provide only the
Leased Property, as hereinbefore more specifically set forth. The City waives the benefits of
Section 1942 of the California Civil Code and waives the right to make repairs at the expense of
the Corporation or in lieu thereof, vacate under Section 1942 of the California Civil Code, and all
similar rights under the statues of similar effect, but such waiver shall not limit any of the rights of
the City under the terms of this Lease Agreement.
The City shall also pay or cause to be paid all taxes and assessments of any type or nature,
if any, charged to the Corporation or the City affecting the Leased Property or the interests or
estates therein; provided that with respect to special assessments or other governmental charges
that may lawfully be paid in installments over a period of years, the City shall be obligated to pay
only such installments as are required to be paid during the term of this Lease Agreement as and
when the same become due.
The City may, at the City's expense and in its name, in good faith contest any such taxes,
assessments, utility and other charges and, in the event of any such contest, may permit the taxes,
assessments or other charges so contested to remain unpaid during the period of such contest
and any appeal therefrom unless the Corporation shall notify the City that, in the opinion of
Independent Counsel, by nonpayment of any such items, the interest of the Corporation in the
Leased Property will be materially endangered or any part thereof will be subject to loss or
forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide
the Corporation with full security against any loss which may result from nonpayment, in form
satisfactory to the Corporation and the Trustee.
Section 5.2. Modification of Leased Property. The City shall, at its own expense, have the
right to remodel the Leased Property or to make additions, modifications and improvements to
the Leased Property. All additions, modifications and improvements shall thereafter comprise
part of the Leased Property and be subject to the provisions of this Lease Agreement. Such
additions, modifications and improvements shall not in any way damage the Leased Property or
cause it to be used for purposes other than those authorized under the provisions of state and
federal law; and the Leased Property, upon completion of any additions, modifications and
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improvements made thereto pursuant to this Section, shall be of a value which is not substantially
less than the value of the Leased Property immediately prior to the making of such additions,
modifications and improvements. The City will not permit any mechanic's or other lien to be
established or remain against the Leased Property for labor or materials furnished in connection
with any remodeling, additions, modifications, improvements, repairs, renewals or replacements
made by the City pursuant to this Section; provided that if any such lien is established and the
City shall first notify or cause to be notified the Corporation of the City's intention to do so, the
City may in good faith contest any lien filed or established against the Leased Property, and in
such event may permit the items so contested to remain undischarged and unsatisfied during the
period of such contest and any appeal therefrom and shall provide the Corporation with full
security against any loss or forfeiture which might arise from the nonpayment of any such item,
in form satisfactory to the Corporation. The Corporation will cooperate fully in any such contest,
upon the request and at the expense of the City.
Section 5.3. Public Liability Insurance. The City shall maintain or cause to be maintained,
throughout the term of this Lease Agreement, a standard comprehensive general insurance policy
or policies in protection of the Corporation, City, and their respective members, officers, agents
and employees. Said policy or policies shall provide for indemnification of said parties against
direct or contingent loss or liability for damages for bodily and personal injury, death or property
damage occasioned by reason of the operation of the Leased Property. Said policy or policies
shall provide coverage in in amounts and subject to deductibles as the City shall consider to be
reasonable and prudent for damage to property resulting from each accident or event. Such
liability insurance may be maintained as part of or in conjunction with any other liability insurance
coverage carried by the City. The proceeds of such liability insurance shall be applied toward
extinguishment or satisfaction of the liability with respect to which the proceeds of such insurance
shall have been paid.
Section 5.4. Property Insurance; Title Insurance. (i) The City shall procure and maintain,
or cause to be procured and maintained, throughout the term of this Lease Agreement, insurance
against loss or damage to any structures constituting any part of the Leased Property by fire and
lightning, with extended coverage and vandalism and malicious mischief insurance. Said extended
coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm,
riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such
insurance. The City shall have no obligation to obtain earthquake insurance. Such insurance shall
be in an amount at least equal to the lesser of (i) 100% of the replacement cost (without deducting
for depreciation) of the Leased Property and (ii) the aggregate principal amount of Certificates at
the time outstanding. Such insurance may be subject to deductible clauses of not to exceed
$100,000 for any one loss. Such insurance may be maintained as part of or in conjunction with
any other fire and extended coverage carried by the City. Such insurance may be maintained as
part of or in conjunction with any other insurance coverage carried by the City, and may be
maintained in whole or in part in the form of the participation by the City in a joint powers
authority or other program providing pooled insurance. The City hereby assigns to the
Corporation all right of the City to collect and receive Net Proceeds under any of said policies,
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which right has been assigned by the Corporation to the Trustee pursuant to the Assignment
Agreement. The Net Proceeds of such insurance shall be applied as provided in Section 6.2(a).
(ii) The City shall procure, and deliver to the Trustee on the Closing Date, a title insurance
policy which insures the leasehold estate created under this Agreement, subject only to Permitted
Encumbrances, in an amount equal to the principal amount of the Certificates.
Section 5.5. Rental Interruption Insurance. The City shall procure and maintain, or cause
to be procured and maintained, throughout the term of this Lease Agreement, rental interruption
or use and occupancy insurance to cover loss, total or partial, of the use of the buildings, facilities
and other improvements constituting any part of the Leased Property, as a result of any of the
hazards covered in the insurance required by Section 5.4(i), in an amount at least equal to the
maximum Lease Payments coming due and payable during any two consecutive Fiscal Years
during the remaining term of this Lease Agreement. Such insurance may be maintained as part
of or in conjunction with any other insurance coverage carried by the City, and may be maintained
in whole or in part in the form of the participation by the City in a joint powers authority or other
program providing pooled insurance; provided that such insurance may not be maintained by the
City in the form of self-insurance. The Net Proceeds of such insurance, if any, shall be paid to the
Trustee and deposited in the Lease Payment Fund, and shall be credited towards the payment of
the Lease Payments allocable to the insured improvements as the same become due and payable.
Section 5.6. Insurance Net Proceeds; Form of Policies. Each policy of insurance required
by Sections 5.4 and 5.5 hereof shall provide that all proceeds thereunder shall be payable to the
Trustee as and to the extent required hereunder. The City shall pay or cause to be paid when due
the premiums for all insurance policies required by this Lease Agreement. The Trustee shall not
be responsible for the sufficiency of any insurance herein required and shall be fully protected in
accepting payment on account of such insurance or any adjustment, compromise or settlement
of any loss agreed to by the Trustee. Upon request by the Trustee, the City shall cause to be
delivered to the Trustee annually, on or before January 1 of each year, commencing January 1,
2022, a certificate of the City that the insurance policies required by this Lease Agreement are in
full force and effect.
Section 5.7. Advances. If the City shall fail to perform any of its obligations under this
Article the Corporation may, but shall not be obligated to, take such action as may be necessary
to cure such failure, including the advancement of money, and the City shall be obligated to repay
all such advances as soon as possible, with interest at the rate of ten percent (10%) per annum
from the date of the advance to the date of repayment.
Section 5.8. Installation of City's Equipment. The City may at any time and from time to
time, in its sole discretion and at its own expense, install or permit to be installed other items of
equipment or other personal property in or upon the Leased Property. All such items shall remain
the sole property of the City, in which neither the Corporation nor the Trustee shall have any
interest, and may be modified or removed by the City at any time provided that the City shall
repair and restore any and all damage to the Leased Property resulting from the installation,
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modification or removal of any such items. Nothing in this Lease Agreement shall prevent the
City from purchasing or leasing items to be installed pursuant to this Section under a lease or
conditional sale agreement, or subject to a vendor's lien or security agreement, as security for the
unpaid portion of the purchase price thereof, provided that no such lien or security interest shall
attach to any part of the Leased Property.
Section 5.9. Liens. The City shall not, directly or indirectly, create, incur, assume or suffer
to exist any mortgage, pledge, lien, charge, encumbrance or claim on or with respect to the Leased
Property, other than the respective rights of the Corporation and the City as herein provided and
Permitted Encumbrances. Except as expressly provided in this Article, the City shall promptly, at
its own expense, take such action as may be necessary to duly discharge or remove any such
mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall
arise at any time. The City shall reimburse the Corporation for any expense incurred by it in order
to discharge or remove any such mortgage, pledge, lien, charge, encumbrance or claim.
Section 5.10. Compliance With Property Lease. During the term of the Property Lease, the
City will observe and perform all agreements and obligations on its behalf required to be observed
and performed thereunder. The City will not take any action or permit any action within its control
to be taken which constitutes or which, if not corrected, with the passage of time or with notice,
or both, would constitute or cause to occur any default under the Property Lease.
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ARTICLE VI
DAMAGE, DESTRUCTION AND EMINENT DOMAIN; USE OF NET PROCEEDS
Section 6.1. Eminent Domain. If the Leased Property shall be taken permanently under
the power of eminent domain or sold to a government threatening to exercise the power of
eminent domain, the term of this Lease Agreement shall cease as of the day possession shall be
so taken. If less than all of the Leased Property shall be taken permanently, or if the Leased
Property or any part thereof shall be taken temporarily, under the power of eminent domain,
(1) this Lease Agreement shall continue in full force and effect and shall not be terminated by
virtue of such taking and the parties waive the benefit of any law to the contrary, and (2) there
shall be a partial abatement of Lease Payments as a result of the application of the Net Proceeds
of any eminent domain award to the prepayment of the Lease Payments hereunder, in an amount
to be agreed upon by the City and the Corporation such that the resulting Lease Payments
represent fair consideration for the use and occupancy of the remaining usable portion of the
Leased Property. The City covenants to contest any eminent domain award which is insufficient
to either: (i) prepay the Certificates in whole, if all of the Leased Property is condemned; or
(ii) prepay a pro rata share of Certificates, in the event that less than all of the Leased Property is
condemned.
Section 6.2. Application of Net Proceeds. (a) From Insurance Award. The Net Proceeds
of any insurance award resulting from any damage to or destruction of the Leased Property by
fire or other casualty shall be paid to the Trustee, as assignee of the Corporation under the
Assignment Agreement, and deposited in the Insurance and Condemnation Fund for application
as set forth in Section 6.01 of the Trust Agreement.
(b) From Eminent Domain Award. The Net Proceeds of any eminent domain award
resulting from any event described in Section 6.1 hereof shall be paid to the Trustee, as assignee
of the Corporation under the Assignment Agreement, and deposited in the Insurance and
Condemnation Fund for application as set forth in Section 6.02 of the Trust Agreement.
Section 6.3. Abatement of Rental in the Event of Damage or Destruction. The amount of
Lease Payments shall be abated, during any period in which by reason of damage or destruction
(other than by eminent domain which is hereinbefore provided for) there is substantial
interference with the use and occupancy by the City of the Leased Property (other than any
portions of the Leased Property described in Section 5.2) or any portion thereof. The amount of
such abatement shall be agreed upon by the City and the Corporation such that the resulting
Lease Payments represent fair consideration for the use and occupancy of the portions of the
Leased Property not damaged or destroyed. Such abatement shall continue for the period
commencing with such damage or destruction and ending with the substantial completion of the
work of repair or reconstruction. In the event of any such damage or destruction, this Lease
Agreement shall continue in full force and effect and the City waives any right to terminate this
Lease Agreement by virtue of any such damage and destruction. However, notwithstanding any
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other provisions of this Section 6.3, there shall be no abatement of Lease Payments under this
Section 6.3 to the extent that the proceeds of an eminent domain or insurance award are available
to pay Lease Payments, or to the extent that moneys are available in the Lease Payment Fund, it
being hereby declared that such proceeds and amounts constitute special funds for the payment
of the Lease Payments.
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ARTICLE VII
OTHER COVENANTS
Section 7.1. Disclaimer of Warranties. The Corporation makes no warranty or
representation, either express or implied, as to the value, design, condition, merchantability or
fitness for any particular purpose or fitness for the use contemplated by the City of the Leased
Property, or any other representation or warranty with respect to the Leased Property. In no event
shall the Corporation be liable for incidental, indirect, special or consequential damages, in
connection with or arising out of this Lease Agreement, the Property Lease or the Trust Agreement
for the existence, furnishing, functioning or City's use of the Leased Property.
Section 7.2. Access to the Leased Property. The City agrees that the Corporation and any
Corporation Representative, and the Corporation's successors or assigns, shall have the right at
all reasonable times to enter upon and to examine and inspect the Leased Property. The City
further agrees that the Corporation, any Corporation Representative, and the Corporation's
successors or assigns shall have such rights of access to the Leased Property as may be reasonably
necessary to cause the proper maintenance of the Leased Property in the event of failure by the
City to perform its obligations hereunder.
Section 7.3. Release and Indemnification Covenants. The City shall and hereby agrees to
indemnify and save the Corporation and its officers, agents, successors and assigns, and the
Trustee and its officers, agents, successors and assigns, harmless from and against all claims, losses
and damages, including legal fees and expenses, arising out of (i) the use, maintenance, condition
or management of, or from any work or thing done on the Leased Property by the City, (ii) any
breach or default on the part of the City in the performance of any of its obligations under this
Lease Agreement, (iii) any act or negligence of the City or of any of its agents, contractors, servants,
employees or licensees with respect to the Leased Property, or (iv) any act or negligence of any
lessee of the City with respect to the Leased Property. No indemnification is made under this
Section or elsewhere in this Lease Agreement for willful misconduct, negligence, or breach of duty
under this Lease Agreement by the Corporation, its officers, agents, employees, successors or
assigns.
Section 7.4. Tax Covenants.
(a) Private Activity Bond Limitation. The City will assure that the proceeds of
the Certificates are not so used as to cause the obligations of the City under this Lease
Agreement to satisfy the private business tests of section 141(b) of the Code or the private
loan financing test of section 141(c) of the Code.
(b) Federal Guarantee Prohibition. The City will not take any action or permit
or suffer any action to be taken if the result of such action would be to cause any of the
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obligations of the City under this Lease Agreement to be "federally guaranteed" within the
meaning of section 149(b) of the Code.
(c) Rebate Requirement. The City will take any and all actions necessary to
assure compliance with section 148(f) of the Code, relating to the rebate of excess
investment earnings, if any, to the federal government, to the extent that such section is
applicable to the Certificates and this Lease Agreement.
(d) No Arbitrage. The City will not take, or permit or suffer to be taken by the
Trustee or otherwise, any action with respect to the proceeds of the Certificates which, if
such action had been reasonably expected to have been taken, or had been deliberately
and intentionally taken, on the date of delivery of this Lease Agreement would have caused
any of the obligations of the City under this Lease Agreement to be "arbitrage bonds"
within the meaning of section 148 of the Code.
(e) Maintenance of Tax-Exemption. The City will take all actions necessary to
assure the exclusion of interest with respect to the Certificates from the gross income of
the Owners of the Certificates to the same extent as such interest is permitted to be
excluded from gross income under the Code as in effect on the date of delivery of this
Lease Agreement.
(f) Record Retention. The City will retain its records of all accounting and
monitoring it carries out with respect to the Certificates for at least 3 years after the
Certificates mature or are redeemed (whichever is earlier); however, if the Certificates are
redeemed and refunded, the City will retain its records of accounting and monitoring at
least 3 years after the earlier of the maturity or redemption of the last obligation in the
series of obligations that refunded the Certificates.
(g) Compliance with Tax Certificate. The City will comply with the provisions
of the tax certificate and the use of proceeds certificate to be delivered with respect to the
Certificates, which are incorporated herein as if fully set forth herein. The covenants of this
Section will survive payment in full or defeasance of the Certificates.
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ARTICLE VIII
ASSIGNMENT, LEASING AND AMENDMENT
Section 8.1. Assignment by the Corporation. The Corporation's rights under this Lease
Agreement, including the right to receive and enforce payment of the Lease Payments to be made
by the City under this Lease Agreement have been assigned to the Trustee pursuant to the
Assignment Agreement, to which assignment the City hereby consents.
Section 8.2. Assignment and Leasing by the City. This Lease Agreement may not be
assigned by the City. The City may further lease any of the Leased Property or any portion thereof,
but only with the written consent of the Corporation and subject to all of the following conditions:
(i) This Lease Agreement and the obligation of the City to make Lease
Payments hereunder shall remain obligations of the City;
(ii) The City shall, within thirty (30) days after the delivery thereof, furnish or
cause to be furnished to the Corporation and the Trustee a true and complete copy of
such lease;
(iii) Such lease shall not cause the City to violate any of its covenants in
Section 7.4;
(iv) No such lease by the City shall cause the Leased Property to be used for a
purpose other than as may be authorized under the provisions of the Constitution and
laws of the State; and
(v) The City shall furnish the Corporation and the Trustee with a written opinion
of bond counsel stating that such lease does not cause the interest components of the
Lease Payments to become subject to federal or State personal income taxes.
Notwithstanding the foregoing, the City may sublease a portion of the rooftop of the
Public Safety Building in connection with the installation of distributed renewable energy systems
without complying with the provisions of this Section 8.2 except the preceding clauses (iii) and
(iv).
Section 8.3. Amendment of Lease Agreement.(1) Except as provided in paragraph (2)
below, without the prior written consent of the Trustee the City will not alter, modify or cancel, or
agree or consent to alter, modify or cancel this Lease Agreement, excepting only such alteration
or modification as may be permitted by Article IX of the Trust Agreement.
(2) In addition, this Lease Agreement may be amended to obligate the City to pay
additional amounts of rental hereunder for the use and occupancy of the Leased Property or any
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portion thereof, but only if (a) such additional amounts of rental do not cause the total rental
payments made by the City under the Lease Agreement to exceed the fair rental value of the
Leased Property, (b) the City shall have obtained and filed with the Trustee and the Corporation a
written certificate to the effect that the estimated fair market value thereof is not less than the
aggregate unpaid principal components of such additional amount of rental plus the existing
aggregate unpaid principal components of the Lease Payments, (c) such additional amounts of
rental shall be pledged or assigned for the payment of any bonds, notes, leases or other
obligations the proceeds of which shall be applied to finance the completion of public facilities
and (d) the City shall send notification of the additional financing to the rating agency then rating
the Certificates.
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1. Events of Default Defined. The following shall be "events of default" under
this Lease Agreement and the terms "events of default" and "default" shall mean, whenever they
are used in this Lease Agreement, with respect to the Leased Property, any one or more of the
following events:
(i) Failure by the City to pay any Lease Payment when due and payable
hereunder, or failure to pay any other payment when due and payable hereunder.
(ii) Failure by the City to observe and perform any covenant, condition or
agreement on its part to be observed or performed, other than as referred to in clause (i)
of this Section, for a period of thirty (30) days after written notice specifying such failure
and requesting that it be remedied has been given to the City by the Corporation, the
Trustee or the Owners of not less than twenty percent (20%) in aggregate principal amount
of Certificates then outstanding; provided, however, if the failure stated in the notice can
be corrected, but not within the applicable period, the Corporation, the Trustee and such
Owners shall not unreasonably withhold their consent to an extension of such time if
corrective action is instituted by the City within the applicable period and diligently
pursued until the default is corrected.
(iii) The filing by the City of a voluntary petition in bankruptcy under Title 11 of
the United States Code or any substitute or successor statute.
Section 9.2. Remedies on Default. Whenever any event of default referred to in Section 9.1
hereof shall have happened and be continuing, it shall be lawful for the Corporation to exercise
any and all remedies available pursuant to law or granted pursuant to this Lease Agreement;
provided, however, that notwithstanding anything herein or in the Trust Agreement to the
contrary, there shall be no right under any circumstances to accelerate the Lease Payments or
otherwise declare any Lease Payments not then in default to be immediately due and payable.
Each and every covenant hereof to be kept and performed by the City is expressly made a
condition and upon the breach thereof the Corporation may exercise any and all rights of entry
and re-entry upon the Leased Property, and also, at its option, with or without such entry, may
terminate this Lease Agreement; provided, that no such termination shall be effected either by
operation of law or acts of the parties hereto, except only in the manner herein expressly provided.
In the event of such default and notwithstanding any re-entry by the Corporation, the City shall,
as herein expressly provided, continue to remain liable for the payment of the Lease Payments
and/or damages for breach of this Lease Agreement and the performance of all conditions herein
contained and, in any event such rent and/or damages shall be payable to the Corporation at the
time and in the manner as herein provided, to wit:
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(a) In the event the Corporation does not elect to terminate this Lease
Agreement in the manner hereinafter provided for in subparagraph (b) hereof, the City
agrees to and shall remain liable for the payment of all Lease Payments and the
performance of all conditions herein contained and shall reimburse the Corporation for
any deficiency arising out of the re-leasing of the Leased Property, or, in the event the
Corporation does not re-lease the Leased Property, then for the full amount of all Lease
Payments to the end of the term of this Lease Agreement, but said Lease Payments and/or
deficiency shall be payable only at the same time and in the same manner as hereinabove
provided for the payment of Lease Payments hereunder, notwithstanding such entry or
re-entry by the Corporation or any suit in unlawful detainer, or otherwise, brought by the
Corporation for the purpose of effecting such re-entry or obtaining possession of the
Leased Property or the exercise of any other remedy by the Corporation. The City hereby
irrevocably appoints the Corporation as the agent and attorney-in-fact of the City to enter
upon and re-lease the Leased Property in the event of default by the City in the
performance of any covenants herein contained to be performed by the City and to
remove all personal property whatsoever situated upon the Leased Property to place such
property in storage or other suitable place in the City of Palo Alto, for the account of and
at the expense of the City, and the City hereby exempts and agrees to save harmless the
Corporation from any costs, loss or damage whatsoever arising or occasioned by any such
entry upon and re-leasing of the Leased Property and the removal and storage of such
property by the Corporation or its duly authorized agents in accordance with the
provisions herein contained. The City hereby waives any and all claims for damages caused
or which may be caused by the Corporation in re-entering and taking possession of the
Leased Property as herein provided and all claims for damages that may result from the
destruction of or injury to the Leased Property and all claims for damages to or loss of
any property belonging to the City that may be in or upon the Leased Property. The City
agrees that the terms of this Lease Agreement constitute full and sufficient notice of the
right of the Corporation to re-lease the Leased Property in the event of such re-entry
without effecting a surrender of this Lease Agreement, and further agrees that no acts of
the Corporation in effecting such re-leasing shall constitute a surrender or termination of
this Lease Agreement irrespective of the term for which such re-leasing is made or the
terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the
event of such default by the City the right to terminate this Lease Agreement shall vest in
the Corporation to be effected in the sole and exclusive manner hereinafter provided for
in subparagraph (b) hereof. The City further waives the right to any rental obtained by the
Corporation in excess of the Lease Payments and hereby conveys and releases such excess
to the Corporation as compensation to the Corporation for its services in re-leasing the
Leased Property.
(b) In an event of default hereunder, the Corporation may terminate this Lease
Agreement and re-lease all or any portion of the Leased Property. In the event of the
termination of this Lease Agreement by the Corporation in the manner hereinafter
provided on account of default by the City (and notwithstanding any re-entry upon the
Leased Property by the Corporation in any manner whatsoever or the re-leasing of the
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Leased Property), the City nevertheless agrees to pay to the Corporation all costs, loss or
damages howsoever arising or occurring payable at the same time and in the same manner
as is herein provided in the case of payment of Lease Payments. Any surplus received by
the Corporation from such re-leasing shall be the absolute property of the Corporation
and the City shall have no right thereto, nor shall the City be entitled to any credit in the
event of a deficiency in the rentals received by the Corporation from the Leased Property.
Neither notice to pay rent or to deliver up possession of the premises given pursuant to
law nor any proceeding in unlawful detainer taken by the Corporation shall of itself operate
to terminate this Lease Agreement, and no termination of this Lease Agreement on
account of default by the City shall be or become effective by operation of law, or
otherwise, unless and until the Corporation shall have given written notice to the City of
the election on the part of the Corporation to terminate this Lease Agreement. The City
covenants and agrees that no surrender of the Leased Property or of the remainder of the
term hereof or any termination of this Lease Agreement shall be valid in any manner or
for any purpose whatsoever unless stated or accepted by the Corporation by such written
notice.
Section 9.3. No Remedy Exclusive. No remedy herein conferred upon or reserved to the
Corporation is intended to be exclusive and every such remedy shall be cumulative and shall be
in addition to every other remedy given under this Lease Agreement or now or hereafter existing
at law or in equity. No delay or omission to exercise any right or power accruing upon any default
shall impair any such right or power or shall be construed to be a waiver thereof, but any such
right and power may be exercised from time to time and as often as may be deemed expedient.
In order to entitle the Corporation to exercise any remedy reserved to it in this Article IX it shall
not be necessary to give any notice, other than such notice as may be required in this Article IX
or by law.
Section 9.4. Agreement to Pay Attorneys' Fees and Expenses. In the event either party to
this Lease Agreement should default under any of the provisions hereof and the nondefaulting
party should employ attorneys or incur other expenses for the collection of moneys or the
enforcement or performance or observance of any obligation or agreement on the part of the
defaulting party herein contained, the defaulting party agrees that it will on demand therefor pay
to the nondefaulting party the reasonable fees of such attorneys and such other expenses so
incurred by the nondefaulting party.
Section 9.5. No Additional Waiver Implied by One Waiver. In the event any agreement
contained in this Lease Agreement should be breached by either party and thereafter waived by
the other party, such waiver shall be limited to the particular breach so waived and shall not be
deemed to waive any other breach hereunder.
Section 9.6. Application of Proceeds. All net proceeds received from the re-lease or other
disposition of the Leased Property under this Article IX, and all other amounts derived by the
Corporation or the Trustee as a result of an event of default hereunder, shall be transferred to the
Trustee promptly upon receipt thereof, after payment of the fees and expenses of the Trustee,
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including those of its attorneys, agents and advisors and shall be deposited by the Trustee in the
Lease Payment Fund, to be applied to the Lease Payments in order of payment date.
Section 9.7. Trustee and Certificate Owners to Exercise Rights. Such rights and remedies
as are given to the Corporation under this Article IX have been assigned by the Corporation to
the Trustee under the Trust Agreement, to which assignment the City hereby consents. Such
rights and remedies shall be exercised by the Trustee and the Owners of the Certificates as
provided in the Trust Agreement.
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ARTICLE X
PREPAYMENT OF LEASE PAYMENTS
Section 10.1. Security Deposit. Notwithstanding any other provision of this Lease
Agreement, the City may on any date secure the payment of Lease Payments by a deposit with
the Trustee of: (i) an amount of cash which, together with amounts on deposit in the Lease
Payment Fund and the Insurance and Condemnation Fund, is sufficient to pay all unpaid Lease
Payments, including the principal and interest components thereof, in accordance with the Lease
Payment Schedule set forth in Exhibit A, or (ii) Federal Securities together with cash, if required, in
such amount as will, in the opinion of an independent certified public accountant, together with
interest to accrue thereon and, if required, all or a portion of moneys or Federal Securities then
on deposit in the Lease Payment Fund and the Insurance and Condemnation Fund, be fully
sufficient to pay all unpaid Lease Payments on their respective Lease Payment Dates or on any
purchase option date as set forth in Section 10.2, as the City shall instruct at the time of said
deposit. In the event of a security deposit pursuant to this Section, all obligations of the City
under this Lease Agreement, and all security provided by this Lease Agreement for said
obligations, shall cease and terminate, excepting only the obligation of the City to make, or cause
to be made, Lease Payments from such security deposit, and title to the Leased Property shall be
affected thereby as described in Section 4.5. Said security deposit shall be deemed to be and shall
constitute a special fund for the payment of Lease Payments in accordance with the provisions of
this Lease Agreement.
Section 10.2. Prepayment; Purchase Option. The City may exercise its option to prepay
the principal component of the Lease Payments, in whole or in part, on any date on or after [_____]
1, 20[__], by paying a prepayment price equal to the aggregate or a portion of the unpaid principal
components of the remaining Lease Payments, together with the interest component of the Lease
Payment required to be paid on such date, and premium due in connection with the prepayment
of the Certificates, if any. The City shall notify the Corporation and the Trustee as to which of the
Lease Payments it wishes to prepay. Such prepayment price shall be deposited by the Trustee in
the Lease Payment Fund to be applied to the prepayment of the Certificates pursuant to Section
4.01 of the Trust Agreement. The City shall give the Trustee notice of its intention to exercise its
option not less than forty-five (45) days in advance of the date of exercise. In the event the Lease
Payments have been fully paid, and the City prepays the entire unpaid principal component of the
Lease Payments in whole, the City will be deemed to have purchased the Leased Property and title
to the Leased Property shall thereupon vest in the City, free and clear of any encumbrance created
by this Agreement.
Section 10.3. Mandatory Prepayment. The City shall be obligated to prepay the Lease
Payments for the Leased Property, in whole or in part on any date, from and to the extent of any
Net Proceeds of insurance award or condemnation award with respect to the Leased Property that
have theretofore been deposited with the Trustee in the Lease Payment Fund for such purpose
pursuant to Article VI hereof. Such proceeds shall be applied to the prepayment of the principal
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component of the Lease Payments and the prepayment of the Certificates in accordance with
Article VI of the Trust Agreement.
Section 10.4. Credit for Amounts on Deposit. In the event of prepayment of the principal
components of the Lease Payments in full under this Article X, such that the Trust Agreement shall
be discharged by its terms as a result of such prepayment, all amounts then on deposit in the
Lease Payment Fund shall be credited towards the amounts then required to be so prepaid.
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ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices. All notices, certificates or other communications hereunder shall
be sufficiently given and shall be deemed to have been received 48 hours after deposit in the
United States mail in registered or certified form with postage fully prepaid:
If to the City: City Clerk
250 Hamilton Avenue, 7th Floor
Palo Alto, CA 94301
If to the Corporation: Palo Alto Public Improvement Corporation
c/o City Clerk
250 Hamilton Avenue, 7th Floor
Palo Alto, CA 94301
If to the Trustee: U.S. Bank National Association
Attn: Global Corporate Trust Services
One California Street, Suite 1000
San Francisco, CA 94111
Fax: 415-677-3768
The Corporation and the City, by notice given hereunder, may designate different
addresses to which subsequent notices, certificates or other communications will be sent.
Section 11.2. Binding Effect. This Lease Agreement shall inure to the benefit of and shall
be binding upon the Corporation and the City and their respective successors and assigns.
Section 11.3. Severability. In the event any provision of this Lease Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision hereof.
Section 11.4. Net-net-net Lease. This Lease Agreement shall be deemed and construed
to be a "net-net-net lease" and the City hereby agrees that the Lease Payments shall be an
absolute net return to the Corporation, free and clear of any expenses, charges or set-offs
whatsoever.
Section 11.5. Further Assurances and Corrective Instruments. The Corporation and the
City agree that they will, from time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such supplements hereto and such further instruments as
may reasonably be required for correcting any inadequate or incorrect description of the Leased
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Property hereby leased or intended so to be or for carrying out the expressed intention of this
Lease Agreement.
Section 11.6. Execution in Counterparts. This Lease Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same instrument.
Section 11.7. Applicable Law. This Lease Agreement shall be governed by and construed
in accordance with the laws of the State.
Section 11.8. Corporation and City Representatives. Whenever under the provisions of
this Lease Agreement the approval of the Corporation or the City is required, or the Corporation
or the City is required to take some action at the request of the other, such approval or such
request shall be given for the Corporation by a Corporate Representative and for the City by a
City Representative, and any party hereto shall be authorized to rely upon any such approval or
request.
Section 11.9. Captions. The captions or headings in this Lease Agreement are for
convenience only and in no way define, limit or describe the scope or intent of any provisions or
Section of this Lease Agreement.
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IN WITNESS WHEREOF, the Corporation has caused this Lease Agreement to be executed
in its corporate name by its duly authorized officers; and the City has caused this Lease Agreement
to be executed in its name by its duly authorized officers, as of the date first above written.
PALO ALTO PUBLIC IMPROVEMENT
CORPORATION,
as Lessor
By
Adrian Fine
President
Attest:
By
Beth Minor
Secretary
CITY OF PALO ALTO,
as Lessee
By
Kiely Nose
Administrative Services Director
Attest:
By
Beth Minor
City Clerk
ACKNOWLEDGMENT
A notary public or other office completing
this certificate verifies only the identity of the
individual who signed the document to which
this certificate is attached, and not the
truthfulness, accuracy, or validity of that
document.
State of California
County of __________________________)
On _______________________ before me, _________________________________________
(insert name and title of the officer)
personally appeared ___________________________________________________________,
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________ (Seal)
A-1
EXHIBIT A
SCHEDULE OF LEASE PAYMENTS
DATE
PRINCIPAL
INTEREST
TOTAL LEASE PAYMENT
B-1
EXHIBIT B
DESCRIPTION OF LEASED PROPERTY
The land referred to herein is situated in the State of California, County of Santa Clara, City
of Palo Alto and described as follows:
Initial Leased Property: [Initial Leased Property]
[Description]
APN:
Leased Property Upon Final Completion: Public Safety Building
[Description]
APN:
C-1
EXHIBIT C
FORM OF NOTICE OF SUBSTITUTION AND RELEASE OF LEASED PROPERTY
$[________] City of Palo Alto 2021 Certificates of Participation
(Public Safety Building)
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Christopher K. Lynch, Esq.
Jones Hall, A Professional Law Corporation
475 Sansome Street, Suite 1700
San Francisco, California 94111
THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT
TO SECTION 11922 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS
EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA
GOVERNMENT CODE.
NOTICE OF SUBSTITUTION AND RELEASE OF LEASED PROPERTY
The City of Palo Alto, a chartered municipal corporation duly organized and existing under
the Constitution and the laws of the State of California (the “City”) is party to (i) that certain Lease
Agreement, dated as of February 1, 2021, by and between the Palo Alto Public Improvement
Corporation, a nonprofit public benefit corporation formed, operating and acting pursuant to the
laws of the State of California (the "Corporation") as lessor, and the City, as lessee, recorded as
Document No. [_________] in the Official Records of the Santa Clara County Recorder (the “Lease
Agreement”) and (ii) that certain Property Lease, dated as of February 1, 2021, by and between
the Corporation, as lessee, and the City, as lessor, recorded as Document No. [_________] in the
Official Records of the Santa Clara County Recorder (the “Property Lease”). Capitalized terms used
but not defined herein have the meanings ascribed to them in the Lease Agreement.
As contemplated by the Lease Agreement, the proceeds of the 2021 Certificates have been
utilized to complete the acquisition and construction of the Public Safety Building, and the City
hereby provides notice of (A) its substitution of the Public Safety Building (as described in
Exhibit A) as the Leased Property under the Lease Agreement and the Property Lease and (B) its
release of the [Initial Leased Property] (as described in Exhibit A) as the Leased Property under the
Lease Agreement and the Property Lease.
C-1
In accordance with Section 3.5 of the Lease Agreement, the City has provided to the
Trustee a certificate of completion certifying that the Final Completion of the Public Safety
Building has occurred and the fair rental value of the Public Safety Building is at least equal to the
Lease Payments. Upon the recordation of this Notice of Substitution and Release of Leased
Property, and subject to any future authorized substitution or release of the Leased Property
pursuant to Section 3.5 and 3.6 of the Lease Agreement, references to the Leased Property in the
Lease Agreement and in the Property Lease shall be deemed to refer to only the Public Safety
Building and the related site, and shall not be deemed to refer to the [Initial Leased Property].
In accordance with Section 5.6 of the Lease Agreement, the City has caused, as of the date
of recordation hereof, a certificate of the City to be delivered to the Trustee evidencing that the
insurance policies required by this Lease Agreement are in full force and effect with respect to the
Public Safety Building as the Leased Property.
[signature page follows]
C-2
CITY OF PALO ALTO
By
Kiely Nose
Administrative Services Director
Attest:
By
Beth Minor
City Clerk
C-2
[Signature Page to Notice of Substitution and Release of Leased Property]
C-3
ACKNOWLEDGMENT
A notary public or other office completing
this certificate verifies only the identity of the
individual who signed the document to which
this certificate is attached, and not the
truthfulness, accuracy, or validity of that
document.
State of California
County of __________________________)
On _______________________ before me, _________________________________________
(insert name and title of the officer)
personally appeared ___________________________________________________________,
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________ (Seal)
C-4
EXHIBIT A
DESCRIPTION OF LEASED PROPERTY
The land referred to herein is situated in the State of California, County of Santa Clara, City
of Palo Alto and described as follows:
Initial Leased Property: [Initial Leased Property]
[Description]
APN:
Leased Property Upon Final Completion: Public Safety Building
[Description]
APN:
TRUST AGREEMENT
Dated as of April 1, 2021
by and among
U.S. BANK NATIONAL ASSOCIATION,
as Trustee,
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
and the
CITY OF PALO ALTO
Relating to
$[_____] City of Palo Alto 2021 Certificates of Participation
(Public Safety Building)
Attachment A-3
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TABLE OF CONTENTS
TRUST AGREEMENT
ARTICLE I
DEFINITIONS
Section 1.01. Definitions ...................................................................................................................................................... 2
Section 1.02. Authorization ................................................................................................................................................ 9
ARTICLE II
THE CERTIFICATES OF PARTICIPATION
Section 2.01. Authorization ............................................................................................................................................. 10
Section 2.02. Date ............................................................................................................................................................... 10
Section 2.03. Maturities; Interest Rates ...................................................................................................................... 10
Section 2.04. Form of Certificates; Interest ............................................................................................................... 10
Section 2.05. Form .............................................................................................................................................................. 11
Section 2.06. Execution ..................................................................................................................................................... 11
Section 2.07. Transfer and Exchange ........................................................................................................................... 11
Section 2.08. Certificates Mutilated, Lost, Destroyed or Stolen ........................................................................ 11
Section 2.09. Payment ....................................................................................................................................................... 12
Section 2.10. Execution of Documents and Proof of Ownership ..................................................................... 12
Section 2.11. Registration Books ................................................................................................................................... 13
Section 2.12. Use of Depository .................................................................................................................................... 13
ARTICLE III
DISPOSITION OF PROCEEDS;
COSTS OF ISSUANCE FUND AND CONSTRUCTION FUND
Section 3.01. Application of Proceeds ........................................................................................................................ 16
Section 3.02. Costs of Issuance Fund .......................................................................................................................... 16
Section 3.03. Public Safety Building Construction Fund ...................................................................................... 16
ARTICLE IV
PREPAYMENT OF CERTIFICATES
Section 4.01. Prepayment. ............................................................................................................................................... 17
Section 4.02. Selection of Certificates for Prepayment ........................................................................................ 18
Section 4.03. Notice of Prepayment ............................................................................................................................ 19
Section 4.04. Partial Prepayment of Certificate ....................................................................................................... 19
Section 4.05. Effect of Notice of Prepayment .......................................................................................................... 19
ARTICLE V
LEASE PAYMENTS; LEASE PAYMENT FUND
Section 5.01. Assignment of Rights in Lease Agreement .................................................................................... 21
Section 5.02. Establishment of Lease Payment Fund ............................................................................................ 21
Section 5.03. Deposits ....................................................................................................................................................... 21
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Section 5.04. Application of Moneys ........................................................................................................................... 21
Section 5.05. Surplus .......................................................................................................................................................... 22
ARTICLE VI
INSURANCE AND CONDEMNATION FUND
INSURANCE; EMINENT DOMAIN
Section 6.01. Establishment of Insurance and Condemnation Fund; Application of Net Proceeds
of Insurance Award .................................................................................................................................. 23
Section 6.02. Application of Net Proceeds of Eminent Domain Award ......................................................... 23
Section 6.03. Cooperation ............................................................................................................................................... 24
ARTICLE VII
MONEYS IN FUNDS
Section 7.01. Held in Trust ............................................................................................................................................... 25
Section 7.02. Investments Authorized......................................................................................................................... 25
Section 7.03. Accounting .................................................................................................................................................. 25
Section 7.04. Allocation of Earnings ............................................................................................................................ 25
Section 7.05. Acquisition, Disposition and Valuation of Investments ............................................................ 25
Section 7.06. Commingling of Investment Securities and Disposition of Investments ........................... 26
ARTICLE VIII
THE TRUSTEE
Section 8.01. Compensation of the Trustee .............................................................................................................. 27
Section 8.02. Removal of Trustee .................................................................................................................................. 27
Section 8.03. Appointment of Agent ........................................................................................................................... 27
Section 8.04. Merger or Consolidation ....................................................................................................................... 27
Section 8.05. Protection and Rights of the Trustee ............................................................................................... 28
ARTICLE IX
MODIFICATION OR AMENDMENT OF AGREEMENT
Section 9.01. Amendments Permitted ........................................................................................................................ 31
Section 9.02. Procedure for Amendment with Written Consent of Certificate Owners .......................... 31
Section 9.03. Disqualified Certificates ......................................................................................................................... 32
Section 9.04. Effect of Supplemental Agreement ................................................................................................... 32
Section 9.05. Endorsement or Replacement of Certificates Delivered After Amendments ................... 33
Section 9.06. Amendatory Endorsement of Certificates ...................................................................................... 33
ARTICLE X
COVENANTS; NOTICES
Section 10.01. Compliance With and Enforcement of Lease Agreement ........................................................ 34
Section 10.02. Prosecution and Defense of Suits. ..................................................................................................... 34
Section 10.03. Recordation and Filing ........................................................................................................................... 34
Section 10.04. Reserved ...................................................................................................................................................... 34
Section 10.05. Continuing Disclosure ............................................................................................................................ 34
Section 10.06. Further Assurances .................................................................................................................................. 35
ARTICLE XI
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LIMITATION OF LIABILITY
Section 11.01. Limited Liability of City .......................................................................................................................... 36
Section 11.02. No Liability for Trustee Performance ............................................................................................... 36
Section 11.03. Indemnification ......................................................................................................................................... 36
Section 11.04. Opinion of Counsel ................................................................................................................................. 36
Section 11.05. Limitation of Rights to Parties and Certificate Owners ............................................................. 36
ARTICLE XII
EVENTS OF DEFAULT AND REMEDIES OF
CERTIFICATE OWNERS
Section 12.01. Assignment of Rights ............................................................................................................................. 38
Section 12.02. Remedies ..................................................................................................................................................... 38
Section 12.03. Application of Funds ............................................................................................................................... 38
Section 12.04. Institution of Legal Proceedings ........................................................................................................ 38
Section 12.05. Non-waiver ................................................................................................................................................. 39
Section 12.06. Remedies Not Exclusive ......................................................................................................................... 39
Section 12.07. Power of Trustee to Control Proceedings ...................................................................................... 39
Section 12.08. Limitation on Certificate Owners' Right to Sue ............................................................................ 39
ARTICLE XIII
DEFEASANCE
Section 13.01. Discharge of Trust Agreement ............................................................................................................ 41
Section 13.02. Discharge of Liability on Certificates ................................................................................................ 41
Section 13.03. Deposit of Money or Securities with Trustee ................................................................................ 42
Section 13.04. Payment of Certificates After Discharge of Trust Agreement ................................................ 42
ARTICLE XIV
MISCELLANEOUS
Section 14.01. Records......................................................................................................................................................... 44
Section 14.02. Notices ......................................................................................................................................................... 44
Section 14.03. Governing Law .......................................................................................................................................... 44
Section 14.04. Binding Effect; Successors .................................................................................................................... 44
Section 14.05. Execution in Counterparts .................................................................................................................... 45
Section 14.06. Destruction of Cancelled Certificates ............................................................................................... 45
Section 14.07. Headings ...................................................................................................................................................... 45
Section 14.08. Waiver of Notice ....................................................................................................................................... 45
Section 14.09. Separability of Invalid Provisions ....................................................................................................... 45
EXHIBIT A FORM OF CERTIFICATE OF PARTICIPATION…………………..…………..............A-1
TRUST AGREEMENT
THIS TRUST AGREEMENT is dated as of April 1, 2021, by and among U.S. BANK
NATIONAL ASSOCIATION, a national banking association organized and existing under the laws
of the United States of America (the "Trustee"), the PALO ALTO PUBLIC IMPROVEMENT
CORPORATION, a nonprofit public benefit corporation duly formed, organized operating and
acting pursuant to the laws of the State of California (the "Corporation"), and the CITY OF PALO
ALTO, a chartered municipal corporation duly organized and existing under the Constitution and
laws of the State of California (the "City").
RECITALS
WHEREAS, the City desires to finance the costs of acquiring and constructing a public
safety building to be located at 250 Sherman Avenue (the “Public Safety Building”);
WHEREAS, in order to finance the Public Safety Building, the City has determined to
provide for the execution and delivery of City of Palo Alto 2021 Certificates of Participation
(Public Safety Building) (the “Certificates”);
WHEREAS, the City has concurrently leased a City asset, initially the [Initial Leased
Property], as more particularly described in Exhibit B of the Lease Agreement (defined below)
(the “Leased Property”) to the Corporation under a Property Lease, dated as of February 1, 2021,
by and between the City, as Lessor, and the Corporation, as Lessee (the “Property Lease”), and
the Corporation has leased the Leased Property back to the City under a Lease Agreement,
dated as of February 1, 2021, by and between the City, as lessee and the Corporation, as lessor
(the “Lease Agreement”), in consideration of the payment by the City of semi-annual lease
payments; and
WHEREAS, the Corporation has assigned its right to receive such lease payments to U.S.
Bank National Association, as trustee, pursuant to an Assignment Agreement (the “Assignment
Agreement”), dated as of February 1, 2021, by and between the Corporation and the Trustee,
and in consideration of such assignment the Trustee will execute and deliver the Certificates,
each evidencing a direct, undivided fractional interest in such lease payments, in accordance
with this Trust Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained
herein, the parties hereto hereby agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in
this Section 1.01 shall, for all purposes of this Trust Agreement, have the meanings herein
specified. In addition, any terms defined in the Lease Agreement and not otherwise defined
herein shall have the respective meanings given such terms in the Lease Agreement.
"Assignment Agreement" means the Assignment Agreement, dated as of
February 1, 2021, by and between the Corporation and the Trustee, together with any duly
authorized and executed amendments thereto.
"Bond Counsel" means any attorney or firm of attorneys of nationally recognized
expertise with respect to legal matters relating to obligations the interest on which is exempt
from federal income taxation pursuant to Section 103 of the Code.
"Business Day" means a day of the week on which the Trustee is not required or
authorized to remain closed and on which the New York Stock Exchange is open.
"Capitalized Interest Account" means the account by that name established within the
Lease Payment Account pursuant to Section 5.02.
"Certificates" means the $[_____] aggregate principal amount of City of Palo Alto
2021 Certificates of Participation (Public Safety Building), to be executed and delivered pursuant
hereto.
"City" means the City of Palo Alto, a chartered municipal corporation duly organized and
existing under the Constitution and the laws of the State.
"City Representative" means the City Manager, the Assistant City Manager or the
Administrative Services Director of the City or any other person authorized by resolution of the
City Council to act on behalf of the City under or with respect to this Trust Agreement and the
Lease Agreement.
"Closing Date" means the date upon which there is an exchange of the Certificates for
the proceeds representing the purchase of the Certificates by the Original Purchaser.
"Code" means the Internal Revenue Code of 1986 as in effect on the date of delivery of
the Lease Agreement or (except as otherwise referenced herein) as it may be amended to apply
to obligations issued on the date of delivery of the Lease Agreement, together with applicable
temporary and final regulations promulgated, and applicable official public guidance published,
under the Code.
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"Corporation Representative" means the President, Vice President, Treasurer or Executive
Director of the Corporation, or any other person authorized by resolution of the Corporation to
act on behalf of the Corporation under or with respect to this Trust Agreement and the Lease
Agreement.
"Corporation" means the Palo Alto Public Improvement Corporation, a nonprofit public
benefit corporation duly formed, organized, operating and existing under the laws of the State,
and its successors and assigns.
"Corporate Trust Office" means the corporate trust office of the Trustee in San Francisco,
California, or such other or additional offices as the Trustee may designate in writing to the
Corporation from time to time as the corporate trust office for purposes of this Trust
Agreement, except that with respect to presentation of Certificates for payment or for
registration of transfer and exchange thereof, such term shall mean the office or agency of the
Trustee at which, at any particular time, its corporate trust agency business shall be conducted,
initially in Saint Paul, Minnesota
"Costs of Issuance" means all items of expense directly or indirectly payable by or
reimbursable to the City or the Corporation relating to the execution, sale and delivery of the
Certificates, including but not limited to settlement costs, printing costs, reproduction and
binding costs, initial fees and charges of the Trustee, financing discounts, legal fees and charges,
bond insurance or title, insurance fees and charges, financial and other professional consultant
fees, costs of rating agencies for credit ratings, fees for execution, transportation and
safekeeping of the Certificates and charges and fees in connection with the foregoing.
"Costs of Issuance Fund" means the fund by that name established and held by the
Trustee pursuant to Section 3.02 hereof.
"Counsel" means any attorney at law or law firm (who or which may be counsel for the
City, the Trustee or the Corporation).
"Event of Default" means an event of default under the Lease Agreement, as defined in
Section 9.1 thereof.
"Fair Market Value" means the price at which a willing buyer would purchase the
investment from a willing seller in a bona fide, arm's length transaction (determined as of the
date the contract to purchase or sell the investment becomes binding) if the investment is
traded on an established securities market (within the meaning of section 1273 of the Code)
and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's
length transaction (as referenced above) if (i) the investment is a certificate of deposit that is
acquired in accordance with applicable regulations under the Code, (ii) the investment is an
agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically
negotiated interest rate (for example, a guaranteed investment contract, a forward supply
-4-
contract or other investment agreement) that is acquired in accordance with applicable
regulations under the Code, (iii) the investment is a United States Treasury Security--State and
Local Government Series that is acquired in accordance with applicable regulations of the United
States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and
related parties do not own more than a ten percent (10%) beneficial interest therein if the return
paid by the fund is without regard to the source of the investment.
"Federal Securities" means any of the following which at the time of investment are legal
investments under the laws of the State for the moneys proposed to be invested therein:
(a) direct general obligations of the United States of America (including
obligations issued or held in book entry form on the books of the Department of the
Treasury of the United States of America); and
(b) obligations of any department, agency or instrumentality of the United
States of America the timely payment of principal of and interest on which are
unconditionally and fully guaranteed by the United States of America.
"Fiscal Year" means each twelve-month period beginning on July 1 of any year and
ending on June 30 of the succeeding year, or any other twelve-month period hereafter adopted
by the City as its official fiscal year period.
"Independent Counsel" means an attorney duly admitted to the practice of law before
the highest court of the state in which such attorney maintains an office and who is not an
employee of the Corporation, the Trustee or the City.
"Insurance and Condemnation Fund" means the fund by that name established and held
by the Trustee pursuant to Section 6.01.
"Investment Securities" means any of the following which at the time of investment are
legal investments under the laws of the State of California for trust funds held by the Trustee
(the Trustee is entitled to rely upon any investment direction of the City as a certification that
such investment constitutes an Investment Security) and only to the extent that the same are
acquired at Fair Market Value:
1. Direct and general obligations of the United States of America, or
obligations that are unconditionally guaranteed as to payments of principal and interest
by the United States of America, including (in the case of direct and general obligations
of the United States of America) evidences of direct ownership of proportionate interests
in future interest or principal payments of such obligations. Investments in such
proportionate interests must be limited to circumstances wherein (a) a bank or trust
company acts as custodian and holds the underlying United States obligations; (b) the
owner of the investment is the real party in interest and has the right to proceed directly
and individually against the obligor of the underlying United States obligations; and
-5-
(c) the underlying United States obligations are held in safekeeping in a special account,
segregated from the custodian's general assets, and are not available to satisfy any claim
of he custodian, any person claiming through the custodian, or any person to whom the
custodian may be obligated. The obligations described in this paragraph are hereinafter
called "United States Obligations".
2. Obligations issued or guaranteed by the following instrumentalities or
agencies:
(a) Federal Home Loan Banks;
(b) Government National Mortgage Association;
(c) Farmers Home Administration;
(d) Federal Home Loan Mortgage Corporation;
(e) Federal Housing Administration; and
(f) Federal National Mortgage Association.
3. Direct and general long-term obligations of any state or commonwealth
of the United States, to the payment of which the full faith and credit of the state or
commonwealth is pledged and that are rated "Aaa" by Moody's and "AAA" by S&P.
4. Direct and general short-term obligations of any state or commonwealth,
to the payment of which the full faith and credit of the state or commonwealth is
pledged and that are rated in the highest rating category by Moody's and S&P.
5. Interest-bearing demand or time deposits issued by state banks or trust
companies or national banking associations that are members of the Federal Deposit
Insurance Corporation (FDIC). These deposits must be continuously and fully insured by
FDIC and be with banks whose debt is rated at least P-1 or Aa by Moody's and at least
A-1+ or AA by S&P.
6. Repurchase agreements, the maturities of which are 30 days or less, or are
due on demand, entered into with financial institutions such as banks or trust companies
organized under state law or national banking associations, insurance companies, or
government bond dealers reporting to, trading with, and recognized as a primary dealer
by, the Federal Reserve Bank of New York and a member of the Security Investors
Protection Corporation or with a dealer or parent holding company, in each such case
the debt of which is rated at least "A" or "P-1" by Moody's and S&P. Such repurchase
agreements shall be in respect of United States Obligations and (except repurchase
agreements with institutions whose debt or commercial paper is rated "Aaa" or "P-1" by
Moody's and S&P) shall be collateralized by United States Obligations, and the
provisions of the repurchase agreement shall meet the following additional criteria:
-6-
(i) the Trustee (who shall not be the provider of the collateral) or a
third party acting solely as agent for the Trustee has possession of the United
States Obligations;
(ii) failure to maintain the requisite collateral levels will require the
Trustee to liquidate the United States Obligations immediately;
(iii) the Trustee has a perfected, first priority security interest in the
United States Obligations; and
(iv) the United States Obligations are free and clear of third-party
liens, and in the case of an SIPC broker, were not acquired pursuant to a
repurchase or reverse repurchase agreement.
7. Pre-refunded municipal obligations meeting the following conditions:
(a) the municipal obligations are (i) not to be redeemed prior to
maturity or the Trustee has been given irrevocable instructions concerning their
calling and redemption and (ii) the issuer has covenanted not to redeem such
municipal obligations other than as set forth in such instructions;
(b) the municipal obligations are secured by cash or United States
Obligations that may be applied only to interest, principal, and premium
payments of such municipal obligations;
(c) the principal of and interest on the United States Obligations (plus
any cash in the escrow fund) are sufficient to meet the liabilities on the municipal
obligations;
(d) the United States Obligations serving as security for the municipal
obligations are held by an escrow agent or trustee; and
(e) the United States Obligations (plus any cash in the escrow fund)
are not available to satisfy any other claims, including those against the trustee or
escrow agent.
8. Prime commercial paper of a United States corporation, finance company
or banking institution if such commercial paper is rated at least "P1" by Moody's and at
least "A-1+" by S&P and if such commercial paper is stated to mature in not more than
270 days.
9. Shares of a diversified open-end management investment company (as
defined in the Investment Company Act of 1940) or shares in a regulated investment
company (as defined in Section 851 (a) of the Internal Revenue Code of 1986, as
-7-
amended) that is a money market fund that has been rated in the highest rating
category by S&P.
10. The Local Agency Investment Fund maintained by the Treasurer of the
State ("LAIF") to the extent deposits and withdrawals may be made by the Trustee in its
own name.
11. Banker's acceptances drawn on and accepted by commercial banks
(including the Trustee and any affiliate of the Trustee) having a combined unencumbered
capital, surplus and retained earnings of not less than $30,000,000 and whose notes or
commercial paper are rated in the highest rating category by Moody's (if the Certificates
are then rated by Moody's) and S&P (if the Certificates are then rated by S&P).
12. Money market funds restricted to obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the United States of
America, including such funds for which the Trustee or an affiliate acts as investment
advisor or provides other services, which are rated in the highest rating category by S&P.
13. Investment Agreements which are approved in writing by any rating
agency then rating the Certificates.
14. Shares in a California common law trust established pursuant to Title 1,
Division 7, Chapter 5 of the California Government Code which invests exclusively in
investments permitted by Section 53635 of Title 5, Division 2, Chapter 4 of the California
Government Code, as it may be amended; i.e., the California Arbitrage Management
Program (CAMP).
"Lease Agreement" means the Lease Agreement dated as of February 1, 2021, by and
between the Corporation as lessor and the City as lessee, together with any further duly
authorized and executed amendments thereto.
"Lease Default Event" means any of the events specified in Section 9.1 of the Lease
Agreement.
"Lease Payment Fund" means the fund by that name established and held by the Trustee
pursuant to Section 5.02.
"Lease Payments" means all payments required to be paid by the City pursuant to
Section 4.3 of the Lease Agreement, including any prepayment thereof pursuant to Article X of
the Lease Agreement.
"Lease Term" means the period during which the Lease is in effect as specified in the
Lease Agreement.
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"Moody's" means Moody's Investors Service, of New York, New York, or its successors.
"Net Proceeds" means any insurance proceeds or condemnation award in excess of
$50,000, paid with respect to the Leased Property, to the extent remaining after payment
therefrom of all expenses incurred in the collection thereof.
"Original Purchaser" means [_____], as original purchaser of the Certificates upon their
delivery by the Trustee on the Closing Date.
"Outstanding", when used as of any particular time with reference to Certificates, means
(subject to the provisions of Section 9.03) all Certificates theretofore, or thereupon being,
executed and delivered by the Trustee under this Trust Agreement except (1) Certificates
theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation;
(2) Certificates with respect to which all liability of the City shall have been discharged in
accordance with Section 13.02, including Certificates (or portions of Certificates) referred to in
Section 13.04; and (3) Certificates for the transfer or exchange of or in lieu of or in substitution
for which other Certificates shall have been executed and delivered by the Trustee pursuant to
this Trust Agreement.
"Owner" or "Certificate Owner", when used with respect to a Certificate means the
person in whose name the ownership of such Certificate shall be registered.
"Payment Date" means (i) with respect to the interest component of the Lease Payments
payable to the Owners of the Certificates, May 1, 2021, and the first day of each May and
November thereafter so long as any Certificates are Outstanding hereunder, and (ii) with respect
to the principal of the Certificates, November 1, 2021 and each November 1 thereafter so long
as the Certificates are Outstanding, terminating November 1, [_____].
"Principal Amount" means the total unpaid principal component of the Lease Payments
due under Section 4.3 of the Lease Agreement.
"Public Safety Building” means the public safety building to be located at 250 Sherman
Avenue.
"Public Safety Building Costs" means all costs of payment of, or reimbursement for,
design, acquisition, construction, installation and equipping of the Public Safety Building,
including but not limited to, architect and engineering fees, construction contractor payments,
costs of feasibility and other reports, inspection costs, performance bond premiums and permit
fees, and includes Costs of Issuance not paid out of the Costs of Issuance Fund.
"Public Safety Construction Fund" means the fund by that name established and held by
the Trustee pursuant to Section 3.03 hereof.
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"Rating Category" means any generic rating category of Moody's or S&P, without regard
to any refinement of such category by plus or minus sign or by numerical or other qualifying
designation.
"Record Date" means the close of business on the fifteenth day of the month preceding
each Payment Date, whether or not such fifteenth day is a Business Day.
"Registration Books" means the records maintained by the Trustee pursuant to
Section 2.11 for registration and transfer of ownership of the Certificates.
"Regulations" means temporary and permanent regulations promulgated under the
Code.
"S&P" means Standard & Poor's Corporation, of New York, New York, or its successors.
"State" means the State of California.
"Term of the Lease Agreement" means the time during which the Lease Agreement is in
effect, as provided in Section 4.2 of the Lease Agreement.
"Trust Agreement" or "Agreement" means this Trust Agreement, together with any
amendments or supplements hereto permitted to be made hereunder.
"Trustee" means U.S. Bank National Association, a national banking association
organized under the laws of the United States of America or any successor thereto acting as
Trustee pursuant to this Trust Agreement.
"Written Request of the Corporation" means an instrument in writing signed by the
Corporation Representative.
"Written Request of the City" means an instrument in writing signed by the City
Representative.
Section 1.02. Authorization. Each of the parties hereby represents and warrants that it
has full legal authority and is duly empowered to enter into this Agreement, and has taken all
actions necessary to authorize the execution of this Agreement by the officers and persons
signing it.
ARTICLE II
THE CERTIFICATES OF PARTICIPATION
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Section 2.01. Authorization. The Trustee is hereby authorized and directed to register,
execute and deliver to the Original Purchaser the City of Palo Alto 2021 Certificates of
Participation (Public Safety Building) in an aggregate principal amount of [_______________] Dollars
($[_________]) evidencing undivided fractional interests in the Lease Payments.
Section 2.02. Date. Each Certificate shall be dated as of the date of its execution (except
that each Certificate delivered to the Original Purchaser shall be dated the Closing Date), and
interest with respect thereto shall be payable from the Payment Date next preceding the date of
execution thereof, unless: (i) it is executed as of a Payment Date, in which event interest
represented thereby shall be payable from such Payment Date; or (ii) it is executed after a
Record Date and before the following Payment Date, in which event interest represented
thereby shall be payable from such Payment Date; or (iii) it is executed on or before the Record
Date immediately preceding the first Payment Date, in which event interest represented thereby
shall be payable from the Closing Date; provided, however, that if, as of the date of any
Certificate, interest represented by such Certificate is in default, interest represented by such
Certificate shall be payable from the Payment Date to which interest represented thereby has
previously been paid or made available for payment.
Section 2.03. Maturities; Interest Rates. The Certificates shall mature on November 1, as
follows:
Year Amount Interest Rate
T: Term Certificate
Section 2.04. Form of Certificates; Interest. The Certificates shall be delivered in the form
of fully registered Certificates without coupons in the denomination of $5,000 or any integral
multiple thereof, except that no Certificate may have principal maturing in more than one year.
The Certificates shall be assigned such alphabetical and numerical designation as shall be
designated by the Trustee.
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Interest represented by the Certificates shall be payable on each Payment Date to and
including the date of maturity or prepayment, whichever is earlier, as provided in Section 2.09.
Said interest shall represent the portion of Lease Payments designated as interest and coming
due during the Rental Period (as defined in the Lease Agreement) preceding each Payment
Date. The proportionate share of the portion of Lease Payments designated as interest
represented by any Certificate shall be computed by multiplying the portion of Lease Payments
designated as principal represented by such Certificate by the rate of interest applicable to such
Certificate (on the basis of a 360-day year of twelve 30-day months).
Section 2.05. Form. The Certificates shall be substantially in the form set forth in Exhibit
A attached hereto and by this reference incorporated herein.
Section 2.06. Execution. The Certificates shall be executed by and in the name of the
Trustee by the manual signature of an authorized officer of the Trustee. If any officer whose
signature appears on any Certificate ceases to be such officer before the date of delivery of such
Certificate, such signature shall nevertheless be as effective as if the officer had remained in
office until such date. Any Certificate may be executed on behalf of the Trustee by such person
as at the actual date of the execution of such Certificate shall be the proper officer of the
Trustee.
Section 2.07. Transfer and Exchange. (a) Transfer of Certificates. The registration of any
Certificate may, in accordance with its terms, be transferred upon the Registration Books by the
person in whose name it is registered, in person or by his duly authorized attorney, upon
surrender of such Certificate for cancellation at the Corporate Trust Office of the Trustee,
accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee,
duly executed. Whenever any Certificate or Certificates shall be surrendered for registration of
transfer, the Trustee shall execute and deliver a new Certificate or Certificates of the same
maturity and aggregate principal amount of the same series, in any authorized denominations.
(b) Exchange of Certificates. Certificates may be exchanged at the Corporate Trust
Office of the Trustee, for a like aggregate principal amount of Certificates of other authorized
denominations of the same maturity and the same series. The City shall pay any costs of the
Trustee incurred in connection with such exchange, except that the Trustee may require the
payment by the Certificate Owner requesting such exchange of any tax or other governmental
charge required to be paid with respect to such exchange.
Section 2.08. Certificates Mutilated, Lost, Destroyed or Stolen. If any Certificate shall
become mutilated, the Trustee, at the expense of the Owner of said Certificate, shall execute and
deliver a new Certificate of like tenor and maturity in exchange and substitution for the
Certificate so mutilated, but only upon surrender to the Trustee of the Certificate so mutilated.
Every mutilated Certificate so surrendered to the Trustee shall be cancelled by it and redelivered
to, or upon the order of, the City. If any Certificate shall be lost, destroyed or stolen, evidence of
such loss, destruction or theft may be submitted to the Trustee, and, if such evidence is
satisfactory to the Trustee and, if an indemnity satisfactory to the Trustee shall be given, the
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Trustee, at the expense of the Certificate Owner, shall execute and deliver a new Certificate of
like tenor and maturity and numbered as the Trustee shall determine in lieu of and in
substitution for the Certificate so lost, destroyed or stolen. The Trustee may require payment of
an appropriate fee for each new Certificate delivered under this Section 2.08 and of the
expenses which may be incurred by the Trustee in carrying out the duties under this
Section 2.08. Any Certificate executed and delivered under the provisions of this Section 2.08 in
lieu of any Certificate alleged to be lost, destroyed or stolen shall be equally and proportionately
entitled to the benefits of this Agreement with all other Certificates secured by this Agreement.
The Trustee shall not be required to treat both the original Certificate and any replacement
Certificate as being Outstanding for the purpose of determining the principal amount of
Certificates which may be executed and delivered hereunder or for the purpose of determining
any percentage of Certificates Outstanding hereunder, but both the original and replacement
Certificate shall be treated as one and the same. Notwithstanding any other provision of this
Section 2.08, in lieu of delivering a new Certificate in exchange for a Certificate which has been
mutilated, lost, destroyed or stolen, and which has matured, the Trustee may make payment
with respect to such Certificate upon receipt of indemnity satisfactory to the Trustee.
Section 2.09. Payment. Payment of interest due with respect to any Certificate on any
Payment Date shall be made to the person appearing on the Registration Books as the Owner
thereof as of the Record Date immediately preceding such Payment Date, such interest to be
paid by check mailed to such Owner at his address as it appears on the Registration Books or at
such other address as he may have filed with the Trustee for that purpose, or upon written
request filed with the Trustee prior to the Record Date by an owner of at least $1,000,000 in
aggregate principal amount of the Certificates, by wire transfer in immediately available funds to
an account in the United States designated by such Owner in such written request. The
principal, interest and prepayment price represented by the Certificates at maturity or upon
prior prepayment shall be payable in lawful money of the United States of America upon
surrender at the Corporate Trust Office of the Trustee.
Section 2.10. Execution of Documents and Proof of Ownership. Any request, direction,
consent, revocation of consent, or other instrument in writing required or permitted by this
Agreement to be signed or executed by Certificate Owners may be in any number of concurrent
instruments of similar tenor, and may be signed or executed by such Owners in person or by
their attorneys or agents appointed by an instrument in writing for that purpose. Proof of the
execution of any such instrument, or of any instrument appointing any such attorney or agent,
and of the ownership of Certificates shall be sufficient for any purpose of this Agreement (except
as otherwise herein provided), if made in the following manner:
(a) The fact and date of the execution by any Owner or his attorney or agent
of any such instrument and of any instrument appointing any such attorney or agent,
may be proved by a certificate, which shall be acknowledged or verified, of an officer of
any bank or trust company located within the United States of America, or of any notary
public, or other officer authorized to take acknowledgments of deeds to be recorded in
such jurisdictions, that the persons signing such instruments acknowledged before him
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the execution thereof. Where any such instrument is executed by an officer of a
corporation or association or a member of a partnership on behalf of such corporation,
association or partnership, such certificate shall also constitute sufficient proof of his
authority.
(b) The fact of the ownership of Certificates by any person and the amount,
the maturity and the numbers of such Certificates and the date of his holding the same
shall be proved by the Registration Books.
Nothing contained in this Article II shall be construed as limiting the Trustee to such
proof, it being intended that the Trustee may accept any other evidence of the matters herein
stated which the Trustee may deem sufficient. Any request or consent of the Owner of any
Certificate shall bind every future Owner of the same Certificate in respect of anything done or
suffered to be done by the Trustee in pursuance of such request or consent.
Section 2.11. Registration Books. The Trustee shall keep or cause to be kept, at its
Corporate Trust Office, sufficient records for the registration and registration of transfer of the
Certificates, which shall at all times be open to inspection by the City and the Corporation; and,
upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it
may prescribe, register or transfer or cause to be registered or transferred, on the Registration
Books, Certificates as hereinbefore provided.
Section 2.12. Use of Depository. Notwithstanding any provision of this Trust Agreement
to the contrary:
(a) The Certificates shall be initially executed and registered in the name of
"Cede & Co.," as nominee of The Depository Trust Company, the depository designated
by the Original Purchaser, and shall be evidenced by one Certificate maturing on each of
the maturity dates set forth in Section 2.03 of this Trust Agreement to be in a
denomination corresponding to the total principal therein designated to mature on such
date. Registered ownership of such Certificates, or any portions thereof, may not
thereafter be transferred except:
(1) to any successor of The Depository Trust Company or its nominee,
or of any substitute depository designated pursuant to clause (2) of this
subsection (a) (“substitute depository"); provided that any successor of The
Depository Trust Company or substitute depository shall be qualified under any
applicable laws to provide the service proposed to be provided by it;
(2) to any substitute depository not objected to by the City or the
Trustee, upon (i) the resignation of The Depository Trust Company or its
successor (or any substitute depository or its successor) from its functions as
depository or (ii) a determination by the City that The Depository Trust Company
or its successor is no longer able to carry out its functions as depository; provided
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that any such substitute depository shall be qualified under any applicable laws
to provide the services proposed to be provided by it; or
(3) to any person as provided below, upon (i) the resignation of The
Depository Trust Company or its successor (or any substitute depository or its
successor) from its functions as depository or (ii) a determination by the City that
The Depository Trust Company or its successor is no longer able to carry out its
functions as depository; provided that no substitute depository which is not
objected to by the City and the Trustee can be obtained.
(b) In the case of any transfer pursuant to clause (1) or clause (2) of
Section 2.12(a) hereof, upon receipt of all outstanding Certificates by the Trustee,
together with a Written Request of the City to the Trustee, a single new Certificate shall
be executed and delivered for each maturity of such Certificate 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 (3) of Section 2.12(a) hereof, upon receipt of all
outstanding Certificates by the Trustee together with a Written Request of the City, new
Certificates shall be executed and delivered in such denominations and registered in the
names of such persons as are requested in a Written Request of the City provided the
Trustee shall not be required to deliver such new Certificates within a period less than 60
days from the date of receipt of such a Written Request of the City.
(c) In the case of partial prepayment or an advance refunding of any
Certificates evidencing all of the principal maturing in a particular year, The Depository
Trust Company shall deliver the Certificates to the Trustee for cancellation and re-
registration to reflect the amounts of such reduction in principal.
(d) The City and the Trustee shall be entitled to treat the person in whose
name any Certificate is registered as the absolute Owner thereof for all purposes of this
Trust Agreement and any applicable laws, notwithstanding any notice to the contrary
received by the Trustee or the City; and the City and the Trustee shall have no
responsibility for transmitting payments to, communication with, notifying or otherwise
dealing with any beneficial owners of the Certificates. Neither the City nor the Trustee
will have any responsibility or obligations, legal or otherwise, to the beneficial owners or
to any other party including The Depository Trust Company or its successor (or
substitute depository or its successor), except for the registered owner of any Certificate.
(e) So long as all outstanding Certificates are registered in the name of
Cede & Co. or its registered assign, the City and the Trustee shall reasonably cooperate
with Cede & Co., as sole registered Owner, or its registered assign in effecting payment
of the principal of and prepayment premium, if any, and interest on the Certificates by
arranging for payment in such manner that funds for such payments are properly
identified and are made immediately available on the date they are due.
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(f) So long as all outstanding Certificates are registered in the name of
Cede & Co. or its registered assign (hereinafter, for purposes of this subjection (f), the
"Owner"):
(1) All notices and payments addressed to the Owners shall contain
the Certificates’ CUSIP number.
(2) Notices to the Owner shall be forwarded by hand delivery (with
receipt) or overnight courier to the address specified by the Depository Trust
Company.
(3) Payments of interest with respect to the Certificates shall be made
payable to the order of "Cede & Co." and shall be delivered to the order of the
Owner, in same day funds on each applicable May 1 and November 1.
(4) Payments of the principal on the Certificates shall be received by
the Owner, in same day funds on each applicable November 1. Payments of the
principal shall be made payable to Cede & Co.
(5) The Owner may request payments of interest or principal to be
made other than as described in Section 2.12(f)(3) and Section 2.12(f)(4) above as
requested by such Owner, and the Trustee and the City shall reasonably
cooperate with respect to the provision for such payment to the extent otherwise
permitted under this Trust Agreement.
(6) The Owner may direct the Trustee in writing to use any other
address or department as the address or department to which payments of the
interest or principal or notices may be sent.
(7) The Owner shall in writing provide the Trustee with examples of
signatures of those authorized to act on its behalf, which shall be subject to
change and the Trustee shall accept direction in writing from such persons or
their designated successors on behalf of the registered Certificate.
(g) Reference is hereby made to the Letter of Representations directed to the
Depository Trust Company and executed by the City, providing for certain actions by the
City and the Trustee under specified circumstances; in the event of conflict between the
provisions of this Trust Agreement and said Letter of Representations, the latter shall
control.
ARTICLE III
DISPOSITION OF PROCEEDS;
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COSTS OF ISSUANCE FUND AND CONSTRUCTION FUNDS
Section 3.01. Application of Proceeds. The proceeds received by the Trustee from the
sale of the Certificates in the amount of $[_____] (being an amount equal to the principal amount
of the Certificates ($[_____]), [plus/less a net original issue premium/discount of $____] less an
underwriter’s discount of $[_____]), shall forthwith be set aside by the Trustee in the following
respective funds:
(a) The Trustee shall deposit an amount equal to $[_____] in the Costs of
Issuance Fund;
(b) The Trustee shall deposit an amount equal to $[_____] in the Capitalized
Interest Account; and
(b) The Trustee shall deposit an amount equal to $[_____] in the Public Safety
Construction Fund.
Section 3.02. Costs of Issuance Fund. The Trustee shall establish a special fund
designated as the "Costs of Issuance Fund"; shall keep such fund separate and apart from all
other funds and moneys held by it; and shall administer such fund as provided herein. There
shall be deposited in the Costs of Issuance Fund the proceeds of the Certificates deposited
therein pursuant to Section 3.01(a), and any other funds from time to time deposited by the
Trustee for such purpose. The moneys in the Costs of Issuance Fund shall be disbursed to pay
the Costs of Issuance from time to time upon the receipt of Written Requests of the City setting
forth the amounts to be disbursed for payment or reimbursement of Costs of Issuance and the
name and address of the person or persons to whom said amounts are to be disbursed, stating
that the amounts to be disbursed are for Costs of Issuance properly chargeable to the Costs of
Issuance Fund. Any amounts remaining in the Costs of Issuance Fund on the date one hundred
and twenty (120) days after the Closing Date shall be withdrawn therefrom by the Trustee and
transferred to the Lease Payment Fund.
Section 3.03. Public Safety Building Construction Fund. The Trustee shall establish and
maintain a fund to be known as the “Public Safety Construction Fund”. The Trustee shall
disburse moneys in the Public Safety Construction Fund from time to time, for the purpose of
paying the Public Safety Building Costs. Each such disbursement shall be documented by a
requisition which shall: (a) identify the total amount of such costs to be paid pursuant to such
requisition, including all items of cost in such detail as may be available to the City; and (b) state
with respect to such disbursement (i) the requisition number, in sequential order, (ii) the amount
to be disbursed for payment of such costs, and (iii) that each item of cost identified therein has
been properly incurred, constitutes payment of a Public Safety Building Cost and has not been
the basis of any previous disbursement. Upon completion of the Public Safety Building and
following payment of all Public Safety Building Costs, the Public Safety Construction Fund shall
be closed and transferred to the Lease Payment Fund.
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ARTICLE IV
PREPAYMENT OF CERTIFICATES
Section 4.01. Prepayment. (A) Prepayment of the Certificates.
(1) Optional Prepayment of the Certificates. The Certificates maturing on or before
November 1, [_____] are not subject to optional prepayment prior to their respective stated
maturities. The Certificates maturing on or after November 1, [_____], are subject to prepayment
prior to their respective stated maturities, at the option of the City, in whole, or in part among
maturities on such basis as designated by the City and by lot within any one maturity, on any
date on or after November 1, [_____] from prepayments of the Lease Payments made pursuant to
Section 10.2 of the Lease Agreement, at a prepayment price equal to the principal amount of the
Certificates or portions thereof to be prepaid, together with accrued interest to the date fixed
for prepayment, without premium.
(2) Mandatory Sinking Fund Prepayments of the Certificates. The Certificates
maturing on November 1 in each of the years [_____], [_____], and [_____], are subject to
mandatory sinking fund prepayment prior to their respective stated maturities, in the amounts
and years set forth below, at the prepayment price equal to the principal amount thereof to be
prepaid, together with accrued interest to the date fixed for prepayment.
Certificates Maturing November 1, [_____]
Sinking Fund
Prepayment Date
(November 1)
Sinking Payments
(maturity)
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Certificates Maturing November 1, [_____]
Sinking Fund
Prepayment Date
(November 1)
Sinking Payments
(maturity)
Certificates Maturing November 1, [_____]
Sinking Fund
Prepayment Date
(November 1)
Sinking Payments
(maturity)
(B) Prepayment From Net Proceeds of Insurance and Condemnation. The
Certificates are also subject to prepayment on any date, in whole or in part, from the Net
Proceeds of insurance or condemnation with respect to the Leased Property, which Net
Proceeds are deposited in the Lease Payment Fund and credited towards the prepayment of the
Lease Payments made by the City pursuant to Section 10.3 of the Lease Agreement, at a
prepayment price equal to the principal amount of the Certificates to be prepaid, together with
accrued interest to the date fixed for prepayment, without premium.
Section 4.02. Selection of Certificates for Prepayment. Whenever provision is made in
this Agreement for the prepayment of Certificates and less than all Outstanding Certificates are
called for prepayment, the City shall select the series and maturities of the Certificates for
prepayment from the Outstanding Certificates not previously called for prepayment, and the
Trustee shall select Certificates for prepayment by lot within a maturity in any manner deemed
appropriate by the Trustee. For the purposes of such selection, Certificates shall be deemed to
be composed of $5,000 portions, and any such portion may be separately prepaid. The City and
the Trustee, as applicable, shall promptly notify the other in writing of the Certificates so
selected for prepayment.
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Section 4.03. Notice of Prepayment. When prepayment is authorized or required
pursuant to Section 4.01, the Trustee shall give notice of the prepayment of the Certificates.
Such notice shall specify: (a) that the Certificates or a designated portion thereof are to be
prepaid, (b) the date of prepayment, (c) the place or places where the prepayment will be made,
and (d) that, in the case of an optional prepayment, the City has the right to issue a conditional
redemption notice to the effect that the redemption is conditioned upon receipt of sufficient
funds to accomplish the redemption and to rescind the notice as provided below. Such notice
shall further state that on the specified date there shall become due and payable upon each
Certificate, the principal and premium, if any, together with interest accrued to said date, and
that from and after such date interest represented thereby shall cease to accrue and be payable.
Notice of such prepayment shall be mailed by first class mail to the respective Owners of
Certificates designated for prepayment at their addresses appearing on the Registration Books,
at least thirty (30) days but not more than forty-five (45) days prior to the prepayment date,
which notice shall, in addition to setting forth the above information, set forth, in the case of
each Certificate called only in part, the portion of the principal thereof which is to be prepaid;
provided that neither failure to receive such notice so mailed nor any defect in any notice so
mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates.
The City has the right to rescind any notice of the optional prepayment of Certificates
under Section 4.01(A)(1) by written notice to the Trustee on or prior to the date fixed for
prepayment. Any notice of optional prepayment shall be cancelled and annulled if for any
reason funds will not be or are not available on the date fixed for prepayment for the payment
in full of the Certificates then called for prepayment, and such cancellation shall not constitute
an Event of Default. The City and the Trustee have no liability to the Owners or any other party
related to or arising from such rescission of prepayment. The Trustee shall mail notice of such
rescission of prepayment to the respective Owners of the Certificates designated for
prepayment at their respective addresses appearing on the Registration Books, and to the
Depository Trust Company and the Municipal Securities Rulemaking Board.
Section 4.04. Partial Prepayment of Certificate. Upon surrender of any Certificate
prepaid in part only, the Trustee shall execute and deliver to the Owner thereof, at the expense
of the City, a new Certificate or Certificates of authorized denominations equal in aggregate
principal amount to the unprepaid portion of the Certificate surrendered and of the same
interest rate and the same maturity.
Section 4.05. Effect of Notice of Prepayment. Notice having been given as aforesaid,
and moneys for the prepayment (including the interest to the applicable date of prepayment
and including any applicable premium), having been set aside in the Lease Payment Fund, the
Certificates shall become due and payable on said date of prepayment, and, upon presentation
and surrender thereof at the Corporate Trust Office of the Trustee, said Certificates shall be paid
at the unpaid principal amount (or applicable portion thereof) with respect thereto, plus interest
accrued and unpaid to said date of prepayment.
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If, on said date of prepayment, moneys for the prepayment of all the Certificates to be
prepaid, together with interest to said date of prepayment, shall be held by the Trustee so as to
be available therefor on such date of prepayment, and, if notice of prepayment thereof shall
have been given as aforesaid, then, from and after said date of prepayment, interest represented
by said Certificates shall cease to accrue and become payable. All moneys held by or on behalf
of the Trustee for the prepayment of Certificates shall be held in trust for the account of the
Owners of the Certificates so to be prepaid.
All Certificates paid at maturity or prepaid prior to maturity pursuant to the provisions of
this Article IV shall be cancelled upon surrender thereof and destroyed.
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ARTICLE V
LEASE PAYMENTS; LEASE PAYMENT FUND
Section 5.01. Assignment of Rights in Lease Agreement. The Corporation has in the
Assignment Agreement transferred, assigned and set over to the Trustee certain of its rights in
the Lease Agreement, including but not limited to all of the Corporation's rights to receive and
collect all of the Lease Payments and all other amounts required to be deposited in the Lease
Payment Fund pursuant to the Lease Agreement or pursuant hereto. All Lease Payments and
such other amounts to which the Corporation may at any time be entitled shall be paid directly
to the Trustee, and all of the Lease Payments collected or received by the Corporation shall be
deemed to be held and to have been collected or received by the Corporation as the agent of
the Trustee, and if received by the Corporation at any time shall be deposited by the
Corporation with the Trustee within one Business Day after the receipt thereof, and all such
Lease Payments and such other amounts shall be forthwith deposited by the Trustee upon the
receipt thereof in the Lease Payment Fund.
Section 5.02. Establishment of Lease Payment Fund. The Trustee shall establish a special
fund designated as the "Lease Payment Fund," and within such fund the Capitalized Interest
Account. All moneys at any time deposited by the Trustee in the Lease Payment Fund shall be
held by the Trustee in trust for the benefit of the Owners of the Certificates. So long as any
Certificates are Outstanding, neither the City nor the Corporation shall have any beneficial right
or interest in the Lease Payment Fund or the moneys deposited therein, except only as provided
in this Agreement, and such moneys shall be used and applied by the Trustee as hereinafter set
forth.
Section 5.03. Deposits.
There shall be deposited in the Lease Payment Fund all Lease Payments received by the
Trustee, including any moneys required to be deposited therein pursuant to the Lease
Agreement or pursuant to this Agreement, and including any other moneys required to be
credited towards payment of the Lease Payments.
The Trustee shall deposit in the Tax Capitalized Account the amount described in Section
3.01.
Section 5.04. Application of Moneys. All amounts in the Lease Payment Fund shall be
used and withdrawn by the Trustee solely for the purpose of paying the principal, interest and
prepayment premiums (if any) with respect to the Certificates as the same shall become due
and payable, in accordance with the provisions of Article II and Article IV.
Moneys in the Capitalized Interest Account shall be invested in Investment Securities and
shall be withdrawn and used, together with investment earnings thereon, to pay interest on the
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Certificates. At such time as no moneys remain in the Capitalized Interest Account, the Trustee
shall close the Capitalized Interest Account without any further direction from the City or the
Corporation.
Section 5.05. Surplus. Any surplus remaining in the Lease Payment Fund, after
prepayment and payment of all Certificates, including premiums and accrued interest (if any)
and payment of any applicable fees to the Trustee or provision for such prepayment or payment
having been made to the satisfaction of the Trustee, shall be withdrawn by the Trustee and
remitted to the City.
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ARTICLE VI
INSURANCE AND CONDEMNATION FUND
INSURANCE; EMINENT DOMAIN
Section 6.01. Establishment of Insurance and Condemnation Fund; Application of Net
Proceeds of Insurance Award. The provisions of this Section are subject to Section 4.02 of the
Property Lease. Any Net Proceeds of insurance against accident to or destruction of any
structure constituting any part of the Leased Property collected by the City in the event of any
such accident or destruction shall be paid to the Trustee by the City pursuant to Section 6.2(a) of
the Lease Agreement and deposited by the Trustee promptly upon receipt thereof in a special
fund to be established and held by the Trustee, designated as the "Insurance and Condemnation
Fund". If the City determines and notifies the Trustee in writing of its determination, within
ninety (90) days following the date of such deposit, that the replacement, repair, restoration,
modification or improvement of the Leased Property is not economically feasible or in the best
interest of the City, then such Net Proceeds shall be promptly transferred by the Trustee to the
Lease Payment Fund, and applied to the prepayment of Lease Payments pursuant to
Section 4.01(B); provided, that such transfer shall only be made if the amount transferred is
sufficient to prepay the principal amount of Certificates attributable to the portion of the Leased
Property damaged or destroyed, determined on the basis of the ratio resulting from dividing the
cost of the portion of the Leased Property so damaged or destroyed by the total cost of the
Leased Property. All Net Proceeds deposited in the Insurance and Condemnation Fund and not
so transferred to the Lease Payment Fund shall be applied to the prompt replacement, repair,
restoration, modification or improvement of the damaged or destroyed portions of the Leased
Property by the City, upon receipt of Written Requests of the City stating with respect to each
payment to be made (i) the name and address of the person, firm or corporation to whom
payment is due, (ii) the amount to be paid and (iii) that each obligation mentioned therein has
been properly incurred, is a proper charge against the Insurance and Condemnation Fund, has
not been the basis of any previous withdrawal, and specifying in reasonable detail the nature of
the obligation, accompanied by a bill or a statement of account for such obligation. Any
balance of the Net Proceeds remaining after such work has been completed (as evidenced by a
Certificate of the City to the Trustee) shall be paid to the City. The preceding sentence
notwithstanding, before the remaining Net Proceeds are paid to the City by the Trustee, the City
shall deliver to the Trustee a certificate stating that the Leased Property has been replaced,
repaired, restored, modified or improved with the Net Proceeds to the extent that the City has
full use, occupancy and enjoyment of the Leased Property.
Section 6.02. Application of Net Proceeds of Eminent Domain Award. The provisions of
this Section are subject to Section 4.02 of the Property Lease. If all or any part of the Leased
Property shall be taken by eminent domain proceedings (or sold to a government threatening to
exercise the power of eminent domain) the Net Proceeds therefrom shall be deposited with the
Trustee in the Insurance and Condemnation Fund pursuant to Section 6.2(b) of the Lease
Agreement and shall be applied and disbursed by the Trustee as follows:
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(a) If all of the Leased Property shall have been taken in such eminent
domain proceedings or sold to a government threatening the use of eminent domain
powers, or if the City has given written notice to the Trustee of its determination that
such proceeds are not needed for repair or rehabilitation of the Leased Property, the
Trustee shall transfer such proceeds the Lease Payment Fund to be credited towards the
prepayments of the Lease Payments required to be paid pursuant to Section 6.2(b) of the
Lease Agreement and applied to the prepayment of Certificates in the manner provided
in Section 4.01(B).
(b) If less than all of the Leased Property shall have been taken in such
eminent domain proceedings or sold to a government threatening the use of eminent
domain powers, and if the City has given written notice to the Trustee of its
determination that such proceeds are needed for repair, rehabilitation or replacement of
the Leased Property, the Trustee shall pay to the City, or to its order, from said proceeds
such amounts as the City may expend for such repair or rehabilitation, upon the filing of
Written Requests of the City in the form and containing the provisions set forth in
Section 6.01.
Section 6.03. Cooperation. The Corporation and the Trustee shall cooperate fully with
the City at the expense of the City in filing any proof of loss with respect to any insurance policy
maintained pursuant to Article V of the Lease Agreement and, to the extent indemnified to its
satisfaction from any liability or expense related thereto, in the prosecution or defense of any
prospective or pending condemnation proceeding with respect to the Leased Property or any
portion thereof.
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ARTICLE VII
MONEYS IN FUNDS
Section 7.01. Held in Trust. The moneys and investments held by the Trustee under this
Trust Agreement are irrevocably held in trust for the Certificates, and for the purposes herein
specified, and such moneys shall be expended only as provided in this Trust Agreement, and
shall not be subject to levy or attachment or lien by or for the benefit of any creditor of (i) the
City, (ii) the Trustee, (iii) the Corporation or (iv) the Owner of Certificates.
Section 7.02. Investments Authorized. All moneys in any of the funds established
pursuant to this Trust Agreement shall be invested by the Trustee, upon Written Request of the
City, solely in Investment Securities. In the absence of any Written Request of the City directing
investments, the Trustee shall invest in Investment Securities described in (12) of the definition
thereof.
Investment Securities shall be purchased at Fair Market Value, provided the Trustee shall
not be responsible to determine Fair Market Value. Moneys in all funds shall be invested in
Investment Securities maturing not later than five (5) years from the date said investment is
made.
Section 7.03. Accounting. The Trustee shall furnish to the City, not less than monthly, an
accounting (which may be in the form of the Trustee's regular statement) of all investments
made by the Trustee. The Trustee shall not be responsible or liable for any loss suffered in
connection with any investment of funds made by it in accordance with Section 7.02.
Section 7.04. Allocation of Earnings. Any income, profit or loss on such investments in
any of the funds shall be deposited in or charged to the respective funds from which such
investments were made.
Section 7.05. Acquisition, Disposition and Valuation of Investments. (a) Except as
otherwise provided in subsection (b) of this Section, the City covenants that all investments of
amounts deposited in any fund or account created by or pursuant to this Trust Agreement, or
otherwise containing gross proceeds of the Certificates (within the meaning of section 148 of
the Code) will be acquired, disposed of, and valued (as of the date that valuation is required by
this Trust Agreement or the Code) at Fair Market Value. Valuation shall occur annually, prior to
the adoption of the City's budget.
(b) Investments in funds or accounts (or portions thereof) that are subject to a yield
restriction under applicable provisions of the Code will be valued at their present value (within
the meaning of section 148 of the Code).
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Section 7.06. Commingling of Investment Securities and Disposition of Investments.
Investments in all funds may be commingled for purposes of making, holding or disposing of
investments, notwithstanding provisions herein for transfer to or holding in particular funds
amounts received or held by the Trustee hereunder, provided that the Trustee shall at all times
account for such investments strictly in accordance with the funds to which they are credited
and otherwise as provided in this Trust Agreement. The Trustee may act as principal or agent in
the making or disposing of any investment.
The Trustee may sell, or present for prepayment, any Investment Securities so purchased
whenever it shall be necessary to provide moneys to meet any required payment, transfer,
withdrawal or disbursement from the fund to which such Investment Securities is credited, and
the Trustee shall not be liable or responsible for any loss resulting from any investment made
pursuant to this Section 7.06.
The City acknowledges that to the extent regulations of the Comptroller of the Currency
or other applicable regulatory entity grant the City the right to receive brokerage confirmations
of security transactions as they occur, the City will not receive such confirmations to the extent
permitted by law. The Trustee will furnish the City periodic cash transaction statements which
include detail for all investment transactions made by the Trustee hereunder. The Trustee may
make any investments hereunder through its own bond or investment department or trust
investment department, or those of its parent or any affiliate. The Trustee or any of its affiliates
may act as sponsor, advisor or manager in connection with any investments made by the
Trustee hereunder.
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ARTICLE VIII
THE TRUSTEE
Section 8.01. Compensation of the Trustee. The City shall from time to time, as agreed
upon between the City and the Trustee, pay to the Trustee reasonable compensation for its
services, and shall reimburse the Trustee for all its advances and expenditures, including but not
limited to advances to, and fees and expenses of, independent appraisers, accountants,
consultants, counsel, agents and attorneys-at-law or other experts employed by it in the exercise
and performance of its powers and duties hereunder.
Section 8.02. Removal of Trustee. The City and the Corporation may by written
agreement between themselves, or the Owners of a majority in aggregate principal amount of
all Certificates Outstanding may by written request, at any time and for any reason, remove the
Trustee and any successor thereto, and shall thereupon appoint a successor or successors
thereto. Any such successor shall be a bank or trust company in good standing, duly authorized
to exercise trust powers and subject to examination by federal or State authority having a
combined capital (exclusive of borrowed capital) and surplus of at least Fifty Million Dollars
($50,000,000). If such bank 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 purposes of this Section the combined capital and surplus of such bank or trust
company shall be deemed to be its combined capital and surplus as set forth in its most recent
report of conditions so published.
The Trustee may at any time resign by giving written notice to the City and the
Corporation and by giving to the Certificate Owners notice by mailing such notice to the
registered owners of the Certificates. Upon receiving such notice of resignation, the City shall
promptly appoint a successor Trustee by an instrument in writing; provided, however, that in the
event that the City does not appoint a successor Trustee within thirty (30) days following receipt
of such notice of resignation, the resigning Trustee may petition the appropriate court having
jurisdiction to appoint a successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee shall become effective upon acceptance of appointment by
the successor Trustee. Upon such acceptance, the City shall mail notice thereof to the Certificate
Owners at their respective addresses set forth on the Certificate registration books maintained
pursuant to Section 2.11.
Section 8.03. Appointment of Agent. The Trustee may appoint an agent to exercise any
of the powers, rights or remedies granted to the Trustee under this Trust Agreement, and to
hold title to property or to take any other action which may be desirable or necessary.
Section 8.04. Merger or Consolidation. Any company into which the Trustee may be
merged or converted, or with which it may be consolidated, or any company resulting from any
merger, conversion or consolidation to which it shall be a party, or any company to which the
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Trustee may sell or transfer all or substantially all of its corporate trust business (provided that
such company shall be eligible under Section 8.02) shall be the successor to the Trustee without
the execution or filing of any paper or further act, anything herein to the contrary
notwithstanding.
Section 8.05. Protection and Rights of the Trustee. The Trustee shall be protected and
shall incur no liability in acting or proceeding in good faith upon any resolution, notice,
telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or
other paper or document which it shall in good faith believe to be genuine and to have been
passed or signed by the proper board or person or to have been prepared and furnished
pursuant to any of the provisions of this Trust Agreement, and the Trustee shall be under no
duty to make any investigation or inquiry as to any statements contained or matters referred to
in any such instrument, but may accept and rely upon the same as conclusive evidence of the
truth and accuracy of such statements. The Trustee may consult with counsel, who may be
counsel to the Corporation, with regard to legal questions, and the opinion of such counsel shall
be full and complete authorization and protection in respect of any action taken or suffered by it
hereunder in good faith in accordance therewith.
Whenever in the administration of its duties under this Trust Agreement, the Trustee
shall deem it necessary or desirable that a matter be proved or established prior to taking or
suffering any action hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed), shall be deemed to be conclusively proved and established by the
certificate of the City Representative or the Corporation Representative and such certificate shall
be full warranty to the Trustee for any action taken or suffered under the provisions of this Trust
Agreement upon the faith thereof, but in its discretion the Trustee may, in lieu thereof, accept
other evidence of such matter or may require such additional evidence as to it may seem
reasonable.
The Trustee may become the Owner of the Certificates with the same rights it would
have if it were not the Trustee; may acquire and dispose of other bonds or evidences of
indebtedness of the City with the same rights it would have if it were not the Trustee; and may
act as a depositary 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 Owners of
Certificates, whether or not such committee shall represent the Owners of the majority in
principal amount of the Certificates then Outstanding.
The recitals, statements and representations by the City and the Corporation contained
in this Trust Agreement or in the Certificates shall be taken and construed as made by and on
the part of the City and the Corporation, as the case may be, and not by the Trustee, and the
Trustee does not assume, and shall not have, any responsibility or obligation for the correctness
of any thereof.
The Trustee may execute any of the trusts or powers hereof and perform the duties
required of it hereunder by or through attorneys, agents, or receivers, and shall be entitled to
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advice of counsel concerning all matters of trust and its duty hereunder, and the Trustee shall
not be answerable for the default or misconduct of any such attorney, agent, or receiver
selected by it with reasonable care. The Trustee shall not be answerable for the exercise of any
discretion or power under this Trust Agreement or for anything whatever in connection with the
funds and accounts established hereunder, except only for its own gross negligence or willful
misconduct.
The Trustee shall be responsible to perform only those duties specifically set forth herein
and no implied duties or obligations shall be read into this Trust Agreement against the Trustee.
The Trustee shall have no responsibility 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 Certificates.
The Trustee is authorized and directed to execute in its capacity as Trustee the
Assignment Agreement.
The Trustee shall not be deemed to have knowledge of an Event of Default hereunder
unless it shall have actual knowledge at its Corporate Trust Office.
No provision of this Trust Agreement or any other document related hereto shall require
the Trustee to risk or advance its own funds or otherwise incur any financial liability in the
performance of its duties or the exercise of its rights hereunder.
Before taking any action under Article XII hereof the Trustee may require indemnity
satisfactory to the Trustee be furnished from any expenses and to protect it against any liability
it may incur hereunder.
The immunities extended to the Trustee also extend to its directors, officers, employees
and agents.
The Trustee shall not be liable for any action taken or not taken by it in accordance with
the direction of a majority (or other percentage provided for herein) in aggregate principal
amount of Certificates outstanding relating to the exercise of any right, power or remedy
available to the Trustee.
The permissive right of the Trustee to do things enumerated in this Trust Agreement
shall not be construed as a duty.
Every provision of this Trust Agreement, the Lease Agreement, the Property Lease and
the Assignment Agreement relating to the conduct or liability of the Trustee shall be subject to
the provisions of this Trust Agreement, including without limitation, this Article.
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In acting as Trustee hereunder, the Trustee acts solely in its capacity as Trustee
hereunder and not in its individual or personal capacity, and all persons, including without
limitation the Owners, the City and the Corporation, having any claim against the Trustee shall
look only to the funds and accounts held by the Trustee hereunder for payment, except as
otherwise provided herein. Under no circumstances shall the Trustee be liable in its individual or
personal capacity for the obligations evidenced by the Certificates.
The Trustee makes no representation or warranty, either express or implied, as to the
value, design, condition, merchantability or fitness for any particular purpose or fitness for the
use contemplated by the City or the Corporation of the project or any portion thereof, or any
other representation or warranty with respect to the Leased Property or any portion thereof. In
no event shall the Trustee be liable for incidental, indirect, special or consequential damages in
connection with this Trust Agreement, the Lease Agreement or the Property Lease or the
existence, furnishing or functioning of the Leased Property or the City’s use of the Leased
Property.
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ARTICLE IX
MODIFICATION OR AMENDMENT OF AGREEMENT
Section 9.01. Amendments Permitted. This Agreement and the rights and obligations of
the parties hereto and the Lease Agreement and the rights and obligations of the parties
thereto, may be modified or amended at any time by a supplemental agreement which shall
become effective when the written consents of the Owners of at least sixty percent (60%) in
aggregate principal amount of the Certificates then Outstanding, exclusive of Certificates
disqualified as provided in Section 9.03, shall have been filed with the Trustee. No such
modification or amendment shall (1) extend or have the effect of extending the fixed maturity of
any Certificate or reducing the interest rate with respect thereto or extending the time of
payment of interest, or reducing the amount of principal thereof or reducing any premium
payable upon the prepayment thereof, without the express consent of the Owner of such
Certificate, or (2) reduce or have the effect of reducing the percentage of Certificates required
for the affirmative vote or written consent to an amendment or modification of the Lease
Agreement, or (3) modify any of the rights or obligations of the Trustee without its written
assent thereto. Any such supplemental agreement shall become effective as provided in
Section 9.02.
This Agreement and the rights and obligations of the parties hereto and the Lease
Agreement and the rights and obligations of the respective parties thereto, may be modified or
amended at any time by a supplemental agreement, without the consent of any such Owners,
but only to the extent permitted by law and only (1) to add to the covenants and agreements of
any party, other covenants to be observed, or to surrender any right or power herein or therein
reserved to the City, (2) to cure, correct or supplement any ambiguous or defective provision
contained herein or therein so long as such modification or amendment is not inconsistent with
any other provision contained herein, (3) to make such additions, deletions or modifications as
may be necessary or desirable to assure exemption from federal income taxation of the portion
of Lease Payments designated as and comprising interest and received by owners of the
Certificates, (4) in regard to questions arising hereunder or thereunder, as the parties hereto or
thereto may deem necessary or desirable and which shall not adversely affect the interests of
the Owners of the Certificates or (5) to correct any incorrect property description. Any such
supplemental agreement shall become effective upon execution and delivery by the parties
hereto or thereto as the case may be.
Section 9.02. Procedure for Amendment with Written Consent of Certificate Owners.
This Agreement and the Lease Agreement may be amended by supplemental agreement as
provided in this Section 9.02 in the event the consent of the Owners of the Certificates is
required pursuant to Section 9.01. A copy of such supplemental agreement, together with a
request to the Certificate Owners for their consent thereto, shall be mailed by the Trustee to
each Owner of a Certificate at his address as set forth on the Registration Books, but failure to
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receive copies of such supplemental agreement and request shall not affect the validity of the
supplemental agreement when assented to as in this Section provided.
Such supplemental agreement shall not become effective unless there shall be filed with
the Trustee the written consents of the Owners of at least sixty percent (60%) in aggregate
principal amount of the Certificates then Outstanding (exclusive of Certificates disqualified as
provided in Section 9.03) and a notice shall have been mailed as hereinafter in this Section
provided. Each such consent shall be effective only if accompanied by proof of ownership of the
Certificates for which such consent is given, which proof shall be such as is permitted by Section
2.10. Any such consent shall be binding upon the Owner of the Certificate giving such consent
and on any subsequent Owner (whether or not such subsequent Owner has notice thereof)
unless such consent is revoked in writing by the Owner giving such consent or a subsequent
Owner by filing such revocation with the Trustee prior to the date when the notice hereinafter in
this Section provided for has been mailed.
After the Owners of the required percentage of Certificates shall have filed their consents
to such supplemental agreement, the Trustee shall mail a notice to the Owners of the
Certificates in the manner hereinbefore provided in this Section for the mailing of such
supplemental agreement of the notice of adoption thereof, stating in substance that such
supplemental agreement has been consented to by the Owners of the required percentage of
Certificates and will be effective as provided in this Section (but failure to receive copies of said
notice shall not affect the validity of such supplemental agreement or consents thereto). A
record, consisting of the papers required by this Section to be filed with the Trustee, shall be
conclusive proof of the matters therein stated. Such supplemental agreement shall become
effective upon the mailing of such last-mentioned notice, and such supplemental agreement
shall be deemed conclusively binding upon the parties hereto and the Owners of all Certificates
at the expiration of sixty (60) days after such mailing, except in the event of a final decree of a
court of competent jurisdiction setting aside such consent in a legal action or equitable
proceeding for such purpose commenced within such sixty (60) day period.
Section 9.03. Disqualified Certificates. Certificates owned or held by or for the account
of the City or by any person directly or indirectly controlling or controlled by, or under direct or
indirect common control with the City (except any Certificates held in any pension or retirement
fund) shall not be deemed Outstanding for the purpose of any vote, consent, waiver or other
action or any calculation of Outstanding Certificates provided for in this Agreement, and shall
not be entitled to vote upon, consent to, or take any other action provided for in this
Agreement.
Section 9.04. Effect of Supplemental Agreement. From and after the time any
supplemental agreement becomes effective pursuant to this Article IX, this Agreement or the
Lease Agreement, as the case may be, shall be deemed to be modified and amended in
accordance therewith, the respective rights, duties and obligations of the parties hereto or
thereto and all Owners of Certificates Outstanding, as the case may be, shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such modification and
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amendment, and all the terms and conditions of any supplemental agreement shall be deemed
to be part of the terms and conditions of this Agreement or the Lease Agreement, as the case
may be, for any and all purposes.
The Trustee may require each Certificate Owner, before his consent provided for in this
Article IX shall be deemed effective, to reveal whether the Certificates as to which such consent
is given are disqualified as provided in Section 9.03.
Section 9.05. Endorsement or Replacement of Certificates Delivered After Amendments.
The Trustee or the City may determine that Certificates delivered after the effective date of any
action taken as provided in this Article IX shall bear a notation, by endorsement or otherwise, in
form approved by the City, as to such action. In that case, upon demand of the Owner of any
Certificate Outstanding at such effective date and presentation of his Certificate for the purpose
at the Corporate Trust Office of the Trustee, a suitable notation shall be made on such
Certificate. The Trustee or the City may determine that the delivery of substitute Certificates, so
modified as in the opinion of the Trustee is necessary to conform to such Certificate Owners"
action, which substitute Certificates shall thereupon be prepared, executed and delivered. In
that case, upon demand of the Owner of any Certificate then Outstanding, such substitute
Certificate shall be exchanged at the Corporate Trust Office of the Trustee, without cost to such
Owner, for a Certificate of the same character then Outstanding, upon surrender of such
Outstanding Certificate.
Section 9.06. Amendatory Endorsement of Certificates. The provisions of this Article IX
shall not prevent any Certificate Owner from accepting any amendment as to the particular
Certificates held by him, provided that proper notation thereof is made on such Certificates.
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ARTICLE X
COVENANTS; NOTICES
Section 10.01. Compliance With and Enforcement of Lease Agreement. The City
covenants and agrees with the Owners of the Certificates to perform all obligations and duties
imposed on it under the Lease Agreement. The Corporation covenants and agrees with the
Owners of the Certificates to perform all obligations and duties imposed on it under the Lease
Agreement.
The City will not do or permit anything to be done, or omit or refrain from doing
anything, in any case where any such act done or permitted to be done, or any such omission of
or refraining from action, would or might be an Event of Default under or a ground for
cancellation or termination of the Lease Agreement. The Corporation and the City, immediately
upon receiving or giving any notice, communication or other document in any way relating to or
affecting their respective estates, or either of them, in the Leased Property, which may or can in
any manner affect such estate of the City, will deliver the same, or a copy thereof, to the Trustee.
Section 10.02. Prosecution and Defense of Suits. The Corporation and the City shall
promptly, upon request of the Trustee or any Certificate 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 Leased Property, whether now existing or hereafter developing and shall prosecute all such
suits, actions and other proceedings as may be appropriate for such purpose and shall
indemnify and save the Trustee and every Certificate 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.
Section 10.03. Recordation and Filing. The City shall record and file the Lease
Agreement, the Assignment Agreement and all such documents as may be required by law (and
shall take all further actions which may be necessary or be reasonably required by the Trustee),
all in such manner, at such times and in such places as may be required by law in order fully to
preserve, protect and perfect the security of the Trustee and the Certificate Owners.
Section 10.04. Reserved.
Section 10.05. Continuing Disclosure. The City hereby covenants and agrees that it will
comply with and carry out all of the provisions of that certain Continuing Disclosure Certificate
executed by the City as of the Closing Date, as originally executed and as it may be amended
from time to time in accordance with its terms. Notwithstanding any other provision of this
Lease, failure of the City to comply with such Continuing Disclosure Certificate shall not
constitute an Event of Default; provided, however, that any Participating Underwriter (as such
term is defined in such Continuing Disclosure Certificate ) or any Owner or beneficial owner of
the Certificates may take such actions as may be necessary and appropriate to compel
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performance by the City of its obligations under this Section, including seeking mandate or
specific performance by court order.
Section 10.06. Further Assurances. The Corporation and the City will make, execute and
deliver any and all such further resolutions, instruments and assurances as may be reasonably
necessary or proper to carry out the intention or to facilitate the performance of this Agreement
and the Lease Agreement, and for the better assuring and confirming unto the Owners of the
Certificates the rights and benefits provided herein.
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ARTICLE XI
LIMITATION OF LIABILITY
Section 11.01. Limited Liability of City. Except for the payment of Lease Payments when
due in accordance with the Lease Agreement and the performance of the other covenants and
agreements of the City contained in the Lease Agreement and herein, the City shall have no
pecuniary obligation or liability to any of the other parties or to the Owners of the Certificates
with respect to this Trust Agreement or the terms, execution, delivery or transfer of the
Certificates, or the distribution of Lease Payments to the Owners by the Trustee.
Section 11.02. No Liability for Trustee Performance. Neither the City nor the
Corporation shall have any obligation or liability to any of the other parties or to the Owners of
the Certificates with respect to the performance by the Trustee of any duty imposed upon it
under this Trust Agreement, except where the City or the Corporation, as the case may be, has
given specific direction to the Trustee to take certain actions.
Section 11.03. Indemnification. The Corporation and the City agree to indemnify and
save the Trustee harmless from and against all claims, suits, losses, expenses, liabilities, and
actions brought against it, or to which it is made a party, and from all losses and damages
suffered by it as a result thereof, including where and to the extent such claim, suit or action
arises out of the actions of any other party to this Agreement including but not limited to the
ownership, operation or use of the Leased Property by the City. Such indemnification shall not
extend to claims, suits and actions brought against the Trustee for failure to perform and carry
out the duties specifically imposed upon and to be performed by it pursuant to this Trust
Agreement, which failure constitutes negligence or willful misconduct by the Trustee. Such
indemnity shall survive the satisfaction and discharge of this Trust Agreement or resignation or
removal of the Trustee. In the event the Corporation or the City is required to indemnify the
Trustee as herein provided, the Corporation or the City shall be subrogated to the rights of the
Trustee to recover such losses or damages from any other person or entity.
Section 11.04. Opinion of Counsel. Before being required to take any action, the Trustee
may require an opinion of Independent Counsel acceptable to the Trustee, which opinion shall
be made available to the other parties hereto upon request, which counsel may be counsel to
any of the parties hereto, or a verified certificate of any party hereto, or both, concerning the
proposed action. If it does so in good faith, Trustee shall be protected in relying thereon.
Section 11.05. Limitation of Rights to Parties and Certificate Owners. Nothing in this
Agreement or in the Certificates expressed or implied is intended or shall be construed to give
any person other than the City, the Corporation, the Trustee, the Owners of the Certificates, any
legal or equitable right, remedy or claim under or in respect of this Agreement or any covenant,
condition or provision hereof; and all such covenants, conditions and provisions are and shall be
for the sole and exclusive benefit of the City, the Corporation, the Trustee and said Owners.
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ARTICLE XII
EVENTS OF DEFAULT AND REMEDIES OF CERTIFICATE OWNERS
Section 12.01. Assignment of Rights. Pursuant to the Assignment Agreement the
Corporation has transferred, assigned and set over to the Trustee all of the Corporation's rights
in and to the Lease Agreement (excepting only the Corporation's rights under Sections 4.6, 5.7,
7.3 and 9.4 thereof), including without limitation all of the Corporation's rights to exercise such
rights and remedies conferred on the Corporation pursuant to the Lease Agreement as may be
necessary or convenient (i) to enforce payment of the Lease Payments and any other amounts
required to be deposited in the Lease Payment Fund or the Insurance and Condemnation Fund,
and (ii) otherwise to exercise the Corporation's rights and take any action to protect the interests
of the Trustee or the Certificate Owners in an Event of Default.
Section 12.02. Remedies. If an Event of Default shall happen, then and in each and every
such case during the continuance of such Event of Default, the Trustee may, and upon request
of the Owners as provided in Article IX of the Lease Agreement shall, exercise any and all
remedies available pursuant to law or granted pursuant to the Lease Agreement; provided,
however, that notwithstanding anything herein or in the Lease Agreement to the contrary, there
shall be no right under any circumstances to accelerate the maturities of the Certificates or
otherwise to declare any Lease Payment not then in default to be immediately due and payable.
Section 12.03. Application of Funds. All moneys received by the Trustee pursuant to any
right given or action taken under the provisions of this Article XII or Article IX of the Lease
Agreement shall be applied by the Trustee in the order following upon presentation of the
several Certificates, and the stamping thereon of the payment if only partially paid, or upon the
surrender thereof if fully paid -
First, to the payment of the costs and expenses of the Trustee and of the
Certificate Owners in declaring such Event of Default, including reasonable
compensation to its or their agents, attorneys and counsel;
Second, to the payment of the whole amount then owing and unpaid with
respect to the Certificates for principal and interest, with interest on the overdue
principal and installments of interest, and in case such moneys shall be insufficient to pay
in full the whole amount so owing and unpaid with respect to the Certificates, then to
the payment of such principal and interest without preference or priority of principal
over interest, or of interest over principal, or of any installment of interest over any other
installment of interest, ratably to the aggregate of such principal and interest.
Section 12.04. Institution of Legal Proceedings. If one or more Events of Default shall
happen and be continuing, the Trustee in its discretion may, and upon the written request of the
Owners of a majority in principal amount of the Certificates then Outstanding, and upon being
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indemnified to its satisfaction therefor, shall, proceed to protect or enforce its rights or the
rights of the Owners of Certificates by a suit in equity or action at law, either for the specific
performance of any covenant or agreement contained herein, or in aid of the execution of any
power herein granted, or by mandamus or other appropriate proceeding for the enforcement of
any other legal or equitable remedy as the Trustee shall deem most effectual in support of any
of its rights or duties hereunder.
Section 12.05. Non-waiver. Nothing in this Article XII or in any other provision of this
Agreement or in the Certificates, shall affect or impair the obligation of the City to pay or prepay
the Lease Payments in accordance with and subject to the terms and provisions of the Lease
Agreement, or affect or impair the right of action, which is also absolute and unconditional, of
the Certificate Owners to institute suit to enforce and collect such payment. No delay or
omission of the Trustee or of any Owner of any of the Certificates to exercise any right or power
arising upon the happening of any Event of Default shall impair any such right or power or shall
be construed to be a waiver of any such Event of Default or an acquiescence therein, and every
power and remedy given by this Article XII to the Trustee or to the Owners of Certificates may
be exercised from time to time and as often as shall be deemed expedient by the Trustee or the
Certificate Owners.
Section 12.06. Remedies Not Exclusive. No remedy herein conferred upon or reserved
to the Trustee or to the Certificate Owners is intended to be exclusive of any other remedy, and
every such remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing, at law or in equity or by statute or otherwise.
Section 12.07. Power of Trustee to Control Proceedings. In the event that the Trustee,
upon the happening of an Event of Default, shall have taken any action, by judicial proceedings
or otherwise, pursuant to its duties hereunder, whether upon its own discretion or upon the
request of the Owners of a majority in principal amount of the Certificates then Outstanding, it
shall have full power, in the exercise of its discretion for the best interests of the Owners of the
Certificates, with respect to the continuance, discontinuance, withdrawal, compromise,
settlement or other disposal of such action; provided, however, that the Trustee shall not
discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at
law or in equity, without the consent of a majority in aggregate principal amount of the
Certificates Outstanding.
Section 12.08. Limitation on Certificate Owners' Right to Sue. No Owner of any
Certificate executed and delivered hereunder shall have the right to institute any suit, action or
proceeding at law or in equity, for any remedy under or upon this Agreement, unless (a) such
Owner shall have previously given to the Trustee written notice of the occurrence of an Event of
Default hereunder; (b) the Owners of at least twenty-five percent (25%) in aggregate principal
amount of all the Certificates then Outstanding shall have made written request upon the
Trustee to exercise the powers hereinbefore granted or to institute such action, suit or
proceeding in its own name; (c) said Owners shall have tendered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in compliance with such
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request; and (d) the Trustee shall have refused or omitted to comply with such request for a
period of sixty (60) days after such written request shall have been received by, and said tender
of indemnity shall have been made to, the Trustee.
Such notification, request, tender of indemnity and refusal or omission are hereby
declared, in every case, to be conditions precedent to the exercise by any Owner of Certificates
of any remedy hereunder; it being understood and intended that no one or more Owners of
Certificates shall have any right in any manner whatever by his or their action to enforce any
right under this Agreement, except in the manner herein provided, and that all proceedings at
law or in equity with respect to an Event of Default shall be instituted, had and maintained in the
manner herein provided and for the equal benefit of all Owners of the Outstanding Certificates.
The right of any Owner of any Certificate to receive payment of said Owner's
proportionate interest in the Lease Payments as the same become due, or to institute suit for
the enforcement of such payment, shall not be impaired or affected without the consent of such
Owner, notwithstanding the foregoing provisions of this Section or any other provision of this
Agreement.
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ARTICLE XIII
DEFEASANCE
Section 13.01. Discharge of Trust Agreement. The Certificates may be paid by the City in
any of the following ways, provided that the City also pays or causes to be paid any other sums
payable hereunder by the City:
(a) by paying or causing to be paid the Principal Amount relating to the
Certificates, together with interest thereon, as and when the same become due and
payable ;
(b) by depositing with the Trustee, in trust, at or before maturity, money or
securities in the necessary amount (as provided in Section 13.03) to pay or prepay all
Certificates then Outstanding; or
(c) by delivering to the Trustee, for cancellation by it, all of the Certificates then
Outstanding.
If the City shall also pay or cause to be paid all other sums payable by the City
hereunder, then and in that case, at the election of the City (evidenced by a Written Request of
the City, filed with the Trustee, signifying the intention of the City to discharge all such
indebtedness and this Trust Agreement), and notwithstanding that any Certificates shall not
have been surrendered for payment, this Trust Agreement and the pledge of Lease Payments
and other assets made under this Trust Agreement and all covenants, agreements and other
obligations of the City under this Trust Agreement shall cease, terminate, become void and be
completely discharged and satisfied. In such event, upon the Written Request of the City, the
Trustee shall cause an accounting for such period or periods as may be requested by the City to
be prepared and filed with the City and shall execute and deliver to the City all such instruments
as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee
shall pay over, transfer, assign or deliver all moneys or securities or other property held by it
pursuant to this Trust Agreement which are not required for the payment or prepayment of
Certificates not theretofore surrendered for such payment or prepayment to the City.
Section 13.02. Discharge of Liability on Certificates. Upon the deposit with the Trustee,
in trust, at or before maturity, of money or securities in the necessary amount (as provided in
Section 13.03) to pay or prepay any Outstanding Certificates (whether upon or prior to their
respective maturities or the prepayment date of such Certificates), provided that, if such
Certificates are to be prepaid prior to maturity, notice of such prepayment shall have been given
as provided in Article IV or provision satisfactory to the Trustee shall have been made for the
giving of such notice, then all liability of the City in respect of such Certificates shall cease,
terminate and be completely discharged, and the Owner thereof shall thereafter be entitled only
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to payment out of such money or securities deposited with the Trustee as aforesaid for their
payment, subject, however, to the provisions of Section 13.04.
The City may at any time surrender to the Trustee for cancellation by it any Certificates
previously executed and delivered, which the City may have acquired in any manner whatsoever,
and such Certificates, upon such surrender and cancellation, shall be deemed to be paid and
retired.
Section 13.03. Deposit of Money or Securities with Trustee. Whenever in this Trust
Agreement 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 prepay any Certificates, the
money or securities so to be deposited or held may include money or securities held by the
Trustee in the funds established pursuant to this Trust Agreement and shall be:
(a) lawful money of the United States of America in an amount equal to the
principal amount of such Certificates and all unpaid interest thereon to maturity, except
that, in the case of Certificates which are to be prepaid prior to maturity and in respect of
which notice of such prepayment shall have been given as provided in Article IV or
provision satisfactory to the Trustee shall have been made for the giving of such notice,
the amount to be deposited or held shall be the principal amount of such Certificates
and all unpaid interest thereon to the prepayment date; or
(b) Defeasance Obligations (as defined below), the principal of and interest
on which when due will provide money sufficient to pay the principal of and all unpaid
interest to maturity, or to the prepayment date, as the case may be, on the Certificates to
be paid or prepaid, as such principal and interest become due, provided that, in the case
of Certificates which are to be prepaid prior to the maturity thereof, notice of such
prepayment shall have been given as provided in Article IV or provision satisfactory to
the Trustee shall have been made for the giving of such notice;
provided, in each case, that the Trustee shall have been irrevocably instructed (by the
terms of this Trust Agreement or by Written Request of the City) to apply such money to the
payment of such principal and interest with respect to such Certificates.
For purposes of this Section, "Defeasance Obligations" shall mean the United States
Obligations and Pre-refunded Municipal Obligations defined in paragraphs (1) and (7) of the
definition of Investment Securities.
Section 13.04. Payment of Certificates After Discharge of Trust Agreement.
Notwithstanding any provisions of this Trust Agreement, any moneys held by the Trustee in trust
for the payment of the Principal Amount relating to any Certificates, together with interest
thereon and remaining unclaimed for two years after the Principal Amount relating to all of the
Certificates has become due and payable (whether at maturity or upon call for prepayment as
provided in this Trust Agreement), if such moneys were so held at such date, or two years after
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the date of deposit of such moneys if deposited after said date when all of the Certificates
became due and payable, shall be repaid to the City free from the trusts created by this Trust
Agreement upon receipt of an indemnification agreement acceptable to the City and the Trustee
indemnifying the Trustee with respect to claims of Owners of Certificates which have not yet
been paid, and all liability of the Trustee with respect to such moneys shall thereupon cease;
provided, however, that before the repayment of such moneys to the City as aforesaid, the
Trustee may (at the cost of the City) first mail to the Owners of Certificates 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 Certificates 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.
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ARTICLE XIV
MISCELLANEOUS
Section 14.01. Records. The Trustee shall keep complete and accurate records of all
moneys received and disbursed under this Agreement, which shall be available for inspection by
the City, the Corporation, and any Owner, or the agent of any of them, at any time during
regular business hours, upon reasonable prior notice.
Section 14.02. Notices. All written notices to be given under this Agreement shall be
given by mail or personal delivery to the party entitled thereto at its address set forth below, or
at such address as the party may provide to the other party in writing from time to time. Notice
shall be effective upon receipt after deposit in the United States mail, postage prepaid or, in the
case of personal delivery, upon delivery to the address set forth below:
If to the City: City Clerk
250 Hamilton Avenue, 7th Floor
Palo Alto, CA 94301
If to the Corporation: Palo Alto Public Improvement Corporation
c/o City Clerk
250 Hamilton Avenue, 7th Floor
Palo Alto, CA 94301
If to the Trustee: U.S. Bank National Association
Global Corporate Trust
One California Street, Suite 1000
San Francisco, CA 94111
Fax: 415-677-3768
Section 14.03. Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State.
Section 14.04. Binding Effect; Successors. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns. Whenever in this
Agreement either the Corporation, the City or the Trustee is named or referred to, such
reference shall be deemed to include the successors or assigns thereof, and all the covenants
and agreements in this Agreement contained by or on behalf of the Corporation, the City or the
Trustee shall bind and inure to the benefit of the respective successors and assigns thereof
whether so expressed or not.
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Section 14.05. Execution in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the
same agreement.
Section 14.06. Destruction of Cancelled Certificates. Whenever in this Agreement
provision is made for the surrender to or cancellation by the Trustee and the delivery to the City
of any Certificates, the Trustee may, upon the request of the City Representative, in lieu of such
cancellation and delivery, destroy such Certificates and deliver a certificate of such destruction
to the City.
Section 14.07. Headings. The headings or titles of the several Articles and Sections
hereof, and any table of contents appended to copies hereof, shall be solely for convenience of
reference and shall not affect the meaning, construction or effect of this Agreement. All
references herein to "Articles", "Sections", and other subdivisions are to the corresponding
Articles, Sections or subdivisions of this Agreement; and the words "herein", "hereof",
"hereunder" and other words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or subdivision hereof.
Section 14.08. Waiver of Notice. Whenever in this Agreement 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 case the giving or receipt of such notice shall not be a
condition precedent to the validity of any action taken in reliance upon such waiver.
Section 14.09. Separability of Invalid Provisions. In case any one or more of the
provisions contained in this Agreement or in the Certificates shall for any reason be held to be
invalid, illegal or unenforceable in any respect, then such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, and this Agreement shall be construed as
if such invalid or illegal or unenforceable provision had never been contained herein. The
parties hereto hereby declare that they would have entered into this Agreement and each and
every other section, paragraph, sentence, clause or phrase hereof and authorized the delivery of
the Certificates pursuant thereto irrespective of the fact that any one or more sections,
paragraphs, sentences, clauses or phrases of this Agreement may be held illegal, invalid or
unenforceable.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
U.S. BANK NATIONAL ASSOCIATION, as Trustee
By
Authorized Officer
PALO ALTO PUBLIC IMPROVEMENT
CORPORATION
By
Adrian Finn
President
Attest:
By
Beth Minor
Secretary
CITY OF PALO ALTO
By
Kiely Nose
Administrative Services Director
Attest:
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By
Beth Minor
City Clerk
A-1
EXHIBIT A
FORM OF 2021 CERTIFICATE OF PARTICIPATION
CITY OF PALO ALTO
2021 CERTIFICATE OF PARTICIPATION
(Public Safety Building)
Evidencing the Undivided Fractional Interest of the Owner
Hereof in Lease Payments to be Made by the
CITY OF PALO ALTO, CALIFORNIA
As Rental For Certain Property Pursuant
to a Lease Agreement With the
Palo Alto Public Improvement Corporation
DATED DATE: RATE OF INTEREST: MATURITY DATE: CUSIP
[_____], 2021
REGISTERED OWNER:
PRINCIPAL AMOUNT:
THIS IS TO CERTIFY THAT the Registered Owner identified above, or registered assigns,
as the registered owner (the "Registered Owner") of this Certificate of Participation
(the "Certificate") is the owner of an undivided fractional interest in Lease Payments under the
Lease Agreement dated as of February 1, 2021, by and between the Palo Alto Public
Improvement Corporation, a nonprofit public benefit corporation duly formed and acting under
the laws of the State of California (the "Corporation"), and the City of Palo Alto, a chartered
municipal corporation and political subdivision duly organized and existing under the
Constitution and the laws of the State of California the ("City") (the " Lease Agreement") which
Lease Payments and certain other rights and interests under the Lease Agreement have been
assigned to U.S. Bank National Association, as trustee (the "Trustee"), having a corporate trust
office in San Francisco, California or such other place as designated by the Trustee
A-2
(the "Corporate Trust Office") or such other or additional offices as the Trustee may designate
from time to time as the corporate trust office.
The Registered Owner of this Certificate is entitled to receive, subject to the terms of the
Lease Agreement, on the Maturity Date identified above, the Principal Amount identified above,
representing a portion of the Lease Payments designated as principal, and to receive on May 1,
2021 and semiannually thereafter on May 1 and November 1 of each year (the "Payment Dates")
until payment in full of said principal, the Registered Owner's proportionate share of the Lease
Payments designated as interest coming due during the interest period immediately preceding
each of the Payment Dates; provided that interest with respect hereto shall be payable from the
Payment Date next preceding the date of execution of this Certificate unless (i) this Certificate is
executed on a Payment Date, in which event interest shall be payable from such Payment Date,
or (ii) this Certificate is executed after the close of business on the fifteenth (15th) day of the
month immediately preceding a Payment Date and prior to such Payment Date, in which event
interest shall be payable from such Payment Date, or (iii) unless this Certificate is executed on or
before the Record Date immediately preceding the first Payment Date, in which event interest
shall be payable from the Closing Date. Said proportionate share of the portion of the Lease
Payments designated as interest is the result of the multiplication of the aforesaid portion of the
Lease Payments designated as principal by the Rate of Interest per annum identified above.
Said amounts are payable in lawful money of the United States of America in the case of
principal and interest at maturity upon presentation hereof at the Corporate Trust Office of the
Trustee, and in the case of interest prior to maturity by check or draft mailed by the Trustee to
the Registered Owner hereof at the address as it appears on the registration books of the
Trustee.
This Certificate has been executed and delivered by the Trustee pursuant to the terms of
a Trust Agreement by and among the Trustee, the Corporation and the City, dated as of
February 1, 2021 (the "Trust Agreement"). The City has certified that it is authorized to enter
into the Lease Agreement and the Trust Agreement under the constitution and laws of the State
of California, for the purpose of leasing certain land and public improvements from the
Corporation. Reference is hereby made to the Lease Agreement and the Trust Agreement
(copies of which are on file at the Corporate Trust Office of the Trustee) for a description of the
terms on which the Certificates are delivered, the rights thereunder of the owners of the
Certificates, the rights, duties and immunities of the Trustee and the rights and obligations of
the City under the Lease Agreement, to all of the provisions of the Lease Agreement and the
Trust Agreement the Registered Owner of this Certificate, by acceptance hereof, assents and
agrees.
The City is obligated under the Lease Agreement to pay Lease Payments from any source
of available funds. The obligation of the City to pay the Lease Payments does not constitute an
obligation of the City for which the City is obligated to levy or pledge any form of taxation or for
which the City has levied or pledged any form of taxation. The obligation of the City to pay
Lease Payments does not constitute a debt of the City, the State of California or any of its
A-3
political subdivisions, and does not constitute an indebtedness within the meaning of any
constitutional or statutory debt limitation or restriction.
To the extent and in the manner permitted by the terms of the Trust Agreement, the
provisions of the Trust Agreement may be amended by the parties thereto with the written
consent of the owners of at least sixty percent (60%) in aggregate principal amount of the
Certificates then outstanding, and may be amended without such consent under certain
circumstances; provided that no such amendment shall adversely affect the interests of the
owners of the Certificates or shall impair the right of any owner to receive in any case such
owner's proportionate share of any Lease Payment in accordance with such owner's Certificate.
This Certificate is transferable by the Registered Owner hereof, in person or by his
attorney duly authorized in writing, at the Corporate Trust Office of the Trustee, but only in the
manner, subject to the limitations and upon payment of the charges, if any, provided in the
Trust Agreement and upon surrender and cancellation of this Certificate. Upon such transfer a
new Certificate or Certificates, of authorized denomination or denominations and of the same
maturity, for the same aggregate principal amount will be executed and delivered to the
transferee in exchange herefor. The City, the Corporation and the Trustee may treat the
registered owner hereof as the absolute owner hereof for all purposes, whether or not this
Certificate shall be overdue, and the City, the Corporation and the Trustee shall not be affected
by any notice to the contrary.
The Certificates maturing on or before November 1, [_____] are not subject to optional
prepayment prior to their respective stated maturities. The Certificates maturing on or after
November 1, [_____], are subject to prepayment prior to their respective stated maturities, at the
option of the City, in whole, or in part among maturities on such basis as designated by the City
and by lot within any one maturity, on any date on or after November 1, [_____] from
prepayments of the Lease Payments, at a prepayment price equal to the principal amount of the
Certificates or portions thereof to be prepaid, together with accrued interest to the date fixed
for prepayment, without premium.
Mandatory Sinking Fund Prepayments of the Certificates. The Certificates maturing on
November 1 in each of the years [_____], [_____], and [_____], are subject to mandatory sinking
fund prepayment prior to their respective stated maturities, in the amounts and years set forth
below, at the prepayment price equal to the principal amount thereof to be prepaid, together
with accrued interest to the date fixed for prepayment.
A-4
Certificates Maturing November 1, [_____]
Sinking Fund
Prepayment Date
(November 1)
Sinking Payments
(maturity)
Certificates Maturing November 1, [_____]
Sinking Fund
Prepayment Date
(November 1)
Sinking Payments
(maturity)
Certificates Maturing November 1, [_____]
Sinking Fund
Prepayment Date
(November 1)
Sinking Payments
(maturity)
The Certificates are also subject to prepayment on any date in whole, or in part among
maturities on a pro rata basis and by lot within a maturity, from the Net Proceeds (as defined in
the Trust Agreement) of insurance or condemnation with respect to the Leased Property (as
defined in the Lease Agreement), which Net Proceeds are deposited in the Lease Payment Fund
and credited towards the prepayment of the Lease Payments made by the City pursuant to the
A-5
Lease Agreement, at a prepayment price equal to the principal amount thereof to be prepaid
together with accrued interest to the date fixed for prepayment, without premium.
As provided in the Trust Agreement, notice of prepayment shall be mailed, not less than
thirty (30) nor more than forty-five (45) days before the prepayment date, to the registered
owner of the Certificate to be prepaid, but neither failure to receive such notice nor any defect in
the notice so mailed shall affect the sufficiency of the proceedings for prepayment. Any notice
of optional prepayment may be conditional and may be rescinded as set forth in the Trust
Agreement.
If this Certificate is called for prepayment and payment is duly provided therefor as
specified in the Trust Agreement, interest represented hereby shall cease to accrue from and
after the date fixed for prepayment.
Unless this Certificate is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Trustee for registration of transfer,
exchange, or payment, and any Certificate executed and delivered is registered in the name of
Cede & Co. or in such other name as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co., or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof,
Cede & Co., has an interest herein.
IN WITNESS WHEREOF, this Certificate has been executed and delivered by U.S. Bank
National Association, as trustee, acting pursuant to the Trust Agreement.
Execution Date:
U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:
Authorized Officer
A-6
(FORM OF ASSIGNMENT)
For value received, the undersigned do(es) hereby sell, assign and transfer unto
(Name, Address and Tax Identification or Social Security Number of Assignee)
the within Certificate and do(es) hereby irrevocably constitute and appoint
, attorney, to transfer the same on the registration books of the Trustee, with full
power of substitution in the premises.
Dated:
Signature Guaranteed:
NOTICE: Signature(s) must be guaranteed by an
eligible guarantor
NOTICE: The signature on this assignment must
correspond with the name(s) as written
on the face of the within Certificate in
every particular without alteration or
enlargement or any change
whatsoever.
NOTICE OF SALE
$[______]
CITY OF PALO ALTO
2021 CERTIFICATES OF PARTICIPATION
(PUBLIC SAFETY BUILDING)
Date of Sale
[day], [date], 2021
[___] a.m., California Time
BIDS TO BE RECEIVED VIA PARITY®
For further information, please contact:
Robert Gamble or Nicholas Jones
PFM Financial Advisors LLC
50 California Street, Suite 2300
San Francisco, CA 94111
O: 415-982-5544
Email: gambler@pfm.com or jonesni@pfm.com
∗ Preliminary, subject to change.
Attachment A-4
2 of 13
$[_________]*
CITY OF PALO ALTO
2021 CERTIFICATES OF PARTICIPATION
(PUBLIC SAFETY BUILDING)
NOTICE IS HEREBY GIVEN that all-or-none bids will be received by the City of Palo Alto (herein,
the “City”), for the purchase of the captioned certificates of participation (herein, the “Certificates"). All
bids must be submitted via Parity®, the electronic bidding system, up to the time and at the place
specified as follows:
TIME: 9:00 a.m., California Time
DATE: [Day], [Date], 2021
Bids for the purchase of the Certificates will be received and considered subject to the terms and
conditions described herein.
Please note that the City reserves the right to cancel or reschedule the sale of the Certificates upon
notice given through Thomson Municipal News at any time before the time for the receipt of bids, and if
the sale is rescheduled, notice of the new sale date and time, if any, will be given through
Thomson Municipal News no later than 5:00 p.m. California time the day prior to the new day bids are to
be received, and bids will be received in the manner set forth above at the rescheduled date and time as
the City may determine. The City will cancel the sale if at least one bid is received but less than three bids
are received, as described in “TERMS OF SALE – Establishment of Issue Price.”
DESCRIPTION OF THE CERTIFICATES
EXECUTION AND DELIVERY. The Certificates will be executed and delivered in the original
principal amount of $[_____], and bear interest from the date of their delivery, in full book-entry only form
in denominations of $5,000 and any integral multiple thereof, maturing as shown below under the caption
“MATURITY SCHEDULE.” The Certificates are subject to optional prepayment, mandatory sinking fund
prepayment and special mandatory prepayment prior to maturity as shown below under the caption
“PREPAYMENT.” Prospective bidders should note that the terms of sale permit adjustment of individual
maturities. See "ADJUSTMENTS OF PRINCIPAL AMOUNTS" below.
Reference is made to the Preliminary Official Statement (defined below) prepared in connection with
the offering of the Certificates for a complete description of the Certificates.
INTEREST RATE. Interest will be calculated on the basis of a 360-day year composed of twelve
30-day months. Interest with respect to the Certificates shall accrue from their date at a rate or rates to
be determined at the sale thereof. Interest with respect to the Certificates is payable semiannually on
May 1 and November 1 in each year (the "Interest Payment Dates") commencing May 1, 2021. Bidders
may specify any number of separate interest rates, and any rate may be repeated as often as desired;
provided, however, that (i) each interest rate specified must be in a multiple of 1/20 of 1% or 1/8 of 1%;
(ii) a zero rate of interest cannot be specified; (iii) interest with respect to each Certificate shall accrue
from its dated date to its stated maturity date at the interest rate specified in the bid; (iv) all Certificates of
the same maturity date shall bear the same rate of interest; and (v) no bid will be accepted which
provides for the cancellation and surrender of any interest payment or for the waiver of interest or other
concession by the bidder as a substitute for payment in full of the purchase price of the Certificate or
Certificates. Bids that do not conform to the terms of this paragraph will be rejected.
∗ Preliminary, subject to change.
3 of 13
PAYMENT. Principal and interest with respect to the Certificates will be payable by U.S. Bank
National Association, the trustee for the Certificates (herein, the "Trustee"), in lawful money through the
facilities of the Depository Trust Company, or its nominee.
AUTHORITY FOR ISSUANCE AND PURPOSE. The Certificates are being delivered pursuant to a
Trust Agreement dated as of February 1, 2021, by and amongst the City, the Palo Alto Public
Improvement Corporation (the “Corporation”) and the Trustee (the “Trust Agreement”). The Certificates
represent direct, undivided fractional interests in lease payments to be made by the City to the
Corporation (the “Lease Payments”) under a Lease Agreement, dated as of February 1, 2021, by and
between the City and the Corporation (the “Lease Agreement”) and from amounts on deposit in certain
funds and accounts established under the Trust Agreement. The proceeds of the Certificates will be used
to (i) finance the acquisition and construction of the Public Safety Building (described in the Preliminary
Official Statement) and (ii) pay the costs of delivering the Certificates.
DENOMINATIONS. The Certificates will be executed and delivered as fully registered Certificates in
the denomination of $5,000 each or any integral multiple thereof.
DATE OF CERTIFICATES. The Certificates will be dated their date of delivery (the “Closing Date”),
which is anticipated to be on or about [_____], 2021.
MATURITY SCHEDULE(1). The Certificates will mature, or be subject to mandatory sinking fund
prepayment, on November 1 in each of the years, and in the amounts, as set forth in the following table.
The final principal amount of the Certificates, and the final amount of each maturity of the Certificates, is
subject to increase or reduction as described below under the heading "ADJUSTMENT OF PRINCIPAL
AMOUNTS." Each bidder must specify in its bid whether, for any particular year, the Certificates will
mature or, alternatively, be subject to mandatory sinking fund prepayment in such year.
Maturity
(November 1)
Principal Amount
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
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2046
2047
2048
2049
2050
2051
(1) Preliminary, subject to change. See also “Adjustment of Principal Amounts” herein.
ADJUSTMENT OF PRINCIPAL AMOUNTS. The principal amounts set forth in this Notice of Sale for
the Certificates reflect certain estimates of the City and its municipal advisor with respect to the likely
interest rates of a winning bid and the premium/discount specified in such a winning bid described below
under the caption “TERMS OF SALE.”
The total principal amount of the Certificates and the principal amounts payable in each of the years set
forth above are subject to adjustment, in $5,000 increments, to reflect the actual interest rates and any
premium contained in the winning bid. The City reserves the right to increase or decrease the principal
amount of any maturity of the Certificates (or, in the case of the term Certificates, the principal amount
thereof which is subject to mandatory sinking fund prepayment on November 1 in any year). The winning
bidder will be notified of any adjustment in principal amounts as described in “TERMS OF SALE -
PROCESS OF AWARD” below. Adjustment of the principal amounts will not affect the determination of
the winning bid. A successful bidder may not withdraw its bid as a result of any changes made within
these limits.
OPTIONAL PREPAYMENT. The Certificates maturing on or before November 1, 20__, are not
subject to optional prepayment prior to their stated maturity. The Certificates maturing on or after
November 1, 20__, are subject to prepayment, as a whole or in part at the election of the City among
maturities on such basis as designated by the City and by lot within a maturity, at the option of the City,
on November 1, 20__, and on any date thereafter, at a prepayment price equal to 100% of the principal
amount of Certificates to be redeemed, together with accrued interest thereon to the date fixed for
prepayment, without premium.
MANDATORY SINKING FUND PREPAYMENT. Any bidder may, at its option, specify that one or
more maturities of the Certificates will consist of term Certificates which are subject to mandatory sinking
fund prepayment in consecutive years immediately preceding the maturity thereof, as designated in the
bid of such bidder. In the event that the bid of the successful bidder specifies that any maturity of
Certificates will be term Certificates, such term Certificates will be subject to mandatory sinking fund
prepayment on November 1 in each year so designated in the bid, in the respective amounts for such
years as set forth above under the heading “MATURITY SCHEDULE”, at a prepayment price equal to the
principal amount thereof to be paid together with accrued interest thereon to the prepayment date, without
premium.
SPECIAL MANDATORY PREPAYMENT FROM INSURANCE AND SALE PROCEEDS. The
Certificates are subject to prepayment as a whole, or in part, on any date, from any net proceeds of
insurance or condemnation required to be used for such purpose, at a prepayment price equal to 100% of
the principal amount thereof plus interest accrued thereon to the date fixed for prepayment, without
premium.
BOOK ENTRY SYSTEM. The Certificates when delivered will be registered in the name of
CEDE & CO., as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be
initially delivered as one certificate for each of the maturities of the Certificates. DTC will be appointed
depository for the Certificates and registered ownership of the Certificates may not thereafter be
transferred except as provided in the procedures, rules and requirements established by DTC. The
Trustee will pay payments of principal and interest to DTC for subsequent disbursement to DTC
Participants who will remit such payments to the Beneficial Owners of the Certificates.
SECURITY. The Certificates represent direct, undivided fractional interests in the Lease Payments
made under the Lease Agreement in consideration for the use and occupancy of certain real property and
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improvements. Bidders are referred to the Preliminary Official Statement for further details as to the
security for the Certificates.
NO RESERVE FUND. The City will not establish a debt service reserve fund for the Certificates.
TAX EXEMPTION. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco,
California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the
portion of the Lease Payments designated as and comprising interest and received by the owners of the
Certificates is excluded from gross income for federal income tax purposes and such interest is not an
item of tax preference for purposes of the federal alternative minimum tax. In the further opinion of Bond
Counsel, the portion of the Lease Payments designated as and comprising interest and received by the
owners of the Certificates is exempt from personal income taxation by the State of California. Bidders are
referred to the Preliminary Official Statement for a description of the proposed opinion of Bond Counsel.
The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all
requirements of the Internal Revenue Code of 1986 (the “Tax Code”) that must be satisfied subsequent to
the delivery of the Certificates in order that such interest be, or continue to be, excluded from gross
income for federal income tax purposes. The City will covenant to comply with each such requirement.
Failure to comply with certain of such requirements may cause the inclusion of such interest in gross
income for federal income tax purposes to be retroactive to the date of delivery of the Certificates.
DELIVERY OF CERTIFICATES. Delivery of the Certificates will be made to the successful bidder
through the facilities of The Depository Trust Company in New York, New York (or at any other mutually
agreeable location) on or about [_____], 2021. Payment must be made in cash, Federal Reserve Bank
funds, or other immediately available funds.
CALIFORNIA DEBT AND INVESTMENT ADVISORY COMMISSION FEE. Attention of bidders is
directed to California Government Code Section 8856, which provides that the lead underwriter or the
purchaser of the Certificates will be charged the California Debt and Investment Advisory Commission
fee.
QUALIFICATION FOR SALE; BLUE SKY. Compliance with blue sky laws shall be the sole
responsibility of the successful bidder. The City will furnish such information and take such action not
inconsistent with law as the successful bidder may request and the City shall deem necessary or
appropriate to qualify the Certificates for offer and sale under the blue sky or other securities laws and
regulations of such states and other jurisdictions of the United States of America as may be designated
by the successful bidder; provided, however, that the City shall not execute a general or special consent
to service of process or qualify to do business in connection with such qualification or determination in
any jurisdiction. The successful bidder will not offer to sell or solicit any offer to buy the Certificates in any
jurisdiction where it is unlawful for such bidder to make such offer, solicitation or sale, and the bidder shall
comply with the blue sky and other securities laws and regulations of the states and jurisdictions in which
the bidder sells the Certificates.
CUSIP NUMBERS. It is anticipated that CUSIP numbers will be printed on the Certificates, but
neither the failure to print such numbers on any Certificates nor any error with respect thereto shall
constitute cause for failure or refusal by the purchaser thereof to accept delivery of and pay for the
Certificates in accordance with the terms thereof. Pursuant to MSRB Rule G-34, the City’s municipal
advisor will apply for CUSIP number assignment prior to the sale of the Certificates, but the cost shall be
payable by the Purchaser.
NO LITIGATION CERTIFICATE. At the time of issuance of the Certificates, the City will certify there
is no litigation pending concerning the validity of the Certificates, the Trust Agreement, the Lease
Agreement or any proceedings of the City with respect thereto, and that there are no lawsuits or claims
pending against the City which will materially affect the City’s finances.
RIGHT OF CANCELLATION BY SUCCESSFUL BIDDER. The successful bidder will have the right,
at its option, to cancel its purchase of the Certificates if the City fails to cause execution and delivery of
the Certificates and tender the same for delivery within 60 days from the date of award thereof. In such
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event, the successful bidder will be entitled to the return of the deposit accompanying the bid (see
“TERMS OF SALE - GOOD FAITH DEPOSIT”).
PRELIMINARY OFFICIAL STATEMENT AND FINAL OFFICIAL STATEMENT. The preliminary
official statement, distributed in connection with the sale of the Certificates, dated [_____], 2021 (the
"Preliminary Official Statement") has been deemed final by the City for purposes of Rule 15c2-12 of the
Securities and Exchange Commission (the "Rule"), but is subject to revision, amendment and completion
in a final official statement (the "Final Official Statement") as provided in the Rule. Limited quantities of
the Preliminary Official Statement will be furnished upon request made to the City’s municipal advisor
identified on the cover of this Notice of Sale. The City will deliver to the purchaser of the Certificates a
certificate dated the Closing Date to the effect that the City has reviewed each of the Preliminary Official
Statement and Final Official Statement and has determined that as of the date of each thereof, to the best
of its knowledge and belief, each of the Preliminary Official Statement and Final Official Statement does
not contain an untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they were made, not misleading.
Up to 50 copies of the Final Official Statement will be furnished to the successful bidder at no charge
within 7 business days after the award of the Certificates. If the successful bidder requests more than
50 copies of the Final Official Statement within 2 business days after the award of the Certificates, the
City will provide such copies within 7 business days after the award as long as the successful bidder pays
the related costs.
CONTINUING DISCLOSURE. The City will covenant to provide, by not later than nine months after
the end of the City's fiscal year (presently June 30) and commencing April 1, 2022 with the report for the
fiscal year ending June 30, 2021, an annual report which shall contain pertinent operating and financial
information of the City relating to the Certificates as more fully described in the Preliminary Official
Statement (the "Annual Report") and the Continuing Disclosure Certificate of the City dated the Closing
Date, and to provide notices of the occurrence of certain enumerated material events. The Annual Report
will be filed by the City or a dissemination agent (if the City has appointed such a dissemination agent) on
behalf of the City with the Municipal Securities Rulemaking Board. The notices of material events will be
filed by the City or dissemination agent on behalf of the City with the Municipal Securities Rulemaking
Board. The specific nature of the information to be contained in the Annual Report or the notices of
material events is summarized in the Preliminary Official Statement under the caption "CONTINUING
DISCLOSURE" and in Appendix E – Form of Continuing Disclosure Certificate thereto. These covenants
have been made in order to assist the Underwriter in complying with Securities and Exchange
Commission Rule 15c2-12(b)(5).
TERMS OF SALE
BASIS OF AWARD. Unless all bids are rejected as described in this Official Notice of Sale, the
Certificates will be awarded to the responsible bidder whose bid produces the lowest true interest cost
with respect to the Certificates. The true interest cost specified in any bid will be that rate which, when
used in computing the present value of principal and interest to be paid on all Certificates from the
expected date of delivery (which is assumed for computational purposes to be [_____], 2021), to their
respective maturity dates, or mandatory sinking fund prepayment dates in the case of term Certificates,
produces an amount equal to the purchase price (including any premium) specified in such bid. For
purposes of computing the true interest cost represented by any bid, the purchase price specified in such
bid shall be equal to the par amount of the Certificates plus any premium specified in such bid, less any
original issue discount, and the true interest cost shall be calculated by the use of a semiannual interval of
compounding interest based on the Interest Payment Dates for the Certificates. In the event of a tied bid,
the procedure for determining the winning bid will be the toss of a coin to be conducted by the City among
such bidders whose bids have produced the tie.
ALL OR NONE BID. Any prospective purchaser may submit a bid for the Certificates, provided that if
any of the Certificates are bid for, then all of the Certificates must be bid for.
PURCHASE PRICE; PAR, PREMIUM, AND DISCOUNT. The Certificates maturing on and after
November 1, 20__, must bear an interest rate of not less than 5.0%. Bids for the Certificates maturing
before November 1, 20__, may provide for reoffering at par value, at a premium, or at a discount.
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BOND INSURANCE. Bids involving bond insurance will not be accepted.
FORM OF BID. All bids for the Certificates must be unconditional and for not less than all of the
Certificates offered for sale. Each bid must be in accordance with the terms and conditions set forth
herein. Bids will only be accepted via PARITY® pursuant to this Notice until 9:00 a.m., California Time on
the date set forth for receipt of bids. To the extent any instructions or directions set forth in PARITY®
conflict with this Notice, the terms of this Notice shall control. For further information about PARITY®,
potential bidders may contact the City’s municipal advisor (see the cover page of this Notice of Sale for
contact information).
DELIVERY AND PAYMENT. It is estimated that delivery of the Certificates will be made to the
Purchaser on or about [_____], 2021. Payment of the purchase price (less the amount of the good faith
deposit described in “GOOD FAITH DEPOSIT” below) must be made in funds immediately available to
the City.
WARNING REGARDING ELECTRONIC BIDS. THE CITY WILL ACCEPT BIDS IN ELECTRONIC
FORM SOLELY THROUGH PARITY ON THE OFFICIAL BID FORM CREATED FOR THAT PURPOSE.
EACH BIDDER SUBMITTING AN ELECTRONIC BID UNDERSTANDS AND AGREES BY DOING SO
THAT IT IS SOLELY RESPONSIBLE FOR ALL ARRANGEMENTS WITH PARITY, THAT THE CITY
NEITHER ENDORSES NOR EXPLICITLY ENCOURAGES THE USE OF PARITY, AND THAT PARITY
IS NOT ACTING AS AN AGENT OF THE CITY. INSTRUCTIONS AND FORMS FOR SUBMITTING
ELECTRONIC BIDS MUST BE OBTAINED FROM PARITY, AND THE CITY ASSUMES NO
RESPONSIBILITY FOR ENSURING OR VERIFYING BIDDER COMPLIANCE WITH THE
PROCEDURES OF PARITY. THE CITY SHALL ASSUME THAT ANY BID RECEIVED THROUGH
PARITY HAS BEEN MADE BY A DULY AUTHORIZED AGENT OF THE BIDDER.
THE CITY, THE MUNICIPAL ADVISOR AND BOND COUNSEL ASSUME NO RESPONSIBILITY FOR
ANY ERROR CONTAINED IN ANY BID SUBMITTED ELECTRONICALLY, OR FOR FAILURE OF ANY
BID TO BE TRANSMITTED, RECEIVED OR OPENED AT THE OFFICIAL TIME FOR RECEIPT OF
BIDS. THE OFFICIAL TIME FOR RECEIPT OF BIDS WILL BE DETERMINED BY THE CITY AT THE
PLACE OF BID OPENING, AND THE CITY SHALL NOT BE REQUIRED TO ACCEPT THE TIME KEPT
BY PARITY AS THE OFFICIAL TIME.
TRUE INTEREST COST. Bidders are requested to supply a calculation of the true interest cost of
the Certificates to the City on the basis of their respective bids, which shall be considered as informative
only and not binding on either the bidder or the City. The true interest cost specified in any bid will be that
rate which, when used in computing the present value of all payments of principal and interest to be paid
on all Certificates from the Closing Date (which is anticipated to be [_____], 2021) to their respective
maturity dates or mandatory sinking fund prepayment dates, produces an amount equal to the purchase
price (including any premium) specified in such bid.
UNDERWRITING GROUP. Each bidder is requested to furnish the names of all joint managers
participating in the bid. The successful bidder will be required to submit a list of all syndicate members in
addition to the managers not later than 24 hours after receiving a verbal award.
RIGHT OF CANCELLATION OF SALE BY THE CITY. The City reserves the right, in its sole
discretion, at any time before the time for the receipt of bids to cancel the public sale of the Certificates. In
such event, the City shall cause notice of cancellation of this invitation for bids and the public sale of the
Certificates to be communicated through Thomson Municipal News as promptly as practicable. However,
no failure to publish such notice or any defect or omission therein shall affect the cancellation of the public
sale of the Certificates.
In addition, the City will cancel the sale if at least one bid is received but less than three bids are
received, as described in “TERMS OF SALE – Establishment of Issue Price.”
RIGHT TO MODIFY OR AMEND. The City reserves the right, in its sole discretion, to modify or
amend this Official Notice of Sale including, but not limited to, the right to change the principal amount
and principal amortization schedule of the Certificates being offered, however, such modifications or
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amendments shall be made not later than 5:00 p.m., California time, on the business day prior to the bid
opening and communicated through Thomson Municipal News.
RIGHT OF POSTPONEMENT BY THE CITY. The City reserves the right, in its sole discretion, to
postpone, from time to time, the date and time established for the receipt of bids. Any such
postponement will be communicated through Thomson Municipal News not later than 5:00 p.m.,
California time, on the business day prior to any announced date for receipt of bids. If any date is
postponed, any alternative sale date will be announced via Thomson Municipal News by 5:00 p.m.
California Time on the business day prior to such alternative sale date. On any such alternative sale date
and time, any bidder may submit a bid for the purchase of the Certificates in conformity in all respects
with the provisions of this Official Notice of Sale, except for the date of sale and except for the changes
announced by Thomson Municipal News at the time the sale date and time are announced.
RIGHT OF REJECTION. The City reserves the right, in its discretion, to reject any and all bids and to
waive any irregularity or informality in any bid.
PROCESS OF AWARD. The City will take final action awarding the Certificates or rejecting all bids
not later than thirty (30) hours after the time for receipt of bids, unless such time period is waived by the
Purchaser (defined below).
The following steps constitute the City’s process for a final award of the Certificates:
(1) The City’s municipal advisor, on behalf of the City, will give a verbal notice of award to
the apparent winning bidder (the “Apparent Winning Bidder”) to be determined as described below
under “–BASIS OF AWARD” above.
(2) The Apparent Winning Bidder shall provide within one hour of verbal notice the initial
reoffering prices and confirm that it is prepared to execute the Issue Price Certificate described under
“ESTABLISHMENT OF ISSUE PRICE” below.
(3) The Apparent Winning Bidder shall provide the Good Faith Deposit by wire transfer, as
described under “GOOD FAITH DEPOSIT.”
(4) The City’s municipal advisor will fax or email to the Apparent Winning Bidder confirmation
of the final principal amortization schedule and purchase price for the Certificates, after adjustments,
if any, are made, as described under “DESCRIPTION OF THE CERTIFICATES– ADJUSTMENT OF
PRINCIPAL AMOUNTS.”
(5) The City will fax or email to the Apparent Winning Bidder written confirmation of the final
award.
Upon completion of all the steps described above, the Apparent Winning Bidder will be deemed the
Purchaser of the Certificates (the “Purchaser”) and will be bound by the terms of the contract to purchase
the Certificates, which contract shall consist of: (a) this Official Notice of Sale; (b) the information that is
transmitted electronically by the bidder through Parity®; and (c) any adjustments to the final principal
amortization schedule and purchase price made as described under “DESCRIPTION OF THE
CERTIFICATES– ADJUSTMENT OF PRINCIPAL AMOUNTS.”
GOOD FAITH DEPOSIT. A good faith deposit in the amount of $400,000 for the Certificates
(the “Good Faith Deposit”) must be provided by the Apparent Winning Bidder. The Good Faith Deposit
must be submitted by wire transfer (as described below). The Certificates will not be officially awarded to
a bidder who has not submitted a Good Faith Deposit.
Upon the determination by the City of the Apparent Winning Bidder (as described above under
“PROCESS OF AWARD”), the City’s municipal advisor will request the Apparent Winning Bidder to
(i) immediately wire the Good Faith Deposit to the Trustee, as described below, and (ii) provide, within
ninety (90) minutes of such request, the Federal wire reference number of such Good Faith Deposit to the
City’s municipal advisor by email (Gambler@pfm.com or Jonesni@pfm.com). The wire transfer is to be
made to U.S. Bank National Association, using the following wire instructions:
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Bank Name: U.S. Bank National Association
ABA No.: [_____]
A/C No.: [_____]
A/C Name: [_____]
Attention: [_____]
In the event that the Apparent Winning Bidder does not wire the Good Faith Deposit as required, or does
not provide the Federal wire reference number confirming the wire-transfer of such deposit to the
municipal advisor within the time specified above, the City may reject the bid of the Apparent Winning
Bidder and may award the Certificates to a responsible bidder that submitted a conforming bid that
represents the next lowest true interest cost to the City.
No interest will be paid upon a Good Faith Deposit made by an Apparent Winning Bidder. Upon receipt of
the Good Faith Deposit by the City, the Good Faith Deposit will immediately become the property of the
City. The Good Faith Deposit will be held and invested for the exclusive benefit of the City. The Good
Faith Deposit, without interest thereon, will be credited against the purchase price of the Certificates
purchased by the Purchaser at the time of delivery thereof.
If the purchase price is not paid in full upon tender of the Certificates, the City shall retain the Good Faith
Deposit and the Purchaser will have no right in or to the Certificates or to the recovery of its Good Faith
Deposit, or to any allowance or credit by reason of such deposit, except pursuant to a right of
cancellation. See “RIGHT OF CANCELLATION.” In the event of nonpayment of the purchase price for
the Certificates by the Purchaser, the City reserves any and all rights granted by law to recover the full
purchase price of the Certificates and, in addition, any damages suffered by the City.
ESTABLISHMENT OF ISSUE PRICE. (a) The Purchaser shall assist the City in establishing the
issue price of the Certificates and shall execute and deliver to the City at closing an “issue price” or similar
certificate setting forth the reasonably expected initial offering price to the public of the Certificates,
together with the supporting pricing wires or equivalent communications, substantially in the form
attached hereto as Exhibit 1, with such modifications as may be appropriate or necessary, in the
reasonable judgment of the Purchaser, the City and Bond Counsel. All actions to be taken by the City
under this Notice of Sale to establish the issue price of the Certificates may be taken on behalf of the City
by the City’s municipal advisor identified herein and any notice or report to be provided to the City may be
provided to the City’s municipal advisor.
(b) The City intends that the provisions of Treasury Regulation Section 1.148-1(f)(3)(i) (defining
“competitive sale” for purposes of establishing the issue price of the Certificates) will apply to the initial
sale of the Certificates (the “competitive sale requirements”) because:
(1) the City shall disseminate this Notice of Sale to potential underwriters in a manner that is
reasonably designed to reach potential underwriters;
(2) all bidders shall have an equal opportunity to bid;
(3) the City may receive bids from at least three underwriters of municipal bonds who have
established industry reputations for underwriting new issuances of municipal bonds; and
(4) the City anticipates awarding the sale of the Certificates to the bidder who submits a firm
offer to purchase the Certificates at the highest price (or lowest interest cost), as set forth in this
Notice of Sale.
Any bid submitted pursuant to this Notice of Sale shall be considered a firm offer for the purchase of
the Certificates, as specified in the bid. By submitting a bid for the Certificates, each bidder certifies
that it has an established industry reputation for underwriting new issuances of municipal bonds.
The City will not accept bids from firms without an established industry reputation for underwriting new
issuances of municipal bonds.
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In the event that the competitive sale requirements are not satisfied, the City will reject all bids
and cancel the sale.
Bidders should prepare their bids on the assumption that the issue price of the Certificates will be
the reasonably expected initial offering price to the public.
ADDITIONAL INFORMATION AVAILABLE. Requests for additional information about the
Certificates, the City or the Corporation may be directed to the City’s Bond Counsel, Jones Hall, attention:
Chris Lynch, telephone (415) 391-5780; or the City’s municipal advisor (see the cover of this Notice of
Sale for contact information).
APPROVED by the City Council of the City of Palo Alto by resolution adopted December 14, 2020.
/s/ Kiely Nose
Administrative Services Director
City of Palo Alto
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EXHIBIT 1
Issue Price Certificate
The undersigned, on behalf of [NAME OF UNDERWRITER] (“Underwriter”), hereby certifies as set forth
below with respect to the sale of the above-captioned obligations (the “Certificates”).
1. Reasonably Expected Initial Offering Price.
(a) As of the Sale Date, the reasonably expected initial offering prices of the Certificates to
the Public by Underwriter are the prices listed in Schedule A (the “Expected Offering Prices”). The
Expected Offering Prices are the prices for the Maturities of the Certificates used the Underwriter in
formulating its bid to purchase the Certificates. Attached as Schedule B is a true and correct copy of the
bid provided by Underwriter to purchase the Certificates.
(b) Underwriter was not given the opportunity to review other bids prior to submitting its bid.
(c) The bid submitted by Underwriter constituted a firm offer to purchase the Certificates.
2. Defined Terms.
(a) Maturity means Certificates with the same credit and payment terms. Certificates with
different maturity dates, or Certificates with the same maturity date but different stated interest rates, are
treated as separate Maturities.
(b) Public means any person (including an individual, trust, estate, partnership, association,
company, or corporation) other than an Underwriter or a related party to an Underwriter. The term
“related party” for purposes of this certificate generally means any two or more persons who have greater
than 50 percent common ownership, directly or indirectly.
(c) Sale Date means the first day on which there is a binding contract in writing for the sale
of a Maturity of the Certificates. The Sale Date of the Certificates is [DATE].
(d) Underwriter means (i) any person that agrees pursuant to a written contract with the City
(or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the
Certificates to the Public, and (ii) any person that agrees pursuant to a written contract directly or
indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the
Certificates to the Public (including a member of a selling group or a party to a retail distribution
agreement participating in the initial sale of the Certificates to the Public).
The representations set forth in this certificate are limited to factual matters only. Nothing in this
certificate represents Underwriter’s interpretation of any laws, including specifically Sections 103 and 148
of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The
undersigned understands that the foregoing information will be relied upon by the City with respect to
certain of the representations set forth in the Certificate of Arbitrage and with respect to compliance with
the federal income tax rules affecting the Certificates, and by Jones Hall, A Professional Law Corporation
in connection with rendering its opinion that the interest on the Certificates is excluded from gross income
for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other
federal income tax advice that it may give to the City from time to time relating to the Certificates.
[UNDERWRITER]
By:____________________________________
Name:_________________________________
Dated: [ISSUE DATE]
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SCHEDULE A
EXPECTED OFFERING PRICES
Maturity Date Principal Interest Reoffering
(November 1) Amount Rate Price *
$ % %
* Stated as a percentage of par.
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SCHEDULE B
COPY OF UNDERWRITER’S BID
(attached)
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PRELIMINARY OFFICIAL STATEMENT DATED FEBRUARY __, 2021
NEW ISSUE—BOOK-ENTRY ONLY RATING:
S&P: “____”
See “RATING” herein.
In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to certain qualifications described
herein, under existing law, the portion of Lease Payments designated as and comprising interest and received by the owners of the Certificates is excluded from
gross income for federal income tax purposes, and such interest is not an item of tax preference for purposes of the federal alternative minimum tax. In the further
opinion of Special Counsel, such interest on the Certificates is exempt from California personal income taxes. See “TAX MATTERS” herein.
$________*
CITY OF PALO ALTO
2021 Certificates of Participation
(Public Safety Building)
Dated: Date of Delivery Due: November 1, as shown on the inside cover
The $__________* City of Palo Alto 2021 Certificates of Participation (Public Safety Building) (the “Certificates”) are being sold to provide funds to (a)
finance the costs of the construction of a new public safety building (see “THE PROJECT” herein), and (b) pay delivery costs incurred in connection with the
execution, delivery and sale of the Certificates.
The Certificates represent direct, undivided fractional interests of the owners thereof in Lease Payments (as defined herein) to be made by the City of Palo Alto
(the “City”) to the Palo Alto Public Improvement Corporation (the “Corporation”) for the use and occupancy of the Leased Property (as defined herein) under
and pursuant to a Lease Agreement, dated as of March 1, 2021, by and between the Corporation and the City (the “Lease Agreement”). The Corporation will
assign its right to receive Lease Payments from the City under the Lease Agreement and its right to enforce payment of the Lease Payments when due or otherwise
protect its interest in the event of a default by the City thereunder to U.S. Bank National Association, San Francisco, California, as trustee (the “Trustee”), for
the benefit of the registered owners of the Certificates.
The Certificates will be executed and delivered pursuant to a Trust Agreement, dated as of March 1, 2021, by and among the City, the Corporation and the
Trustee, in book-entry form only, and will be initially registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”). Purchasers
of the Certificates (the “Beneficial Owners”) will not receive physical certificates representing their interest in the Certificates. Interest with respect to the
Certificates accrues from their date of delivery and is payable semiannually by check mailed on each May 1 and November 1, commencing May 1, 2021. The
Certificates will be executed and delivered in denominations of $5,000 or any integral multiple thereof. Payments of principal and interest with respect to the
Certificates will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the Beneficial Owners of the
Certificates. See “THE CERTIFICATES—Book-Entry System” herein and APPENDIX F—DTC’S BOOK-ENTRY ONLY SYSTEM.
The Certificates are subject to optional and mandatory prepayment. See “THE CERTIFICATES—Prepayment” herein.
The City will covenant in the Lease Agreement to make all Lease Payments due under the Lease Agreement, subject to abatement during any period in which by
reason of damage or destruction of the Leased Property, or by reason of eminent domain proceedings with respect to the Property, there is substantial interference
with the use and occupancy by the City of the Leased Property or any portion thereof. The City will covenant in the Lease Agreement to take such action as may
be necessary to include all Lease Payments in its annual budgets and to make the necessary annual appropriations for all such Lease Payments. A reserve fund will
not be funded for the Certificates.
NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE AGREEMENT
CONSTITUTES A DEBT OR INDEBTEDNESS OF THE CITY OR THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF
WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATIONS OR RESTRICTION OR 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.
MATURITY SCHEDULE
SEE THE INSIDE COVER
Bids for the purchase of the Certificates will be received by the District on _______, February __, 2021, electronically only, through the I-Deal LLC
BiDCOMP/PARITY® system, until ____ A.M., Pacific Standard time. The Certificates will be sold pursuant to the terms of sale set forth in the Official Notice
of Sale, dated February __, 2021.
The cover page contains certain information for general reference only. It is not a summary of all the provisions of the Certificates. Investors must read the entire
Official Statement to obtain information essential to the making of an informed investment decision. See “RISK FACTORS” herein for a discussion of special risk
factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Certificates.
The Certificates will be offered when, as and if delivered and received by the Underwriter subject to approval by Jones Hall, A Professional Law Corporation, San
Francisco, California, as Special Counsel. Certain matters will be passed upon for the City by the City Attorney and by Quint & Thimmig LLP, Larkspur,
California, as Disclosure Counsel. It is anticipated that the Certificates will be available for through the facilities of DTC on or about March __, 2021.
Dated: February __, 2021
*Preliminary, subject to change.
Attachment A-5
$_________*
CITY OF PALO ALTO
2021 Certificates of Participation
(Public Safety Building Financing Project)
CUSIP† Prefix: _____
Maturity Principal Interest CUSIP†
(November 1) Amount* Rate Yield Price Suffix
*Preliminary, subject to change.
† Copyright 2021, American Bankers Association. CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP
Global Services, operated by S&P Capital IQ. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services.
CUSIP numbers have been assigned by an independent company not affiliated with the City and are included solely for the convenience of the registered owners of the
Certificates. Neither the City nor the Underwriter is responsible for the selection or uses of these CUSIP numbers and no representation is made as to their correctness
on the Certificates or as included herein. The CUSIP number for a specific maturity is subject to being changed after the delivery of the Certificates as a result of various
subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other
similar enhancement by investors that is applicable to all or a portion of certain maturities of the Certificates.
For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended
(“Rule 15c2-12”), this Preliminary Official Statement constitutes an “official statement” of the City with respect to the Certificates
that has been deemed “final” by the City as of its date except for the omission of no more than the information permitted by Rule 15c2-
12.
No dealer, broker, salesperson or other person has been authorized to give any information or to make any
representation other than those contained herein and, if given or made, such other information or representation must not
be relied upon as having been authorized. This Official Statement does not constitute an offer to sell or the solicitation of any
offer to buy, nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such
person to make an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements
contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so
described herein, are intended solely as such and are not to be construed as representations of facts.
The information set forth herein has been obtained from the City and from other sources and is believed to be
reliable but is not guaranteed as to accuracy or completeness. The information and expressions of opinions herein are subject
to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. This
Official Statement is submitted in connection with the sale of the Certificates referred to herein and may not be reproduced
or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of the Certificates,
the Lease Agreement, the Trust Agreement, the Assignment Agreement, the Property Lease (each as defined herein), or
other documents, are made subject to the provisions of such documents and do not purport to be complete statements of any
or all of such provisions. Reference is hereby made to such documents on file with the Director of Finance for further
information. See “INTRODUCTION—Other Information.”
The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter
has reviewed the information in this Official Statement in accordance with, and as part of, its 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.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL
THE CERTIFICATES TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS AND OTHERS AT PRICES
LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SUCH
PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking
statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,”
“budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking
statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance
or achievements described to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. No assurance is given that actual results will meet the City’s forecasts in any
way. Neither the City nor the Corporation is obligated to issue any updates or revisions to the forward-looking statements if
or when its expectations, or events, conditions or circumstances on which such statements are based occur or do not occur.
The execution, sale and delivery of the Certificates has not been registered under the Securities Act of 1933 or the
Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2)
and 3(a)(12), respectively, for the issuance and sale of municipal securities.
The City maintains a website. Unless specifically indicated otherwise, the information presented on such website
is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment
decisions with respect to the Certificates.
TABLE OF CONTENTS
INTRODUCTION ........................................................................ 1
General .................................................................................... 1
Source of Payment for the Certificates .................................... 2
Redemption .............................................................................. 2
The City ................................................................................... 2
COVID-19 Pandemic ............................................................... 3
Continuing Disclosure ............................................................. 3
Summaries of Documents ........................................................ 3
Other Information .................................................................... 3
ESTIMATED SOURCES AND USES OF FUNDS ..................... 4
THE PROJECT .............................................................................. 4
THE LEASED PROPERTY .......................................................... 5
DEBT SERVICE SCHEDULE ...................................................... 6
THE CERTIFICATES .................................................................. 7
General .................................................................................... 7
Prepayment .............................................................................. 8
Transfer and Exchange of Certificates ..................................... 9
Book-Entry System .................................................................. 9
SOURCE OF PAYMENT FOR THE CERTIFICATES ............ 10
General .................................................................................. 10
Lease Payments; Covenant to Appropriate ............................ 10
Insurance ................................................................................ 11
Abatement .............................................................................. 11
Eminent Domain .................................................................... 12
No Reserve Fund ................................................................... 12
Optional Prepayment ............................................................. 12
Prepayment from Net Proceeds of Insurance and
Condemnation ....................................................................... 13
Substitution or Removal of Leased Property .......................... 13
Events of Default and Remedies ............................................ 14
Amendment of Lease Agreement ........................................... 15
THE CITY ................................................................................... 15
CITY FINANCIAL INFORMATION ........................................ 16
Financial Statements and Budgetary Process ......................... 16
General Fund Balance Sheet .................................................. 18
General Fund Revenues, Expenditures, and Changes in Fund
Balances ................................................................................. 19
General Fund Budget ............................................................. 20
City Financial Management ................................................... 21
Principal Sources of General Fund Revenues ........................ 22
Property Taxes ....................................................................... 24
Teeter Plan ............................................................................ 25
Assessed Value ....................................................................... 26
Sales and Use Taxes ............................................................... 32
Transient Occupancy Taxes .................................................. 33
Other Sources of General Fund Revenues ............................. 34
Reliance on State Budget ....................................................... 35
OTHER FINANCIAL INFORMATION .................................... 36
Labor Relations ...................................................................... 36
Risk Management .................................................................. 36
Joint Ventures ........................................................................ 37
Employee Retirement Plans ................................................... 40
Defined Contribution Pension Plan ....................................... 44
Other Post-Employments Benefits ........................................ 44
Debt Obligations .................................................................... 46
Other Obligations .................................................................. 47
Overlapping Debt .................................................................. 48
THE CORPORATION ............................................................... 50
RISK FACTORS ......................................................................... 50
Lease Payments Are Not Debt .............................................. 50
Valid and Binding Covenant to Budget and Appropriate ....... 51
Additional Obligations of the City ......................................... 51
Abatement ............................................................................. 51
No Acceleration Upon Default .............................................. 51
Risk of Uninsured Loss .......................................................... 52
Eminent Domain ................................................................... 52
Hazardous Substances ........................................................... 52
Natural Calamities ................................................................. 53
Bankruptcy ............................................................................ 54
COVID-19 Pandemic ............................................................ 54
Potential Impact of State of California Financial Condition on
the City .................................................................................. 57
Risks Related to Cyber Security ............................................ 58
Pension Benefit Liability ........................................................ 58
Early Prepayment Risk .......................................................... 59
Limitations on Remedies ....................................................... 59
No Reserve Fund ................................................................... 60
Secondary Market Risk .......................................................... 60
Changes in Law ..................................................................... 60
STATE BUDGET INFORMATION ......................................... 60
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON
TAXES, REVENUES AND APPROPRIATIONS ..................... 65
Article XIIIA of the California Constitution .......................... 65
Article XIIIB of the California Constitution .......................... 66
Articles XIIIC and XIIID (Proposition 218) of the California
Constitution .......................................................................... 67
Article XIIIC ......................................................................... 67
Article XIIID ......................................................................... 69
Proposition 62 ....................................................................... 70
Proposition 1A of 2004 .......................................................... 70
Proposition 22 ....................................................................... 71
Proposition 26 ....................................................................... 72
Proposition 30 ....................................................................... 73
Proposition 19 ....................................................................... 73
Future Initiatives ................................................................... 74
ABSENCE OF LITIGATION ..................................................... 74
CONTINUING DISCLOSURE ................................................. 74
MUNICIPAL ADVISOR ............................................................. 75
LEGAL MATTERS .................................................................... 75
TAX MATTERS ......................................................................... 75
Other Tax Considerations ..................................................... 77
UNDERWRITING ..................................................................... 77
RATING ...................................................................................... 77
FINANCIAL STATEMENTS ................................................... 78
ADDITIONAL INFORMATION .............................................. 78
APPENDIX A GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATING TO THE CITY AND THE COUNTY
APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED JUNE 30, 2020
APPENDIX C INVESTMENT POLICY OF THE CITY
APPENDIX D FORM OF SPECIAL COUNSEL OPINION
APPENDIX E SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS
APPENDIX F DTC’S BOOK-ENTRY ONLY SYSTEM
APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE
CITY OF PALO ALTO LOCATION MAP
CITY OF PALO ALTO
250 Hamilton Avenue
Palo Alto, California 94301
http://www.cityofpaloalto.org
CITY COUNCIL MEMBERS
Tom DuBois, Mayor
Patrick Burt, Vice Mayor
Alison Cormack Councilmember
Eric Filseth, Councilmember
Lydia Kou, Councilmember
Greer Stone, Councilmember
Greg Tanaka, Councilmember
CITY OFFICIALS
Edward K. Shikada, City Manager
Monique Ziesenhenne, Assistant City Manager
Meghan Horrigan-Taylor, Chief Communications Officer
Kiely Nose, Chief Financial Officer/Administrative Services Director
David Ramberg, Assistant Director of Administrative Services
Brad Eggleston, Director of Public Works
Matt Raschke, Senior Engineer
Tarun Narayan, Manager of Treasury, Debt & Investments
Molly S. Stump, City Attorney
Beth Minor, City Clerk
SPECIAL SERVICES
Special Counsel
Jones Hall, A Professional Law Corporation
San Francisco, California
Disclosure Counsel
Quint & Thimmig LLP
Larkspur, California
Financial Advisor
PFM Financial Advisors LLC
San Francisco, California
Trustee
U.S. Bank National Association
San Francisco, California
$_______*
CITY OF PALO ALTO
2021 Certificates of Participation
(Public Safety Building)
INTRODUCTION
This introduction does not purport to be complete and reference is made to the body of this Official
Statement, appendices and the documents referred to herein for more complete information with respect
to matters concerning the captioned Certificates. Potential investors are encouraged to read this entire
Official Statement. Capitalized terms used and not defined in this Introduction shall have the meanings
assigned to them elsewhere in this Official Statement and in APPENDIX E—SUMMARY OF THE
PRINCIPAL LEGAL DOCUMENTS—DEFINITIONS.
General
This Official Statement, including the cover page, the inside cover page and appendices hereto, is
provided to furnish information in connection with the execution, sale and delivery of $_______* City of
Palo Alto 2021 Certificates of Participation (Public Safety Building) (the “Certificates”). The Certificates
are being executed and delivered pursuant to a Trust Agreement, dated as of March 1, 2021 (the “Trust
Agreement”), by and among the City of Palo Alto (the “City”), the Palo Alto Public Improvement
Corporation (the “Corporation”) and U.S. Bank National Association, as trustee (the “Trustee”).
The proceeds of the Certificates will provide funds to (a) finance the costs of a public safety building
to be located at 250 Sherman Avenue in the City (the “Project”) and (b) pay delivery costs incurred in
connection with the execution, delivery and sale of the Certificates. See “THE PROJECT.”
The City will lease certain existing property (the “Leased Property”) to the Corporation pursuant
to a Property Lease, dated as of March 1, 2021 (the “Property Lease”). The Corporation will lease the
Leased Property back to the City pursuant to a Lease Agreement, dated as of March 1, 2021 (the “Lease
Agreement”). The Certificates are payable solely from and secured by the lease payments (the “Lease
Payments”) to be made by the City to the Corporation pursuant to the Lease Agreement. See “SOURCE
OF PAYMENT FOR THE CERTIFICATES” and “THE LEASED PROPERTY.”
Interest with respect to the Certificates is payable on May 1 and November 1 of each year,
commencing May 1, 2021. The Certificates will mature in the amounts and on the dates and be payable at
the interest rates shown on the inside cover of this Official Statement. See “THE CERTIFICATES.”
The Certificates will be delivered in fully registered form only, in the name of Cede & Co., as
nominee of the Depository Trust Company, New York, New York (“DTC”). DTC will act as the
depository for the Certificates and all payments due with respect to the Certificates will be made to Cede &
Co., DTC’s nominee. Ownership interests in the Certificates may be purchased only in book-entry form.
See “THE CERTIFICATES—Book-Entry System” and APPENDIX F—DTC’S BOOK-ENTRY ONLY
SYSTEM.
* Preliminary, subject to change.
-2-
Source of Payment for the Certificates
The Certificates represent direct, undivided interests of the Owners thereof in the Lease Payments
to be paid by the City to the Corporation pursuant to the Lease Agreement. The Lease Payments are payable
by the City from its general fund for the right to use and possess the Leased Property. The Lease Payments
are subject to abatement during any period in which by reason of damage or destruction there is substantial
interference with the use and occupancy by the City of the Leased Property or any portion thereof. The City
will covenant under the Lease Agreement to take such action as necessary to include the Lease Payments
in its annual budget and to make all necessary appropriations therefor (subject to abatement under certain
circumstances described in the Lease Agreement). Pursuant to an Assignment Agreement, dated as of
March 1, 2021 (the “Assignment Agreement”), by and between the Corporation and the Trustee, the
Corporation will assign to the Trustee, for the benefit of the Owners of the Certificates, certain of its rights
under the Lease Agreement, including its right to receive Lease Payments from the City. See “SOURCE
OF PAYMENT FOR THE CERTIFICATES” and “RISK FACTORS.”
A reserve fund will not be funded for the Certificates.
NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE
LEASE PAYMENTS UNDER THE LEASE AGREEMENT CONSTITUTES A DEBT OR
INDEBTEDNESS OF THE CITY OR THE STATE OF CALIFORNIA (THE “STATE”) OR ANY
POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL
OR STATUTORY DEBT LIMITATIONS OR RESTRICTION OR 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
Redemption
The Certificates are subject to optional and mandatory prepayment. See “THE
CERTIFICATES—Prepayment.”
The City
The City of Palo Alto is located in northern Santa Clara County (the “County”), approximately 35
miles south of the city of San Francisco. It is part of the San Francisco Bay metropolitan area. The City was
incorporated in 1894. Its first Charter was granted by the State in 1909, and the City continues to operate
as a charter city. Located between the cities of San Francisco and San Jose, the City is a largely built-out
community. The City covers an area of twenty-six square miles, and has dedicated almost one-half of the
area to open spaces of parks and wildlife preserves. Public facilities include five libraries, four community
centers, a cultural arts center, an adult and children’s theater, a junior museum and zoo, and a golf course.
The City shares its borders with East Palo Alto, Mountain View, Los Altos, Los Altos Hills, Stanford,
Portola Valley, and Menlo Park. The City’s current population is approximately 69,200.
For additional information about the City, see “THE CITY,” “CITY FINANCIAL
INFORMATION” and APPENDIX A—GENERAL, ECONOMIC AND DEMOGRAPHIC
INFORMATION RELATING TO THE CITY AND THE COUNTY.
-3-
COVID-19 Pandemic
The outbreak of COVID-19, a respiratory disease caused by a new strain of coronavirus, has been
characterized as a Pandemic (the “COVID-19 Pandemic”) by the World Health Organization and is
currently affecting many parts of the world, including the City, the County, California, and the United
States. The COVID-19 Pandemic is ongoing, and has effected and will continue to effect the City and its
finances. The duration and severity of the COVID-19 Pandemic and the ramifications of the economic and
other actions that may be taken by governmental authorities to contain the COVID-19 Pandemic or to treat
its impacts is uncertain. For additional discussion of the COVID-19 Pandemic, see “RISK FACTORS—
COVID-19 Pandemic” herein.
The City currently projects that the COVID-19 Pandemic will continue to negatively impact its
General Fund discretionary revenues in fiscal year 2020-21 and beyond. The City estimates that impacts
from the COVID-19 Pandemic will affect most of its general fund revenue sources, with the largest general
fund revenue reductions occurring in the City’s sales and use tax and transient occupancy tax collections.
For a discussion of the City’s General Fund revenue sources, including transient occupancy taxes and sales
and use taxes, see “CITY FINANCIAL INFORMATION” herein.
The City has adopted budget mitigation measures alongside its fiscal year 2020-21 budget with a
goal of cutting expenditures to offset COVID-19 Pandemic related impacts. In addition to budget mitigation
measures adopted with the City’s fiscal year 2020-21 budget, the City drew upon its reserves to close budget
shortfalls during the 2019-20 fiscal year. The City does not project a current need to draw upon its reserves
during fiscal year 2020-21. For a discussion of the City’s fiscal year 2020-21 budget and the City’s reserve
policy, See “CITY FINANCIAL INFORMATION – General Fund Budget.”
Continuing Disclosure
The City will covenant in a continuing disclosure certificate to prepare and deliver annual reports
to the Municipal Securities Rulemaking Board (the “MSRB”) through the MSRB’s Electronic Municipal
Market Access system. See “CONTINUING DISCLOSURE” and APPENDIX G—FORM OF
CONTINUING DISCLOSURE CERTIFICATE.
Summaries of Documents
This Official Statement contains descriptions of the Certificates, the Trust Agreement, the
Property Lease, the Lease Agreement, the Assignment Agreement and various other agreements and
documents. The descriptions and summaries of documents herein do not purport to be comprehensive or
definitive and reference is made to each such document for the complete details of all terms and conditions.
All statements herein are qualified in their entirety by reference to each such document and, with respect
to certain rights and remedies, to laws and principles of equity relating to or affecting creditors’ rights
generally. Copies of the various documents described herein are available for inspection during business
hours at the corporate trust office of the Trustee at One California Street, Suite 1000, San Francisco, CA
94111.
Other Information
This Official Statement speaks only as of its date as set forth on the cover hereof, the information
and expressions of opinion herein are subject to change without notice and neither the delivery of this
-4-
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.
Unless otherwise expressly noted, all references to internet websites in this Official Statement,
including without limitation, the City’s website, are shown for reference and convenience only and none of
their content is incorporated herein by reference. The information contained within such websites has not
been reviewed by the City and the City makes no representation regarding the accuracy or completeness of
the information therein.
ESTIMATED SOURCES AND USES OF FUNDS
The following table shows the estimated sources and uses of the proceeds from the sale of the
Certificates and other moneys:
Sources
Par Amount of the Certificates
Plus: Original Issue Premium
Total Sources
Uses
Deposit to the Public Safety Construction Fund (1)
Costs of Issuance (2)
Total Uses
(1) Amounts deposited in the Public Safety Construction Fund will be used to finance the Project. See “THE PROJECT.”
(2) Costs of Issuance include the Underwriter’s discount, fees and expenses of the municipal advisor, special counsel, disclosure
counsel and the Trustee, printing expenses, rating fees, title insurance and other costs.
THE PROJECT
Proceeds of the Certificates will be used to (a) finance the costs of the Project and (b) pay a portion
of the delivery costs incurred in connection with the execution, delivery and sale of the Certificates.
The Project consists of construction of a new Public Safety Building at 250 Sherman Avenue,
adjacent to the new California Avenue Parking Garage at 350 Sherman Avenue. The construction of the
Public Safety Building is a key step in the continued delivery of public safety services. The existing public
safety building at 275 Forest Avenue opened in 1970. Due to the growth of public safety services and
changes in regulations, the existing building no longer meets current seismic, accessibility, or regulatory
code requirements. Including the external support spaces in the basement and operational yard, the new
Public Safety Building will be approximately 56,000 square feet and will house the Police Department, 911
Emergency Dispatch Center, the Emergency Operations Center, the Office of Emergency Services, and the
administration needs of the Fire Department. The Public Safety Building will include three levels above
grade, two levels below grade, and a one-story operational accessory structure. Construction will include a
cut-off wall to limit groundwater impact, cast-in-place structural concrete frame, specialty communication
systems, and communications tower.
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THE LEASED PROPERTY
Pursuant to the Property Lease, the City will lease the Leased Property to the Corporation.
Pursuant to the Lease Agreement, the Corporation will, in turn, lease the Leased Property back to the City.
See APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Property Lease and
APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Lease Agreement.
The Leased Property consists, initially, of the City's Civic Center built in 1971 is located at 250
Hamilton Avenue. It is an 8-story concrete structure that includes a lobby, café, office space, conference
rooms and restrooms. A portion of the structure is utilized as a police station by the Palo Alto Police. The
facility also includes three underground parking levels that includes 695 parking spots.
The value of the Leased Property, including the real property, is approximately $112 million.
Upon the construction and the substantial readiness of the Project for use and occupancy by the
City, as shall be evidenced by a certificate of completion delivered by the City, the Project will be the Leased
Property subject to the Property Lease and the Lease Agreement, and the initial Leased Property, will be
released.
For a description of certain terms of the Lease Agreement see “SOURCE OF PAYMENT FOR
THE CERTIFICATES” and APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL
DOCUMENTS—LEASE AGREEMENT.
Pursuant to the Lease Agreement, the City may substitute the Leased Property, in whole or in part,
by other properties, upon the satisfaction of certain conditions. For more information regarding the
substitution of property see “SOURCE OF PAYMENT FOR THE CERTIFICATES—Substitution or
Removal of Leased Property” and APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL
DOCUMENTS—LEASE AGREEMENT.
The City has not granted any security interest in the Leased Property for the benefit of the
Certificates and there is no remedy of foreclosure on the Leased Property upon the occurrence of an Event
of Default under the Lease Agreement. For a discussion of remedies upon an Event of Default under the
Lease Agreement, see “RISK FACTORS—Limitations on Remedies.”
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DEBT SERVICE SCHEDULE
The following table shows the scheduled annual debt service for the Certificates:
Principal
Payment
Date
(November 1) Principal* (1) Interest (2) Total
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
Total
*Preliminary, subject to change.
(1) Principal payments with respect to the Certificates on each November 1 are derived from Lease Payments made by the City
on the preceding October 15. Includes sinking fund payments.
(2) Interest payments with respect to the Certificates on each May 1 and November 1 are derived from Lease Payments made by
the City on the preceding April 15 and October 15, respectively.
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THE CERTIFICATES
General
The Certificates will be executed and delivered in the aggregate principal amount and will mature
on the dates and interest with respect thereto will be payable at the rates per annum as set forth on the inside
cover page of this Official Statement. The Certificates will be delivered in the form of fully registered
Certificates without coupons in the denomination of $5,000 or any integral multiple thereof. Interest with
respect to the Certificates will be calculated on the basis of a 360-day year of twelve 30-day months and will
be payable on May 1 and November 1 of each year, commencing May 1, 2021 (each an “Interest Payment
Date”), until maturity or earlier prepayment thereof. The Certificates will be initially executed, delivered
and registered in the name of “Cede & Co.” as nominee of DTC and will be evidenced by one Certificate
maturing on each of the maturity dates in a denomination corresponding to the total principal therein
designated to mature on such date. See “THE CERTIFICATES—Book-Entry System” and APPENDIX
F—DTC’S BOOK-ENTRY ONLY SYSTEM.
Interest with respect to the Certificates will be payable from the Interest Payment Date next
preceding the date of execution thereof, unless: (i) it is executed as of an Interest Payment Date, in which
event interest with respect thereto shall be payable from such Interest Payment Date; or (ii) it is executed
after a Record Date (i.e., the close of business on the 15th day of the month preceding each Interest Payment
Date, whether or not such 15th day is a Business Day) and before the following Interest Payment Date, in
which event interest with respect thereto shall be payable from such Interest Payment Date; or (iii) it is
executed on or before April 15, 2021, in which event interest with respect thereto will be payable from its
dated date; provided, however, that if, as of the date of execution of any Certificate, interest is in default with
respect to any Outstanding Certificates, interest represented by such Certificate shall be payable from the
Interest Payment Date to which interest has previously been paid or made available for payment with
respect to the Outstanding Certificates. Payment of defaulted interest shall be paid by check mailed to the
Owners as of a special record date to be fixed by the Trustee in its sole discretion, notice of which shall be
given to the Owners not less than ten (10) days prior to such special record date.
Payment of interest due with respect to any Certificate on any Interest Payment Date will be made
to the person appearing on the Registration Books as the Owner thereof as of the Record Date immediately
preceding such Interest Payment Date, such interest to be paid by check mailed on the Interest Payment
Date by first class mail to such Owner at his or her address as it appears on the Registration Books as of such
Record Date or, upon written request filed with the Trustee prior to the Record Date by an Owner of at
least $1,000,000 in aggregate principal amount of Certificates, by wire transfer in immediately available
funds to an account in the United States designated by such Owner in such written request. Any such
written request shall remain in effect until rescinded in writing by the Owner. The principal and prepayment
price with respect to the Certificates at maturity or upon prior prepayment shall be payable by check
denominated in lawful money of the United States of America upon surrender of the Certificates at the
Principal Corporate Trust Office.
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Prepayment
Optional Prepayment. The Certificates maturing on or before November 1, ____, are not subject to
optional prepayment prior to maturity. The Certificates maturing on and after November 1, ____, are
subject to optional prepayment in whole or in part in such order of maturity as shall be designated by the
City and by lot within a maturity, on any date on or after November 1, ____, at a prepayment price equal
to the principal amount of the Certificates to be redeemed, together with accrued interest, without
premium, to the date fixed for prepayment, from the proceeds of the optional prepayment of Lease
Payments made by the City pursuant to the Lease Agreement.
Prepayment from Net Proceeds of Insurance and Condemnation. The Certificates are also subject to
prepayment on any date, in whole or in part, from the net proceeds of insurance or condemnation with
respect to the Leased Property, which Net Proceeds are deposited in the accounts within the Lease Payment
Fund, on a pro rata basis, and credited towards the prepayment of the Lease Payments made by the City
pursuant to the Lease Agreement, at a prepayment price equal to the principal amount of the Certificates
to be prepaid, together with accrued interest to the date fixed for prepayment, without premium.
Selection of Certificates for Prepayment. Whenever provision is made for the prepayment of
Certificates and less than all Outstanding Certificates are called for prepayment, the Trustee shall select
Certificates for prepayment from the Outstanding Certificates not previously called for prepayment, among
maturities in integral multiples of $5,000 and by lot within a maturity in any manner deemed appropriate
by the Trustee. For the purposes of such selection, Certificates shall be deemed to be composed of $5,000
portions, and any such portion may be separately prepaid. The Trustee shall promptly notify the City and
the Corporation in writing of the Certificates so selected for prepayment.
Notice of Prepayment. When prepayment is authorized or required pursuant to the Trust Agreement,
the Trustee shall give notice of the prepayment of the Certificates. Such notice shall specify: (a) that the
Certificates or a designated portion thereof are to be prepaid, (b) the date of prepayment, (c) the place or
places where the prepayment will be made, and (d) that the City has the right to rescind the notice as
provided below. Such notice shall further state that on the specified date there shall become due and payable
upon each Certificate, the principal together with interest accrued to said date, and that from and after such
date interest represented thereby shall cease to accrue and be payable.
Notice of such prepayment shall be mailed by first class mail to the respective Owners of
Certificates designated for prepayment at their addresses appearing on the Registration Books, at least thirty
(30) days but not more than forty-five (45) days prior to the prepayment date, which notice shall, in addition
to setting forth the above information, set forth, in the case of each Certificate called only in part, the portion
of the principal thereof which is to be prepaid; provided that neither failure to receive such notice so mailed
nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of
such Certificates.
The City has the right to rescind any notice of the optional prepayment of Certificates by written
notice to the Trustee on or prior to the date fixed for prepayment. Any notice of optional prepayment shall
be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for
prepayment for the payment in full of the Certificates then called for prepayment, and such cancellation
shall not constitute an Event of Default. The City and the Trustee have no liability to the Owners or any
other party related to or arising from such rescission of prepayment. The Trustee shall mail notice of such
rescission of prepayment to the respective Owners of the Certificates designated for prepayment at their
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respective addresses appearing on the Registration Books, and to DTC and the Municipal Securities
Rulemaking Board.
Partial Prepayment of Certificate. Upon surrender of any Certificate prepaid in part only, the Trustee
shall execute and deliver to the Owner thereof, at the expense of the City, a new Certificate or Certificates
of authorized denominations equal in aggregate principal amount to the unprepaid portion of the Certificate
surrendered and of the same interest rate and the same maturity.
Effect of Notice of Prepayment. Notice having been given in compliance with the Trust Agreement,
and moneys for the prepayment (including the interest to the applicable date of prepayment and including
any applicable premium), having been set aside in the Lease Payment Fund, the Certificates shall become
due and payable on said date of prepayment, and, upon presentation and surrender thereof at the Corporate
Trust Office of the Trustee, said Certificates shall be paid at the unpaid principal amount (or applicable
portion thereof) with respect thereto, plus interest accrued and unpaid to said date of prepayment.
If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid,
together with interest to said date of prepayment, shall be held by the Trustee so as to be available therefor
on such date of prepayment, and, if notice of prepayment thereof shall have been given as aforesaid, then,
from and after said date of prepayment, interest represented by said Certificates shall cease to accrue and
become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates shall be
held in trust for the account of the Owners of the Certificates so to be prepaid.
Transfer and Exchange of Certificates
The registration of any Certificate may, in accordance with its terms, be transferred upon the
Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney,
upon surrender of such Certificate for cancellation at the Corporate Trust Office of the Trustee,
accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly
executed. Whenever any Certificate or Certificates shall be surrendered for registration of transfer, the
Trustee shall execute and deliver a new Certificate or Certificates of the same maturity and aggregate
principal amount, in any authorized denominations.
Certificates may be exchanged at the Corporate Trust Office of the Trustee, for a like aggregate
principal amount of Certificates of other authorized denominations of the same maturity. The City shall pay
any costs of the Trustee incurred in connection with such exchange, except that the Trustee may require
the payment by the Certificate Owner requesting such exchange of any tax or other governmental charge
required to be paid with respect to such exchange.
Book-Entry System
The Certificates will be initially executed, delivered and registered as one fully registered certificate
for each maturity, without coupons, in the name of Cede & Co., as nominee of DTC. DTC will act as
securities depository of the Certificates. Individual purchases may be made in book-entry form only, in the
principal amount of $5,000 and integral multiples thereof. Purchasers will not receive physical certificates
representing their interest in the Certificates purchased. Principal and interest will be paid to DTC which
will in turn remit such principal and interest to its participants for subsequent disbursement to the beneficial
owners of the Certificates as described herein. So long as DTC’s book-entry system is in effect with respect
to the Certificates, notices to Owners of the Certificates by the City or the Trustee will be sent to DTC.
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Notices and communication by DTC to its participants, and then to the beneficial owners of the Certificates,
will be governed by arrangements among them, subject to then effective statutory or regulatory
requirements. See APPENDIX F—DTC’S BOOK-ENTRY ONLY SYSTEM.
In the event that such book-entry system is discontinued with respect to the Certificates, the City
will cause the Trustee to execute and deliver replacements in the form of registered certificates and,
thereafter, the Certificates will be transferable and exchangeable on the terms and conditions provided in
the Trust Agreement.
SOURCE OF PAYMENT FOR THE CERTIFICATES
General
Each Certificate represents a direct, undivided fractional interest in the Lease Payments. Pursuant
to the Lease Agreement, the City will lease the Leased Property from the Corporation and agree to make
Lease Payments. See “THE LEASED PROPERTY.” Upon satisfaction of certain conditions set forth in
the Lease Agreement, the City may substitute the Leased Property with other properties. See “Substitution
or Removal of Leased Property” and “Abatement” below.
As security for the Certificates, the Corporation will assign to the Trustee for the payment of
principal and interest with respect to the Certificates, the Corporation’s rights, title and interest in the Lease
Agreement (with certain exceptions), including the right to receive Lease Payments to be made by the City
under the Lease Agreement. The Lease Payments are designed to be sufficient, in both time and amount,
to pay when due, the principal and interest with respect to the Certificates. The Lease Payments are payable
by the City from any source of legally available funds.
THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE
AGREEMENT DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE
CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE
CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE CERTIFICATES
NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE
AGREEMENT CONSTITUTES AN INDEBTEDNESS OF THE CITY OR THE STATE OR ANY OF
ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR
STATUTORY DEBT LIMITATIONS.
Lease Payments; Covenant to Appropriate
Pursuant to the Lease Agreement, the City has agreed to make Lease Payments for the lease of the
Leased Property. Lease Payments will be made by the City to the Trustee on April 15 and October 15 in
each year, in advance of the corresponding May 1 and November 1 Interest Payment Dates. The City will
also pay as additional payments (“Additional Payments”), amounts required for the payment of all costs
and expenses incurred by the Corporation to comply with the provisions of the Trust Agreement or in
connection with the execution and delivery of the Certificates. The City has covenanted under the Lease
Agreement to take such action as may be necessary to include all Lease Payments in its annual budget and
to make the necessary annual appropriations for all such payments. Under certain circumstances described
under the Lease Agreement, however, Lease Payments are subject to abatement during periods of
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substantial interference with the City’s use and occupancy of the Leased Property or any portion thereof.
See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Abatement.”
Insurance
The City is required to keep or cause to be kept casualty insurance against loss or damage by fire
and lightning, with extended coverage and vandalism and malicious mischief insurance, in an amount at
least equal to the lesser of (i) 100% of the replacement cost (without deducting for depreciation) of the
Leased Property and (ii) the aggregate principal amount of Certificates at the time outstanding. Such
insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle
damage, smoke and such other hazards as are normally covered by such insurance.
To insure against loss of rental income caused by perils mentioned above, the City is required to
maintain, or cause to be maintained throughout the term of the Lease Agreement, rental interruption or use
and occupancy insurance to cover loss, total or partial, of the use of any part of the Leased Property as a
result of any of the hazards described above in an amount at least equal to the maximum Lease Payments
coming due and payable during any two consecutive fiscal years during the remaining term of the Lease
Agreement.
Public liability and property damage insurance coverage is required in the minimum liability limits
of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of
two or more persons in each accident or event, and in a minimum amount of $150,000 (subject to a
deductible clause of not to exceed $250,000, or such higher amount as the City shall determine, provided
that such higher deductible shall be considered a self-insured retention) for damage to property resulting
from each accident or event. Such public liability and property damage insurance may, however, be in the
form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance
may be maintained as part of or in conjunction with any other liability insurance coverage carried by the
City and may be maintained in the form of insurance maintained through a joint exercise of powers authority
created for such purpose or in the form of self-insurance by the City. The net proceeds of such liability
insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the
insurance proceeds shall have been paid.
The City shall provide, from moneys in the Costs of Issuance Fund or at its own expense, on the
Closing Date, a CLTA title insurance policy in the amount of not less than the principal amount of the
Certificates, insuring the City’s leasehold estate in the Leased Property, subject only to Permitted
Encumbrances.
See APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—LEASE
AGREEMENT—Insurance.
Abatement
Pursuant to the Lease Agreement, the amount of Lease Payments will be abated, during any period
in which by reason of damage or destruction (other than by eminent domain which is otherwise provided
for) there is substantial interference with the use and occupancy by the City of the Leased Property or any
portion thereof. The amount of such abatement shall be agreed upon by the City and the Corporation such
that the resulting Lease Payments represent fair consideration for the use and occupancy of the portions of
the Leased Property not damaged or destroyed. Such abatement shall continue for the period commencing
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with such damage or destruction and ending with the substantial completion of the work of repair or
reconstruction. In the event of any such damage or destruction, the Lease Agreement shall continue in full
force and effect and the City waives any right to terminate the Lease Agreement by virtue of any such
damage and destruction. However, notwithstanding any other provisions of the Lease Agreement, there
shall be no abatement of Lease Payments to the extent that the proceeds of an eminent domain or insurance
award are available to pay Lease Payments, or to the extent that moneys are available in the Lease Payment
Fund, it being declared that such proceeds and amounts constitute special funds for the payment of the
Lease Payments. See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Insurance,” APPENDIX
E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Lease Agreement—Insurance and
APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—Lease Agreement—
Abatement of Rental Payments in the Event of Damage or Destruction.
Eminent Domain
Pursuant to the Lease Agreement, if the Leased Property is taken permanently under the power of
eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of
the Lease Agreement shall cease as of the day possession shall be so taken. If less than all of the Leased
Property is taken permanently, or if the Leased Property or any part thereof shall be taken temporarily,
under the power of eminent domain, (1) the Lease Agreement shall continue in full force and effect and
shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary,
and (2) there shall be a partial abatement of Lease Payments as a result of the application of the Net Proceeds
of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by
the City and the Corporation such that the resulting Lease Payments represent fair consideration for the
use and occupancy of the remaining usable portion of the Leased Property. The City covenants to contest
any eminent domain award which is insufficient to either: (i) prepay the Certificates in whole, if all of the
Leased Property is condemned; or (ii) prepay a pro rata share of Certificates, in the event that less than all
of the Leased Property is condemned.
No Reserve Fund
A reserve fund will not be funded for the Certificates.
Optional Prepayment
Pursuant to the Lease Agreement, the City has an option to prepay the principal components of the
Lease Payments in full, by paying the aggregate unpaid principal components of the Lease Payments, in
whole or in part, in a prepayment amount equal to the principal amount of Lease Payments to be prepaid,
together with accrued interest to the date fixed for prepayment, without premium. See “THE
CERTIFICATES—Prepayment—Optional Prepayment.”
Said option may be exercised on any date on or after October 15, 2028. In the event of prepayment
in part, the partial prepayment will be applied against Lease Payments in such order of payment date as will
be selected by the City. Lease Payments due after any such partial prepayment will be in the amounts set
forth in a revised Lease Payment schedule which will be provided by, or caused to be provided by, the City
to the Trustee and which will represent an adjustment to the schedule set forth in the Lease Agreement
taking into account said partial prepayment.
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Prepayment from Net Proceeds of Insurance and Condemnation
The City shall be obligated to prepay the Lease Payments for the Leased Property, in whole or in
part on any date, from and to the extent of any Net Proceeds of insurance award or condemnation award
with respect to the Leased Property that have been deposited with the Trustee in the Lease Payment Fund
for such purpose. Such proceeds shall be applied to the prepayment of the principal component of the Lease
Payments and the prepayment of the Certificates. See “THE CERTIFICATES—Prepayment—
Prepayment from Net Proceeds of Insurance and Condemnation.”
Substitution or Removal of Leased Property
Substitution of Leased Property. The City has the option at any time and from time to time during the
term of the Lease Agreement, to substitute other land, facilities, improvements or other property (a
“Substitute Property”) for the Leased Property or any portion thereof (a “Former Property”), provided
that the City shall satisfy all of the following requirements which are hereby declared to be conditions
precedent to such substitution:
(a) The City shall notify S&P in writing of such substitution, which notice shall contain the
certification that all conditions for such substitution, as set forth in the Lease Agreement, are met
with respect to such substitution;
(b) The City shall take all actions and shall execute all documents required to subject such
Substitute Property to the terms and provisions of the Lease Agreement, including the filing with
the Corporation and the Trustee of an amendment to the Lease Agreement which adds thereto a
description of such Substitute Property and deletes therefrom the description of such Former
Property, and including the recordation of the Lease Agreement or a memorandum hereof with
respect to such Substitute Property in the office of the County Recorder;
(c) The City shall certify in writing that the estimated fair market value of such Substitute
Property is at least equal to the aggregate principal components of the unpaid Lease Payments;
(d) The City shall certify in writing to the Corporation and the Trustee that such Substitute
Property serves the public purposes of the City and constitutes property which the City is permitted
to lease under the laws of the State;
(e) The City shall certify in writing to the Corporation and the Trustee that the estimated
useful life of such Substitute Property at least extends to the date on which the final Lease Payment
becomes due and payable hereunder;
(f) The City shall obtain a CLTA policy of title insurance meeting the requirements of the
Lease Agreement with respect to such Substitute Property; and
(g) The Substitute Property shall not cause the City to violate any of its covenants,
representations and warranties made in the Lease Agreement or in the Trust Agreement.
From and after the date on which all of the foregoing conditions precedent to such substitution are
satisfied, the term of the Lease Agreement shall cease with respect to the Former Property and shall be
continued with respect to the Substitute Property, and all references herein to the Former Property shall
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apply with full force and effect to the Substitute Property. The City shall not be entitled to any reduction,
diminution, extension or other modification of the Lease Payments whatsoever as a result of such
substitution.
Notwithstanding any provision of the Lease Agreement the Trust Agreement, upon final
completion of the Project, the City shall have the absolute right to make the Project and its related site the
Leased Property, and to release the initial Leased Property without meeting the conditions set forth in
paragraphs (a) through (g) above. The City shall effectuate such release by (1) certifying, in a certificate of
completion provided to the Trustee, that the final completion of the Project has occurred, (2) certifying that
the fair rental value of the Project is at least equal to base lease payments, and (3) causing a Notice of
Substitution and Release of Leased Property to be recorded in the real property records of Santa Clara
County. Subsequent to the execution and recordation of such Notice of Substitution and Release of Leased
Property, subject to any future authorized substitution or release of the Leased Property pursuant to the
Lease Agreement, references to the Leased Property shall be deemed to refer to the Project and the related
site and shall not be deemed to refer to the initial Leased Property so released.
Removal of Property from Leased Property. The City has the option at any time and from time to time
during the term of the Lease Agreement, to remove any property from the description of the Leased
Property, provided that the City shall satisfy all of the following requirements which are hereby declared to
be conditions precedent to such removal:
(a) The City shall notify S&P in writing of such removal, which notice shall contain the
certification that all conditions for such removal, as set forth in the Lease Agreement, are met with
respect to such removal;
(b) The City shall file with the Corporation and the Trustee an amendment to the Lease
Agreement which deletes therefrom the description of the property to be removed;
(c) The City shall certify in writing that the estimated fair market value of the Leased
Property that will remain following such removal is at least equal to the aggregate principal
components of the unpaid Lease Payments, and that the useful life of the Leased Property is not
less than the final payment date of the unpaid Lease Payments; and
(d) The City shall obtain and cause to be filed with the Trustee and the Corporation an
opinion of Special Counsel stating that such removal is permitted under the Lease Agreement.
From and after the date on which all of the foregoing conditions precedent to such removal are
satisfied, the term of the Lease shall cease with respect to the property which is so removed. The City shall
not be entitled to any reduction, diminution, extension or other modification of the Lease Payments
whatsoever as a result of such removal.
Events of Default and Remedies
The following shall be “events of default” under the Lease Agreement:
(a) Failure by the City to pay any Lease Payment when due and payable, or failure to pay any other
payment when due and payable.
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(b) Failure by the City to observe and perform any covenant, condition or agreement on its part to
be observed or performed, other than as referred to in paragraph (a) above, for a period of thirty (30) days
after written notice specifying such failure and requesting that it be remedied has been given to the City by
the Corporation, the Trustee or the Owners of not less than twenty percent (20%) in aggregate principal
amount of Certificates then outstanding; provided, however, if the failure stated in the notice can be
corrected, but not within the applicable period, the Corporation, the Trustee and such Owners shall not
unreasonably withhold their consent to an extension of such time if corrective action is instituted by the
City within the applicable period and diligently pursued until the default is corrected.
(c) The filing by the City of a voluntary petition in bankruptcy under Title 11 of the United States
Code or any substitute or successor statute.
Whenever any event of default shall have happened and be continuing, it shall be lawful for the
Corporation to exercise any and all remedies available pursuant to law or granted pursuant to this Lease
Agreement; provided, however, that notwithstanding anything in the Lease Agreement or in the Trust
Agreement to the contrary, there shall be no right under any circumstances to accelerate the Lease
Payments or otherwise declare any Lease Payments not then in default to be immediately due and payable.
Each and every covenant to be kept and performed by the City under the Lease Agreement is expressly
made a condition and upon the breach thereof the Corporation may exercise any and all rights of entry and
re-entry upon the Leased Property, and also, at its option, with or without such entry, may terminate the
Lease Agreement. In the event of such default and notwithstanding any re-entry by the Corporation, the
City shall, as expressly provided in the Lease Agreement, continue to remain liable for the payment of the
Lease Payments and/or damages for breach of the Lease Agreement and the performance of all conditions
contained in the Lease Agreement and, in any event, such rent and/or damages shall be payable to the
Corporation at the time and in the manner as provided in the Lease Agreement.
Amendment of Lease Agreement
Except as provided below, without the prior written consent of the Trustee, the City will not alter,
modify or cancel, or agree or consent to alter, modify or cancel the Lease Agreement, excepting only such
alteration or modification as may be permitted by the Trust Agreement.
In addition, the Lease Agreement may be amended to obligate the City to pay additional amounts
of rental thereunder for the use and occupancy of the Leased Property or any portion thereof, but only if (a)
such additional amounts of rental do not cause the total rental payments made by the City under the Lease
Agreement to exceed the fair rental value of the Leased Property, (b) the City shall have obtained and filed
with the Trustee and the Corporation a written certificate to the effect that the estimated fair market value
thereof is not less than the aggregate unpaid principal components of such additional amount of rental plus
the existing aggregate unpaid principal components of the Lease Payments, (c) such additional amounts of
rental shall be pledged or assigned for the payment of any bonds, notes, leases or other obligations the
proceeds of which shall be applied to finance the completion of public facilities and (d) the City shall send
notification of the additional financing to the rating agency then rating the Certificates.
THE CITY
The City is located in the County, approximately 35 miles south of the City of San Francisco. It is
part of the San Francisco Bay metropolitan area. The City was incorporated in 1894. Its first Charter was
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granted by the State in 1909, and the City continues to operate as a charter city. Located between the cities
of San Francisco and San Jose, the City is a largely built-out community. The City covers an area of twenty-
six square miles, and has dedicated almost one-half of the area to open spaces of parks and wildlife preserves.
Public facilities include five libraries, four community centers, a cultural arts center, an adult and children’s
theater, a junior museum and zoo, and a golf course. The City shares its borders with East Palo Alto,
Mountain View, Los Altos, Los Altos Hills, Stanford, Portola Valley, and Menlo Park. The City’s current
population is approximately 69,200.
Stanford University covers a 700-acre area in the City, and the City is home to high-tech leaders
such as Hewlett-Packard, SAP America, Varian Medical Systems, VMware, Tibco Software, the Electric
Power Research Institute, Communications and Power Industries and Skype. The City is also a major
employment center, including U.S. Department of Veterans Affairs, Palo Alto Health Care System,
Stanford Hospitals and Clinics, Lockheed Martin Missiles and Space, Palo Alto Medical Foundation,
Stanford Shopping Center, the law offices of Wilson Sonsini Goodrich and Rosati, and the Xerox Palo Alto
Research Center.
The City is a charter city and is governed by a City Council of seven representatives. City Council
members are elected city-wide on an at-large basis for staggered four-year terms. At the first meeting of each
calendar year, Council elects a Mayor and Vice-Mayor from its membership, with the Mayor having the
duty of presiding over Council meetings. Council is the appointing authority for the positions of City
Manager and three other officials, the City Attorney, City Clerk, and City Auditor, all of whom report to
Council.
Members of the Council and key administrative personnel of the City are listed at the front of this
Official Statement.
See APPENDIX A—GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION
RELATING TO THE CITY AND THE COUNTY for an additional description of the City as well as
certain demographic and statistical information.
CITY FINANCIAL INFORMATION
Financial Statements and Budgetary Process
The City’s accounting policies conform to generally accepted accounting principles. The audited
financial statements also conform to the principles and standards for public financial reporting established
by the Governmental Accounting Standards Board.
Basis of Accounting and Financial Statement Presentation. The government-wide financial statements
are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are
recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are
recognized as revenues in the year for which they are levied. Grants and similar items are recognized as
revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the modified accrual basis of
accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are
considered to be available when they are collectible within the current period or soon enough thereafter to
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pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under
accrual accounting. However, debt service expenditures are recorded only when payment is due.
Audited Financial Statements. The City retained Macias Gini & O’Connell LLP, Walnut Creek,
California (the “City’s Auditor”), to examine the general purpose financial statements of the City as of and
for the year ended June 30, 2020. The audited financial statements for fiscal year ended June 30, 2020, are
included in APPENDIX B—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY
FOR THE FISCAL YEAR ENDED JUNE 30, 2020. The City has not requested, and the City’s Auditor
has not provided, any review or update of such financial statements in connection with their inclusion in
this Official Statement.
Budget Process. The City Council is required to adopt a final budget by no later than the close of its
fiscal year. The annual budget serves as the foundation for the City’s financial planning and control. Budget
control is maintained at the fund and department level. The City Manager has the authority to approve
appropriation transfers within the same department/fund. Transfers between funds/departments and
amendments to the budget require City Council approval.
A comprehensive mid-year budget review is done in February or March to update revenue and
expenditure projections. In addition, the City Council receives quarterly budget updates. The City
maintains budgetary controls to ensure compliance with legal provisions embodied in the appropriated
budget approved by the City Council. The level of budgetary control (that is, the level at which expenditures
cannot legally exceed the appropriated amount) for the City’s operating budget is at the fund/department
level with departmental oversight of major expenditure categories as well as by program area within each
fund. For the City’s capital improvement budget each individual capital improvement project with budget
transfers between subprojects is subject to City Manager approval and budget transfers between projects
are subject to City Council approval. Appropriation increases, decreases or transfers between funds require
the approval of the City Council.
All appropriations lapse at the end of the fiscal year unless specific carryovers are approved by the
City Council.
Certain of the City’s revenues are collected and dispersed by the State (such as sales tax and motor-
vehicle license fees) or allocated in accordance with State law (most importantly, property taxes).
Therefore, State budget decisions can have an impact on City finances. See “STATE BUDGET
INFORMATION.”
Impact of COVID-19 Pandemic on Future Budgeting. The COVID-19 Pandemic is ongoing, and the
duration and severity of the outbreak, and the ramifications of the economic and other of actions that may
be taken by governmental authorities to contain the outbreak or to treat its impact are uncertain. The
ultimate impact of COVID-19 on the City’s operations and finances is unknown.
The City continues to monitor the short and long-term impacts of the COVID-19 Pandemic and
what, if any, expenditure reductions will be needed due to reduced revenue in Fiscal Years 2019-20 and
2020-21. The depth, breadth and length of any economic downturn will directly impact City’s planning
with regards to reductions in expenditures such as staffing cuts, program elimination, reductions in services.
See the captions “CITY FINANCIAL INFORMATION—General Fund Budget—The City’s
Fiscal Year 2020-21 General Fund Budget” and “RISK FACTORS—COVID-19 Pandemic.”
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General Fund Balance Sheet
The following table shows the City’s audited General Fund balance sheet for the past five fiscal
years.
TABLE 1
CITY OF PALO ALTO
GENERAL FUND
BALANCE SHEET
(Dollars in Thousands)
Fiscal Year Ended June 30,
2016 2017 2018 2019 2020
Audited Audited Audited Audited Audited
ASSETS
Cash and Investments $53,113 $47,779 $49,250 $55,139 $ 48,853
Accounts and Intergovernmental Receivables 15,676 17,418 18,881 21,669 11,944
Interest Receivable 640 738 950 1,167 695
Notes and Loans Receivable 513 496 479 - 845
Prepaid Items - - - - -
Deposits - - 15 15 15
Due from other fund - - - 843 1,895
Advance to Other Funds 2,211 2,915 3,128 3,115 3,233
Inventory of Materials and Supplies 4,364 4,298 4,427 4,517 4,874
Total Assets 76,517 73,644 77,130 86,465 70,354
LIABILITIES
Accounts Payable and Accruals 3,832 4,984 4,293 6,501 3,581
Accrued Salaries and Benefits 3,859 1,466 1,525 1,562 2,046
Unearned Revenue 1,895 4,087 2,966 2,976 2,479
Total Liabilities 9,586 10,537 8,784 11,039 8,106
DEFERRED INFLOWS OF RESOURCES
Unavailabe revenue - - - 211 409
FUND BALANCES
Nonspendable:
Notes and Loans Receivable 513 496 479 - 845
Prepaid Items - - - - -
Deposits - - 15 15 15
Inventories 4,364 4,298 4,427 4,517 4,874
Advances to Other Funds 2,211 2,915 3,128 3,115 3,233
Committed for:
Development Services - - 373 4,399 3,804
Assigned for:
Unrealized Gain on Investments 2,066 - - 709 3,199
Other General Governmental Purposes 6,195 6,150 5,325 5,622 7,219
Electric charger - - - 17 25
College Terrace finces - - - 160 160
Reappropriations - 1,130 1,773 1,149 1,893
Unassigned for:
Budget Stabilization 51,582 48,118 52,826 54,811 35,871
Total Fund Balances 66,931 63,107 68,346 75,215 61,839
Total Liabilities, Deferred Inflows of Resources
and Fund Balances
76,517 73,644 77,130 86,465 70,354
Source: City of Palo Alto 2016-20 CAFRs.
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General Fund Revenues, Expenditures, and Changes in Fund Balances
The following table shows the City’s audited results for General Fund revenues and expenditures
for Fiscal Years 2016-17 through 2019-20 and budgeted projections for Fiscal Year 2020-21.
TABLE 2
CITY OF PALO ALTO
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES
(Dollars in Thousands)
Fiscal Year Ending June 30,
2017 2018 2019 2020 2021
Audited Audited Audited Audited Budget
REVENUES
Property Tax $ 39,381 $ 42,839 $ 47,327 $ 51,089 $ 52,000
Sales Tax 29,923 31,091 36,508 30,563 20,500
Utility Users Tax 14,240 15,414 16,402 16,140 15,100
Transient Occupancy Tax 23,477 24,937 25,649 18,553 14,900
Documentary Transfer Tax 7,491 9,229 6,923 6,903 4,700
Other Taxes and Fines 2,167 2,141 1,888 1,172 1,925
Charges for Services 22,267 26,824 27,346 24,127 25,417
Intergovernmental 2,758 3,205 2,863 3,783 551
Permits and Licenses 7,437 8,560 8,410 7,467 8,336
Investment Earnings (1,193) (828) 5,672 4,037 1,100
Rental Income 15,692 15,896 16,338 15,964 16,022
Other Revenue 760 776 1,753 587 14,563
Total Revenues 164,400 180,084 197,079 180,385 175,114
EXPENDITURES
City Council 316 337 265 214 419
City Manager 1,896 2,509 2,883 3,273 3,161
City Attorney 2,049 2,244 2,649 2,509 3,485
City Clerk 724 819 805 815 1,245
City Auditor 822 870 865 680 828
Administrative Services 4,975 5,347 5,512 5,960 8,362
Human Relations 2,194 2,369 2,567 2,792 3,597
Public Works 13,578 14,569 13,757 13,577 18,427
Planning and Community Environment 9,054 8,312 8,132 19,269(1) 17,386(1)
Development Services 10,908 11,749 11,549 -(1) -(1)
Office of Transportation - - - 2,052 1,904
Police 39,597 40,326 42,854 45,679 41,733
Fire 31,419 33,522 33,489 36,440 33,607
Community Services 25,192 27,122 28,903 29,603 28,362
Library 8,953 9,120 9,288 9,988 8,421
Non-Departmental 5,906 5,973 11,769 9,255 8,235
Capital Outlay - - - - 1,904
Debt Service - Principal 406 416 426 - -
Debt Service – Interest 26 16 5 - -
Total Expenditures 158,015 165,620 175,718 182,106 179,172
EXCESS OF REVENUES OVER EXPENDITURES 6,385 14,464 21,361 (1,721) (4,058)
OTHER FINANCING SOURCES
Proceeds from Sale of Capital Assets - - 2,442 - -
Transfers In 19,222 20,310 20,154 20,568 21,359
Transfers Out (29,431) (29,535) (37,088) (32,223) (17,801)
Total Other Financing Sources (10,209) (9,225) (14,492) (11,655) 3,558
Change in Fund Balances (3,824) 5,239 6,869 (13,376) (500)
FUND BALANCES, BEGINNING OF YEAR 66,931 63,107 68,346 75,215 61,839
FUND BALANCES, END OF YEAR 63,107 68,346 75,215 61,839 61,339
Source: City of Palo Alto 2017-20 CAFRs and City of Palo Alto Finance Department.
(1) Planning and Community Environment and Development Services totals are combined in FY2019-20.
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General Fund Budget
The following table shows the City’s General Fund adopted budget figures and a comparison of the
final General Fund budgets versus audited actuals for Fiscal Year 2018-19 and Fiscal Year 2019-20.
TABLE 3
CITY OF PALO ALTO
GENERAL FUND
BUDGET COMPARISON
Fiscal Years 2018-19 and 2019-20
(Dollars in Thousands)
Fiscal Year Ending June 30, 2019 Fiscal Year Ending June 30, 2020
Adopted Final Audited Adopted Final Audited
Budget Budget Actuals Budget Budget Actuals
REVENUES
Sales Tax $ 31,246 $ 31,746 $ 36,508 $ 34,346 30,617 30,563
Property Tax 45,332 46,232 47,327 48,634 50,853 51,089
Transient Occupancy Tax 25,049 25,391 25,649 29,309 19,425 18,553
Documentary Transfer Tax 7,434 8,034 6,923 8,369 6,676 6,903
Utility User Tax 16,092 16,092 16,402 17,581 16,133 16,140
Other Taxes and Fines 2,032 2,032 1,888 2,032 1,237 1,172
Charges for Services 28,419 28,419 27,346 30,127 25,196 24,127
Permits and Licenses 8,545 8,545 8,410 8,667 6,597 7,467
Investment Earnings 1,194 1,194 2,167 1,433 1,433 1,558
Rental Income 15,734 15,734 16,338 16,326 16,041 15,964
Intergovernmental 2,943 3,229 2,942 2,756 3,245 4,301
Other Revenue 568 1,599 1,753 587 619 587
Charges to other funds and departments 10,093 10,147 10,685 10,908 10,908 11,099
Prior year encumberances - 7,821 7,821 - 6,469 6,469
Total Revenues 194,681 206,215 212,159 211,075 195,449 195,992
EXPENDITURES
City Attorney 3,263 3,783 3,783 3,387 3,896 3,789
City Auditor 1,258 1,238 1,238 1,235 1,157 981
City Clerk 1,282 1,267 1,193 1,346 1,402 1,186
City Council 488 501 411 498 542 414
City Manager 4,386 4,905 4,450 4,546 4,734 4,671
Administrative Services 7,963 7,834 7,794 8,519 8,770 8,515
Community Services 28,929 30,282 30,201 30,929 31,591 31,489
Police 31,825 33,894 33,894 46,369 46,845 46,844
Fire 43,460 43,912 43,698 34,889 36,773 36,772
Human Resources 3,591 3,796 3,697 3,902 4,107 3,994
Library 9,664 9,767 9,491 10,314 10,187 10,092
Planning and Community Enviornment 8,791 10,346 9,906 20,356(2) 22,021(2) 21,098(2)
Development Services 12,561 13,103 12,700 -(2) -(2) -(2)
Public Works 18,462 18,362 17,928 19,142 19,341 18,932
Non-Departmental 7,632 13,302 12,567 9,028 12,312 10,156
Total Expenditures 183,555 196,292 192,951 196,772 206,411 201,293
EXCESS OF REVENUES OVER EXPENDITURES 11,126 9,923 19,208 14,303 (10,962) (5,301)
OTHER FINANCING SOURCES
Proceeds from Sale of Capital Assets - - 2,442 - - -
Transfers In 19,772 20,154 20,154 20,999 20,842 20,568
Transfers Out (30,898) (37,088) (37,088) (33,985) (32,223) (32,223)
Total Other Financing Sources (11,126) (16,934) (14,492) (12,986) (11,381) (11,655)
Change in Fund Balances, Budgetary Basis - (7,011) 4,716 1,317 (22,343) (16,956)
Change in Fund Balances, GAAP Basis 6,869(1) (13,376)(3)
FUND BALANCES, BEGINNING OF YEAR, GAAP Basis 68,346 75,215
FUND BALANCES, END OF YEAR, GAAP Basis 75,215 61,839
Source: City of Palo Alto Finance Department.
(1) Reflects adjustments for an unrealized gain of $3,505, current year encumbrances and reappropriations of $6,469 and prior year encumbrances
and reappropriations of $(7,821).
(2) Planning and Community Environment and Development Services line items are combined in FY2019-20.
(3) Reflects adjustments for an unrealized gain of $2,479, current year encumbrances and reappropriations of $7,570 and prior year encumbrances
and reappropriations of $(6,469).
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Reductions of Expenditures in the City’s Fiscal Year 2020-21 General Fund Budget. Due to the
unanticipated and severe disruption of the economy as a result of the COVID-19 pandemic, the City Staff
presented the City Council with the following reductions in order to balance the City’s general fund fiscal
year 2020-21 budget. The general fund fiscal year 2020-21 budget reflects reductions of $41.8 million in
expenses to offset projected revenue losses over the coming fiscal year. The budget adjustments described
below represent a nearly 20% reduction in spending from the City’s earlier fiscal year 2020-21 proposed
budget (released on April 20) and a 15% reduction from the City’s prior year 2019-20 adopted operating
budget.
Staffing Reductions: The City has budgeted for 512 full time positions supported by the general fund,
representing a reduction of 62 positions from the prior year. The City has budgeted for 55.6 Full-Time-
Equivalent (“FTE”) part-time staff, representing a reduction of 25.7 FTE for part-time staff from the prior
year. These staffing reductions are expected to result in general fund savings of approximately $12.6 million.
Service/Operating Hour/Program Reductions. Significant service delivery impacts include but are not
limited to changes in the space available at the Cubberley facility as a result of a potential new lease
agreement; changes in operating hours and program availability at Community Centers including increases
in fees to aid in cost recovery levels; reductions in Children’s Theatre productions; reductions in library
hours across the 5 library system; reductions in police patrol staffing and special teams including
investigations and traffic; implementing a brownout flexible staffing model for fire services resulting in
reduced capacity when staff is out on leave; elimination of shuttle services; restructuring of the Residential
Preferential Parking Permit Program (RPP), and deferral of capital investments. Together, these reductions
are expected to result in general fund savings of approximately $17.3 million.
Labor/Bargaining Unit Concessions. Concessions made by City bargaining units include savings of
$2.3 million in the general fund in recognition of compensation reductions for Management/Professional
employees, representing a 10 percent concession. Additional agreements were reached with safety groups
including the Police officers Association (POA), Police Management Association (PMA), International
Association of Fire Fighters (IAFF), and Fire Chief’s Association (FCA) that generated approximately $1.1
million in savings. These savings provided attrition ramps, delaying separation of the newest employees in
these forces pending additional vacancies through attrition.
CARES Act and Federal Aid. The City currently estimates that it will receive approximately
$854,743 million in CARES Act pass through funding from the State and other additional federal aid and
grants from other federal agencies. These funds are limited in purpose and are intended to cover unbudgeted
response and community support activities only. For additional discussion of the CARES Act, see “RISK
FACTORS—COVID-19 Pandemic.”
City Financial Management
The City Council has adopted a comprehensive set of financial management policies to provide for:
(i) establishing targeted general fund reserves; (ii) the prudent investment of City funds, and (iii)
management of debt. The City’s practice is to incur debt only after deliberation over the effect of such debt
on the City’s General Fund and other resources of the City, and in those circumstances where the use of
debt would be appropriate to the scale and economic life of the asset being financed and the accumulation
or availability of reserves to fund the capital requirement.
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General Fund Budget Stabilization Reserve Policy. The following table shows the City’s general fund
Budget Stabilization Reserve Policy guidance, actual reserves for fiscal year 2019-20 and budgeted reserve
for fiscal year 2020-21.
CITY OF PALO ALTO
GENERAL FUND BUDGET STABILIZATION RESERVE POLICY
Policy Actual Budgeted
Guidance FY 2019-20 FY 2020-21
% of Expenses 15% to 20%; target goal of 18.5% 15.6% 18.2%
Source: City of Palo Alto Finance Department.
During the 2019-20 fiscal year the City drew $11.7 million from its Budget Stabilization reserve,
bringing the remaining balance of reserves to approximately $35.9 million as of June 30, 2020.
The City’s adopted fiscal year 2020-21 budget does not rely further on use of general fund reserves
with the exception of specific restricted reserves such as the Development Center Fees. The City’s fiscal
year 2020-21 adopted budget projects reserves to increase to 18.2%, within the targeted range of 15% to 20%
but below the City Council goal of 18.5%.
Investment Policy. The investment of funds of the City (except pension and retirement funds) is
made in accordance with the City’s Investment Policy, most recently approved in June 2020 (the
“Investment Policy”), and section 53601 et seq. of the California Government Code. The Investment Policy
is subject to revision at any time and is reviewed at least annually to ensure compliance with the stated
objectives of safety, liquidity, yield, and current laws and financial trends. All amounts held under the Trust
Agreement are invested at the direction of the City in Investment Securities, as defined in the Trust
Agreement, and are subject to certain limitations contained therein. See APPENDIX C—INVESTMENT
POLICY OF THE CITY and APPENDIX E—SUMMARY OF THE PRINCIPAL LEGAL
DOCUMENTS—TRUST AGREEMENT—Investments.
Debt Management Policy. In accordance with section 8855(i) of the California Government Code the
City adopted a debt management policy on April 11, 2017, to establish conditions for the use of debt; to
ensure that debt capacity and affordability are adequately considered; to minimize the City’s interest and
issuance costs; to maintain the highest possible credit rating; to provide complete financial disclosure and
reporting; and to maintain financial flexibility for the City.
Capital Improvement Project Practices. While the City does not have an adopted capital improvement
project policy, it does have certain criteria that must be adhered to before commencing a capital
improvement project including (a) that the project must have a minimum cost of $50,000 for each stand-
alone unit or combined project, (b) that the project must have a useful life of at least five to seven years, and
(c) that the project must extend the life of an existing asset or provide a new functional use for an existing
asset for at least five years.
Principal Sources of General Fund Revenues
The City relies on several sources to balance its General Fund budget. The most important of these
revenue sources (based on percentage of the total revenue budget) are taxes and fees including the following:
property taxes, sales taxes, and transient occupancy taxes.
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The following table shows the City’s General Fund tax revenues by source for the four most recent
fiscal years and budgeted projections for Fiscal Year 2020-21:
TABLE 4
CITY OF PALO ALTO
GENERAL FUND TAX REVENUES BY SOURCE
(Dollars in Thousands)
Fiscal Year Ending June 30,
2017 2018 2019 2020 2021
Audited Audited Audited Audited Budgeted
Property Tax $ 39,381 $ 42,839 $ 47,327 $ 51,089 $ 52,000
Sales Tax 29,923 31,091 36,508 30,563 20,500
Transient Occupancy Tax 23,477 24,937 25,649 18,553 14,900
Utility User Tax 14,240 15,414 16,402 16,140 15,100
Documentary Transfer Tax 7,491 9,229 6,923 6,903 4,700
Other Taxes and Fines 2,167 2,141 1,888 1,172 1,925
Total Tax Revenues 116,679 125,651 134,697 124,420 109,125
Source: City of Palo Alto Finance Department.
In Fiscal Year 2018-19, the City’s General Fund tax revenues accounted for approximately $134.7
million or 68% of the City’s total General Fund revenues for Fiscal Year 2018-19. In Fiscal Year 2019-20,
the City’s General Fund tax revenues accounted for approximately $124.4 million or 69% of the total
General Fund revenue for Fiscal Year 2019-20. General Fund tax revenues are projected to account for
approximately $109.1 million or 60.9% of the City’s total General Fund revenue budget for Fiscal Year
2020-21.
Property Taxes. The County levies a tax of 1% on the assessed valuation of property within the
County. The City receives approximately a 9.4% share of this 1% levy for property located within the City
limits. In Fiscal Year 2018-19 property taxes generated approximately $47.3 million. In Fiscal Year 2019-
20 property taxes generated approximately $51.1 million. Property tax revenues are projected to generate
$52.0 million in Fiscal Year 2020-21. Property taxes are the General Fund’s largest revenue source. See
“Property Taxes” below for additional information relating to the property taxes and the assessed valuation
of property located in the City. Property Tax revenues for Fiscal Year 2019-20 and 2020-21 have not been
impacted by impacted by the COVID-19 Pandemic but the City projects that property tax collections in
future years could be impacted. For additional discussion, see “Property Taxes.”
Sales and Use Taxes. The City receives a 1% share of all taxable sales generated within its borders.
In Fiscal Year 2018-19 sales and use taxes generated approximately $36.5 million. In Fiscal Year 2019-20
sales and use taxes generated approximately $30.5 million. Sales and use taxes are projected to generate
$20.5 million in Fiscal Year 2020-21. Sales and use taxes are the General Fund’s second largest revenue
source. Sales and Use Tax revenues for Fiscal Years 2019-20 and 2020-21 have been and are likely to
continue to be significantly impacted by the COVID-19 Pandemic. For additional discussion, see “Sales
and Use Taxes.”
Transient Occupancy Taxes. The City imposes a transient occupancy tax on all hotels in the City.
The current rate is 15.5% of the rent charged. In Fiscal Year 2018-19 transient occupancy taxes generated
approximately $25.6 million. In Fiscal Year 2019-20 transient occupancy taxes generated approximately
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$18.5 million. Transient occupancy tax are projected to generate $14.9 million in Fiscal Year 2020-21.
Transient Occupancy Tax revenues for Fiscal Years 2019-20 and 2020-21 have been and are likely to
continue to be significantly impacted by the COVID-19 Pandemic. For additional discussion, see
“Transient Occupancy Tax.”
The City anticipates that it will experience declines in sales tax, transient occupancy tax, and other
general fund revenue sources in the coming months, or longer, as a result of the COVID-19 (coronavirus)
Pandemic. See the caption “RISK FACTORS—COVID-19 Pandemic.”
Property Taxes
Under Proposition 13, an amendment to the California Constitution adopted in 1978 that added
Article XIIIA of the California Constitution, the county assessor’s valuation of real property is established
as shown on the Fiscal Year 1975-76 tax bill, or, thereafter, as the appraised value of real property when
purchased, newly constructed, or a change in ownership has occurred. Assessed value of property may be
increased annually to reflect inflation at a rate not to exceed 2% per year or reduced to reflect a reduction in
the consumer price index or comparable data for the area under taxing jurisdiction or in the event of
declining property value caused by substantial damage, destruction, market forces or other factors. As a
result of these rules, real property that has been owned by the same taxpayer for many years can have an
assessed value that is much lower than that of similar properties more recently sold and may be lower than
its own market value. Likewise, changes in ownership of property and reassessment of such property to
market value commonly will lead to increases in aggregate assessed value even when the rate of inflation or
consumer price index would not permit the full 2% increase on any property that has not changed ownership.
Taxes are levied by the County for each fiscal year on taxable real and personal property which is
situated in the County as of the preceding January 1. Real property which changes ownership or is newly
constructed is revalued at the time the change in ownership occurs or the new construction is completed.
The current year property tax rate will be applied to the reassessment, and the taxes will then be adjusted
by a proration factor to reflect the portion of the remaining tax year for which taxes are due.
Local agencies and schools will share the growth of “base” sources from all tax rate areas in the
County. Each year’s growth allocation becomes part of each local agency’s allocation in the following year.
The availability of revenue from growth in the tax bases in such tax rate areas may be affected by the
existence of redevelopment agencies (including their successor agencies) which, under certain
circumstances, may be entitled to sources resulting from the increase in certain property values. State law
exempts $7,000 of the assessed valuation of an owner-occupied principal residence. This exemption does
not result in any loss of revenue to local agencies since an amount equivalent to the taxes that would have
been payable on such exempt values is supplemented by the State.
For assessment and tax collection purposes, property is classified either as “secured” or
“unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that
part of the assessment roll containing State-assessed property and property (real or personal) for which
there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the
taxes. All other property is “unsecured,” and is assessed on the “unsecured roll.” Secured property
assessed by the SBE is commonly identified for taxation purposes as “utility” property.
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of
each fiscal year, and if unpaid become delinquent on December 10 and April 10, respectively. A penalty of
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10% attaches immediately to any delinquent payment. Property on the secured roll, with respect to which
taxes are delinquent, becomes tax defaulted on or about June 30 of the fiscal year. Such property may
thereafter be redeemed by payment of delinquent taxes and the delinquency penalty, plus costs and
prepayment penalty of one and one-half percent per month to the time of prepayment. If taxes are unpaid
for a period of five years or more, the property is subject to sale by the county treasurer.
Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if
unpaid, on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid
at 5 p.m. on October 31, an additional penalty of one and one-half percent per month attaches to such taxes
beginning the second month after the delinquent date, and on the first day of each month until paid. A
county has four ways of collecting delinquent unsecured personal property taxes: (1) bringing a civil action
against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order
to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the
County Clerk and County Recorder’s office in order to obtain a lien on certain property of the taxpayer;
and (4) seizing and selling personal property, improvements, or possessory interests belonging or assessed
to the delinquent taxpayer.
Teeter Plan
The Board of Supervisors of the County has approved the implementation of the Alternative
Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), as
provided for in section 4701 et seq. of the California Revenue and Taxation Code. The Teeter Plan
guarantees distribution of 100% of the general taxes levied to the taxing entities within the County, with the
County retaining all penalties and interest penalties affixed upon delinquent properties and redemptions of
subsequent collections. Under the Teeter Plan, the County apportions secured property taxes on a cash
basis to local political subdivisions, including the City, for which the County acts as the tax-levying or tax-
collecting agency. At the conclusion of each fiscal year, the County distributes 100% of any taxes delinquent
as of June 30th to the respective taxing entities.
The County cash position is protected by a special fund, known as the “Tax Loss Reserve Fund,”
which accumulates moneys from interest and penalty collections. In each fiscal year, the Tax Loss Reserve
Fund is required to be funded to the amount of delinquent taxes plus one percent of that year’s tax levy.
Amounts exceeding the amount required to be maintained in the tax loss reserve fund may be credited to
the County’s general fund. Amounts required to be maintained in the tax loss reserve fund may be drawn
on to the extent of the amount of uncollected taxes credited to each agency in advance of receipt.
The Teeter Plan is to remain in effect unless the County Board orders its discontinuance or unless,
prior to the commencement of any fiscal year of the County (which commences on July 1), the County
Board receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the
participating revenue districts in the County, in which event the County Board is to order discontinuance
of the Teeter Plan effective at the commencement of the subsequent fiscal year. The County Board may
also, after holding a public hearing on the matter, discontinue the Teeter Plan with respect to any tax levying
agency or assessment levying agency in the County if the rate of secured tax delinquency in that agency in
any year exceeds 3% of the total of all taxes and assessments levied on the secured roll in that agency. If the
Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually
collected would be allocated to political subdivisions (including the City) for which the County acts as the
tax-levying or tax-collecting agency, but penalties and interest would be credited to the political
subdivisions.
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The City is not aware of any petitions for the discontinuance of the Teeter Plan in the County.
Assessed Value
The assessed valuation of property in the City is established by the County Assessor, except for
public utility property which is assessed by the SBE. Assessed valuations are reported at 100% of the “full
value” of the property, as defined in Article XIIIA of the California Constitution.
Certain classes of property, such as churches, colleges, not-for-profit hospitals and charitable
institutions, are exempt from property taxation and do not appear on the tax rolls. No reimbursement is
made by the State for such exemptions. Property taxes allocated to the City are collected by the County at
the same time and on the same tax rolls as are county and special district taxes. The valuation of secured
property by the County Assessor is established as of January 1 and is subsequently equalized in September
of each year.
The table below shows the assessed valuation of taxable property in the City for the most recent
fiscal years.
TABLE 5
CITY OF PALO ALTO
HISTORIC ASSESSED VALUATIONS
Fiscal Years 2011-12 to 2020-21
Total Assessed %
Fiscal Year Local Secured Utility Unsecured Valuation Change
2011-12 $20,967,297,668 $2,572,716 $1,516,837,280 $22,486,707,664 n/a
2012-13 22,334,464,145 2,572,716 1,355,969,707 23,693,006,568 5.36%
2013-14 24,039,563,713 2,572,716 1,493,921,967 25,536,058,396 7.78
2014-15 25,572,917,948 2,572,716 1,622,636,368 27,198,127,032 6.51
2015-16 27,618,260,149 2,572,716 1,794,920,762 29,415,753,627 8.15
2016-17 30,148,340,720 2,572,716 1,803,467,979 31,954,381,415 8.63
2017-18 32,509,995,986 2,572,716 1,922,170,300 34,434,739,002 7.76
2018-19 34,891,627,511 7,004,400 1,902,781,228 36,801,413,139 6.87
2019-20 37,331,775,663 7,004,400 1,946,679,944 39,285,460,007 6.75
2020-21 40,152,306,303 7,004,400 2,194,615,259 42,353,925,962 7.81
Source: California Municipal Statistics, Inc.
Assessments may be adjusted during the course of the year when real property changes ownership
or new construction is completed. Assessments may also be appealed by taxpayers seeking a reduction as a
result of economic and other factors beyond the City’s control, such as a general market decline in property
values, reclassification of property to a class exempt from taxation, whether by ownership or use (such as
exemptions for property owned by State and local agencies and property used for qualified educational,
hospital, charitable or religious purposes), or the complete or partial destruction of taxable property caused
by natural or manmade disaster, such as earthquake, flood, fire, toxic dumping, etc. When necessitated by
changes in assessed value in the course of a year, taxes are pro-rated for each portion of the tax year.
Appeals of Assessed Valuation; Blanket Reductions of Assessed Values. There are two basic types of
property tax assessment appeals provided for under State law. The first type of appeal, commonly referred
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to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately
subsequent to an instance of a change in ownership or completion of new construction. If the base year value
assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more
than 2% annually unless and until another change in ownership and/or additional new construction activity
occurs.
The second type of appeal, commonly referred to as a Proposition 8 appeal (which Proposition 8
was approved by the voters in 1978), can result if factors occur causing a decline in the market value of the
property to a level below the property’s then current taxable value (escalated base year value). Pursuant to
State law, a property owner may apply for a Proposition 8 reduction of the property tax assessment for such
owner’s property by filing a written application, in the form prescribed by the SBE, with the appropriate
county board of equalization or assessment appeals board. A property owner desiring a Proposition 8
reduction of the assessed value of such owner’s property in any one year must apply to the county
assessment appeals board (the “Appeals Board”). Following a review of the application by the county
assessor’s office, the county assessor may offer to the property owner the opportunity to stipulate to a
reduced assessment or may confirm the assessment. If no stipulation is agreed to, and the applicant elects
to pursue the appeal, the matter is brought before the Appeals Board (or, in some cases, a hearing examiner)
for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals
within two years of each appeal’s filing date. Any reduction in the assessment ultimately granted applies
only to the year for which application is made and during which the written application is filed. The assessed
value increases to its pre-reduction level (escalated to the inflation rate of no more than 2%) following the
year for which the reduction application is filed. However, the county assessor has the power to grant a
reduction not only for the year for which application was originally made, but also for the then current year
and any intervening years as well. In practice, such a reduced assessment may and often does remain in
effect beyond the year in which it is granted.
In addition to the above-described taxpayer appeals, county assessors may independently reduce
assessed valuations based on changes in the market value of property, or for other factors such as the
complete or partial destruction of taxable property caused by natural or man-made disasters such as
earthquakes, floods, fire, drought or toxic contamination pursuant to relevant provisions of the State
Constitution.
In addition, Article XIIIA of the State Constitution provides that the full cash value base of real
property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate,
not to exceed a 2% increase for any given year or may be reduced to reflect a reduction in the consumer price
index or comparable local data. This measure is computed on a calendar year basis. However, see “RISK
FACTORS—Split Roll Initiatives.”
Risk of Decline in Property Values; Fire; Earthquake Risk. Property values could be reduced by factors
beyond the City’s control, including fire, earthquake and a depressed real estate market due to general
economic conditions in the County, the region and the State.
Other possible causes for a reduction in assessed values include the complete or partial destruction
of taxable property caused by other natural or manmade disasters, such as flood, fire, drought, toxic
dumping, acts of terrorism, etc., or reclassification of property to a class exempt from taxation, whether by
ownership or use (such as exemptions for property owned by State and local agencies and property used for
qualified educational, hospital, charitable or religious purposes).
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No assurance can be given that property tax appeals and/or blanket reductions of assessed property
values will not significantly reduce the assessed valuation of property within the City in the future.
Assembly Bill 102. On June 27, 2017, the Governor of the State (the “Governor”) signed into law
Assembly Bill 102 (“AB 102”). AB 102 restructured the functions of the SBE and created two new separate
agencies: (i) the California Department of Tax and Fee Administration, and (ii) the Office of Tax Appeals.
Under AB 102, the California Department of Tax and Fee Administration took over programs previously
in the SBE Property Tax Department, such as the Tax Area Services Section, which is responsible for
maintaining all property tax-rate area maps and for maintaining special revenue district boundaries. Under
AB 102, the SBE continues to perform the duties assigned by the State Constitution related to property
taxes, however, effective January 1, 2018, the SBE will only hear appeals related to the programs that it
constitutionally administers and the Office of Tax Appeals will hear appeals on all other taxes and fee
matters, such as sales and use tax and other special taxes and fees. AB 102 obligates the Office of Tax
Appeals to adopt regulations as necessary to carry out its duties, powers, and responsibilities. No assurances
can be given as to the effect of such regulations on the appeals process or on the assessed valuation of
property within the City.
State-Assessed Property. Under the Constitution, the SBE assesses property of State-regulated
transportation and communications utilities, including railways, telephone and telegraph companies, and
companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess
pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed
by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school
districts, and taxed by the local county tax officials in the same manner as for locally assessed property.
Taxes on privately owned railway cars, however, are levied and collected directly by the Board of
Equalization. Property used in the generation of electricity by a company that does not also transmit or sell
that electricity is taxed locally instead of by the Board of Equalization. Thus, the reorganization of regulated
utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under
electric power deregulation in California, affects how those assets are assessed, and which local agencies
benefit from the property taxes derived. In general, the transfer of State-assessed property located in the
City to non-utility companies will increase the assessed value of property in the City, since the property’s
value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located
and taxed in the City to a State-assessed utility will have the opposite effect, generally reducing the assessed
value in the City as the value is shared among the other jurisdictions in the County. The City is unable to
predict future transfers of State-assessed property in the City and the County, the impact of such transfers
on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility
assets, the State’s methods of assessing utility property, or the method by which tax revenues of utility
property is allocated to local taxing agencies, including the City.
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Assessed Valuation by Land Use. The following table gives a distribution of taxable real property
located in the City by principal purpose for which the land is used, and the assessed valuation and number
of parcels for each use.
TABLE 6
CITY OF PALO ALTO
ASSESSED VALUATION AND PARCELS BY LAND USE
FY2020-21
Assessed % of No. of % of
Valuation (1) Total Parcels Total
Non-Residential:
Agricultural/Forest $ 37,697,860 0.09% 49 0.23%
Commercial 2,192,486,496 5.46 459 2.20
Professional/Office 6,506,771,625 16.21 560 2.68
Industrial/Research & Development 2,295,767,267 5.72 230 1.10
Recreational 77,145,645 0.19 16 0.08
Government/Social/Institutional 44,228,709 0.11 115 0.55
Miscellaneous 11,435,206 0 .03 18 0.09
Subtotal Non-Residential $11,165,532,808 27.81% 1,447 6.92%
Residential:
Single Family Residence $23,266,022,527 57.94% 15,096 72.20%
Condominium/Townhouse 2,863,724,800 7.13 3,151 15.07
Mobile Home 114,938 0.00 8 0.04
2-4 Residential Units 534,551,067 1.33 497 2.38
5+ Residential Units/Apartments 1,944,144,849 4.84 345 1.65
Subtotal Residential $28,608,558,181 71.25% 19,097 91.33%
Vacant Parcels $ 378,215,314 0.94% 365 1.75%
Total $40,152,306,303 100.00% 20,909 100.00%
Source: California Municipal Statistics, Inc.
(1) Total secured assessed valuation, excluding tax-exempt property.
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Assessed Valuation of Single-Family Homes. The following table focuses on single-family residential
properties only, which comprise approximately 57.94% of the assessed value of taxable property in the City.
TABLE 7
CITY OF PALO ALTO
PER PARCEL - ASSESSED VALUATION OF SINGLE-FAMILY HOMES
Average Median
No. of FY2020-21 Assessed Assessed
Parcels Assessed Valuation Valuation Valuation
Single Family Residential 15,024 $23,266,022,527 $1,548,590 $1,096,758
FY2020-21 No. of % of Cumulative Total % of Cumulative
Assessed Valuation Parcels(1) Total % of Total Valuation Total % of Total
$0 - $199,999 2,401 15.981% 15.981% $ 289,493,756 1.244% 1.244%
$200,000 - $399,999 1,372 9.132 25.113 402,823,903 1.731 2.976
$400,000 - $599,999 1,117 7.435 32.548 560,045,621 2.407 5.383
$600,000 - $799,999 1,138 7.575 40.122 793,709,723 3.411 8.794
$800,000 - $999,999 962 6.403 46.526 869,904,027 3.739 12.533
$1,000,000 - $1,199,999 1,001 6.663 53.188 1,099,232,998 4.725 17.258
$1,200,000 - $1,399,999 793 5.278 58.466 1,026,675,225 4.413 21.671
$1,400,000 - $1,599,999 761 5.065 63.532 1,138,027,326 4.891 26.562
$1,600,000 - $1,799,999 678 4.513 68.044 1,150,418,773 4.945 31.507
$1,800,000 - $1,999,999 580 3.860 71.905 1,100,604,837 4.731 36.237
$2,000,000 - $2,199,999 510 3.395 75.300 1,068,960,480 4.595 40.832
$2,200,000 - $2,399,999 449 2.989 78.288 1,032,794,527 4.439 45.271
$2,400,000 - $2,599,999 442 2.942 81.230 1,103,699,551 4.744 50.015
$2,600,000 - $2,799,999 431 2.869 84.099 1,159,776,947 4.985 54.999
$2,800,000 - $2,999,999 367 2.443 86.542 1,064,005,700 4.573 59.573
$3,000,000 - $3,199,999 304 2.023 88.565 941,314,632 4.046 63.618
$3,200,000 - $3,399,999 257 1.711 90.276 848,354,275 3.646 67.265
$3,400,000 - $3,599,999 189 1.258 91.534 662,063,838 2.846 70.110
$3,600,000 - $3,799,999 167 1.112 92.645 618,552,284 2.659 72.769
$3,800,000 - $3,999,999 146 .972 93.617 568,120,607 2.442 75.211
$4,000,000 and greater 959 6.383 100.000 5,767,443,497 24.789 100.000
Total 15,024 100.000% $23,266,022,527 100.000%
Source: California Municipal Statistics, Inc.
(1) Improved single-family residential parcels. Excludes condominiums and parcels with multiple family units.
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Principal Taxpayers. Based on Fiscal Year 2020-21 locally assessed taxable valuations, the top
twenty taxable property owners in the City represent approximately 21.5% of the total Fiscal Year 2020-21
taxable value.
The following table shows the 20 largest owners of taxable property in the City as determined by
secured assessed valuation in Fiscal Year 2020-21.
TABLE 8
CITY OF PALO ALTO
LARGEST LOCAL SECURED PROPERTY TAXPAYERS
FY2020-21
Assessed % of
Property Owner Primary Land Use Valuation Total(1)
1. Board of Trustees Leland Stanford Jr. University Various Land Uses $6,529,897,041 (2) 16.26%
2. Google Inc. Industrial/Office 303,696,738 0.76
3. ARE-San Francisco 80 LLC Industrial 291,000,000 0.72
4. SVF Sherman Palo Alto Corporation Office Building 143,575,200 0.36
5. ARE-San Francisco 69 LLC Office Building 141,494,400 0.35
6. 395 Page Mill LLC Office Building 123,082,728 0.31
7. 530 Lytton Owner LLC Office Building 119,850,000 0.30
8. Hohbach Realty Co. LP Apartments 110,392,238 0.27
9. SI 45 LLC Office Building 84,423,465 0.21
10. PA Hotel Holdings LLC Hotel 82,599,571 0.21
11. Gwin Property Inc. Office Building 81,713,015 0.20
12. AGB-Pact Owner LLC Office Building 81,506,055 0.20
13. Palo Alto Tech Center LLC Office Building 81,344,000 0.20
14. BVK Hamilton Ave. LLC Office Building 76,145,849 0.19
15. Ronald & Ann Williams Shopping Center 68,886,944 0.17
16. GPCA Owner LLC Apartments 67,764,907 0.17
17. Donald Ferrando Trustee Office Building 67,184,580 0.17
18. PPC Forest Towers LLC Apartments 62,197,928 0.15
19. 130 Lytton Owner LLC Office Building 59,407,486 0.15
20. 2747 Park PA LLC Office Building 57,083,616 0.14
Total Top 20 $8,633,245,761 21.50%
Source: California Municipal Statistics, Inc.
(1) 2020-21 Local Secured Assessed Valuation: $40,152,306,303.
(2) Net taxable value.
Tax Levies and Delinquencies. Beginning in 1978-79, Article XIIIA and its implementing legislation
shifted the function of property taxation primarily to the counties, except for levies to support prior-voted
debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities
within each county.
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The following table sets forth the secured tax charges and delinquencies for the most recent fiscal
years.
TABLE 9
CITY OF PALO ALTO
SECURED TAX CHARGES AND DELINQUENCIES
Fiscal Secured Amt. Del. % Del.
Year Tax Charge (1) June 30 June 30
2010-11 $ 3,443,434.30 $ 29,254.95 0.85%
2011-12 3,208,610.90 21,029.74 0.66
2012-13 Not available
2013-14 4,304,606.92 33,648.91 0.78
2014-15 4,122,948.88 44,016.83 1.07
2015-16 4,112,476.21 67,220.43 1.63
2016-17 3,895,321.53 47,443.37 1.22
2017-18 3,806,759.16 11,434.14 0.30
2018-19 3,844,666.46 26,401.65 0.69
2019-20 3,972,942.77 15,960.60 0.40
Source: California Municipal Statistics, Inc.
(1) 1% General Fund apportionment
Potential Impacts of COVID-19 (Coronavirus) Pandemic on Property Tax Revenues. In response to the
COVID-19 outbreak described under the caption “RISK FACTORS—COVID-19 Pandemic,” the
Governor of California signed Executive Order N-61-20 (“Order N-61-20”). Under Order N-61- 20,
certain provisions of the State Revenue and Taxation Code are suspended until May 6, 2021 to the extent
said provisions require a tax collector to impose penalties, costs or interest for the failure to pay secured or
unsecured property taxes, or to pay a supplemental bill, before the date that such taxes become delinquent.
Said penalties, costs and interest shall be cancelled under the conditions provided for in Order N-61-20,
including if the property is residential real property occupied by the taxpayer or the real property qualifies
as a small business under certain State laws, the taxes were not delinquent prior to March 4, 2020, the
taxpayer files a claim for relief with the tax collector, and the taxpayer demonstrates economic hardship or
other circumstances that have arisen due to the COVID-19 pandemic or due to a local, state, or federal
governmental response to COVID-19. The impacts the waiver of penalties, costs or interest on delinquent
property taxes under the circumstances described in Order N-61-20 have on property tax revenues are
unknown at this time.
The City cannot predict whether the County or the state of California will further relax their
positions with respect to late payment penalties, which could result in significant property tax
delinquencies. The waiver of late payment penalties and resulting property tax delinquencies could have a
material adverse impact on the timely payment of property taxes with respect to property in the City. The
COVID-19 outbreak may also result in increased property tax assessment appeals which could reduce
property tax revenue growth in future years. See the caption “RISK FACTORS— COVID-19
(Coronavirus) Pandemic.”
Sales and Use Taxes
A sales tax is imposed on the privilege of consuming personal property in California. California does
not tax services. The tax rate is established by the State Legislature, and is presently 7.25%, statewide (of
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which 1% is paid to the City). In addition, many of California’s cities, counties, districts and communities
have special taxing jurisdiction to impose a transaction (sales) or use tax. These so-called district taxes
increase the tax rate in a particular area by adding the local option tax to the statewide tax. While more than
one district tax may be in effect for a particular location, California counties, municipalities, and districts
are allowed to increase the sales tax in specific jurisdictions up to a total of 10.25%.
TABLE 10
CITY OF PALO ALTO
CURRENT SALES AND USE TAX RATES
Component Tax Rate
State General Fund 5.75%
State Local Public Safety Fund 0.50
City General Fund 1.00
County Transportation 1.75
Total 9.00%
Source: City of Palo Alto
The State’s Department of Tax and Fee Administration actual administrative costs with respect to
the portion of sales taxes allocable to the City are deducted before distribution and are determined on a
quarterly basis.
Effects of COVID-19 Pandemic on Sales Tax Collections. The City anticipates that sales tax revenues
will be immediately impacted by the COVID-19 Pandemic. “Stay at home” orders issued by State and
County authorities have impacted consumers’ ability (and desire) to go out shopping or to dine out. Similar
orders closing bars and prohibiting “dine in” service negatively impact local restaurants. The City’s sales
tax receipts for Fiscal Years 2019-20 and 2020-21 have been impacted and may continue to decline from
historical levels. The City estimates that sales tax collections for Fiscal Year 2020-21 could see a reduction
of 31% from Fiscal Year 2018-19 collections, the last full year prior to the COVID-19 Pandemic.
On March 30, 2020, the Governor signed an executive order allowing the California Department of
Tax and Fee Administration to offer a 90-day extension for sales, use and transactions tax returns and tax
payment for all businesses filing a return for less than $1 million tax liability. In addition, on April 2, 2020,
the Governor announced a one-year sales tax deferral for small businesses limited to $50,000. See the
caption “RISK FACTORS—COVID-19 Pandemic.”
Transient Occupancy Taxes
The City levies a 15.5% tax on hotels and lodging establishments. The 15.5% transient occupancy
tax level became effective on April 1, 2019 following the approval of an increase by 68% of the voters of the
City voting in the November 6, 2018 election. Prior to April 1, 2019 the transient occupancy tax rate was
14% following an adjustment in 2014 when it was raised from 12%.
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The City’s historical transient occupancy tax revenue since fiscal year 2010-11 is shown in the
following table.
TABLE 11
CITY OF PALO ALTO
HISTORICAL TRANSIENT OCCUPANCY TAX REVENUES
(Dollars in Thousands)
Fiscal Transient Occupancy
Year Tax Revenues
2010-11 $ 8,082
2011-12 9,664
2012-13 10,794
2013-14 12,255
2014-15 16,699
2015-16 22,366
2016-17 23,477
2017-18 24,937
2018-19 25,649
2019-20 18,553
2020-21(1) 14,900
Source: Palo Alto Finance Department
(1) Budgeted Projection, for discussion, see Effects of COVID-19 Pandemic on Transient Occupancy Tax Revenues.
Effects of COVID-19 Pandemic on Transient Occupancy Tax Revenues. As a result of closures and
reduced travel caused by the COVID-19 Pandemic, the City’s collections of transient occupancy tax
revenues was down substantially in fiscal year 2019-20 as compared to historical levels. Unaudited actual
collections for fiscal year 2019-20 collections are down approximately $10 million (35%) below budgeted
projections from the City’s adopted 2019-20 budget. In its fiscal year 2020-21 budget the City currently
projects transient occupancy tax collections for fiscal year 2020-21 to further decline to $14.9 million.
Hotels and lodging establishments are permitted to open in every tier of the State’s reopening
process with guidelines for modifications decreasing as a County progresses to improved tiers. The City
cannot project how and when Santa Clara County will progress through the tiers of the State’s reopening
process and when the demand for hotels and lodging in the City will return to historical levels.
For additional information about the status of the COVID-19 Pandemic and the state’s reopening
process, see “RISK FACTORS—COVID-19 Pandemic.”
Other Sources of General Fund Revenues
In addition, the City receives the following General Fund revenues:
Licenses and Permits. The City charges certain permits, licenses and fees for the cost recovery of
providing current planning, building inspection, recreation and other municipal services.
Charges for Services. The City charges various fees and charges for services provided, including
development and inspection fees, paramedic fees, charges for public works, police, fire, library and parks
and recreation services. By law, the City may not charge more than the cost of providing the service.
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Fines, Forfeitures and Penalties. These revenues include parking citations and other fines for
municipal code violations.
The following table illustrates other revenue sources for the four most recent fiscal years and the
budgeted data for the current fiscal year:
TABLE 12
CITY OF PALO ALTO
OTHER REVENUE SOURCES
Fiscal Year Ending June 30,
2017 2018 2019 2020 2021
Audited Audited Audited Audited Budgeted
Charges for Services $ 22,267 $ 26,824 $ 27,346 $ 24,127 $ 25,417
Rental Income 15,692 15,896 16,338 15,964 16,022
From Other Agencies 2,758 3,205 2,863 3,783 551
Permits and Licenses 7,437 8,560 8,410 7,467 8,336
Investment Earnings(1) (1,193) (828) 5,672 4,037 1,100
Other Income 760 776 1,753 587 14,563
Total Other Revenues 47,721 54,433 62,382 55,965 65,989
Source: City of Palo Alto Finance Department.
(1) Net of actual interest earnings and unrealized (paper) gain and loss.
Impact of COVID-19 Pandemic on Other Revenue Sources. Fiscal Years 2019-20 and 2020-21
revenues from charges for services, licenses and permits and fines and forfeitures may be delayed or reduced
as compared to prior years. The City has closed or reduced operations at many of its Park & Recreation and
Library facilities and has cancelled some of its programs in fiscal years 2019-20 and 2020-21. The City plans
to slowly re-instate these programs and classes as conditions related to the COVID-19 Pandemic improve,
which will result in reduced revenue in charges for services compared to historical levels. Tenants not
paying their monthly lease and rent payments as a result of COVID-19 Pandemic have also negatively
affected City revenues. Planning and building activities are still taking place in the City on reduced scale
compared to the level of prior years but the City anticipates that revenues generated for these activities will
recover in Fiscal Year 2020-21. See also “General Fund Budget,” herein.
Reliance on State Budget
The City does not rely on the State for a material amount of revenues.
The economic uncertainty caused by the COVID-19 outbreak will significantly affect the State’s
fiscal outlook, including lower capital gains-related tax revenue due to the volatility in the financial markets,
the likelihood that a recession is forthcoming due to pullback in activity across wide swaths of the economy,
and substantially increased expenditures related to fighting the COVID-19 Pandemic. The City cannot
predict the short or long-term impacts that the COVID-19 Pandemic will have on global, State-wide and
local economies, which may impact City operations and local property values.
There can be no assurance that future State budget difficulties will not adversely affect the City’s
revenues or its ability to pay debt service on the Certificates. See “STATE BUDGET INFORMATION.”
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OTHER FINANCIAL INFORMATION
Labor Relations
Most full-time City employees are represented by two labor union associations, the principal one
being the SEIU, which represents approximately 50% of all City employees. Approximately 80% of all
permanent City employees are covered by negotiated agreements with management, confidential, and city
attorney employees being unrepresented. The City has never had an employee work stoppage. Negotiated
agreements have the following expiration dates:
TABLE 13
CITY OF PALO ALTO
NEGOTIATED EMPLOYEE AGREEMENTS
Contract Number of
Bargaining Unit Expiration Date Employees
International Association of Firefighters (IAFF) June 30, 2022 88
Fire Chiefs’ Association (FCA) June 30, 2022 4
Palo Alto Peace Officers Association (PAPOA) June 30, 2022 83
Palo Alto Police Managers Association (PAPMA) June 30, 2022 7
Service Employees International Union (SEIU) December 31, 2021 573
Service Employees International Union Hourly Unit (SEIU-H) June 30, 2021 65
Utilities Management Professional Association of Palo Alto (UMPAPA) June 30, 2020 49
Management and Professional Personnel and Council Appointees Compensation Plan June 30, 2021 220
Limited Hourly Employees Compensation Plan June 30, 2021 40
Total 1,147
Source: City of Palo Alto
For a discussion of anticipated staffing changes during Fiscal Year 2020-21, see “General Fund
Budget” herein.
Risk Management
Coverage. The City provides dental coverage to employees through a City plan, which is
administered by a third-party service agent. The City is self-insured for dental claims.
The City has a workers’ compensation insurance policy with coverage up to the statutory limit set
by the State. The City retains the risk for the first $750,000 in losses for each accident and employee under
this policy.
The City also has public employee dishonesty insurance with a $5,000 deductible and coverage up to $1.0
million per loss. The Director of Administrative Services and City Manager each have coverage up to $4.0
million per loss.
The City’s property, boiler, and machinery insurance policy has various deductibles and coverage
based on the type of property.
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The City is a member of the Authority for California Cities Excess Liability (“ACCEL”), which
provides excess general liability insurance coverage, including auto liability, up to $55 million per
occurrence. The City retains the risk for the first $1.0 million in losses for each occurrence under this policy.
ACCEL was established for the purpose of creating a risk management pool for central California
municipalities. ACCEL is governed by a Board of Directors consisting of representatives of its member
cities. The board controls the operations of ACCEL, including selection of claims management, general
administration and approval of the annual budget.
The City’s deposits with ACCEL equal the ratio of the City’s payroll to the total payroll of all
entities. Actual surpluses or losses are shared according to a formula developed from overall loss costs and
spread to member entities on a percentage basis after a retrospective rating.
During the year ended June 30, 2020, the City paid $1.4 million to ACCEL for current year
coverage.
Claims Liability. The City provides for the uninsured portion of claims and judgments in the
General Liabilities insurance program funds. Claims and judgments, including a provision for claims
incurred but not reported, and claim adjustment expenses are recorded when a loss is deemed probable of
assertion and the amount of the loss is reasonably determinable. As discussed above, the City has coverage
for such claims, but it has retained the risk for the deductible or uninsured portion of these claims.
The City’s liability for uninsured claims is limited to dental, general liability, and workers’
compensation claims, as discussed above. Dental liability is based on a percentage of current year actual
expense.
The City has not incurred a claim that has exceeded its insurance coverage limits in any of the last
three years, however there has been a significant reduction in insurance coverage.. California
municipalities’ liability claim costs have significantly increased all cities’ costs, and have caused insurance
underwriters to pull back from the California insurance market. California is faced with continuing negative
claims trends driven by (1) dangerous condition claims involving significant medical damages, (2) changing
laws involving sexual misconduct, and (3) costly law enforcement liability claims. Settlements and verdicts
for these losses have rapidly inflated in cost resulting in the reduction of insurance for California public
entities.
For additional information about the City’s Risk Management, see APPENDIX B—
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR
ENDED JUNE 30, 2020, Note 14.
Joint Ventures
The City participates in joint ventures through Joint Powers Authorities (“JPAs”) established
under the Joint Exercise of Powers Act of the State of California. As separate legal entities, these JPAs
exercise full powers and authorities within the scope of the related Joint Powers Agreement, including the
preparation of annual budgets, accountability for all funds, the power to make and execute contracts and the
right to sue and be sued. Obligations and liabilities of the JPAs, including the long-term debt in which the
City participates in repayment, are not obligations and liabilities of the City, and are not reported on the
City’s financial statements.
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Each JPA is governed by a board consisting of representatives from each member agency. Each
board controls the operations of its respective JPA, including selection of management and approval of
operating budgets, independent of any influence by member agencies beyond their representation on the
Board.
Northern California Power Agency. The City is a member of Northern California Power Agency
(“NCPA”), a joint powers agency which operates under a joint powers agreement among fifteen public
agencies. The purpose of NCPA is to use the combined strength of its members to purchase, generate, sell
and interchange electric energy and capacity through the acquisition and use of electrical generation and
transmission facilities. Each agency member has agreed to fund a pro rata share of certain assessments by
NCPA and enter into take-or-pay power supply contracts with NCPA. While NCPA is governed by its
members, none of its obligations are those of its members unless expressly assumed by them.
During the year ended June 30, 2020, the City incurred expenses totaling $84.9 million for
purchased power and assessments earned by NCPA.
The City’s interest in NCPA projects and reserves, as computed by NCPA, was $8.0 million at
June 30, 2020. This amount represents the City’s portion of funds, which resulted from the settlement with
third parties of issues with financial consequences and reconciliations of several prior years’ budgets for
programs. It is recognized that all the funds credited to the City are linked to the collection of revenue from
the City’s ratepayers, or to the settlement of disputes relating to electric power supply and that the money
was collected from the City’s ratepayers to pay power bills. Additionally, the NCPA Commission identified
and approved the funding of specific reserves for working capital, accumulated employees’ post-retirement
medical benefits, and billed property taxes for the geothermal project. The Commission also identified a
number of contingent liabilities that may or may not be realized, the cost of which in most cases is difficult
to estimate at this time. One such contingent liability is the steam field depletion, which will require funding
to cover debt service and operational costs in excess of the expected value of the electric power. The General
Operating Reserve is intended to minimize the number and amount of individual reserves needed for each
project, protect NCPA’s financial condition and maintain its credit worthiness. There are no funds on
deposit with NCPA as a reserve against these contingencies identified by NCPA.
Members of NCPA may participate in an individual project of NCPA without obligation for any
other project. Member assessments collected for one project may not be used to finance other projects of
NCPA without the member’s permission.
Geothermal Projects. A purchased power agreement with NCPA obligated the City for 6.2
percent and 6.2 percent, respectively, of the operating costs and debt service of the two NCPA 110-
megawatt geothermal steam-powered generating plants, Project Number 2 and Project Number 3.
The City’s participation in the Geothermal Project was sold to Turlock Irrigation District
in October 1984. Accordingly, the City is liable for payment of outstanding geothermal related debt
only in the event that Turlock fails to make specified payments. Total outstanding debt of the
NCPA Geothermal Project at June 30, 2020 is $127.7 million. The City’s participation in this
project was 6.2 percent, or $7.9 million.
Calaveras Hydroelectric Project. In July 1981, NCPA agreed with Calaveras County Water
District to purchase the output of the North Fork Stanislaus River Hydroelectric Development
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Project and to finance its construction. Debt service payments to NCPA began in February 1990
when the project was declared substantially complete and power was delivered to the participants.
Under its power purchase agreement with NCPA, the City is obligated to pay 22.9 percent of this
Project’s debt service and operating costs. At June 30, 2019, the book value of this Project’s plant,
equipment and other assets was $333 million, while its long-term debt totaled $259 million and
other liabilities totaled $67.5 million. The City’s share of the Project’s long-term debt amounted to
$64.0 million at that date.
Geothermal Public Power Line. In 1983, NCPA, the Sacramento Municipal Utility District,
the City of Santa Clara and the Modesto Irrigation District (Joint Owners) initiated studies for a
Geothermal Public Power Line (“GPPL”), which would carry power generated at several existing
and planned geothermal plants in The Geysers area to a location where the Joint Owners could
receive it for transmission to their load centers. NCPA has an 18.5 percent share of this Project and
the City has an 11.1 percent participation in NCPA’s share. In 1989, the development of the
proposed Geothermal Public Power Line was discontinued because NCPA was able to contract for
sufficient transmission capacity to meet its needs in The Geysers.
However, because the project financing provided funding for an ownership interest in a
Pacific Gas & Electric (PG&E) transmission line, a central dispatch facility and a performance bond
pursuant to the Interconnection Agreement with PG&E, as well as an ownership interest in the
proposed GPPL, NCPA issued $16 million in long-term, fixed-rate revenue bonds in November
1989 to defease the remaining variable rate refunding bonds used to refinance this project. The City
is obligated to pay its 11.1 percent share of the related debt service, but debt service costs are
covered through NCPA billing mechanisms that allocate the costs to members based on use of the
facilities and services.
At June 30, 2020, the book value of this Project’s plant, equipment and other assets was
zero, and its long- term debt totaled zero.
Transmission Agency of Northern California (“TANC”). The City is a member of a joint powers
agreement with 14 other entities in Transmission Agency of Northern California. TANC’s purpose is to
provide electrical transmission or other facilities for the use of its members. While governed by its members,
none of TANC’s obligations are those of its members unless expressly assumed by them. The City was
obligated to pay 4 percent of TANC’s debt-service and operating costs. However, a Resolution was
approved authorizing the execution of a Long-Term Layoff Agreement between the Cities of Palo Alto and
Roseville. These two agencies desired to “layoff” their entitlement rights to the California-Oregon
Transmission Project (and Roseville’s South of Tesla entitlement rights) for a period of 15 years to those
acquiring members (Sacramento Municipal Utility District, Turlock Irrigation District, and Modesto
Irrigation District). The effective date of this Agreement was February 1, 2009. As a result, the City is not
obligated to pay TANC’s debt-service and operating costs starting February 1, 2009, for a period of fifteen
years.
Bay Area Water Supply and Conservation Agency (“BAWSCA”). The City is a member of a regional
water district with 26 other entities, the Bay Area Water Supply and Conservation Agency. BAWSCA was
created on May 27, 2003 to represent the interests of 24 cities and water districts and two private utilities
in Alameda, Santa Clara and San Mateo counties that purchase water on a wholesale basis from the San
Francisco regional water system. It has the power to issue debt and plan, finance, construct, and operate
water supply, transmission, reclamation, and conservation projects on behalf of its members.
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In 2013 the City participated in a debt issuance by BAWSCA. The debt was issued to repay certain
long- term costs associated with the San Francisco Public Utilities Commission water supply contract.
During the 2019-20 fiscal year, the City paid its share of the annual debt service of $1.9 million, which will
vary based on annual water purchases of the City compared to other BAWSCA agencies.
Employee Retirement Plans
The information set forth below regarding the California Public Employees’ Retirement System
(“CalPERS”) program, other than the information provided by the City regarding its annual contributions thereto,
has been obtained from publicly available sources which are believed to be reliable but are not guaranteed as to
accuracy or completeness, and should not to be construed as a representation by either the City or the Underwriter.
Plan Description. All qualified permanent and probationary employees are eligible to participate in
the City’s Safety Plan (police and fire) and Miscellaneous Plan (all others), agent multiple employer defined
benefit pension plans administered by the CalPERS, which acts as a common investment and administrative
agent for its participating member employers. Benefit provisions under the Plans are established by State
statute and City resolution. CalPERS issues publicly available reports that include a full description of the
pension plans regarding benefit provisions, assumptions and membership information that can be found on
the CalPERS website.
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 1959 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.
Employees Covered. At June 30, 2020, the following employees were covered by the benefit terms
for each Plan.
TABLE 14
CITY OF PALO ALTO
COVERED EMPLOYEES
Miscellaneous Safety
Inactive employees or beneficiaries currently receiving benefits 1,194 430
Inactive employees entitled to but not yet receiving benefits 826 109
Active employees 773 169
Total 2,793 708
Source: City of Palo Alto 2019-20 CAFR.
Contributions. Section 20814(c) of the California Public Employees’ Retirement Law 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. Funding contributions for both
Plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined
rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year,
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with an additional amount to finance any unfunded accrued liability. The City is required to contribute the
difference between the actuarially determined rate and the contribution rate of employees.
The City’s contributions to its Miscellaneous and Safety Plans for the past four years is summarized
in the following table.
TABLE 15
CITY OF PALO ALTO
HISTORICAL PENSION CONTRIBUTIONS
(Dollars in Thousands)
Fiscal Year
Ending
June 30,
Miscellaneous
Plan
Safety
Plans
Total
Contributions
2017 $18,840 $ 9,403 $28,243
2018 20,638 10,220 30,858
2019 23,342 11,030 34,372
2020 25,423 12,370 37,793
Source: City of Palo Alto 2017-20 CAFRs.
Changes in the Net Pension Liability. As of June 30, 2020, the City reported a net pension liability for
its proportionate share of the net pension liability of approximately $275,164,000 for the Miscellaneous
Plan and $167,789,000 for the Safety Plan.
The City’s net pension liability for the Plans is measured as the proportionate share of the net
pension liabilities. The net pension liabilities of the Plans are measured as of June 30, 2019, and the total
pension liabilities for the Plans used to calculate the net pension liabilities were determined by an actuarial
valuation as of June 30, 2018, rolled forward to June 30, 2019, using standard update procedures. The City’s
proportion of the net pension liabilities was based on a projection of the City’s long-term share of
contributions to the pension plans relative to the projected contributions of all participating employers,
actuarially determined.
Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions. For the year ended
June 30, 2020, the City recognized pension expense of $46.9 million for the Miscellaneous Plan and $30.5
million for the Safety Plans, respectively. At June 30, 2020, the City reported deferred outflows of resources
and deferred inflows of resources related to pensions from the following sources:
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TABLE 16
CITY OF PALO ALTO
DEFERRED OUTFLOWS/INFLOWS OF RESOURCES
FISCAL YEAR 2019-20
(Dollars in Thousands)
Miscellaneous Safety
Deferred Deferred Deferred Deferred
Outflows Inflows Outflows Inflows
of Resources of Resources of Resources of Resources
Contributions subsequent to measurement date $ 28,872 $ - $ 14,260 $ -
Diff. btw. actual and expected experience 5,505 - 5,785 -
Changes in assumptions - 1,891 - 393
Diff. btw. projected and actual earnings on investment - 4,014 - 1,835
Total 34,377 5,905 20,045 2,228
Source: City of Palo Alto 2019-20 CAFR.
For information concerning the City’s pension obligations, including descriptions of the actuarial
methods and assumptions, and an explanation of the discount rate used, please see APPENDIX B—
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR
ENDED JUNE 30, 2020, Note 11.
Funded Status. The following table sets forth a summary of the funding progress for the City’s
Miscellaneous and Safety Plans for the four most recent actuarial valuation dates.
TABLE 17
CITY OF PALO ALTO
HISTORICAL PENSION FUNDING PROGRESS
(Dollars in Thousands)
Date
June 30,
Accrued
Liability
Market
Value
of Assets
Unfunded
Liability
Funded
Ratio
Annual
Covered
Payroll
Miscellaneous Plan
2017 $714,019 $469,782 $244,237 65.8% $73,722
2018 780,729 512,924 267,805 65.7% 77,606
2019 811,330 546,669 264,661 67.4% 80,634
2020 849,004 573,840 275,164 67.6% 82,573
Safety Plans
2017 $383,556 $250,474 $133,082 65.3% $21,822
2018 415,775 268,468 147,307 64.6% 21,906
2019 439,408 280,173 159,235 63.8% 24,131
2020 456,817 289,028 167,789 63.3% 24,263
Source: City of Palo Alto 2019-20 CAFR.
Coronavirus Impacts on Pension Obligations. Recent investment losses in the CalPERS portfolio as a
result of the general market downturn caused by the COVID-19 Pandemic will likely result in increases in
the City’s required contributions in future years. The City cannot predict the level of such increases, if any.
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As of June 30, 2020, CalPERS estimated that the rate of return for its investment portfolio for the
fiscal year was 4.7%. Investment returns below 7% create additional liabilities for public agencies, including
the City. Any increase in the unfunded actuarial liability created by the Fiscal Year 2019-20 rate of return
will begin affecting the City’s UAL costs starting in Fiscal Year 2021-22. Pursuant to CalPERS
methodology, the amounts payable will increase annually during the first five years and then level out for
the remaining 15 years over which to amortize investment losses.
Actions Taken by CalPERS. At its April 17, 2013, meeting, CalPERS’ Board of Administration (the
“Board of Administration”) approved a recommendation to change the CalPERS amortization and
smoothing policies. Prior to this change, CalPERS employed an amortization and smoothing policy that
spread investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-
year period. As a result, CalPERS now employs an amortization and smoothing policy that will pay for all
gains and losses over a 20-year period with a five-year ramp-up, and five-year ramp-down, period. The new
amortization and smoothing policy was used for the first time in the June 30, 2013 actuarial valuations in
setting employer contribution rates for Fiscal Year 2015-16.
On February 18, 2014, the Board of Administration approved new demographic actuarial
assumptions based on a 2013 study of recent experience. The largest impact, applying to all benefit groups,
is a new 20-year mortality projection reflecting longer life expectancies and that longevity will continue to
increase. Because retirement benefits will be paid out for more years, the cost of those benefits will increase
as a result. The Board of Administration also assumed earlier retirements for Police 3%@50, Fire 3%@55,
and Miscellaneous 2.7%@55 and 3%@60, which will increase costs for those groups. As a result of these
changes, rates increased beginning in Fiscal Year 2016-17 (based on the June 30, 2014 valuation) with full
impact in Fiscal Year 2020-21.
On November 18, 2015, the Board of Administration adopted a funding risk mitigation policy
intended to incrementally lower its discount rate – its assumed rate of investment return – in years of good
investment returns, help pay down the pension fund’s unfunded liability, and provide greater predictability
and less volatility in contribution rates for employers. The policy establishes a mechanism to reduce the
discount rate by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years
when investment returns outperform the existing discount rate, which at that time was 7.5%, by at least four
percentage points. CalPERS staff modeling anticipates the policy will result in a lowering of the discount
rate to 6.5% in about 21 years, improve funding levels gradually over time and cut risk in the pension system
by lowering the volatility of investment returns. More information about the funding risk mitigation policy
can be accessed through CalPERS’ web site at the following website address:
https://www.calpers.ca.gov/page/newsroom/calpers-news/2015/adopts-funding-risk-mitigation-policy.
The reference to this Internet website is provided for reference and convenience only. The information contained
within the website may not be current, has not been reviewed by the City or the Underwriter and is not incorporated
in this Official Statement by reference.
On December 21, 2016, the Board of Administration voted to lower its discount rate from the
current 7.5% to 7.0% over the next three years according to the following schedule.
Fiscal Year Discount Rate
2017-18 7.375%
2018-19 7.250
2019-20 7.000
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For public agencies like the City, the 7.0% discount rate took effect on July 1, 2019. Lowering the
discount rate means employers that contract with CalPERS to administer their pension plans will see
increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1,
2013, under the Public Employees’ Pension Reform Act will also see their contribution rates rise. The three-
year reduction of the discount rate will result in average employer rate increases of about 1 percent to 3
percent of normal cost as a percent of payroll for most miscellaneous retirement plans, and a 2 percent to 5
percent increase for most safety plans. Additionally, many CalPERS employers will see a 30 to 40 percent
increase in their current unfunded accrued liability payments. These payments are made to amortize
unfunded liabilities over 20 years to bring the pension fund to a fully funded status over the long-term.
CalPERS Amortization Period Reform. On February 13, 2018 the CalPERS Board voted to shorten
the period over which actuarial gains and losses are amortized from 30 years to 20 years for new pension
liabilities. The new 20-year amortization period begins with new gains or losses accrued starting with the
June 30, 2019 actuarial valuations. The first payments on the new 20-year amortization schedule will take
place in 2021.
A shorter amortization period will increase annual Unfunded Accrued Liability (“UAL”)
contributions for cities that participate in CalPERS so long as CalPERS remains underfunded. The
shortened amortization period will also lead to reductions of periods of negative amortization of the UAL,
interest cost savings, and faster recoveries of funded status after market downturns.
Cities that participate in CalPERS will also see additional volatility in their future UAL
contributions due to market performance as gains or losses will be amortized faster under the new
amortization period.
The City cannot currently estimate the impact the shorter amortization period will have on its
required contributions for its Miscellaneous and Safety Plans.
Defined Contribution Pension Plan
For all of its part-time employees who are not eligible for coverage under the CalPERS pension
plan, the City provides pension benefits through a defined contribution plan. In a defined contribution plan,
benefits depend solely on amounts contributed to the plan plus investment earnings. The plan is
administered as part of the City’s 457 plan.
The laws governing deferred compensation plan assets require plan assets to be held by a Trust for
the exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are
not the City’s property and are not subject to City control, they have been excluded from these financial
statements.
Other Post-Employments Benefits
Plan Description. In addition to providing pension benefits, the City participates in the California
Public Employees’ Medical and Health Care Act program to provide certain health care benefits for retired
employees. The City’s Other Post-Employment Benefit plan is an agent multiple-employer defined benefit
plan. Employees who retire directly from the City are eligible for retiree health benefits if they retire on or
after age 50 with 5 years of service and are receiving a monthly pension from CalPERS.
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In fiscal year 2007-08 the City elected to participate in an irrevocable trust to provide a funding
mechanism for retiree health benefits. The trust, California Employers’ Retirees Benefit Trust
(“CERBT”), is administrated by CalPERS and managed by a separately appointed board, which is not
under control of the City Council. This Trust is not considered a component unit of the City.
The City’s OPEB funding policy is to prefund these benefits by accumulating assets in the CERBT
pursuant to City Council Resolution. For the year ended June 30, 2020, the City’s contributions totaled
$16.5 million.
Employees Covered. Membership of the plan consisted of 985 retirees and beneficiaries receiving
benefits, 45 inactive members entitled to but not yet receiving benefits and 859 active plan members at June
30, 2019, the date of the latest actuarial valuation.
Funding Policy. The contribution requirements for plan members and the City are established by an
MOU as negotiated by each group or bargaining unit. The required contribution is based on projected pay-
as-you-go financing requirements.
Changes in Net OPEB Liability. The following table shows the changes in the City’s net OPEB
obligation to the Plan:
TABLE 18
CITY OF PALO ALTO
CHANGE IN NET OPEB LIABILITY
Fiscal Year 2019-20
(Dollars in Thousands)
Service cost $ 6,622
Interest on OPEB liability 17,292
Employer contributions (15,997)
Investment income (6,852)
Changes in benefit terms 972
Changes in assumptions 7,057
Difference btw. actual and expected exp. (29,907)
Administrative expenses 23
Net changes (20,790)
Net OPEB obligation, beginning of the year 147,820
Net OPEB obligation, end of the year 127,030
Source: City of Palo Alto 2019-20 CAFR.
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, investment returns, 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.
For information concerning the City’s OPEB obligations, including descriptions of the actuarial
methods and assumptions, please see APPENDIX B—COMPREHENSIVE ANNUAL FINANCIAL
REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2020, Note 12.
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Debt Obligations
Short-Term General Fund-Secured Obligations. The City has no outstanding short-term obligations
secured by its general fund.
Long-Term General Fund-Secured Obligations. On June 5, 2018, the City caused the execution and
delivery of its $8,970,000 City of Palo Alto 2018 Certificates of Participation (Capital Improvement Project;
2002B Refinancing) (Federally Taxable) (Green Bonds) (the “2018 Certificates”) to (a) finance the costs
of the renovation of the Palo Alto Municipal Golf Course, and (b) prepay, on a current basis, the outstanding
City of Palo Alto Certificates of Participation (Civic Center Refinancing and Downtown Parking
Improvements Project), Series 2002B (Taxable). Principal payments are due annually on November 1 and
interest payments are due semi-annually on May 1 and November 1 at an average rate of 4.10 percent. The
City’s average annual payments with respect to the certificates is $530,000 and the certificates mature on
November 1, 2047.
On March 21, 2019, the City caused the execution and delivery of its $26,785,000 City of Palo Alto
2019 Certificates of Participation, Series A (California Avenue Parking Garage) (Tax-Exempt) (the “2019A
Certificates”), and its $10,585,000 2019 Certificates of Participation, Series B (California Avenue Parking
Garage) (Federally Taxable) (the “2019B Certificates”), to (a) finance the costs of the construction of a
636 space parking garage Principal payments are due annually on November 1 and interest payments are
due semi-annually on May 1 and November 1 at an average rate of 4.76 percent. The City’s average annual
payments with respect to the certificates is $2,384,515.88 and the certificates mature on November 1, 2048.
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The following tables shows the City’s total general fund-secured debt service obligations, including
the 2018 Certificates, the 2019A Certificates and the 2019B Certificates.
TABLE 19
CITY OF PALO ALTO
DEBT SERVICE REQUIREMENTS ON GENERAL FUND-SECURED OBLIGATIONS
Year
Ending 2018 2019A 2019B
November 1 Certificates Certificates Certificates Total
2021 $ 532,510.00 $ 1,339,250.00 $ 1,045,870.10 $ 2,917,630.10
2022 531,791.00 1,649,250.00 738,248.70 2,919,289.70
2023 530,707.00 2,013,750.00 373,315.80 2,917,772.80
2024 529,267.00 2,009,250.00 373,315.80 2,911,832.80
2025 532,317.50 2,013,250.00 373,315.80 2,918,883.30
2026 529,814.00 2,010,250.00 373,315.80 2,913,379.80
2027 531,916.00 2,010,500.00 373,315.80 2,915,731.80
2028 533,429.00 2,013,750.00 373,315.80 2,920,494.80
2029 529,453.00 2,009,750.00 373,315.80 2,912,518.80
2030 529,653.00 2,013,750.00 373,315.80 2,916,718.80
2031 529,453.00 2,010,250.00 373,315.80 2,913,018.80
2032 533,853.00 2,009,500.00 373,315.80 2,916,668.80
2033 532,653.00 2,011,250.00 373,315.80 2,917,218.80
2034 531,053.00 2,010,250.00 373,315.80 2,914,618.80
2035 529,053.00 2,011,500.00 373,315.80 2,913,868.80
2036 531,281.00 2,009,750.00 373,315.80 2,914,346.80
2037 532,891.00 2,010,000.00 373,315.80 2,916,206.80
2038 533,883.00 2,012,000.00 373,315.80 2,919,198.80
2039 529,257.00 2,010,500.00 373,315.80 2,913,072.80
2040 529,219.00 2,010,500.00 373,315.80 2,913,034.80
2041 533,563.00 2,011,750.00 373,315.80 2,918,628.80
2042 531,683.00 2,014,000.00 373,315.80 2,918,998.80
2043 529,170.00 2,012,000.00 373,315.80 2,914,485.80
2044 531,024.00 2,010,750.00 373,315.80 2,915,089.80
2045 532,034.00 — 2,383,315.80 2,915,349.80
2046 532,200.00 — 2,380,860.70 2,913,060.70
2047 531,522.00 — 2,384,707.26 2,916,229.26
2048 — — 2,384,420.36 2,384,420.36
Total $14,344,649.50 $47,236,750.00 $19,530,370.52 $81,111,770.02
Other Obligations
The City has certain other outstanding obligations including utility revenue bonds and general
obligation bonds which are not secured by the City’s general fund.
See APPENDIX B—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY
FOR THE YEAR ENDED JUNE 20, 2019—Notes to Basic Financial Statements—NOTE 7.
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Overlapping Debt
Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California
Municipal Statistics, Inc. and effective October 1, 2020. The Debt Report is included for general
information purposes only. Neither the City nor the Underwriter has reviewed the Debt Report for
completeness or accuracy and neither the City nor the Underwriter makes any representation in connection
therewith.
The Debt Report generally includes long-term obligations sold in the public credit markets by public
agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations
generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations
secured by land within the City. In many cases, long-term obligations issued by a public agency are payable
only from the General Fund or other revenues of such public agency.
The contents of the Debt Report are as follows: (1) the first column indicates the public agencies
which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2)
the second column shows the respective percentage of the assessed valuation of the overlapping public
agencies identified in column 1 which is represented by property located in the City; and (3) the third
column is an apportionment of the dollar amount of each public agency’s outstanding debt (which amount
is not shown in the table) to property in the City, as determined by multiplying the total outstanding debt
of each agency by the percentage of the City’s assessed valuation represented in column 2.
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TABLE 20
CITY OF PALO ALTO
DIRECT AND OVERLAPPING BONDED DEBT
as of October 1, 2020
2020-21 Assessed Valuation: $42,353,925,962
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 10/1/20
Santa Clara County 7.687% $ 62,471,096
Foothill-De Anza Community College District 21.925 129,817,298
Palo Alto Unified School District 90.387 218,499,882
Fremont Union High School District .009 45,089
Los Gatos-Saratoga Joint Union High School District .013 11,256
Mountain View-Los Altos Union High School District .848 1,758,455
Cupertino Union School District .017 45,869
Los Altos School District 1.134 1,888,904
Mountain View-Whisman School District .606 1,619,020
Saratoga Union School District .03 5,775
Whisman School District 1.617 135,505
City of Palo Alto 100.000 56,995,000 (1)
El Camino Hospital District .071 82,566
Midepninsula Regional Open Space District 12.584 10,872,576
City of Palo Alto Special Assessment Bonds 100.000 17,915,000
Santa Clara Valley Water District Benefit Assessment District 7.687 5,034,601
TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $507,197,892
DIRECT AND OVERLAPPING GENERAL FUND DEBT:
Santa Clara County General Fund Obligations 7.687% $ 74,119,599
Santa Clara County Pension Obligation Bonds 7.687 26,243,356
Santa Clara County Board of Education Certificates of Participation 7.687 267,508
Foothill-DeAnza Community College District Certificates of Participation 21.925 5,156,760
Los Gatos-Saratoga Joint Union High School District Certificates of Participation .013 342
Mountain View-Los Altos Union High School District Certificates of Participation .848 21,115
Los Altos School District Certificates of Participation 1.134 24,087
Saratoga Union School District Certificates of Participation .030 825
City of Palo Alto General Fund Obligations 100.000 45,750,000
Santa Clara County Vector Control District Certificates of Participation 7.687 154,509
Midpeninsula Regional Open Space Park District General Fund Obligations 12.584 13,339,116
TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $165,077,217
Less: Santa Clara County supported obligations 2,454,565
TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $162,622,652
GROSS COMBINED TOTAL DEBT 672,275,109 (2)
NET COMBINED TOTAL DEBT 669,820,544
Ratios to 2020-21 Assessed Valuation:
Direct Debt ($56,995,000) ................................................... 0.13%
Direct and Overlapping Tax and Assessment Debt .......................... 1.20%
Total Direct Debt ($102,745,000) ......................................... 0.24%
Gross Combined Total Debt ............................................................. 1.59%
Net Combined Total Debt ................................................................ 1.58%
Source: California Municipal Statistics, Inc.
(1) Excludes Certificates to be sold.
(2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.
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THE CORPORATION
The Corporation is a nonprofit, 501(c)(4) corporation formed by the City in 1983 for the purpose,
inter alia, of rendering financial assistance to the City by financing, acquiring, constructing, improving,
leasing and selling buildings, improvements, equipment and other real and personal property for the benefit
of residents of the City and surrounding areas. The City Council of the City sits as the Board of Directors
of the Corporation.
RISK FACTORS
This section provides a general overview of certain risk factors which should be considered, in addition to
the other matters set forth in this Official Statement, in evaluating an investment in the Certificates. This section
is not meant to be a comprehensive or definitive discussion of the risks associated with an investment in the
Certificates, and the order in which this information is presented does not necessarily reflect the relative importance
of various risks. Potential investors in the Certificates are advised to consider the following factors, among others,
and to review this entire Official Statement to obtain information essential to the making of an informed investment
decision. Any one or more of the risk factors discussed below, among others, could lead to a decrease in the market
value and/or in the marketability of the Certificates. There can be no assurance that other risk factors not discussed
herein will not become material in the future.
Lease Payments Are Not Debt
The obligation of the City to make the Lease Payments under the Lease Agreement does not
constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or
for which the City has levied or pledged any form of taxation. The obligation of the City to make Lease
Payments does not constitute a debt of the City, the State or any political subdivision thereof within the
meaning of any constitutional or statutory debt limitation or restriction.
Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the
City, the City is obligated under the Lease Agreement to pay the Lease Payments from any source of legally
available funds and the City has covenanted in the Lease Agreement that, for so long as the Leased Property
is available for its use, it will make the necessary annual appropriations within its budget for the Lease
Payments. The City is currently liable and may become liable on other obligations payable from general
revenues, some of which may have a priority over the Lease Payments, or which the City, in its discretion,
may determine to pay prior to the Lease Payments.
The City has the capacity to enter into other obligations payable from the City’s general fund,
without the consent of or prior notice to the Owners of the Certificates. To the extent that additional
obligations are incurred by the City, the funds available to make Lease Payments may be decreased. In the
event the City’s revenue sources are less than its total obligations, the City could choose to fund other
municipal services before making Lease Payments. The same result could occur if, because of State
constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available
revenues. The City’s appropriations, however, have never exceeded the limitations on appropriations under
Article XIIIB of the California Constitution. For information on the City’s current limitations on
appropriations, see “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND
APPROPRIATIONS–Article XIIIB of the California Constitution.”
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Valid and Binding Covenant to Budget and Appropriate
Pursuant to the Lease Agreement, the City covenants to take such action as may be necessary to
include Lease Payments due in its annual budgets and to make necessary appropriations for all such
payments. Such covenants are deemed to be duties imposed by law, and it is the duty of the public officials
of the City to take such action and do such things as are required by law in the performance of the official
duty of such officials to enable the City to carry out and perform such covenants. A court, however, in its
discretion may decline to enforce such covenants. Upon delivery of the Certificates, Special Counsel will
render its opinion (substantially in the form of APPENDIX D–FORM OF SPECIAL COUNSEL
OPINION) to the effect that, subject to the limitations and qualifications described therein, the Lease
Agreement constitutes a valid and binding obligation of the City.
Additional Obligations of the City
The Lease Agreement does not prohibit the City from incurring additional lease and other
obligations payable from the City’s General Fund. In that regard, the City may, from time to time, incur
general fund obligations to finance public improvements (see “OTHER CITY FINANCIAL
INFORMATION—Long-Term General Fund-Secured Obligations”), which may also include lease
obligations payable from its general fund.
Abatement
In the event of loss or substantial interference in the use and possession by the City of all or any
portion of the Leased Property caused by material damage, title defect, destruction to or condemnation of
the Leased Property, Lease Payments will be subject to abatement. In the event that such component of the
Leased Property, if damaged or destroyed by an insured casualty, could not be replaced during the period
of time that proceeds of the City’s rental interruption insurance will be available in lieu of Lease Payments,
or in the event that casualty insurance proceeds or condemnation proceeds are insufficient to provide for
complete repair or replacement of such component of the Leased Property or prepayment of the
Certificates, there could be insufficient funds to make payments to Owners in full. Reduction in Lease
Payments due to abatement as provided in the Lease Agreement does not constitute a default thereunder.
It is not possible to predict the circumstances under which such an abatement of rental may occur.
In addition, there is no statute, case or other law specifying how such an abatement of rental should be
measured. For example, it is not clear whether fair rental value is established as of commencement of the
lease or at the time of the abatement. If the latter, it may be that the value of the Leased Property is
substantially higher or lower than its value at the time of the execution and delivery of the Certificates.
Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment
of the Certificates.
No Acceleration Upon Default
In the event of a default, there is no remedy of acceleration of the total Lease Payments due over
the term of the Lease Agreement and the Trustee is not empowered to sell a fee simple interest in the Leased
Property and use the proceeds of such sale to prepay the Certificates or pay debt service thereon. Any suit
for money damages would be subject to limitations on legal remedies against public agencies in the State,
including a limitation on enforcement of judgments against funds needed to serve the public welfare and
interest as described below. See “—Limitations on Remedies.”
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Risk of Uninsured Loss
The City covenants under the Lease Agreement to maintain certain insurance policies on the
Leased Property. See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Insurance.” These
insurance policies do not cover all types of risk, and the City need not obtain insurance except as available
on the open market from reputable insurers. The City does not insure its facilities against the risk of
earthquake. Additionally, the Leased Property could be the subject of an eminent domain proceeding.
Under these circumstances an abatement of Lease Payments could occur and could continue indefinitely.
There can be no assurance that the providers of the City’s liability and rental interruption insurance will in
all events be able or willing to make payments under the respective policies for such loss should a claim be
made under such policies. Further, there can be no assurances that amounts received as proceeds from
insurance or from condemnation of the Leased Property will be sufficient to prepay the Certificates.
Under the Lease Agreement the City may obtain casualty insurance which provides for a deductible
up to $250,000. Should the City be required to meet such deductible expenses, the availability of general
fund revenues to make Lease Payments may be correspondingly affected.
Eminent Domain
If the Leased Property is taken permanently under the power of eminent domain or sold to a
government threatening to exercise the power of eminent domain, the term of the Lease Agreement will
cease as of the day possession is taken. If less than all of the Leased Property is taken permanently, or if the
Leased Property or any part thereof is taken temporarily, under the power of eminent domain, (a) the Lease
Agreement will continue in full force and effect and will not be terminated by virtue of such taking, and (b)
there will be a partial abatement of Lease Payments as a result of the application of net proceeds of any
eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the
City and the Corporation such that the resulting Lease Payments represent fair consideration for the use
and occupancy of the remaining usable portion of the Leased Property. The City covenants in the Lease
Agreement to contest any eminent domain award which is insufficient to either: (i) prepay the Lease
Payments in whole, if all the Leased Property is condemned; or (ii) prepay a pro rata share of Lease
Payments, in the event that less than all of the Leased Property is condemned.
Hazardous Substances
The existence or discovery of hazardous materials may limit the beneficial use of the Leased
Property. In general, the owners and lessees of the Leased Property may be required by law to remedy
conditions of such parcel relating to release or threatened releases of hazardous substances. The federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to
as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but
California laws with regard to hazardous substances are also similarly stringent. Under many of these laws,
the owner or lessee is obligated to remedy a hazardous substance condition of the property whether or not
the owner or lessee had anything to do with creating or handling the hazardous substance.
Further it is possible that the beneficial use of the Leased Property may be limited in the future
resulting from the current existence on the Leased Property of a substance currently classified as hazardous,
but which has not been released or the release of which is not presently threatened or may arise in the future
resulting from the current existence on the Leased Property of a substance not presently classified as
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hazardous, but which may in the future be so classified. Further, such liabilities may arise not simply from
the existence of a hazardous substance but from the method in which it is handled. All of these possibilities
could significantly limit the beneficial use of the Leased Property.
The City is unaware of the existence of hazardous substances on the Leased Property site which
would materially interfere with the beneficial use thereof.
Natural Calamities
General. From time to time, the City has been and could be subject to natural calamities, including,
but not limited to, earthquake, flood or wildfire, that may adversely affect economic activity in the City, and
which could have a negative impact on City finances. There can be no assurance that the occurrence of any
natural calamity would not cause substantial interference to the Leased Property, or that the City would
have insurance or other resources available to make repairs to the Leased Property in order to make the
Lease Payments under the Lease. See “—Abatement” above.
Seismic. Like most regions in California, the City is in an area of significant seismic activity. There
are numerous earthquake faults near the City, including particularly the San Andreas and Hayward faults.
The San Andreas fault runs along the Marin and Sonoma Coast through the Santa Cruz Mountains. The
Hayward fault covers the hills on the east side of the San Francisco Bay and into San Pablo Bay, directly
north and east of the City. Both can cause damaging earthquakes. Numerous other faults are capable of
producing damaging earthquakes similar in magnitude to the 1989 Loma Prieta earthquake. Soils in lowland
areas away from major faults may also be unable to support buildings during major earthquakes. Landslides
are likely on hillsides during major earthquakes. Coastal areas are also at risk of tsunamis, generated from
earthquakes on local faults or across the Pacific.
If there were to be an occurrence of severe seismic activity in the City, there could be substantial
damage to and interference with the City’s right to use and occupy all or a portion of the Leased Property,
which could result in Lease Payments being subject to abatement. See “—Abatement” above. Damage
resulting from such an event could have a material adverse effect on the City’s financial condition as well,
through unexpected recovery costs and reduced tax and other revenues.
See “SOURCE OF PAYMENT FOR THE CERTIFICATES—Insurance” above. Also see
“THE LEASED PROPERTY” for information about the Leased Property.
Flood. Like most of California, the City is subject to unpredictable seasonal rainfall, with periods of
intense and sustained precipitation occurring every few years. The Leased Property is not located in the
100-year floodplain.
Climate Change/Sea Level Rise. Although very little of the property in the City directly abuts the
San Francisco Bay, certain parcels may still be vulnerable to property damage or reductions in assessed
value as a result of future sea level rise in the San Francisco Bay or other negative impacts resulting from
climate change.
The predictions for sea level rise in the San Francisco Bay vary. A report released by the San
Francisco Bay Conservation Development Commission (“BCDC”) predicts sea levels in the Bay to rise 16
inches by 2050 and 55 inches by 2100. The State’s Fourth Climate Change Assessment, released in 2017,
estimates sea level rise for the year 2100 in the range of 14 inches to 94 inches (36 cm to 239 cm) with an
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additional very low probability, worst case estimate that exceeds 108 inches (274 cm). A draft paper from
the California Climate Change Center posits that increases in sea level will be a significant consequence of
climate change over the next century.
Local impacts of climate change are not definitive, but parcels in the City could experience changes
to local and regional weather patterns, rising bay water levels, increased risk of flooding, changes in salinity
and tidal patterns of San Francisco Bay, coastal erosion, water restrictions and vegetation changes.
Bankruptcy
The City is a unit of State government and therefore is not subject to the involuntary procedures of
the United States Bankruptcy Code (the “Bankruptcy Code”). However, pursuant to Chapter 9 of the
Bankruptcy Code, the City may seek voluntary protection from its creditors for purposes of adjusting its
debts. A City bankruptcy petition could have a material adverse effect on the payment of the Certificates.
The following paragraphs present a discussion of certain potential consequences surrounding a potential
City bankruptcy. It is not intended to be an exhaustive discussion of all potential adverse consequences or
potential outcomes.
In the event the City were to become a debtor under the Bankruptcy Code, the City would be
entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding.
Among the adverse effects of such a bankruptcy might be: (i) the application of the automatic stay provisions
of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City
or the commencement of any judicial or other action for the purpose of recovering or collecting a claim
against the City; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the
filing of a bankruptcy petition; (iii) the existence of unsecured or court-approved secured debt which may
have a priority of payment superior to that of Owners of Certificates; and (iv) the possibility of the adoption
of a plan for the adjustment of the City’s debt (a “Plan”) without the consent of the Trustee or all of the
Owners of Certificates, which Plan may restructure, delay, compromise or reduce the amount of any claim
of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable.
In addition, the City could either reject the Lease or assume the Lease despite any provision of the
Lease which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event
the City rejects the Lease, the Trustee, on behalf of the Owners of the Certificates, would have a pre-petition
claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the
objections of the Trustee or Owners of the Certificates. Moreover, such rejection would terminate the Lease
and the City’s obligations to make payments thereunder.
COVID-19 Pandemic
The outbreak of COVID-19, a respiratory disease caused by a new strain of coronavirus, has been
characterized as a Pandemic (the “COVID-19 Pandemic”) by the World Health Organization and is
currently affecting many parts of the world, including the City, California, and the United States. On
January 31, 2020, the Secretary of the United States Health and Human Services Department declared a
public health emergency for the United States and on March 13, 2020, the President of the United States
declared the outbreak of COVID-19 in the United States a national emergency. Subsequently, the
President’s Coronavirus Guidelines for America and the United States Centers for Disease Control and
Prevention called upon Americans to take actions to slow the spread of COVID-19 in the United States.
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The COVID-19 Pandemic has resulted in the imposition of restrictions on mass gatherings and
widespread temporary closings of businesses, universities and schools (including schools in the City). The
United States is restricting certain non-US citizens and permanent residents from entering the country. In
addition, stock markets in the U.S. and globally have been volatile, with significant declines attributed to
coronavirus concerns.
On March 4, 2020, the Governor of California proclaimed a state of emergency in California as a
result of the threat of COVID-19. Under the California Emergency Services Act, during a state of
emergency, the Governor has authority over all agencies of the state government and can exercise the
State’s police powers. His powers also include the power to promulgate, issue, and enforce orders and
regulations as he deems necessary.
To mitigate the spread of the pandemic, several cities and counties throughout the state (including
the City) announced shelter-in-place (“Shelter-in-Place”) emergency orders on March 13, 2020, which
generally directed individuals to stay home, except for certain limited travel for the conduct of essential
activities and services. Most retail establishments (e.g., restaurants, bars and nightclubs, entertainment
venues, gyms, etc.) were closed in response to the Shelter-in-Place order. On March 17, 2020, the County
Health Officer issued a Shelter-in-Place order and on March 19, 2020, California’s Governor announced a
similar Shelter-in-Place emergency executive order (N 33-20) effective for the entire State.
On August 29, 2020, the Governor announced a color-coded statewide system called “Blueprint
for a Safer Economy.” The color-coded structure replaces the county monitoring list. The color-coded
system became effective as of August 31, 2020. As detailed below, the new system features a color-coded
list benchmarked to each county’s rate of new cases per 100,000 residents per day (based on a seven-day
average with seven-day lag), the percentage of positive COVID-19 tests, and as of October 6, 2020 a health
equity metric targeted to ensure the test positivity rates in disadvantaged neighborhoods do not significantly
fall behind overall county test positivity rate. The health equity metric evaluates whether test positivity in
neighborhoods in the lowest quartile of the California Health Places Index within each County fall within
or near an acceptable range from the County’s overall positivity rate. Hospitalizations and capacity at
intensive care units are given less weight than under the prior system.
Under the color-coded system, each county is given a designation of “purple” (widespread), “red”
(substantial) “orange” (moderate) or “yellow” (minimal) that measures the spread of COVID-19 and
dictates what types of businesses and activities are allowed to open in each county.
Each county will be assigned its tier every Tuesday, and a county must remain in a tier for 21
consecutive days before moving to the next one. To move forward, a county must meet the next tier’s
criteria for 14 consecutive days. A county can move backwards by failing to meet the criteria for two
consecutive weeks, or if state officials see a rapid rise in hospitalizations. County guidelines may override
the state’s reopening thresholds, but only if they are stricter.
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A brief summary of the four tiers is below:
Purple tier: County risk level is “widespread”
• Benchmark - More than seven daily new cases per 100,000 residents, or test positivity
greater than 8%, or health equity metric > 8%.
• Most non-essential indoor businesses operations are closed, but indoor hair salons and
barbershops can reopen effective immediately.
• All retail stores and shopping malls may open at a maximum of 25% capacity.
• The County is currently in the Purple/Widespread tier.
Red tier: County risk level is “substantial”
• Benchmark - Four to seven daily new cases per 100,000 residents, or test positivity
between 5% and 8%, and health equity metric between 8% and 5.2%.
• Some non-essential indoor business operations (office spaces, card rooms) are closed, but
gyms, movie theaters and indoor dining can reopen with modifications and capacity
limitations.
• Schools can open for in-person instruction two weeks after a county moves from purple to
red.
• All retail stores and shopping malls may increase occupancy to a maximum of 50%
capacity.
Orange tier: County risk is “moderate”
• Benchmark - One to four daily new cases per 100,000 residents, or test positivity between
2% and 5%, and health equity metric between 5.2% and 2.1%.
• Most non-essential indoor business operations including office spaces, card rooms, gyms,
movie theaters and indoor dining can reopen with modifications and capacity limitations.
• Bars may open outdoor service with modification.
Yellow tier: County risk is “minimal”
• Benchmark - Less than 1 new daily case per 100,000 residents, or test positivity less than
2%, and health equity metric less than 2.1%.
• non-essential indoor business operations (office spaces, card rooms) are closed, but gyms,
movie theaters and indoor dining can reopen with modifications. Capacity limitations are
increased.
• Bars may open indoors with modifications and capacity limitations.
Limited Stay-At-Home Order/Curfew. On November 19, 2020, the State Public Health Officer
issued a Limited Stay at Home order, effective as of November 21st for counties in the Purple Tier,
requiring that all gatherings with members of other households and all activities conducted outside the
residence, lodging, or temporary accommodation with members of other households cease between 10:00
p.m. and 5:00 a.m. Pacific Standard Time, except for those activities associated with the operation,
maintenance, or usage of critical infrastructure or required by law.
Regional Stay-At-Home Order. On December 3, 2020 Governor Newsom announced a regional stay-
at-home order that became effective on December 5, 2020. The Governor’s regional stay-at-home order
divides the state in to five geographic regions, the Bay Area, Greater Sacramento, the San Joaquin Valley,
Northern California, and Southern California. The regional stay-at-home order imposes new lockdown
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measures on a region-by-region basis triggered by available intensive care unit capacity falling below a 15%
threshold. All five regions of the state were entered lockdown in December.
The lockdown restrictions imposed under the regional stay-at-home order are set to last for a
minimum of three weeks and will include a complete prohibition on private gatherings, closing playgrounds,
salons, and all restaurants for in-person food service except for pick-up and delivery. Religious institutions
would be limited to outdoor services and indoor retail would be permitted at only 20% of maximum capacity.
Schools that were already open will be allowed to remain open.
The lockdown restrictions under the December 3, 2020 regional stay-at-home order will exist in
addition to restrictions already in effect under the state’s color-coded Blueprint for a Safer Economy
reopening framework and the limited stay at home order issued on November 19, 2020. Individual counties
within the state are also able to impose additional restrictions above and beyond what is mandated by the
state.
Additional information about the State’s reopening plans and the County’s current status can be
found at the State’s website, www.covid19.ca.gov. Also see the County’s website
www.sccgov.org/sites/covid19/Pages/home.aspx for up to date information regarding COVID-19
restrictions in place in the County. Reference to the State’s and the County’s website is included in this
Official Statement for general information only and information on such website is not included in this
Official Statement by reference to such website.
The COVID-19 Pandemic has negatively affected travel, commerce, investment values, and
financial markets globally, and is widely expected to continue to negatively affect economic output
worldwide and within the City. While federal and state governments (including California) have enacted
legislation and taken executive actions seeking to mitigate the negative public health and economic impacts
of the Pandemic, the City offers no assurances that these interventions will have the intended effects.
These negative economic impacts may reduce or otherwise negatively affect revenues to the City’s
General Fund including declines in sales tax, property tax, and transient occupancy tax revenues as
discussed under “CITY FINANCIAL INFORMATION.” The City has developed what it believes to be
reasonable budgeted projections of the magnitude of these impacts on its revenues and on its expenditures,
the COVID-19 Pandemic is ongoing and the City cannot predict how and when it will be resolved.
The COVID-19 Pandemic is ongoing and the duration and severity of the outbreak and the
economic and other of actions that may be taken by governmental authorities to contain the outbreak or to
treat its impact are uncertain. The ultimate impact of the COVID-19 Pandemic on the City’s operations
and finances is unknown. As of the date of this Official Statement, the City does not believe that the impacts
of the COVID-19 Pandemic will prevent the City from making the Lease Payments when due.
Potential Impact of State of California Financial Condition on the City
During the most recent recession, the State faced a structural deficit that resulted in substantial
annual deficits and reductions in expenditures. Although the State has had a budget surplus in the more
recent fiscal years, according to the State there remain a number of major risks and pressures that threaten
the State’s financial condition, including the threat of recession, potential changes to federal fiscal policies
and unfunded long-term liabilities of more than $200 billion related to pensions and other post-retirement
benefits. These risks and financial pressures could result in future reductions or deferrals in amounts
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payable to the City. The State’s financial condition and budget policies affect local public agencies
throughout California. To the extent that the State budget process results in reduced revenues to the City,
the City will be required to adjust its budget. State budget policies can also impact conditions in the local
economy and could have an adverse effect on the local economy and the City’s major revenue sources.
No prediction can be made by the City as to whether the State will encounter budgetary problems
in future fiscal years, and if it were to do so, it is not clear what measures would be taken by the State to
balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State
budget negotiations, the impact that such budgets will have on City finances and operations or what actions
will be taken in the future by the Legislature and the Governor to deal with changing State revenues and
expenditures. There can be no assurance that actions taken by the State to address its financial condition
will not materially adversely affect the financial condition of the City. Current and future State budgets will
be affected by national and State economic conditions and other factors over which the City has no control
(see “STATE BUDGET INFORMATION”).
Risks Related to Cyber Security
The City relies on computers and technology to conduct its operations. The City and its
departments face cyber threats from time to time including, but not limited to, hacking, viruses, malware
and other forms of technology attacks. The City owns and operates its own enterprise class data network
serving the municipal city government and its operations. The City has retained information technology
professionals to support, maintain and protect these operations locally in a purpose-built and physically
secure environment. This network and its operations are governed by and in compliance with all applicable
governmental regulations as well as the City’s own administrative regulations. Within the City’s operations
and guidance is an active cyber-security program designed to protect from, and to quickly identify and
mitigate, a multitude of complex security threats. While no network is completely immune from all possible
compromise, the City exercises its due diligence in protecting the data it possesses and the systems it
operates. To date, there have been no significant cyber-attacks on the City’s computers and technologies.
While the City is routinely maintaining its technology systems and continuously implementing new
information security controls, no assurances can be given that the City’s security and operational control
measures will be successful in guarding against all cyber threats and attacks. The results of any attack on the
City’s computer and technology could negatively impact the City’s operations, and the costs related to such
attacks could be substantial.
Pension Benefit Liability
Many factors influence the amount of the City’s pension benefit liabilities, including, without
limitation, inflationary factors, changes in statutory provisions of CalPERS retirement system laws, changes
in the level of benefits provided or in the contribution rates of the City, increases or decreases in the number
of covered employees, changes in actuarial assumptions or methods (including but not limited to the
assumed rate of return), and differences between actual and anticipated investment experience of CalPERS.
Any of these factors could give rise to additional liability of the City to its pension plans as a result of which
the City would be obligated to make additional payments to its pension plans in order to fully fund the City’s
obligations to its pension plans.
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Early Prepayment Risk
Early prepayment of the Certificates may occur in whole or in part without premium, on any date
if the Leased Property or a portion thereof is lost, destroyed or damaged beyond repair or taken by eminent
domain and from the proceeds of title insurance, or on any Interest Payment Date, without a premium (see
“THE CERTIFICATES—Prepayment”), if the City exercises its right to prepay Lease Payments in whole
or in part pursuant to the provisions of the Lease Agreement and the Trust Agreement. If Certificates are
purchased at a premium, the Owners may receive less than their purchase price in the event of a
prepayment.
Limitations on Remedies
The enforcement of any remedies provided in the Lease Agreement and the Trust Agreement could
prove both expensive and time consuming. Although the Lease Agreement provides that if the City defaults
the Trustee may enter the Leased Property and re-let the Leased Property, portions of the Leased Property
may not be easily recoverable, and even if recovered, could be of little value to others because of the Leased
Property’s specialized nature. Additionally, the Trustee may have limited ability to re-let the Leased
Property to provide a source of rental payments sufficient to pay the principal of and interest with respect
to the Certificates so as to preserve the tax-exempt nature of interest with respect to the Certificates.
Furthermore, due to the governmental nature of the Leased Property, it is not certain whether a court would
permit the exercise of the remedy of re-letting with respect thereto.
Alternatively, the Trustee may terminate the Lease Agreement and proceed against the City to
recover damages pursuant to the Lease Agreement. Any suit for money damages would be subject to
limitations on legal remedies against public agencies in the State, including a limitation on enforcement of
judgments against funds needed to serve the public welfare and interest.
The rights of the Owners of the Certificates are subject to certain limitations on legal remedies
against cities, redevelopment agencies and other governmental entities in the State, including but not
limited to a limitation on enforcement against funds that are otherwise needed to serve the public welfare
and interest. Additionally, the rights of the Owners of the Certificates may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium, or similar laws limiting or otherwise affecting the enforcement of
creditors’ rights generally (as such laws are now or hereafter may be in effect), (ii) equity principles
(including but not limited to concepts of materiality, reasonableness, good faith and fair dealing) and the
possible unavailability of specific performance or injunctive relief, regardless of whether considered in a
proceeding in equity or law, (iii) the exercise by the United States of America of the powers delegated to it
by the Constitution, and (iv) the reasonable and necessary exercise, in certain exceptional situations, of the
police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving
a significant and legitimate public purpose. Under Chapter 9 of the Bankruptcy Code (Title 11, United
States Code), which governs bankruptcy proceedings for public agencies, there are no involuntary petitions
in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners, the
Trustee and the Corporation could be prohibited or severely restricted from taking any steps to enforce
their rights under the Lease Agreement and from taking any steps to collect amounts due from the City
under the Lease Agreement.
Special Counsel has limited its opinion as to the enforceability of the Lease Agreement to the extent
that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium, or other similar laws affecting generally the enforcement of creditor’s rights, by
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equitable principles and by the exercise of judicial discretion. Additionally, the Certificates are not subject
to acceleration in the event of the breach of any covenant or duty under the Lease Agreement. The lack of
availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or
modification of the rights of the Owners.
No Reserve Fund
No debt service reserve fund has been established with respect to the Certificates.
Secondary Market Risk
There can be no assurance that there will be a secondary market for purchase or sale of the
Certificates, and from time to time there may be no market for them, depending upon prevailing market
conditions, the financial condition or market position of firms who may make the secondary market and the
financial condition of the City.
Changes in Law
There can be no assurance that the electorate of the State will not at some future time adopt
additional initiatives or that the Legislature will not enact legislation that will amend the laws or the
Constitution of the State resulting in a reduction of the general fund revenues of the City and consequently,
having an adverse effect on the security for the Certificates.
STATE BUDGET INFORMATION
Information regarding the State Budget is regularly available at various State-maintained websites. The
fiscal year 2020-21 State Budget and Proposed 2021-22 Budget further described below can be found at the website
of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” Additionally, an
impartial analysis of the State’s Budgets is posted by the Office of the Legislative Analyst at www.lao.ca.gov. The
information referred to is prepared by the respective State agency maintaining each website and not by the City, and
neither the City nor the Underwriters takes responsibility for the continued accuracy of the internet addresses or for
the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein
by these references.
State Budget Process. Through the State budget process, the State enacts legislation that significantly
impacts the source, amount and timing of the receipt of revenues by local agencies, including the City. As
in recent years, State budget deficits can result in legislation that adversely impacts local agency budgets.
The State’s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the
Governor by January 10 of each year for the next fiscal year (the “Governor’s Budget”). Under State law,
the annual proposed Governor’s Budget cannot provide for projected expenditures in excess of projected
revenues and balances available from prior fiscal years. Following the submission of the Governor’s Budget,
the Legislature takes up the proposal.
Under the State Constitution, money may be drawn from the Treasury only through an
appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act
as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-
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thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line
items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line
item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature.
Appropriations also may be included in legislation other than the Budget Act. Bills containing
appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House
of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only
require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also
be provided by statute or the State Constitution.
Funds necessary to meet an appropriation need not be in the State Treasury at the time such
appropriation is enacted; revenues may be appropriated in anticipation of their receipt.
Recent State Budgets. Certain information about the State budgeting process and the State Budget is
available through several State of California sources. A convenient source of information is the State’s
website, where recent official statements for State bonds are posted. The references to internet websites
shown below are shown for reference and convenience only; the information contained within the websites
has not been reviewed by the City and is not incorporated herein by reference.
The California State Treasurer’s Internet home page at www.treasurer.ca.gov, under the heading
“Financial Information,” posts the State’s audited financial statements. In addition, the “Financial
Information” section includes the State’s Rule 15c2-12 filings for State bond issues. The “Financial
Information” section also includes the “Overview of the State Economy and Government, State Finances,
State Indebtedness, Litigation” from the State’s most current Official Statement, which discusses the State
budget and the state budget process in greater detail.
The State Legislative Analyst’s Office (“LAO”) prepares analyses of the proposed and adopted
State budgets. The analyses are accessible on the Legislative Analyst’s Internet home page at
www.lao.ca.gov under the heading “Products.”
2020-21 State Budget
On June 29, 2020, Governor Gavin Newsom signed the State budget for Fiscal Year 2020-21 (the
“2020-21 Budget”). While the Governor’s initial budget projections in January 2020 projected a budget
surplus of $5.6 billion, the 2020-21 Budget addresses a projected budget deficit of $54.3 billion,
representing a four-month swing of approximately $60 billion caused primarily by the effects of the COVID-
19 Pandemic. The 2020-21 Budget projects general fund revenues decreasing by $9.8 billion compared to
2019-20 levels due in part to a combination of projected decreases of nearly 20% in income tax collections
and sales and use tax collections. The 2020-21 Budget cuts general fund expenditures by $13.0 billion
compared to 2019-20 levels with substantial cuts to spending on K-12 and higher education, legislative,
judicial, executive functions and general reductions in governmental operations.
While the State anticipates future federal COVID-19 Pandemic funding relief, should such
additional relief not be forthcoming the State will face additional restrictions and deferrals.
For additional information regarding the 2020-21 Budget, please see the Department of Finance
website at ebudget.ca.gov. The City can take no responsibility for the continued accuracy of the above-
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referenced internet address as for the or for the accuracy, completeness, or timeliness of information posted
therein, and such information is not incorporated herein by reference.
2021-22 Proposed State Budget
On January 8, 2021, Governor Gavin Newsom released his proposed budget for the State’s 2020-
21 fiscal year (the “Proposed 2021-22 Budget”). California’s economic outlook and revenue forecasts have
improved since adoption of the 2020-21 Budget on June 29, 2020; however, risks are expected to remain
higher than usual due to the continuing effects the COVID-19 Pandemic.
The Proposed 2021-22 Budget projects general fund revenues increasing by $3.2 billion over 2020-
21 levels to a total of $161.4 billion, while expenditures are projected to also increase by $8.6 billion over
2020-21 levels to a total of $164.5 billion. The largest areas of general fund expenditure increases in the
Proposed 2021-22 Budget over 2020-21 expenditure levels include health and human services, government
operations, and transportation programs. K-12 education expenditures (as detailed below), the single largest
category of expenditures in the Proposed 2021-22 Budget, will increase by $1.8 billion over the prior year
to a total of $59.6 billion.
Under the Proposed 2021-22 Budget, the State is projected to have approximately $34 billion in
budget resiliency, comprised of budgetary reserves and surplus including $15.6 billion in the Proposition 2
Budget Stabilization Account (the Rainy Day Fund) for fiscal emergencies; $450 million in the Safety Net
Reserve, $3 billion in the Public School System Stabilization Account, and an estimated $2.9 billion in the
State’s operating reserves.
Notable specific areas of expenditures from the Proposed 2021-22 Budget reflecting changes from
prior years identified in analysis prepared by the Legislative Analysts’ Office (“LAO”) and published on
the LAO’s website on January 10, 2021 include:
Tax Refunds to Low-Income Californians. The Proposed 2021-22 Budget includes a one-time
$600 tax refund to taxpayers who received the California Earned Income Tax Credit (EITC) for
2019 and taxpayers who will receive the EITC for 2020. The Proposed 2021-22 Budget assumes a
cost of $2.4 billion in 2020-21 for these refunds.
Tax Incentives. The Proposed 2021-22 Budget proposes one-time increases of several
existing tax credits and exclusions including:
Affordable Housing. $500 million for tax credits to builders of rental housing
affordable to low-income households.
California Competes. $180 million for California Competes to award tax credits
aimed at attracting or retaining businesses in California.
Hiring Credit. $100 million for tax credits to smaller businesses that increase their
number of employees.
Sales Tax Exemption. $100 million for sales tax exclusions awarded by the
California Alternative Energy and Advanced Transportation Financing Authority
(“CAEATFA”) on purchases of equipment for certain manufacturing activities.
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One-Time Grants to Various Entities. The Proposed 2021-22 Budget includes several one-
time proposals to provide assistance to businesses:
Small Business Grants. $550 million to double the size of a recently created
program that awards grants up to $25,000 to businesses and nonprofits with revenues
under $2.5 million that were impacted by the pandemic.
Other Business Grants. $250 million for California Competes to provide grants
to businesses in addition to its traditional tax credits.
Fee Waivers. $71 million to waive some of the fees paid by certain professionals
and businesses disproportionately affected by the pandemic, such as manicurists and small
restaurant owners.
Other. $135 million for a variety of other grant and loan programs aimed at helping
small businesses, with a focus on those from underserved communities. Also, the Proposed
2021-22 Budget provides $25 million to the Governor’s Office of Business and Economic
Development for cultural institutions.
Homelessness Proposals. The Proposed 2021-22 Budget includes $1.75 billion in one-time
General Fund expenditures for various programs related to homelessness, including, among other
proposals, $750 million to continue the Homekey Program administered through the Department
of Housing and Community Development (HCD), $750 million for the Department of Health Care
Services (DHCS) to provide grants to counties for the acquisition and rehabilitation of properties
to expand behavioral health treatment resources, and $11.7 million to trial courts for the
implementation of the Tenant, Homeowner, and Small Landlord Relief and Stabilization Act of
2020.
Health and Behavioral Health. The Proposed 2021-22 Budget reintroduces the California
Advancing and Innovating Medi-Cal (“CalAIM”) Proposal. The CalAIM Proposal aims to: (1)
provide a more comprehensive suite of services to high-risk, high-need Medi-Cal beneficiaries
(such as transitional housing services to protect against homelessness); (2) standardize and
streamline Medi-Cal managed care; (3) extend programs and the associated federal funding for
Medi-Cal currently authorized under temporary waiver authority; and (4) rethink how mental
health and substance use services are delivered and financed.
Zero-Emission Vehicles (ZEVs) and Infrastructure. The Proposed 2021-22 Budget includes
three proposals that would provide a total increase of up to $1.5 billion (various funds) to promote
ZEVs.
Disaster Response and Preparedness. The Proposed 2021-22 Budget includes a total of $1
billion—$323 million in 2020-21 and $677 million in 2021-22—for 15 departments to implement
various efforts related to improving forest health and making communities more resilient to future
wildfires, $256 million to assist local governments with emergency response and recovery through
the California Disaster Assistance Act to (1) restore or replace public real property damaged during
disasters or (2) reimburse local governments for eligible emergency response costs, and $158
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million over the subsequent three years, to fund the state’s share of a large federal flood risk
reduction project along the American River.
Proposed 2021-22 Budget Proposals Concerning K-14 Education. Under Proposition 98, the Proposed
2021-22 Budget includes $85.8 billion in spending for K-14 education. As described below, the Proposed
2021-22 Budget includes a significant portion of additional funding to pay deferrals implemented in 2020-
21, return students to in-person instruction, and provide a 3.84% cost-of-living adjustment to the Local
Control Funding Formula.
The LAO estimates that under the Proposed 2021-22 Budget, the State has approximately $19.1
billion available for new spending on K-14 programs as compared to prior years. The increased spending is
allocated to three main priorities:
Paying Down Deferrals. The 2020-21 Budget deferred $12.5 billion in payments to schools
and community colleges. The Proposed 2021-22 Budget pays down $8.4 billion of this amount,
with districts receiving the associated cash in 2021-22. Slightly more than $4 billion would remain
deferred from 2021-22 to 2022-23.
Providing In-Person Instruction and Expanding Academic Support. The Proposed 2021-22
Budget includes $2 billion in one-time grants to incentivize schools to offer in-person instruction
for younger students and students with high needs. To receive this additional funding, school
districts must (1) develop or update a school reopening plan consistent with updated guidance from
the California Department of Public Health, including a plan for asymptomatic testing of all
students and staff potentially as often as every week, and (2) approve collective bargaining
agreements to implement the new school reopening plan by February 1. The Proposed 2021-22
Budget also proposes early action to provide schools with $4.6 billion in grants to offer additional
academic support for disadvantaged students, which could include summer school, longer school
days, community learning hubs, and other locally developed interventions.
Funding Cost-of-Living Adjustments. The Proposed 2021-22 Budget includes a 3.84 percent
COLA for the Local Control Funding Formula. This COLA rate reflects the estimated statutory
COLA for 2021-22 (1.5 percent) plus the compounded value of the COLA the state did not provide
in 2020-21. For other education programs, including community college apportionments, the
budget provides only the 1.5 percent COLA.
For additional information regarding the Proposed 2021-22 Budget, please see the Department of
Finance website at ebudget.ca.gov and the LAO’s website at lao.ca.gov. The City can take no responsibility
for the continued accuracy of the above-referenced internet address as for the or for the accuracy,
completeness, or timeliness of information posted therein, and such information is not incorporated herein
by reference.
The City cannot predict the impacts that the 2020-21 Budget or Proposed 2021-22 Budget or
subsequent budgets will have on its own finances and operations. Additionally, the City cannot predict the
accuracy of any projections made in the State’s 2020-21 Budget or Proposed 2021-22 Budget.
Future State Budgets. The City receives a portion of its funding from the State. Changes in the
revenues received by the State can affect the amount of funding, if any, to be received from the State by the
City and other cities in the State.
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In addition, the City cannot predict the final outcome of current and future State budget
negotiations, the impact that such budgets will have on its finances and operations or what actions will be
taken in the future by the State Legislature and Governor to deal with changing State revenues and
expenditures. Current and future State budgets will be affected by national and State economic conditions
and other factors, including the COVID-19 Pandemic and the associated economic downturn, over which
the City has no control. See also “RISK FACTORS—Dependence on State for Certain Revenues.”
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES, REVENUES AND
APPROPRIATIONS
The constitutional and statutory provisions discussed in this section have the potential to affect the ability
of the City to levy taxes and spend tax proceeds for operating and other purposes.
Article XIIIA of the California Constitution
On June 6, 1978, California voters approved an amendment (commonly known as both Proposition
13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article
XIIIA to the California Constitution, among other things affects the valuation of real property for the
purpose of taxation in that it defines the full cash property value to mean “the county assessor’s valuation
of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter, the appraised value
of real property newly constructed, or when a change in ownership has occurred after the 1975 assessment.”
The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a
reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or
reduced in the event of declining property value caused by damage, destruction or other factors including a
general economic downturn. The amendment further limits the amount of any ad valorem tax on real
property to one percent of the full cash value except that additional taxes may be levied to pay debt service
on indebtedness approved by the voters prior to July 1, 1978, and bonded indebtedness for the acquisition
or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the
voters voting on the proposition.
Legislation enacted by the California Legislature to implement Article XIIIA provides that all
taxable property is shown at full assessed value as described above. In conformity with this procedure, all
taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed
value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded
indebtedness and pension liability are also applied to 100% of assessed value.
The voters of the State subsequently approved various measures which further amended Article
XIIIA. One such amendment generally provides that the purchase or transfer of (i) real property between
spouses or (ii) the principal residence and the first $1,000,000 of the Full Cash Value of other real property
between parents and children, do not constitute a “purchase” or “change of ownership” triggering
reappraisal under Article XIIIA. Other amendments permitted the State Legislature to allow persons over
the age of 55 who meet certain criteria or “severely disabled homeowners” who sell their residence and buy
or build another of equal or lesser value within two years in the same county, to transfer the old residence’s
assessed value to the new residence. Other amendments permit the State Legislature to allow persons who
are either 55 years of age or older, or who are “severely disabled,” to transfer the old residence’s assessed
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value to their new residence located in either the same or a different county and acquired or newly
constructed within two years of the sale of their old residence.
In the November 1990 election, the voters approved an amendment of Article XIIIA to permit the
State Legislature to exclude from the definition of “new construction” certain additions and improvements,
including seismic retrofitting improvements and improvements utilizing earthquake hazard mitigation
technologies constructed or installed in existing buildings after November 6, 1990.
Article XIIIA has also been amended to provide that there would be no increase in the Full Cash
Value base in the event of reconstruction of the property damaged or destroyed in a disaster.
Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the
assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to
subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher
than 2%, depending on the assessor’s measure of the restoration of value of the damaged property.
Section 4 of Article XIIIA also provides that cities, counties and special districts cannot, without a
two-thirds vote of the qualified electors, impose special taxes, which has been interpreted to include special
fees in excess of the cost of providing the services or facility for which the fee is charged, or fees levied for
general revenue purposes.
Both the California State Supreme Court and the United States Supreme Court have upheld the
validity of Article XIIIA.
Article XIIIB of the California Constitution
On November 6, 1979, California voters approved Proposition 4, the Gann Initiative, which added
Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through
their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual
appropriations of the State and any city, county, school district, authority or other political subdivision of
the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost
of living, population and services rendered by the governmental entity. The “base year” for establishing
such appropriation limit is Fiscal Year 1978-79. Increases in appropriations by a governmental entity are
also permitted (1) if financial responsibility for providing services is transferred to the governmental entity,
or (2) for emergencies so long as the appropriations limits for the three years following the emergency are
reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where
responsibility for providing services is transferred from the government entity.
Appropriations subject to Article XIIIB include generally any authorization to expend during the
fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain
State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and
disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include
debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness
thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for
such purpose, appropriations required to comply with mandates of courts or the Federal government,
appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any
increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. “Proceeds of taxes”
include, but are not limited to, all tax revenues and the proceeds to any entity of government from (1)
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regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the
service or regulation, (2) the investment of tax revenues and (3) certain State subventions received by local
governments. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year
periods. Any excess of the aggregate “proceeds of taxes” received by the City over such two-year period
above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in
tax rates or fee schedules over the subsequent two years.
As amended in June 1990, the appropriations limit for the City in each year is based on the limit for
the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted,
where applicable, for transfer of financial responsibility of providing services to or from another unit of
government. The change in the cost of living is, at the City’s option, either (1) the percentage change in
California per capita personal income, or (2) the percentage change in the local assessment roll for the
jurisdiction due to the addition of nonresidential new construction. The measurement of change in
population is a blended average of statewide overall population growth, and change in attendance at local
school and community college (“K-14”) districts.
Article XIIIB permits any government entity to change the appropriations limit by vote of the
electorate in conformity with statutory and Constitutional voting requirements, but any such voter-
approved change can only be effective for a maximum of four years.
Articles XIIIC and XIIID (Proposition 218) of the California Constitution
On November 5, 1996, the voters of the State approved Proposition 218, a constitutional initiative,
entitled the “Right to Vote on Taxes Act” (“Proposition 218”). Proposition 218 added Articles XIIIC and
XIIID to the California Constitution and contained a number of interrelated provisions affecting the ability
of local governments, including the City, to levy and collect both existing and future taxes and assessments,
fees and charges.
Article XIIIC
Section 2 of Article XIIIC requires majority voter approval for the imposition, extension or increase
of general taxes and requires two thirds voter approval for the imposition, extension or increase of special
taxes. These voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues
by the levy of general or special taxes and, given such voter approval requirements, no assurance can be
given that the City will be able to enact, impose, extend or increase any such taxes in the future to meet
increased expenditure requirements.
Although a portion of the City’s General Fund revenues are derived from general taxes purported
to be governed by Proposition 218, all of such taxes were either imposed, extended or increased prior to the
effective date of Proposition 218 or in accordance with the requirements of Proposition 218. No assurance
can be given that the voters of the City will not, in the future, approve an initiative or initiatives which
reduce or repeal local taxes, assessments, fees or charges, such as the TOT, Proposition 172 revenues, or
storm water fees which support the City’s General Fund. TOT and other local taxes, assessments, fees and
charges, could be subject to reduction or repeal by initiative under Proposition 218.
Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to reduce
or repeal local taxes, assessments, fees and charges, regardless of the date such taxes, assessments, fees or
charges were imposed. Section 3 expands the initiative power to include reducing or repealing assessments,
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fees and charges that had previously been considered administrative rather than legislative matters and
therefore beyond the initiative power. This extension of the initiative power is not limited by the terms of
Article XIIIC to fees imposed after November 6, 1996, the effective date of Proposition 218, and absent
other legal authority could result in the reduction in any existing taxes, assessments or fees and charges
imposed prior to November 6, 1996.
“Fees” and “charges” are not expressly defined in Article XIIIC or in SB 919, the Proposition 218
Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local
jurisdictions in complying with Article XIIIC and Article XIIID (“SB 919”). However, on July 24, 2006,
the California Supreme Court ruled in Bighorn-Desert View Water Agency v. Virjil (Kelley) (the “Bighorn
Decision”) that charges for ongoing water delivery are fees and charges within the meaning Section 3 of
Article XIIIC. The California Supreme Court held that such water service charges may, therefore, be
reduced or repealed through a local voter initiative pursuant to Section 3 of Article XIIIC. The Bighorn
Decision has been interpreted to mean that ongoing water delivery charges are also property-related fees
and charges within the meaning of Article XIIID.
In the Bighorn Decision, the Supreme Court stated that nothing in Section 3 of Article XIIIC
authorizes initiative measures that impose voter-approval requirements for future increases in fees or
charges for water delivery. The Supreme Court stated that water providers may determine rates and charges
upon proper action of the governing body and that the governing body may increase a charge which was not
affected by a prior initiative or impose an entirely new charge.
The Supreme Court further stated in the Bighorn Decision that it was not holding that the initiative
power is free of all limitations and was not determining whether the initiative power is subject to the
statutory provision requiring that water and wastewater service charges be set at a level that will pay debt
service on bonded debt and operating expenses. Such initiative power could be subject to the limitations
imposed on the impairment of contracts under the contract clause of the United States Constitution.
Additionally, SB 919 provides that the initiative power provided for in Proposition 218 “shall not be
construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the
effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative
measure that constitutes an impairment of contractual rights” protected by the United States Constitution.
Article XIIIC also removes many of the limitations on the initiative power in matters of reducing or
repealing any local tax, assessment, fee or charge. No assurance can be given that the voters of the City will
not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees
or charges currently comprising a substantial part of the City’s General Fund. “Assessments,” “fees” and
“charges” are not defined in Article XIIIC, and it is unclear whether these terms are intended to have the
same meanings for purposes of Article XIIIC as for Article XIIID described below. If not, the scope of the
initiative power under Article XIIIC potentially could include any General Fund local tax, assessment, or
fee not received from or imposed by the federal or State government or derived from investment income.
If the City is unable to continue to collect assessment revenues for a particular program, the
program might have to be curtailed and/or funded by the City’s General Fund. Given the approval
requirements imposed by Article XIIID, the City is unable to predict whether it will be able to continue to
collect assessment revenues for these programs. If the City chose to fund any such programs from the
General Fund instead, the General Fund budget would be affected.
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Article XIIID
Article XIIID defines a “fee” or “charge” as any levy other than an ad valorem tax, special tax, or
assessment imposed by an agency upon a parcel or upon a person as an incident of property ownership,
including a user fee or charge for a property-related service. A “property-related service” is defined as “a
public service having a direct relationship to a property ownership” herein. 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.
In the Bighorn Decision, the Supreme Court stated that ongoing water delivery charges are also property-
related fees and charges within the meaning of Article XIIID.
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 also includes a number of limitations applicable to existing fees and
charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed
the funds required to provide the property-related service; (ii) such revenues shall not be used for any
purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed
upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the
service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that
service is actually used by, or 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.
Depending on the interpretation of what constitutes a “property-related fee” under Article XIIID,
there could be future restrictions on the ability of the City’s General Fund to charge its enterprise funds for
various services provided. In the event that fees and charges of enterprise funds cannot be appropriately
increased or are reduced pursuant to exercise of the initiative power, the City may have to decide whether
to supplement any deficiencies in these enterprise funds with moneys from the General Fund or to curtail
service, or both.
The interpretation and application of Proposition 218 will ultimately be determined by the courts
or through implementing legislation with respect to a number of the matters described above, and it is not
possible at this time to predict with certainty the outcome of such determination or the nature or scope of
any such legislation.
Both Articles XIIIA and XIIIB, as well as Articles XIIIC and XIIID described above, were adopted
as measures that qualified for the ballot pursuant to California’s constitutional initiative process. From time
to time other initiative measures could be adopted, affecting the ability of the City to increase revenues and
to increase appropriations.
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Proposition 62
Proposition 62 was adopted by the voters at the November 4, 1986, general election which (a)
requires that any new or higher taxes for general governmental purposes imposed by local governmental
entities such as the City be approved by a two-thirds vote of the governmental entity’s legislative body and
by a majority vote of the voters of the governmental entity voting in an election on the tax, (b) requires that
any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local
government entity be approved by a two-thirds vote of the voters of the governmental entity voting in an
election on the tax, (c) restricts the use of revenues from a special tax to the purposes or for the service for
which the special tax was imposed, (d) prohibits the imposition of ad valorem taxes on real property by local
governmental entities except as permitted by Article XIIIA of the California Constitution, (e) prohibits the
imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities,
and (f) requires that any tax imposed by a local governmental entity on or after October 15, 1985, be ratified
by a majority vote of the voters voting in an election on the tax within two years of the adoption of the
initiative or be terminated by November 15, 1988.
On September 28, 1995, the California Supreme Court, in the case of Santa Clara County Local
Transportation Corporation v. Guardino, upheld the constitutionality of Proposition 62. In this case, the court
held that a county-wide sales tax of one-half of one percent was a special tax that, under section 53722 of
the Government Code, required a two-thirds voter approval. The county-wide sales tax at issue received an
affirmative vote of only 54.1% and was found to be invalid.
Following the California Supreme Court’s decision upholding Proposition 62, several actions were
filed challenging taxes imposed by public agencies since the adoption of Proposition 62. On June 4, 2001,
the California Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers
Association v. City of La Habra, et al. (“La Habra”). In this case, the court held that public agency’s
continued imposition and collection of a tax is an ongoing violation, upon which the statute of limitations
period begins anew with each collection. The court also held that, unless another statute or constitutional
rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three
years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received
within three years of the date the action is brought.
Proposition 1A of 2004
The California Constitution and existing statutes give the legislature authority over property taxes,
sales taxes and the VLF. The legislature has authority to change tax rates, the items subject to taxation and
the distribution of tax revenues among local governments, schools, and community college districts. The
State has used this authority for many purposes, including increasing funding for local services, reducing
State costs, reducing taxation, addressing concerns regarding funding for particular local governments, and
restructuring local finance.
The California Constitution generally requires the State to reimburse the local governments when
the State “mandates” a new local program or higher level of service. Due to the ongoing financial difficulties
of the State, it has not provided in recent years reimbursements for many mandated costs. In other cases,
the State has “suspended” mandates, eliminating both responsibility of the local governments for
complying with the mandate and the need for State reimbursements.
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The 2004 Budget Act, related legislation and the enactment of Proposition 1A of 2004 (described
below) dramatically changed the State-local fiscal relationship. These constitutional and statutory changes
implemented an agreement negotiated between the Governor and local government officials (the “State-
local agreement”) in connection with the 2004 Budget Act.
One change related to the reduction of the VLF rate from 2% to 0.65% of the market value of the
vehicle. In order to protect local governments, which had previously received all VLF revenues, the 1.35
percent reduction in VLF revenue to cities and counties from this rate change was backfilled by an increase
in the amount of property tax revenues they receive. This worked to the benefit of local governments,
because the backfill amount annually increases in proportion to the growth in secured roll property tax
revenues, which has historically grown at a higher rate than VLF revenues. Proposition 1A of 2004 requires
the State to provide local governments with equal replacement revenues.
On November 3, 2004 the voters of the State approved Proposition 1A (“Proposition 1A of 2004”).
Proposition 1A of 2004 amended the State Constitution to, among other things, reduce the Legislature’s
authority over local government revenue sources by placing restrictions on the State’s access to local
governments’ property tax, sales tax, and VLF revenues as of November 3, 2004. Pursuant to Proposition
1A of 2004, the State is able to borrow up to 8% of local property tax revenues but only if the Governor
proclaims such action is necessary due to a severe State fiscal hardship and two-thirds of both houses of the
State Legislature approve the borrowing. Any amounts borrowed are required to be repaid within three
years. Proposition 1A of 2004 also permits the State to borrow from local property tax revenues for no more
than two fiscal years within a period of 10 fiscal years, and only if previous borrowings have been repaid. In
addition, the State cannot reduce the local sales tax rate or restrict the authority of the local governments
to impose or change the distribution of the statewide local sales tax. Proposition 1A of 2004 generally
prohibits the State from mandating activities on cities, counties, or special districts without providing the
funding needed to comply with the mandates, and if the State does not provide funding for the activity that
has been determined to be mandated, the requirement on cities, counties, or special districts to abide by the
mandate is suspended. Proposition 1A of 2004 also expanded the definition of what constitutes a mandate
to encompass State action that transfers to cities, counties, and special districts financial responsibility for
a required program for which the State previously had partial or complete responsibility. The State mandate
provisions of Proposition 1A of 2004 do not apply to schools or community colleges or to mandates relating
to employee rights.
Pursuant to statutory changes made in conjunction with amendments to the fiscal year 2008-09
State Budget Act, the Fiscal Year 2009-10 State Budget Act and related budget legislation adopted by the
State Legislature and signed by the Governor in February 2012 (collectively, the “February 2012 Budget
Package”), the VLF rate increased from 0.65% to 1.15% effective May 19, 2012. Of this 0.50% increase,
0.35% will flow to the State General Fund, and 0.15% will support various law enforcement programs
previously funded by the State General Fund.
Proposition 22
Proposition 22 (“Proposition 22”), which was approved by California voters in November 2010,
prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax
revenues for transportation, redevelopment, or local government projects and services and prohibits fuel
tax revenues from being loaned for cash-flow or budget balancing purposes to the State General Fund or
any other State fund. Due to the prohibition with respect to State’s ability to take, reallocate, and borrow
money raised by local governments for local purposes, Proposition 22 supersedes certain provisions of
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Proposition 1A of 2004. See “ – Proposition 1 A of 2004” herein. In addition, Proposition 22 generally
eliminates the State’s authority to temporarily shift property taxes from cities, counties, and special districts
to schools, temporarily increase schools’ and community college districts’ share of property tax revenues,
prohibits the State from borrowing or redirecting redevelopment property tax revenues or requiring
increased pass-through payments thereof, and prohibits the State from reallocating vehicle license fee
revenues to pay for State imposed mandates. In addition, Proposition 22 requires a two-thirds vote of each
house of the State Legislature and a public hearing process to be conducted in order to change the amount
of fuel excise tax revenues shared with cities and counties. The LAO states that Proposition 22 will prohibit
the State from enacting new laws that require redevelopment agencies to shift funds to schools or other
agencies.
Proposition 22 prohibits the State from borrowing sales taxes or excise taxes on motor vehicle fuels
or changing the allocations of those taxes among local government except pursuant to specified procedures
involving public notices and hearings. In addition, Proposition 22 requires that the State apply the formula
setting forth the allocation of State fuel tax revenues to local agencies revert to the formula in effect on June
30, 2009. The LAO anticipated that Proposition 22 would require the State to adopt alternative actions to
address its fiscal and policy objectives, particularly with respect to short-term cash flow need. The City does
not believe that Proposition 22 will have a significant impact on its revenues and expenditures.
Proposition 26
Proposition 26 (“Proposition 26”), which was approved by California voters on November 2, 2010,
revises the California Constitution to expand the definition of “taxes.” Proposition 26 re-categorizes many
State and local fees as taxes and specifies a requirement of two-thirds voter approval for taxes levied by local
governments.
Proposition 26 requires the State obtain the approval of two-thirds of both houses of the State
Legislature for any proposed change in State statutes, which would result in any taxpayer paying a higher
tax. Proposition 26 eliminates the previous practice whereby a tax increase coupled with a tax reduction that
resulted in an overall neutral fiscal effect was subject only to a majority vote in the State Legislature.
Furthermore, pursuant to Proposition 26, any increase in a fee above the amount needed to provide the
specific service or benefit is deemed to be a tax and the approval thereof will require such two-thirds vote
of approval to be effective. In addition, for State imposed fees and charges, any fee or charge adopted after
January 1, 2010 with a majority vote of approval of the State Legislature which would have required a two-
thirds vote of approval of the State Legislature if Proposition 26 were effective at the time of such adoption
is repealed as of November 2011 absent the re-adoption by the requisite two-thirds vote.
Proposition 26 amends Article XIII C of the State Constitution to state that a “tax” means a levy,
charge or exaction of any kind imposed by a local government, except (1) 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; (2) 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; (3) 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; (4)
a charge imposed for entrance to or use of local government property or the purchase rental or lease of local
government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of
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government or a local government as a result of a violation of law; (6) a charge imposed as a condition of
property development; or (7) assessments and property related fees imposed in accordance with the
provisions of Proposition 218.
Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local
government on or after November 3, 2010, unless exempted, as stated above. Accordingly, fees adopted
prior to that date are not subject to the measure until they are increased or extended or if it is determined
that an exemption applies. As of the date hereof, none of the City’s fees or charges has been challenged in
a court of law in connection with the requirements of Proposition 26.
If the local government specifies how the funds from a proposed local tax are to be used, the
approval will be subject to a two-thirds voter requirement. If the local government does not specify how the
funds from a proposed local tax are to be used, the approval will be subject to a fifty percent voter
requirement. Proposed local government fees that are not subject to Proposition 26 generally are subject to
the approval of a majority of the governing body. In general, proposed property charges will be subject to a
majority vote of approval by the governing body although certain proposed property charges will also require
approval by a majority of the affected property owners.
Proposition 30
On November 6, 2012, voters approved the Temporary Taxes to Fund Education, Guaranteed
Local Public Safety Funding, Initiative Constitutional Amendment (also known as “Proposition 30”),
which temporarily increases the State Sales and Use Tax and personal income tax rates on higher incomes.
Proposition 30 temporarily imposes an additional tax on all retailers, at the rate of 0.25% of gross receipts
from the sale of all tangible personal property sold in the State from January 1, 2013 to December 31, 2017.
Proposition 30 also imposes an additional excise tax on the storage, use, or other consumption in the State
of tangible personal property purchased from a retailer on and after January 1, 2013 and before January 1,
2017, for storage, use, or other consumption in the State. This excise tax will be levied at a rate of 0.25% of
the sales price of the property so purchased. For personal income taxes imposed beginning in the taxable
year commencing January 1, 2012 and ending August 1, 2019, Proposition 30 increases the marginal
personal income tax rate by: (i) 1% for taxable income over $250,000 but less than $300,000 for single filers
(over $340,000 but less than $408,000 for joint filers), (ii) 2% for taxable income over $300,000 but less
than $500,000 for single filers (over $408,000 but less than $680,000 for joint filers), and (iii) 3% for taxable
income over $500,000 for single filers (over $608,000 for joint filers).
The revenues generated from the temporary tax increases will be included in the calculation of the
minimum funding guarantee for school districts and community college districts contained in the State
Constitution. From an accounting perspective, the revenues generated from the temporary tax increases
will be deposited into the State account created pursuant to Proposition 30 called the Education Protection
Account (the “EPA”). By dedicating the Proposition 30 funds to education, other revenues in the State
General Fund are freed up to fund other programs. Proposition 30 also placed into the state Constitution
the current statutory provisions transferring 1.0625 percent of the state sales tax to local governments to
fund realignment.
Proposition 19
On November 3, 2020, State voters approved a constitutional amendment entitled Property Tax
Transfers, Exemptions and Revenue for Wildfire Agencies and Counties Amendment (“Proposition 19”),
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which will: (i) expand special rules that give property tax savings to homeowners that are over the age of 55,
severely disabled, or whose property has been impacted by a natural disaster or contamination, when they
buy a different home; (ii) narrow existing special rules for inherited properties; and (iii) broaden the scope
of legal entity ownership changes that trigger reassessment of properties. The City cannot make any
assurance as to what effect the implementation of Proposition 19 will have on assessed valuation of real
property in the City.
Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID, Propositions 62, 1A, 22, 26, 30 and 19 were each adopted
as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time, other
initiative measures could be adopted, which may place further limitations on the ability of the State, the
City or local districts to increase revenues or to increase appropriations which may affect the City’s
revenues or its ability to expend its revenues.
ABSENCE OF LITIGATION
At the time of delivery of and payment for the Certificates, the City and the Corporation will certify
that there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court
or regulatory agency, public board, or body pending or threatened against the City or the Corporation
affecting their existence or the titles of their respective officers or seeking to restrain or to enjoin the
issuance, sale, or delivery of the Certificates, or the application of the proceeds thereof in accordance with
the Trust Agreement, or in any way contesting or affecting the validity or enforceability of the Certificates,
any agreement entered into between the City and any purchaser of the Certificates, the Lease Agreement,
the Trust Agreement, the Assignment Agreement, the Property Lease or any other applicable agreements
or any action of the City or the Corporation 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 the Corporation or their authority with respect to the Certificates or
any action of the City or the Corporation contemplated by any of said documents, nor, to the knowledge of
the City or the Corporation, is there any basis therefor.
CONTINUING DISCLOSURE
Pursuant to Rule 15c2-12 of the Securities and Exchange Commission (the “Rule”), the City has
agreed, for the benefit of holders of the Certificates, to provide certain financial information and operating
data relating to the City and the balances of funds relating to the Certificates, by not later than March 31 of
each year commencing with the report for the 2020-21 fiscal year (the “Annual Information”), and to
provide notices of the occurrence of certain enumerated events. The Annual Information and notices of
enumerated events will be filed by the City with the Municipal Securities Rulemaking Board (the
“MSRB”), via its Electronic Municipal Market Access (“EMMA”) system. The nature of the information
to be provided in the Annual Information and the notices of material events is set forth in APPENDIX G—
FORM OF CONTINUING DISCLOSURE CERTIFICATE.
The City’s annual filings for fiscal years 2013-14, 2014-15 and 2015-16 in connection with its
outstanding 2011 utility revenue bonds omitted certain information relating to the top ten customers of its
gas system. For fiscal year 2015, certain information required in connection with an issue of assessment
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district bonds was not filed until approximately 229 days after the date required for such filings. For fiscal
years 2013-14 through 2017-18, the City’s annual report was not properly associated on EMMA with all
appropriate CUSIPs. The omissions were corrected and correcting EMMA filings were made. The City has
established internal policies to insure that all future required filings are made as required.
Substantially all of the City’s required financial information and operating data is included in its
comprehensive annual financial report (the “CAFR”) which is historically filed in advance of the required
March 31 deadline.
Any financial information and operating data not included in the comprehensive annual financial
report is compiled by the City’s Treasury staff and its Assistant Administrative Services Director. The City
has established a ticker system to provide staff with advance notice so that the reports are prepared in time
to allow review and timely filing.
MUNICIPAL ADVISOR
PFM Financial Advisors LLC, San Francisco, California (“PFM”), is an independent financial
advisory firm registered as a “Municipal Advisor” with the Securities Exchange Commission and
Municipal Securities Rulemaking Board. PFM does not underwrite, trade or distribute municipal or other
public securities. PFM has assisted the City in connection with the planning, structuring, sale and issuance
of the Certificates. PFM is not obligated to undertake, and has not undertaken to make, an independent
verification of or to assume responsibilities for the accuracy, completeness or fairness of the information
contained in this Official Statement not provided by PFM. The fees of PFM in respect to the Certificates
are contingent upon their sale and delivery.
LEGAL MATTERS
All legal matters in connection with the execution and delivery of the Certificates are subject to the
approval of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel. Special
Counsel’s opinion with respect to the Certificates will be substantially in the form set forth in APPENDIX
D—FORM OF SPECIAL COUNSEL OPINION. Certain legal matters will also be passed on for the City
by Quint & Thimmig LLP, Larkspur, California, as Disclosure Counsel, and by the City Attorney. The fees
and expenses of Special Counsel and Disclosure Counsel are contingent upon the execution and delivery of
the Certificates.
TAX MATTERS
Federal Tax Status. In the opinion of Jones Hall, A Professional Law Corporation, San Francisco,
California, Special Counsel, subject, however to the qualifications set forth below, under existing law, the
portion of Lease Payments designated as and comprising interest and received by the owners of the
Certificates is excluded from gross income for federal income tax purposes and such interest is not an item
of tax preference for purposes of the federal alternative minimum tax.
The opinions set forth in the preceding paragraph are subject to the condition that the City comply
with all requirements of the Internal Revenue Code of 1986, as amended (the “Tax Code”) relating to the
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exclusion from gross income for federal income tax purposes of interest on obligations such as the
Certificates. The City has made certain representations and covenants in order to comply with each such
requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may
cause the inclusion of such interest in gross income for federal income tax purposes, which may be
retroactive to the date of execution and delivery of the Certificates.
Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public at
which a Certificate is sold is less than the amount payable at maturity thereof, then such difference
constitutes “original issue discount” for purposes of federal income taxes and State of California personal
income taxes. If the initial offering price to the public at which a Certificate is sold is greater than the amount
payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of
federal income taxes and State of California personal income taxes. De minimis original issue discount and
original issue premium is disregarded.
Under the Tax Code, original issue discount is treated as interest excluded from federal gross
income and exempt from State of California personal income taxes to the extent properly allocable to each
owner thereof subject to the limitations described in the first paragraph of this section. The original issue
discount accrues over the term to maturity of the Certificate on the basis of a constant interest rate
compounded on each interest or principal payment date (with straight-line interpolations between
compounding dates). The amount of original issue discount accruing during each period is added to the
adjusted basis of such Certificates to determine taxable gain upon disposition (including sale, redemption,
or payment on maturity) of such Certificate. The Tax Code contains certain provisions relating to the
accrual of original issue discount in the case of purchasers of the Certificates who purchase the Certificates
after the initial offering of a substantial amount of such maturity. Owners of such Certificates should consult
their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue
discount, including the treatment of purchasers who do not purchase in the original offering, the allowance
of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount
on such Certificates under federal individual minimum taxes.
Under the Tax Code, original issue premium is amortized on an annual basis over the term of the
Certificate (said term being the shorter of the Certificate’s maturity date or its call date). The amount of
original issue premium amortized each year reduces the adjusted basis of the owner of the Certificate for
purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a
Certificate is amortized each year over the term to maturity of the Certificate on the basis of a constant
interest rate compounded on each interest or principal payment date (with straight-line interpolations
between compounding dates). Amortized Certificate premium is not deductible for federal income tax
purposes. Owners of premium Certificates, including purchasers who do not purchase in the original
offering, should consult their own tax advisors with respect to State of California personal income tax and
federal income tax consequences of owning such Certificates.
California Tax Status. In the further opinion of Special Counsel, the portion of Lease Payments
designated as and comprising interest and received by the owners of the Certificates is exempt from
California personal income taxes.
The complete text of the final opinion that Special Counsel expects to deliver upon the delivery of
the Certificates is set forth in APPENDIX D—FORM OF OPINION OF SPECIAL COUNSEL.
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Other Tax Considerations
Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court
decisions may cause interest with respect to the Certificates to be subject, directly or indirectly, to federal
income taxation or may cause interest with respect to the Certificates to be subject to or exempted from
state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the
tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of
the Tax Code or court decisions may also affect the market price for, or marketability of, the Certificates. It
cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted,
such legislation would apply to Certificates issued prior to enactment.
The opinions expressed by Special Counsel are based upon existing legislation and regulations as
interpreted by relevant judicial and regulatory authorities as of the date of such opinion, and Special Counsel
has expressed no opinion with respect to any proposed legislation or as to the tax treatment of interest with
respect to the Certificates, or as to the consequences of owning or receiving interest with respect to the
Certificates, as of any future date. Prospective purchasers of the Certificates should consult their own tax
advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to
which Special Counsel expresses no opinion.
Owners of the Certificates should also be aware that the ownership or disposition of, or the accrual
or receipt of interest with respect to, the Certificates may have federal or state tax consequences other than
as described above. Other than as expressly described above, Special Counsel expresses no opinion
regarding any federal or state tax consequences arising with
UNDERWRITING
Following a competitive sale, the Certificates were purchased by ___________ (the
“Underwriter”). The Underwriter has agreed to purchase the Certificates at a purchase price of
$________ (being equal to the aggregate principal amount of the Certificates of $________, plus a net
original issue premium of $_______, less an underwriter’s discount of $_________). The Underwriter
will purchase all of the Certificates if any are purchased, the obligation to make such purchase being subject
to certain terms and conditions set forth in the notice of sale for the Certificates, the approval of certain
legal matters by counsel and certain other conditions. The Underwriter may offer and sell Certificates to
certain dealers and others at prices lower than the offering prices stated on the inside cover page hereof.
The offering prices may be changed from time to time by the Underwriter.
RATING
S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”) has assigned
the rating of “___” to the Certificates. Such rating reflects only the view of S&P and any desired
explanation of the significance of such rating should be obtained from S&P at the following address: 55
Water Street, New York, NY 10041, (212) 208-8000. Generally, a rating agency bases its rating on the
information and materials furnished to it and on investigations, studies and assumptions of its own. There
is no assurance such rating will continue for any given period of time or that such rating will not be revised
downward or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. Any such
downward revision or withdrawal of such rating may have an adverse effect on the market price for the
Certificates.
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FINANCIAL STATEMENTS
The City’s Audited Financial Statements for fiscal year ended June 30, 2020, and the City’s
Auditor’s Report regarding such financial statements, are set forth in APPENDIX B—
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE YEAR ENDED
JUNE 30, 2020. The City’s Auditor was not requested to consent to the inclusion of its report in Appendix
B and it has not undertaken to update financial statements included in Appendix B. No opinion is expressed
by the City’s Auditor with respect to any event subsequent to its report. This and prior year’s annual
financial reports can also be obtained at: https://www.cityofpaloalto.org/gov/depts/asd/reporting.asp.
ADDITIONAL INFORMATION
All of the preceding summaries of the Certificates, the Trust Agreement, the Lease Agreement, the
Assignment Agreement, the Property Lease, and other documents are made subject to the provisions of
such documents respectively and do not purport to be complete statements of any or all of such provisions.
Reference is hereby made to such documents on file with the City for further information in connection
therewith.
This Official Statement does not constitute a contract with the purchasers of the Certificates.
Any statements made in this Official Statement involving matters of opinion or estimates, whether
or not so expressly stated, are set forth as such and not as representations of fact, and no representation is
made that any of the estimates will be realized.
References are made herein to certain documents and reports which are brief summaries thereof
which do not purport to be complete or definitive and reference is made to such documents and reports for
full and complete statements of the contents thereof.
The City will furnish a certificate dated the date of delivery of the Certificates, from an appropriate
officer of the City, to the effect that to the best of such officer’s knowledge and belief, and after reasonable
investigation, (i) neither the Official Statement or any amendment or supplement thereto contains any
untrue statement of a material fact or omits to state any material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading; (ii) since the date of the
Official Statement, no event has occurred which should have been set forth in an amendment or supplement
to the Official Statement which has not been set forth in such an amendment or supplement, and the
Certificates, the Trust Agreement, the Lease Agreement, the Assignment Agreement, the Property Lease,
and other applicable agreements conform as to form and tenor to the descriptions thereof contained in the
Official Statement; and (iii) the City has complied with all the agreements and has satisfied all the conditions
on its part to be performed or satisfied under the Trust Agreement at and prior to the date of the issuance
of the Certificates.
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The execution and delivery of the Official Statement by the City have been duly authorized by the
City Council on behalf of the City.
CITY OF PALO ALTO
By
Ed Shikada,
City Manager
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Appendix A
Page 1
APPENDIX A
GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION
RELATING TO THE CITY AND THE COUNTY
The following information concerning the City of Palo Alto and Santa Clara County is included only for
the purpose of supplying general information regarding the City and the County. The Certificates are not a debt of
the County, the State or any of its political subdivisions, and none of the County, the State nor any of their political
subdivisions, except for the City, are liable therefor.
Although reasonable efforts have been made to include up-to-date information in this Appendix A, some of
the information is not current due to delays in reporting of information by various sources. It should not be assumed
that the trends indicated by the following data would continue beyond the specific periods reflected herein.
Introduction
City of Palo Alto. Palo Alto (the “City”) is located in northern Santa Clara County (the “County”),
approximately 35 miles south of the City of San Francisco. It is part of the San Francisco Bay metropolitan
area. The City is considered the birthplace of the high technology industry and a center of the Silicon Valley.
Stanford University covers a 700-acre area in the City, and the City is home to high-tech leaders such as
Hewlett-Packard, SAP America, Varian Medical Systems, VMware, Tibco Software, the Electric Power
Research Institute, Communications and Power Industries and Skype. The City is also a major employment
center, including U.S. Department of Veterans Affairs, Palo Alto Health Care System, Stanford Hospitals
and Clinics, Lockheed Martin Missiles and Space, Palo Alto Medical Foundation, Stanford Shopping
Center, the law offices of Wilson Sonsini Goodrich and Rosati, and the Xerox Palo Alto Research Center.
Santa Clara County. Located at the southern end of the San Francisco Bay, the County is the most
populous county in the San Francisco Bay Area region, and one of the most affluent counties in the United
States. The County was one of the original counties of California, formed in 1850 at the time of statehood.
The County seat is San Jose, the tenth-most populous city in the United States. According to the U.S.
Census Bureau, the county has a total area of 1,304 square miles (3,380 km2), of which 1,290 square miles
(3,300 km2) is land and 14 square miles (36 km2) (1.1%) is water.
The highly urbanized Santa Clara Valley within the County is also known as Silicon Valley. The
County is the headquarters for approximately 6500 high technology companies, including many of the
largest tech companies in the world, among them hardware manufacturers AMD, Cisco Systems and Intel,
computer and consumer electronics companies Apple Inc. and Hewlett-Packard, and internet companies
eBay, Facebook, Google and Yahoo!
Appendix A
Page 2
Population
The table below summarizes population of the City, the County, and the State of California for the
last five years.
CITY OF PALO ALTO, SANTA CLARA COUNTY, and CALIFORNIA
Population
Year
City of
Palo Alto
Santa Clara
County
State of
California
2016 68,867 1,931,565 39,131,307
2017 69,274 1,942,176 39,398,702
2018 69,191 1,951,088 39,586,646
2019 69,109 1,954,833 39,695,376
2020 69,226 1,961,969 39,782,870
Source: California Department of Finance, E-4 Population Estimate for Cities, Counties, and the State, 2011-20, with 2010
Census Benchmark.
Appendix A
Page 3
Employment
The following table summarizes historical employment and unemployment for the County, the
State of California and the United States:
SANTA CLARA COUNTY, CALIFORNIA, and UNITED STATES
Civilian Labor Force, Employment, and Unemployment
(Annual Averages)
Unemployment
Year Area Labor Force Employment Unemployment Rate (1)
2015 Santa Clara County 1,018,400 976,100 42,300 4.2%
California 18,981,800 17,798,600 1,183,200 6.2
United States 157,130,000 148,834,000 8,296,000 5.3
2016 Santa Clara County 1,026,500 987,900 38,600 3.8
California 19,102,700 18,065,000 1,037,700 5.4
United States 159,187,000 151,436,000 7,751,000 4.9
2017 Santa Clara County 1,042,000 1,008,600 33,400 3.2
California 19,312,000 18,393,100 918,900 4.8
United States 160,320,000 153,337,000 6,982,000 4.4
2018 Santa Clara County 1,048,800 1,021,500 27,300 2.6
California 19,398,200 18,582,800 815,400 4.2
United States 162,075,000 155,761,000 6,314,000 3.9
2019(2) Santa Clara County 1,053,700 1,027,500 26,200 2.5
California 19,411,600 18,627,400 784,200 4.0
United States 163,539,000 157,538,000 6,001,000 3.7
Source: California Employment Development Department, Monthly Labor Force Data for Counties, Annual Average 2010-19, and US
Department of Labor.
(1) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures available in
this table.
(2) Latest available full-year data.
Appendix A
Page 4
Major Industries in the County
The table below sets forth the ten largest industries by employment in Santa Clara County in 2019.
SANTA CLARA COUNTY
Top 10 Industries
as of June 30, 2019
Employer Employees
% of Total
County
Employment
Apple Inc. 25,000 2.44%
Google LLC 24,626 2.40
Santa Clara County 20,883 2.04
Stanford University 16,919 1.65
Cisco Systems Inc. 14,674 1.43
Kaiser Permanente Northern California 12,500 1.22
Stanford Health Care 10,034 .98
Tesla Motors Inc. 10,000 .98
Applied Materials, Inc. 8,500 .83
Intel Corporation 8,400 .82
Total Top 10 151,536 14.78%
Source: Santa Clara County 2018-19 CAFR.
Appendix A
Page 5
Construction Activity
The following table reflects the five-year history of building permit valuation for the City and the
County:
CITY OF PALO ALTO
Building Permits and Valuation
(Dollars in Thousands)
2015 2016 2017 2018 2019(1)
Permit Valuation:
New Single-family $ 73,403 $ 58,795 $ 76,244 $ 72,564 $ 76,229
New Multi-family 68,911 5,764 9,262 - -
Res. Alterations/Additions 41,848 36,423 70,538 33,568 14,563
Total Residential 184,163 100,983 156,046 106,133 90,792
Total Nonresidential 277,837 298,797 357,789 342,597 110,092
Total All Building $462,000 $399,780 $513,835 $448,731 $200,884
New Dwelling Units:
Single Family 119 96 119 110 105
Multiple Family 210 30 28 - -
Total 329 126 147 110 105
SANTA CLARA COUNTY
Building Permits and Valuation
(Dollars in Thousands)
2015 2016 2017 2018 2019(1)
Permit Valuation:
New Single-family $ 653,970 $ 660,301 $ 732,652 $ 728,590 $ 693,032
New Multi-family 706,781 564,761 1,027,651 1,098,643 567,726
Res. Alterations/Additions 505,844 484,820 547,991 558,024 555,483
Total Residential 1,866,595 1,709,882 2,308,295 2,385,258 1,816,242
Total Nonresidential 3,589,800 4,698,158 3,359,316 4,132,146 5,447,642
Total All Building $5,456,396 $6,408,041 5,667,612 6,517,404 7,263,884
New Dwelling Units:
Single Family 1,710 1,608 2,022 2,011 1,814
Multiple Family 3,906 3,297 6,629 6,342 3,216
Total 5,616 4,905 8,631 8,353 5,030
Source: Construction Industry Research Board: “Building Permit Summary.”
Note: Columns may not sum to totals due to independent rounding.
(1) Latest available full year data.
Appendix A
Page 6
Median Household Income
The following table summarizes the median household effective buying income for the City, the
County, the State of California and the nation for the past five years.
CITY OF PALO ALTO, SANTA CLARA COUNTY,
STATE OF CALIFORNIA AND UNITED STATES
Median Household Effective Buying Income
2016 2017 2018 2019 2020
City of Palo Alto $105,019 $121,376 $123,583 $133,985 $140,963
Santa Clara County 81,466 88,243 92,773 98,882 103,458
California 55,681 59,646 62,637 65,870 67,956
United States 48,043 50,735 52,841 55,303 56,790
Source: Nielsen, Inc.
Appendix B
APPENDIX B
COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY
FOR THE YEAR ENDED JUNE 30, 2020
The Auditor was not requested to consent to the inclusion of its report in this Appendix B and it
has not undertaken to update financial statements included in this Appendix B. No opinion is expressed by
the Auditor with respect to any event subsequent to its report.
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Appendix C
APPENDIX C
INVESTMENT POLICY OF THE CITY
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Appendix D
Page 1
APPENDIX D
FORM OF SPECIAL COUNSEL OPINION
[Closing Date]
City Council
City of Palo Alto
250 Hamilton Avenue
Palo Alto, California 94301
OPINION: $_________* City of Palo Alto 2021 Certificates of Participation (Public Safety Building)
Members of the City Council:
We have acted as special counsel to the City of Palo Alto (the “City”) in connection with the delivery by the
City of the Lease Agreement dated as of March 1, 2021 (the “Lease Agreement”) between the Palo Alto Public
Improvement Corporation (the “Corporation”) as lessor and the City as lessee. Under the Trust Agreement dated as
of March 1, 2021 (the “Trust Agreement”) among the City, the Corporation and U.S. Bank National Association, as
trustee (the “Trustee”), the Trustee has executed and delivered the above-captioned certificates of participation
dated the date hereof (the “Certificates”). In such capacity, we have examined such law and such certified
proceedings, certifications and other documents as we have deemed necessary to render this opinion.
The Certificates evidence the direct, undivided fractional interests of the owners thereof in lease payments
to be made by the City under the Lease Agreement (the “Lease Payments”), which have been assigned by the
Corporation to the Trustee. The City authorized execution and delivery of the Lease Agreement, the Trust Agreement
and the Certificates pursuant to a resolution of the city council of the City adopted on February 1, 2021 (the
“Resolution”).
Regarding questions of fact material to our opinion, we have relied on representations of the City contained
in the Lease Agreement and the Trust Agreement, and in the certified proceedings and other certifications of public
officials furnished to us, without undertaking to verify the same by independent investigation.
Based on the foregoing, we are of the opinion that, under existing law:
1. The City is a duly created and validly existing municipal corporation and charter city with the power to
adopt the Resolution, enter into the Lease Agreement and the Trust Agreement, and perform the agreements on its
part contained therein.
2. The Lease Agreement and the Trust Agreement have been duly authorized, executed and delivered
by the City, and constitute the valid and binding obligations of the City, enforceable against the City.
3. The Certificates have been validly executed and delivered by the Trustee under the Trust Agreement
and, by virtue of the assignment made by the Corporation, the owners of the Certificates are entitled to the benefits of
the Lease Agreement.
* Preliminary, subject to change.
Appendix D
Page 2
4. The portion of the Lease Payments designated as and comprising interest and received by the owners
of the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference
for purposes of the federal alternative minimum tax. The opinions set forth in the preceding sentence are subject to
the condition that the City comply with all requirements of the Internal Revenue Code of 1986, as amended, that must
be satisfied subsequent to the execution and delivery of the Lease Agreement in order that the portion of the Lease
Payments designated as and comprising interest be, and continue to be, excludable from gross income for federal
income tax purposes. The City has made certain representations and covenants in order to comply with each such
requirement. Inaccuracy of those representations, or failure to comply with certain of those covenants, may cause the
inclusion of such interest in gross income for federal income tax purposes, which may be retroactive to the date of
delivery of the Lease Agreement.
5. The portion of the Lease Payments designated as and comprising interest and received by the owners
of the Certificates is exempt from personal income taxation imposed by the State of California.
We express no opinion regarding any other tax consequences arising with respect to the ownership, sale or
disposition of, or the amount, accrual or receipt of interest on, the Lease Agreement or the Certificates.
The rights of the owners of the Certificates and the enforceability of the Lease Agreement and the Trust
Agreement are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting
creditors’ rights generally, and by equitable principles, whether considered at law or in equity.
This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion
to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter
occur. Our engagement with respect to this matter has terminated as of the date hereof.
Respectfully submitted,
A Professional Law Corporation
Appendix E
Page 1
APPENDIX E
SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS
The following are brief summaries of the provisions of the principal legal documents. These summaries are
not intended to be definitive. Reference is made to the actual documents (copies of which are available from the City)
for the complete terms thereof.
DEFINED TERMS
“Assignment Agreement” means the Assignment Agreement, dated as of March 1, 2021, by and between
the Corporation and the Trustee, together with any duly authorized and executed amendments thereto.
“Bond Counsel” means any attorney or firm of attorneys of nationally recognized expertise with respect to
legal matters relating to obligations the interest on which is exempt from federal income taxation pursuant to Section
103 of the Code.
“Business Day” means a day of the week on which the Trustee is not required or authorized to remain
closed and on which the New York Stock Exchange is open.
“Capitalized Interest Account” means the account by that name established within the Lease Payment
Fund and held by the Trustee pursuant to the Trust Agreement.
“Certificates” means the $__________ aggregate principal amount of City of Palo Alto 2021 Certificates
of Participation (Public Safety Building).
“City” means the City of Palo Alto, a chartered municipal corporation duly organized and existing under the
Constitution and the laws of the State.
“City Representative” means the City Manager, the Assistant City Manager or the Director of
Administrative Services of the City or any other person authorized by resolution of the City Council to act on behalf
of the City under or with respect to the Trust Agreement and the Lease Agreement.
“Closing Date” means the date upon which there is an exchange of the Certificates for the proceeds
representing the purchase of the Certificates by the Original Purchaser.
“Code” means the Internal Revenue Code of 1986 as in effect on the date of delivery of the Lease Agreement
or (except as otherwise referenced in the Lease Agreement) as it may be amended to apply to obligations issued on the
date of delivery of the Lease Agreement, together with applicable temporary and final regulations promulgated, and
applicable official public guidance published, under the Code.
“Corporation” means the Palo Alto Public Improvement Corporation, a nonprofit public benefit
corporation duly formed, organized, operating and existing under the laws of the State, and its successors and assigns.
“Corporation Representative” means the President or Vice President of the Corporation, or any other
person authorized by resolution of the Corporation to act on behalf of the Corporation under or with respect to the
Trust Agreement and the Lease Agreement.
“Corporate Trust Office” means the corporate trust office of the Trustee in San Francisco, California, or
such other or additional offices as the Trustee may designate in writing to the Corporation from time to time as the
corporate trust office for purposes of the Trust Agreement, except that with respect to presentation of Certificates for
Appendix E
Page 2
payment or for registration of transfer and exchange thereof, such term shall mean the office or agency of the Trustee
at which, at any particular time, its corporate trust agency business shall be conducted, initially in Saint Paul,
Minnesota.
“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City
or the Corporation relating to the execution, sale and delivery of the Certificates, including but not limited to
settlement costs, printing costs, reproduction and binding costs, initial fees and charges of the Trustee, financing
discounts, legal fees and charges, bond insurance or title, insurance fees and charges, financial and other professional
consultant fees, costs of rating agencies for credit ratings, fees for execution, transportation and safekeeping of the
Certificates and charges and fees in connection with the foregoing.
“Costs of Issuance Fund” means the fund by that name established and held by the Trustee pursuant to the
Trust Agreement.
“Counsel” means any attorney at law or law firm (who or which may be counsel for the City, the Trustee or
the Corporation).
“Event of Default” means an event of default under the Lease Agreement.
“Fair Market Value” means the price at which a willing buyer would purchase the investment from a willing
seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment
becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273
of the Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm’s length
transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with
applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or
reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a
forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations
under the Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is
acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled
investment fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest
therein if the return paid by the fund is without regard to the source of the investment.
“Federal Securities” means any of the following which at the time of investment are legal investments under
the laws of the State for the moneys proposed to be invested therein:
(a) direct general obligations of the United States of America (including obligations issued or held
in book entry form on the books of the Department of the Treasury of the United States of America); and
(b) obligations of any department, agency or instrumentality of the United States of America the
timely payment of principal of and interest on which are unconditionally and fully guaranteed by the United
States of America.
“Final Completion” means, with respect to the acquisition and construction of the California Avenue Public
Safety with the proceeds of the Certificates, the substantial readiness of the Public Safety Building for use and
occupancy by the City, as evidenced by the delivery to the Trustee of a certificate of completion.
“Fiscal Year” means each twelve-month period beginning on July 1 of any year and ending on June 30 of the
succeeding year, or any other twelve-month period hereafter adopted by the City as its official fiscal year period.
“Independent Counsel” means an attorney duly admitted to the practice of law before the highest court of
the state in which such attorney maintains an office and who is not an employee of the Corporation, the Trustee or the
City.
Appendix E
Page 3
“Insurance and Condemnation Fund” means the fund by that name established and held by the Trustee
pursuant to the Trust Agreement.
“Investment Securities” means any of the following which at the time of investment are legal investments
under the laws of the State of California for trust funds held by the Trustee (the Trustee is entitled to rely upon any
investment direction of the City as a certification that such investment constitutes an Investment Security):
1. Direct and general obligations of the United States of America, or obligations that are
unconditionally guaranteed as to payments of principal and interest by the United States of America,
including (in the case of direct and general obligations of the United States of America) evidences of direct
ownership of proportionate interests in future interest or principal payments of such obligations. Investments
in such proportionate interests must be limited to circumstances wherein (a) a bank or trust company acts as
custodian and holds the underlying United States obligations; (b) the owner of the investment is the real party
in interest and has the right to proceed directly and individually against the obligor of the underlying United
States obligations; and (c) the underlying United States obligations are held in safekeeping in a special
account, segregated from the custodian’s general assets, and are not available to satisfy any claim of the
custodian, any person claiming through the custodian, or any person to whom the custodian may be obligated.
The obligations described in this paragraph are hereinafter called “United States Obligations”.
2. Obligations issued or guaranteed by the following instrumentalities or agencies:
(a) Federal Home Loan Banks;
(b) Government National Mortgage Association;
(c) Farmers Home Administration;
(d) Federal Home Loan Mortgage Corporation;
(e) Federal Housing Administration; and
(f) Federal National Mortgage Association.
3. Direct and general long-term obligations of any state or commonwealth of the United States, to
the payment of which the full faith and credit of the state or commonwealth is pledged and that are rated
“Aaa” by Moody’s and “AAA” by S&P.
4. Direct and general short-term obligations of any state or commonwealth, to the payment of which
the full faith and credit of the state or commonwealth is pledged and that are rated in the highest rating
category by Moody’s and S&P.
5. Interest-bearing demand or time deposits issued by state banks or trust companies or national
banking associations that are members of the Federal Deposit Insurance Corporation (FDIC). These deposits
must be continuously and fully insured by FDIC and be with banks whose debt is rated at least P-1 or Aa by
Moody’s and at least A-1+ or AA by S&P.
6. Repurchase agreements, the maturities of which are 30 days or less, or are due on demand, entered
into with financial institutions such as banks or trust companies organized under state law or national banking
associations, insurance companies, or government bond dealers reporting to, trading with, and recognized as
a primary dealer by, the Federal Reserve Bank of New York and a member of the Security Investors Protection
Corporation or with a dealer or parent holding company, in each such case the debt of which is rated at least
“A” or “P-1” by Moody’s and S&P. Such repurchase agreements shall be in respect of United States
Obligations and (except repurchase agreements with institutions whose debt or commercial paper is rated
“Aaa” or “P-1” by Moody’s and S&P) shall be collateralized by United States Obligations, and the
provisions of the repurchase agreement shall meet the following additional criteria:
(i) the Trustee (who shall not be the provider of the collateral) or a third party acting solely
as agent for the Trustee has possession of the United States Obligations;
Appendix E
Page 4
(ii) failure to maintain the requisite collateral levels will require the Trustee to liquidate the
United States Obligations immediately;
(iii) the Trustee has a perfected, first priority security interest in the United States
Obligations; and
(iv) the United States Obligations are free and clear of third-party liens, and in the case of
an SIPC broker, were not acquired pursuant to a repurchase or reverse repurchase agreement.
7. Pre-refunded municipal obligations meeting the following conditions:
(a) the municipal obligations are (i) not to be redeemed prior to maturity or the Trustee has
been given irrevocable instructions concerning their calling and redemption and (ii) the issuer has
covenanted not to redeem such municipal obligations other than as set forth in such instructions;
(b) the municipal obligations are secured by cash or United States Obligations that may be
applied only to interest, principal, and premium payments of such municipal obligations;
(c) the principal of and interest on the United States Obligations (plus any cash in the
escrow fund) are sufficient to meet the liabilities on the municipal obligations;
(d) the United States Obligations serving as security for the municipal obligations are held
by an escrow agent or trustee; and
(e) the United States Obligations (plus any cash in the escrow fund) are not available to
satisfy any other claims, including those against the trustee or escrow agent.
8. Prime commercial paper of a United States corporation, finance company or banking institution
if such commercial paper is rated at least “P1” by Moody’s and at least “A-1+” by S&P and if such
commercial paper is stated to mature in not more than 270 days.
9. Shares of a diversified open-end management investment company (as defined in the Investment
Company Act of 1940) or shares in a regulated investment company (as defined in Section 851 (a) of the
Internal Revenue Code of 1986, as amended) that is a money market fund that has been rated in the highest
rating category by S&P.
10. The Local Agency Investment Fund maintained by the Treasurer of the State (“LAIF”) to the
extent deposits and withdrawals may be made by the Trustee in its own name.
11. Banker’s acceptances drawn on and accepted by commercial banks (including the Trustee and
any affiliate of the Trustee) having a combined unencumbered capital, surplus and retained earnings of not
less than $30,000,000 and whose notes or commercial paper are rated in the highest rating category by
Moody’s (if the Certificates are then rated by Moody’s) and S&P (if the Certificates are then rated by S&P).
12. Money market funds restricted to obligations issued or guaranteed as to payment of principal
and interest by the full faith and credit of the United States of America, including such funds for which the
Trustee or an affiliate acts as investment advisor or provides other services, which are rated in the highest
rating category by S&P.
13. Investment Agreements which are approved in writing by Moody’s and S&P.
Appendix E
Page 5
14. Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5
of the California Government Code which invests exclusively in investments permitted by Section 53635 of
Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended; i.e., the California
Arbitrage Management Program (CAMP).
“Lease Agreement” means the Lease Agreement, dated as of March 1, 2021, by and between the
Corporation as lessor and the City as lessee, together with any duly authorized and executed amendments thereto.
“Lease Default Event” means any of the events specified in the Lease Agreement.
“Lease Payments” means the lease payments required to be paid by the City pursuant to the Lease
Agreement, including any prepayment thereof pursuant to the Lease Agreement.
“Lease Payment Date” means April 15 and October 15 of each year during the term of the Lease
Agreement, commencing April 15, 2021.
“Lease Payment Fund” means the fund by that name established and held by the Trustee pursuant to the
Trust Agreement.
“Leased Property” means, initially, the City Civic Center, as more particularly described in Exhibit A of
the Property Lease.
“Lease Term” means the period during which the Lease is in effect as specified in the Lease Agreement.
“Moody’s” means Moody’s Investors Service, of New York, New York, or its successors.
“Net Proceeds” means any insurance proceeds or condemnation award in excess of $50,000, paid with
respect to the Leased Property, to the extent remaining after payment therefrom of all expenses incurred in the
collection thereof.
“Original Purchaser” means Stifel, Nicolaus & Company, Incorporated, as original purchaser of the
Certificates upon their delivery by the Trustee on the Closing Date.
“Outstanding”, when used as of any particular time with reference to Certificates, means (subject to the
provisions the Trust Agreement) all Certificates theretofore, or thereupon being, executed and delivered by the
Trustee under the Trust Agreement except (1) Certificates theretofore cancelled by the Trustee or surrendered to the
Trustee for cancellation; (2) Certificates with respect to which all liability of the City shall have been discharged in
accordance with the Trust Agreement, including Certificates (or portions of Certificates) referred to the Trust
Agreement; and (3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other
Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement.
“Owner” or “Certificate Owner”, when used with respect to a Certificate means the person in whose
name the ownership of such Certificate shall be registered.
“Payment Date” means (i) with respect to the interest component of the Lease Payments payable to the
Owners of the Certificates, May 1, 2021, and the first day of each May and November thereafter so long as any
Certificates are Outstanding under the Trust Agreement, and (ii) with respect to the principal of the Certificates, May
1, 2021 and each November 1 thereafter so long as the Certificates are Outstanding, terminating November 1, 2048.
“Permitted Encumbrances” means, as of any particular time: (i) liens for general ad valorem taxes and
assessments, if any, not then delinquent; (ii) the Assignment Agreement; (iii) the Property Lease and the Lease
Agreement; (iv) the Trust Agreement; (v) any right or claim of any mechanic, laborer, materialman, supplier or vendor
not filed or perfected in the manner prescribed by law; (vi) easements, rights of way, mineral rights, drilling rights and
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other rights, reservations, covenants, conditions or restrictions which exist of record as of the date on which the
Certificates are delivered to the purchasers thereof and which the City certifies in writing will not materially impair
the use of the Leased Property; (vii) easements, rights of way, mineral rights, drilling rights and other rights,
reservations, covenants, conditions or restrictions established following the date of recordation of the Property Lease
and to which the Corporation and the City consent in writing and (viii) any items listed in the title report issued by
Stewart Title Guaranty on the date of execution and delivery of the Certificates.
“Principal Amount” means the total unpaid principal component of the Lease Payments due under the
Lease Agreement.
“Property Lease” means the Property Lease, dated as of March 1, 2021, recorded concurrently with the
Lease Agreement, by and between the City, as lessor, and the Corporation, as lessee, together with any duly authorized
and executed amendments thereto.
“Property Lease Payment” means the payment required to be paid by the Corporation on the Closing Date
pursuant to the Property Lease.
“Public Safety Building” means the parking garage to be located at 250 Sherman Avenue.
“Public Safety Costs” means all costs of payment of, or reimbursement for, design, acquisition,
construction, installation and equipping of the Public Safety Building, including but not limited to, architect and
engineering fees, construction contractor payments, costs of feasibility and other reports, inspection costs,
performance bond premiums and permit fees, and includes Costs of Issuance not paid out of the Costs of Issuance
Fund.
“Public Safety Construction Fund” means the fund by that name established and held by the Trustee
pursuant to the Trust Agreement.
“Rating Category” means any generic rating category of Moody’s or S&P, without regard to any refinement
of such category by plus or minus sign or by numerical or other qualifying designation.
“Record Date” means the close of business on the fifteenth day of the month preceding each Payment Date,
whether or not such fifteenth day is a Business Day.
“Registration Books” means the records maintained by the Trustee pursuant to the Trust Agreement for
registration and transfer of ownership of the Certificates.
“Regulations” means temporary and permanent regulations promulgated under the Code.
“Rental Period” means each twelve-month period during the term of the Lease Agreement commencing on
November 2 in any year and ending on the next succeeding November 1, except that the first rental period shall
commence on the Closing Date.
“S&P” means S&P Global Ratings, of New York, New York, or its successors.
“State” means the State of California.
“Term of the Lease Agreement” means the time during which the Lease Agreement is in effect, as provided
in the Lease Agreement.
“Trust Agreement” means the Trust Agreement dated as of March 1, 2021 by and among Trustee, the
Corporation and the City, relating to the Certificates.
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“Trustee” means U.S. Bank National Association, and its successors and assigns.
“Written Request of the Corporation” means an instrument in writing signed by the Corporation
Representative.
“Written Request of the City” means an instrument in writing signed by the City Representative.
PROPERTY LEASE
Under the Property Lease (the “Property Lease”), the City initially leases the _________ (the “Leased
Property”) to the Corporation, to enable the Corporation to sublease the Leased Property back to the City under the
Lease Agreement.
Term
The term of the Property Lease will commence on the Closing Date and will end on November 1, 2050, unless
such term is extended as provided in the Property Lease. If on November 1, 2050, the Trust Agreement will not be
discharged by its terms, then the term of the Property Lease will be extended until the Trust Agreement will be
discharged by its terms (but in no event beyond November 1, 2060). If prior to November 1, 2050, the Trust
Agreement will be discharged by its terms, the term of the Property Lease will thereupon end.
Property Lease Payment
Under the Property Lease, the Corporation agrees to pay to the City, as rental for the use and occupancy of
the Leased Property during the term of the Property Lease, the amount of $_________, which will be due and
payable on the Closing Date, and which will be deemed to have been paid when the proceeds of the Certificates are
deposited with the Trustee. No further amounts will be due and payable by the Corporation to the City under the
Property Lease.
Title
Title to the Leased Property will reside in the City, and during the term of the Property Lease, the City will
hold title to the Leased Property and any and all additions which comprise fixtures, repairs, replacements or
modifications to the Leased Property, including those fixtures, repairs, replacements or modifications which are added
to the Leased Property by the City at its own expense and which may be removed without damaging the Leased
Property and including any items added to the Leased Property by the City pursuant to the Lease Agreement.
Eminent Domain
If all of the Leased Property will be taken permanently under the power of eminent domain or sold to a
government threatening to exercise the power of eminent domain, the term of the Property Lease will cease as of the
day possession will be so taken. If less than all of the Leased Property will be taken permanently, or if all of the Leased
Property or any part thereof will be taken temporarily, under the power of eminent domain, the Property Lease will
continue in full force and effect and will not be terminated by virtue of such taking and the parties to the Property
Lease waive the benefit of any law to the contrary.
Application of Net Proceeds
The Net Proceeds of any insurance award resulting from any damage to or destruction of the Leased Property
or any improvements thereon by fire or other casualty, and the Net Proceeds of any eminent domain award resulting
from any event described in the Property Lease, will be applied as set forth in the Lease Agreement. All such Net
Proceeds will be paid to the City or the Trustee as their interests may appear under the Lease Agreement, and the
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Corporation waives any and all right, title and interest which it may have in and to any such Net Proceeds by virtue of
its estate in the Leased Property under the Property Lease.
LEASE AGREEMENT
Agreement to Lease; Term
The Corporation subleases the Leased Property to the City, and the City subleases the Leased Property from
the Corporation, upon the terms and conditions set forth in the Lease Agreement.
The term of the Lease Agreement is coterminous with the term of the Property Lease. The term of the Lease
Agreement will commence on the Closing Date and will end on November 1, 2050, unless such term is extended as
provided in the Lease Agreement. If on November 1, 2050, the Trust Agreement will not be discharged by its terms,
then the term of the Lease Agreement will be extended until the Trust Agreement will be discharged by its terms (but
in no event beyond November 1, 2060). If prior to November 1, 2050, the Trust Agreement will be discharged by its
terms, the term of the Lease Agreement will thereupon end. The foregoing provisions are subject to the provisions of
the Lease Agreement relating to the taking in eminent domain of the Leased Property or any portion thereof.
Acquisition and Construction of the Public Safety Building
The Corporation has appointed the City as its agent for the purposes of acquisition, construction, installation
and equipping of the Public Safety Building. The City, as agent of the Corporation, shall cause the acquisition,
construction, installation and equipping of the Public Safety Building to be performed diligently.
Abatement of Lease Payments in the Event of Damage or Destruction.
The Lease Payments shall be abated under the Lease Agreement during any period in which due to damage
or destruction of the Leased Property in whole or in part, or due to taking in eminent domain proceedings of the Leased
Property in whole or in part, there is substantial interference with the City’s use and occupancy of all or any portion
of the Leased Property. The amount of such abatement shall be an amount agreed upon by the City and the Corporation
such that the resulting Lease Payments represent fair consideration for the use and occupancy of the portions of the
Leased Property not damaged or destroyed. Such abatement shall continue for the period commencing with such
damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event
of any such damage or destruction, the Lease Agreement shall continue in full force and effect and the City waives any
right to terminate the Lease Agreement by virtue of any such damage and destruction. However, there shall be no
abatement of Lease Payments under the Lease Agreement to the extent that the proceeds of an eminent domain or
insurance award are available to pay Lease Payments, or to the extent that moneys are available in the Lease Payment
Fund, it being declared that such proceeds and amounts constitute special funds for the payment of the Lease
Payments.
Quiet Enjoyment
The Corporation will provide the City with quiet use and enjoyment of the Leased Property, and the City
will, for the term of the Lease Agreement, peaceably and quietly have and hold and enjoy the Leased Property, without
suit, trouble or hindrance from the Corporation, except as expressly set forth in the Lease Agreement. The
Corporation will, at the request of the City and at the City’s cost, join in any legal action in which the City asserts its
right to such possession and enjoyment to the extent the Corporation may lawfully do so. Notwithstanding the
foregoing, the Corporation shall have the right to inspect the Leased Property as provided in the Lease Agreement.
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Title
During the term of the Lease Agreement, the City will hold title to the Leased Property and any and all
additions which comprise fixtures, repairs, replacements or modifications to the Leased Property, including those
fixtures, repairs, replacements or modifications which are added to the Leased Property by the City at its own expense
and which may be removed without damaging the Leased Property and including any items added to the Leased
Property by the City pursuant to the Lease Agreement. Such title will be governed by the provisions of the Property
Lease during the term of the Property Lease.
If the City prepays the Lease Payments in full pursuant to the Lease Agreement or makes the security deposit
permitted by the Lease Agreement or pays all Lease Payments during the term of the Lease Agreement as the same
become due and payable, all right, title and interest of the Corporation under the Property Lease in and to the Leased
Property will be terminated. The Corporation agrees to take any and all steps and execute and record any and all
documents reasonably required by the City to consummate any such termination of leasehold estate.
Maintenance, Utilities, Taxes and Assessments
Throughout the term of the Lease Agreement, as part of the consideration for the rental of the Leased
Property, all improvement, repair and maintenance of the Leased Property shall be the responsibility of the City, and
the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, which
may include, without limitation, janitor service, security, power, gas, telephone, light, heating, water and all other
utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the
Leased Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or lessee
thereof. In exchange for the Lease Payments, the Corporation agrees to provide only the Leased Property. The City
waives the benefits of Section 1942 of the California Civil Code and waives the right to make repairs at the expense of
the Corporation or in lieu thereof, vacate under Section 1942 of the California Civil Code, and all similar rights under
the statues of similar effect, but such waiver shall not limit any of the rights of the City under the terms of the Lease
Agreement.
The City shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to
the Corporation or the City affecting the Leased Property or the interests or estates therein; provided that with respect
to special assessments or other governmental charges that may lawfully be paid in installments over a period of years,
the City shall be obligated to pay only such installments as are required to be paid during the term of the Lease
Agreement as and when the same become due.
The City may, at the City’s expense and in its name, in good faith contest any such taxes, assessments, utility
and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so
contested to remain unpaid during the period of such contest and any appeal therefrom unless the Corporation shall
notify the City that, in the opinion of Independent Counsel, by nonpayment of any such items, the interest of the
Corporation in the Leased Property will be materially endangered or any part thereof will be subject to loss or
forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Corporation
with full security against any loss which may result from nonpayment, in form satisfactory to the Corporation and the
Trustee.
Modification of Leased Property
The City shall, at its own expense, have the right to remodel the Leased Property or to make additions,
modifications and improvements to the Leased Property. All additions, modifications and improvements shall
thereafter comprise part of the Leased Property and be subject to the provisions of the Lease Agreement. Such
additions, modifications and improvements shall not in any way damage the Leased Property or cause it to be used for
purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon
completion of any additions, modifications and improvements made thereto, shall be of a value which is not
substantially less than the value of the Leased Property immediately prior to the making of such additions,
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modifications and improvements. The City will not permit any mechanic’s or other lien to be established or remain
against the Leased Property for labor or materials furnished in connection with any remodeling, additions,
modifications, improvements, repairs, renewals or replacements made by the City; provided that if any such lien is
established and the City shall first notify or cause to be notified the Corporation of the City’s intention to do so, the
City may in good faith contest any lien filed or established against the Leased Property, and in such event may permit
the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal
therefrom and shall provide the Corporation with full security against any loss or forfeiture which might arise from the
nonpayment of any such item, in form satisfactory to the Corporation. The Corporation will cooperate fully in any
such contest, upon the request and at the expense of the City.
Insurance
The Lease Agreement requires the City to maintain or cause to be maintained the following insurance against
risk of physical damage to the Leased Property and other risks for the protection of the Certificate Owners, the
Corporation and the Trustee.
Public Liability and Property Damage Insurance
The City shall maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard
comprehensive general insurance policy or policies in protection of the Corporation, City, and their respective
members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties
against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage
occasioned by reason of the operation of the Leased Property. Said policy or policies shall provide coverage in the
minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury
or deaths of two or more persons in each accident or event, and in a minimum amount of $150,000 (subject to a
deductible clause of not to exceed $250,000, or such higher amount as the City shall determine, provided that such
higher deductible shall be considered a self-insured retention) for damage to property resulting from each accident or
event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the
amount of $3,000,000 per occurrence covering all such risks. Such liability insurance may be maintained as part of or
in conjunction with any other liability insurance coverage carried by the City. The proceeds of such liability insurance
shall be applied toward extinguishment or satisfaction of the liability with respect to which the proceeds of such
insurance shall have been paid.
Fire and Extended Coverage Insurance; Title Insurance
The City shall procure and maintain, or cause to be procured and maintained, throughout the term of the
Lease Agreement, insurance against loss or damage to any structures constituting any part of the Leased Property by
fire and lightning, with extended coverage and vandalism and malicious mischief insurance. Said extended coverage
insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage,
smoke and such other hazards as are normally covered by such insurance. The City shall have no obligation to obtain
earthquake insurance. Such insurance shall be in an amount at least equal to the lesser of (i) 100% of the replacement
cost (without deducting for depreciation) of the Leased Property and (ii) the aggregate principal amount of Certificates
at the time outstanding. Such insurance may be subject to deductible clauses of not to exceed $100,000 for any one
loss. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage carried
by the City. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried
by the City and may be maintained in whole or in part in the form of the participation by the City in a joint powers
authority or other program providing pooled insurance. The City assigns to the Corporation all right of the City to
collect and receive Net Proceeds under any of said policies, which right has been assigned by the Corporation to the
Trustee pursuant to the Assignment Agreement. The Net Proceeds of such insurance shall be applied as provided in
the Lease Agreement.
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The City shall procure, and deliver to the Trustee on the Closing Date, a title insurance policy which insures
the leasehold estate created under the Lease Agreement, subject only to Permitted Encumbrances, in an amount equal
to the principal amount of the Certificates.
Rental Interruption Insurance.
The City shall procure and maintain, or cause to be procured and maintained, throughout the term of the
Lease Agreement, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of the
buildings, facilities and other improvements constituting any part of the Leased Property and the Public Safety
Building, as a result of any of the hazards covered in the insurance required by the Lease Agreement, in an amount at
least equal to the maximum Lease Payments coming due and payable during any two consecutive Fiscal Years during
the remaining term of the Lease Agreement. Such insurance may be maintained as part of or in conjunction with any
other insurance coverage carried by the City and may be maintained in whole or in part in the form of the participation
by the City in a joint powers authority or other program providing pooled insurance; provided that such insurance may
not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance, if any, shall be paid
to the Trustee and deposited in the Lease Payment Fund, and shall be credited towards the payment of the Lease
Payments allocable to the insured improvements as the same become due and payable.
Liens
The City shall not, directly or indirectly, create, incur, assume or suffer to exist any mortgage, pledge, lien,
charge, encumbrance or claim on or with respect to the Leased Property, other than the respective rights of the
Corporation and the City as provided in the Lease Agreement and Permitted Encumbrances. Except as expressly
provided, the City shall promptly, at its own expense, take such action as may be necessary to duly discharge or remove
any such mortgage, pledge, lien, charge, encumbrance or claim, for which it is responsible, if the same shall arise at
any time. The City shall reimburse the Corporation for any expense incurred by it in order to discharge or remove any
such mortgage, pledge, lien, charge, encumbrance or claim.
Security Deposit
The City may on any date secure the payment of Lease Payments by a deposit with the Trustee of: (i) an
amount of cash which, together with amounts on deposit in the Lease Payment Fund and the Insurance and
Condemnation Fund, is sufficient to pay all unpaid Lease Payments, including the principal and interest components
thereof, in accordance with the Lease Agreement, or (ii) Federal Securities together with cash, if required, in such
amount as will, in the opinion of an independent certified public accountant, together with interest to accrue thereon
and, if required, all or a portion of moneys or Federal Securities then on deposit in the Lease Payment Fund and the
Insurance and Condemnation Fund, be fully sufficient to pay all unpaid Lease Payments on their respective Lease
Payment Dates or on any purchase option date as set forth in the Lease Agreement, as the City shall instruct at the
time of said deposit. In the event of a security deposit, all obligations of the City under the Lease Agreement, and all
security provided by the Lease Agreement for said obligations, shall cease and terminate, excepting only the obligation
of the City to make, or cause to be made, Lease Payments from such security deposit, and title to the Leased Property
shall be affected thereby as described in the Lease Agreement. Said security deposit shall be deemed to be and shall
constitute a special fund for the payment of Lease Payments in accordance with the provisions of the Lease Agreement.
Prepayment; Purchase Option
The City may exercise its option to prepay the principal component of the Lease Payments, in whole or in
part, on any date on or after October 15, 2028, by paying a prepayment price equal to the aggregate or a portion of the
unpaid principal components of the remaining Lease Payments, together with the interest component of the Lease
Payment required to be paid on such date, and premium due in connection with the prepayment of the Certificates, if
any. The City shall notify the Corporation and the Trustee as to which of the Lease Payments it wishes to prepay. Such
prepayment price shall be deposited by the Trustee in the applicable account within the Lease Payment Fund to be
applied to the prepayment of the Certificates pursuant to the Trust Agreement. The City shall give the Trustee notice
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of its intention to exercise its option not less than forty-five (45) days in advance of the date of exercise. In the event
the Lease Payments have been fully paid, and the City prepays the entire unpaid principal component of the Lease
Payments in whole, the City will be deemed to have purchased the Leased Property and title to the Leased Property
shall thereupon vest in the City, free and clear of any encumbrance created by the Lease Agreement.
Tax Covenants
Private Activity Bond Limitation. The City will assure that the proceeds of the Certificates are not so used as
to cause the obligations of the City under the Lease Agreement to satisfy the private business tests of section 141(b)
of the Code or the private loan financing test of section 141(c) of the Code.
Federal Guarantee Prohibition. The City will not take any action or permit or suffer any action to be taken if
the result of such action would be to cause any of the obligations of the City under the Lease Agreement to be “federally
guaranteed” within the meaning of section 149(b) of the Code.
Rebate Requirement. The City will take any and all actions necessary to assure compliance with section 148(f)
of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that
such section is applicable to the Certificates and the Lease Agreement.
No Arbitrage. The City will not take, or permit or suffer to be taken by the Trustee or otherwise, any action
with respect to the proceeds of the Certificates which, if such action had been reasonably expected to have been taken,
or had been deliberately and intentionally taken, on the date of delivery of the Lease Agreement would have caused
any of the obligations of the City under the Lease Agreement to be “arbitrage bonds” within the meaning of section
148 of the Code.
Maintenance of Tax-Exemption. The City will take all actions necessary to assure the exclusion of interest with
respect to the Certificates from the gross income of the Owners of the Certificates to the same extent as such interest
is permitted to be excluded from gross income under the Code as in effect on the date of delivery of the Lease
Agreement.
Record Retention. The City will retain its records of all accounting and monitoring it carries out with respect
to the Certificates for at least 3 years after the Certificates mature or are redeemed (whichever is earlier); however, if
the Certificates are redeemed and refunded, the City will retain its records of accounting and monitoring at least 3
years after the earlier of the maturity or redemption of the last obligation in the series of obligations that refunded the
Certificates.
Compliance with Tax Certificate. The City will comply with the provisions of the tax certificate and the use of
proceeds certificate to be delivered with respect to the Certificates.
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Assignment; Subleases
The Corporation has assigned certain of its rights under the Lease Agreement to the Trustee pursuant to the
Assignment Agreement. The City may not assign the Lease Agreement. The City may lease all or a portion of the
Leased Property only with the prior written consent of the Corporation, and subject to the following conditions: (1)
the Lease Agreement and the obligation of the City to make Lease Payments thereunder shall remain obligations of
the City, (2) the City will, within thirty (30) days after the delivery thereof, furnish or cause to be furnished to the
Corporation and the Trustee a true and complete copy of such lease, (3) such lease shall not cause the City to violate
any of its tax covenants in the Lease Agreement, (4) no such lease by the City will cause the Leased Property to be
used for a purpose other than as may be authorized under the provisions of the Constitution and laws of the State and
(5) the City shall furnish the Corporation and the Trustee with a written opinion of bond counsel stating that such
lease does not cause the interest components of the Lease Payments to become subject to federal or State personal
income taxes.
Notwithstanding the foregoing, the City may sublease a portion of the rooftop of the Public Safety Building
in connection with the installation of distributed renewable energy systems without complying with the preceding
clause (2).
Amendment
Except as provided below, without the prior written consent of the Trustee, the City will not alter, modify or
cancel, or agree or consent to alter, modify or cancel the Lease Agreement, excepting only such alteration or
modification as may be permitted by the Trust Agreement.
In addition, the Lease Agreement may be amended to obligate the City to pay additional amounts of rental
thereunder for the use and occupancy of the Leased Property or any portion thereof, but only if (a) such additional
amounts of rental do not cause the total rental payments made by the City under the Lease Agreement to exceed the
fair rental value of the Leased Property, (b) the City shall have obtained and filed with the Trustee and the Corporation
a written certificate to the effect that the estimated fair market value thereof is not less than the aggregate unpaid
principal components of such additional amount of rental plus the existing aggregate unpaid principal components of
the Lease Payments, (c) such additional amounts of rental shall be pledged or assigned for the payment of any bonds,
notes, leases or other obligations the proceeds of which shall be applied to finance the completion of public facilities
and (d) the City shall send notification of the additional financing to the rating agency then rating the Certificates.
TRUST AGREEMENT
Trustee
The Trustee is appointed pursuant to the Trust Agreement and is authorized to prepare, execute and deliver
the Certificates thereunder, and to act as a depository of amounts held thereunder. The Trustee is required to make
deposits into and withdrawals from funds, and invest amounts held under the Trust Agreement in accordance with
the City’s instructions.
Funds
The Trust Agreement creates the Lease Payment Fund, the Public Safety Construction Fund, the Costs of
Issuance Fund and the Insurance and Condemnation Fund to be held in trust by the Trustee.
Lease Payment Fund. The Trustee shall establish a special fund designated as the “Lease Payment Fund.” All
moneys at any time deposited by the Trustee in the Lease Payment Fund shall be held by the Trustee in trust for the
benefit of the Owners of the Certificates. So long as any Certificates are Outstanding, neither the City nor the
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Corporation shall have any beneficial right or interest in the Lease Payment Fund or the moneys deposited therein,
except only as provided in the Trust Agreement, and such moneys shall be used and applied by the Trustee as set forth
in the Trust Agreement.
There shall be deposited in the Lease Payment Fund all Lease Payments received by the Trustee, including
any moneys required to be deposited therein pursuant to the Lease Agreement or pursuant to the Trust Agreement,
and including any other moneys required to be credited towards payment of the Lease Payments.
All amounts in the Lease Payment Fund shall be used and withdrawn by the Trustee solely for the purpose
of paying the principal, interest and prepayment premiums (if any) with respect to the Certificates as the same shall
become due and payable, in accordance with the Trust Agreement.
Any surplus remaining in the Lease Payment Fund, after prepayment and payment of all Certificates,
including premiums and accrued interest (if any) and payment of any applicable fees to the Trustee or provision for
such prepayment or payment having been made to the satisfaction of the Trustee, shall be withdrawn by the Trustee
and remitted to the City.
Public Safety Construction Fund. The Trustee shall establish and maintain a separate fund to be known as the
“Public Safety Construction Fund.” The Trustee shall disburse moneys in the Public Safety Construction Fund from
time to time, for the purpose of paying the Public Safety Costs. Each such disbursement shall be documented by a
requisition which shall: (a) identify the total amount of such costs to be paid pursuant to such requisition, including all
items of cost in such detail as may be available to the City; and (b) state with respect to such disbursement (i) the
requisition number, in sequential order, (ii) the amount to be disbursed for payment of such costs, and (iii) that each
item of cost identified therein has been properly incurred, constitutes payment of a Public Safety Cost and has not
been the basis of any previous disbursement. Upon completion of the Public Safety Building and following payment of
all Public Safety Costs, the Public Safety Construction Fund and the accounts therein shall be closed and transferred
to the Lease Payment Fund.
Costs of Issuance Fund. The Trustee shall establish a special fund designated as the “Costs of Issuance Fund”;
shall keep such fund separate and apart from all other funds and moneys held by it; and shall administer such fund as
provided in the Trust Agreement. There shall be deposited in the Costs of Issuance Fund the proceeds of the
Certificates deposited therein pursuant to the Trust Agreement, and any other funds from time to time deposited by
the Trustee. The moneys in the Costs of Issuance Fund shall be disbursed to pay the Costs of Issuance from time to
time upon the receipt of Written Requests of the City setting forth the amounts to be disbursed for payment or
reimbursement of Costs of Issuance and the name and address of the person or persons to whom said amounts are to
be disbursed, stating that the amounts to be disbursed are for Costs of Issuance properly chargeable to the Costs of
Issuance Fund. Any amounts remaining in the Costs of Issuance Fund on the date one hundred and twenty (120) days
after the Closing Date shall be withdrawn therefrom by the Trustee and transferred to the Lease Payment Fund.
Insurance and Condemnation Fund; Application of Net Proceeds of Insurance Award
Any Net Proceeds of insurance against accident to or destruction of any structure constituting any part of the
Leased Property collected by the City in the event of any such accident or destruction shall be paid to the Trustee by
the City pursuant to the Lease Agreement and deposited by the Trustee promptly upon receipt thereof in a special
fund to be established and held by the Trustee, designated as the “Insurance and Condemnation Fund”. If the City
determines and notifies the Trustee in writing of its determination, within ninety (90) days following the date of such
deposit, that the replacement, repair, restoration, modification or improvement of the Leased Property is not
economically feasible or in the best interest of the City, then such Net Proceeds shall be promptly transferred by the
Trustee to the Lease Payment Fund and the accounts in the Lease Payment Fund, on a Pro Rata basis, and applied to
the prepayment of Lease Payments pursuant to the Trust Agreement; provided, that such transfer shall only be made
if the amount transferred is sufficient to prepay the principal amount of Certificates attributable to the portion of the
Leased Property damaged or destroyed, determined on the basis of the ratio resulting from dividing the cost of the
portion of the Leased Property so damaged or destroyed by the total cost of the Leased Property. All Net Proceeds
Appendix E
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deposited in the Insurance and Condemnation Fund and not so transferred to the Lease Payment Fund shall be applied
to the prompt replacement, repair, restoration, modification or improvement of the damaged or destroyed portions of
the Leased Property by the City.
Application of Net Proceeds of Eminent Domain Award
If all or any part of the Leased Property shall be taken by eminent domain proceedings (or sold to a
government threatening to exercise the power of eminent domain) the Net Proceeds therefrom shall be deposited with
the Trustee in the Insurance and Condemnation Fund pursuant to the Lease Agreement and shall be applied and
disbursed by the Trustee as follows: (a) if all of the Leased Property shall have been taken in such eminent domain
proceedings or sold to a government threatening the use of eminent domain powers, or if the City has given written
notice to the Trustee of its determination that such proceeds are not needed for repair or rehabilitation of the Leased
Property, the Trustee shall transfer such proceeds to the accounts within the Lease Payment Fund on a Pro Rata basis
to be credited towards the prepayments of the Lease Payments required to be paid pursuant to the Lease Agreement
and applied to the prepayment of Certificates and (b) if less than all of the Leased Property shall have been taken in
such eminent domain proceedings or sold to a government threatening the use of eminent domain powers, and if the
City has given written notice to the Trustee of its determination that such proceeds are needed for repair, rehabilitation
or replacement of the Leased Property, the Trustee shall pay to the City, or to its order, from said proceeds such
amounts as the City may expend for such repair or rehabilitation.
Investment of Funds
All moneys in any of the funds and accounts established pursuant to the Trust Agreement shall be invested
by the Trustee, upon Written Request of the City, solely in Investment Securities. Investment Securities shall be
purchased at Fair Market Value, provided the Trustee shall not be responsible to determine Fair Market Value.
Moneys in all funds and accounts shall be invested in Investment Securities maturing not later than five (5) years from
the date said investment is made. Any income, profit or loss on such investments in any of the funds and accounts shall
be deposited in or charged to the respective funds and accounts from which such investments were made.
Remedies Upon Event of Default
If an Event of Default shall happen, then and in each and every such case during the continuance of such
Event of Default, the Trustee may, and upon request of the Owners as provided in the Lease Agreement shall, exercise
any and all remedies available pursuant to law or granted pursuant to the Lease Agreement; provided, however, that
notwithstanding anything in the Trust Agreement or in the Lease Agreement to the contrary, there shall be no right
under any circumstances to accelerate the maturities of the Certificates or otherwise to declare any Lease Payment not
then in default to be immediately due and payable.
All moneys received by the Trustee pursuant to any right given or action taken under the provisions of the
Trust Agreement or the Lease Agreement shall be applied by the Trustee first, to the payment of the costs and
expenses of the Trustee and of the Certificate Owners in declaring such Event of Default, including reasonable
compensation to its or their agents, attorneys and advisors and second, to the payment of the whole amount then owing
and unpaid with respect to the Certificates for principal and interest, with interest on the overdue principal and
installments of interest, and in case such moneys shall be insufficient to pay in full the whole amount so owing and
unpaid with respect to the Certificates, then to the payment of such principal and interest without preference or
priority of principal over interest, or of interest over principal, or of any installment of interest over any other
installment of interest, ratably to the aggregate of such principal and interest.
Amendment of Trust Agreement or Lease Agreement
The Trust Agreement or the Lease Agreement may be modified or amended at any time with the written
consent of the Owners of at least sixty percent (60%) in aggregate principal amount of the Certificates then
Outstanding. No such modification or amendment shall (1) extend or have the effect of extending the fixed maturity
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of any Certificate or reducing the interest rate with respect thereto or extending the time of payment of interest, or
reducing the amount of principal thereof or reducing any premium payable upon the prepayment thereof, without the
express consent of the Owner of such Certificate, or (2) reduce or have the effect of reducing the percentage of
Certificates required for the affirmative vote or written consent to an amendment or modification of the Lease
Agreement, or (3) modify any of the rights or obligations of the Trustee without its written assent thereto.
The Trust Agreement or the Lease Agreement may be modified or amended at any time without the consent
of any such Owners, but only to the extent permitted by law and only (1) to add to the covenants and agreements of
any party, other covenants to be observed, or to surrender any right or power reserved to the City, (2) to cure, correct
or supplement any ambiguous or defective provision, (3) to make such additions, deletions or modifications as may be
necessary or desirable to assure exemption from federal income taxation of the portion of Lease Payments designated
as and comprising interest and received by Owners of the Certificates, (4) in regard to questions arising under the
Trust Agreement or the Lease Agreement, as the parties to the Trust Agreement or the Lease Agreement may deem
necessary or desirable and which shall not adversely affect the interests of the Owners of the Certificates or (5) to
correct any incorrect property description.
Defeasance
The Certificates 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 Trust Agreement by the City: (a) by paying or causing to be paid
the Principal Amount relating to the Certificates, together with interest thereon, as and when the same become due
and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary
amount to pay or prepay all Certificates then Outstanding or (c) by delivering to the Trustee, for cancellation by it, all
of the Certificates then Outstanding. If the City shall also pay or cause to be paid all other sums payable by the City
under the Trust Agreement, then and in that case, at the election of the City, and notwithstanding that any Certificates
shall not have been surrendered for payment, the Trust Agreement and the pledge of Lease Payments and other assets
made under the Trust Agreement and all covenants, agreements and other obligations of the City under the Trust
Agreement shall cease, terminate, become void and be completely discharged and satisfied.
ASSIGNMENT AGREEMENT
The Corporation and the Trustee will enter into the Assignment Agreement under which the Corporation
assigns and sets over to the Trustee, for the benefit of the Owners of the Certificates, all of the Corporation’s rights
under the Property Lease and the Lease Agreement (subject to certain exceptions), including the right of the
Corporation to receive and collect Lease Payments, its right to receive and collect proceeds of any insurance
maintained with respect to the Leased Property, or any eminent domain award paid with respect to the Leased
Property and the right to exercise rights and remedies of the Corporation in the Lease Agreement to enforce payments
of amounts thereunder. The Trustee accepts such assignment for the purpose of securing such payments due to and
rights of the Owners of the Certificates, subject to the provisions of the Trust Agreement.
Appendix F
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APPENDIX F
DTC’S BOOK-ENTRY ONLY SYSTEM
The information in this Appendix F, concerning The Depository Trust Company, New York, New York (“DTC”),
and DTC’s book-entry system, has been furnished by DTC for use in official statements and the City takes no responsibility for
the completeness or accuracy thereof. The City cannot and does not give any assurances that DTC, DTC Participants or Indirect
Participants will distribute to the Beneficial Owners (a) payments of interest or principal with respect to the Certificates, (b)
certificates representing ownership interest in or other confirmation of ownership interest in the Certificates, or (c) redemption
or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Certificates, or that they will so do on a
timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix
F. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current
“Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC. Information Furnished by DTC
Regarding its Book-Entry Only System
1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the
Certificates (as used in this Appendix E, the “Securities”). The Securities will be issued as fully-registered securities
registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate will be issued for each maturity of the
Securities, in the aggregate principal amount of such issue, and will be deposited with DTC. If, however, the aggregate
principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of
principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such
issue.
2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the
New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of
the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial
Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate
and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct
Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales
and other securities transactions in deposited securities, through electronic computerized book-entry transfers and
pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities
certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust &
Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation
and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of
its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a
custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC 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 and www.dtc.org.
3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will
receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security
(“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners
will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive
written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the
Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership
interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.
Appendix F
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4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered
in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such
other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such
Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants
to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to
the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding
the Securities for their benefit has agreed to obtain and transmit the notices to Beneficial Owners. In the alternative,
Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices
be provided directly to them.
6. Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being
redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to
be redeemed.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the
Securities 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 the Securities are
credited on the record date (identified in a listing attached to the Omnibus Proxy).
8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co.,
or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct
Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the paying
agent or bond 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 nor its nominee, the paying agent or bond 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 paying agent or bond 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.
9. DTC may discontinue providing its services as depository with respect to the Securities at any time by
giving reasonable notice to the City or the paying agent or bond trustee. Under such circumstances, in the event that
a successor depository is not obtained, Security certificates are required to be printed and delivered.
10. 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, Security certificates will be printed and delivered to DTC.
11. The information in this section concerning DTC and DTC’s book-entry system has been obtained from
sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof.
Appendix G
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APPENDIX G
FORM OF CONTINUING DISCLOSURE CERTIFICATE
This CONTINUING DISCLOSURE CERTIFICATE (the “Disclosure Certificate”) is executed and
delivered by the CITY OF PALO ALTO (the “City”) in connection with the execution and delivery of $________*
City of Palo Alto 2021 Certificates of Participation (Public Safety Building) (the “Certificates”). The Certificates are
being executed and delivered pursuant to a Trust Agreement, dated as of March 1, 2021, by and among U.S. Bank
National Association, as trustee (the “Trustee”), the City and the Palo Alto Public Improvement Corporation (the
“Trust Agreement”). Pursuant to Section 10.11 of the Trust Agreement, the City covenants and agree as follows:
Section 1. Definitions. In addition to the definitions set forth above and in the Trust Agreement, which apply
to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 1, the following
capitalized terms shall have the following meanings:
“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3
and 4 of this Disclosure Certificate.
“Annual Report Date” means the March 31 after the end of the City’s Fiscal Year.
“Dissemination Agent” shall mean, initially, the City, or any successor Dissemination Agent designed in
writing by the City and which has been filed with the then current Dissemination Agent a written acceptance of such
designation.
“Fiscal Year” means any twelve–month period beginning on July 1 in any year and extending to the next
succeeding June 30, both dates inclusive, or any other twelve–month period selected and designated by the City as its
official fiscal year period under a Certificate of the City filed with the Trustee.
“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities
and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other
repository of disclosure information that may be designated by the Securities and Exchange Commission as such for
purposes of the Rule in the future.
“Official Statement” means the final official statement executed by the City in connection with the issuance
of the Certificates.
“Participating Underwriter” means the original underwriter of the Certificates.
“Rule” means Rule 15c2–12(b)(5) adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as it may be amended from time to time.
“Significant Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.
Section 2. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered
by the City for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating
Underwriter in complying with S.E.C. Rule 15c2– 12(b)(5).
* Preliminary, subject to change.
Appendix G
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Section 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date,
commencing March 31, 2022, with the report for fiscal year 2020-21 provide to the MSRB, in an electronic format as
prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure
Certificate; provided, however, that the first Annual Report shall consist solely of the Official Statement. Not later than
15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination
Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if
other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to
determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single
document or as separate documents comprising a package and may include by reference other information as provided
in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted
separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date.
If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under
Section 5(c). The City shall provide a written certification with each Annual Report furnished to the Dissemination
Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City
hereunder.
(b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the
Annual Report Date, the City in a timely manner shall provide (or cause the Dissemination Agent to provide) to the
MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A.
(c) With respect to each Annual Report, the Dissemination Agent shall:
(i) determine each year prior to the Annual Report Date the then–applicable rules and electronic
format prescribed by the MSRB for the filing of annual continuing disclosure reports; and
(ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the
Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.
Section 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference
the following:
(a) The City’s audited financial statements 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 Annual Report Date, the Annual
Report shall contain unaudited financial statements in a format similar to the financial statements contained in the
final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report
when they become available.
(b) Unless otherwise provided in the audited financial statements filed on or prior to the annual filing
deadline for Annual Reports provided for in Section 3 above, financial information and operating data with respect to
the City for preceding fiscal year, substantially similar to that provided in the following tables in the Official Statement:
[TO BE DETERMINED]
(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate,
the City shall provide such further material information, if any, as may be necessary to make the specifically required
statements, in the light of the circumstances under which they are made, not misleading.
(d) 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 are available to the public on the MSRB’s
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Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other
document so included by reference.
Section 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Significant Events
with respect to the Certificates:
(i) Principal and interest payment delinquencies;
(ii) Non–payment related defaults, if material;
(iii) Unscheduled draws on debt service reserves reflecting financial difficulties;
(iv) Unscheduled draws on credit enhancements reflecting financial difficulties;
(v) Substitution of credit or liquidity providers, or their failure to perform;
(vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, Notices of Proposed Issue (IRS Form 5701–TEB) or other material notices or
determinations with respect to the tax status of the security, or other material events affecting the tax status
of the security;
(vii) Modifications to rights of security holders, if material;
(viii) Bond calls, if material, and tender offers;
(ix) Defeasances;
(x) Release, substitution, or sale of property securing repayment of the securities, if material;
(xi) Rating changes;
(xii) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person;
(xiii) The consummation of a merger, consolidation, or acquisition involving the City or an obligated
person, or the sale of all or substantially all of the assets of the City or an obligated person (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, if material;
(xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material;
(xv) The incurrence of a financial obligation of the City or other obligated person, if material, or
agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial
obligation of the City or other obligated person, any of which affect security holders, if material; or
(xvi) A default, event of acceleration, termination event, modification of terms, or other similar
events under the terms of a financial obligation of the City or other obligated person, any of which reflect
financial difficulties.
(b) Whenever the City obtains knowledge of the occurrence of a Significant Event, the City shall, or shall
cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic
format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the
Appendix G
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Significant Event. Notwithstanding the foregoing, notice of Significant Events described in subsection (a)(viii) above
need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders
of affected Certificates under the Trust Agreement.
(c) The City acknowledges that the events described in subparagraphs (a)(ii), (a)(vii), (a)(viii) (if the event is
a bond call), (a)(x), (a)(xiii), (a)(xiv) and (a)(xv) of this Section 5 contain the qualifier “if material.” The City shall
cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the
City determines the event’s occurrence is material for purposes of U.S. federal securities law. The City intends that
the words used in paragraphs (xv) and (xvi) and the definition of “financial obligation” to have the meanings ascribed
thereto in SEC Release No. 34-83885 (August 20, 2018).
(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(xii) above is considered
to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in
a proceeding under the United States 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 City,
or if such jurisdiction has been assumed by leaving the existing governing 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 City.
Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under
this Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.
Section 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall
terminate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such termination
occurs prior to the final maturity of the Certificates, the City shall give notice of such termination in the same manner
as for a Significant Event under Section 5(b).
Section 8. 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 Certificate, and may discharge any Dissemination Agent,
with or without appointing a successor Dissemination Agent. Any Dissemination Agent may resign by providing 30
days’ written notice to the City.
Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City
may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that
the following conditions are satisfied:
(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in
connection with a change in circumstances that arises from a change in legal requirements, change in law, or change
in the identity, nature, or status of an obligated person with respect to the Certificates, or type of business conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally
recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the
Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in
circumstances; and
(c) the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner
provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does
not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial
owners of the Certificates.
If the annual financial information or operating data to be provided in the Annual Report is amended pursuant
to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating
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data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the
change in the type of operating data or financial information being provided.
If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing
financial statements, the annual financial information for the year in which the change is made shall present a
comparison between the financial statements or information prepared on the basis of the new accounting principles
and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative
discussion of the differences in the accounting principles and the impact of the change in the accounting principles on
the presentation of the financial information, in order to provide information to investors to enable them to evaluate
the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.
The Dissemination Agent shall not be obligated to enter into any amendment increasing or affecting its duties
or obligations hereunder.
A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a
Significant Event under Section 5(b).
Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the
City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate
or any other means of communication, or including any other information in any Annual Report or notice of occurrence
of a Significant Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include
any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is
specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate
to update such information or include it in any future Annual Report or notice of occurrence of a Significant Event.
Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the
Participating Underwriter or any holder or beneficial owner of the Certificates may take such actions as may be
necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to
comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be
deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the
event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.
Section 12. Duties, Immunities and Liabilities of Dissemination Agent.
(a) Article VIII of the Trust Agreement is hereby made applicable to this Disclosure Certificate as if this
Disclosure Certificate were (solely for this purpose) contained in the Trust Agreement. The Dissemination Agent
shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Dissemination
Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to
indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss,
expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties
hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but
excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent
shall have no duty or obligation to review any information provided to it by the City hereunder and shall not be deemed
to be acting in any fiduciary capacity for the City, the Certificate holders 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 Certificates.
(b) 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 shall be reimbursed for all expenses, legal fees
and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.
Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the
Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the
Certificates and shall create no rights in any other person or entity.
Appendix G
Page 6
Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which
shall be regarded as an original, and all of which shall constitute one and the same instrument.
Date: [Closing Date]
CITY OF PALO ALTO
By
Authorized Officer
Appendix G
Page 7
EXHIBIT A
NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT
Name of Issuer: City of Palo Alto, California
Name of Issue: CITY OF PALO ALTO
2021 Certificates of Participation (Public Safety Building)
Date of Issuance: [Closing Date]
NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-
named Issue as required by the Continuing Disclosure Certificate, dated [Closing Date], furnished by the City in
connection with the Issue. The City anticipates that the Annual Report will be filed by _________________.
Date: ________________
CITY OF PALO ALTO,
as Dissemination Agent
By
Authorized Officer
THIS PAGE INTENTIONALLY LEFT BLANK
Attachment B
NOT YET APPROVED
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
Resolution No. _____
A Resolution Approving, Authorizing and
Directing Execution of Certain Lease Refinancing
Documents and Authorizing and Directing
Certain Actions with Respect Thereto
RESOLVED, by the Palo Alto Public Improvement Corporation (the "Corporation"):
R E C I T A L S
WHEREAS, the City of Palo Alto, a chartered municipal corporation duly organized and
existing under the Constitution and laws of the State of California (the "City") desires to finance
the costs of acquiring and constructing a public safety building to be located at 250 Sherman
Avenue (the “Public Safety Building”);
WHEREAS, in order to finance the Public Safety Building, the City has determined to
provide for the execution and delivery of one or more series of City of Palo Alto
2021 Certificates of Participation (Public Safety Building) (the “Certificates”);
WHEREAS, the City has additionally proposed to lease a City asset (the “Leased
Property”), to the Corporation under a Property Lease by and between the City, as lessor, and
the Corporation, as lessee (the “Property Lease”), and the Corporation proposes to lease the
Leased Property back to the City under a Lease Agreement, by and between the City, as lessee,
and the Corporation, as lessor (the “Lease Agreement”), in consideration of the payment by the
City of semi‐annual lease payments (the “Lease Payments”);
WHEREAS, the Corporation proposes to assign its right to receive the Lease Payments to
U.S. Bank National Association, as trustee (the “Trustee”), under an Assignment Agreement (the
“Assignment Agreement”), by and between the Corporation and the Trustee, and in
consideration of such assignment the Trustee has agreed to execute and deliver the
Certificates, each evidencing a direct, undivided fractional interest in the Lease Payments, in
accordance with a Trust Agreement to be executed by and among the Trustee, the City and the
Corporation (the “Trust Agreement”);
WHEREAS, in connection therewith, it is in the public interest and for the public benefit
that the Corporation authorize and direct execution of the Property Lease, the Lease
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Agreement, the Trust Agreement and certain other financing documents in connection
therewith; and
WHEREAS, the documents below specified have been filed with the Corporation, and
the members of the Corporation have reviewed said documents.
NOW THEREFORE THE CITY COUNCIL OF THE CITY OF PALO ALTO RESOLVES AS
FOLLOWS:
Section 1. The below‐enumerated documents be and are hereby approved, and the
President and the Vice President are hereby separately authorized and directed to execute said
documents, with such changes, insertions and omissions as may be approved by such official,
and the Secretary of the Corporation is hereby authorized and directed to attest to such
official's signature:
(a) the Property Lease, relating to the lease of the Leased Property by the City to
the Corporation, by and between the City, as lessor, and the Corporation, as lessee;
(b) the Lease Agreement, relating to the lease of the Leased Property by the
Corporation back to the City, between the Corporation, as lessor, and the City, as lessee;
(c) the Trust Agreement, by and among the Corporation, the City and the
Trustee, relating to the execution and delivery of the Certificates, evidencing the
fractional interests of the owners thereof in the Lease Payments to be made by the City
under the Lease Agreement; and
(d) the Assignment Agreement, by and between the Corporation and the
Trustee, pursuant to which the Corporation will assign certain of its rights under the
Lease Agreement, including its right to receive the Lease Payments thereunder, to the
Trustee.
Section 2. The President, Vice President, Executive Director, Treasurer, Secretary and
other officials of the Corporation are hereby authorized and directed to execute such other
agreements, documents and certificates as may be necessary to effect the purposes of this
resolution and the lease financing herein authorized.
/ /
/ /
/ /
/ /
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Section 3. The Corporation hereby approves the competitive sale of the Certificates in
accordance with the Notice of Sale in substantially the form on file with the Corporation.
I hereby certify that the foregoing resolution was duly adopted at a meeting of the Palo
Alto Public Improvement Corporation held on the 1st day of February ,2021, by the following
vote:
AYES, and in favor of:
NOES:
ABSENT:
Secretary
APPROVED AS TO FORM:
Jones Hall, A Professional Law Corporation
Bond Counsel
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Christopher K. Lynch, Esq.
Jones Hall, A Professional Law Corporation
475 Sansome Street, Suite 1700
San Francisco, California 94111
THIS TRANSACTION IS EXEMPT FROM CALIFORNIA DOCUMENTARY TRANSFER TAX PURSUANT
TO SECTION 11922 OF THE CALIFORNIA REVENUE AND TAXATION CODE. THIS DOCUMENT IS
EXEMPT FROM RECORDING FEES PURSUANT TO SECTION 27383 OF THE CALIFORNIA
GOVERNMENT CODE.
ASSIGNMENT AGREEMENT
Dated as of April 1, 2021
by and between
the
PALO ALTO PUBLIC IMPROVEMENT CORPORATION
and
U.S. BANK NATIONAL ASSOCIATION,
as trustee
Attachment B-1
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT is dated as of April 1, 2021, by and between the PALO
ALTO PUBLIC IMPROVEMENT CORPORATION, a nonprofit public benefit corporation duly
organized and existing under the laws of the State of California (the "Corporation") and U.S.
Bank National Association, a national banking association organized and existing under the laws
of the United States of America, as trustee (the "Trustee"), under the Trust Agreement (as
defined herein).
In the joint and mutual exercise of their powers, in consideration of the mutual
covenants herein contained, and for other valuable consideration, the parties hereto recite and
agree as follows:
Section 1. Recitals.
WHEREAS, the City desires to finance the costs of acquiring and constructing a public
safety building to be located at 250 Sherman Avenue (the “Public Safety Building”);
WHEREAS, in order to finance the Public Safety Building, the City has determined to
provide for the execution and delivery of City of Palo Alto 2021 Certificates of Participation
(Public Safety Building) (the “Certificates”);
WHEREAS, the City has concurrently leased to the Corporation under a Property Lease,
dated as of April 1, 2021, by and between the City, as Lessor, and the Corporation, as Lessee
(the “Property Lease”), which is recorded concurrently herewith, a City asset, initially the [Initial
Leased Property], as more particularly described in Exhibit A hereto (the “Leased Property”), and
the Corporation has leased the Leased Property back to the City under a Lease Agreement,
dated as of April 1, 2021, by and between the City, as lessee and the Corporation, as lessor (the
“Lease Agreement”) which is recorded concurrently herewith, in consideration of the payment by
the City of semi-annual Lease Payments (as defined in the Lease Agreement);
WHEREAS, the Corporation desires to assign its right to receive such Lease Payments to
the Trustee pursuant to this Assignment Agreement, and in consideration of such assignment
the Trustee shall execute and deliver the Certificates, each evidencing a direct, undivided
fractional interest in such Lease Payments in accordance with a Trust Agreement, dated as of
April 1, 2021, by and among the City, the Corporation and the Trustee (the “Trust Agreement”);
and
WHEREAS, each of the parties has authority to enter into this Assignment Agreement
and has taken all actions necessary to authorize its respective officers to execute it.
Section 2. Assignment.
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The Corporation hereby transfers, assigns and sets over to the Trustee, for the benefit of
the Owners of the Certificates executed and delivered under the Trust Agreement, all of the
Corporation's rights under the Property Lease and the Lease Agreement (excepting only the
Corporation's rights under Sections 4.6, 5.7, 7.3 and 9.4 of the Lease Agreement), including
without limitation (1) the right to receive and collect all of the Lease Payments (including
prepayments thereof) from the City under the Lease Agreement, (2) the right to receive and
collect any proceeds of any insurance maintained thereunder with respect to the Leased
Property, or any eminent domain award (or proceeds of sale under threat of eminent domain)
paid with respect to the Leased Property, and (3) the right to exercise such rights and remedies
conferred on the Corporation pursuant to the Lease Agreement as may be necessary or
convenient (i) to enforce payment of the Lease Payments, prepayments thereof and any other
amounts required to be deposited in the Lease Payment Fund established under the Trust
Agreement, or (ii) otherwise to protect the interests of the Certificate Owners in the event of a
default by the City under the Lease Agreement. All rights assigned by the Corporation shall be
administered by the Trustee in accordance with the provisions of the Trust Agreement and for
the equal and proportionate benefit of the Owners of Certificates. Such assignment shall be
absolute and irrevocable and shall be without recourse to the Corporation.
Section 3. Substitution of Leased Property. As set forth in Section 3.5 of the Lease
Agreement, upon Final Completion (as defined in the Lease Agreement) of the Public Safety
Building, the City shall have the absolute right to make the Public Safety Building and its related
site, as described in Exhibit A hereto, the Leased Property subject to the Property Lease and the
Lease Agreement, and to release the [Initial Leased Property] from the Property Lease and the
Lease Agreement. The City shall effectuate such release by (1) certifying, in a certificate of
completion provided to the Trustee, that the Final Completion of the Public Safety Building has
occurred and the fair rental value of the Public Safety Building is at least equal to the Lease
Payments, (2) causing a certificate of the City to be delivered to the Trustee evidencing that the
insurance policies required by the Lease Agreement are in full force and effect with respect to
the Public Safety Building and (3) causing a Notice of Substitution and Release of Leased
Property, substantially in the form attached as Exhibit C to the Lease Agreement, to be recorded
in the real property records of Santa Clara County. Subsequent to the execution and recordation
of such Notice of Substitution and Release of Leased Property, subject to any future authorized
substitution or release of the Leased Property pursuant to Section 3.5 and 3.6 of the Lease
Agreement, references to the Leased Property herein shall be deemed to refer to the Public
Safety Building and the related site and shall not be deemed to refer to the [Initial Leased
Property] so released.
Section 4. Acceptance.
The Trustee hereby accepts the assignments made herein for the purpose of securing,
equally and proportionately, the payments due pursuant to the Lease Agreement and Trust
Agreement to, and the rights under the Lease Agreement and Trust Agreement of, the Owners
of the Certificates delivered pursuant to the Trust Agreement, all subject to the provisions of the
Trust Agreement.
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Section 5. Conditions.
This Assignment Agreement shall confer no rights or impose no duties upon the Trustee
beyond those expressly provided in the Lease Agreement and Trust Agreement. The Trustee has
not warranted the accuracy of the recitals hereto.
Section 6. Execution.
This Assignment Agreement may be executed in several counterparts, each of which shall
be an original and all of which shall constitute but one and the same instrument.
* * * * * * * * * * * *
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IN WITNESS WHEREOF, the parties have executed this Assignment Agreement by their
officers thereunto duly authorized as of the day and year first written above.
PALO ALTO PUBLIC IMPROVEMENT
CORPORATION
By
Adrian Fine
President
Attest:
By
Beth Minor
Secretary
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By
Authorized Officer
ACKNOWLEDGMENT
A notary public or other office completing
this certificate verifies only the identity of the
individual who signed the document to which
this certificate is attached, and not the
truthfulness, accuracy, or validity of that
document.
State of California
County of __________________________)
On _______________________ before me, _________________________________________
(insert name and title of the officer)
personally appeared ___________________________________________________________,
who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the
foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________ (Seal)
A-1
EXHIBIT A
DESCRIPTION OF LEASED PROPERTY
The land referred to herein is situated in the State of California, County of Santa Clara,
City of Palo Alto and described as follows:
Initial Leased Property: [Initial Leased Property]
[Description]
APN:
Leased Property Upon Final Completion: Public Safety Building
[Description]
APN:
Public Safety Building
2021 (Tax‐Exempt) Certificates of Participation (COP)
Estimated Cost of Issuance (COI) and Underwriter's Discount Fee
Cost of Issuance:
Bond Counsel (Jones Hall), includes expenses $ 72,500
Disclosure Counsel (Quint & Thimmig, LLP), includes expenses 31,850
Municipal (Financial) Advisor (Public Financial Management, Inc.), includes expenses 66,000
Trustee (U.S. Bank) 11,350
Title (Stewart) 100,000
Rating Agency (Standard & Poor's) 98,500
Rating Agency (Moody’s) 82,000
Printer 3,000
Miscellaneous/Contingency Fees 10,000
Total Cost of Issuance $ 475,200
Underwriters' Discount Fee (Estimated) * 1,500,000
Total Estimated COP Bonds Issuance
Fees
$ 1,975,200
* Underwriter's discount fee is likely to vary from this estimate; it's based on 1.5% of par bond issuance or $15 per bond
assuming a $100 million principal amount