2015-0391.Pdf

NEW ISSUE — BOOK-ENTRY ONLY Standard & Poor's: “AA” (Insured) / “BBB” (Underlying) (See “CONCLUDING INFORMATION — Ratings” herein) In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming continuing compliance with covenants intended to preserve the exclusion from gross income for federal income tax purposes of interest on the 2015A Bonds, interest on the 2015A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the 2015A Bonds and the 2015B Bonds is also exempt from present State of California personal income taxes. The difference between the issue price of a 2015A Bond (the first price at which a substantial amount of the 2015A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity is original issue discount. See “CONCLUDING INFORMATION – Tax Exemption” herein for a discussion of the effect of certain provisions of the Code on Owners of the 2015A Bonds. $12,560,000 $10,950,000 SUCCESSOR AGENCY TO THE SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY LANCASTER REDEVELOPMENT AGENCY Combined Redevelopment Project Areas Combined Redevelopment Project Areas (Housing Programs) (Housing Programs) Tax Allocation Refunding Bonds Taxable Tax Allocation Refunding Bonds Issue of 2015A Issue of 2015B Dated: Delivery Date Due: August 1, as shown on inside cover The above-captioned Issue of 2015A bonds (the “2015A Bonds”) and Issue of 2015B bonds (the “2015B Bonds”; and together with the 2015A Bonds, the “Bonds”) will be delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to ultimate purchasers (“Beneficial Owners”) in the denomination of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC. Beneficial Owners will not be entitled to receive delivery of bonds representing their ownership interest in the Bonds. The principal of, premium if any, and semiannual interest (due February 1 and August 1 of each year, commencing August 1, 2015) on the Bonds will be payable by U.S. Bank National Association, as trustee (the “Trustee”), to DTC for subsequent disbursement to DTC participants, so long as DTC or its nominee remains the registered owner of the Bonds (see “THE BONDS—Book- Entry System” herein). The Bonds are subject to optional redemption and mandatory sinking account redemption prior to their maturity as described herein. See “THE BONDS – Redemption and Purchase of Bonds” herein. The Bonds are being issued by the Successor Agency to the Lancaster Redevelopment Agency (the “Agency”) on a parity basis with the Lancaster Redevelopment Agency’s (the “Prior Agency”) previously issued (i) Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003 (the “2003 Bonds”); and (ii) Combined Redevelopment Project Areas (Housing Programs) Tax Allocation Bonds, Issue of 2009 (the “2009 Bonds”; and together with the 2003 Bonds, the “Existing Parity Bonds”). The 2015A Bonds are being issued to refinance the Prior Agency's previously issued Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003B (the “2003B Bonds”) currently outstanding in the principal amount of $13,095,000. The 2015B Bonds are being issued to refinance the Prior Agency's previously issued Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2004 (Taxable) (the “2004 Bonds”), currently outstanding in the principal amount of $10,980,000. The 2003B Bonds and the 2004 Bonds are referred to collectively herein as the “Refunded Bonds.” The Bonds and the Existing Parity Bonds are payable from and equally and ratably secured, without preference or distinction as to series, by the Pledged Tax Revenues as defined herein to be derived from the Project Areas (as defined herein). Taxes levied on the property within the Project Areas on that portion of the taxable valuation over and above the taxable valuation of the base year property tax roll, to the extent they constitute Pledged Tax Revenues, shall be deposited in the Redevelopment Obligation Retirement Fund, and administered by the Agency and the Trustee in accordance with the Indenture of Trust dated as of March 1, 2015 (the “Indenture”) by and between the Agency and the Trustee providing for the issuance of the Bonds. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy (the “Insurance Policy”) to be issued concurrently with the delivery of the Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY (“BAM” or the “Insurer”). See “BOND INSURANCE” and “APPENDIX H – Specimen Municipal Bond Insurance Policy” herein.

This cover page of the Official Statement contains information for quick reference only. It is not a complete summary of the Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. Attention is hereby directed to certain Risk Factors more fully described herein. The Bonds are not a debt of the City of Lancaster, the State of California (the “State”) or any of its political subdivisions (except the Agency) and neither said City, said State or any of its political subdivisions (except the Agency) is liable therefor. The principal of and interest on the Bonds are payable solely from the Pledged Tax Revenues allocated to the Agency from the Project Areas (all as defined herein and in the Indenture) and other funds as set forth in the Indenture. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. The Bonds are offered, when, as and if issued, subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel. Certain legal matters will be passed on for the Agency by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Disclosure Counsel, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Agency Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel Norton Rose Fulbright US LLP, Los Angeles, California. It is anticipated that the Bonds will be available for delivery to DTC in New York, New York, on or about March 25, 2015. SOUTHWEST SECURITIES, INC. Dated: March 10, 2015 $12,560,000 $10,950,000 SUCCESSOR AGENCY TO THE SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY LANCASTER REDEVELOPMENT AGENCY Combined Redevelopment Project Areas Combined Redevelopment Project Areas (Housing Programs) (Housing Programs) Tax Allocation Refunding Bonds Taxable Tax Allocation Refunding Bonds Issue of 2015A Issue of 2015B

2015A BONDS MATURITY SCHEDULE (Base CUSIP† 513802)

Maturity Date Principal Interest CUSIP† (August 1) Amount Rate Yield Suffix 2015 $285,000 3.000% 0.500% AA6 2016 290,000 3.000 0.650 AB4 2017 300,000 3.000 1.050 AC2 2018 310,000 4.000 1.450 AD0 2019 320,000 4.000 1.750 AE8 2020 675,000 5.000 2.000 AF5 2021 715,000 5.000 2.210 AG3 2022 745,000 5.000 2.450 AH1 2023 780,000 5.000 2.610 AJ7 2024 350,000 5.000 2.730 AK4 2025 370,000 5.000 2.850 (1) AL2 2026 385,000 3.000 3.130 AM0

$2,235,000 3.500% 2015A Term Bonds due August 1, 2031, Priced to Yield 3.650%, CUSIP† Suffix AN8 $4,800,000 3.625% 2015A Term Bonds due August 1, 2034, Priced to Yield 3.850%, CUSIP† Suffix AP3

2015B BONDS MATURITY SCHEDULE (Base CUSIP† 513802)

Maturity Date Principal Interest CUSIP† (August 1) Amount Rate Yield Suffix 2015 $290,000 0.850% 0.850% AQ1 2016 320,000 1.100 1.100 AR9 2017 325,000 1.550 1.550 AS7 2018 335,000 2.000 2.050 AT5 2019 340,000 2.250 2.400 AU2 2020 320,000 2.500 2.700 AV0 2021 330,000 2.750 3.000 AW8 2022 340,000 3.000 3.250 AX6 2023 340,000 3.250 3.450 AY4 2024 425,000 3.500 3.700 AZ1 2025 355,000 3.625 3.850 BA5 2026 375,000 4.000 4.100 BB3

$6,855,000 4.750% 2015B Term Bonds due August 1, 2035, Priced to Yield 5.000%, CUSIP† Suffix BC1 ______† CUSIP® Copyright 2015, CUSIP Global Services, and a registered trademark of American Bankers Association. CUSIP® data herein is provided by CUSIP Global Services, which is managed on behalf of American Bankers Association by S&P Capital IQ. Neither the Agency nor the City nor the Underwriter guarantees the accuracy of the CUSIP® data. (1) Yield to earliest optional redemption date of August 1, 2024. SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY LANCASTER, CALIFORNIA

Agency Board

R. Rex Parris, Chair Marvin Crist, Vice Chair Ken Mann, Agency Member Ronald D. Smith, Agency Member

Agency Staff

Mark V. Bozigian, Executive Director Jason Caudle, Deputy Executive Director Barbara Boswell, Finance Director of the City of Lancaster Pamela Statsmann, Assistant Finance Director of the City of Lancaster Allison E. Burns, Agency Counsel Britt Avrit, CMC, Secretary

SPECIAL SERVICES

Bond Counsel Disclosure Counsel

Stradling Yocca Carlson & Rauth Richards, Watson & Gershon a Professional Corporation A Professional Corporation Newport Beach, California Los Angeles, California

Trustee and Escrow Bank Financial Advisor / Dissemination Agent

U.S. Bank National Association Urban Futures, Inc. Los Angeles, California Orange, California

Underwriter Verification Agent

Southwest Securities, Inc. Grant Thornton LLP Cardiff by the Sea, California Minneapolis, Minnesota GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations with respect to the Bonds other than as contained in this Official Statement, and, if given or made, such other information or representation must not be relied upon as having been given or authorized by the Agency or the Underwriter.

Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. 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.

Build America Mutual Assurance Company (“BAM” or the “Insurer”) makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “BOND INSURANCE” and “APPENDIX H – Specimen Municipal Bond Insurance Policy”.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure made by the Agency, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the Agency or the other parties described in this Official Statement, since the date of this Official Statement.

Document Summaries. All summaries of the Indenture or other documents contained in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all such provisions. All references in this Official Statement to the Indenture and such other documents are qualified in their entirety by reference to such documents, which are on file with the Agency. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

No Registration with the SEC. The issuance and sale of the Bonds have 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.

Public Offering Prices. The Underwriter may offer and sell the Bonds to certain dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and the Underwriter may change those public offering prices from time to time.

Web Page. The City of Lancaster maintains a website. However, the information maintained on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. TABLE OF CONTENTS

PAGE NO.

INTRODUCTION ...... 1 Authority and Purpose ...... 1 The City and the Agency ...... 2 The Project Areas...... 3 Tax Allocation Financing ...... 3 Security for the Bonds ...... 4 Outstanding Bonds...... 5 Reserve Account ...... 5 Further Information...... 5 PLAN OF REFUNDING...... 6 SOURCES AND USES OF FUNDS...... 7 THE BONDS ...... 8 Authority for Issuance...... 8 Description of the Bonds ...... 8 Book-Entry System...... 8 Redemption and Purchase of Bonds ...... 8 SECURITY FOR THE BONDS...... 11 Redevelopment Property Tax Trust Fund; Pledged Tax Revenues ...... 11 Tax Increment Financing ...... 13 Recognized Obligation Payment Schedule...... 15 Outstanding Bonds...... 19 Additional Parity Bonds...... 20 Bonds Not a Debt of the City of Lancaster or the State of California ...... 22 BOND INSURANCE ...... 22 Bond Insurance Policy ...... 22 Build America Mutual Assurance Company ...... 22 THE INDENTURE...... 24 Allocation of Bond Proceeds ...... 24 Pledged Tax Revenues - Application...... 25 Investment of Moneys in Funds and Accounts...... 27 Covenants of the Agency...... 27 Events of Default and Remedies...... 31 Application of Funds Upon Acceleration ...... 33 Amendments ...... 34 THE SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY...... 35 Members and Officers...... 36 Agency Powers ...... 36 RISK FACTORS ...... 37 Reduction in Taxable Value...... 37 Risks to Real Estate Market...... 38 Reduction in Inflationary Rate...... 38 Development Risks ...... 38 Levy and Collection of Taxes ...... 39 Time Limits on Receiving Tax Increment Revenues...... 39 State Budget Issues ...... 39 Recognized Obligation Payment Schedule...... 42

i AB 1484 Penalty for Failure to Remit Unencumbered Funds ...... 44 Bankruptcy and Foreclosure ...... 45 Estimated Revenues...... 45 Hazardous Substances...... 46 Seismic Factors ...... 46 Risk of Floods...... 46 Changes in the Law...... 47 Investment Risk ...... 47 Additional Obligations...... 47 Secondary Market ...... 47 No Validation Proceeding Undertaken ...... 47 PROPERTY TAXATION IN CALIFORNIA ...... 48 Property Tax Collection Procedures ...... 48 Unitary Property...... 50 Article XIIIA of the State Constitution...... 51 Appropriations Limitation - Article XIIIB...... 52 Articles XIIIC and XIIID of the State Constitution...... 52 Proposition 87 ...... 52 Redevelopment Time Limits...... 52 Appeals of Assessed Values ...... 53 Proposition 8...... 54 Propositions 218 and 26...... 54 Future Initiatives ...... 54 THE PROJECT AREAS...... 55 General Information...... 55 Summary of Assessed Valuation of Project Areas ...... 56 Limitations and Requirements of the Redevelopment Plans ...... 56 Lancaster Residential Redevelopment Project...... 60 Central Business District Redevelopment Project ...... 61 Fox Field Redevelopment Project...... 64 Amargosa Redevelopment Project...... 66 Lancaster Redevelopment Project No. 5...... 69 Lancaster Redevelopment Project No. 6...... 71 Lancaster Redevelopment Project No. 7...... 73 Appeals ...... 74 PLEDGED TAX REVENUES ...... 77 Schedule of Historical Incremental Revenues ...... 77 Projected Taxable Valuation and Pledged Tax Revenues...... 78 Bonds and Existing Parity Bonds Annual Debt Service ...... 80 Debt Service Coverage ...... 81 CONCLUDING INFORMATION ...... 83 Underwriting...... 83 Legal Opinions...... 83 Tax Exemption...... 83 Verification ...... 84 No Litigation...... 85 Legality for Investment in California...... 85 Ratings ...... 85 Continuing Disclosure ...... 85 Miscellaneous ...... 89

ii SUPPLEMENTAL INFORMATION THE CITY OF LANCASTER AND THE COUNTY OF LOS ANGELES ...... 90

APPENDIX A – Definitions...... A-1 APPENDIX B – Forms of Bond Counsel Opinions ...... B-1 APPENDIX C – Book-Entry Only System...... C-1 APPENDIX D – Form of Continuing Disclosure Agreement ...... D-1 APPENDIX E – Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2014...... E-1 APPENDIX F – Financial Advisor’s Report ...... F-1 APPENDIX G – DOF Determination Letter ...... G-1 APPENDIX H – Specimen Municipal Bond Insurance Policy ...... H-1

iii [THIS PAGE INTENTIONALLY LEFT BLANK] $12,560,000 $10,950,000 SUCCESSOR AGENCY TO THE SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY LANCASTER REDEVELOPMENT AGENCY Combined Redevelopment Project Areas Combined Redevelopment Project Areas (Housing Programs) (Housing Programs) Tax Allocation Refunding Bonds Taxable Tax Allocation Refunding Bonds Issue of 2015A Issue of 2015B

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 Bonds (as defined herein). Potential investors are encouraged to read the entire Official Statement.

Authority and Purpose

This Official Statement, including the cover page, is provided to furnish information in connection with the sale by the Successor Agency to the Lancaster Redevelopment Agency (the “Agency”) of its (i) $12,560,000 Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Refunding Bonds, Issue of 2015A (the “2015A Bonds”), and (ii) $10,950,000 Combined Redevelopment Project Areas (Housing Programs), Taxable Tax Allocation Refunding Bonds, Issue of 2015B (the “2015B Bonds”; and together with the 2015A Bonds, the “Bonds”).

The Bonds are being issued pursuant to the Constitution and laws of the State of California (the “State”), including Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code (the “Bond Law”) and the provisions of Health and Safety Code Section 34177.5, and an Indenture of Trust dated as of March 1, 2015 (the “Indenture”) by and between the Agency and U.S. Bank National Association, as trustee (the “Trustee”) approved by Resolution No. SA 09-14 adopted by the Agency on October 28, 2014 (the “Successor Agency Resolution”), and by Resolution No. OB 22-14 adopted by the Oversight Board for the Agency on October 29, 2014 (the “Oversight Board Resolution”). Written notice of the Oversight Board Resolution was provided to the State Department of Finance pursuant to the Dissolution Act (as defined herein) on October 30, 2014, and the State Department of Finance requested review within five business days of such written notice. On December 10, 2014, the State Department of Finance provided a letter to the Agency stating that based on such department’s review and application of the law, the Oversight Board Resolution approving the refinancing of the Refunded Bonds (as defined below) is approved by the State Department of Finance and that the letter constitutes the department’s determination with respect to the Oversight Board action taken pursuant to the Oversight Board Resolution (the “DOF Determination Letter”). A copy of the DOF Determination Letter is set forth as Appendix G hereto.

The 2015A Bonds are being issued to refinance for savings the Lancaster Redevelopment Agency’s (the “Prior Agency”) previously issued Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003B (the “2003B Bonds”) currently outstanding in the principal amount of $13,095,000. The 2015B Bonds are being issued to refinance for savings the Prior Agency's previously issued Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2004 (Taxable) (the “2004 Bonds”), currently outstanding in the principal amount of $10,980,000. The 2003B Bonds and the 2004 Bonds are referred to collectively herein as the “Refunded Bonds.”

1 The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy (the “Insurance Policy”) to be issued concurrently with the delivery of the Bonds by Build America Mutual Assurance Company (“BAM” or the “Insurer”). See “BOND INSURANCE” and “APPENDIX H – Specimen Municipal Bond Insurance Policy” herein.

The City and the Agency

The City of Lancaster, California (the “City”), is located in northern Los Angeles County (the “County”), in an area known as the Antelope Valley. The City was incorporated in 1977. It maintains a council-manager form of government, with the Mayor and Councilmembers elected at-large for staggered four-year terms. For certain additional information regarding the City and the County, see “SUPPLEMENTAL INFORMATION – The City of Lancaster and the County of Los Angeles.

On April 2, 1979, the Lancaster Redevelopment Agency (the “Prior Agency”) was established by the City Council of the City pursuant to the Community Redevelopment Law (Part 1, Division 24, commencing with Section 33000 of the Health and Safety Code of the State) (the “Redevelopment Law”), at which time the City Council declared itself to be the governing board of the Prior Agency. On June 29, 2011, Assembly Bill No. 26 (“AB X1 26”) was enacted as Chapter 5, Statutes of 2011, together with a companion bill, Assembly Bill No. 27 (“AB X1 27”). A lawsuit was brought in the California Supreme Court, California Redevelopment Association, et al., v. Matosantos, et al., 53 Cal. 4th 231 (Cal. 2011) (the “California Redevelopment Association case”), challenging the constitutionality of AB X1 26 and AB X1 27. In its December 29, 2011 decision, the California Supreme Court largely upheld AB X1 26, invalidated AB X1 27, and held that AB X1 26 may be severed from AB X1 27 and enforced independently. As a result of AB X1 26 and the decision of the California Supreme Court in the California Redevelopment Association case, as of February 1, 2012, all redevelopment agencies in the State were dissolved, including the Prior Agency, and successor agencies were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.

The primary provisions enacted by AB X1 26 relating to the dissolution and wind down of former redevelopment agency affairs are Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State, as amended on June 27, 2012 by Assembly Bill No. 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012 (as amended from time to time, the “Dissolution Act”).

On January 10, 2012, pursuant to Resolution No. 12-04 and Section 34173 of the Dissolution Act, the City Council of the City elected to serve as successor agency to the Prior Agency. Subdivision (g) of Section 34173 of the Dissolution Act, added by AB 1484, expressly affirms that the Agency is a separate public entity from the City, that the two entities shall not merge, and that the liabilities of the Prior Agency will not be transferred to the City nor will the assets of the Prior Agency become assets of the City.

On January 24, 2012, pursuant to Resolution No. 12-08 and Section 34176 of the Dissolution Act, the City Council of the City elected not to retain the responsibility for performing housing functions previously performed by the Prior Agency and selected the Lancaster Housing Authority to retain all of the rights, powers, assets, duties and obligations associated with the housing activities of the Prior Agency. In accordance with Section 34176 of the Dissolution Act, the transfer of housing functions from the Prior Agency to the Lancaster Housing Authority excluded enforceable obligations retained by the Agency (such as the Refunded Bonds and the Existing Parity Bonds) and any amounts in the Low and Moderate Income Housing Fund previously required to be established and maintained by the Prior Agency by the Redevelopment Law prior to the enactment of the Dissolution Act.

2 The Project Areas

The City Council, on behalf of the Prior Agency, established the following redevelopment projects within the City and which are referred to herein, collectively, as the “Project Areas”:

(i) “Lancaster Residential Redevelopment Project” (the “Residential Project”) approved by Ordinance No. 158 of the City of Lancaster adopted on November 13, 1979;

(ii) “Central Business District Redevelopment Project” (the “CBD Project”) approved by Ordinance No. 226 of the City of Lancaster adopted on June 1, 1981;

(iii) “Fox Field Redevelopment Project” (the “Fox Field Project”) approved by Ordinance No. 289 of the City of Lancaster adopted on December 20, 1982;

(iv) “Amargosa Redevelopment Project” (the “Amargosa Project”) approved by Ordinance No. 321 of the City of Lancaster adopted on October 17, 1983;

(v) “Lancaster Redevelopment Project No. 5” (“Project No. 5”) approved by Ordinance No. 360 of the City of Lancaster adopted on November 26, 1984;

(vi) “Lancaster Redevelopment Project No. 6” (“Project No. 6”) approved by Ordinance No. 505 of the City of Lancaster adopted on July 3, 1989; and

(vii) “Lancaster Redevelopment Project No. 7” (Project No. 7”) approved by Ordinance No. 624 of the City of Lancaster adopted on November 28, 1992

See “THE PROJECT AREAS” for additional information regarding assessed valuations, property ownership, and land uses of the Project Areas.

Tax Allocation Financing

Prior to the enactment of AB X1 26, the Redevelopment Law authorized the financing of redevelopment projects through the use of tax increment revenues. This method provided that the taxable valuation of the property within a redevelopment project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts the redevelopment plan becomes the base year valuation. Assuming the taxable valuation never drops below the base year level, the taxing agencies thereafter received that portion of the taxes produced by applying then current tax rates to the base year valuation, and the redevelopment agency was allocated the remaining portion produced by applying then current tax rates to the increase in valuation over the base year. Such incremental tax revenues allocated to a redevelopment agency were authorized to be pledged to the payment of agency obligations.

The Dissolution Act authorizes refunding bonds, including the Bonds, to be secured by a pledge of monies deposited from time to time in a Redevelopment Property Tax Trust Fund held by a county auditor-controller with respect to a successor agency, which are equivalent to the tax increment revenues that were formerly allocated under the Redevelopment Law to the redevelopment agency and formerly authorized under the Redevelopment Law to be used for the financing of redevelopment projects. Under the Indenture, Pledged Tax Revenues consist of the amounts deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to and as provided in the Dissolution Act. See “SECURITY FOR THE BONDS – Tax Increment Financing” herein for additional information.

3 Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See “RISK FACTORS.”

Security for the Bonds

The Dissolution Act requires the County Auditor-Controller to determine the amount of property taxes that would have been allocated to the Prior Agency had the Prior Agency not been dissolved pursuant to the operation of AB X1 26, using current assessed values on the last equalized roll on August 20, and to deposit that amount in the Redevelopment Property Tax Trust Fund for the Agency established and held by the County Auditor-Controller (the “Redevelopment Property Tax Trust Fund”) pursuant to the Dissolution Act. The Dissolution Act provides that any bonds authorized thereunder to be issued by the Agency will be considered indebtedness incurred by the dissolved Prior Agency, with the same legal effect as if the bonds had been issued prior to effective date of AB X1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to that date, and will be included in the Agency’s Recognized Obligation Payment Schedule (see “Appendix A – Definitions” and “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule”).

The Dissolution Act further provides that bonds authorized thereunder to be issued by the Agency will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund, and that property tax revenues pledged to any bonds authorized under the Dissolution Act, such as the Bonds, are taxes allocated to the Agency pursuant to the provisions of the Redevelopment Law and the State Constitution which provided for the allocation of tax increment revenues under the Redevelopment Law, as described in the foregoing paragraph.

In accordance with the Dissolution Act, “Pledged Tax Revenues” are defined under the Indenture as the portion of the monies deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to subdivision (c) of Section 34172 of the Dissolution Act, as provided in paragraph (2) of subdivision (a) of Section 34183 of the Dissolution Act, provided, in the event of a shortfall in moneys on deposit in the Redevelopment Property Tax Trust Fund to pay annual debt service on all Outstanding Bonds, 2003 Bonds, 2009 Bonds and any Outstanding Obligations secured by a pledge of tax revenues and payable from moneys deposited in the Redevelopment Property Tax Trust Fund, Pledged Tax Revenues to pay the Bonds will be limited to twenty percent (20%) of gross tax revenues as determined pursuant to the Redevelopment Law prior to the enactment of AB X1 26 (the “Prior Law”), as authorized by paragraph (a)(1) of Section 34177.5 of the Dissolution Act. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include the portion of tax revenues allocated to the payment of indebtedness pursuant to Health & Safety Code Section 33670 that is required to be deposited in the Housing Fund pursuant to Section 33334.2 of the Prior Law or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution.

The Bonds and the Existing Parity Bonds are payable from and equally and ratably secured, without preference or distinction as to series, by the Pledged Tax Revenues to be derived from the Project Areas, all of the monies in the Redevelopment Obligation Retirement Fund established and held by the Agency pursuant to the Dissolution Act, and all of the monies in the Debt Service Fund (including the Interest Account, the Principal Account, the Reserve Account, and the Redemption Account therein) established and held by the Trustee under the Indenture. Taxes levied on the property within the Project Areas on that portion of the taxable valuation over and above the taxable valuation of the applicable base year property tax roll with respect to the various territories within the Project Areas, to the extent they constitute Pledged Tax Revenues, as described herein, will be deposited in the Redevelopment Property Tax Trust Fund for transfer by the County Auditor-Controller to the Agency’s Redevelopment Obligation

4 Retirement Fund on January 2 and June 1 of each year to the extent required for payments listed in the Agency’s Recognized Obligation Payment Schedule in accordance with the requirements of the Dissolution Act (see “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule”). See, however, “RISK FACTORS – State Budget Issues” for information concerning a proposed change to the Dissolution Act to transition all successor agencies from a biannual Recognized Obligation Payment Schedule process to an annual Recognized Obligation Payment Schedule process commencing July 1, 2016; it is unclear from the summary description of the proposed legislation provided by the Governor whether distributions from the Redevelopment Property Tax Trust Fund would continue to be made by the County Auditor-Controller to successor agencies (or tax sharing entities) each January 2 and June 1, once a year, or on some other periodic cycle if such proposed legislation is enacted. Monies deposited by the County Auditor-Controller into the Agency’s Redevelopment Obligation Retirement Fund will be transferred by the Agency to the Trustee for deposit in the Debt Service Fund established under the Indenture and administered by the Trustee in accordance with the Indenture.

Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See “RISK FACTORS.”

Outstanding Bonds

The Bonds are being issued on a parity basis with the Prior Agency’s previously issued (i) Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003 (the “2003 Bonds”); and (ii) Combined Redevelopment Project Areas (Housing Programs) Tax Allocation Bonds, Issue of 2009 (the “2009 Bonds”; and together with the 2003 Bonds, the “Existing Parity Bonds”).

Reserve Account

In order to further secure the payment of the principal of and interest on the Bonds, a Reserve Account within the Debt Service Fund is created pursuant to the Indenture in an amount equal to the Reserve Requirement. “Reserve Requirement” means, as of the date of computation, an amount equal to the lesser of (i) Maximum Annual Debt Service on the Bonds and any Parity Bonds, (ii) 10% of the net proceeds of the Bonds and any Parity Bonds, or (iii) 125% of the Annual Debt Service on all Bonds and Parity Bonds Outstanding. Within the Reserve Account, there is established a 2015A Reserve Subaccount and a 2015B Reserve Subaccount. The Reserve Requirement with respect to the 2015A Bonds will be satisfied by the deposit into the 2015A Reserve Subaccount of a municipal bond debt service reserve insurance policy (the “2015A Reserve Policy”) to be issued by Build America Mutual Assurance Company (“BAM” or the “Insurer”). The Reserve Requirement with respect to the 2015B Bonds will be satisfied by the deposit into the 2015B Reserve Subaccount of a municipal bond debt service reserve insurance policy (the “2015B Reserve Policy”) to be issued by BAM. The 2015A Reserve Policy and the 2015B Reserve Policy are sometimes referred to herein, collectively or individually, as the context may require, as the “Reserve Policy.”

Further Information

Brief descriptions of the Bonds, the Indenture, the Agency, the Prior Agency and the City are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture, the Bond Law, the Redevelopment Law, the Dissolution Act, the Constitution and the laws of the State as well as the proceedings of the Prior Agency, the Agency and the City are qualified in their entirety by reference to such documents. References herein to the Bonds are qualified in their entirety by the form thereof included in the Indenture and the information with respect thereto included herein, copies of which are all available for inspection

5 at the offices of the Agency. During the period of the offering of the Bonds, copies of the forms of all documents are available at the offices of Southwest Securities, Inc., 2533 South Coast Hwy 101, Suite 250, Cardiff by the Sea, California 92007, and thereafter from the City Clerk's office, City of Lancaster, 44933 North Fern Avenue, Lancaster, California 93534.

PLAN OF REFUNDING

A portion of the proceeds of the 2015A Bonds will be used to currently refund and defease all of the Prior Agency's previously issued 2003B Bonds, currently outstanding in the principal amount of $13,095,000. A portion of the proceeds of the 2015B Bonds will be used to currently refund and defease all of the Prior Agency's previously issued 2004 Bonds, currently outstanding in the principal amount of $10,980,000. See “SOURCES AND USES OF FUNDS.”

Concurrently with the issuance of the Bonds, the Agency will enter into a 2003B Bonds Escrow Agreement and a 2004 Bonds Escrow Agreement, each dated as of March 1, 2015 (collectively, the “Escrow Agreements”), and each with U.S. Bank National Association, Los Angeles, California, as escrow bank (the “Escrow Bank”). Under each Escrow Agreement, the Escrow Bank will create and establish an escrow fund, to be known as, respectively, the 2003B Bonds Escrow Fund and the 2004 Bonds Escrow Fund (collectively, the “Escrow Funds”).

Amounts in the 2003B Bonds Escrow Fund will be held uninvested and will be used to pay the redemption price on the Refunded Bonds consisting of 2003B Bonds, including any accrued and unpaid interest with respect thereto, on April 24, 2015. Amounts in the 2004 Bonds Escrow Fund will be held uninvested and will be used to pay the redemption price on the Refunded Bonds consisting of 2004 Bonds, including any accrued and unpaid interest with respect thereto, on April 24, 2015.

The monies deposited in the Escrow Funds will be held solely for the benefit of the holders of the respective Refunded Bonds and will not serve as a security or be available for payment of principal of, or interest on, or premium, if any, on the Bonds.

Sufficiency of the deposits to pay and redeem the 2003B Bonds and the 2004 Bonds will be verified upon delivery of the Bonds by Grant Thornton LLP, Minneapolis, Minnesota. See “CONCLUDING INFORMATION – Verification” herein. As a result of the deposit and application of funds pursuant to the Escrow Agreements, the lien upon the Pledged Tax Revenues of the Refunded Bonds will be discharged, and the Refunded Bonds will no longer have any claim against the Pledged Tax Revenues.

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SOURCES AND USES OF FUNDS

The estimated sources and uses of funds for the 2015A Bonds are summarized as follows:

2015A BONDS

Sources Principal Amount of Bonds ...... $12,560,000.00 Net Original Issue Premium ...... 504,389.05 2003B Bonds Funds and Accounts...... 691,571.67 Total Sources ...... $13,755,960.72 Uses Underwriter's Discount ...... $ 125,600.00 2015A Reserve Subaccount ...... (1) 2003B Bonds Escrow Fund (2) ...... 13,243,572.31 Costs of Issuance Fund (3) ...... 386,788.41 Total Uses ...... $13,755,960.72 ______(1) The 2015A Reserve Policy will be deposited in the 2015A Reserve Subaccount of the Reserve Account in an amount equal to the initial Reserve Requirement for the 2015A Bonds. See “SECURITY FOR THE BONDS – Reserve Account.” (2) An amount of moneys sufficient to provide for the payment of the principal and interest on the 2003B Bonds through April 24, 2015. (3) To be used to pay Costs of Issuance (as defined in the Indenture), which include fees and expenses for Bond Counsel, Disclosure Counsel, Financial Advisor, trustee, printing expenses, rating fee, Verification Agent fees and expenses, the premium for the Insurance Policy with respect to the 2015A Bonds, the premium for the 2015A Reserve Policy, and other costs. On the Delivery Date, the Underwriter will retain from the purchase price of the 2015A Bonds an amount equal to the premiums for the Insurance Policy with respect to the 2015A Bonds and the 2015A Reserve Policy and pay such premiums to BAM on the Delivery Date on behalf of the Agency.

The estimated sources and uses of funds for the 2015B Bonds are summarized as follows:

2015B BONDS Sources

Principal Amount of Bonds ...... $10,950,000.00 Original Issue Discount ...... (255,579.35) 2004 Bonds Funds and Accounts ...... 898,522.20 Total Sources ...... $11,592,942.85 Uses Underwriter's Discount ...... $ 120,450.00 2015B Reserve Subaccount ...... (1) 2004 Bonds Escrow Fund (2) ...... 11,124,369.16 Costs of Issuance Fund (3) ...... 348,123.69 Total Uses ...... $11,592,942.85 ______(1) The 2015B Reserve Policy will be deposited in the 2015B Reserve Subaccount of the Reserve Account in an amount equal to the initial Reserve Requirement for the 2015B Bonds. See “SECURITY FOR THE BONDS – Reserve Account.” (2) An amount of moneys sufficient to provide for the payment of the principal and interest on the 2004 Bonds through April 24, 2015. (3) To be used to pay Costs of Issuance (as defined in the Indenture), which include fees and expenses for Bond Counsel, Disclosure Counsel, Financial Advisor, trustee, printing expenses, rating fee, Verification Agent fees and expenses, the premium for the Insurance Policy with respect to the 2015B Bonds, the premium for the 2015B Reserve Policy, and other costs. On the Delivery Date, the Underwriter will retain from the purchase price of the 2015B Bonds an amount equal to the premiums for the Insurance Policy with respect to the 2015B Bonds and the 2015B Reserve Policy and pay such premiums to BAM on the Delivery Date on behalf of the Agency.

THE BONDS

Authority for Issuance

The Bonds were authorized for issuance pursuant to the Indenture, the Bond Law, and the Dissolution Act.

Description of the Bonds

The Bonds will be executed and delivered as one fully-registered Bond in the denomination of $5,000 or any integral multiple thereof for each maturity, initially in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), as registered owner of all Bonds. See “Book-Entry System” below. The initially executed and delivered Bonds will be dated the Delivery Date and mature on August 1 in the years and in the amounts shown on the inside cover page of this Official Statement. Interest on the Bonds will be calculated at the rates shown on the inside cover page of this Official Statement, payable semiannually on February 1 and August 1 in each year, commencing on August 1, 2015, by check mailed to the registered owners thereof or upon the request of the Owners of $1,000,000 or more in principal amount of Bonds, by wire transfer to an account in the United States which shall be designated in written instructions by such Owner to the Trustee on or before the Record Date preceding the Interest Payment Date.

Book-Entry System

DTC, New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See “APPENDIX C – Book-Entry Only System.”

Redemption and Purchase of Bonds

Optional Redemption.

The Bonds are subject to redemption prior to maturity in whole, or in part in the manner determined by the Agency, on any date on or after August 1, 2024, from any available source of funds, at a redemption price (expressed as a percentage of the principal amount of the Bonds to be redeemed) equal to 100% of the principal amount to be redeemed, together with accrued interest thereon to the redemption date, without premium.

Sinking Account Redemption.

The 2015A Bonds maturing on August 1, 2031 and August 1, 2034 (collectively, the “2015A Term Bonds”) and the 2015B Bonds maturing on August 1, 2035 (the “2015B Term Bonds”) are subject to redemption in part by lot on August 1 in each year shown in the respective following tables until maturity, from sinking account payments made by the Successor Agency, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that if some but not all of the Bonds have been redeemed the total amount of all future sinking account payments will be reduced by an amount corresponding to the aggregate principal amount of Bonds so redeemed, to be allocated among such sinking account payments

8 on a pro rata basis in integral multiples of $5,000 as determined by the Successor Agency (notice of which determination will be given by the Successor Agency to the Trustee).

2015A Term Bonds Maturing in 2031 Year (August 1) Amount 2027 $400,000 2028 415,000 2029 320,000 2030 810,000 2031 (maturity) 290,000

2015A Term Bonds Maturing in 2034 Year (August 1) Amount 2032 $ 300,000 2033 300,000 2034 (maturity) 4,200,000

2015B Term Bonds Maturing in 2035 Year (August 1) Amount 2027 $ 385,000 2028 405,000 2029 425,000 2030 445,000 2031 395,000 2032 395,000 2033 400,000 2034 420,000 2035 (maturity) 3,585,000

Purchase in Lieu of Redemption. In lieu of sinking account redemption of the Bonds, amounts on deposit in the Redevelopment Obligation Retirement Fund (to the extent not required to be transferred to the Trustee during the current Bond Year) may also be used and withdrawn by the Agency at any time for the purchase of the Bonds at public or private sale as and when and at such prices (including brokerage and other charges and including accrued interest) as the Agency may in its discretion determine. The par amount of any of the Bonds so purchased by the Agency and surrendered to the Trustee for cancellation in any twelve-month period ending on July 15 in any year will be credited towards and will reduce the principal amount of the Bonds otherwise required to be redeemed on the following August 1 pursuant to the Indenture.

Purchase in Open Market. Amounts on deposit in the Redevelopment Obligation Retirement Fund (to the extent not required to be transferred to the Trustee during the current Bond Year and to the extent permitted by the Dissolution Act) may also be used and withdrawn by the Agency at any time for the purchase of the Bonds at public or private sale as and when and at such prices (including brokerage and other charges and including accrued interest) as the Agency may in its discretion determine. The Bonds so purchased by the Agency shall be surrendered to the Trustee for cancellation and shall no longer be Outstanding.

9 Notice of Redemption. The Trustee on behalf of and at the expense of the Agency will mail (by first class mail, postage prepaid) notice of any redemption at least thirty (30) but not more than sixty (60) days prior to the redemption date, to (i) the Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and (ii) to the Securities Depositories and to the Information Services designated in a Written Request of the Agency filed with the Trustee at the time the Agency notifies the Trustee of its intention to redeem Bonds; but such mailing will not be a condition precedent to such redemption and neither failure to receive any such notice nor any defect therein will affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice will state the redemption date and the redemption price, will designate the CUSIP number of the Bonds to be redeemed, state the individual number of each Bond to be redeemed or state that all Bonds between two stated numbers (both inclusive) or all of the Bonds Outstanding (or all Bonds of a maturity) are to be redeemed, and will require that such Bonds be then surrendered at the Trust Office of the Trustee for redemption at the said redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date.

The Agency shall have the right to rescind any optional redemption by written notice to the Trustee at least fifteen (15) days prior to the date fixed for redemption. Any notice of optional redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture. The Agency and the Trustee shall have no liability to the Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent.

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10 SECURITY FOR THE BONDS

Redevelopment Property Tax Trust Fund; Pledged Tax Revenues

The Dissolution Act requires the County Auditor-Controller to determine the amount of property taxes that would have been allocated to the Prior Agency (pursuant to subdivision (b) of Section 16 of Article XVI of the State Constitution) had the Prior Agency not been dissolved pursuant to the operation of AB X1 26, using current assessed values on the last equalized roll on August 20, and to deposit that amount in the Redevelopment Property Tax Trust Fund for the Agency established and held by the County Auditor-Controller pursuant to the Dissolution Act. The Dissolution Act provides that any bonds authorized thereunder to be issued by the Agency will be considered indebtedness incurred by the dissolved Prior Agency, with the same legal effect as if the bonds had been issued prior to effective date of AB X1 26, in full conformity with the applicable provisions of the Redevelopment Law that existed prior to that date, and will be included in the Agency’s Recognized Obligation Payment Schedule (see “Appendix A – Definitions” and “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule”).

The Dissolution Act further provides that bonds authorized thereunder to be issued by the Agency will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund, and that property tax revenues pledged to any bonds authorized to be issued by the Agency under the Dissolution Act, including the Bonds, are taxes allocated to the Agency pursuant to subdivision (b) of Section 33670 of the Redevelopment Law and Section 16 of Article XVI of the State Constitution.

Pursuant to subdivision (b) of Section 33670 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plan, taxes levied upon taxable property in the Project Areas each year by or for the benefit of the State, any city, county, city and county, district, or other public corporation (herein sometimes collectively called “taxing agencies”) after the effective date of the ordinance approving the Redevelopment Plan, or the respective effective dates of ordinances approving amendments to the Redevelopment Plan that added territory to a Project Area, as applicable, are to be divided as follows:

(a) To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of the taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan, or the respective effective dates of ordinances approving amendments to the Redevelopment Plan that added territory to the Project Area, as applicable (each, a “base year valuation”), will be allocated to, and when collected will be paid into, the funds of the respective taxing agencies as taxes by or for the taxing agencies on all other property are paid; and

(b) To the Prior Agency/Agency: Except for that portion of the taxes in excess of the amount identified in (a) above which are attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficient to make annual repayments of the principal of, and the interest on, any bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989 for the acquisition or improvement of real property, which portion shall be allocated to, and when collected shall be paid into, the fund of that taxing agency, that portion of the levied taxes each year in excess of such amount, annually allocated within the Plan Limit following the Delivery Date, when collected will be paid into a special fund of the

11 Prior Agency. Section 34172 of the Dissolution Act provides that, for purposes of Section 16 of Article XVI of the State Constitution, the Redevelopment Property Tax Trust Fund shall be deemed to be a special fund of the Agency to pay the debt service on indebtedness incurred by the Prior Agency or the Agency to finance or refinance the redevelopment projects of the Prior Agency.

That portion of the levied taxes described in paragraph (b) above, less amounts deducted pursuant to Section 34183(a) of the Dissolution Act for permitted administrative costs of the County Auditor- Controller, constitute the amounts required under the Dissolution Act to be deposited by the County Auditor-Controller into the Redevelopment Property Tax Trust Fund. In addition, Section 34183 of the Dissolution Act effectively eliminates the January 1, 1989 date from paragraph (b) above.

Elimination of 20% Housing Set-Aside Requirement. Prior to enactment of the Dissolution Act, Section 33334.2 of the Redevelopment Law required that not less than twenty percent (20%) of the gross tax increment revenues be deposited in the Low and Moderate Income Housing Fund (the “Housing Set- Aside Amount”). The Housing Set-Aside Amount was pledged for repayment of the Refunded Bonds. The Dissolution Act states that commencing on its effective date, all provisions of the Redevelopment Law that depend on the allocation of tax increment to redevelopment agencies shall be inoperative; therefore, the State Department of Finance has previously provided guidance to the effect that the Housing Set-Aside Amount is not a continuing obligation, except for funds which would have been deposited into the Low and Moderate Income Housing Fund to pay for enforceable housing obligations, such as payments for housing bond debt service (e.g., the Refunded Bonds), which should be placed on the Recognized Obligation Payment Schedule. The periodic deposits by the County Auditor-Controller to the Redevelopment Property Tax Trust Fund are equivalent in amount to the tax increment revenues formerly allocated under the Redevelopment Law to the Prior Agency (including former Housing Set- Aside Amount), less permitted administrative costs of the County Auditor-Controller. See “SECURITY FOR THE BONDS – Tax Increment Financing.”

Pledged Tax Revenues. “Pledged Tax Revenues” are defined under the Indenture as the portion of the monies deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to subdivision (c) of Section 34172 of the Dissolution Act, as provided in paragraph (2) of subdivision (a) of Section 34183 of the Dissolution Act, provided in the event of a shortfall in moneys on deposit in the Redevelopment Property Tax Trust Fund to pay annual debt service on all Outstanding Bonds, 2003 Bonds, 2009 Bonds and any Outstanding obligations of the Agency or the Prior Agency secured by a pledge of tax revenues and payable from moneys deposited in the Redevelopment Property Tax Trust Fund, Pledged Tax Revenues to pay the Bonds will be limited to twenty percent (20%) of gross tax revenues as determined pursuant to the Prior Law, as authorized by paragraph (a)(1) of Section 34177.5 of the Dissolution Act. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include the portion of tax revenues allocated to the payment of indebtedness pursuant to Health & Safety Code Section 33670 that is required to be deposited in the Housing Fund pursuant to Section 33334.2 of the Prior Law or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution. In effect, and in accordance with Section 34177.5(a)(1) of the Dissolution Act, the Indenture pledges the same revenues to the repayment of the Bonds that were previously pledged toward repayment of the Refunded Bonds, which specifically are the portion of monies deposited from time to time in the Redevelopment Property Tax Trust Fund that would have comprised the Housing Set-Aside Amount, and such pledge has the same lien priority on the Pledged Tax Revenues as the pledge of the Refunded Bonds. The Bonds and the Existing Parity Bonds are payable from and secured by the Pledged Tax Revenues to be derived from the Project Areas.

12 The Bonds and the Existing Parity Bonds are payable from and secured by (i) an irrevocable pledge of the Pledged Tax Revenues to be derived from the Project Areas, and (ii) an irrevocable pledge of all of the monies in the Redevelopment Obligation Retirement Fund established and held by the Agency pursuant to the Dissolution Act. In addition, the Bonds are payable from and secured by an irrevocable first pledge and lien on all of the monies in the Debt Service Fund (including the Interest Account, the Principal Account, the Reserve Account, and the Redemption Account therein) established and held by the Trustee in trust for the Bondowners under the Indenture.

Taxes levied on the property within the Project Areas on that portion of the taxable valuation over and above the taxable valuation of the applicable base year property tax roll with respect to the various territories within the Project Areas, to the extent they constitute Pledged Tax Revenues, as described herein, will be deposited in the Redevelopment Property Tax Trust Fund for transfer by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund on January 2 and June 1 of each year to the extent required for payments listed in the Agency’s Recognized Obligation Payment Schedule in accordance with the requirements of the Dissolution Act (see “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule”). Monies deposited by the County Auditor- Controller into the Agency’s Redevelopment Obligation Retirement Fund will be transferred by the Agency to the Trustee for deposit in the Debt Service Fund established under the Indenture and administered by the Trustee in accordance with the Indenture.

The Agency has no power to levy and collect taxes, and various factors beyond its control could affect the amount of Pledged Tax Revenues available in any six-month period to pay the principal of and interest on the Bonds and the Existing Parity Bonds (see “SECURITY FOR THE BONDS – Tax Increment Financing” and “– Recognized Obligation Payment Schedule” and “RISK FACTORS”).

The Bonds are not a debt of the City, the State or any of its political subdivisions (except the Agency), and none of the City, the State or any of its political subdivisions (except the Agency) is liable therefor. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction.

Tax Increment Financing

The Dissolution Act authorizes refunding bonds, including the Bonds, to be secured by a pledge of monies deposited from time to time in a Redevelopment Property Tax Trust Fund held by a county auditor-controller with respect to a successor agency, which are equivalent to the tax increment revenues that were formerly allocated under the Redevelopment Law to the redevelopment agency and formerly authorized under the Redevelopment Law to be used for the financing of redevelopment projects, less amounts deducted pursuant to Section 34183(a) of the Dissolution Act for permitted administrative costs of the county auditor-controller. Under the Indenture, Pledged Tax Revenues consist of the portion of the monies deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to and as provided in the Dissolution Act, provided in the event of a shortfall in moneys on deposit in the

13 Redevelopment Property Tax Trust Fund to pay annual debt service on all Outstanding Bonds, 2003 Bonds, 2009 Bonds and any Outstanding obligations of the Agency or the Prior Agency secured by a pledge of tax revenues and payable from moneys deposited in the Redevelopment Property Tax Trust Fund, Pledged Tax Revenues to pay the Bonds will be limited to twenty percent (20%) of gross tax revenues as determined pursuant to the Prior Law, as authorized by paragraph (a)(1) of Section 34177.5 of the Dissolution Act. Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See “RISK FACTORS.”

Prior to the dissolution of redevelopment agencies, tax increment revenues from one project area could not be used to repay indebtedness incurred for another project area. However, the Dissolution Act has only required that county auditor-controllers establish a single Redevelopment Property Tax Trust Fund with respect to each former redevelopment agency within the respective county. Additionally, the Dissolution Act now requires that all revenues equivalent to the amount that would have been allocated as tax increment to the former redevelopment agency will be allocated to the Redevelopment Property Tax Trust Fund of the applicable successor agency, and this requirement does not require funds derived from separate project areas of a former redevelopment agency to be separated. In effect, in situations where a former redevelopment agency had established more than one redevelopment project area, the Dissolution Act combines the property tax revenues derived from all project areas into a single trust fund, the Redevelopment Property Tax Trust Fund, to repay indebtedness of the former redevelopment agency or the successor agency. To the extent the documents governing outstanding bonds of a redevelopment agency have pledged revenues derived from a specific project area, the Dissolution Act states, “It is the intent . . . that pledges of revenues associated with enforceable obligations of the former redevelopment agencies are to be honored. It is intended that the cessation of any redevelopment agency shall not affect either the pledge, the legal existence of that pledge, or the stream of revenues available to meet the requirements of the pledge.” The implications of these provisions of the Dissolution Act are not entirely clear when a former redevelopment agency has established more than one redevelopment project area, as is the case with the Prior Agency, which has established seven redevelopment project areas: the Residential Project, the CBD Project, the Fox Field Project, the Amargosa Project, Project No. 5, Project No. 6, and Project No. 7. At any rate, in accordance with the Dissolution Act, the Bonds are secured by Pledged Tax Revenues, which consist of monies deposited from time to time in the Redevelopment Property Tax Trust Fund equivalent to the former Housing Set-Aside Amount, without regard to the Project Area from which such monies derive. To the extent there are outstanding bonds of the Prior Agency that are not the Existing Parity Bonds, such bonds are secured only by either (i) the portion of monies deposited into the Redevelopment Property Tax Trust Fund that would not be attributable to the Housing Set-Aside Amount (calculated as though the Housing Set-Aside Amount were still in effect) or (ii) pass-through or tax-sharing amounts payable to certain taxing entities in the Project Areas.

The Redevelopment Law authorized redevelopment agencies to make payments to school districts and other taxing agencies to alleviate any financial burden or detriments to such taxing agencies caused by a redevelopment project. The Prior Agency entered into several agreements for this purpose (the “Pass-Through Agreements”). Additionally, Sections 33607.5 and 33607.7 of the Redevelopment Law required mandatory tax sharing applicable to redevelopment projects adopted after January 1, 1994, or amended thereafter in certain manners specified in such statutes (the “Statutory Pass-Through Amounts”). The Dissolution Act requires the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund amounts required to be distributed under the Pass-Through Agreements and for Statutory Pass-Through Amounts to the taxing entities for each six-month period before amounts are distributed by the County Auditor-Controller from the Redevelopment Property Tax Trust Fund to the Agency’s Redevelopment Obligation Retirement Fund each January 2 and June 1, unless (i) passthrough payment obligations have previously been made subordinate to debt service payments for the bonded indebtedness of the Prior Agency, as succeeded by the Agency, (ii) the Agency has reported, no later than the December 1 and May 1 preceding the January 2 or June 1 distribution date,

14 that the total amount available to the Agency from the Redevelopment Property Tax Trust Fund allocation to the Agency’s Redevelopment Obligation Retirement Fund, from other funds transferred from the Prior Agency, and from funds that have or will become available through asset sales and all redevelopment operations is insufficient to fund the Agency’s enforceable obligations, pass-through payments, and the Agency’s administrative cost allowance for the applicable six-month period, and (iii) the State Controller has concurred with the Agency that there are insufficient funds for such purposes for the applicable six- month period.

If the requirements stated in clauses (i) through (iii) of the foregoing paragraph have been met, the Dissolution Act provides for certain modifications in the distributions otherwise calculated to be distributed for such six-month period. To provide for calculated shortages to be paid to the Agency for enforceable obligations, the amount of the deficiency will first be deducted from the residual amount otherwise calculated to be distributed to the taxing entities under the Dissolution Act after payment of the Agency’s enforceable obligations, pass-through payments, and the Agency’s administrative cost allowance. If such residual amount is exhausted, the amount of the remaining deficiency will be deducted from amounts available for distribution to the Agency for administrative costs for the applicable six- month period in order to fund the enforceable obligations. Finally, funds required for servicing bond debt may be deducted from the amounts to be distributed under Pass-Through Agreements and for Statutory Tax Sharing Amounts, in order to be paid to the Agency for enforceable obligations, but only after the amounts described in the previous two sentences have been exhausted.

To the extent that the Housing Set-Aside Amount was pledged for repayment of the Existing Parity Bonds and the Refunded Bonds, under the Prior Law the Prior Agency’s Pass-Through Agreements and the Statutory Pass-Through Amounts were not payable from the Housing Set-Aside Amount, but rather from other tax increment revenues allocated to the Prior Agency. Section 34177.5(a)(1) of the Dissolution Act provides that the Agency may pledge to the Bonds the revenues pledged to the Refunded Bonds, and that pledge, when made in connection with the issuance of the Bonds, shall have the same lien priority as the pledge of the Refunded Bonds, and shall be valid, binding, and enforceable in accordance with its terms. The Indenture provides that, in the event of a shortfall in moneys on deposit in the Redevelopment Property Tax Trust Fund to pay annual debt service on all Outstanding Bonds, 2003 Bonds, 2009 Bonds and any Outstanding obligations of the Agency or the Prior Agency secured by a pledge of tax revenues and payable from moneys deposited in the Redevelopment Property Tax Trust Fund, Pledged Tax Revenues to pay the Bonds will be limited to twenty percent (20%) of gross tax revenues as determined pursuant to the Prior Law, as authorized by paragraph (a)(1) of Section 34177.5 of the Dissolution Act.

Recognized Obligation Payment Schedule

ROPS Process Under the Dissolution Act

Before each six-month period, the Dissolution Act requires successor agencies to prepare and submit to the successor agency’s oversight board and the State Department of Finance for approval a Recognized Obligation Payment Schedule (the “Recognized Obligation Payment Schedule”) pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. As defined in the Dissolution Act, “enforceable obligation” includes bonds, including the required debt service, reserve set- asides, and any other payments required under the indenture or similar documents governing the issuance of the outstanding bonds of the former redevelopment agency, as well as other obligations such as loans, judgments or settlements against the former redevelopment agency, any legally binding and enforceable agreement that is not otherwise void as violating the debt limit or public policy, contracts necessary for the administration or operation of the successor agency, and amounts borrowed from the Low and

15 Moderate Income Housing Fund. A reserve may be included on the Recognized Obligation Payment Schedule and held by the successor agency when required by the bond indenture or when the next property tax allocation will be insufficient to pay all obligations due under the provisions of the bond for the next payment due in the following six-month period (see “THE INDENTURE – Covenants of the Agency”).

Under the Dissolution Act, the categories of sources of payments for enforceable obligations listed on a Recognized Obligation Payment Schedule are the following: (i) the Low and Moderate Income Housing Fund, (ii) bond proceeds, (iii) reserve balances, (iv) administrative cost allowance, (v) the Redevelopment Property Tax Trust Fund (but only to the extent no other funding source is available or when payment from property tax revenues is required by an enforceable obligation or otherwise required under the Dissolution Act), or (vi) other revenue sources (including rents, concessions, asset sale proceeds, interest earnings, and any other revenues derived from the former redevelopment agency, as approved by the oversight board). Other than amounts deposited in the Redevelopment Property Tax Trust Fund and amounts held in certain funds and accounts under the Indenture, the Agency does not expect to have any other funds available to pay the Bonds.

The Recognized Obligation Payment Schedule with respect to the six-month period of January 1, 2013 through June 30, 2013 was required to be submitted by the Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the State Department of Finance, and the State Controller no later than September 1, 2012. For each subsequent six-month period, the Recognized Obligation Payment Schedule must be submitted by the Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the State Department of Finance, and the State Controller by 90 days before the date of the next January 2 or June 1 property tax distribution. If the Agency does not submit a Recognized Obligation Payment Schedule by such deadlines, the City will be subject to a civil penalty equal to $10,000 per day for every day the schedule is not submitted to the State Department of Finance. Additionally, the Agency’s administrative cost allowance is reduced by 25% for that period if the Agency did not submit a Recognized Obligation Payment Schedule by September 11, 2012, with respect to the Recognized Obligation Payment Schedule for the six-month period of January 1, 2013 through June 30, 2013, or by the 80th day before the date of the next January 2 or June 1 property tax distribution, as applicable, with respect to the Recognized Obligation Payment Schedule for subsequent six-month periods commencing with the period of July 1, 2013 through December 1, 2013.

The Dissolution Act requires the State Department of Finance to make a determination of the enforceable obligations and the amounts and funding sources of the enforceable obligations no later than 45 days after the Recognized Obligation Payment Schedule is submitted. Within five business days of the determination by the State Department of Finance, the Agency may request additional review by the department and an opportunity to meet and confer on disputed items, if any. The State Department of Finance will notify the Agency and the County Auditor-Controller as to the outcome of its review at least 15 days before the January 2 or June 1 date of property tax distribution, as applicable. Additionally, the County Auditor-Controller may review a submitted Recognized Obligation Payment Schedule and object to the inclusion of any items that are not demonstrated to be enforceable obligations and may object to the funding source proposed for any items, provided that the County Auditor-Controller must provide notice of any such objections to the Agency, the Oversight Board, and the State Department of Finance at least 60 days prior to the January 2 or June 1 date of property tax distribution, as applicable.

16 In connection with the allocation and distribution by the County Auditor-Controller of property tax revenues deposited in the Redevelopment Property Tax Trust Fund, under the Dissolution Act the County Auditor-Controller must prepare estimates of the amounts of (i) property tax to be allocated and distributed and (ii) the amounts of passthrough payments to be made in the upcoming six-month period, and provide those estimates to the entities receiving the distributions and the State Department of Finance no later than October 1 and April 1 of each year, as applicable. With respect to the Recognized Obligation Payment Schedule for January 1, 2015 through June 30, 2015, the County Auditor-Controller is required to provide such estimate to the Agency by April 1, 2015. If, after receiving such estimate from the County Auditor-Controller, the Agency determines and reports, no later than December 1 or May 1, as applicable (i.e., by May 1, 2015 with respect to the Recognized Obligation Payment Schedule for July 1, 2015 through December 31, 2015), that the total amount available to the Agency from the Redevelopment Property Tax Trust Fund allocation to the Agency’s Redevelopment Obligation Retirement Fund, from other funds transferred from the Prior Agency, and from funds that have or will become available through asset sales and all redevelopment operations, is insufficient to fund the payment of passthrough obligations, for Agency enforceable obligations listed on the Recognized Obligation Payment Schedule, and for the Agency’s administrative cost allowance, the County Auditor-Controller must notify the State Controller and the State Department of Finance no later than 10 days from the date of the Agency’s notification. If the State Controller concurs that there are insufficient funds to pay required debt service, the Dissolution Act provides for certain adjustments to be made to the estimated distributions, as described in more detail under “SECURITY FOR THE BONDS – Tax Increment Financing” above.

Proposed Legislative Revisions to ROPS Process

As described under the caption, “RISK FACTORS – State Budget Issues,” the State Governor has proposed certain changes to the Dissolution Act in connection with the State’s 2015-16 budget, including a proposed change to transition all successor agencies from a biannual Recognized Obligation Payment Schedule process to an annual Recognized Obligation Payment Schedule process, commencing with the Recognized Obligation Payment Schedule for the period from July 1, 2016, through June 30, 2017. The proposed legislation, as currently written, presently contemplates that distributions from the Redevelopment Property Tax Trust Fund will continue to be made by the County Auditor-Controller to successor agencies (or tax sharing entities) each January 2 and June 1, within each proposed annual Recognized Obligation Payment Schedule period. If enacted as presently written, the Agency would be required to submit the Recognized Obligation Payment Schedule for the period from July 1, 2016, through June 30, 2017, after approval by the Oversight Board, to the County Auditor-Controller and the State Department of Finance no later than February 1, 2016, and each February 1 thereafter for subsequent annual Recognized Obligation Payment Schedules. The proposed legislation also provides that once per Recognized Obligation Payment Schedule period, and no later than October 1 of the applicable year, the Agency may submit one amendment to the annual Recognized Obligation Payment Schedule approved by the State Department of Finance, if the Oversight Board makes a finding that a revision is necessary for the payment of approved enforceable obligations during the second one-half of the Recognized Obligation Payment Schedule period (i.e., during January 1 through June 30), and the Agency may only amend the amount requested for payment of approved enforceable obligations. Similar penalties would apply to late annual Recognized Obligation Payment Schedules under the proposed legislation, as presently written, as the penalties described above for late semi-annual Recognized Obligation Payment Schedules under the caption “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule – ROPS Process Under the Dissolution Act”.

The Agency does not anticipate that the changes to the process for Recognized Obligation Payment Schedules, described in the presently proposed legislation, would adversely affect the timing or distribution of Pledged Tax Revenues to the Agency for payment of principal and interest due on the Bonds or the Existing Parity Bonds. However, as with any legislative proposal by the Governor, the

17 budget is subject to the legislative process, and at this point it is not clear whether the Governor will have the Legislature’s support regarding these proposals. In any case, it is uncertain when any budget legislation may be adopted or what the exact provisions of any such legislation will be. Depending on the actual provisions enacted, the potential impact of future legislation could be material to the Agency and its ability to repay existing and future obligations.

Amounts Received for Prior ROPS Periods

The Agency timely submitted to the County Administrative Officer, the County Auditor- Controller, the State Department of Finance, and the State Controller its Oversight Board-approved Recognized Obligation Payment Schedules for the six-month periods of January 1, 2013 through June 30, 2013; July 1, 2013 through December 31, 2013; January 1, 2014 through June 30, 2014; July 1, 2014 through December 1, 2014; and January 1, 2015 through June 30, 2015.

Pursuant to this process, the Agency received the following amounts for its enforceable obligations for corresponding six-month periods, which include the principal and interest payments on the Existing Parity Bonds, the Refunded Bonds, and other bonds issued by the Prior Agency secured by revenues other than the Pledged Tax Revenues:

Distribution to Agency from ROPS Six-Month ROPS Period Redevelopment Property Tax Trust Fund ROPS I February 1, 2012 – June 30, 2012 N/A (1) ROPS II July 1, 2012 – December 31, 2012 $ 9,185,581.85 ROPS III January 1, 2013 – June 30, 2013 7,446,245.81 ROPS 13-14A July 1, 2013 – December 31, 2013 10,729,972.65 ROPS 13-14B January 1, 2014 – June 30, 2014 7,198,198.45 ROPS 14-15A July 1, 2014 – December 31, 2014 11,364,668.00 (2) ROPS 14-15B January 1, 2015 – June 30, 2015 7,837,529.77 (1) The Dissolution Act originally contemplated a distribution to be made from the Redevelopment Property Tax Trust Fund to successor agencies, including the Agency, on January 2, 2012 for the ROPS I period. However, due to the pendency of the California Redevelopment Association case, a related stay during such pendency, and the extension of related Dissolution Act deadlines by four months pursuant to the California Supreme Court’s December 29, 2011 decision, the County did not make a distribution on January 2, 2012 from the Redevelopment Property Tax Trust Fund to the Agency or other successor agencies within the County. See “INTRODUCTION – The City and the Agency” for additional information regarding the California Redevelopment Association case. (2) Includes $329,684 for administrative enforceable obligations.

On February 1, 2012, the Agency made an unscheduled draw on the respective debt service reserve accounts for six issues of tax allocation bonds secured by, and payable from, tax increment revenues comprised of monies other than the Housing Set-Aside Amount. The four-month extension of Dissolution Act implementation deadlines, described in footnote (1) of the above table, and the County’s related failure to make a distribution on January 2, 2012 from the Redevelopment Property Tax Trust Fund to the Agency, caused cash flow issues for the Agency. These non-housing bonds reserve accounts were replenished by monies distributed to the Agency on January 2, 2013, June 1, 2013, and January 2, 2014 through line items for the reserve account replenishments placed by the Agency on the Recognized Obligation Payment Schedules referred to as, respectively, ROPS III, ROPS 13-14A, and ROPS 13-14B.

On February 1, 2013 and February 1, 2014, the Agency withdrew a portion of funds held by the Lancaster Financing Authority, as conduit issuer, in the bond funds for four of the non-housing tax allocation bond issues described in the foregoing paragraph, for making a portion of the debt service payment due on such dates for such bonds, although requisite 125% coverage (i.e., non-housing revenues

18 pledged to such bond issues divided annual debt service for the applicable year) required under the bond documents for the utilization of such monies could not be certified. However, the Agency included, as line items on subsequent Recognized Obligation Payment Schedules, replenishment to such bond funds in the respective amounts required to meet the 125% coverage requirement, and these replenishment line items were approved by the State Department of Finance. On the Recognized Obligation Payment Schedule for the six-month period commencing July 1, 2014 through December 31, 2014 (i.e., ROPS 14- 15A), the Agency included a line item in the amount of $696,372 as a reserve to facilitate the February 1, 2015 debt service payments for its tax allocation bonds and to avert a projected insufficiency in the ROPS 14-15B period; the State Department of Finance approved this reserve amount after a meet and confer request by the Agency. In addition, the assessed valuation of the Project Areas has increased, resulting in an increase in monies deposited into the Redevelopment Property Tax Trust Fund. Therefore, the Agency had sufficient revenues for its scheduled bonds debt service payments on February 1, 2015, without replicating the issues attendant to the February 1, 2013 and February 1, 2014 debt service payments.

For additional information regarding procedures under the Dissolution Act relating to late Recognized Obligation Payment Schedules and implications thereof on the Bonds, see “RISK FACTORS – Recognized Obligation Payment Schedule.”

Statutory Limitations on Review of Bonds on ROPS by DOF

The Dissolution Act provides that any bonds or other indebtedness authorized thereunder to be issued by the Agency will be considered indebtedness incurred by the dissolved Prior Agency, with the same legal effect as if the bonds or other indebtedness had been issued prior to effective date of AB X1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to that date, and will be included in the Agency’s Recognized Obligation Payment Schedule. Section 34177.5(f) of the Dissolution Act additionally provides that if the State Department of Finance has requested review of the Oversight Board Resolution and, after review, has approved the resolution, the scheduled payments on the Bonds shall be listed in the Recognized Obligation Payment Schedule and will not be subject to further review and approval by the State Department of Finance or the State Controller.

Further, the Agency has covenanted in the Indenture to take all actions required under the Dissolution Act to include scheduled debt service on the Existing Parity Bonds and the Bonds, as well as any amount required under the Indenture to replenish the Reserve Account of the Special Fund, in Recognized Obligation Payment Schedules for each six-month period so as to enable the County Auditor- Controller to distribute from the Redevelopment Property Tax Trust Fund to the Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Agency to pay principal of, and interest on, the Existing Parity Bonds and the Bonds coming due in the respective six-month period, including listing a reserve on the Recognized Obligation Payment Schedule to the extent required by the Indenture or when the next property tax allocation is projected to be insufficient to pay all obligations due under the provisions of the Indenture for the next payment due on the Existing Parity Bonds and the Bonds in the following six-month period (see “THE INDENTURE – Covenants of the Agency”).

Outstanding Bonds

Existing Parity Bonds. The Bonds are being issued on a parity basis with the Existing Parity Bonds, which consist of the Agency’s previously issued 2003 Bonds, outstanding in the principal amount of $51,170,000, and the Agency’s previously issued 2009 Bonds, outstanding in the principal amount of $25,880,000.

19 Additional Parity Bonds

Under the Indenture, in addition to the Bonds and the Existing Parity Bonds and subject to the requirements of the Existing Parity Bonds Indentures, the Agency may issue or incur additional tax allocation bonds (including, without limitation, bonds, notes, interim certificates, debentures or other obligations) secured by a pledge and lien on Pledged Tax Revenues on a parity with the Bonds and the Existing Parity Bonds (“Additional Parity Bonds”) in such principal amount as shall be determined by the Agency, pursuant to a separate or Supplemental Indenture adopted or entered into by the Agency and Trustee and for such purposes as are permitted under the Dissolution Act, including without limitation Section 34177.5 thereof.

Section 34177.5 of the Dissolution Act presently permits successor agencies to issue bonds or incurring other indebtedness secured by property tax revenues comprised of former tax increment and required to be deposited into the respective Redevelopment Property Tax Trust Fund for the applicable successor agency under limited circumstances:

(i) to provide savings to the successor agency;

(ii) for the purpose of financing debt service spikes, including balloon maturities; provided, (A) the existing indebtedness is not accelerated, except to the extent necessary to achieve substantially level debt service, and (B) the principal amount of the refunding bonds or the indebtedness will not exceed the amount required to defease the refunded bonds or other indebtedness, to establish customary debt service reserves, and to pay related costs of issuance;

(iii) for the purpose of amending an existing enforceable obligation under which the successor agency is obligated to reimburse a political subdivision of the state for the payment of debt service on a bond or other obligation of the political subdivision or to pay all or a portion of the debt service on the bond or other obligation of the political subdivision to provide savings to the successor agency, when such amendment is in connection with a refunding of the bonds or other obligations of the separate political subdivision so that the enforceable obligation will apply to the refunding obligations of the political subdivision; or

(iv) for the purpose of making payments under an existing enforceable obligation when the enforceable obligation includes the irrevocable pledge of property tax increment (i.e., formerly tax increment revenues prior to the effective date of the Dissolution Act) or other funds and the obligation to issue bonds secured by that pledge.

When bonds are issued pursuant to the situations contemplated in clauses (i) and (iii), the following two constraints apply to the size of the financing: (A) the total interest cost to maturity on the refunding bonds or indebtedness plus the principal amount of the refunding bonds or other indebtedness shall not exceed the total remaining interest cost to maturity on the bonds or other indebtedness to be refunded plus the remaining principal of the bonds or other indebtedness to be refunded, and (B) the principal amount of the refunding bonds or the indebtedness will not exceed the amount required to defease the refunded bonds or other indebtedness, to establish customary debt service reserves, and to pay related costs of issuance. If the foregoing conditions are satisfied, the initial principal amount of the refunding bonds or indebtedness may be greater than the outstanding principal amount of the bonds or other indebtedness to be refunded. The successor agency may pledge to the refunding bonds or other indebtedness the revenues pledged to the bonds or other indebtedness being refunded, having the same lien priority as the pledge of the bonds or other obligations to be refunded.

20 Subject to the foregoing, the Agency may issue or incur such Additional Parity Bonds subject to the following additional specific conditions precedent:

(a) The Agency will be in compliance with all covenants set forth in the Indenture, the 2003 Indenture, and the 2009 Indenture;

(b) The Oversight Board shall have approved the issuance of Additional Parity Bonds;

(c) The Additional Parity Bonds will be on such terms and conditions as may be set forth in a separate or Supplemental Indenture, which will provide for (i) bonds substantially in accordance with the Indenture, the 2003 Indenture, and the 2009 Indenture, and (ii) the deposit of moneys into the Reserve Account in an amount sufficient, together with the balance of the Reserve Account, to equal the Reserve Requirement on all Bonds expected to be outstanding including the Bonds, the Existing Parity Bonds, and the Additional Parity Bonds;

(d) Receipt of a certificate or opinion of an Independent Financial Consultant stating:

(i) For the current and each future Bond Year the debt service for each such Bond Year with respect to all Bonds, Existing Parity Bonds, and other Parity Bonds reasonably expected to be outstanding following the issuance of the Additional Parity Bonds;

(ii) For the then current Fiscal Year, the Pledged Tax Revenues to be received by the Agency based upon the most recently certified assessed valuation of taxable property in the Project Areas provided by the appropriate officer of the County;

(iii) For each future Fiscal Year, the Pledged Tax Revenues referred to in item (ii) together with (a) the amount determined in accordance with Section 51(a) of the California Revenue and Taxation Code and (b) the amount of Pledged Tax Revenues to be payable with respect to construction completed but not yet on the tax roll, and taking into account the expiration of the time to receive Pledged Tax Revenues with respect to any portion of the Project Areas to the extent such limitations are applicable; and

(iv) That for the then current Fiscal Year, the Pledged Tax Revenues referred to in item (ii) and for each future Fiscal Year the Pledged Tax Revenues referred to in item (iii) are at least equal to the sum of 125% of the Maximum Annual Debt Service with respect to the amounts referred to in item (i) above (excluding debt service with respect to any portion of the Additional Parity Bonds deposited in an escrowed proceeds account to the extent such debt service is paid from earnings on the investment of such funds), and, for the then current Fiscal Year, 100% of Annual Debt Service with respect to any subordinate debt and that the Agency is entitled under the Dissolution Act, the Redevelopment Law and the Redevelopment Plan to receive taxes under Section 33670 of the Redevelopment Law in an amount sufficient to meet expected debt service with respect to all Bonds, Existing Parity Bonds, and other Parity Bonds.

(e) The Additional Parity Bonds will mature on and interest will be payable on the same dates as the Bonds (except the first interest payment may be from the date of the Additional Parity Bonds until the next succeeding February 1 or August l) provided, however, nothing herein shall preclude the Agency from issuing and selling Additional Parity Bonds which do not pay current interest; and

(f) The Agency shall not issue or incur any bonds, debt or other obligations that are payable from or secured by Pledged Tax Revenues on a basis senior or superior to the Bonds. Unless

21 BAM provides its prior written consent, the Agency shall not issue or incur any senior bonds or parity bonds, debt or other obligation except for refunding bonds. Any additional subordinate debt shall be payable on the same dates as the Bonds and shall be in all respects, including security and payment, subordinate and junior to the Bonds and the replenishment of the debt service reserve fund for the Bonds, including the reimbursement of all amounts due and payable to BAM relating to the Reserve Policy.

Bonds Not a Debt of the City of Lancaster or the State of California

The Bonds are special obligations of the Agency and as such are not a debt of the City, the State or any of its political subdivisions other than the Agency. Neither the City, the State nor any of its political subdivisions other than the Agency is liable for the payment thereof. In no event shall the Bonds be payable out of any funds or properties other than those of the Agency as set forth in the Indenture. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Neither the members of the Agency nor any persons executing the Bonds are liable personally on the Bonds.

BOND INSURANCE

The following information has been furnished by the Insurer for use in this Official Statement. No representation is made by the Agency or the Underwriter as to the accuracy or completeness of such information, or the absence of material adverse changes therein at any time subsequent to the date hereof. Reference is made to “APPENDIX H – Specimen Municipal Bond Insurance Policy” for a specimen of the Insurer’s policy.

Bond Insurance Policy

Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company (“BAM” or the “Insurer”) will issue its Municipal Bond Insurance Policy for the Bonds (the “Insurance Policy”). The Insurance Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Insurance Policy included as an exhibit to this Official Statement.

The Insurance Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.

Build America Mutual Assurance Company

BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM.

The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com.

BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law.

22 BAM’s financial strength is rated “AA/Stable” by Standard and Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business (“S&P”). An explanation of the significance of the rating and current reports may be obtained from S&P at www.standardandpoors.com. The rating of BAM should be evaluated independently. The rating reflects the S&P’s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Insurance Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn.

Capitalization of BAM

BAM’s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2014 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $475.7 million, $26.9 million and $448.8 million, respectively.

BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions.

BAM’s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM’s website at www.buildamerica.com, is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published.

BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “BOND INSURANCE”.

Additional Information Available from BAM

Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM’s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM's website at buildamerica.com/creditinsights/.

Obligor Disclosure Briefs. Subsequent to closing, BAM posts an Obligor Disclosure Brief on every issue insured by BAM, including the Bonds. BAM Obligor Disclosure Briefs provide information about the gross par insured by CUSIP, maturity and coupon; sector designation (e.g. general obligation, sales tax); a summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. The Obligor Disclosure Briefs are also easily accessible on BAM's website at buildamerica.com/obligor/.

23 Disclaimers. The Obligor Disclosure Briefs and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Obligor Disclosure Briefs and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Obligor Disclosure Briefs and Credit Insight videos are prepared by BAM and have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and they assume no responsibility for their content.

BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise.

THE INDENTURE

The following is a summary of certain provisions of the Indenture and does not purport to be complete. Reference is hereby made to the Indenture and to APPENDIX A for the definition of certain terms used herein. Copies of the Indenture are available from the Agency upon request. All capitalized terms used herein and not otherwise defined will have the same meaning as used in the Indenture.

Allocation of Bond Proceeds

Under the Dissolution Act, the Agency has previously established a special trust fund called the Redevelopment Obligation Retirement Fund (the “Redevelopment Obligation Retirement Fund”), which is held by the Agency and into which the County Auditor-Controller distributes property tax revenues each January 2 and June 1 from the Redevelopment Property Tax Trust Fund for the payment by the Agency of enforceable obligations pursuant to the Recognized Obligation Payment Schedule.

The Indenture continues a special trust fund known as the “Debt Service Fund,” with accounts therein referred to below, which will be held by the Trustee. The Agency will deposit all of the Pledged Tax Revenues received in any Bond Year in the Redevelopment Obligation Retirement Fund promptly upon receipt thereof by the Agency, and promptly thereafter shall transfer amounts received therein first, to the Debt Service Fund established and held by the Trustee under the Indenture and the Existing Parity Bonds Indentures until such time during such Bond Year as the amounts so transferred to the Debt Service Fund under the Indenture and the Existing Parity Bonds Indentures equal the aggregate amounts required to be transferred to the Trustee for deposit into the Interest Account, the Principal Account, the Reserve Account and the Redemption Account of the Debt Service Fund in such Bond Year pursuant to the Indenture and the Existing Parity Bonds Indentures and for deposit in such Bond Year in the funds and accounts established with respect to any Additional Parity Bonds, as provided in any Supplemental Indenture. The Agency will segregate all amounts distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund in a separate Agency account in the name of the Agency to be used solely to pay debt service on the Bonds and all other parity obligations, including the Existing Parity Bonds. In the event the rating on general fund obligations of the City falls below A- from Standard & Poor’s, the Agency will maintain, or cause the City to maintain, the Redevelopment Obligation Retirement Fund as a separate account with a bank or with the Trustee.

See “SOURCES AND USES OF FUNDS.”

24 Pledged Tax Revenues - Application

There are continued under the Indenture and the Existing Parity Bonds Indenture accounts within the Debt Service Fund as set forth below, to be known respectively as the Interest Account, the Principal Account, the Reserve Account and the Redemption Account. Moneys in the Redevelopment Obligation Retirement Fund will be transferred by the Agency to the Trustee in the following amounts at the following times, for deposit in the following respective accounts within the Debt Service Fund, which are established with the Trustee, in the following order of priority:

(a) Interest Account. On or before the 5th Business Day preceding each Interest Payment Date, to the extent there are moneys available, the Trustee will transfer funds from the Debt Service Fund for deposit in the Interest Account an amount which, when added to the amount contained in the Interest Account on that date, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date and the next following Interest Payment Date. No such transfer and deposit need to be made to the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Outstanding Bonds and Parity Bonds. Subject to the Indenture, all moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds redeemed prior to maturity pursuant to the Indenture).

(b) Principal Account. On or before the 5th Business Day preceding August 1 in each year beginning August 1, 2015, to the extent there are moneys available, the Trustee will transfer funds from the Debt Service Fund for deposit in the Principal Account an amount equal to the principal or sinking account payments becoming due and payable on the Outstanding Bonds on such August 1, to the extent monies on deposit in the Debt Service Fund are available therefor. No such transfer and deposit need be made to the Principal Account if the amount contained therein is at least equal to the principal and sinking account payments to become due on such August 1 on all Outstanding Bonds. Subject to the Indenture, all moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal and sinking account payments of the Bonds as it becomes due and payable.

(c) Reserve Account. In the event that moneys on deposit in the Debt Service Fund five (5) Business Days before any Interest Payment Date are less than the full amount of the interest, principal and sinking account payments required to be deposited by the Trustee pursuant to the Indenture, the Trustee will, five (5) Business Days before such Interest Payment Date, withdraw from the Reserve Account pro rata between any Reserve Account subaccounts an amount equal to any such deficiency and will notify the Agency of any such withdrawal. Promptly upon receipt of any such notice, the Agency will withdraw from the Redevelopment Obligation Retirement Fund and transfer to the Trustee for deposit in the Reserve Account an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account and the subaccounts therein. If there is not sufficient moneys in the Redevelopment Obligation Retirement Fund to transfer an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account and the subaccounts therein, the Agency shall have an obligation to continue making transfers of Pledged Tax Revenues into the Debt Service Fund, as such revenues become available, and thereafter, as moneys become available in the Debt Service Fund, the Trustee will make transfers to the Reserve Account and the subaccounts therein until there is an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account. No such transfer and deposit need be made to the Reserve Account (or any subaccount therein) so long as there is on deposit therein a sum at least equal to the Reserve Requirement. Subject to the

25 Indenture, all money in the Reserve Account will be used and withdrawn by the Trustee solely for the purpose of making transfers to the Interest Account and the Principal Account (and subaccounts therein, as the case may be), in such order of priority, in the event of any deficiency at any time in any of such accounts or for the retirement of all the Bonds then Outstanding, except that so long as the Agency is not in default, any amount in the Reserve Account in excess of the Reserve Requirement will be withdrawn from the Reserve Account semiannually on or before the 5th Business Day preceding February 1 and August 1 by the Trustee and deposited in the Interest Account. All amounts in the Reserve Account on the 5th Business Day preceding the final Interest Payment Date will be withdrawn from the Reserve Account and will be transferred either (i) to the Interest Account and the Principal Account, in such order, to the extent required to make the deposits then required to be made or, (ii) if the Agency has caused to be deposited with the Trustee an amount sufficient to make the deposits required by the Indenture, then at the Written Request of the Agency transferred as directed by the Agency.

Any recomputation of the Reserve Requirement required at any time pursuant to the Indenture will be made by the Agency and transmitted promptly to the Trustee. All amounts on deposit in the 2015A Reserve Subaccount and the 2015B Reserve Subaccount will be available, as needed, to pay principal of, and interest on, the 2015A Bonds and 2015B Bonds, respectively, from and after the final Interest Payment Date for the 2015A Bonds or 2015B Bonds, and will not be transferred to the Agency until after the final Interest Payment Date for the 2015A Bonds and 2015B Bonds, respectively. Notwithstanding the foregoing, the Agency may withdraw all amounts on deposit in the 2015A Reserve Subaccount or 2015B Reserve Subaccount on any date from and after the final Interest Payment Date for the 2015A Bonds or 2015B Bonds, as applicable, so long as, prior to such withdrawal, the Agency delivers to the Trustee, a certificate of an Independent Financial Consultant to the effect that for the then current Fiscal Year, the Pledged Tax Revenues to be received by the Agency based upon the most recently certified assessed valuation of taxable property in the Project Areas provided by the appropriate officer of the County, are at least equal to the sum of 125% of the Maximum Annual Debt Service on the Outstanding Bonds and any Outstanding Parity Bonds (excluding debt service with respect to any portion of the Parity Bonds deposited in an escrowed proceeds account to the extent such debt service is paid from earnings on the investment of such funds).

The Reserve Requirement with respect to the 2015A Bonds will be satisfied by the deposit into the 2015A Reserve Subaccount of the 2015A Reserve Policy to be issued by the Insurer. The Reserve Requirement with respect to the 2015B Bonds will be satisfied by the deposit into the 2015B Reserve Subaccount of the 2015B Reserve Policy to be issued by the Insurer.

(d) Redemption Account. On or before the 5th Business Day preceding any date on which Bonds are to be redeemed, the Trustee will transfer from the Debt Service Fund for deposit in the Redemption Account an amount required to pay the principal of, interest and premium, if any, on the Bonds (other than Bonds redeemed from sinking account payments) to be redeemed on such date. Subject to the Indenture, all moneys in the Redemption Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal of, interest and premium, if any, on the Bonds to be redeemed on the date set for such redemption.

The Indenture also creates a Rebate Fund for the purpose of collecting the amounts required, if any, to be rebated to the United States with respect to the 2015A Bonds in accordance with the requirements of Section 148(f) of the Code. Section 148 of the Code requires, among other things and with certain exceptions, that any amounts earned on nonpurpose investments in excess of the amount which would have been earned if such investments were made at a rate equal to the yield on the Bonds be

26 rebated to the United States. The Indenture requires the Agency to calculate such amount and deposit it into the Rebate Fund for eventual rebate to the United States Treasury.

Investment of Moneys in Funds and Accounts

Subject to the provisions of the Indenture, all moneys held by the Trustee in the Debt Service Fund, the Costs of Issuance Fund, or the Rebate Fund will be invested at the written direction of the Agency only in Permitted Investments. If the Trustee receives no written directions from the Agency as to the investment of moneys held in any Fund or Account, the Trustee shall request such written direction from the Agency and, pending receipt of instructions, will invest such moneys only in Permitted Investments described in subsection (5) of the definition thereof.

(a) Moneys in the Redevelopment Obligation Retirement Fund will be invested by the Agency only in obligations permitted by the Redevelopment Law which will by their terms mature not later than the date the Agency estimates the moneys represented by the particular investment will be needed for withdrawal from the Redevelopment Obligation Retirement Fund.

(b) Moneys in the Interest Account, the Principal Account and the Redemption Account of the Debt Service Fund will be invested only in obligations which will by their terms mature on such dates as to ensure that before each interest and principal payment date there will be in such Account, from matured obligations and other moneys already in such Account, cash equal to the principal and interest payable on such payment date.

(c) Moneys in the Reserve Account will be invested in (i) obligations which will by their terms mature on or before the date of the final maturity of the Bonds or five (5) years from the date of investment, whichever is earlier or (ii) an investment agreement which permits withdrawals or deposits without penalty at such time as such moneys will be needed or in order to replenish the Reserve Account.

(d) Moneys in the Rebate Fund will be invested in Defeasance Securities which mature on or before the date such amounts are required to be paid to the United States.

Except as otherwise provided in the Indenture, obligations purchased as an investment of moneys in any of the Funds or Accounts will be deemed at all times to be a part of such respective Fund or Account, and the interest accruing thereon and any gain realized from an investment will be credited to such Fund or Account and any loss resulting from any authorized investment will be charged to such Fund or Account without liability to the Trustee. The Agency or the Trustee, as the case may be, will sell or present for redemption any obligation purchased whenever it will be necessary to do so in order to provide moneys to meet any payment or transfer from such Fund or Account as required by the Indenture and will incur no liability for any loss realized upon such a sale. All interest earnings received on any moneys invested in the Interest Account, Principal Account, Redemption Account or Reserve Account, to the extent they exceed the amount required to be in such Account, will be transferred on each Interest Payment Date to the Debt Service Fund. All interest earnings on moneys invested in the Rebate Fund will be retained in such Fund and applied as set forth in the Indenture.

Covenants of the Agency

As long as the Bonds are outstanding and unpaid, the Agency will (through its proper members, officers, agents or employees) faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture or in any Bond issued under the Indenture, including the following covenants and agreements for the benefit of the Bondowners which are necessary, convenient and

27 desirable to secure the Bonds and will tend to make them more marketable; provided, however, that the covenants do not require the Agency to expend any funds other than the Pledged Tax Revenues.

Covenant 1. Use of Proceeds; Management and Operation of Properties. The Agency covenants and agrees that the proceeds of the sale of the Bonds will be deposited and used as provided in the Indenture and that it will manage and operate all properties owned by it comprising any part of the Project Areas in a sound and businesslike manner.

Covenant 2. No Priority. The Agency covenants and agrees that it will not issue any obligations payable, either as to principal or interest, from the Pledged Tax Revenues which have any lien upon the Pledged Tax Revenues prior or superior to the lien of the Bonds. Except as permitted by the Indenture, it will not issue any obligations, payable as to principal or interest, from the Pledged Tax Revenues, which have any lien upon the Pledged Tax Revenues on a parity with the Bonds authorized in the Indenture. Notwithstanding the foregoing, nothing in the Indenture shall prevent the Agency (i) from issuing and selling pursuant to law, refunding obligations payable from and having any lawful lien upon the Pledged Tax Revenues, if such refunding obligations are issued for the purpose of, and are sufficient for the purpose of, refunding all of the Outstanding Bonds and Parity Bonds, (ii) from issuing and selling obligations which have, or purport to have, any lien upon the Pledged Tax Revenues which is junior to the Bonds, or (iii) from issuing and selling bonds or other obligations which are payable in whole or in part from sources other than the Pledged Tax Revenues. As used in the Indenture “obligations” includes, without limitation, bonds, notes, interim certificates, debentures or other obligations.

Covenant 3. Punctual Payment. The Agency covenants and agrees that it will duly and punctually pay, or cause to be paid, the principal of and interest on each of the Bonds on the date, at the place and in the manner provided in the Bonds, and that it will take all actions required under the Dissolution Act to include scheduled debt service on the Existing Parity Bonds and on the Bonds, as well as any amount required under the Indenture to replenish the Reserve Account of the Debt Service Fund, in Recognized Obligation Payment Schedules for each six-month period so as to enable the County Auditor- Controller to distribute from the Redevelopment Property Tax Trust Fund to the Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Agency to pay principal of, and interest on, the Existing Parity Bonds and the Bonds coming due in the respective six-month period, including, without limitation, placing on the periodic Recognized Obligation Payment Schedule for approval by the Oversight Board and State Department of Finance, to the extent necessary, the amounts to be held by the Agency as a reserve until the next six-month period, as contemplated by paragraph (1)(A) of subdivision (d) of Section 34171 of the Dissolution Act, that are necessary to provide for the payment of principal and interest under the Existing Parity Bonds Indentures and under the Indenture when the next property tax allocation is projected to provide insufficient Pledged Tax Revenues to pay all obligations due under the Existing Parity Bonds Indentures and the Indenture and for the next payment due thereunder in the following six-month period.

Covenant 4. Payment of Taxes and Other Charges. The Agency covenants and agrees that it will from time to time pay and discharge, or cause to be paid and discharged, all payments in lieu of taxes, service charges, assessments or other governmental charges which may lawfully be imposed upon the Agency or any of the properties then owned by it in the Project Areas, or upon the revenues and income therefrom, and will pay all lawful claims for labor, materials and supplies which if unpaid might become a lien or charge upon any of the properties, revenues or income or which might impair the security of the Bonds or the use of Pledged Tax Revenues or other legally available funds to pay the principal of and interest on the Bonds, all to the end that the priority and security of the Bonds shall be preserved; provided, however, that nothing in this covenant shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of the payment.

28 Covenant 5. Books and Accounts; Financial Statements. The Agency covenants and agrees that it will at all times keep, or cause to be kept, proper and current books and accounts (separate from all other records and accounts) in which complete and accurate entries shall be made of all transactions relating to the Redevelopment Project and the Pledged Tax Revenues and other funds relating to the Project Areas or the Bonds. Such records shall at all times during normal business hours and upon reasonable notice by subject to inspection by BAM or its agents or representatives who have been duly authorized in writing. The Agency will prepare within one hundred eighty (180) days after the close of each of its Fiscal Years a postaudit of the financial transactions and records of the Agency for the Fiscal Year to be made by an Independent Certified Public Accountant appointed by the Agency, and will furnish a copy of the postaudit to the Trustee and any rating agency which maintains a rating on the Bonds, and, upon written request, to any Bondowner. The Trustee shall have no duty to review such postaudits.

Covenant 6. Eminent Domain Proceeds. The Agency covenants and agrees that if all or any part of the Redevelopment Project Areas should be taken from it without its consent, by eminent domain proceedings or other proceedings authorized by law, for any public or other use under which the property will be tax exempt, it shall take all steps necessary to adjust accordingly the base year property tax roll of the applicable Project Area.

Covenant 7. Disposition of Property. The Agency covenants and agrees that it will not dispose of more than ten percent (10%) of the land area in the Project Areas (except property shown in the Redevelopment Plan in effect on the date the Indenture is adopted as planned for public use, or property to be used for public streets, public offstreet parking, sewage facilities, parks, easements or right-of-way for public utilities, or other similar uses) to public bodies or other persons or entities whose property is tax exempt, unless such disposition will not result in Pledged Tax Revenues to be less than the amount required for the issuance of Additional Parity Bonds as provided in the Indenture, based upon the certificate or opinion of an Independent Financial Consultant appointed by the Agency. See “SECURITY FOR THE BONDS – Additional Parity Bonds.”

Covenant 8. Protection of Security and Rights of Bondowners. The Agency covenants and agrees to preserve and protect the security of the Bonds and the rights of the Bondowners and to contest by court action or otherwise (a) the assertion by any officer of any government unit or any other person whatsoever against the Agency that (i) the Redevelopment Law is unconstitutional or (ii) that the Pledged Tax Revenues pledged under the Indenture cannot be paid to the Agency for the debt service on the Bonds or (b) any other action affecting the validity of the Bonds or diluting the security therefor.

Covenant 9. Tax Covenants. In connection with the 2015A Bonds, the Agency covenants and agrees to contest by court action or otherwise any assertion by the United States of America or any department or agency thereof that the interest received by the Bondowners is includable in gross income of the recipient under federal income tax laws on the date of issuance of the 2015A Bonds. In order to preserve the exclusion from gross income of interest on the 2015A Bonds, and for no other reason, the Agency covenants to comply with all applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”), together with any amendments thereto or regulations promulgated thereunder necessary to preserve such tax exemption as more specifically provided in the Indenture.

Covenant 10. Compliance with Dissolution Act. The Agency covenants that it will comply with the requirements of the Dissolution Act. Without limiting the generality of the foregoing, the Agency covenants and agrees to file all required statements and hold all public hearings required under the Dissolution Act to assure compliance by the Agency with its covenants hereunder. The Agency will take all actions required under the Dissolution Act to include scheduled debt service on the Existing Parity Bonds and on the Bonds (including, without limitation, any mandatory redemption payments), as well as

29 any amount required under the Indenture or any other Security Document to replenish the Reserve Account of the Debt Service Fund and to reimburse BAM in connection with the Insurance Policy or the Reserve Policy, in Recognized Obligation Payment Schedules for each six-month period so as to enable the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund to the Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Agency to pay principal of, and interest on, the Bonds and to meet its other obligations coming due in the respective six-month period. These actions will include, without limitation, placing on the periodic Recognized Obligation Payment Schedule for approval by the Oversight Board and State Department of Finance, the amounts to be held by the Agency as a reserve until the next six-month period, as contemplated by paragraph (1)(A) of subdivision (d) of Section 34171 of the Dissolution Act, that are necessary to provide for the payment of principal and interest under the Indenture when the next property tax allocation is projected to be insufficient to pay all obligations due under the Indenture for the next payment due in the following six-month period.

Notwithstanding anything to the contrary, the Agency shall include in its ROPS for the June 1 distribution all principal payments coming due on the Bonds in that calendar year. In the event the Dissolution Act is amended to provide for the filing of Recognized Obligation Payment Schedules on an annual basis, the Agency shall be obligated to include in each such Recognized Obligation Payment Schedule the aggregate amount of principal of and interest on the Bonds. In the event the Agency fails to timely file any Recognized Obligation Payment Schedule relating to the Bonds for any period, the Agency designates BAM as its attorney in fact with the power to file a Recognized Obligation Payment Schedule relating to the Bonds. The Agency shall provide BAM with copies of all Recognized Obligation Payment Schedules submitted and any and all correspondence received from the State Department of Finance upon receipt. Documents posted on a timely basis on the State Department of Finance website shall meet this requirement. In the event that the Agency is a party to a meet and confer with the State Department of Finance, the Agency shall timely notify BAM and, if the subject of the meet and confer could impact the payment of or security for the Bonds or Policy Costs (as defined in the Indenture), BAM shall have the right to participate in the meet and confer process either by appearance with the Agency at the meet and confer or through written submission as BAM determines in its discretion. In the event the Agency receives a ROPS denial, whether relating to the Bonds or not, and such denial could delay the receipt of tax revenues necessary to pay debt service, or Policy Costs, or BAM Reimbursement Amounts (as defined in the Indenture) relating to the Bonds, the Agency agrees to cooperate in good faith with BAM and BAM shall receive prompt notice of any such event and shall be permitted to attend any meetings with the Agency and the State Department of Finance and to discuss such matters with the State Department of Finance directly.

Covenant 11. Limitation on Indebtedness. The Agency covenants and agrees that it has not and will not incur any loans, obligations or indebtedness repayable from Pledged Tax Revenues such that the total aggregate debt service on said loans, obligations or indebtedness incurred from and after the date of adoption of the Redevelopment Plan, when added to the total aggregate debt service on the Existing Parity Bonds, the Bonds, and any other existing bonded indebtedness of the Prior Agency or the Agency, will exceed the maximum amount of Pledged Tax Revenues to be divided and allocated to the Agency pursuant to the Redevelopment Plan.

The Agency covenants that, as long as the receipt of Pledged Tax Revenues attributable to the Project Areas is subject to a tax increment limit under the Redevelopment Law, the Agency will annually review (or cause to be reviewed) the total amount of Pledged Tax Revenues attributable to the Project Areas remaining available to be received by the Agency under the Redevelopment Plans. In the event that the Tax Revenues (as defined in the Indenture) attributable to the Project Areas previously received by the Prior Agency or the Agency plus the aggregate debt service remaining to be paid on the Bonds and any Parity Bonds then outstanding (including any amounts due and payable to BAM in connection with

30 the Insurance Policy and/or Reserve Policy), at any time equals or exceeds ninety-five percent (95%) of the aggregate amount of Pledged Tax Revenues attributable to the Project Areas which the Agency is permitted to receive under the Redevelopment Plans, the Agency will immediately notify BAM and either:

(i) deposit all future Pledged Tax Revenues attributable to the Project Areas not used to pay current debt service with the Trustee in a special account to be applied for the sole purpose of paying the principal of and interest on, or the redemption of, the Bonds and any Parity Bonds as they become due and payable plus amounts required to be deposited into the Reserve Account or any reserve account for Parity Bonds, notwithstanding anything herein to the contrary, which account shall be invested in non-callable Defeasance Obligations and used for the payment of interest on and principal of and redemption premiums, if any, on the Bonds and any Parity Bonds and amounts required to be deposited into the Reserve Account or any reserve account for Parity Bonds; or (ii) adopt a plan approved by an Independent Redevelopment Consultant which demonstrates the Agency’s continuing ability to pay debt service on the Bonds and any Parity Bonds. In determining the amount to be deposited in escrow with the Trustee, the Agency shall not take into account any actual or projected interest earnings on the amounts so deposited. If such a plan is adopted, the financial information provided to the Trustee in any such adopted plan will be included in each annual report provided pursuant to the Continuing Disclosure Agreement (see “APPENDIX D – Form of Continuing Disclosure Agreement). Notwithstanding the foregoing, if the limitation on the amount of taxes which can be allocated to the Agency pursuant to the Redevelopment Law and the Redevelopment Plans is invalidated (either by action of the legislature of the State of California or pursuant to a court finding or determination), neither the deposit of Pledged Tax Revenues attributable to the Project Areas required by paragraph (i) nor the adoption of a plan as contemplated by paragraph (ii) above for the purpose of paying debt service and deposits into the Reserve Account for the Bonds and any Parity Bonds, shall be required.

Covenant 12. Further Assurances. The Agency covenants and agrees to adopt, 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 the Indenture, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Indenture.

Covenant 13. Continuing Disclosure. The Agency covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement dated the Closing Date. Notwithstanding any other provision of the Indenture, failure of the Agency to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, any participating underwriter, owner or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

Events of Default and Remedies

The following events will constitute Events of Default under the Indenture:

(a) if default is made in the due and punctual payment of the principal of or interest or redemption premium (if any) on any Bond when and as the same becomes due and payable, whether at maturity as therein expressed, by declaration or otherwise;

31 (b) if default is made by the Agency in the observance of any of the covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, other than a default described in the preceding clause (a), and such default is continued for a period of thirty (30) days following receipt by the Agency of written notice from the Trustee or any Owner of the occurrence of such default; or

(c) if the Agency commences a voluntary action under Title 11 of the United States Code or any substitute or successor statute.

If an Event of Default has occurred and is continuing, the Trustee may, or if requested in writing by the Owners of the majority in aggregate principal amount of the Bonds then Outstanding, the Trustee will by written notice to the Agency, (a) declare the principal of the Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same will become immediately due and payable, and (b) upon receipt of indemnity to its satisfaction exercise any other remedies available to the Trustee and the Owners in law or at equity.

Immediately upon becoming aware of the occurrence of an Event of Default, the Trustee will give notice of such Event of Default to the Agency by telephone confirmed in writing. Such notice will also state whether the principal of the Bonds will have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clauses (a) or (c) above the Trustee will, and with respect to any Event of Default described in clause (b) above the Trustee in its sole discretion may, also give such notice to the Agency and the Owners in the same manner as provided herein for notices of redemption of the Bonds, which will include the statement that interest on the Bonds will cease to accrue from and after the date, if any, on which the Trustee has declared the Bonds to become due and payable pursuant to the preceding paragraph (but only to the extent that principal and any accrued, but unpaid interest on the Bonds is actually paid on such date).

This provision, however, is subject to the condition that if, at any time after the principal of the bonds has been so declared due and payable, and before any judgment or decree for the payment of the moneys due has been obtained or entered, the Agency deposits with the Trustee a sum sufficient to pay all principal on the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal and interest (to the extent permitted by law) at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, including but not limited to attorneys fees, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) has been made good or cured to the satisfaction of the Trustee or provisions deemed by the Trustee to be adequate has been made therefor, then, and in every such case, the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Agency and to the Trustee, may, on behalf of the Owners of all the Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment will extend to or will affect any subsequent default, or will impair or exhaust any right or power consequent thereon.

Notwithstanding the foregoing, the maturity of Bonds insured by the Insurer shall not be accelerated without the consent of the Insurer and in the event the maturity of the Bonds is accelerated, the Insurer may elect, in its sole discretion, to pay accelerated principal and interest accrued, on such principal to the date of acceleration (to the extent unpaid by the Agency) and the Trustee shall be required to accept such amounts. Upon payment of such accelerated principal and interest accrued to the acceleration date as provided above, the Insurer’s obligations under the Insurance Policy with respect to such Bonds shall be fully discharged.

32 Upon the occurrence and continuance of a default or an Event of Default, BAM shall be deemed to be the sole and exclusive Owner of the outstanding Bonds for all purposes under the Indenture and any other Security Documents, including, without limitation, for purpose of approvals, consents, exercising remedies and approving agreements relating to the Bonds. Anything in the Indenture or any other Security Document to the contrary notwithstanding, upon the occurrence and continuance of a default or an event of default, monetary or nonmonetary, BAM shall be entitled to control and direct the enforcement of all rights and remedies granted to the Owners of the Bonds or the Trustee for the benefit of the Owners of the Bonds under the Indenture or any other Security Document. No monetary or nonmonetary default or Event of Default may be waived without BAM’s written consent. No grace period shall be permitted for payment defaults on the Bonds. No grace period for a covenant default shall exceed 30 days without the prior written consent of BAM.

To the extent the Agency enters into any reorganization or liquidation plan with respect to the Agency, it must be acceptable to BAM. In the event of any reorganization or liquidation of the Agency BAM shall have the right to file a claim, object to and vote on behalf of all holders of the Bonds absent a continuing failure by BAM to make a payment under the Insurance Policy. The Agency shall provide BAM with immediate written notice of any insolvency event that causes the Agency to be unable to pay its obligations as and when they become due. In the event of a receivership or out-of-court restructuring, BAM shall have the right to negotiate and speak on behalf of and bind the bondholders and any agreements reached must be acceptable to BAM.

Application of Funds Upon Acceleration

All of the Pledged Tax Revenues and all sums in the funds and accounts established and held by the Trustee upon the date of the declaration of acceleration as provided in the Indenture, and all sums thereafter received by the Trustee thereunder, will be applied by the Trustee in the order following, upon presentation of the Bonds, 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 fees, costs and expenses of the Trustee in declaring such Event of Default and in exercising the rights and remedies set forth in the Indenture, including reasonable compensation to its agents, attorneys and counsel; and

Second, to the payment of the whole amount then owing and unpaid upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the net effective rate then borne by the Outstanding Bonds (to the extent that such interest on overdue installments of principal and interest has been collected), and in case such moneys will be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest or any Bond over any other Bond.

33 Amendments

Subject to the terms of the Indenture, the Indenture and the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which will become binding upon adoption, without consent of any Owners, to the extent permitted by law and any for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Agency in the Indenture contained, other covenants and agreements thereafter to be observed or to limit or surrender any rights or powers therein reserved to or conferred upon the Agency; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in any other respect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments will not materially adversely affect the interests of the Owners; or

(c) to provide the issuance of Additional Parity Bonds pursuant to the Indenture, and to provide the terms and conditions under which such Additional Parity Bonds may be issued, including but not limited to the establishment of special funds and accounts relating thereto and any other provisions relating solely thereto, subject to and in accordance with the provisions of the Indenture; or

(d) to amend any provision thereof relating to the requirements of or compliance with the Code to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income for purposes of federal income taxation of interest on any of the Bonds, in the opinion of a nationally recognized bond counsel.

Except as set forth in the preceding paragraph and subject to the terms of the Indenture and the Existing Indentures, the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which will become binding when the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment will (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Agency to pay the principal, interest or redemption premiums (if any) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. Any amendment, supplement, modification to, or waiver of, the Indenture or any other transaction document, including any underlying security agreement (each a “Related Document”), that requires the consent of Bondowners or adversely affects the rights and interests of the Insurer shall be subject to the prior written consent of the Insurer.

Moreover, any amendments or supplements to the Indenture or any other Security Document shall require the prior written consent of BAM with the exception of amendments or supplements:

(i) To cure any ambiguity or formal defect or omissions or to correct any inconsistent provisions in the transaction documents or in any supplement thereto, or

(ii) To grant or confer upon the Owners of the Bonds any additional rights, remedies, powers, authority or security that may lawfully be granted to or conferred upon the h Owners of the Bonds, or

34 (iii) To add to the conditions, limitations and restrictions on the issuance of bonds or other obligations under the provisions of the Indenture or any other Security Document other conditions, limitations and restrictions thereafter to be observed, or

(iv) To add to the covenants and agreements of the Agency in the Indenture or any other Security Document other covenants and agreements thereafter to be observed by the Agency or to surrender any right or power therein reserved to or conferred upon the Agency, or

(v) To issue additional bonds in compliance with the terms of the Indenture and the Additional Parity Bonds condition of the Indenture. See “SECURITY FOR THE BONDS – Additional Parity Bonds.”

Any amendment, supplement, modification to, or waiver of, the Indenture or any other Security Document that requires the consent of Owners of the Bonds or adversely affects the rights or interests of BAM shall be subject to the prior written consent of BAM.

THE SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY

The Prior Agency was established pursuant to the Redevelopment Law and was activated by the City Council on April 2, 1979 at which time the City Council declared itself to be the governing board of the Agency. On June 29, 2011, AB X1 26 was enacted as Chapter 5, Statutes of 2011, together with a companion bill, AB X1 27. A lawsuit was brought in the California Supreme Court, California Redevelopment Association, et al., v. Matosantos, et al., 53 Cal. 4th 231 (Cal. 2011), challenging the constitutionality of AB X1 26 and AB X1 27. In its December 29, 2011 decision, the California Supreme Court largely upheld AB X1 26, invalidated AB X1 27, and held that AB X1 26 may be severed from AB X1 27 and enforced independently. As a result of AB X1 26 and the decision of the California Supreme Court in the California Redevelopment Association case, as of February 1, 2012, all redevelopment agencies in the State were dissolved, including the Prior Agency, and successor agencies were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.

35 The Agency is governed by a five-member Agency Board (the “Board”) which consists of the members of the City Council of the City of Lancaster. The Mayor acts as the Chair of the Board, the City Manager as its Executive Director and the City Clerk as its Secretary.

Members and Officers

The members and officers of the Agency and the expiration dates of their terms are as follows:

Name and Office Expiration of Term R. Rex Parris, Chair April, 2016 Marvin Crist, Vice-Chair April, 2018 Ken Mann, Agency Member April, 2016 Ronald D. Smith, Agency Member April, 2018 Vacant, Agency Member April, 2016

As of the date of this Official Statement, the position formerly held by Sandra Johnson on the Agency Board and on the City Council of the City is vacant. Ms. Johnson resigned effective March 13, 2015.

Agency Powers

All powers of the Agency are vested in its five members who are elected members of the City Council. Pursuant to the Dissolution Act, the Agency is a separate public body from the City and succeeds to the organizational status of the Prior Agency but without any legal authority to participate in redevelopment activities, except to complete any work related to an approved enforceable obligation. The Agency is tasked with expeditiously winding down the affairs of the Prior Agency, pursuant to the procedures and provisions of the Dissolution Act. Under the Dissolution Act, many Agency actions are subject to approval by the Oversight Board, as well as review by the State Department of Finance. California has strict laws regarding public meetings (known as the Ralph M. Brown Act) which generally make all Agency and Oversight Board meetings open to the public in a similar manner as City Council meetings.

Under a State initiative enacted in 1974, public officials are required to make extensive disclosures regarding their financial interests by filing such disclosures as public records. As of the date of this Official Statement, the members of the City Council and the Agency, and other City and Agency officials have made the required filings.

Previously, Section 33675 of the Redevelopment Law required the Prior Agency to file not later than the first day of October of each year with the County Auditor a statement of indebtedness certified by the chief fiscal officer of the Prior Agency for each redevelopment plan which provides for the allocation of taxes (i.e., the Redevelopment Plan). The statement of indebtedness was required to contain the date on which the bonds were delivered, the principal amount, term, purposes and interest rate of the bonds and the outstanding balance and amount due on the bonds. Similar information was required to be given for each loan, advance or indebtedness that the Prior Agency had incurred or entered into which is payable from tax increment. Section 33675 also provided that payments of tax increment revenues from the County Auditor to the Prior Agency could not exceed the amounts shown on the Prior Agency's statement of indebtedness. The Dissolution Act eliminates this requirement and provides that, commencing on the date the first Recognized Obligation Payment Schedule is valid thereunder, the Recognized Obligation Payment Schedule supersedes the statement of indebtedness previously required under the Redevelopment Law, and commencing from such date, the statement of indebtedness will no

36 longer be prepared nor have any effect under the Redevelopment Law (see “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule”).

RISK FACTORS

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

The various legal opinions to be delivered concurrently with the issuance of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by State and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors' rights, including equitable principles.

Reduction in Taxable Value

Pledged Tax Revenues allocated to the Redevelopment Property Tax Trust Fund are determined by the amount of incremental taxable value in the Project Areas and the current rate or rates at which property in the Project Areas is taxed. The reduction of taxable values of property in a Project Area caused by economic factors beyond the Agency's control, such as relocation out of the Project Area by one or more major property owners, sale of property to a non-profit corporation exempt from property taxation, or the complete or partial destruction of such property caused by, among other eventualities, earthquake or other natural disaster, could cause a reduction in the Pledged Tax Revenues that provide for the repayment of and secure the Bonds and the Existing Parity Bonds. Such reduction of Pledged Tax Revenues could have an adverse effect on the Agency's ability to make timely payments of principal of and interest on the Bonds and the Existing Parity Bonds.

As described in greater detail under the heading “PROPERTY TAXATION IN CALIFORNIA – Article XIIIA of the State Constitution,” Article XIIIA 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 inflation rate, not to exceed a two percent increase for any given year, or may be reduced to reflect a reduction in the consumer price index, comparable local data or any reduction in the event of declining property value caused by damage, destruction or other factors (as described above). Such measure is computed on a calendar year basis. Any resulting reduction in the full cash value base over the term of the Bonds could reduce Pledged Tax Revenues securing the Existing Parity Bonds and the Bonds.

In addition to the other limitations on, and required application under the Dissolution Act of Pledged Tax Revenues on deposit in the Redevelopment Property Tax Trust Fund, described herein under the heading “RISK FACTORS,” the State electorate or Legislature could adopt a constitutional or legislative property tax reduction with the effect of reducing Pledged Tax Revenues allocated to the Redevelopment Property Tax Trust Fund and available to the Agency. Although the federal and State Constitutions include clauses generally prohibiting the Legislature's impairment of contracts, there are also recognized exceptions to these prohibitions. There is no assurance that the State electorate or Legislature will not at some future time approve additional limitations that could reduce the Pledged Tax Revenues and adversely affect the source of repayment and security of the Bonds and the Existing Parity Bonds.

37 Risks to Real Estate Market

The Agency's ability to make payments on the Bonds will be dependent upon the economic strength of the Project Areas. The general economy of the Project Areas will be subject to all of the risks generally associated with urban real estate markets. Real estate prices and development may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development within a Project Area could be adversely affected by limitations of infrastructure or future governmental policies, including governmental policies to restrict or control development. In addition, if there is a decline in the general economy of a Project Area, the owners of property within the Project Area may be less able or less willing to make timely payments of property taxes or may petition for reduced assessed valuation causing a delay or interruption in the receipt of Pledged Tax Revenues by the Agency from the affected Project Area.

Reduction in Inflationary Rate

As described in greater detail below, Article XIIIA of the State Constitution provides that the full cash value of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2 percent increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2 percent, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2 percent. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the 2 percent limitation several times but in Fiscal Year 2010-11 the inflationary value adjustment was negative for the first time at -0.237%. In Fiscal Year 2011-12, the inflationary value adjustment was 0.753%, which also is below the 2 percent limitation, but for Fiscal Years 2012-13 and 2013-14, the inflationary value adjustment was 2.00%, which is the maximum permissible increase under Article XIIIA. For Fiscal Year 2014-15, the inflationary value adjustment is 0.454%. For Fiscal Year 2015-16, the inflationary value adjustment will be 1.998%. The Agency is unable to predict if any adjustments to the full cash value of real property within the Project Areas, whether an increase or a reduction, will be realized in the future.

Development Risks

The general economy of the Project Areas will be subject to all the risks generally associated with real estate development. Projected development within the Project Areas may be subject to unexpected delays, disruptions and changes. Real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development operations within the Project Areas could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If projected development in a Project Area is delayed or halted, the economy of the Project Area could be affected. If such events lead to a decline in assessed values they could cause a reduction in Pledged Tax Revenues. In addition, if there is a decline in the general economy of a Project Area, the owners of property within the Project Area may be less able or less willing to make timely payments of property taxes causing a delay or stoppage of the Pledged Tax Revenues received by the Agency from the affected Project Area. In addition, the insolvency or bankruptcy of one or more large owners of property within a Project Area could delay or impair the receipt of Pledged Tax Revenues by the Agency.

38 Levy and Collection of Taxes

The Agency has no independent power to levy or collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Pledged Tax Revenues, and accordingly, could have an adverse impact on the security for and the ability of the Agency to repay the Existing Parity Bonds and the Bonds.

Likewise, delinquencies in the payment of property taxes by the owners of land in the Project Areas, and the impact of bankruptcy proceedings on the ability of taxing agencies to collect property taxes, could have an adverse effect on the Agency's ability to make timely payments on the Existing Parity Bonds and the Bonds. Any reduction in Pledged Tax Revenues, whether for any of these reasons or any other reasons, could have an adverse effect on the Agency's ability to pay the principal of and interest on the Existing Parity Bonds and the Bonds.

Time Limits on Receiving Tax Increment Revenues

Under current limitations contained in the redevelopment plans for certain of the Project Areas, the right to receive tax increment revenue and to pay debt service with a portion of such tax increment revenue will terminate prior to the final maturity date of the Bonds. The final maturity date of the 2015A Bonds is August 1, 2034, and the final maturity date of the 2015B Bonds is August 1, 2035. However, the right to receive tax increment revenue terminates with respect to the Project Areas on different dates, several of which occur earlier than the respective final maturity dates of the Bonds. See Table 2 under the caption “THE PROJECT AREAS – Limitations and Requirements of the Redevelopment Plans”. Upon the respective termination dates, debt service on the Bonds will become payable solely from tax increment revenues allocated to the remaining Project Areas. Applying information currently available, the Agency has structured debt service so that the expected remaining Pledged Tax Revenues will be sufficient to pay the remaining debt service on the Bonds. However, the respective termination dates will result in a smaller number of properties generating Pledged Tax Revenues as the termination dates are reached for various Project Areas. Because the Bonds are payable solely from Pledged Tax Revenues, the credit quality of the Bonds at any one time depends upon the credit quality of the remaining Project Areas that generates Pledged Tax Revenues. In addition, unanticipated adverse events affecting the remaining properties subject to taxation could impair the Agency’s ability to pay, when due, the remaining debt service on the Bonds.

State Budget Issues

AB X1 26 and AB 1484 were enacted by the State Legislature and Governor as trailer bills necessary to implement provisions of the State’s budget acts for its fiscal years 2011-12 and 2012-13, respectively. The 2011-12 State budget included projected State savings estimated to aggregate $1.7 billion in 2011-12 associated with AB X1 27, which would have allowed redevelopment agencies to continue in operation provided their establishing cities or counties agreed to make an aggregate $1.7 billion in payments to K-12 schools. However, in December 2011, AB X1 27 was found by the California Supreme Court to violate the State Constitution, which altered this budgetary plan of the State. According to the State's Summary of the 2012-13 State budget, AB 1484 implements a framework to transfer cash assets previously held by redevelopment agencies to cities, counties, and special districts to fund core public services, with assets transferred to schools offsetting State general fund costs (projected savings of $1.5 billion).

For fiscal year 2013-14, the State budget implemented a number of changes, unrelated to redevelopment dissolution, to help the State work toward (on a multiyear basis) a $1 billion reserve, such as extending certain medical fees and taxes and continuing the use of miscellaneous State highway

39 account revenues to pay transportation bond debt service. The 2013-14 budget summary additionally describes Proposition 98 (schools) General Fund savings estimated at $2.1 billion in 2012-13 and $1.1 billion in 2013-14 as a result of monies generated by redevelopment agency dissolution in those years, a portion of which are one-time savings generated from the distribution of unencumbered funds held by former redevelopment agencies.

The budget summary for the State’s enacted 2014-15 budget (the “2014-15 Budget Summary”) updates the estimated the Proposition 98 (schools) General Fund savings resulting from dissolution of redevelopment agencies, citing approximately $2.2 billion in such State General Fund savings in 2011-12 and 2012-13 combined, and another estimated $2.1 billion in such State General Fund savings in 2013-14 and 2014-15. As described in the 2014-15 budget summary, the State’s budget is heavily dependent on the performance of the stock market and the resulting capital gains tax revenues, which are estimated to provide 9.8 percent of General Fund revenues in 2014-15. In response to the volatility of such revenues and the resulting boom-and-bust budget cycles, the State Legislature placed a constitutional amendment on the November 2014 ballot, referred to as Proposition 2, which was passed by the voters. Proposition 2 requires, among other things, beginning in fiscal year 2015-16 and annually thereafter, a transfer of 1.5% of estimated general fund revenues to the state budget stabilization account (the State’s “Rainy Day Fund”), and a deposit of personal capital gains tax revenues exceeding 8 percent of General Fund revenues (up to a maximum Rainy Day Fund balance equal to 10 percent of State General Fund revenues). In addition, Proposition 2 requires half of each year’s deposit into the Rainy Day Fund for the next 15 years to be used for supplemental payments to reduce the State’s long-term debt or other long- term liabilities. The State deposited funds into the Rainy Day Fund previously in fiscal years 2006–07 and 2007–08, for a total rainy–day fund of $1.5 billion, but the fund was emptied when revenues plummeted during the financial crisis. Since fiscal year 2007–08, governors have suspended the Rainy Day Fund deposit each year. Proposition 2 allows limited use of funds in case of emergency or if there is a state budget deficit.

Although the State’s budgets for fiscal years 2013-14 and 2014-15 did not include any additional legislation dealing with dissolution of redevelopment agencies, the Governor’s proposed State budget for fiscal year 2015-16 includes proposed legislation that, if enacted, could affect successor agencies and the distribution of Pledged Tax Revenues, as described further below.

Governor’s Proposed 2015-16 State Budget: Changes to the Dissolution Process

On January 9, 2015, California Governor Brown released the proposed fiscal year 2015-16 State budget. Although the Governor’s Budget Summary for the proposed fiscal year 2015-16 State budget (the “2015-16 Proposed Budget Summary”) proposes a balanced budget, the 2015-16 Proposed Budget Summary cautions that, since 2000, the State’s short periods of balanced budgets have been followed by massive budget shortfalls. The 2015-16 Proposed Budget Summary projects that by the end of the year, the State’s Rainy Day Fund will have a total balance of $2.8 billion, increasing from a balance of approximately $1.6 million at the end of fiscal year 2014-15. However, the 2015-16 Proposed Budget Summary also notes that commitments made by the State in the past two years are already straining the State’s finances. Under a projection of current policies, the 2015-16 Proposed Budget Summary anticipates that the State would begin to spend more than it receives in annual revenues by fiscal year 2018-19, by an amount of approximately $1 billion.

The 2015-16 Proposed Budget Summary also proposes legislation to modify the process of dissolving redevelopment agencies: “Administering the orderly dissolution of almost 400 redevelopment agencies has been complex and time consuming. Oversight of the dissolution process has progressed to the point where the Budget proposes legislation to streamline the state review process to continue the

40 wind-down activities.” The proposed legislation, as described in the 2015-16 Proposed Budget Summary, would accomplish the following changes:

 Transition all successor agencies from a biannual Recognized Obligation Payment Schedule process to an annual Recognized Obligation Payment Schedule process beginning July 1, 2016, when the successor agencies transition to a countywide oversight board.  Establish an optional “Last and Final” Recognized Obligation Payment Schedule (“Last and Final ROPS”) process beginning September 2015. The Last and Final ROPS would be available only to successor agencies that have a Finding of Completion, are in agreement with the State Department of Finance on what items qualify for payment, and meet other specified conditions. If approved by the State Department of Finance, the Last and Final ROPS would be binding on all parties, and the successor agency would no longer submit a Recognized Obligation Payment Schedule to the State Department of Finance or the oversight board. The county auditor-controller would remit the authorized funds to the successor agency in accordance with the approved Last and Final ROPS until each remaining enforceable obligation has been fully paid.  Former tax increment caps and redevelopment plan expirations would not apply for the purposes of paying approved enforceable obligations, to assure that funding would continue to flow until all approved enforceable obligations have been paid.  Reentered agreements that are not for the purpose of providing administrative support activities would not be authorized or enforceable.  Litigation expenses associated with challenging dissolution determinations would not be separate enforceable obligations, but rather must be funded as part of the successor agency’s administrative cost allowance (an amount that is limited by a formula under the Dissolution Act).  Contractual and statutory pass-through payments would end upon termination of all of a successor agency’s enforceable obligations.  The State Department of Finance would be exempt from the regulatory process and the federal Administrative Procedures Act.  County auditor-controllers’ offices would serve as staff for countywide oversight boards.

Except for the first two bullet points listed above, the Governor and the State Department of Finance view the proposed changes as “clarifying language,” but there is disagreement among dissolution process participants as to whether such proposed changes are merely clarifying changes or would constitute changes in the existing law. See “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule – Proposed Legislative Revisions to ROPS Process” for additional information concerning the Governor’s proposal to transition all successor agencies from a biannual Recognized Obligation Payment Schedule process to an annual Recognized Obligation Payment Schedule process beginning July 1, 2016.

Based on the present language of the proposed legislation, the Agency does not anticipate that the proposed changes to transition to an annual Recognized Obligation Payment Schedule process would adversely affect the timing or distribution of Pledged Tax Revenues to the Agency for payment of principal and interest due on the Bonds or the Existing Parity Bonds. However, as with any legislative proposal by the Governor, the budget is subject to the legislative process, and at this point it is not clear whether the Governor will have the Legislature’s support regarding these proposals. In any case, it is uncertain when any budget legislation may be adopted or what the exact provisions of any such

41 legislation will be. Depending on the actual provisions enacted, the potential impact of future legislation could be material to the Agency and its ability to repay existing and future obligations. There can be no assurance that additional provisions affecting successor agencies or Pledged Tax Revenues will not be included in the proposed legislation relating to the 2015-16 State budget, or that additional legislation will not be enacted in the future to implement other provisions affecting successor agencies or Pledged Tax Revenues.

The full text of each State Assembly bill cited above may be obtained from the “Official California Legislative Information” website maintained by the Legislative Counsel of the State of California pursuant to State law, at the following web link: http://www.leginfo.ca.gov/bilinfo.html.

Information about the State budget and State spending is available at various State maintained websites. Text of the 2015-16 Proposed Budget Summary, the Governor’s proposed 2015-16 State budget, the 2014-15 Budget Summary, the current State budget, and other documents related to the State budget may be found at the website of the State Department of Finance, www.dof.ca.gov. A nonpartisan analysis of the budget is posted by the Legislative Analyst's Office at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets may be found at the website of the State Treasurer, www.treasurer.ca.gov.

None of the websites or webpages referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. The Agency and the Underwriter make no representation whatsoever as to the accuracy or completeness of any of the information on such websites.

Recognized Obligation Payment Schedule

The Dissolution Act provides that, commencing on the date the first Recognized Obligation Payment Schedule is valid thereunder, only those payments listed in the Recognized Obligation Payment Schedule may be made by the Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each six-month period, the Dissolution Act requires successor agencies to prepare and approve, and submit to the successor agency’s oversight board and the State Department of Finance for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund without a duly approved and effective Recognized Obligation Payment Schedule obtained in sufficient time prior to the January 2 or June 1 distribution dates, as applicable. See “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule” and “PROPERTY TAXATION IN CALIFORNIA – Property Tax Collection Procedures – Recognized Obligation Payment Schedule.” In the event the Agency were to fail to file a Recognized Obligation Payment Schedule with respect to a six-month period, the availability of Pledged Tax Revenues to the Agency could be adversely affected for such period.

In the event a successor agency fails to submit to the State Department of Finance an oversight board-approved Recognized Obligation Payment Schedule complying with the provisions of the Dissolution Act within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to determine the amount of property tax allocations, the State Department of Finance may determine if any amount should be withheld by the applicable county auditor-controller for payments for enforceable obligations from distribution to taxing entities pursuant to clause (iv) in the following paragraph, pending approval of a Recognized Obligation Payment Schedule. Upon notice provided by the State Department of Finance to the county auditor-controller of an amount to be withheld from allocations to taxing entities, the county auditor-controller must distribute to taxing entities any

42 monies in the Redevelopment Property Tax Trust Fund in excess of the withholding amount set forth in the notice, and the county auditor-controller must distribute withheld funds to the successor agency only in accordance with a Recognized Obligation Payment Schedule when and as approved by the State Department of Finance.

Typically, under the Redevelopment Property Tax Trust Fund distribution provisions of the Dissolution Act, the County Auditor-Controller is to distribute funds for each six-month period in the following order specified in Section 34183 of the Dissolution Act: (i) first, subject to certain adjustments for subordinations to the extent permitted under the Dissolution Act (as described above under “SECURITY FOR THE BONDS – Tax Increment Financing”) and no later than each January 2 and June 1, to each local agency and school entity, to the extent applicable, amounts required for passthrough payments such entity would have received under provisions of the Redevelopment Law, as those provisions read on January 1, 2011, including pursuant to the Pass-Through Agreements and Statutory Pass-Through Amounts; (ii) second, on each January 2 and June 1, to the Agency for payments listed in its Recognized Obligation Payment Schedule, with debt service payments scheduled to be made for tax allocation bonds having the highest priority over payments scheduled for other debts and obligations listed on the Recognized Obligation Payment Schedule; (iii) third, on each January 2 and June 1, to the Agency for the administrative cost allowance, as defined in the Dissolution Act; and (iv) fourth, on each January 2 and June 1, to taxing entities any moneys remaining in the Redevelopment Property Tax Trust Fund after the payments and transfers authorized by clauses (i) through (iii), in an amount proportionate to such taxing entity’s share of property tax revenues in the tax rate area in that fiscal year (without giving effect to any passthrough obligations that were established under the Redevelopment Law).

If the Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to determine the amount of property tax allocations and the State Department of Finance does not provide a notice to the County Auditor-Controller to withhold funds from distribution to taxing entities, amounts in the Redevelopment Property Tax Trust Fund for such six-month period would be distributed to taxing entities pursuant to clause (iv) above. However, the Agency has covenanted to take all actions required under the Dissolution Act to include scheduled debt service on the Existing Parity Bonds and on the Bonds, as well as any amount required under the Indenture to replenish the Reserve Account of the Debt Service Fund, in Recognized Obligation Payment Schedules for each six-month period and to enable the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund to the Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Agency to pay principal of, and interest on, the Existing Parity Bonds and the Bonds coming due in the respective six-month period, including listing a reserve on the Recognized Obligation Payment Schedule to the extent required by the Existing Parity Bonds Indentures and the Indenture or when the next property tax allocation is projected to be insufficient to pay all obligations due under the provisions of the Existing Parity Bonds and the Bonds for the next payment due in the following six-month period (see “THE INDENTURE – Covenants of the Agency”).

The Dissolution Act, as amended by AB 1484, also provides for certain penalties in the event the Agency does not timely submit a Recognized Obligation Payment Schedule for a six-month period. Specifically, a Recognized Obligation Payment Schedule is required to be submitted by the Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the State Department of Finance, and the State Controller no later than 90 days before the date of the next January 2 or June 1 property tax distribution; provided, the Recognized Obligation Payment Schedule with respect to the six-month period of January 1, 2013 through June 30, 2013 was required to be submitted no later than September 1, 2012. If the Agency does not submit a Recognized Obligation Payment Schedule by such deadlines, the City will be subject to a civil penalty equal to $10,000 per day for every day the schedule is not submitted to the State Department of Finance. Additionally, the

43 Dissolution Act provides that the Agency’s administrative cost allowance is reduced by 25% for that period if the Agency does not submit a Recognized Obligation Payment Schedule by the 80th day before the date of the next January 2 or June 1 property tax distribution, as applicable. Subsequent to the June 27, 2012 enactment of AB 1484, the Agency has timely submitted its Oversight Board-approved Recognized Obligation Payment Schedules to the County Administrative Officer, the County Auditor- Controller, the State Department of Finance, and the State Controller for all six-month periods to date for which such submission has been due. See “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule – Amounts Received for Prior ROPS Periods.”

See also “RISK FACTORS – State Budget Issues” and “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule – Proposed Legislative Revisions to ROPS Process” for information concerning a proposed change to the Dissolution Act to transition all successor agencies from a biannual Recognized Obligation Payment Schedule process to an annual Recognized Obligation Payment Schedule process commencing with the Recognized Obligation Payment Schedule for the period from July 1, 2016, through June 30, 2017. If enacted as presently written, the Agency would be required to submit the Recognized Obligation Payment Schedule for the period from July 1, 2016, through June 30, 2017, after approval by the Oversight Board, to the County Auditor-Controller and the State Department of Finance no later than February 1, 2016, and each February 1 thereafter for subsequent annual Recognized Obligation Payment Schedules. Under the proposed legislation, as presently written, similar penalties would apply to late annual Recognized Obligation Payment Schedules, as the penalties described above for late semi-annual Recognized Obligation Payment Schedules. Although the Agency does not anticipate that the changes to the process for Recognized Obligation Payment Schedules, described in the presently proposed legislation, would adversely affect the timing or distribution of Pledged Tax Revenues to the Agency for payment of principal and interest due on the Bonds or the Existing Parity Bonds, it is uncertain when any budget legislation may be adopted or what the exact provisions of any such legislation will be. Depending on the actual provisions enacted, the potential impact of future legislation could be material to the Agency and its ability to repay existing and future obligations.

AB 1484 Penalty for Failure to Remit Unencumbered Funds

AB1484 further implements certain provisions of ABX1 26, including establishing a process for determining the liquid assets that redevelopment agencies should have shifted to their successor agencies when they were dissolved, and the amount that should be available for remittance by the successor agencies to their respective county auditor-controllers for distribution to affected taxing entities within the project areas of the former redevelopment agencies. This determination process is commonly known as the “due diligence review process” and is required to be completed through the final step (review by the State Department of Finance) by November 9, 2012 with respect to affordable housing funds and by April 1, 2013 with respect to non-housing funds. Within five business days of receiving notification from the State Department of Finance, the Agency must remit to the county auditor-controller the amount of unobligated balances determined by the State Department of Finance, or it may request a meet and confer with the State Department of Finance to resolve any disputes. If there is a meet and confer process, the Agency must remit the amount of unobligated balances within five working days of receiving a subsequent notification from the State Department of Finance of the amount of unobligated balances at the conclusion of that process.

If the Agency fails to remit the amounts determined by the State Department of Finance by the respective deadlines, certain penalties and remedies apply under AB 1484. Among such penalties and remedies, if the city that established the redevelopment agency is performing the duties of the successor agency, the State Department of Finance may order an offset to the city’s sales and use tax revenues equal to the amount the successor agency fails to remit. If the State Department of Finance does not order an

44 offset, the county auditor-controller may reduce the property tax allocation of the city. Alternatively or in addition to the remedies discussed in the foregoing sentences, the State Department of Finance may direct the county auditor-controller to deduct the unpaid amount from future allocations of property tax to the successor agency under Section 34183 of the Dissolution Act until the amounts required to be remitted are paid.

Pertinent to the Bonds, if the Agency were to fail to remit to the County Auditor-Controller the amounts of unobligated balances determined by the State Department Finance within the time frames required under AB 1484, the State Department of Finance may direct the County Auditor-Controller to deduct the unpaid amount from future allocations of Pledged Tax Revenues to the Agency under Section 34183 of the Dissolution Act until the amounts required to be remitted are paid.

As to affordable housing funds, the Agency has completed the due diligence review process, and on December 11, 2012, the State Department of Finance issued a letter to the Agency making no adjustments and concurring that the Agency has no unencumbered affordable housing fund balances available for distribution to taxing entities. As to non-housing funds, the Agency also has completed the due diligence review process, and on March 8, 2013, the State Department of Finance issued a letter to the Agency making an adjustment of $118,244 to the amount that the Agency was to remit to the County Auditor-Controller as an unobligated balance (for a total remittance of $118,244).

On August 7, 2013, the State Department of Finance issued to the agency a “finding of completion,” which confirms that the Agency has, among other things, paid in full the amounts determined during the due diligence reviews and the county auditor-controller has reported those payments to the State Department of Finance. Accordingly, based on this finding of completion, neither the Agency nor the City are subject to any AB 1484 penalties for a failure to remit unencumbered funds.

Bankruptcy and Foreclosure

The payment of property taxes from which Pledged Tax Revenues are derived and the ability of the County to foreclose the lien of a delinquent unpaid tax may be limited by bankruptcy, insolvency, or other laws generally affecting creditors' rights or by the laws of the State relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel's approving legal opinions) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors' rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.

Although bankruptcy proceedings would not cause the liens to become extinguished, bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings. Such delay would increase the possibility of delinquent tax installments not being paid in full and thereby increase the likelihood of a delay or default in payment of the principal of and interest on the Existing Parity Bonds and the Bonds.

Estimated Revenues

In estimating that Pledged Tax Revenues will be sufficient to pay debt service on the Existing Parity Bonds and the Bonds, the Agency has made certain assumptions with regard to present and future assessed valuation in the Project Areas, future tax rates and percentage of taxes collected. The Agency believes these assumptions to be reasonable, but there is no assurance these assumptions will be realized and to the extent that the assessed valuation and the tax rates are less than expected, the Pledged Tax Revenues available to pay debt service on the Existing Parity Bonds and the Bonds will be less than those

45 projected and such reduced Pledged Tax Revenues may be insufficient to provide for the payment of principal of, premium (if any) and interest on the Existing Parity Bonds and the Bonds.

Hazardous Substances

An environmental condition that may result in the reduction in the assessed value of property would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the Project Areas. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. If this situation were to occur with property within the Project Areas, the costs of remedying it could reduce the marketability and taxable value of the property.

Seismic Factors

The City, like most regions in the State of California, is located in an area of seismic activity and, therefore, could be subject to potentially destructive earthquakes. According to the Safety Element contained in the City’s General Plan, the City is prone to significant earthquake activity from nearby faults. The San Andreas fault is located approximately nine miles south of the City’s central core, and other major subsidiary faults in the area include the Garlock, Punchbow, Nadeau, Cemetery, and Littlerock faults. For more information, see the Safety Element of the City’s General Plan on file with the City Clerk.

The occurrence of severe seismic activity in the City could result in substantial damage to property located in the Project Areas, and could lead to successful appeals for reduction of assessed values of such property. Such a reduction of assessed valuations could result in a reduction of the Pledged Tax Revenues that secure the Existing Parity Bonds and the Bonds.

Risk of Floods

According to information contained in the Safety Element of the City’s General Plan, Much of the City is susceptible to flooding because of its relatively flat topography. Flooding is primarily caused by runoff from the San Gabriel and Sierra Pelona mountains to the south. The Antelope Valley drainage basin consists of a series of alluvial fans extending north from these mountains to the dry lake beds at Edwards Air Force Base. The basin has no natural outlet to the sea, which restricts the removal of runoff to percolation or evaporation. Major floods in the Antelope Valley generally coincide with winter storms that occur between November and April. The highest frequency and greatest intensity of winter flooding normally occurs between December and March. Infrequent thunderstorms during the summer and fall may also produce major flash floods. For more information see “Lancaster General Plan - Safety Background” on file with the Lancaster City Clerk.

For more information, see the Safety Element of the City’s General Plan on file with the City Clerk. As with seismic hazards, the occurrence of flood damage to property located in the Project Areas could lead to successful appeals for reduction of assessed values of such property and any reduction of assessed valuations could result in a reduction of the Pledged Tax Revenues that secure the Existing Parity Bonds and the Bonds.

46 Changes in the Law

There can be no assurance that the California electorate will not at some future time adopt initiatives or that the Legislature will not enact legislation that will amend the Dissolution Act, the Redevelopment Law or other laws or the Constitution of the State resulting in a reduction of Pledged Tax Revenues, which could have an adverse effect on the Agency's ability to pay debt service on the Existing Parity Bonds and the Bonds.

Investment Risk

Funds held under the Indenture are required to be invested in Permitted Investments as provided under the Indenture. See APPENDIX A attached hereto for a summary of the definition of Permitted Investments. The funds and accounts of the Agency, into which a portion of the proceeds of the Bonds will be deposited and into which Pledged Tax Revenues are deposited, may be invested by the Agency in any investment authorized by law. All investments, including the Permitted Investments and those authorized by law from time to time for investments by municipalities, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal.

Further, the Agency cannot predict the effects on the receipt of Pledged Tax Revenues if the County were to suffer significant losses in its portfolio of investments or if the County or the City were to become insolvent or declare bankruptcy. See “RISK FACTORS – Bankruptcy and Foreclosure.”

Additional Obligations

The potential for the issuance of Additional Parity Bonds secured by a pledge of Pledged Tax Revenues on a parity with the Existing Parity Bonds and the Bonds could, in certain circumstances, increase the risks associated with the Agency's payment of debt service on the Bonds in the event of a decrease in the Agency's collection of Pledged Tax Revenues. However, Section 34177.5 of the Dissolution Act provides limited authority for successor agencies to issue bonds, and the Agency’s ability to issue Additional Parity Bonds is subject to the requirements of the Dissolution Act as in effect from time to time. For additional information, see described “SECURITY FOR THE BONDS – Additional Parity Bonds.”

Secondary Market

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

No Validation Proceeding Undertaken

California Code of Civil Procedure Section 860 authorizes public agencies to institute a process, otherwise known as a “validation proceeding,” for purposes of determining the validity of a resolution or any action taken pursuant thereto. Section 860 authorizes a public agency to institute validation proceedings in cases where another statute authorizes its use. Relevant to the Bonds, California Government Code Section 53511 authorizes a local agency to “bring an action to determine the validity of its bonds, warrants, contracts, obligations or evidences of indebtedness.” Pursuant to Code of Civil

47 Procedure Section 870, a final favorable judgment issued in a validation proceeding shall, notwithstanding any other provision of law, be forever binding and conclusive, as to all matters therein adjudicated or which could have been adjudicated, against all persons: “The judgment shall permanently enjoin the institution by any person of any action or proceeding raising any issue as to which the judgment is binding and conclusive.”

The Agency has not undertaken or endeavored to undertake any validation proceeding in connection with the issuance of the Bonds. The Agency and Bond Counsel have relied on the provisions of AB 1484 authorizing the issuance of the Bonds and specifying the related deadline for any challenge to the Bonds to be brought. Specifically, Section 34177.5(e) of the Dissolution Act provides that notwithstanding any other law, an action to challenge the issuance of bonds (such as the Bonds), the incurrence of indebtedness, the amendment of an enforceable obligation, or the execution of a financing agreement authorized under Section 34177.5, must be brought within thirty (30) days after the date on which the oversight board approves the resolution of the successor agency approving the financing. Such challenge period expired with respect to the Bonds and the Oversight Board Resolution on November 29, 2014.

It is possible that a lawsuit challenging the Dissolution Act or specific provisions thereof could be successful and that the mechanisms currently provided for under the Dissolution Act to provide for distribution of Pledged Tax Revenues to the Agency for payment on the Bonds could be impeded and result in a delinquency or default in the timely payment of principal of, and interest on, the Existing Parity Bonds or the Bonds.

However, the Indenture additionally provides that if, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 of the Dissolution Act (upon which the distribution of Pledged Tax Revenues to the Agency rely) are invalidated by a final judicial decision, then Pledged Tax Revenues shall include all tax revenues allocated to the payment of indebtedness pursuant to Health & Safety Code Section 33670 or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution. Additionally, any action by a court to invalidate provisions of the Dissolution Act required for the timely payment of principal of, and interest on, the Bonds could raise issues regarding the unconstitutional impairment of contracts or an unconstitutional taking without just compensation. The Agency believes that the aforementioned considerations would provide some protections against the adverse consequences upon the Agency and the availability of Pledged Tax Revenues for the payment of debt service on the Bonds and the outstanding Existing Parity Bonds in the event of successful challenges to the Dissolution Act or portions thereof. However, the Agency does not guarantee that any lawsuit challenging the Dissolution Act or portions thereof will not result in an outcome that may have a detrimental effect on the Agency’s ability to timely pay debt service on the Bonds or the Existing Parity Bonds.

PROPERTY TAXATION IN CALIFORNIA

Property Tax Collection Procedures

Classification. In the State, property which is subject to ad valorem taxes is classified as “secured” or “unsecured.” Secured and unsecured property are entered on separate parts of the assessment roll maintained by the County assessor. The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all

48 other liens on the secured property arising pursuant to State law, regardless of the time of the creation of other liens.

Generally, ad valorem taxes are collected by a county (the “Taxing Authority”) for the benefit of the various entities (cities, schools and special districts) that share in the ad valorem tax (each a taxing entity) and successor agencies eligible to receive distributions from the respective Redevelopment Property Tax Trust Funds.

Collections. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured personal property taxes: (i) initiating a civil action against the taxpayer, (ii) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer, (iii) filing a certificate of delinquency for record in the county recorder's office to obtain a lien on certain property of the taxpayer, and (iv) seizing and selling personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes which are delinquent.

Penalty. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default by operation of law and declaration of the tax collector on or about June 30 of each fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A 10% penalty also applies to delinquent taxes with respect to property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on varying dates related to the tax bill mailing date.

Delinquencies. The valuation of property is determined as of the January 1 lien date as equalized in August of each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1 and become delinquent August 31.

Supplemental Assessments. California Revenue and Taxation Code Section 75.70 provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Prior to the enactment of this law, the assessment of such changes was permitted only as of the next tax lien date following the change, and this delayed the realization of increased property taxes from the new assessments for up to 14 months. This statute provides increased revenue to the Redevelopment Property Tax Trust Fund to the extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January 1 lien date. To the extent such supplemental assessments occur within the Project Areas, Pledged Tax Revenues may increase.

Property Tax Administrative Costs. In 1990, the Legislature enacted SB 2557 (Chapter 466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions in proportion to the tax-derived revenues allocated to each. SB 1559 (Chapter 697, Statutes of 1992) explicitly includes redevelopment agencies among the jurisdictions which are subject to such charges. In addition, Sections 34182(e) and 34183(a) of the Dissolution Act allow administrative costs of the County Auditor-Controller for the cost of administering the provisions of the Dissolution Act, as well as the foregoing SB 1559 amounts, to be

49 deducted from property tax revenues before monies are deposited into the Redevelopment Property Tax Trust Fund. For Fiscal Year 2012-13, the County's administrative charge to the Prior Agency and Agency was $1,039,893, and for Fiscal Year 2013-14 the County's administrative charge to the Agency for the Project Areas was $976,331. The County’s administrative charge to the Agency for the Project Areas for Fiscal Year 2014-15 is estimated to be $1,050,584.

Negotiated Pass-Through Agreements. Prior to 1994, under the Redevelopment Law, a redevelopment agency could enter into an agreement to pay increment revenues to any taxing agency that has territory located within a redevelopment project in an amount which in the agency's determination is appropriate to alleviate any financial burden or detriment caused by the redevelopment project. These agreements normally provide for payment or pass-through of tax increment revenue directed to the affected taxing agency, and, therefore, are commonly referred to as pass-through agreements or tax sharing agreements. The Agency agreements with affected taxing agencies are referred to herein as “Pass-Through Agreements.” See “SECURITY FOR THE BONDS – Tax Increment Financing” for additional discussion of the treatment of Pass-Through Agreements under the Dissolution Act.

Statutory Pass-Throughs. The payment of Statutory Pass-Through Amounts (defined in APPENDIX A) results from (i) plan amendments which add territory in existing project areas on or after January 1, 1994 and (ii) from plan amendments which eliminates one or more limitations within a redevelopment plan (such as the removal of the time limit on the establishment of loans, advances and indebtedness). The calculation of the amount due affected taxing entities is described in Sections 33607.5 and 33607.7 of the Redevelopment Law. See “SECURITY FOR THE BONDS – Tax Increment Financing” for further information regarding the applicability of the statutory pass-through provisions of the Redevelopment Law and the Dissolution Act to the various Project Areas.

Recognized Obligation Payment Schedule. The Dissolution Act provides that, commencing on the date the first Recognized Obligation Payment Schedule is valid thereunder, only those payments listed in the Recognized Obligation Payment Schedule may be made by the Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each six-month period, the Dissolution Act requires successor agencies to prepare and approve, and submit to the successor agency’s oversight board and the State Department of Finance for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund without a duly approved and effective Recognized Obligation Payment Schedule obtained in sufficient time prior to the January 2 or June 1 distribution dates, as applicable. See “SECURITY FOR THE BONDS – Recognized Obligation Payment Schedule” and “RISK FACTORS – Recognized Obligation Payment Schedule.”

Unitary Property

Assembly Bill (“AB”) 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with fiscal year 1988-89, assessed value derived from State-assessed unitary property (consisting mostly of operational property owned by utility companies) is to be allocated county-wide as follows: (i) each tax rate area will receive that same amount from each assessed utility received in the previous fiscal year unless the applicable county-wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro-rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro-rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State-assessed property is changed from March 1 to January 1.

50 AB 454 (Statutes of 1987, Chapter 921) further modifies chapter 1457 regarding the distribution of tax revenues derived from property assessed by the State Board of Equalization. Chapter 921 provides for the consolidation of all State-assessed property, except for regulated railroad property, into a single tax rate area in each county. Chapter 921 further provides for a new method of establishing tax rates on State-assessed property and distribution of property tax revenue derived from State-assessed property to taxing jurisdictions within each county in accordance with a new formula. Railroads will continue to be assessed and revenues allocated to all tax rate areas where railroad property is sited.

Article XIIIA of the State Constitution

Article XIIIA limits the amount of ad valorem taxes on real property to 1% of “full cash value” of such property, as determined by the county assessor. Article XIIIA defines “full cash 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 when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” Furthermore, the “full cash value” of all real property may be increased to reflect the rate of inflation, as shown by the consumer price index, not to exceed 2% per year, or may be reduced.

Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by substantial damage, destruction or other factors, and to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in other special circumstances.

Article XIIIA (i) exempts from the 1% tax limitation taxes to pay debt service on (a) indebtedness approved by the voters prior to July 1, 1978 or (b) 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; (ii) requires a vote of two-thirds of the qualified electorate to impose special taxes, or certain additional ad valorem taxes; and (iii) requires the approval of two-thirds of all members of the State Legislature to change any State tax laws resulting in increased tax revenues.

The validity of Article XIIIA has been upheld by both the California Supreme Court and the United States Supreme Court.

In the general election held November 4, 1986, voters of the State approved two measures, Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms “purchase” and “change of ownership,” for the purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. This amendment to Article XIIIA may reduce the rate of growth of local property tax revenues.

Proposition 60 amended Article XIIIA to permit the Legislature to allow persons over the age of 55 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 assessed value to the new residence. As a result of the Legislature's action, the growth of property tax revenues may decline.

Legislation enacted by the 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 is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value (except as noted). Tax rates for voter-approved bonded indebtedness and pension liabilities are also applied to 100% of assessed value.

51 Appropriations Limitation - Article XIIIB

Article XIIIB limits the annual appropriations of the State and its political subdivisions to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity. The “base year” for establishing such appropriations limit is the 1978/79 fiscal year, and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies.

Section 33678 of the Redevelopment Law provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness shall not be deemed the receipt by an agency of proceeds of taxes levied by or on behalf of an agency within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law. The constitutionality of Section 33678 has been upheld in two California appellate court decisions. On the basis of these decisions, the Agency has not adopted an appropriations limit.

Articles XIIIC and XIIID of the State Constitution

At the election held on November 5, 1996, Proposition 218 was passed by the voters of California. The initiative added Articles XIIIC and XIIID to the State Constitution. Provisions in the two articles affect the ability of local government to raise revenues. The Bonds are secured by sources of revenues that are not subject to limitation by Proposition 218. See also “– Propositions 218 and 26” below.

Proposition 87

On November 8, 1988, the voters of the State approved Proposition 87, which amended Article XVI, Section 16 of the State Constitution to provide that property tax revenue attributable to the imposition of taxes on property within a redevelopment project area for the purpose of paying debt service on certain bonded indebtedness issued by a taxing entity (not the Prior Agency or the Agency) and approved by the voters of the taxing entity after January 1, 1989 will be allocated solely to the payment of such indebtedness and not to redevelopment agencies.

Redevelopment Time Limits

In 1993, the State legislature passed AB 1290, which, among other things, required redevelopment agencies to adopt time limits in each redevelopment plan specifying: 1) the last date to incur debt for a redevelopment project; 2) the last date to undertake redevelopment activity within a project area; and 3) the last date to collect tax increment revenue from a project area to repay debt. Pursuant to AB 1290, which took effect January 1, 1994, the City Council adopted ordinances amending the Redevelopment Plans for the Project Areas to impose limits on plan activity in each area, as well as a date past which tax increment revenue could not be collected.

In 2001, the California Legislature enacted SB 211, Chapter 741, Statutes 2001, effective January 1, 2002 (“SB 211”), which authorized, among other things, the deletion by ordinance of the legislative body of the AB 1290 limitation on incurring indebtedness contained in a redevelopment plan adopted prior to January 1, 1994. However, such elimination triggers statutory tax sharing with those taxing entities that do not have Pass-Through Agreements. The City Council adopted ordinances, pursuant to the authorization contained in SB 211, deleting the time limit on the Agency's authority to incur loans,

52 advances and indebtedness with respect to the Project Areas, as described further under the caption “THE PROJECT AREAS – Limitations and Requirements of the Redevelopment Plans.”

SB 211 also prescribed additional requirements that a redevelopment agency would have to meet upon extending the time limit on the effectiveness of a redevelopment plan, including requiring an increased percentage of new and substantially rehabilitated dwelling units to be available at affordable housing cost to persons and families of low or moderate income prior to the termination of the effectiveness of the plan.

Legislation passed in 2003 (SB 1045) and 2004 (SB 1096) required redevelopment agencies to remit monies to the applicable county Educational Revenue Augmentation Fund (“ERAF”) and also permitted redevelopment agencies to extend their ability to collect tax increment by one year for each payment required by such legislation to be made in 2003-04, 2004-05 and 2005-06. The extensions for 2004-05 and 2005-06 apply only to plans with existing limits on the effectiveness of the plan that are less than 20 years from the last day of the fiscal year in which the ERAF payment is made. The City adopted ordinances, pursuant to the authorization granted in SB 1045, extending the time limits on the effectiveness of the Redevelopment Plans and the receipt of tax increment. The City did not take any actions to further extend the effectiveness of the Redevelopment Plans under SB 1096.

The actions taken by the City Council pursuant to these statutes have resulted in the time limitations for the Redevelopment Plans described under the caption “THE PROJECT AREAS – Limitations and Requirements of the Redevelopment Plans.”

Appeals of Assessed Values

Pursuant to California law, a property owner may apply for a reduction of the property tax assessment for such owner's property by filing a written application, in a form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board.

In the County, a property owner desiring to reduce the assessed value of such owner's property in any one year must submit an application to the County Assessment Appeals Board (the “Appeals Board”). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of each application by the staff of the County Assessor's Office, the staff makes a recommendation to the Appeals Board on each application which has not been rejected for incompleteness or untimeliness or withdrawn. The Appeals Board holds a hearing and either reduces the assessment or confirms the assessment. 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 for fiscal years following the year for which the reduction application is filed. However, if the taxpayer establishes through proof of comparable values that the property continues to be overvalued (known as “ongoing hardship”), the 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 as well. Appeals for reduction in the “base year” value of an assessment, which generally must be made within three years of the date of change in ownership or completion of new construction that determined the base year, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. Moreover, in the case of any reduction in any one year of assessed value granted for “ongoing hardship” in the then current year, and also in any cases involving stipulated appeals for prior years relating to base year and personal property assessments, the property tax revenues from which Pledged Tax Revenues are derived attributable to such properties will be reduced in the then current year. In practice, such a reduced assessment may remain in effect beyond the year in which it is

53 granted. See “THE PROJECT AREAS” for information regarding the assessed valuations of the top ten property owners within each Project Area.

Proposition 8

Proposition 8, approved in 1978 (California Revenue and Taxation Code Section 51(b)), provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions under this code section may be initiated by the County Assessor or requested by the property owner.

After a roll reduction is granted under this code section, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA.

During the recent recession, the County in 2008 and 2009 made significant blanket assessed value reductions throughout the County pursuant to Proposition 8 from the maximum amount that could be assessed on property, based on a proactive review conducted by the County of single-family homes and condominiums within the County that were purchased or sold between July 1, 2003 and June 30, 2008. The Agency cannot guarantee that reductions undertaken by the County Assessor or requested by a property owner pursuant to Proposition 8 will not in the future reduce the assessed valuation of property in the Project Areas and, therefore, Pledged Tax Revenues that secure the Bonds and any Parity Bonds.

Propositions 218 and 26

On November 5, 1996, California voters approved Proposition 218—Voter Approval for Local Government Taxes—Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. On November 2, 2010, California voters approved Proposition 26, the “Supermajority Vote to Pass New Taxes and Fees Act.” Proposition 26 amended Article XIIIC of the California Constitution by adding an expansive definition for the term “tax,” which previously was not defined under the California Constitution. Pledged Tax Revenues securing the Bonds are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which are limited by Proposition 218 and outside of the scope of taxes which are limited by Proposition 26.

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting Agency revenues or the Agency's ability to expend revenues.

54 THE PROJECT AREAS

General Information

The City Council, on behalf of the Agency, established the following redevelopment projects within the City which are referred to herein, collectively, as the “Project Areas”:

(i) “Lancaster Residential Redevelopment Project” approved by Ordinance No. 158 of the City of Lancaster adopted on November 13, 1979 (the “Residential Project”);

(ii) “Central Business District Redevelopment Project” approved by Ordinance No. 226 of the City of Lancaster adopted on June 1, 1981 (the “CBD Project”);

(iii) “Fox Field Redevelopment Project” approved by Ordinance No. 289 of the City of Lancaster adopted on December 20, 1982 (the “Fox Field Project”);

(iv) “Amargosa Redevelopment Project” approved by Ordinance No. 321 of the City of Lancaster adopted on October 17, 1983 (the “Amargosa Project”);

(v) “Lancaster Redevelopment Project No. 5” approved by Ordinance No. 360 of the City of Lancaster adopted on November 26, 1984 (“Project No. 5”);

(vi) “Lancaster Redevelopment Project No. 6” approved by Ordinance No. 505 of the City of Lancaster adopted on July 3, 1989 (“Project No. 6”); and

(vii) “Lancaster Redevelopment Project Area No. 7” approved by Ordinance No. 624 of the City of Lancaster adopted on November 28, 1992 (“Project No. 7”).

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55 Summary of Assessed Valuation of Project Areas

The following table summarizes the Project Areas.

TABLE 1 SUMMARY OF LANCASTER REDEVELOPMENT AGENCY REDEVELOPMENT PROJECT AREAS

2014-15 2014-15 2014-15 Assessed Incremental Estimated Incremental Project Adoption Size of Base Year Value Value Value Gross Value as % Area Date Area (millions) (millions) Revenues of Total (acres) (millions) AV

Residential 11/13/1979 600 $ 7,049,501 $ 388.9 $ 381.9 $ 3.838 98.19%

CBD 06/01/1981 438 48,332,693 156.2 107.9 1.087 69.06

Fox Field 12/20/1982 3,290 14,970,009 198.3 183.4 1.837 92.45

Amargosa 10/17/1983 4,599 92,091,937 1,482.9 1,390.9 13.943 93.79

Project No. 5 11/26/1984 4,523 366,873,983 1,674.3 1,307.4 13.184 78.09

Project No. 6 07/03/1989 12,748 605,741,455 2,869.0 2,263.3 22.622 78.89

Project No. 7 11/28/1992 1,504 226,784,287 407.7 180.9 1.811 44.37 ______Source: Urban Futures, Inc.

Limitations and Requirements of the Redevelopment Plans

The respective Redevelopment Plans limit taxes, as defined in Section 33670 of the Redevelopment Law, that may be divided and allocated to the Agency with respect to each of the Project Areas. In addition, the respective Redevelopment Plans limit the amount of bonded indebtedness that may be outstanding at any one time. See Table 2 below.

In 1993, the California Legislature enacted AB 1290, Chapter 942, Statutes of 1993, effective January 1, 1994 (“AB 1290”). AB 1290 included (i) provisions enacting a statutory maximum limit on the time period for establishing loans, advances, and indebtedness which are payable from tax increment revenues; (ii) provisions requiring a time limit not to exceed a statutory maximum limit on the effectiveness of a redevelopment plan; and (iii) provisions requiring a time limit not to exceed a statutory maximum limit on redevelopment agency’s receipt of tax increment and payment of indebtedness with tax increment.

In order to comply with AB 1290, the City adopted ordinances on December 5, 1994 with respect to the respective Project Areas. In 1998, AB 1342 was enacted by the State Legislature and became effective January 1, 1999. This bill permits agencies having limits shorter than those permitted by AB 1290 to amend their plans to incorporate the maximum permitted limits allowed under AB 1290 without complying with the statutory plan amendment process. In November 1999, the City Council adopted ordinances to enact other Redevelopment Plan amendments permitted by AB 1290 and AB 1342.

56 In 2001, the California Legislature enacted SB 211, Chapter 741, Statutes of 2001, effective January 1, 2002 (“SB 211”). Among other things, SB 211 provides that at any time after January 1, 2002, the limitation on incurring indebtedness contained in a redevelopment plan adopted prior to January 1, 1994, may be eliminated by ordinance of the legislative body. However, such elimination will trigger statutory tax sharing with those taxing entities that do not have “pass-through” or “tax-sharing” agreements, pursuant to former Section 33401 of the Redevelopment Law, which authorized redevelopment agencies to enter into such agreements to provide for the payment of tax increment revenues to taxing entities in order to alleviate any detriment to the taxing entity resulting from the establishment of a redevelopment project. Statutory tax sharing will be calculated based on the increase in assessed valuation after the year in which the limitation would otherwise have become effective. Amounts payable to taxing agencies under the AB 1290 formula are to be computed after deducting the Housing Set-Aside Amount attributable to the increase in assessed valuation. On December 9, 2003, the City Council adopted Ordinances Nos. 823 and 824 with respect to the Amargosa Project and the Residential Project, respectively, which eliminated the limitation on incurring indebtedness contained in the respective Redevelopment Plan pursuant to SB 211. On June 22, 2004, the City Council adopted Ordinances Nos. 829, 830, 831 with respect to the CBD Project, the Fox Field Project, and Project No. 5, respectively, which eliminated the limitation on incurring indebtedness contained in the respective Redevelopment Plan pursuant to SB 211. On July 13, 2004, the City Council adopted Ordinances Nos. 833 and 834 with respect to Project No. 6 and Project No. 7, respectively, which eliminated the limitation on incurring indebtedness contained in the respective Redevelopment Plan pursuant to SB 211.

In 2003, the California Legislature enacted Senate Bill 1045, Chapter 260, Statutes of 2003, effective September 1, 2003 (“SB 1045”). SB 1045 required each redevelopment agency to make an allocation of revenue to the applicable county auditor in the 2003-04 fiscal year for deposit in the Educational Revenue Augmentation Fund (“ERAF”) in the applicable county for allocation to school entities, based on a statewide aggregate allocation of $135,000,000. Section 33683 of the Redevelopment Law provides, for the purpose of determining whether the limit on the tax increment revenue that may be allocated to the Prior Agency has been reached, the aggregate amount of ERAF payments made by the Prior Agency from tax increment revenue in 2003-04 and in a number of prior Fiscal Years, as required by legislation, may be deducted from the amount of tax increment revenue deemed to have been received by the Prior Agency. SB 1045 also permits a redevelopment plan to be amended to add one year to the duration of the redevelopment plan and to the period for collection of tax increment revenues and the repayment of debt. On December 9, 2003, the City Council adopted Ordinances Nos. 823 and 824 with respect to the Amargosa Project and the Residential Project, respectively, which added one year to the duration of the Redevelopment Plans for such Project Areas pursuant to SB 1045. On June 22, 2004, the City Council adopted Ordinances Nos. 829, 830, 831 with respect to the CBD Project, the Fox Field Project, and Project No. 5, respectively, which added one year to the duration of the Redevelopment Plans for such Project Areas pursuant to SB 1045. On July 13, 2004, the City Council adopted Ordinances Nos. 833 and 834 with respect to Project No. 6 and Project No. 7, respectively, which added one year to the duration of the Redevelopment Plans for such Project Areas pursuant to SB 1045.

57 The actions taken by the City Council to date have resulted in the time limitations set forth in Table 2:

TABLE 2 LANCASTER REDEVELOPMENT PROJECT AREAS REDEVELOPMENT PLAN LIMITATIONS

Plan Last Date to Maximum Tax Maximum Last Date to Termination Receive Prop. Project Area Increment (1) Bonded Debt Incur Debt Date (2) Taxes/Pay Debt (2)

Residential $ 80,000,000 $33,000,000 Eliminated 11/13/2020 11/13/2030 (3)(4)

CBD 80,000,000 25,000,000 Eliminated 06/01/2022 06/01/2032 (3)(4)

Fox Field 250,000,000 125,000,000 Eliminated 12/20/2023 12/20/2033 (3)(4)

Amargosa 225,000,000 92,000,000 Eliminated 10/17/2024 10/17/2034 (4)

Project No. 5 400,000,000 100,000,000 Eliminated 11/26/2025 11/26/2035

Project No. 6 750,000,000 250,000,000 Eliminated 07/03/2030 07/03/2040

Project No. 7 750,000,000 250,000,000 Eliminated 11/29/2033 11/29/2043 ______(1) In the DOF Santa Cruz Letter (as defined below), the State Department of Finance stated its position and advice to county auditor-controllers to not apply tax increment caps to bar payment of enforceable obligations approved by the State Department of Finance, unless the tax increment cap had been reached prior to the enactment of AB X1 26 in June 2011. The Agency cannot provide any assurance that a court would concur with, or uphold, this position if a lawsuit were filed to challenge it. In addition, from time to time, the State Department of Finance changes its guidance without notice. (2) The Governor’s proposed State budget for 2015-16 includes a proposal for budget-related legislation to the effect that tax increment caps and redevelopment plan limitations will not apply for the purposes of paying approved enforceable obligations, to assure that funding will continue to flow to successor agencies until all approved enforceable obligations have been paid. The Agency cannot provide any assurance that such legislation will actually be enacted, or if enacted, that a court would concur with, or uphold, this position if a lawsuit were filed to challenge it. See “RISK FACTORS – State Budget Issues.” (3) The right to receive property taxes with respect to the Residential Project, the CBD Project, and the Fox Field Project terminates prior to the final maturity of the 2015A Bonds. See “RISK FACTORS – Time Limits on Receiving Tax Increment Revenues.” (4) The right to receive property taxes with respect to the Residential Project, the CBD Project, the Fox Field Project, and the Amargosa Project terminates prior to the final maturity of the 2015B Bonds. See “RISK FACTORS – Time Limits on Receiving Tax Increment Revenues.” Source: Urban Futures, Inc.

On April 2, 2014, the State Department of Finance issued a letter (the “DOF Santa Cruz Letter”) to the County Auditor-Controller for the County of Santa Cruz, in response to a request for clarification concerning the position of the State Department of Finance on the applicability of tax increment caps (i.e., the maximum tax increment allocable to a redevelopment agency under its redevelopment plan). In the DOF Santa Cruz Letter, the State Department of Finance stated its position and advice to county auditor- controllers to not apply tax increment caps to bar payment of enforceable obligations approved by the State Department of Finance, unless the tax increment cap had been reached prior to the enactment of AB X1 26 in June 2011. The Agency cannot provide any assurance that a court would concur with, or uphold, the position of the State Department of Finance in the DOF Santa Cruz Letter if a lawsuit were filed to challenge this position. In addition, from time to time, the State Department of Finance changes its guidance without notice.

58 As of the date of this Official Statement, the estimated cumulative tax increment allocated to the Agency with respect to each Project Area, as compared to the maximum tax increment allocable under each Redevelopment Plan, is as follows:

Maximum Tax Estimated Cumulative Tax Increment Project Area Increment Allocated through June 2014

Residential $ 80,000,000 $ 42,197,000 CBD 80,000,000 10,014,000 Fox Field 250,000,000 14,116,000 Amargosa 225,000,000 99,572,000 Project No. 5 400,000,000 113,476,000 Project No. 6 750,000,000 146,413,000 Project No. 7 750,000,000 9,269,000 ______Source: Urban Futures, Inc.

Based on the estimated debt service for the Bonds and the projections of Pledged Tax Revenues prepared by its financial advisor (see “PLEDGED TAX REVENUES – Projected Taxable Valuation and Pledged Tax Revenues” and “APPENDIX F – FINANCIAL ADVISOR’S REPORT”), the Agency believes that the respective maximum tax increment plan limits for all of the Project Areas will not be reached during the term in which the Bonds are scheduled to be outstanding. However, if the annual growth in assessed valuation, and therefore, tax increment revenues, exceeds the following respective amounts for the following Project Areas for each year following issuance of the Bonds through August 1, 2034, the respective maximum tax increment limitations for such Project Areas may be reached by the August 1, 2034 last maturity of the 2015A Bonds, as well as the August 1, 2035 last maturity of the 2015B Bonds: 2.7% for the Amargosa Project, 6.4% for Project No. 5, or 10.9% for Project No. 6. Also, if the annual growth in assessed valuation, and therefore, tax increment revenues, exceeds 3.3% for the Residential Project, the $80,000,000 maximum tax increment limitation for the Residential Project may be reached before the November 13, 2030 plan limit for the last day to receive property taxes from the Residential Project (see Table 2 above). Under any remotely feasible annual assessed valuation growth scenario, the CBD Project and Fox Field Project are unlikely to reach their respective maximum tax increment plan limits prior to their respective plan limits for the last day to receive property taxes, being June 1, 2032 for the CBD Project and December 20, 2033 for the Fox Field Project (see Table 2 above). Similarly, Project No. 7 is unlikely to reach its maximum tax increment plan limit during the term in which Bonds are scheduled to be outstanding (i.e., prior to August 1, 2034) under any remotely feasible annual assessed valuation growth scenario. As shown in the “Redevelopment Plan Limitations” table above (i.e., Table 2), the maximum tax increment plan limit is a separate Redevelopment Plan limitation than the plan limit for the last date to receive property taxes. For further discussion of the plan limit for the last date to receive property taxes, see “RISK FACTORS – Time Limits on Receiving Tax Increment Revenues.”

The Governor’s proposed State budget for 2015-16 includes a proposal for budget-related legislation to the effect that tax increment caps and redevelopment plan limitations (such as the plan termination date, or the last day to receive property taxes and pay indebtedness contained in the Redevelopment Plans) will not apply for the purposes of paying approved enforceable obligations, to assure that funding will continue to flow to successor agencies until all approved enforceable obligations have been paid. The Agency cannot provide any assurance that such legislation will actually be enacted, or if enacted, that a court would concur with, or uphold, this position if a lawsuit were filed to challenge it. See “RISK FACTORS – State Budget Issues.”

59 Lancaster Residential Redevelopment Project

The Residential Project was formed in 1979. The Residential Project was formed to eliminate blighting conditions in the area and encourage new residential development to satisfy the need for housing for the City’s growing population. The Residential Project consists of approximately 610 acres in 36 non-contiguous segments ranging in size from less than an acre to nearly 100 acres. Nearly half the segment areas are five acres or smaller. Existing land uses are residential, commercial and vacant.

Public improvements necessary for the Residential Project include the construction of streets, sidewalks, lights, landscaping, undergrounding of utilities, storm drain facilities, traffic signals, sewer and water lines. The major link between Lancaster and the Los Angeles area is the Antelope Valley Freeway (State Route 14) which runs through the City in a north-south direction. More than half the segments are located on the eastside of this freeway. Since the Residential Project consists of many scattered parcels throughout the community, access is provided by all major north-south and east-west streets. The streets, in general, which are adjacent to the majority of the Project Area handle very low traffic volumes. Two sections of the Project Area are near the railroad and are used for limited industrial uses.

The implementation of the Residential Redevelopment Plan provided needed housing units in the Project Area, to accommodate the growing population of the City which has nearly doubled in population since its incorporation in 1977.

Land use for fiscal year 2014-15 in the Residential Project is shown in the following table.

TABLE 3 LANCASTER RESIDENTIAL REDEVELOPMENT PROJECT Secured Assessed Valuation and Parcels by Land Use Fiscal Year 2014-15

Number 2014-15 Secured Percent of Total of Assessed Secured Assessed Land Use Parcels Valuation Valuation(1) Single Family Residential 2,140 $291,912,482 75.51% Multifamily Residential 13 80,336,959 20.78 Commercial 9 7,685,847 1.99 Industrial 13 5,646,825 1.46 Vacant Industrial 12 552,622 0.14 Vacant Residential 7 403,905 0.10 Vacant Governmental/Institutional/Other 3 26,869 0.01 Vacant Commercial 2 11,079 0.00 Governmental/Institutional/Other 8 0 0.00 Recreational 1 0 0.00

Total: 2,208 $ 386,576,587 100.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $386,576,587. Source: Urban Futures, Inc.

60 The 2014-15 assessed value of property within the Residential Project, as well as incremental revenues, are shown in the following table.

TABLE 4 LANCASTER RESIDENTIAL REDEVELOPMENT PROJECT Assessed Valuation and Tax Increment Revenues Fiscal Year 2014-15

Values 2014-15 Assessed Value $388,901,307 Base Year Value $7,049,501 Base Year as % of Current Assessed Value 1.81% Incremental Value $381,851,806 Increment Revenues $3,818,518 Unitary Revenues $20,043 Housing Set-Aside $767,712 ______Source: Urban Futures, Inc.

The top ten taxpayers in the Residential Project are as follows:

TABLE 5 LANCASTER RESIDENTIAL REDEVELOPMENT PROJECT Largest Property Tax Payers Fiscal Year 2014-15

2014-15 Taxable % of Total Secured Secured Property Owner Primary Land Use Assessed Value A.V.(1) 1. Provident Housing Resources Inc Multifamily Residential $47,323,685 12.24% 2. Riva Park Dev LLC Multifamily Residential 17,104,446 4.42 3. Mg Woodlands West Apartments LP Multifamily Residential 11,550,214 2.99 4. Forbush Mark S Co Tr Multifamily Residential 10,492,699 2.71 5. Lane Family Trust Commercial 4,215,180 1.09 6. Cambridge Ln LLC Commercial 3,193,401 0.83 7. Agate Consortium Inc Commercial 2,170,338 0.56 8. Byd Energy LLC Industrial 1,908,626 0.49 9. Antelope Valley Residential Single Family Residential 1,032,764 0.27 10. Newman Wayne A & Shana L Trs Industrial 719,090 0.19 Totals $99,710,443 25.79% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $386,576,587. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

Central Business District Redevelopment Project

The CBD Project contains approximately 440 acres of the City's historic business center in four non-contiguous areas. Lancaster Boulevard, the "spine" of the commercial office area, and Sierra Highway form the principal streets in the Project Area. The character of the Project Area is of mixed land uses with commercial development retaining a clearly dominant position.

61 Industrial land is largely located on the east side of Sierra Highway and scattered residential property, approximately 15 acres, account for a substantial portion of the remaining useable Project Area land. Less then 100 acres of the Project Area is vacant land. Streets, along with the railroad, make up about 35% or 160 acres of the Project Area.

The Project Area was the focal point of the City's Civic Center and cultural development efforts. A new City Hall has been located in the Project Area as an initial effort to establish a civic center. The Prior Agency determined to eliminate and prevent the spread of blight and deterioration in the Project Area by making traffic improvements and fostering a more pedestrian oriented shopping atmosphere. Utilities and the infrastructure network are to be ungraded and aesthetically improved. The Prior Agency facilitated the development of additional off-street parking, convenient to stores and major streets.

From March 2010 through November 2010, Lancaster Boulevard underwent a dramatic transformation through a complete streetscape redesign, with the assistance of an innovative modern design from architectural firm Moule & Polyzoides, and is now known as “the BLVD.” Since 2010, more than 40 new businesses have located in the BLVD. As the private sector continues to build upon the City’s $11.6 million investment in the downtown area, in 2014 ten new businesses launched on the BLVD, including Zero Degrees, an eatery specializing in frozen custard and Italian ice; Rio Brazilian Grill; and New York Flowers, owned and operated by the owner of the successful Brooklyn Deli. 2014 also marked the first year of operation of the Downtown Lancaster Property and Business Improvement District, which through the levy of assessments on properties within the district has substantially enhanced services to member businesses and property owners through augmented security, maintenance, and a comprehensive marketing campaign to attract patrons to downtown Lancaster. Special events held throughout 2014 attracted more than 100,000 visitors downtown.

Land use for fiscal year 2014-15 in the CBD Project is shown in the following table.

TABLE 6 CENTRAL BUSINESS DISTRICT REDEVELOPMENT PROJECT Secured Assessed Valuation and Parcels by Land Use Fiscal Year 2014-15

Number 2014-15 Secured Percent of Total of Assessed Secured Assessed Land Use Parcels Valuation Valuation(1) Commercial 287 $ 75,641,340 54.44% Multifamily Residential 33 31,958,355 23.00 Governmental/Institutional/Other 110 10,437,404 7.51 Industrial 54 7,760,846 5.59 Recreational 5 3,120,213 2.25 Vacant Industrial 254 3,069,855 2.21 Vacant Residential 43 2,466,489 1.78 Vacant Governmental/Institutional/Other 221 1,939,145 1.40 Single Family Residential 34 1,590,411 1.14 Vacant Commercial 35 948,274 0.68 Vacant Recreational 2 8,790 0.01

Total: 1,078 $ 138,941,121 100.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $138,941,121. Source: Urban Futures, Inc.

62 The 2014-15 assessed value of property within the CBD Project, as well as incremental revenues, are shown in the following table.

TABLE 7 CENTRAL BUSINESS DISTRICT REDEVELOPMENT PROJECT Assessed Valuation and Tax Increment Revenues Fiscal Year 2014-15

Values 2014-15 Assessed Value $156,216,721 Base Year Value $48,332,693 Base Year as % of Current Assessed Value 30.94% Incremental Value $107,884,028 Increment Revenues $1,078,840 Unitary Revenues $8,527 Housing Set-Aside $217,473 ______Source: Urban Futures, Inc.

The top ten taxpayers in the CBD Project are as follows:

TABLE 8 CENTRAL BUSINESS DISTRICT REDEVELOPMENT PROJECT Largest Property Tax Payers Fiscal Year 2014-15

2014-15 % of Total Taxable Secured Secured Property Owner Primary Land Use Assessed Value A.V.(1) 1. Downtown Renual LP Multifamily Residential $22,883,843 16.47% 2. Lean Mean Fighting Machine LP Commercial 14,089,594 10.14 3. Lancaster Promenade LLC Commercial 11,875,341 8.55 4. Cedar St Assoc Ltd Institutional 5,723,064 4.12 5. University Of Antelope Institutional 4,949,059 3.56 6. Grow A Pear LP Commercial 4,548,549 3.27 7. Holmberg Hilding A & Jean Y Commercial 4,301,787 3.10 8. H K Realty Inc Multifamily Residential 3,976,890 2.86 9. Larson Max W Tr Commercial 3,648,087 2.63 10. Mental Health America Of Commercial 3,041,187 2.19 Totals $79,037,401 56.89% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $138,941,121. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

63 Fox Field Redevelopment Project

The Fox Field Project Area encompasses a total of approximately 7,200 acres in two (2) noncontiguous areas. The character of the Project Area is mixed land use including airport and related uses, commercial, light industrial, public and low density residential uses.

The Fox Field Airport, which is owned and operated by the County, accounts for approximately 250 acres of the Project Area. Included within the Airport area is a 5,000 foot long and 150 foot wide runway, a U.S. Forest Service Air Tanker Base, and a proposed museum site. Existing Airport services are provided by the County, and water is provided by an on-site well.

The Prior Agency established a business retention and attraction program for the Project Area, utilizing Prior Agency, County of Los Angeles, State and federal funding sources. The Prior Agency acquired properties for the eventual development of industrial facilities and the creation of employment opportunities for low- and moderate income workers. The Prior Agency also provided economic development and technical assistance to commercial, industrial and public development projects in the Project Area.

In 2014, the inaugural Los Angeles County Air Show was held at Fox Field Airport in the Fox Field Project Area in the City. According to Los Angeles County Air Show, Inc., a California corporation that produces the event, the inaugural 2014 Los Angeles County Air Show welcomed more than 103,000 spectators over the two-day event. The 2015 Los Angeles County Air Show will also be held at Fox Field Airport, in March 2015. The headlining act for the 2015 Air Show will be the U.S. Air Force Aerial Demonstration Squadron, the Thunderbirds, and additional attractions on the ground will include static aircraft displays, opportunities to meet and interact with pilots and crewmembers, and interactive and educational exhibits designed to promote science, technology, engineering, and math.

Land use for fiscal year 2014-15 in the Fox Field Project is shown in the following table.

TABLE 9 FOX FIELD REDEVELOPMENT PROJECT Secured Assessed Valuation and Parcels by Land Use Fiscal Year 2014-15

Number 2014-15 Secured Percent of Total of Assessed Secured Assessed Land Use Parcels Valuation Valuation(1) Industrial 55 $109,378,158 64.83% Vacant Industrial 513 26,718,278 15.84 Commercial 19 14,772,140 8.76 Governmental/Institutional/Other 10 10,953,981 6.49 Vacant Agricultural 9 2,381,340 1.41 Vacant Residential 11 1,916,082 1.14 Vacant Governmental/Institutional/Other 13 1,337,456 0.79 Recreational 1 987,264 0.59 Vacant Commercial 3 150,987 0.09 Single Family Residential 1 109,108 0.06

Total: 635 $168,704,794 100.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $168,704,794. Source: Urban Futures, Inc.

64 The 2014-15 assessed value of property within the Fox Field Project, as well as incremental revenues, are shown in the following table.

TABLE 10 FOX FIELD REDEVELOPMENT PROJECT Assessed Valuation and Tax Increment Revenues Fiscal Year 2014-15

Values 2014-15 Assessed Value $198,339,744 Base Year Value $14,970,009 Base Year as % of Current Assessed Value 7.55% Incremental Value $183,369,735 Increment Revenues $1,833,697 Unitary Revenues $5,125 Housing Set-Aside $367,764 ______Source: Urban Futures, Inc.

The top ten taxpayers in the Fox Field Project are as follows:

TABLE 11 FOX FIELD REDEVELOPMENT PROJECT Largest Property Tax Payers Fiscal Year 2014-15

2014-15 % of Total Taxable Secured Secured Property Owner Primary Land Use Assessed Value A.V.(1) 1. Thrifty Payless Inc Industrial $35,993,203 21.34% 2. Sygma Network Inc Industrial 22,018,620 13.05 3. Campus Business Park II LLC Industrial 6,476,841 3.84 4. Hanes & Associates Inc Commercial 5,840,067 3.46 5. Extra Space Properties Forty Industrial 5,264,962 3.12 6. Education Cap Solutions LLC Industrial 3,246,200 1.92 7. Vintners Cucamonga Industrial 3,075,373 1.82 8. Oberman Edith Tr Industrial 3,014,664 1.79 9. R Brown K 8 LLC Industrial 2,700,000 1.60 10. Lauren & James Young Commercial 2,599,617 1.54 Totals $90,229,547 53.48% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $168,704,794. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

65 Amargosa Redevelopment Project

The Amargosa Project encompasses a total of approximately 4,600 acres in four non-contiguous areas. The character of the Amargosa Project is mixed land use including commercial, light industrial, health care, educational and residential, with vacant and unimproved land making up the dominant portion.

The Prior Agency determined that the basic objective of the Project Area was to assist in the redevelopment of areas which are presently stagnate and unproductive, as well as to eliminate and prevent the spread of blight. At the time of the adoption of the Redevelopment Plan, many of the parcels throughout the Amargosa Project remained undeveloped or exhibited complete or growing lack of productive utilization. The Amargosa Redevelopment Plan intended to assist in the replanning or redesign of these areas which are presently, or in the future become, stagnant or improperly utilized because of defective or inadequate street layout, faulty lot layout in relation to size, shape, accessibility or usefulness. Improvements to the Amargosa Project include the construction and redesign of streets, sidewalks, lights, landscaping, undergrounding of utilities, storm drain facilities, traffic signals, sewer and water lines. Other improvements are the construction of vehicle parking facilities and the signalization of various intersections within the Project Area. Another objective of the Amargosa Redevelopment Plan was to implement various flood control and drainage facilities. Flooding has been identified as an infrequent but potentially significant problem in the Project Area, which is located among the two main branches of the Amargosa and Ana Verde Creeks, which is a major collector of surface runoff in the Antelope Valley drainage basin.

During 2014, the Lancaster Auto Mall partnered with the City to invest in the redesign of the Auto Mall, which is located in the Amargosa Project. The Auto Mall’s fourteen dealerships are working with the City to revitalize public spaces throughout the Auto Mall, in an effort to build synergy and create a pedestrian-friendly atmosphere to encourage auto sales. To meet increasing customer demand – a steady rise in sales of 95% since 2009, dealers have collectively invested approximately $12.3 million toward the renovation of their individual dealerships. These include Antelope Valley Chevy, which recently completed a remodel; Antelope Valley Ford, which recently expanded to accommodate a new Lincoln show room; and Antelope Valley Honda, which is currently building a new Honda Superstore.

In 2014, the City also celebrated the grand openings of more than 300,000 square feet of state-of- the-art medical facilities located in the Amargosa Project. The new facilities include the most efficient Kaiser Permanente facility in the entire Kaiser Network – a 136,000 square-foot Platinum LEED-certified Kaiser Permanente Medical Office Building which integrates a variety of efficient systems and technologies, in addition to its advanced medical systems and procedure rooms. Among the new medical facilities is also the City of Hope full-service cancer center, and Los Angeles County’s 124,000 square- foot High Desert Regional Care Center.

Within the Amargosa Project, Morton Manufacturing opened their new headquarters, a custom- built 88,000-square-foot industrial complex in the Lancaster Business Park during 2014. The growing firm is expected to bring 350 jobs to the area.

The new Spectrum Center, currently under development in the Amargosa Project, will combine shopping, lodging, and dining opportunities in one convenient location at the highly visible, signalized intersection of 20th Street West and Avenue J-8, adjacent to the Antelope Valley Freeway (State Route 14). The 92-suite Marriott TownePlace Suites of Lancaster will anchor the northwest corner of the center with available pads ranging from 2,500 to over 12,000 square feet. Anchor retail space and adjacent shops are expected to total over 87,000 square feet. Lancaster Spectrum is being developed by Martin Properties of Westlake Village, California. The development company has a diverse portfolio of

66 investment properties including office buildings, medical and surgical centers, retail shopping centers and state-of-the-art storage facilities throughout the Antelope Valley, as well as Phoenix and Scottsdale, Arizona.

Also, regional transportation funding has provided the City with $20 million to improve the Avenue K and Avenue L interchanges along State Route 14. These improvements will provide state-of- the-art accessibility to the shopping centers in the area, including the planned 95-acre Amargosa Commons.

Land use for fiscal year 2014-15 in the Amargosa Project is shown in the following table.

TABLE 12 AMARGOSA REDEVELOPMENT PROJECT Secured Assessed Valuation and Parcels by Land Use Fiscal Year 2014-15

Number 2014-15 Secured Percent of Total of Assessed Secured Assessed Land Use Parcels Valuation Valuation(1) Commercial 229 $ 532,930,775 38.89% Single Family Residential 1,763 279,241,655 20.38 Multifamily Residential 78 218,570,593 15.95 Industrial 129 158,403,776 11.56 Vacant Commercial 108 47,113,366 3.44 Vacant Industrial 247 45,473,456 3.32 Governmental/Institutional/Other 74 25,902,313 1.89 Recreational 9 21,747,086 1.59 Vacant Residential 184 20,150,221 1.47 Vacant Governmental/Institutional/Other 142 15,105,918 1.10 Vacant Agricultural 24 5,679,673 0.41

Total: 2,987 $1,370,318,832 100.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $1,370,318,832. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

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67 The 2014-15 assessed value of property within the Amargosa Project, as well as incremental revenues, are shown in the following table.

TABLE 13 AMARGOSA REDEVELOPMENT PROJECT Assessed Valuation and Tax Increment Revenues Fiscal Year 2014-15

Values 2014-15 Assessed Value $1,482,953,538 Base Year Value $92,091,937 Base Year as % of Current Assessed Value 6.21% Incremental Value $1,390,861,601 Increment Revenues $13,908,616 Unitary Revenues $34,531 Housing Set-Aside $2,788,629 ______Source: Urban Futures, Inc.

The top ten taxpayers in the Amargosa Project are as follows:

TABLE 14 AMARGOSA REDEVELOPMENT PROJECT Largest Property Tax Payers Fiscal Year 2014-15

2014-15 % of Total Taxable Secured Secured Property Owner Primary Land Use Assessed Value A.V.(1) 1. MG Properties Multifamily Residential $ 80,577,388 5.88% 2. Cp Antelope Shops LLC Commercial 44,394,429 3.24 3. Kaiser Foundation Health Plan Commercial 32,876,066 2.40 4. Mk Rrp 176 Holston Drive LLC Commercial 31,600,000 2.31 5. Mgp Ix Properties LLC Commercial 28,375,096 2.07 6. Wal Mart Real Estate Commercial 23,697,104 1.73 7. Valley Central L P Commercial 19,062,986 1.39 8. Westwood Park Ltd Multifamily Residential 17,927,929 1.31 9. Cinema Properties Inc Commercial 17,900,000 1.31 10. Winco Foods LLC Commercial 15,641,687 1.14 Totals $312,052,685 22.77% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $1,370,318,832. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

68 Lancaster Redevelopment Project No. 5

Project No. 5 consists of seven non-contiguous areas which total approximately 4,523 acres. The primary land use in the project area is residential, with approximately 87 percent being used for either single family, multifamily or mobile home living. Approximately 9 percent of the Project Area is used for commercial uses and less than 3% is vacant, and industrial uses comprise less than 2%.

Project No. 5 was formed in 1984. The Prior Agency established that the goal of the Project No. 5 Redevelopment Plan was to increase the development potential of Project No. 5 by eliminating the existing blighted conditions and environmental deficiencies. This goal was implemented through the removal or rehabilitation of physically obsolete or substandard structures and other blighting influences, as well as the construction, installation and redesign of streets, utilities, curbs, gutters, sidewalks, and other associated public improvements. The Prior Agency planned various water system projects including the replacement, construction and improvement of water lines, fire hydrants and water meters in order to provide adequate fire flows and domestic water supplies.

The North Downtown Transit Village Project, which kicked off in 2001, represented an intensive, multi-year effort by the Prior Agency to reduce blight and revitalize one of the oldest and poorest sections of the community. The North Downtown Transit Village Plan includes a mix of housing, retail and commercial uses in the Project Area.

Land use for fiscal year 2014-15 in Project No. 5 is shown in the following table.

TABLE 15 LANCASTER REDEVELOPMENT PROJECT NO. 5 Secured Assessed Valuation and Parcels by Land Use Fiscal Year 2014-15

Number 2014-15 Secured Percent of Total of Assessed Secured Assessed Land Use Parcels Valuation Valuation(1) Single Family Residential 10,288 $1,121,371,144 68.48% Multifamily Residential 617 220,757,711 13.48 Commercial 317 189,874,301 11.60 Industrial 66 37,125,259 2.27 Government/Institutional/Other 156 33,600,779 2.05 Vacant Residential 208 11,820,640 0.72 Vacant Industrial 89 9,232,473 0.56 Vacant Commercial 62 9,079,869 0.55 Vacant Governmental/Institutional/Other 84 4,413,353 0.27 Recreational 4 175,239 0.01

Total: 11,891 $1,637,450,768 100.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $1,637,450,768. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

69 The 2014-15 assessed value of property within Project No. 5, as well as incremental revenues, are shown in the following table.

TABLE 16 LANCASTER REDEVELOPMENT PROJECT NO. 5 Assessed Valuation and Tax Increment Revenues Fiscal Year 2014-15

Values 2014-15 Assessed Value $1,674,287,292 Base Year Value $366,873,983 Base Year as % of Current Assessed Value 21.91% Incremental Value $1,307,413,309 Increment Revenues $13,074,133 Unitary Revenues $110,242 Housing Set-Aside $2,636,875 ______Source: Urban Futures, Inc.

The top ten taxpayers in Project No. 5 are as follows:

TABLE 17 LANCASTER REDEVELOPMENT PROJECT NO. 5 Largest Property Tax Payers Fiscal Year 2014-15

2014-15 % of Total Taxable Secured Secured Property Owner Primary Land Use Assessed Value A.V.(1) 1. Wal Mart Real Estate Commercial $ 20,190,993 1.23% 2. Front Gate Plaza LLC Commercial 17,318,709 1.06 3. Security Title Tr Multifamily Residential 13,134,059 0.80 4. 30th Street West Apt Associates Multifamily Residential 12,501,735 0.76 5. How Bout Them Apples LP Multifamily Residential 12,330,787 0.75 6. Cedar Creek LP Multifamily Residential 10,807,837 0.66 7. Leaps & Bounds LP Multifamily Residential 9,223,662 0.56 8. I Yam What I Yam LP Multifamily Residential 8,484,222 0.52 9. Lancaster Avenue Lllc Commercial 8,212,653 0.50 10. Mgp Xvii LLC Multifamily Residential 7,344,363 0.45 Totals $119,549,020 7.30% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $1,637,450,768. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

70 Lancaster Redevelopment Project No. 6

Project No. 6 consists of approximately 12,748 acres in eight non-contiguous sub-areas generally located around main arterial routes throughout the City. Project No. 6 was formed in 1989 to revitalize and upgrade the area through the provision of housing programs and the rehabilitation of obsolete and substandard structures.

The primary land use in Project No. 6 is residential, with approximately 82 acres being used for either single family, multifamily or mobile home living. Approximately 18 acres of the Project Area is used for commercial, light industrial and agricultural.

In 2014, Antelope Valley Hospital partnered with the City to develop the “Medical Main Street” concept within Project No. 6. The concept is intended to foster development of the vacant land surrounding the existing Antelope Valley Hospital to enhance connectivity, increase the availability of medical and fitness-oriented facilities, and establish an atmosphere that cultivates healthy choices and active lifestyles. The City is planning to reconfigure the public right-of-way in the “Medical Main Street” announced in 2014. Mixed use development is expected to be designed in Medical Main Street to achieve maximum accessibility and connectivity throughout the health-oriented village, to promote a state-of-the art, pedestrian-friendly environment. It is estimated that the project will create 275 construction jobs and many new development opportunities for medical office and mixed-use development.

Land use for fiscal year 2014-15 in Project No. 6 is shown in the following table.

TABLE 18 LANCASTER REDEVELOPMENT PROJECT NO. 6 Secured Assessed Valuation and Parcels by Land Use Fiscal Year 2014-15

Number 2014-15 Secured Percent of Total of Assessed Secured Assessed Land Use Parcels Valuation Valuation(1) Single Family Residential 13,621 $2,155,021,949 76.66% Commercial 147 166,407,026 5.92 Vacant Residential 1,875 115,013,244 4.09 Multifamily Residential 120 112,115,564 3.99 Governmental/Institutional/Other 125 89,666,133 3.19 Industrial 58 89,515,645 3.18 Vacant Governmental/Institutional/Other 419 39,514,273 1.41 Vacant Industrial 431 26,182,709 0.93 Vacant Commercial 38 6,501,222 0.23 Vacant Agricultural 42 4,586,194 0.16 Agricultural 1 3,628,738 0.13 Recreational 4 2,834,566 0.10

Total: 16,881 $2,810,987,264 100.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $2,810,987,264. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

71 The 2014-15 assessed value of property within Project No. 6, as well as incremental revenues, are shown in the following table.

TABLE 19 LANCASTER REDEVELOPMENT PROJECT NO. 6 Assessed Valuation and Tax Increment Revenues Fiscal Year 2014-15

Values 2014-15 Assessed Value $2,868,995,149 Base Year Value $605,741,455 Base Year as % of Current Assessed Value 21.11% Incremental Value $2,263,253,694 Increment Revenues $22,632,537 Unitary Revenues $29,400 Housing Set-Aside $4,532,387 ______Source: Urban Futures, Inc.

The top ten taxpayers in Project No. 6 are as follows:

TABLE 20 LANCASTER REDEVELOPMENT PROJECT NO. 6 Largest Property Tax Payers Fiscal Year 2014-15

2014-15 % of Total Taxable Secured Secured Property Owner Primary Land Use Assessed Value A.V.(1) 1. Us Industrial Reit II Industrial $ 45,284,000 1.61% 2. Caritas Affordable Housing Inc Multifamily Residential 24,325,757 0.87 3. Avp Lancaster LLC Commercial 22,441,042 0.80 4. Unified Investments V LLC Institutional 16,701,146 0.59 5. Vallarta Supermarkets Shopping Commercial 13,985,017 0.50 6. Reliant-San Gabriel LP Multifamily Residential 13,318,300 0.47 7. Caesars Plaza LLC Commercial 9,889,920 0.35 8. Ap Lancaster LLC Commercial 8,407,338 0.30 9. Youtheman LP Multifamily Residential 7,425,028 0.26 10. Antelope Valley Residential Single Family Residential 6,985,309 0.25 Totals $168,762,857 6.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $2,810,987,264. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

72 Lancaster Redevelopment Project No. 7

Project No. 7 was formed in 1992. Project No. 7 was formed to revitalize and upgrade the area through the provision of housing programs and the rehabilitation of obsolete and sub-standard structures.

Land use for fiscal year 2014-15 in Project No. 7 is shown in the following table.

TABLE 21 LANCASTER REDEVELOPMENT PROJECT NO. 7 Secured Assessed Valuation and Parcels by Land Use Fiscal Year 2014-15

Number 2014-15 Secured Percent of Total of Assessed Secured Assessed Land Use Parcels Valuation Valuation(1) Single Family Residential 2,017 $260,904,992 66.47% Commercial 53 106,898,040 27.24 Vacant Industrial 168 9,549,880 2.43 Multifamily Residential 18 7,921,088 2.02 Governmental/Institutional/Other 17 4,167,780 1.06 Vacant Residential 12 1,918,496 0.49 Vacant Commercial 5 1,066,293 0.27 Industrial 1 68,102 0.02 Vacant Governmental/Institutional/Other 4 629 0.00

Total: 2,295 $392,495,299 100.00% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $392,495,299. Source: Urban Futures, Inc.

The 2014-15 assessed value of property within Project No. 7, as well as incremental revenues, are shown in the following table.

TABLE 22 LANCASTER REDEVELOPMENT PROJECT NO. 7 Assessed Valuation and Tax Increment Revenues Fiscal Year 2014-15

Values 2014-15 Assessed Value $407,668,301 Base Year Value $226,784,287 Base Year as % of Current Assessed Value 55.63% Incremental Value $180,884,014 Increment Revenues $1,808,840 Unitary Revenues $2,750 Housing Set-Aside $362,318 ______Source: Urban Futures, Inc.

73 The top ten taxpayers in Project No. 7 are as follows:

TABLE 23 LANCASTER REDEVELOPMENT PROJECT NO. 7 Largest Property Tax Payers Fiscal Year 2014-15

2014-15 % of Total Taxable Secured Secured Property Owner Primary Land Use Assessed Value A.V.(1) 1. Quartz Hill Station LLC Commercial $21,095,335 5.37% 2. Tru 2005 Re I LLC Commercial 12,900,000 3.29 3. 2429 Danalda LLC & Kab Plaza LLC Commercial 10,645,910 2.71 4. United Insurance Company Commercial 9,793,480 2.50 5. Chen Yi S Commercial 5,900,000 1.50 6. Arroyo Plaza LLC Commercial 5,285,583 1.35 7. G6 Hospitality Property LLC Commercial 4,598,081 1.17 8. Lancaster Avenue J LLC Commercial 4,159,317 1.06 9. Lancaster Triangle Co Commercial 4,066,179 1.04 10. Miner Kurt J & Lord Miner Michelle Commercial 3,781,000 0.96 Totals $82,224,885 20.95% ______(1) Based on fiscal year 2014-15 secured assessed valuation: $392,495,299. Source: Urban Futures, Inc., with information from the Los Angeles County 2014-15 Secured Property Tax Roll.

Appeals

As previously discussed under “PROPERTY TAXATION IN CALIFORNIA—Appeals of Assessed Values,” property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. After the applicant and the assessor have presented their arguments, the Appeals Board makes a final decision on the proper assessed value. The Appeals Board may rule in the assessor’s favor, in the applicant’s favor, or the Board may set their own opinion of the proper assessed value, which may be more or less than either the assessor’s opinion or the applicant’s opinion.

Any reduction in the assessment ultimately granted applies to the year for which the application is made and may also affect the values in subsequent years. Refunds for taxpayer overpayment of property taxes may include refunds for overpayment of taxes in years after that which was appealed. Current year values may also be adjusted as a result of a successful appeal of prior year values. Any taxpayer payment of property taxes that is based on a value that is subsequently adjusted downward will require a refund for overpayment.

Appeals for reduction in the “base year” value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date.

Appeals may also be filed under Section 51 of the Revenue and Taxation Code, which requires that for each lien date the value of real property shall be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Significant reductions have taken place in some counties due

74 to declining real estate values. Reductions made under this code section may be initiated by the County Assessor or requested by the property owner. After a roll reduction is granted under this section, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and it may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA.

The taxable value of unitary property may be contested by utility companies and railroads to the State Board of Equalization. Generally, the impact of utility appeals is on the statewide value of a utility determined by the State Board of Equalization. As a result, the successful appeal of a utility may not impact the taxable value of a project area but could impact a project area’s allocation of unitary property tax revenues.

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75 The following table sets forth information regarding pending appeals, average appeal value, and projected loss of Project Areas assessed value as a result of such appeals over the past five lien years, as of December 1, 2014.

TABLE 24 LANCASTER REDEVELOPMENT PROJECT AREAS Recent Appeals – as of December 1, 2014

HISTORICAL APPEALS – Closed Appeals Reviewed from January 2011 through November 2014 Allowed Number Number of Reduction of Appeals Successful Assessed Value of Owner’s Opinion Total Requested Reduction as % of Project Area Filed Appeals Property of Value Reduction Allowed by Board Requested

Residential 17 2 $ 21,186,695 $ 11,283,856 $ 9,902,839 $ 59,053 0.60% CBD Project 30 9 34,069,557 15,613,255 18,456,302 2,141,547 11.60 Fox Field Project 40 7 86,591,032 51,412,326 35,178,706 2,028,891 5.77 Amargosa Project 243 79 564,327,790 324,256,586 240,071,204 27,565,228 11.48 Project No. 5 277 83 228,643,326 77,562,814 151,080,512 12,454,488 8.24 Project No. 6 619 207 345,518,671 178,147,036 167,371,635 30,254,772 18.08 Project No. 7 76 23 85,474,530 41,717,948 43,756,582 8,793,152 20.10

PENDING/OUTSTANDING APPEALS – as of December 1, 2014 Number of Assessed Estimated Reduction Appeals Value of Owner’s Opinion Potential Loss of Historical (based on Historical Project Area Outstanding Property of Value Assessed Value Success Rate Success)

Residential 37 $ 50,535,536 $ 8,217,580 $ 42,317,956 0.60% $ 252,352 CBD Project 14 29,940,563 7,750,000 22,190,563 11.60 2,574,846 Fox Field Project 32 98,605,241 56,301,149 42,304,092 5.77 2,439,839 Amargosa Project 140 467,027,559 227,892,594 239,134,965 11.48 27,457,728 Project No. 5 157 339,695,090 128,573,900 211,121,190 8.24 17,404,007 Project No. 6 397 219,719,356 110,599,694 109,119,662 18.08 19,724,910 Project No. 7 40 100,981,709 39,199,712 61,781,997 20.10 12,415,469

Source: Urban Futures, Inc., with data obtained from the County of Los Angeles.

The Agency has no way of knowing the outcome of these appeals or their effect on the valuation in the Project Areas.

76 PLEDGED TAX REVENUES

Pledged Tax Revenues (as described in the section “SECURITY FOR THE BONDS” herein) are to be deposited in the Redevelopment Obligation Retirement Fund, and thereafter transferred by the Agency to the Debt Service Fund, administered by the Trustee and applied to the payment of the principal of and interest on the Bonds and the Existing Parity Bonds.

Schedule of Historical Incremental Revenues

Set forth in the following table is a summary of Project Area historical assessed values, gross tax increment revenues, and the Pledged Tax Revenues (i.e., the Housing Set-Aside Amount) that have been available to pay debt service for fiscal years 2005-06 through 2014-15.

Pledged Tax Revenues Fiscal Assessed Tax Increment (Housing Set-Aside Year Value Revenues* Amount (20%)) 2005-06 $6,018,684,402 $64,584,183 $12,916,837 2006-07 7,427,561,936 79,659,173 15,931,835 2007-08 8,401,684,545 90,082,285 18,016,457 2008-09 8,812,256,087 94,475,400 18,895,080 2009-10 7,576,463,943 66,204,939 13,240,988 2010-11 6,409,536,314 55,395,291 11,079,058 2011-12 6,392,661,204 53,209,699 10,641,940 2012-13 6,338,285,012 53,335,938 10,667,188 2013-14 6,539,684,775 54,555,224 10,911,045 2014-15(1) 7,177,362,052 58,365,800 11,673,160 ______* Revenues include 1% increment, override (through Fiscal Year 2011-12), and unitary revenues. (1) Fiscal Year 2014-15 Tax Increment Revenues and Pledged Tax Revenues (Housing Set-Aside Amount) are estimated. Source: Urban Futures, Inc.

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77 Projected Taxable Valuation and Pledged Tax Revenues

The Agency has retained Urban Futures, Inc. of Orange, California to provide projections of taxable valuation and Pledged Tax Revenues from developments in the Project Areas. The Agency believes the assumptions (set forth in the footnotes below and “APPENDIX F- Financial Advisor’s Report”) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see “RISK FACTORS”). Therefore, the actual Pledged Tax Revenues received during the forecast period may vary from the projections and the variations may be material.

A summary of the projected taxable valuation and Pledged Tax Revenues for all Project Areas combined is as follows:

Fiscal Year Assessed Gross Tax Pledged Tax Ended Valuation (1) Increment (2) Revenues (3) 2015 $7,177,362,052 $58,365,800 $11,673,160 2016 7,320,909,293 59,801,272 11,960,254 2017 7,467,327,479 61,265,454 12,253,091 2018 7,616,674,028 62,758,920 12,551,784 2019 7,769,007,509 64,282,254 12,856,451 2020 7,924,387,659 65,836,056 13,167,211 2021 8,082,875,412 67,420,933 13,484,187 2022 8,244,532,921 69,037,509 13,807,502 2023 8,409,423,579 70,686,415 14,137,283 2024 8,577,612,051 72,368,300 14,473,660 2025 8,749,164,292 74,083,822 14,816,764 2026 8,924,147,578 75,833,655 15,166,731 2027 9,102,630,529 77,618,485 15,523,697 2028 9,284,683,140 79,439,011 15,887,802 2029 9,470,376,802 81,295,947 16,259,189 2030 9,659,784,338 83,190,023 16,638,005 2031 9,319,101,870 79,833,650 15,966,730 2032 9,505,483,908 81,697,470 16,339,494 2033 9,189,199,645 79,154,003 15,830,801 2034 9,372,983,638 80,991,843 16,198,369 2035 7,356,852,363 61,716,918 12,343,384 2036 4,966,328,511 41,370,178 8,274,036 2037 5,065,655,082 42,363,443 8,472,689 2038 5,166,968,183 43,376,574 8,675,315 2039 5,270,307,547 44,409,968 8,881,994

(1) Fiscal Year 2014-15 Assessed Valuation provided by Los Angeles County Auditor-Controller, with projected 2% annual growth thereafter. (2) Gross Tax Revenues based on 1% tax rate, and includes $210,618 of Unitary Revenues with no growth. (3) Based on 20% of Gross Tax Increment. Source: Urban Futures, Inc.; see also “APPENDIX F- Financial Advisor’s Report.”

78 The projected Pledged Tax Revenues for each Project Area, and on a combined basis for all Project Areas, are shown in the following table:

Residential CBD Fox Field Amargosa Project No. 5 Project No. 6 Project No. 7 Combined Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Fiscal Year Revenues (1) Revenues (1) Revenues (1) Revenues (1) Revenues (1) Revenues (1) Revenues (1) Revenues (1) 2014-15 $ 767,712 $217,473 $367,764 $2,788,629 $2,636,875 $4,532,387 $362,318 $11,673,160 2015-16 783,268 223,722 375,698 2,847,948 2,703,847 4,647,147 378,625 11,960,254 2016-17 799,135 230,096 383,790 2,908,452 2,772,157 4,764,202 395,258 12,253,091 2017-18 815,320 236,597 392,044 2,970,167 2,841,835 4,883,598 412,223 12,551,784 2018-19 831,828 243,228 400,464 3,033,116 2,912,905 5,005,382 429,528 12,856,451 2019-20 848,667 249,992 409,051 3,097,323 2,985,397 5,129,602 447,179 13,167,211 2020-21 865,842 256,891 417,811 3,162,815 3,059,339 5,256,306 465,183 13,484,187 2021-22 883,360 263,928 426,745 3,229,617 3,134,760 5,385,544 483,547 13,807,502 2022-23 901,229 271,106 435,858 3,297,755 3,211,689 5,517,367 502,278 14,137,283 2023-24 919,456 278,427 445,154 3,367,256 3,290,157 5,651,827 521,384 14,473,660 2024-25 938,047 285,895 454,635 3,438,147 3,370,194 5,788,975 540,872 14,816,764 2025-26 957,009 293,512 464,306 3,510,455 3,451,832 5,928,867 560,750 15,166,731 2026-27 976,351 301,281 474,170 3,584,210 3,535,103 6,071,556 581,025 15,523,697 2027-28 996,080 309,206 484,232 3,659,439 3,620,039 6,217,099 601,706 15,887,802 2028-29 1,016,204 317,289 494,495 3,736,174 3,706,673 6,365,553 622,801 16,259,189 2029-30 1,036,730 325,534 504,963 3,814,443 3,795,041 6,516,977 644,317 16,638,005 2030-31 -- 333,944 515,641 3,894,277 3,885,176 6,671,428 666,264 15,966,730 2031-32 -- 342,522 526,532 3,975,708 3,977,113 6,828,969 688,650 16,339,494 2032-33 ------4,058,768 4,070,890 6,989,660 711,483 15,830,801 2033-34 ------4,143,489 4,166,541 7,153,565 734,773 16,198,369 2034-35 ------4,264,106 7,320,749 758,529 12,343,384 2035-36 ------7,491,276 782,760 8,274,036 2036-37 ------7,665,213 807,475 8,472,689 2037-38 ------7,842,630 832,685 8,675,315 2038-39 ------8,023,594 858,399 8,881,994

(1) Pledged Tax Revenues based on Fiscal Year 2014-15 Assessed Valuation provided by Los Angeles County Auditor-Controller, with projected 2% annual growth thereafter, and calculated as 20% of Gross Tax Increment. (2) See Table 2 (Lancaster Redevelopment Project Areas, Redevelopment Plan Limitations) and related discussion under “THE PROJECT AREAS – Limitations and Requirements of the Redevelopment Plans” for the respective last date to receive property taxes specified in the Redevelopment Plan for each Project Area, as well as information concerning certain proposed legislation relating to the application of such plan limits. Source: Urban Futures, Inc.; see also “APPENDIX F- Financial Advisor’s Report.”

79 Bonds and Existing Parity Bonds Annual Debt Service

Set forth below is the annual debt service (assuming minimum sinking account payments) on the Bonds and the Existing Parity Bonds.

Combined Redevelopment Project Areas (Housing Programs) Annual Debt Service (Existing Parity Bonds and Bonds Annual Debt Service)

Bond Year Total Ending 2003 Bonds 2009 Bonds 2015A Bonds 2015B Bonds Housing Bonds (August 1 of) Debt Service Debt Service Debt Service Debt Service Debt Service 2015 $ 4,144,737.50 $ 2,251,862.50 $ 458,941.25 $ 441,218.81 $ 7,296,760.06 2016 4,147,325.00 2,254,075.00 778,425.00 749,588.76 7,929,413.76 2017 4,144,575.00 2,253,325.00 779,725.00 751,068.76 7,928,693.76 2018 4,145,275.00 2,251,075.00 780,725.00 756,031.26 7,933,106.26 2019 4,143,687.50 2,255,637.50 778,325.00 754,331.26 7,931,981.26 2020 3,941,850.00 2,141,312.50 1,120,525.00 726,681.26 7,930,368.76 2021 3,940,000.00 2,141,112.50 1,126,775.00 728,681.26 7,936,568.76 2022 3,943,100.00 2,137,300.00 1,121,025.00 729,606.26 7,931,031.26 2023 3,966,450.00 2,124,700.00 1,118,775.00 719,406.26 7,929,331.26 2024 4,088,862.50 2,400,300.00 649,775.00 793,356.26 7,932,293.76 2025 4,485,350.00 2,081,700.00 652,275.00 708,481.26 7,927,806.26 2026 4,487,375.00 2,079,375.00 648,775.00 715,612.50 7,931,137.50 2027 4,482,512.50 2,083,800.00 652,225.00 710,612.50 7,929,150.00 2028 4,485,762.50 2,079,325.00 653,225.00 712,325.00 7,930,637.50 2029 4,591,412.50 2,081,275.00 543,700.00 713,087.50 7,929,475.00 2030 4,114,237.50 2,084,000.00 1,022,500.00 712,900.00 7,933,637.50 2031 4,116,312.50 2,343,031.26 474,150.00 641,762.50 7,575,256.26 2032 4,020,550.00 2,459,031.26 474,000.00 623,000.00 7,576,581.26 2033 3,886,225.00 2,475,250.00 463,125.00 609,237.50 7,433,837.50 2034 -- 2,252,531.26 4,352,250.00 610,237.50 7,215,018.76 2035 -- 1,041,687.50 -- 3,755,287.50 4,796,975.00 2036 -- 1,761,125.00 -- -- 1,761,125.00 2037 -- 1,763,312.50 -- -- 1,763,312.50 2038 -- 1,758,968.76 -- -- 1,758,968.76 2039 -- 1,758,093.76 -- -- 1,758,093.76 Total: $79,275,600.00 $52,313,206.30 $18,649,241.25 $17,662,513.91 $167,900,561.46 ______Source: Southwest Securities, Inc.

80 Debt Service Coverage

Set forth below is the estimated debt service coverage of the Existing Parity Bonds and the Bonds using no growth Fiscal Year 2014-15 Pledged Tax Revenues through maturity.

Estimated Debt Service Coverage (No Growth Scenario)

Combined Debt Bond Year No Growth Service Ending Pledged Tax (Existing Parity Bonds Debt Service (August 1) Revenues and Bonds) Coverage (9) 2014-15 $11,673,160 $7,932,055 (8) 1.47x 2015-16 11,673,160 7,929,414 1.47x 2016-17 11,673,160 7,928,694 1.47x 2017-18 11,673,160 7,933,106 1.47x 2018-19 11,673,160 7,931,981 1.47x 2019-20 11,673,160 7,930,369 1.47x 2020-21 11,673,160 7,936,569 1.47x 2021-22 11,673,160 7,931,031 1.47x 2022-23 11,673,160 7,929,331 1.47x 2023-24 11,673,160 7,932,294 1.47x 2024-25 11,673,160 7,927,806 1.47x 2025-26 11,673,160 7,931,138 1.47x 2026-27 11,673,160 7,929,150 1.47x 2027-28 11,673,160 7,930,638 1.47x 2028-29 11,673,160 7,929,475 1.47x 2029-30 11,673,160 7,933,638 1.47x 2030-31 10,905,448 (3) 7,575,256 1.44x 2031-32 10,905,448 (4) 7,576,581 1.44x 2032-33 10,320,210 7,433,838 1.39x 2033-34 (1) 10,320,210 (5) 7,215,019 1.43x 2034-35 (2) 7,531,580 (6) 4,796,975 1.57x 2035-36 4,894,705 (7) 1,761,125 2.78x 2036-37 4,894,705 1,763,313 2.78x 2037-38 4,894,705 1,758,969 2.78x 2038-39 4,894,705 1,758,094 2.78x ______(1) Final maturity of the 2015A Bonds. (2) Final maturity of the 2015B Bonds. (3) The right to receive tax increment revenue terminates on November 13, 2030 for the Residential Project. (4) The right to receive tax increment revenue terminates on June 1, 2032 for CBD Project. (5) The right to receive tax increment revenue terminates on December 20, 2033 for the Fox Field Project. (6) The right to receive tax increment revenue terminates on October 17, 2034 for the Amargosa Project. (7) The right to receive tax increment revenue terminates on November 26, 2035 for Project No. 5. (8) Combined Debt Service for Bond Year Ending August 1, 2015 includes the February 1, 2015 payment for the 2003B Bonds ($322,205) and the 2004 Bonds ($313,089.75), respectively. (9) Excess coverage amounts are not available to the Agency unless for approved administrative amounts or other approved enforceable obligations. See “RISK FACTORS – Recognized Obligation Payment Schedule.” Source: Southwest Securities, Inc., based on Pledged Tax Revenues provided by Urban Futures, Inc.

81 Set forth below is the estimated debt service coverage of the Existing Parity Bonds and the Bonds using a 2% annual growth scenario for Fiscal Year 2014-15 Pledged Tax Revenues through maturity.

Estimated Debt Service Coverage (2% Growth Scenario) Combined Debt Bond Year Service Ending Pledged Tax (Existing Parity Bonds Debt Service (August 1) Revenues (1) and Bonds) Coverage (10) 2014-15 $11,673,160 $7,932,055 (9) 1.47x 2015-16 11,960,254 7,929,414 1.51x 2016-17 12,253,091 7,928,694 1.55x 2017-18 12,551,784 7,933,106 1.58x 2018-19 12,856,451 7,931,981 1.62x 2019-20 13,167,211 7,930,369 1.66x 2020-21 13,484,187 7,936,569 1.70x 2021-22 13,807,502 7,931,031 1.74x 2022-23 14,137,283 7,929,331 1.78x 2023-24 14,473,660 7,932,294 1.82x 2024-25 14,816,764 7,927,806 1.87x 2025-26 15,166,731 7,931,138 1.91x 2026-27 15,523,697 7,929,150 1.96x 2027-28 15,887,802 7,930,638 2.00x 2028-29 16,259,189 7,929,475 2.05x 2029-30 16,638,005 7,933,638 2.10x 2030-31 15,966,730 (4) 7,575,256 2.11x 2031-32 16,339,494 (5) 7,576,581 2.16x 2032-33 15,830,801 7,433,838 2.13x 2033-34 (2) 16,198,369 (6) 7,215,019 2.25x 2034-35 (3) 12,343,384 (7) 4,796,975 2.57x 2035-36 8,274,036 (8) 1,761,125 4.70x 2036-37 8,472,689 1,763,313 4.80x 2037-38 8,675,315 1,758,969 4.93x 2038-39 8,881,994 1,758,094 5.05x ______(1) Commencing Fiscal Year 2015-16, assumes 2% projected annual assessed valuation growth over Fiscal Year 2014-15 actual assessed valuation and projected 2% assessed valuation growth annually thereafter. See “PLEDGED TAX REVENUES – Projected Taxable Valuation and Pledged Tax Revenues.” (2) Final maturity of the 2015A Bonds. (3) Final maturity of the 2015B Bonds. (4) The right to receive tax increment revenue terminates on November 13, 2030 for the Residential Project. (5) The right to receive tax increment revenue terminates on June 1, 2032 for CBD Project. (6) The right to receive tax increment revenue terminates on December 20, 2033 for the Fox Field Project. (7) The right to receive tax increment revenue terminates on October 17, 2034 for the Amargosa Project. (8) The right to receive tax increment revenue terminates on November 26, 2035 for Project No. 5. (9) Combined Debt Service for Bond Year Ending August 1, 2015 includes the February 1, 2015 payment for the 2003B Bonds ($322,205) and the 2004 Bonds ($313,089.75), respectively. (10) Excess coverage amounts are not available to the Agency unless for approved administrative amounts or other approved enforceable obligations. See “RISK FACTORS – Recognized Obligation Payment Schedule.” Source: Southwest Securities, Inc., based on Pledged Tax Revenues provided by Urban Futures, Inc.

CONCLUDING INFORMATION

Underwriting

The 2015A Bonds have been sold at a net interest rate of 3.5809842%. The original purchase price (including the net reoffering premium in the amount of $504,389.05 and less an underwriter’s discount of $125,600.00) to be paid for the 2015A Bonds is $12,938,789.05. The 2015B Bonds have been sold at a net interest rate of 4.7328737%. The original purchase price (less the reoffering discount in the amount of $255,579.35 and less an underwriter’s discount of $120,450.00) to be paid for the 2015B Bonds is $10,573,970.65. The Underwriter intends to offer the Bonds to the public initially at the respective yields set forth on the inside cover page of this Official Statement, which yields may subsequently change without any requirement of prior notice.

The Underwriter reserves the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriter may offer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers.

Legal Opinions

The opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel (“Bond Counsel”), approving the validity of the 2015A Bonds and stating that interest on the 2015A Bonds is excluded from gross income for federal income tax purposes and such interest is also exempt from personal income taxes of the State of California under present State income tax laws, will be furnished to the purchaser at the time of delivery of the 2015A Bonds at the expense of the Agency. The opinion of Bond Counsel approving the validity of the 2015B Bonds and stating that interest on the 2015B Bonds is exempt from personal income taxes of the State of California under present State income tax laws, will be furnished to the purchaser at the time of delivery of the Bonds at the expense of the Agency. The legal opinions are only as to legality and are not intended to be nor are they to be interpreted or relied upon as a disclosure document or an express or implied recommendation as to the investment quality of the Bonds.

A copy of the proposed forms of Bond Counsel's final approving opinions with respect to the Bonds is attached hereto as APPENDIX B.

In addition, certain legal matters will be passed on by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, as Disclosure Counsel, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Agency Counsel. Certain legal matters will also be passed upon for the Underwriter by Norton Rose Fulbright US LLP, Los Angeles, California, as Underwriter’s Counsel. Payment of the fees of Bond Counsel, Disclosure Counsel and Underwriter’s Counsel is contingent upon the sale and delivery of the Bonds.

Tax Exemption

In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the 2015A Bonds is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the 2015A Bonds and the 2015B Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2015A Bonds may be included as an adjustment in the calculation of

83 alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations.

In addition, the difference between the issue price of a 2015A Bond (the first price at which a substantial amount of the 2015A Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2015A Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2015A Bondowner before receipt of cash attributable to such excludable income. The amount of original issue discount that accrues to the Owner of the 2015A Bonds is excluded from the gross income of such Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax.

Bond Counsel's opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2015A Bonds is based upon certain representations of fact and certifications made by the City, the Agency and others and is subject to the condition that the City and the Agency comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the delivery of the 2015A Bonds to assure that interest (and original issue discount) on the 2015A Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements might cause interest (and original issue discount) on the 2015A Bonds to be included in gross income for federal income tax purposes retroactive to the date of delivery of the 2015A Bonds. The Agency has covenanted to comply with all such requirements. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring after the date of delivery of the 2015A Bonds may affect the tax status of the interest on the 2015A Bonds.

Bond Counsel's opinion may be affected by action taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions taken or events are taken or do occur. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2015A Bonds is excluded from gross income for income tax purposes provided that the Agency continues to comply with certain requirements of the Code, the ownership of and the accrual or receipt of interest (and original issue discount) with respect to the Bonds may otherwise affect the tax liability of the recipient. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the Bonds.

Verification

Grant Thornton LLP, Minneapolis, Minnesota, independent public accountants, upon delivery of the Bonds, will deliver a report verifying the mathematical accuracy of certain computations contained in schedules provided to them relating to the sufficiency of monies deposited into the Escrow Funds to pay, when due, respectively, (i) the principal and interest on the 2003B Bonds to be refunded, and (ii) the principal and interest on the 2004 Bonds to be refunded.

The report of Grant Thornton LLP will include the statement that the scope of its engagement is limited to verifying the mathematical accuracy of the computations contained in such schedules provided to it, and that it has no obligation to update its report because of events occurring, or data or information coming to its attention, subsequent to the date of its report.

84 No Litigation

There is no action, suit or proceeding known to the Agency to be pending and notice of which has been served upon and received by the Agency, or threatened, restraining or enjoining the execution or delivery of the Bonds or the Indenture or in any way contesting or affecting the validity of the foregoing or any proceedings of the Agency taken with respect to any of the foregoing.

Legality for Investment in California

The Redevelopment Law provides that obligations authorized and issued under the Redevelopment Law will be legal investments for all banks, trust companies and savings banks, insurance companies, and various other financial institutions, as well as for trust funds. The Bonds are also authorized security for public deposits under the Redevelopment Law. Section 34177.5 of the Dissolution Act provides that any bonds authorized under such section (including the Bonds) shall be considered indebtedness incurred by the Prior Agency, with the same legal effect as if the bonds has been issued prior to June 29, 2011, in full conformity with the applicable provisions of the Redevelopment Law that existed prior to that date.

The Superintendent of Banks of the State of California has previously ruled that obligations of a redevelopment agency are eligible for savings bank investment in California.

Ratings

In connection with the issuance and delivery of the Bonds, Standard & Poor's Ratings Group (“Standard & Poor’s”) is expected to assign their municipal bond rating of “AA” (Stable Outlook) to the 2015A Bonds and the 2015B Bonds with the understanding that, upon delivery of such Bonds, the Insurance Policy insuring the payment when due of the principal of and interest on the Bonds will be issued by BAM. Standard & Poor’s has assigned their underlying municipal rating of “BBB” the 2015A Bonds and the 2015B Bonds.

These ratings reflect the view of Standard & Poor's as to the credit quality of the Bonds. The ratings reflect only the view of Standard & Poor's, and explanation of the significance of the ratings may be obtained from Standard & Poor's Ratings Group, 55 Water Street, New York, New York 10041 (212) 512-3108. There is no assurance that the ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by Standard & Poor's, if in the judgment of Standard & Poor's, circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the marketability or market price of the Bonds.

Continuing Disclosure

Pursuant to a Continuing Disclosure Agreement among the Agency, Urban Futures, Inc., as Dissemination Agent (the “Dissemination Agent”), and U.S. Bank National Association as trustee (the “Disclosure Agreement”), the Agency has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board (“MSRB”) certain annual financial information and operating data, including its postaudit of the financial transactions and records of the Agency for the applicable fiscal year pursuant to Section 34177(n) of the Dissolution Act and information of the type set forth in this Official Statement under the heading “PLEDGED TAX REVENUES – Schedule of Historical Incremental Revenues.” See “APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT” for additional information. In addition, the Agency has agreed to provide, or cause to be provided, to the MSRB in a timely manner, not in excess of ten business days after the occurrence of any such event, notice of the following “Listed Events”: (1) principal and interest payment delinquencies; (2)

85 non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) 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; (7) modifications to rights of security holders, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the Obligated Person (as defined in “APPENDIX D – Form of Continuing Disclosure Agreement”); (13) the consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the 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; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. These covenants have been made in order to assist the Underwriter in complying with SEC Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission.

The Agency may amend the Disclosure Agreement, and waive any provision thereof, by written agreement of the parties, without the consent of the Owners, if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the Agency or the type of business conducted thereby; (2) the Disclosure Agreement as so amended would, in the opinion of nationally recognized bond counsel, have complied with the requirements of Rule 15c2-12 as of the date of the Disclosure Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (3) the proposed amendment or waiver either (i) is approved by Owners in the manner provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners.

In addition, the Agency's obligations under the Disclosure Agreement shall terminate upon the defeasance or payment in full of all of the Bonds. The provisions of the Disclosure Agreement are intended to be for the benefit of the Owners and shall be enforceable by the Trustee on behalf of such Owners, provided that any enforcement action by any such person shall be limited to a right to obtain specific enforcement of the Agency's obligations under the Disclosure Agreement and any failure by the Agency to comply with the provisions thereof shall not be an event of default under the Indenture. See “APPENDIX D – FORM OF CONTINUING DISCLOSURE AGREEMENT.”

Presentation of Agency Financial Statements Subsequent to Statutory Dissolution

As previously described herein, the Prior Agency was statutorily dissolved on February 1, 2012, and the Agency commenced operations as of the same date. Therefore, the Prior Agency operated for only seven months in fiscal year ended June 30, 2012, and the Agency operated for the last five months of fiscal year ended June 30, 2012. The final seven months of activity of the Prior Agency prior to its February 1, 2012 dissolution were reported in the governmental funds of the City in the Comprehensive Annual Financial Report for the fiscal year ended June 30, 2012.

In accordance with accounting principles generally accepted in the United States of America which provide guidance for determining which governmental activities, organizations and functions should be included in the reporting entity, the Comprehensive Annual Financial Report presents

86 information on the activities of the reporting entity, which includes the City (the primary government) and related but separate legal entities such as the Lancaster Financing Authority, the Prior Agency, the Agency, and the Lancaster Housing Authority. Such accounting presentation, however, does not change the separate legal status of the entities. With regard to the Agency in particular, as set forth in Section 34173(g) of the Dissolution Act, “A successor agency is a separate public entity from the public agency that provides for its governance and the two entities shall not merge.”

Commencing with the Comprehensive Annual Financial Report (i.e., audited financial statements) of the City for the fiscal year ended June 30, 2012, the activities of the Agency are reported as a fiduciary trust fund as part of the City’s Comprehensive Annual Financial Report, which is in accordance with guidance issued by the State Department of Finance on September 19, 2012 and available on its website as of March 3, 2015, interpreting Section 34177(n) of the California Health and Safety Code concerning certain successor agency postaudit obligations.

Pursuant to the Dissolution Act, the housing assets, housing obligations, and housing activities of the Prior Agency have been transferred to the Lancaster Housing Authority after the dissolution date and, commencing in fiscal year ended June 30, 2012, are reported in a special fund (the Housing Authority Special Revenue Fund) in the City’s Comprehensive Annual Financial Report.

See “APPENDIX E – Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2014,” and in particular Notes 14 and 15 therein regarding “Changes in Legislation Affecting California Redevelopment Agencies” and “Successor Agency Disclosures,” respectively.

The State Department of Finance’s website is not in any way incorporated into this Official Statement, and the Agency and the Underwriter cannot take any responsibility for, nor make any representation whatsoever as to, the continued accuracy of the Internet address or the accuracy, completeness, or timeliness of information posted there. In addition, from time to time, the State Department of Finance changes its guidance without notice.

Continuing Disclosure History

The Prior Agency previously entered into continuing disclosure agreements with respect to fourteen issues of tax allocation bonds and one lease revenue bond issue which have been outstanding within the past five years (the “Prior Continuing Disclosure Agreements”). Twelve of the Prior Continuing Disclosure Agreements include a January 31 filing date for the annual reports described therein, and three of the Prior Continuing Disclosure Agreements include a December 31 filing date for the annual reports described therein. The annual reports required under each of the Prior Continuing Disclosure Agreements consist of two components: (i) updates as to certain information presented in the official statements with respect to the respective bond issue (the “Updated Operating and Financial Data”), and (ii) annual financial statements.

Pursuant to the Prior Continuing Disclosure Agreements, the Prior Agency and the Agency have timely filed the portion of the annual reports comprised of the Updated Operating and Financial Data for each of the last five years, with one minor exception. The Updated Operating and Financial Data due December 31, 2012 for three of the Prior Continuing Disclosure Agreements was filed one day late, on January 1, 2013.

The portions of the annual reports comprised of the Updated Operating and Financial Data for the past five years were substantially complete, in that information was provided with respect to each category of information specified by the respective Prior Continuing Disclosure Agreements. However, based on a detailed review conducted by the Dissemination Agent in November 2014 of the Prior Agency

87 and Agency’s compliance with the Prior Continuing Disclosure Agreements for the prior five years, the Agency discovered that certain of the Updated Operating and Financial Data deviated in presentation format or did not satisfy the technical details within each category of information required by the Prior Continuing Disclosure Agreements. For instance, some of the bonds subject to the Prior Continuing Disclosure Agreements were secured by loan payments from several loan agreements, each pertaining to a separate project area, and the applicable Continuing Disclosure Agreement specified that reserve account balances and the reserve requirement with respect to each loan be provided; however, the Updated Operating and Financial Data only included the aggregate reserve account balance and aggregate reserve requirement with respect to the bonds, and not the components loans contributing to the bonds. As another example, some of the Prior Continuing Disclosure Agreements required a summary of tax increment levies, collections and delinquencies in each of the Project Areas, but the delinquency information was omitted from such summaries in earlier years within the five-year review period. On March 2, 2015, updates to the prior annual reports commencing 2008-09 through 2013-14 were filed with the MRSB to correct such prior disclosure issues concerning Updated Operating and Financial Data under the Prior Continuing Disclosure Agreements, regardless of whether such disclosure issues might be considered immaterial or not in view of the balance of the information provided.

As to the portion of the annual reports consisting of annual financial statements, there were certain failures in complying with the Prior Continuing Disclosure Agreements within the past five years. With respect to the eleven issues of tax allocation bonds with filing dates of January 31, the financial statements were timely filed for the past two years (i.e., by January 31, 2015 and by January 31, 2014), but in prior years (due January 31, 2010 through January 31, 2013), the financial statements were filed late, ranging from 7 days to 74 days after the January 31 deadline. With respect to the three issues of tax allocation bonds with filing dates of December 31, the financial statements timely filed for the past year (i.e., by December 31, 2014), but in prior years (due December 31, 2010 through December 31, 2013), the financial statements were filed late, ranging from 31 days to 98 days after the December 31 deadline. Also, with respect to the lease revenue bond issue, the Prior Agency as issuer and the City as underlying obligor were both responsible for causing the City’s financial statements to be filed by January 31 annually, but the Dissemination Agent inadvertently filed the Prior Agency’s financial statements for fiscal years ended June 30, 2010 and June 30, 2011 instead of the City’s financial statements; on March 2, 2015, the City’s financial statements, which had been filed with the MSRB with respect to other City bonds, were also linked to the lease revenue bonds to remedy this error. The financial statements for fiscal year ended June 30, 2012 involved complications in preparation due to the dissolution of the Prior Agency in such year and therefore were not completed by the Agency until January 30, 2013. Otherwise, the late financial statements filings were due in large part to lapses and coordination issues at the Dissemination Agent, which the Dissemination Agent has addressed by instituting new procedures and changes in its operational practices to be more proactive with clients in preparing and obtaining the various items required for continuing disclosure, including financial statements. These changes at the Dissemination Agent have resulted in the timely filings for the most recent years.

Finally, under the Prior Continuing Disclosure Agreements, the Prior Agency also covenanted to provide notice of certain listed events, if material. Because all of the Prior Continuing Disclosure Agreements were entered into prior to the December 1, 2010 effective date of certain amendments to SEC Rule 15c2-12, the Prior Continuing Disclosure Agreements do not include a time frame within which a notice of listed event must be filed. Through the detailed review conducted by the Dissemination Agent in November 2014 of the Prior Agency and Agency’s compliance with the Prior Continuing Disclosure Agreements for the prior five years, the Agency discovered that notices has not been filed with respect to certain rating changes – mostly with respect to changes in the ratings of bond insurers insuring certain of the applicable bond issues. On March 2, 2015, a notice was filed with the MSRB presenting tables of historical ratings changes for the bonds subject to the Prior Continuing Disclosure Agreements, to fill any

88 gaps that had occurred in disclosures regarding these rating changes, regardless of whether such rating changes might be considered immaterial or not in view of the circumstances under which they occurred.

As described above, the Dissemination Agent has instituted new procedures and changes in its operational practices to assure future compliance and coordination with the Agency for complete and timely continuing disclosure filings. In addition, in cooperation with the Dissemination Agent, the City’s Finance Department adopted in March 2015 an internal continuing disclosure policy relating to the City and all related entities, including the Agency, to assist compliance with the continuing disclosure undertakings of the City, the Agency, and other related entities of the Ctiy. Therefore, the Agency believes that its procedures with the Dissemination Agent will be sufficient in the normal due course to assure substantial compliance with its continuing disclosure undertakings in the future.

A failure by the Agency to comply with the provisions of the Disclosure Agreement is not an event of default under the Indenture (although the holders and beneficial owners of the Bonds do have remedies at law and in equity). However, a failure to comply with the provisions of the Disclosure Agreement must be reported in accordance with the SEC Rule 15c2-12(b)(5) and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds. Therefore, a failure by the Agency to comply with the provisions of the Disclosure Agreement may adversely affect the marketability of the Bonds on the secondary market.

Miscellaneous

All of the preceding summaries of the Indenture, the Bond Law, the Dissolution Act, the Redevelopment Law, other applicable legislation, the Redevelopment Plans for the Project Areas, agreements 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 Agency for further information in connection therewith.

This Official Statement does not constitute a contract with the purchasers of the Bonds. 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.

The execution and delivery of this Official Statement by its Executive Director has been duly authorized by the Agency.

SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY

By: /s/ Mark V. Bozigian Executive Director

89 SUPPLEMENTAL INFORMATION THE CITY OF LANCASTER AND THE COUNTY OF LOS ANGELES

The following information concerning the City and surrounding areas are included only for the purpose of supplying general information regarding the community. The Bonds are not a debt of the City, the State, or any of its political subdivisions and neither said City, said State, nor any of its political subdivisions is liable therefor. See the section in the forepart of this Official Statement entitled “SECURITY FOR THE BONDS.”

General

The City of Lancaster (the “City”) is located in the County of Los Angeles (the “County”) approximately 60 miles northeast of the City of Los Angeles in the southwest portion of the Antelope Valley between the City of Palmdale and Edwards Air Force Base. The City was incorporated on November 22, 1977 as a general law city. On April 13, 2010, the qualified electors within the City voted to convert the City to a charter city. The City maintains a council-manager form of government. The mayor and city council are elected at large for staggered four-year terms.

The City is at an elevation of 2,356 feet and experiences a dry climate. The average annual rainfall is 7.36 inches per year and the average temperature is 62 degrees.

The City provides a broad range of services, including highway, street, drainage, sewer, and infrastructure construction and maintenance; planning and zoning; and parks, recreation and cultural activities. Sheriff’s and animal control services are provided under contract with the County, whereas fire protection, water, sanitation, school, and library are funded by special districts not under City control.

Population

The population of the City as of January 1, 2014 was estimated to be 159,878. The following table lists population figures for the City, the County and the State as of January 1 for the last ten years.

CITY OF LANCASTER AND COUNTY OF LOS ANGELES Population Estimates Calendar Years 2005 through 2014 (1)

Calendar City of County of State of Year Lancaster Los Angeles California 2005 132,865 10,158,409 36,676,931 2006 137,083 10,209,201 37,086,191 2007 141,737 10,243,764 37,472,074 2008 143,512 10,301,658 37,883,992 2009 145,074 10,393,185 38,292,687 2010 156,633 9,818,605 37,253,956 2011 157,632 9,847,712 37,427,946 2012 157,904 9,889,467 37,668,804 2013 158,722 9,963,811 37,984,138 2014 159,878 10,041,797 38,340,074 ______(1) Estimated by the California Department of Finance, Demographic Research Unit, as of January 1 of each year, except 2010, which is Census Benchmark as of April 1, 2010.

90 Employment

According to the State of California Employment Development Department, the 2013 annual estimated unemployment rate for the City was 13.9 percent, and that for the County was 9.9 percent. The following table shows certain employment statistics for the City and the County for calendar years 2003 through 2013.

CITY OF LANCASTER City and County Employment Statistics Calendar Years 2003 through 2013 (1)

City County State Labor Unemployment Unemployment Unemployment Year Force Employed Rate Rate Rate 2003 53,800 48,400 10.0% 7.0% 6.8% 2004 53,700 48,700 9.3 6.5 6.2 2005 54,000 49,800 7.7 5.3 5.4 2006 54,200 50,500 6.9 4.8 4.9 2007 55,000 51,000 7.3 5.1 5.4 2008 56,300 50,300 10.7 7.5 7.2 2009 56,600 47,500 16.2 11.6 11.3 2010 57,000 47,000 17.5 12.6 12.4 2011 57,200 47,400 17.1 12.3 11.8 2012 56,400 47,800 15.3 10.9 10.4 2013 (2) 56,800 48,900 13.9 9.9 8.9 (1) Not seasonally adjusted. Figures represent the 12-month average for each such. (2) Most recent year for which annual information is available. Source: State of California, Employment Development Department.

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91 The City serves as a primary commercial center of the Antelope Valley, which covers 3,514.2 square miles of area and includes the City and the cities of Palmdale, Tehachapi, and Ridgecrest. The table below lists the ten largest employers in the Antelope Valley area for 2014. Major private employers in the area include those in the military, health care, and retail industries. Major public sector employers include the County and local school districts.

ANTELOPE VALLEY AREA MAJOR EMPLOYERS Percentage of Total Name of Company Employees Valley Employment 1. Edwards Air Force Base 10,647 15.75% 2. China Lake Navel Weapons Center 9,172 13.57 3. County of Los Angeles 3,743 5.54 4. Northrop Grumman 2,772 4.10 5. Lockheed Martin 2,712 4.01 6. Antelope Valley Union High School District 2,689 3.98 7. Palmdale School District 2,682 3.97 8. Antelope Valley Hospital 2,300 3.40 9. Wal Mart Stores (5) 1,922 2.84 10. California Correctional Institute 1,915 2.83 Total 40,554 59.99%

Total Antelope Valley Employment 67,601 100.00% ______Source: City of Lancaster Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2014.

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92 The following table summarizes the civilian labor force in the County for the calendar years 2009 through 2013. These figures are countywide statistics and may not necessarily accurately reflect employment trends in the City.

LOS ANGELES COUNTY Annual Average Industrial Employment (1) Calendar Years 2009-2013

2009 2010 2011 2012 2013(3)

Total Farm 6,200 6,200 5,600 5,400 5,500 Mining and Logging 4,100 4,100 4,000 4,300 4,600 Construction 117,300 104,500 105,000 109,100 116,500 Manufacturing 389,200 373,200 366,800 367,200 366,500 Trade, Transportation and Utilities 742,600 739,900 749,900 766,600 780,700 Information 191,200 191,500 191,900 191,400 197,300 Financial Activities 216,000 209,500 208,400 210,700 211,800 Professional and Business Services 529,800 527,500 542,900 570,000 590,300 Educational and Health Services 639,900 637,200 643,100 674,100 713,400 Leisure and Hospitality 385,500 384,800 394,600 415,300 436,700 Other Services 137,900 136,700 136,900 141,600 145,500 Government 595,900 579,600 565,500 556,800 549,200 Total All Industries(1) 3,955,600 3,894,600 3,914,600 4,012,300 4,118,000

Total Civilian Labor Force(2) 4,907,600 4,916,300 4,936,400 4,901,300 4,960,300 Total Unemployment 568,300 617,900 604,900 535,500 489,600 Unemployment Rate 11.6% 12.6% 12.3 10.9% 9.9% ______(1) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers and workers on strike. (2) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers and workers on strike. (3) Most recent year for which annual information is available. Source: California Employment Development Department, Labor Market Information Division.

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93 Construction Activity

The table below summarizes residential construction activity in Lancaster for both single-family and attached living units during the last five calendar years.

CITY OF LANCASTER Residential Building Permits and Valuation, 2008-2013

2008 2009 2010 2011 2012 2013(1) Residential New Single-Dwelling $42,822,515 $36,510,555 $58,272,395 $42,076,014 $47,741,219 $47,326,884 New Multi-Dwelling 8,789,177 10,440,777 0 0 0 0 Total Residential $51,611,692 $46,951,332 $58,272,395 $42,079,014 $47,741,219 $47,326,884

No. of New Dwelling Units Single-Dwelling 296 187 277 175 192 177 Multi-Dwelling 144 80 0 0 0 0 Total Units 440 267 277 175 192 177 ______(1) Most recent annual information available. Source: U.S. Census Bureau.

Commercial Activity

The following table summarizes the annual volume of taxable transactions within the City for calendar years 2009 through 2012.

CITY OF LANCASTER Taxable Transactions Calendar Years 2009 through 2012 (in Thousands of Dollars) 2009 (1) 2010 2011 2012 (2) Retail and Food Services Motor Vehicle and Parts Dealers $ 168,793 $ 166,140 $ 226,895 $ 266,905 Home Furnishings and Appliance Stores 20,184 17,116 16,110 16,442 Bldg. Matrl. and Garden Equip. and Supplies 74,856 71,768 76,981 79,791 Food and Beverage Stores 66,131 63,096 64,123 67,154 Gasoline Stations 118,640 140,330 197,750 214,647 Clothing and Clothing Accessories Stores 32,872 33,579 35,643 36,747 General Merchandise Stores 265,693 275,453 280,122 287,678 Food Services and Drinking Places 139,544 144,335 149,233 156,248 Other Retail Group 89,376 86,729 89,160 88,161 Subtotal (Retail and Food Services) $ 976,089 $ 998,547 $1,136,017 $1,213,772 All Other Outlets 314,925 315,548 336,774 350,112 All Outlets $1,291,013 $1,314,095 $1,472,791 $1,563,884 ______(1) Earliest year for which present business codes used by the California State Board of Equalization (“BOE”) are available. The BOE changed its reporting to convert business codes of sales and use tax permit holders to North American Industry Classification System (NAICS) codes. As a result of the coding change, industry-level data for 2009 and later are not comparable to industry-level date for 2008 and prior years. (2) Most recent annual information available. Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

94 Statement of Direct and Overlapping Bonded Indebtedness

The City's direct and overlapping bonded indebtedness is summarized as follows:

CITY OF LANCASTER Statement of Direct and Overlapping Bonded Indebtedness

2014-15 Assessed Valuation: $9,464,083,477

OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 1/1/15 Antelope Valley Joint Community College District 33.590% $ 42,703,068 Antelope Valley Union High School District 38.310 28,429,802 Eastside Union School District 61.833 5,104,765 Lancaster School District 96.973 44,922,007 Westside Union School District 28.857 20,232,192 Westside Union School District Community Facilities Districts 100. 19,825,000 City of Lancaster Community Facilities Districts 100. 7,088,890 City of Lancaster 1915 Act Bonds 100. 2,265,000 Los Angeles County Regional Park and Open Space Assessment District 0.788 653,094 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $171,223,818

DIRECT AND OVERLAPPING GENERAL FUND DEBT: Los Angeles County General Fund Obligations 0.788% $13,768,254 Los Angeles County Superintendent of Schools Certificates of Participation 0.788 68,707 Antelope Valley Joint Community College District Certificates of Participation 33.590 2,786,291 Eastside Union School District Certificates of Participation 61.833 4,328,310 Lancaster School District Certificates of Participation 96.973 7,777,235 Los Angeles County Sanitation District No. 14 Certificates of Participation 76.004 2,012,654 City of Lancaster Power Authority Revenue Bonds 100. 24,850,000 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND DEBT $55,591,451 Less: Los Angeles County General Fund Obligations supported by landfill revenues 39,678 Lancaster Power Authority Revenue Bonds supported by solar utility revenues 24,850,000 TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT $30,701,773

OVERLAPPING TAX INCREMENT DEBT (Successor Agency): City of Lancaster Tax Allocation Bonds 100. % $222,214,997 (1) City of Lancaster Lease Revenue Bonds 100. 4,945,000 TOTAL OVERLAPPING TAX INCREMENT DEBT $227,159,997

GROSS COMBINED TOTAL DEBT $453,975,266 (2) NET COMBINED TOTAL DEBT $429,085,588

(1) Excludes refunding tax allocation bonds to be sold. (2) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and non-bonded capital lease obligations. Qualified Zone Academy bonds are included based on principal due at maturity.

Ratios to 2014-15 Assessed Valuation: Total Overlapping Tax and Assessment Debt ...... 1.81% Total Gross Direct Debt ($24,850,000)...... 0.26% Total Net Direct Debt...... 0.00% Gross Combined Total Debt...... 4.80% Net Combined Total Debt ...... 4.53%

Ratios to Redevelopment Successor Agency Incremental Valuation ($5,816,896,229): Total Overlapping Tax Increment Debt...... 3.91% ______Source: California Municipal Statistics.

95 (This Page Left Intentionally Blank) APPENDIX A

Definitions

The following are definitions of certain terms used in this Official Statement or the Indenture.

Additional Parity Bonds means any additional tax allocation bonds (including, without limitation, bonds, notes, interim certificates, debentures or other obligations) issued by the Agency on a parity with the Bonds and the Existing Parity Bonds, as permitted by the Indenture.

Agency means the Successor Agency to the Lancaster Redevelopment Agency.

Annual Debt Service means, for any Bond Year, the principal and interest, including scheduled sinking fund payments, payable on the Outstanding Bonds in such Bond Year.

BAM Reimbursement Amounts means, collectively, all amounts paid by BAM under the Insurance Policy and interest thereon from the date paid by BAM until payment thereof in full by the Agency at the interest rate specified in the Indenture, compounded semi-annually.

Bond Counsel means Stradling Yocca Carlson & Rauth, a Professional Corporation, an attorney or firm of attorneys acceptable to the Agency of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions.

Bond Law or Act means Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code.

Bond Year means the twelve (12) month period commencing on August 2 of each year, provided that the first Bond Year shall extend from the Delivery Date to August 1, 2015.

Bondowner or Owner or any similar term, means any person who shall be the registered owner or his duly authorized attorney, trustee or representative of any Outstanding Bond.

Bonds means, collectively, the 2015A Bonds and the 2015B Bonds, authorized by and at any time Outstanding pursuant to the Indenture.

Business Day means any day other than (i) a Saturday or Sunday or legal holiday or a day on which banking institutions in the city in which the Trust Office of the Trustee is located are authorized to close, or (ii) a day on which the New York Stock Exchange is closed.

Cede & Co. means the nominee of DTC, and any successor nominee of DTC with respect to the Bonds.

Certificate or Certificate of the Agency means a certificate signed by the Executive Director, Secretary, or Finance Director of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose.

Chairman or Chair means chairman of the Agency or other duly appointed officer of the Agency authorized by the Agency by resolution or bylaw to perform the functions of the chairman in the event of the chairman’s absence or disqualification.

A-1 City means the City of Lancaster, California.

Code means the Internal Revenue Code of 1986, as amended and any regulations, rulings, judicial decisions, and notices, announcements and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it.

Continuing Disclosure Agreement means that certain Continuing Disclosure Agreement by and among the Agency, U.S. Bank National Association, as trustee, and Urban Futures, Inc., as dissemination agent, dated the Delivery Date as originally executed and as it may be amended from time to time in accordance with the terms thereof.

Costs of Issuance means the costs and expenses incurred in connection with the issuance and sale of the Bonds including the initial fees and expenses of the Trustee, rating agency fees, legal fees and expenses, costs of printing the Bonds and Official Statement, fees of financial consultants and other fees and expenses set forth in a Written Certificate of the Agency.

Defeasance Obligations means non-callable, direct obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, or as otherwise maybe authorized under State law and approved by BAM.

Defeasance Securities means (1) cash, (2) non-callable direct obligations of the United States of America (“Treasuries”), (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (4) subject to the prior written consent of the Insurer, pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody’s, respectively, or (5) subject to the prior written consent of the Insurer, securities eligible for “AAA” defeasance under then existing criteria of S & P or any combination, unless the Insurer otherwise approves.

Delivery Date means the date on which the Bonds are delivered to the initial purchaser thereof.

Dissolution Act means Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State of California.

Depository means (a) initially, DTC, and (b) any other Securities Depository acting as Depository under the Indenture.

Depository System Participant means any participant in the Depository's book-entry system.

DTC means The Depository Trust Company, New York, New York, and it successors and assigns.

Existing Parity Bonds means, collectively, the 2003 Bonds, the 2009 Bonds, and any refunding bonds or obligations issued therefor.

Existing Parity Bonds Indentures means, collectively, the 2003 Indenture and the 2009 Indenture.

Escrow Agreements means, collectively, (i) that certain 2003B Bonds Escrow Agreement, dated as of March 1, 2015, by and between the Agency and U.S. Bank National Association, as escrow bank,

A-2 and (ii) that certain 2004 Bonds Escrow Agreement, dated as of March 1, 2015, by and between the Agency and U.S. Bank National Association, as escrow bank.

Escrow Bank means U.S. Bank National Association, Los Angeles, California, as escrow bank under the Escrow Agreements.

Escrow Funds means, collectively, the 2003B Bonds Escrow Fund and the 2004 Bonds Escrow Fund established under the Escrow Agreements.

Fiscal Year means any twelve (12) month period beginning on July 1st and ending on the next following June 30th.

Fund or Account means any of the funds or accounts referred to in the Indenture.

Housing Set-Aside Amount means that portion of the tax increment revenues required to be set aside and deposited in the Housing Fund by Section 33334.2 of the Prior Law.

Indenture means that certain Indenture of Trust dated as of March 1, 2015, between the Agency and U.S. Bank National Association, approved by Resolution No. SA 09-14, adopted by the Agency on October 28, 2014, and Resolution No. OB 22-14, adopted by the Oversight Board on October 29, 2014, authorizing the issuance of the Bonds.

Independent Financial Consultant, Independent Engineer, Independent Certified Public Accountant or Independent Redevelopment Consultant means any individual or firm engaged in the profession involved, appointed by the Agency, and who, or each of whom, has a favorable reputation in the field in which his/her opinion or certificate will be given, and:

(1) is in fact independent and not under domination of the Agency;

(2) does not have any substantial interest, direct or indirect, with the Agency other than as Original Purchaser of the Bonds; and

(3) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

Information Services means the Electronic Municipal Market Access System (referred to as “EMMA”), a facility of the Municipal Securities Rulemaking Board, at www.emma.msrb.org; provided, however, in accordance with then current guidelines of the Securities and Exchange Commission, Information Services shall mean such other organizations providing information with respect to ongoing disclosures by municipal issuers as the Agency may designate in writing to the Trustee.

Insurance Policy means the insurance policy issued by the Insurer guaranteeing the scheduled payment of principal of and interest on the Bonds when due.

Insurer means Build America Mutual Assurance Company, or any successor thereto.

Interest Payment Date means February 1 and August 1, commencing August 1, 2015 so long as any of the Bonds remain Outstanding under the Indenture.

Low and Moderate Income Housing Fund means the Low and Moderate Income Housing Fund established pursuant to Section 33334.2 and 33334.3 of the Redevelopment Law.

A-3 Maximum Annual Debt Service means the largest of the sums obtained for any Bond Year after the computation is made, by totaling the following for each such Bond Year:

(1) The principal amount of all Bonds and Parity Bonds, if any, and the amount of any sinking account payments payable in such Bond Year; and

(2) The interest which would be due during such Bond Year on the aggregate principal amount of Bonds and Parity Bonds which would be outstanding in such Bond Year if the Bonds and Parity Bonds outstanding on the date of such computation were to mature or be redeemed in accordance with the maturity schedules for the Bonds and Parity Bonds. At the time and for the purpose of making such computation, the amount of term Bonds and term Parity Bonds already retired in advance of the above-mentioned schedules shall be deducted pro rata from the remaining amounts thereon.

Opinion of Counsel means a written opinion of an attorney or firm of attorneys of favorable reputation in the field of municipal bond law. Any opinion of such counsel may be based upon, insofar as it is related to factual matters, information which is in the possession of the Agency as shown by a certificate or opinion of, or representation by, an officer or officers of the Agency, unless such counsel knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which his or her opinion may be based, as aforesaid, is erroneous.

Original Purchaser means Southwest Securities Inc., as original purchaser of the Bonds.

Outstanding, when used as of any particular time with reference to Bonds, means, subject to the provisions of the Indenture, all Bonds except:

(a) Bonds canceled by the Trustee or surrendered to the Trustee for cancellation;

(b) Bonds paid or deemed to have been paid pursuant to the Indenture; and

(c) Bonds in lieu of or in substitution for which other Bonds have been authorized, executed, issued and delivered by the Agency pursuant to the Indenture or any Supplemental Indenture.

Oversight Board means the oversight board duly constituted from time to time pursuant to Section 34179 of the Dissolution Act.

Owner means, when used with reference to a Bond, the person in whose name the ownership of such Bond shall be registered on the Registration Books.

Parity Bonds means the Existing Parity Bonds and any Additional Parity Bonds.

Participants means those broker-dealers, banks and other financial institutions from time to time for which DTC holds the Bonds as securities depository.

Participating Underwriter shall have the meaning ascribed thereto in the Continuing Disclosure Agreement.

Pass-Through Agreements means those certain agreements entered into by the Prior Agency pursuant to former Section 33401 of the Redevelopment Law to make payments to school districts and

A-4 other taxing agencies to alleviate any financial burden or detriments to such taxing agencies caused by a Redevelopment Project.

Permitted Investments means, with respect to the Bonds, any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein:

(a) For all purposes, including defeasance investments in refunding escrow accounts.

(1) Defeasance Securities

(b) For all purposes other than defeasance investments in refunding escrow accounts:

(1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including:

- Export-Import Bank

- Rural Economic Community Development Administration

- U.S. Maritime Administration

- Small Business Administration

- U.S. Department of Housing & Urban Development (PHAs)

- Federal Housing Administration

- Federal Financing Bank

(2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:

- Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC).

- Obligations of the Resolution Funding Corporation (REFCORP)

- Senior debt obligations of the Federal Home Loan Bank System

- Senior debt obligations of other Government Sponsored Agencies

(3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks, which may include the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody's and “A- 1” or “A-1+” by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank);

A-5 (4) Commercial paper which is rated at the time of purchase in the single highest classification, “P-1” by Moody's and “A-1+” by S&P and which matures not more than 270 calendar days after the date of purchase;

(5) Investments in a money market fund, including those of an affiliate of the Trustee, rated “AAAm” or “AAAm-G” or better by S&P;

(6) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice;

(A) which are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of Moody's or S&P or any successors thereto; or

(B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (2) of the definition of Defeasance Securities, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;

(7) Municipal Obligations rated “Aaa/AAA” or general obligations of States with a rating of “A2/A” or higher by both Moody's and S&P.

(8) Investment Agreements with an entity rated “A” or higher by S&P; and

(9) The Local Agency Investment Fund of the State or any state administered pooled investment fund in which the Agency is statutorily permitted or required to invest will be deemed a permitted investment.

(1) For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include but are not limited to pricing services provided by Financial Times Interactive Data Corporation, and Bank of America Merrill Lynch.

A-6 (2) As to certificates of deposit and bankers' acceptances: the face amount thereof, plus. accrued interest thereon; and

(3) As to any investment not specified above: the value thereof established by prior agreement among the Agency and the Trustee.

Plan Limits means the limitations contained in the Redevelopment Plan on the number of dollars of taxes which may be divided and allocated to the Agency, the time limit on plan effectiveness, and the time to receive such taxes pursuant to the Redevelopment Plan, as such limitations are prescribed by Sections 33333.4 and 33333.6 of the Redevelopment Law.

Pledged Tax Revenues means the portion of the monies deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to subdivision (c) of Section 34172 of the Dissolution Act, as provided in paragraph (2) of subdivision (a) of Section 34183 of the Dissolution Act. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include the portion of tax revenues allocated to the payment of indebtedness pursuant to Health & Safety Code Section 33670 that is required to be deposited in the Housing Fund pursuant to Section 33334.2 of the Prior Law or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution. In the event of a shortfall in moneys on deposit in the Redevelopment Property Tax Trust Fund to pay annual debt service on all Outstanding Bonds, 2003 Bonds, 2009 Bonds and any Outstanding obligations of the Agency or the Prior Agency secured by a pledge of tax revenues and payable from moneys deposited in the Redevelopment Property Tax Trust Fund, Pledged Tax Revenues to pay the Bonds will be limited to twenty percent (20%) of gross tax revenues as determined pursuant to the Prior Law, as authorized by paragraph (a)(1) of Section 34177.5 of the Dissolution Act.

Prior Agency or Lancaster Redevelopment Agency means the Lancaster Redevelopment Agency.

Prior Law means the Redevelopment Law, as in effect prior to enactment on June 29, 2011 of Assembly Bill No. 26 as Chapter 5, Statutes of 2011.

Policy Costs means, collectively, repayment of draws on the Reserve Policy and payment of expenses and accrued interest thereon at the interest rate specified in the Indenture.

Project Area, Redevelopment Project Area, or Redevelopment Project means the project area defined and described in the Redevelopment Plan as amended from time to time.

Recognized Obligation Payment Schedule or ROPS means a Recognized Obligation Payment Schedule, each prepared and approved from time to time pursuant to subdivision (l) of Section 34177 of the Dissolution Act.

Redevelopment Law or Law means the Community Redevelopment Law of the State of California (commencing with Health and Safety Code Section 33000).

Redevelopment Plans means (i) the Redevelopment Plan for the Lancaster Residential Redevelopment Projected adopted by the City by Ordinance No. 158 on November 13, 1979, (ii) the Redevelopment Plan for the Central Business District Redevelopment Project adopted by the City by Ordinance No. 226 on June 1, 1981, (iii) the Redevelopment Plan for the Fox Field Redevelopment Project adopted by the City by Ordinance No. 289 on December 20, 1982, (iv) the Redevelopment Plan for the Amargosa Redevelopment Project, adopted by the City by Ordinance No. 321 adopted on October

A-7 17, 1983, (v) the Redevelopment Plan for the Lancaster Redevelopment Project No. 5 adopted by the City by Ordinance No. 360 on November 26, 1984, (vi) the Redevelopment Plan for the Lancaster Redevelopment Project No. 6 adopted by the City by Ordinance No. 505 on July 3, 1989 and (vii) the Redevelopment Plan for the Lancaster Redevelopment Project No. 7 adopted by the City by Ordinance No. 624 adopted on November 28, 1982 and includes any amendment thereof hereafter or heretofore made pursuant to the Law.

Redevelopment Project Area, Redevelopment Project or Project Area means, individually or collectively, as the context may require, the areas described in the Redevelopment Plans.

Redevelopment Property Tax Trust Fund or RPTTF means the fund by that name established pursuant to Health & Safety Code Section 34170.5(b) and administered by the County auditor-controller.

Refunded Bonds means, collectively, the 2003B Bonds, and the 2004 Bonds.

Regular Record Date means the fifteenth day of the month preceding any Interest Payment Date whether or not such day is a Business Day.

Representation Letter shall mean the representation letter from the Agency to DTC.

Reserve Policy means, individually or collectively, as the context may require, the 2015A Reserve Policy and the 2015B Reserve Policy.

Reserve Requirement means, as of the date of computation, an amount equal to the lesser of (i) Maximum Annual Debt Service on the Bonds, and any Parity Bonds, (ii) 10% of the net proceeds of the Bonds and any Parity Bonds, or (iii) 125% of the Annual Debt Service on the Bonds and any Parity Bonds Outstanding.

Security Documents shall mean all bond documents including the resolution, indenture, bond and/or any additional or supplemental document executed in connection with the Bonds.

Standard & Poor's or S&P means Standard & Poor's Ratings Group, New York, New York, and its successors and assigns.

State means the State of California, United States of America.

State Department of Finance or DOF means the California Department of Finance.

Statutory Pass-Through Amounts means amounts paid to affected taxing agencies pursuant to Sections 33607.5 and/or 33607.7 of the Redevelopment Law and Section 34183 of the Dissolution Act.

Supplemental Indenture means any indenture then in full force and effect which has been duly adopted by the Agency under the Dissolution Act, or any act supplementary thereto or amendatory thereof, at a meeting of the Agency duly convened and held, of which a quorum was present and acted thereon, amendatory of or supplemental to the Indenture or any indebtedness entered into in connection with the issuance of Additional Parity Bonds; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

Tax Certificate means the Tax Certificate of the Agency executed and delivered on the Closing Date to establish certain facts and expectations with respect to the 2015A Bonds.

A-8 Tax Code means the Internal Revenue Code of 1986, as amended, as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Tax Code.

Tax Revenues means the tax revenues allocated to and deposited in the RPTTF for the Successor Agency pursuant to the Dissolution Act.

Trustee means U.S. Bank National Association, a national banking association, Los Angeles, California, its successor and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Indenture.

Trust Office means the corporate trust office of the Trustee, currently at U.S. Bank National Association, Los Angeles, California except for exchange, surrender and payment of the Bonds, in which case “Trust Office” shall refer to the corporate trust office of U.S. Bank National Association in St. Paul, Minnesota, or such other or additional offices as may be specified to the Agency by the Trustee in writing.

2003 Bonds means the Prior Agency’s $60,980,000 aggregate initial principal amount of Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003 authorized by the 2003 Indenture, of which $51,170,000 is currently outstanding.

2003 Indenture means the Indenture of Trust dated as of June 1, 2003 providing for the issuance of the 2003 Bonds.

2003B Bonds means the Prior Agency’s $18,080,000 aggregate initial principal amount of Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003B, of which $13,095,000 is currently outstanding.

2003B Bonds Escrow Agreement means that certain 2003B Bonds Escrow Agreement dated March 1, 2015 by and between the Successor Agency and U.S. Bank National Association.

2003B Bonds Escrow Bank means U.S. Bank National Association, as escrow bank under the 2003B Bonds Escrow Agreement.

2003B Bonds Escrow Fund means the trust fund established in Section 3.2(c) of this Indenture.

2003B Indenture means the Indenture of Trust dated as of June 1, 2003 providing for the issuance of the 2003B Bonds.

2004 Bonds means the Prior Agency's $13,575,000 aggregate principal amount of Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2004 (Taxable), of which $10,980,000 is currently outstanding.

2004 Bonds Escrow Agreement means that certain 2004 Bonds Escrow Agreement dated March 1, 2015 by and between the Successor Agency and U.S. Bank National Association.

2004 Bonds Escrow Bank means U.S. Bank National Association, as escrow bank under the 2004 Bonds Escrow Agreement.

2004 Bonds Escrow Fund means the trust fund established in Section 3.2(c) of this Indenture.

A-9 2004 Indenture means the Indenture of Trust dated as of November 1, 2004 providing for the issuance of the 2004 Bonds.

2009 Bonds means the Prior Agency’s $37,500,000 aggregate initial principal amount of Lancaster Redevelopment Agency Combined Redevelopment Project Areas (Housing Programs) Tax Allocation Bonds, Issue of 2009, of which $25,880,000 is currently outstanding.

2009 Indenture means that certain Indenture of Trust dated as of August 1, 2009 between the Lancaster Redevelopment Agency and the Trustee authorizing the issuance of the 2009 Bonds.

2015A Bonds means the $12,560,000 aggregate initial principal amount of Successor Agency to the Lancaster Redevelopment Agency Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Refunding Bonds, Issue of 2015A.

2015A Reserve Policy means the municipal bond debt service reserve insurance policy issued by BAM and deposited into the 2015A Reserve Subaccount.

2015B Reserve Policy means the municipal bond debt service reserve insurance policy issued by BAM and deposited into the 2015B Reserve Subaccount.

2015A Term Bonds means the 2015A Bonds maturing on August 1, 2031 and August 1, 2034.

2015B Bonds means the $10,950,000 aggregate initial principal amount of Successor Agency to the Redevelopment Agency Combined Redevelopment Project Areas (Housing Programs), Taxable Tax Allocation Refunding Bonds, Issue of 2015B.

2015B Term Bonds means the 2015B Bonds maturing on August 1, 2035.

Written Request of the Agency or Written Certificate of the Agency means a request or certificate, in writing signed by the Executive Director, Secretary or Finance Director of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose.

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APPENDIX B

FORM OF BOND COUNSEL OPINION

Upon issuance of the Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form:

March 25, 2015

Successor Agency to the Lancaster Redevelopment Agency Lancaster, California

Re: $12,560,000 Successor Agency to the Lancaster Redevelopment Agency Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Refunding Bonds, Issue of 2015A

Honorable Members of the Successor Agency:

We have examined certified copies of proceedings of the Successor Agency to the Lancaster Redevelopment Agency (the “Successor Agency”), the Oversight Board to the Successor Agency (the “Oversight Board”), the Department of Finance of the State of California (“DOF”) and other information and documents submitted to us relative to the issuance and sale by the Successor Agency of its Successor Agency to the Lancaster Redevelopment Agency, Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Refunding Bonds, Issue of 2015A in the aggregate principal amount of $12,560,000 (the “2015A Bonds”) and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Successor Agency, the Trustee, the Underwriter of the 2015A Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us.

The 2015A Bonds have been issued pursuant to the Constitution and laws of the State of California (the “State”), including Article 11 of Chapter 3 (commencing with Section 53580) of Part 1 of Division 2 of Title 5 of the California Government Code (the “Bond Law”), the provisions of Health & Safety Code Section 34177.5, a resolution of the Successor Agency adopted on October 28, 2014 (the “Successor Agency Resolution”) and a resolution of the Oversight Board adopted on October 29, 2014 (the “Oversight Board Resolution”), which action was approved by the DOF on December 10, 2014, and in accordance with the terms and conditions of an Indenture of Trust, dated as of March 1, 2015 (the “Indenture”), by and between the Successor Agency and U.S. Bank National Association (the “Trustee”). All terms not defined herein have the meanings ascribed to those terms in the Indenture.

The 2015A Bonds are dated as of their date of delivery, and mature on the dates and bear interest at the rates per annum set forth in the Indenture. The 2015A Bonds are registered Bonds

B-1

in the form set forth in the Indenture, redeemable in the amounts, at the times and in the manner provided for in the Indenture.

Based upon our examination of all of the foregoing, and in reliance thereon, and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:

1. The 2015A Bonds have been duly and validly authorized by the Successor Agency and are legal, valid and binding special obligations of the Successor Agency, secured on a parity with the Lancaster Redevelopment Agency’s (the “Prior Agency”) (i) Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003 and (ii) Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Bonds, Issue of 2009 and the Successor Agency’s Combined Redevelopment Project Areas (Housing Programs), Taxable Tax Allocation Refunding Bonds, Issue of 2015B, being issued concurrently herewith, solely from Pledged Tax Revenues (as defined in the Indenture) and other sources as and to the extent provided for in the Indenture. The 2015A Bonds are enforceable in accordance with their terms and the terms of the Indenture, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, fraudulent conveyance or transfer, insolvency or other similar laws affecting creditors’ rights to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California. The 2015A Bonds are special obligations of the Successor Agency but are not a debt of the City of Lancaster, the State of California or any other political subdivisions thereof within the meaning of any constitutional or statutory limitation, and neither the City of Lancaster, the State of California, nor any other of its political subdivisions, except the Successor Agency, is liable for the payment thereof.

2. The Indenture has been duly authorized by the Successor Agency, is valid and binding upon the Successor Agency and is enforceable in accordance with its terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, fraudulent conveyance or transfer, insolvency or other similar laws affecting creditors’ rights to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California.

3. The Indenture creates a valid pledge of that which the Indenture purports to pledge, including, without limitation, the Pledged Tax Revenues and subject to the provisions of the Indenture, except to the extent that such pledge may be limited by moratorium, bankruptcy, reorganization, fraudulent conveyance or transfer, insolvency or other similar laws affecting creditors’ rights to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California.

4. Under existing statutes, regulations, rulings and judicial decisions, interest on the 2015A Bonds (including any original issue discount) is excluded from gross income for federal income tax purposes, and such interest (including any original issue discount) is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on

B-2

individuals and corporations; however, we note that, with respect to corporations, such interest on the 2015A Bonds will be included as an adjustment in the calculation of alternative minimum taxable income which may affect such corporation's alternative minimum tax liability.

5. Interest on the 2015A Bonds (including any original issue discount) is exempt from State of California personal income tax.

6. The difference between the issue price of a 2015A Bond (the first price at which a substantial amount of the 2015A Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to such 2015A Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2015A Bond owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2015A Bond owner will increase the 2015A Bond owner’s basis in the applicable 2015A Bond. Original issue discount that accrues to the 2015A Bond owner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations (as described in paragraph 4 above), and is exempt from State of California personal income tax.

7. The amount by which a 2015A Bond owner’s original basis for determining loss on sale or exchange in the applicable 2015A Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended; such amortizable bond premium reduces the 2015A Bond owner’s basis in the applicable 2015A Bond (and the amount of tax-exempt interest received) and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2015A Bond premium may result in a 2015A Bond owner realizing a taxable gain when a 2015A Bond is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the 2015A Bond to the owner. Purchasers of the 2015A Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium.

The opinions set forth in paragraphs 4 and 6 above are subject to the condition that the Successor Agency comply with certain covenants and the applicable requirements of the Code that must be satisfied subsequent to the issuance of the 2015A Bonds to assure that interest on the 2015A Bonds will remain excludable from gross income for federal income tax purposes. Failure to comply with such covenants and requirements may cause interest on the 2015A Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2015A Bonds. The Successor Agency has covenanted to comply with all such requirements. We express no opinion regarding other tax consequences with respect to the 2015A Bonds.

Certain requirements and procedures contained or referred to in the Indenture, the Bond Purchase Contract dated March 10, 2015, between the Successor Agency and Southwest Securities, Inc., and the Tax Certificate may be changed, and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of counsel nationally recognized in the area of tax-exempt obligations. We express no opinion as to the effect on the exclusion of interest on the 2015A

B-3

Bonds from gross income for federal income tax purposes upon the advice or approval of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation.

The opinions expressed herein are based on an analysis of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Such actions or events may adversely affect the value or tax treatment of the 2015A Bonds and we express no opinion with respect thereto.

We call attention to the fact that the rights and obligations under the Indenture and the 2015A Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California.

Our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.

The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2015A Bonds or other offering material relating to the 2015A Bonds and purchasers of the 2015A Bonds should not assume that we have reviewed the Official Statement on their behalf.

Respectfully submitted,

B-4

APPENDIX B

FORM OF BOND COUNSEL OPINION

Upon issuance of the Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form:

March 25, 2015

Successor Agency to the Lancaster Redevelopment Agency Lancaster, California

Re: $10,950,000 Successor Agency to the Lancaster Redevelopment Agency Combined Redevelopment Project Areas (Housing Programs), Taxable Tax Allocation Refunding Bonds, Issue of 2015B

Honorable Members of the Successor Agency:

We have examined certified copies of proceedings of the Successor Agency to the Lancaster Redevelopment Agency (the “Successor Agency”), the Oversight Board to the Successor Agency (the “Oversight Board”), the Department of Finance of the State of California (“DOF”) and other information and documents submitted to us relative to the issuance and sale by the Successor Agency of its Successor Agency to the Lancaster Redevelopment Agency, Combined Redevelopment Project Areas (Housing Programs), Taxable Tax Allocation Refunding Bonds, Issue of 2015B in the aggregate principal amount of $10,950,000 (the “2015B Bonds”) and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Successor Agency, the Trustee, the Underwriter of the 2015B Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us.

The 2015B Bonds have been issued pursuant to the Constitution and laws of the State of California (the “State”), including Article 11 of Chapter 3 (commencing with Section 53580) of Part 1 of Division 2 of Title 5 of the California Government Code (the “Bond Law”), the provisions of Health & Safety Code Section 34177.5, a resolution of the Successor Agency adopted on October 28, 2014 (the “Successor Agency Resolution”) and a resolution of the Oversight Board adopted on October 29, 2014 (the “Oversight Board Resolution”), which action was approved by the DOF on December 10, 2014, and in accordance with the terms and conditions of an Indenture of Trust, dated as of March 1, 2015 (the “Indenture”), by and between the Successor Agency and U.S. Bank National Association (the “Trustee”). All terms not defined herein have the meanings ascribed to those terms in the Indenture.

The 2015B Bonds are dated as of their date of delivery, and mature on the dates and bear interest at the rates per annum set forth in the Indenture. The 2015B Bonds are registered Bonds

B-5

in the form set forth in the Indenture, redeemable in the amounts, at the times and in the manner provided for in the Indenture.

1. The 2015B Bonds have been duly and validly authorized by the Successor Agency and are legal, valid and binding special obligations of the Successor Agency, secured on a parity with the Lancaster Redevelopment Agency’s (the “Prior Agency”) (i) Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Refunding Bonds, Issue of 2003 and (ii) Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Bonds, Issue of 2009 and the Successor Agency’s Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Refunding Bonds, Issue of 2015A, being issued concurrently herewith, solely from Pledged Tax Revenues (as defined in the Indenture) and other sources as and to the extent provided for in the Indenture. The 2015B Bonds are enforceable in accordance with their terms and the terms of the Indenture, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, fraudulent conveyance or transfer, insolvency or other similar laws affecting creditors’ rights to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public agencies in the State of California. The 2015B Bonds are special obligations of the Successor Agency but are not a debt of the City of Lancaster, the State of California or any other political subdivisions thereof within the meaning of any constitutional or statutory limitation, and neither the City of Lancaster, the State of California, nor any other of its political subdivisions, except the Successor Agency, is liable for the payment thereof.

4. Interest on the 2015B Bonds is not excluded from gross income for federal income tax purposes.

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5. Interest on the 2015B Bonds (including any original issue discount) is excluded from State of California personal income tax.

6. The difference between the issue price of a 2015B Bond (the first price at which a substantial amount of the Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to such 2015B Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2015B Bond owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2015B Bond owner will increase the 2015B Bond owner’s basis in the applicable 2015B Bond. Original issue discount that accrues to the 2015B Bond owner is exempt from State of California personal income tax.

The opinions expressed herein are based on an analysis of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Such actions or events may adversely affect the value or tax treatment of the 2015B Bonds and we express no opinion with respect thereto.

We call attention to the fact that the rights and obligations under the Indenture and the 2015B Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California.

We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2015B Bonds or other offering material relating to the 2015B Bonds and purchasers of the 2015B Bonds should not assume that we have reviewed the Official Statement on their behalf.

The federal tax and State of California personal income tax discussion set forth above with respect to the 2015B Bonds is included for general information only and may not be applicable depending upon a Beneficial Owner’s particular situation. The ownership and disposal of the 2015B Bond and the accrual or receipt of interest with respect to the 2015B Bond may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences.

Respectfully submitted,

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(This Page Left Intentionally Blank) APPENDIX C

Book-Entry Only System

The information in this Appendix C concerning The Depository Trust Company (“DTC”), New York, New York, and DTC’s book-entry system has been obtained from DTC and the Agency takes no responsibility for the completeness or accuracy thereof. The Agency cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“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

C-1 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency 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 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium (if any), and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Agency or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal, premium (if any), and interest payments with respect to the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Agency or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a

C-2 successor depository is not obtained, certificates representing the Bonds are required to be printed and delivered.

The Agency may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, representing the Bonds will be printed and delivered to DTC in accordance with the provisions of the Indenture.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Agency believes to be reliable, but the Agency takes no responsibility for the accuracy thereof.

C-3 (This Page Left Intentionally Blank) APPENDIX D

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated as of March 25, 2015 is executed and delivered by the Successor Agency to the Lancaster Redevelopment Agency (the “Successor Agency”), U.S. Bank National Association, as trustee (the “Trustee”), and Urban Futures, Inc., as dissemination agent (the “Dissemination Agent”), in connection with the issuance by the Successor Agency of its $12,560,000 initial aggregate principal amount Combined Redevelopment Project Areas (Housing Programs) Tax Allocation Refunding Bonds, Issue of 2015A (the “2015A Bonds”), and its $10,950,000 initial aggregate principal amount Combined Redevelopment Project Areas (Housing Programs) Taxable Tax Allocation Refunding Bonds, Issue of 2015B (the “2015B Bonds”; and together with the 2015A Bonds, the “Bonds”). The Bonds are being issued pursuant to an Indenture of Trust, dated as of March 1, 2015 (the “Indenture”), by and between the Successor Agency and the Trustee. The Successor Agency, the Trustee, and the Dissemination Agent covenant and agree as follows:

Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Successor Agency, the Trustee, and the Dissemination Agent for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriter (as defined below) in complying with the Rule (as defined below).

Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement, unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report provided by the Successor Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Dissemination Agent” shall mean Urban Futures, Inc., or any successor Dissemination Agent designated in writing by the Successor Agency and which has filed with the Successor Agency and the Trustee a written acceptance of such designation.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“MSRB” shall mean the Municipal Securities Rulemaking Board.

“Obligated Person” shall mean any person, including an issuer of municipal securities, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the Bonds (other than providers of municipal bond insurance, letters of credit, or other liquidity facilities).

“Official Statement” shall mean the final Official Statement, dated March 10, 2015, relating to the Bonds.

“Participating Underwriter” shall mean the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

D-1 Section 3. Provisions of Annual Reports.

(a) The Successor Agency shall, or shall cause the Dissemination Agent to, not later than seven (7) months after the end of the Successor Agency’s Fiscal Year (which date currently would be January 31, based upon the June 30 end of the Successor Agency’s Fiscal Year), commencing January 31, 2016 with the report for the 2014-15 fiscal year, provide to the MSRB, in an electronic format accompanied by identifying information as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. 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 Agreement; provided that the postaudit of the financial transactions and records of the Successor Agency for the Fiscal Year may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the Successor Agency’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b), and subsequent Annual Report filings shall be made no later than seven (7) months after the end of each such new fiscal year.

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) above for providing the Annual Report to the MSRB, the Successor Agency shall provide the Annual Report to the Dissemination Agent (if other than the Successor Agency). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the Successor Agency to determine if the Successor Agency is in compliance with the first sentence of this subsection (b). The Successor Agency shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder.

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A, or in such other form as prescribed by, or acceptable to, the MSRB.

(d) The Dissemination Agent (if other than the Successor Agency) shall, if and to the extent the Successor Agency has provided an Annual Report in final form to the Dissemination Agent for dissemination, file a report with the Successor Agency and the Trustee (if the Dissemination Agent is not the Trustee) certifying that the Annual Report has been provided to the MSRB pursuant to this Disclosure Agreement, and stating the date it was provided.

Section 4. Content of Annual Reports. The Successor Agency’s Annual Report shall contain or incorporate by reference the following:

(a) A postaudit of the financial transactions and records of the Successor Agency for the Fiscal Year to be made by an Independent Certified Public Accountant appointed by the Successor Agency 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 Successor Agency’s postaudit is not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain an unaudited statement of financial transactions and records of the Successor Agency in a format required by Section 34177(n) of Dissolution Act, and the postaudit shall be filed in the same manner as the Annual Report when they become available.

D-2 (b) To the extent not contained in the postaudit filed pursuant to the preceding subsection (a) by the date required by Section 3 hereof, other financial information and operating data relating to the Project Areas, as follows:

1) An update to the tabular information in Tables 4, 7, 10, 13, 16, 19, and 22 in the Official Statement entitled “Assessed Valuation and Tax Increment Revenues” under the caption “THE PROJECT AREAS” based on the most recent Fiscal Year for which information is available;

2) An update to the tabular information in Tables 5, 8, 11, 14, 17, 20, and 23 in the Official Statement entitled “Largest Property Tax Payers” under the caption “THE PROJECT AREAS” for the most recent Fiscal Year for which information is available;

3) An update to the tabular information in the table in the Official Statement under the caption “PLEDGED TAX REVENUES – Schedule of Historical Incremental Revenues” based on the most recent Fiscal Year for which information is available;

4) An update to the debt service coverage for the combined Project Areas with respect to the most recent Fiscal Year, based on (i) the Pledged Tax Revenues for such Fiscal Year divided by (ii) the combined annual debt service for the Existing Parity Bonds and the Bonds for the corresponding Bond Year (as set forth in the table under the caption “’PLEDGED TAX REVENUES – Bonds and Existing Parity Bonds Annual Debt Service”);

5) An update to pending and successful appeals of assessed values in each of the Project Areas similar to that set forth in Table 24 in the Official Statement under the caption “THE PROJECT AREAS – Appeals”, but only if (1) such information is collected and made available to the City by the County and (2) total appeals exceed, in the aggregate, 5% of assessed value in the Project Areas;

6) A statement of the balance in the 2015A Reserve Subaccount and the 2015B Reserve Subaccount established under the Indenture and the Reserve Requirement, both as of June 30 of the most recently-completed fiscal year; and

7) If, and only if, a plan has been adopted by the Successor Agency pursuant to clause (ii) in Covenant 11 of Section 5.1 of the Indenture (which applies only as long as Pledged Tax Revenues are subject to a tax increment limit under the Redevelopment Plan, the 95% threshold specific in such Covenant 11 has been reached, and the Agency has elected to proceed under clause (ii) rather than clause (i)), the financial information provided to the Trustee in any such adopted plan.

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 Successor Agency or related public entities, which have been available to the public on the MSRB’s internet web site or filed with the Securities and

D-3

Exchange Commission. The Successor Agency shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Successor Agency shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds, which notice shall be given in a timely manner, not in excess of ten (10) business days after the occurrence of such Listed Event:

1) Principal and interest payment delinquencies;

2) Non-payment related defaults, if material;

3) Unscheduled draws on debt service reserves reflecting financial difficulties;

4) Unscheduled draws on credit enhancements reflecting financial difficulties;

5) Substitution of credit or liquidity providers, or their failure to perform;

6) 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;

7) Modifications to rights of security holders, if material;

8) Bond calls, if material, and tender offers;

9) Defeasances;

10) Release, substitution, or sale of property securing repayment of the securities, if material;

11) Rating changes;

12) Bankruptcy, insolvency, receivership or similar event of the Obligated Person;

13) The consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the 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; and

14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

D-4 (b) The Dissemination Agent shall, within one (1) business day after obtaining knowledge of the occurrence of any of the events listed in Section 5(a) (1), (3), (4), (5), (6), (9), (11) or (12), inform the Successor Agency of the occurrence of such event. As soon as reasonably practicable after obtaining knowledge of the occurrence of such event (regardless of whether the source of the information is the Dissemination Agent pursuant to the foregoing sentence or another source), the Successor Agency shall, or shall cause the Dissemination Agent to, file in a timely manner, not in excess of ten (10) business days after the occurrence of any such event, a notice of such occurrence with the MSRB, in an electronic format accompanied by identifying information as prescribed by the MSRB.

(c) The Dissemination Agent shall, within one (1) business day after obtaining knowledge of the occurrence of any of any of the events listed in Section 5(a) (2), (7), (8), (10), (13) or (14), inform the Successor Agency of the occurrence of such event and request that the Successor Agency promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (d).

(d) Whenever the Successor Agency obtains knowledge of the occurrence of any event specified in Section 5(a) (2), (7), (8), (10), (13) or (14), the Successor Agency shall as soon as possible, in order to meet the ten (10) business day deadline to file notices required under the Rule and pursuant to the following sentence, determine if such event would be material under applicable Federal securities law. If the Successor Agency determines that knowledge of the occurrence of such event would be material under applicable Federal securities law, the Successor Agency shall, or shall cause the Dissemination Agent to, file in a timely manner, not in excess of ten (10) business days after the occurrence of any such event, a notice of such occurrence with the MSRB, in an electronic format accompanied by identifying information as prescribed by the MSRB.

(e) The Trustee shall, within three (3) business days after obtaining knowledge of the occurrence of any of the Listed Events, or as soon as reasonably practicable thereafter, and in any event in sufficient time for the Successor Agency to file a notice of such event within ten (10) business days after the occurrence of the event, inform the Successor Agency of such event and request that the Successor Agency promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsections (b) or (d).

Section 6. Termination of Reporting Obligation. The Successor Agency’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Successor Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).

Section 7. Dissemination Agent.

(a) The Successor Agency hereby appoints and engages Urban Futures, Inc. as the Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Successor Agency pursuant to this Disclosure Agreement. The Successor Agency may replace the Dissemination Agent with or without cause. If at the time there is no designated Dissemination Agent appointed by the Successor Agency, the Successor Agency shall be the Dissemination Agent and undertake or assume its obligations hereunder.

Any company succeeding to all or substantially all of the Dissemination Agent’s corporate trust business shall be the successor to the Dissemination Agent hereunder without the execution or filing of any paper or any further act. The Dissemination Agent may resign its duties

D-5 hereunder by giving 30-days written notice to the Successor Agency and the Trustee (if the Trustee is not the Dissemination Agent).

(b) The Dissemination Agent shall be paid compensation by the Successor Agency for its services provided hereunder in accordance with its schedule of fees agreed to between the Dissemination Agent and the Successor Agency from time to time and for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the Successor Agency hereunder and shall not be deemed to be acting in any fiduciary capacity for the Successor Agency, Bondowners, or any other party. The Dissemination Agent may rely and shall be protected in acting or refraining from acting upon any direction from the Successor Agency or an opinion of nationally recognized bond counsel.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Successor Agency, the Trustee, and the Dissemination Agent may amend this Disclosure Agreement (and the Trustee and the Dissemination Agent shall agree to any amendment so requested by the Successor Agency, provided neither the Trustee nor the Dissemination Agent shall be obligated to enter into any amendment increasing or affecting its duties or obligations), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an Obligated Person with respect to the Bonds, or 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 Bonds, 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 Bondowners in the manner provided in the Indenture for amendments to the Indenture with the consent of Bondowners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Bondowners.

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 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. For purposes of this paragraph, “impact” has the meaning as that word is used in the letter from the staff of the Securities and Exchange Commission to the National Association of Bond Lawyers dated June 23, 1995.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing the postaudit, the annual financial information for the year in which the change is made shall present a comparison between the postaudit 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 Successor Agency to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the

D-6 change in the accounting principles shall be sent to the MSRB in the same manner as for a Listed Event under Section 5(b).

No amendment to this Agreement which modifies the duties or rights of the Dissemination Agent shall be made without the prior written consent of the Dissemination Agent.

Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Successor Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Successor Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Successor Agency shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the Successor Agency, the Trustee, or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Participating Underwriter or any Bondowner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Successor Agency, the Trustee, or the Dissemination Agent, as the case may be, to comply with its respective obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Successor Agency, the Trustee, or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Successor Agency agrees to indemnify and save the Trustee and the Dissemination Agent, their respective 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 Trustee’s or the Dissemination Agent’s negligence or willful misconduct. See Section 7 above for additional provisions concerning duties, immunities and liabilities of the Dissemination Agent. The obligations of the Successor Agency under this Section shall survive resignation or removal of the Trustee or the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Agreement. Neither the Dissemination Agent nor the Trustee shall liable under any circumstances for monetary damages to any person for any breach of this Agreement.

Section 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the Successor Agency: Successor Agency to the Lancaster Redevelopment Agency 44933 North Fern Avenue Lancaster, California 93534 (661) 723-6133 (661) 723-6210 Fax Attention: Executive Director

D-7 To the Trustee: U.S. Bank National Association 1420 Fifth Avenue, 7th Floor Seattle, Washington 98101 (206) 344-4682 (206) 344-4630 Fax Attention: Corporate Trust Services

To the Dissemination Agent: Urban Futures, Inc. 3111 North Tustin Avenue, #230 Orange, California 92865 (714) 283-9334 (714) 283-9319 Fax

Section 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Successor Agency, the Dissemination Agent, the Participating Underwriter and Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Section 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first written above.

SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY

Executive Director

U.S. BANK NATIONAL ASSOCIATION, as Trustee

Authorized Officer

URBAN FUTURES, INC., as Dissemination Agent

Authorized Officer

D-8 EXHIBIT A

NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Successor Agency to the Lancaster Redevelopment Agency

Name of Bond Issues: $12,560,000 initial aggregate principal amount Combined Redevelopment Project Areas (Housing Programs) Tax Allocation Refunding Bonds, Issue of 2015A; and $10,950,000 initial aggregate principal amount Combined Redevelopment Project Areas (Housing Programs) Taxable Tax Allocation Refunding Bonds, Issue of 2015B

Date of Issuance: March 25, 2015

NOTICE IS HEREBY GIVEN that the Successor Agency to the Lancaster Redevelopment Agency (the “Successor Agency”) has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of March 25, 2015, by and among the Successor Agency, U.S. Bank National Association, as trustee, and Urban Futures, Inc., as dissemination agent. The Successor Agency anticipates that the Annual Report will be filed by ______.

Date: , 20__ Urban Futures, Inc. as Dissemination Agent

By: Title:

cc: Executive Director, Successor Agency to the Lancaster Redevelopment Agency

D-9 (This Page Left Intentionally Blank) APPENDIX E

Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2014

E-1 FISCAL YEAR ENDING .JUNE 30,2014 lancaster - ca if} foliftVe/'1 cl~r

CITY OF LANCASTER, CALIFORNIA 44933 Fern Avenue Lancaster, California 93534

COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Year Ended June 30, 2014

Prepared by the City of Lancaster, Finance Department Barbara Boswell, Finance Director Pam Statsmann, Assistant Finance Director Tammie Holladay, Accountant II

For additional information, please contact the Finance Department at (661) 723-6033.

This page intentionally left blank

CITY OF LANCASTER

COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS

For the year ended June 30, 2014

Page Number INTRODUCTORY SECTION: Letter of Transmittal i Principal City Officials vii Organization Chart ix Certificate of Achievement for Excellence in Financial Reporting x City Boundary Maps xi

FINANCIAL SECTION:

Independent Auditors’ Report 1

Managements’ Discussion and Analysis (Required Supplementary Information) 5

Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position 13 Statement of Activities 14

Fund Financial Statements: Governmental Funds: Balance Sheet 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 19 Statement of Revenues, Expenditures and Changes in Fund Balances 20 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 22 Budgetary Comparison Statements: General Fund 23 HOME Program Special Revenue Fund 24 Lancaster Housing Authority Special Revenue Fund 25

Proprietary Fund: Statement of Net Position 26 Statement of Revenues, Expenses and Changes in Net Position 27 Statement of Cash Flows 28

Fiduciary Funds: Statement of Net Position 29 Statement of Changes in Net Position 30

Notes to Financial Statements 31

CITY OF LANCASTER

COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED)

For the year ended June 30, 2014

Page Number SUPPLEMENTARY INFORMATION: Combining and Individual Fund Statements and Schedules: 83

Other Governmental Funds: Combining Balance Sheet 84 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 90

Other Special Revenue Funds: Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Gas Tax 96 Community Services 97 Landscape Maintenance District 98 Housing and Community Development 99 Transportation Development Authority 100 Proposition A 101 Bikeway Improvement 102 Proposition C 103 Federal Grants 104 State Grants 105 Parks Development 106 County and Other 107 Developer Fees - Signals 108 Developer Fees - Drainage 109 Recycled Water 110 Biological Impact Fees 111 Traffic Impact Fees 112 AQMD 113 Lancaster Lighting District 114 Lancaster Drainage Maintenance District 115 Miscellaneous Grants 116 Traffic Safety 117 Engineering Fees 118 LA County Reimbursement 119 MTA Grant 120 Urban Structure Program 121

CITY OF LANCASTER

COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED)

For the year ended June 30, 2014

Page Number SUPPLEMENTARY INFORMATION (CONTINUED): Combining and Individual Fund Statements and Schedules (Continued):

Other Special Revenue Funds (Continued): Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Continued): Mariposa Lily 122 Sewer Maintenance District 123 Proposition 1B 124 Proposition 42 125 HPRP 126 Measure R 127

Other Debt Service Fund: Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual: Lancaster Financing Authority 129

Agency Funds: Combining Statement of Assets and Liabilities 130 Combining Statement of Changes in Assets and Liabilities 132

STATISTICAL SECTION:

Description of Statistical Section Contents 137

Financial Trends: Net Position by Component 139 Changes in Net Position 140 Fund Balances of Governmental Funds 142 Changes in Fund Balances of Governmental Funds 143

Revenue Capacity: Tax Revenues by Source - Governmental Funds 144 Assessed Value and Estimated Actual Value of Taxable Property 145 Direct and Overlapping Property Tax Rates 146 Principal Property Tax Payers 147 Property Tax Levies and Collections 148

CITY OF LANCASTER

COMPREHENSIVE ANNUAL FINANCIAL REPORT TABLE OF CONTENTS (CONTINUED)

For the year ended June 30, 2014

Page Number

STATISTICAL SECTION (CONTINUED):

Debt Capacity: Ratios of Outstanding Debt by Type 149 Ratios of General Bonded Debt Outstanding 150 Direct and Overlapping Governmental Activities Debt 151 Legal Debt Margin Information 152 Pledged Revenue Coverage 153

Demographic and Economic Information: Demographic and Economic Statistics 154 Principal Employers 155

Operating Information: Full-Time Equivalent City Government Employees by Function 157 Operating Indicators by Function/Program 158 Capital Asset Statistics by Function/Program 160

INTRODUCTORY SECTION

R. Rex Parris Mayor Marvin E. Crist Vice Mayor Ronald D. Smith Council Member Ken Mann Council Member Sandra Johnson Council Member Mark V. Bozigian City Manager

December 31, 2014

Honorable Mayor and Members of the City Council:

We are pleased to submit for your consideration the Comprehensive Annual Financial Report (CAFR) of the City of Lancaster, California, for the fiscal year ended June 30, 2014. This report was prepared by the Finance department of the City; responsibility for the accuracy and completeness of the presentation, including all disclosures, rests with City staff. To provide a reasonable basis for making these representations, management of the City of Lancaster has established a comprehensive internal control framework that is designed both to protect the government's assets from loss, theft or misuse and to compile sufficient reliable information for the preparation of Lancaster's financial statements in conformity with Generally Accepted Accounting Principles (GAAP).

Because the cost of internal controls should not outweigh their benefits, Lancaster's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. Management asserts that to the best of our knowledge and belief this fmancial report is complete and reliable in all material respects. This report includes the annual audit report of the City's independent auditors White Nelson Diehl Evans LLC. All disclosures necessary to enable the reader to gain an understanding of the City's financial activities have been included.

The data is designed to factually report the City's financial condition and to present results of City operations as measured by activity among the various fund groups in an easily readable and understandable style. All disclosures necessary for the reader to gain an understanding of the City's financial affairs have been included. Financial statements are prepared in accordance with GAAP, as promulgated by the Government Accounting Standards Board.

The CAFR is presented in three sections: introductory, financial, and statistical. The introductory section includes this transmittal letter, the City's organizational chart, and a list of principal officers. The fmancial section includes the basic financial statements, including the management's discussion and analysis, the combined and individual fund statements and schedules, and the auditor's report on the financial statements and schedules. The statistical section includes selected multi-year financial and demographic information.

This CAFR includes all of the funds of the City, including the separate entities under the direction of the City Council. The separate entities include the Lancaster Successor Agency, the Lancaster Housing Authority, the Lancaster Power Authority, the Lancaster Community Services Foundation, Community Facilities District 89-1, Community Facilities District 90-1, Community Facilities District 91-1, Community Facilities District 91-2, Assessment District 92-101 and Assessment District 93-3.

44933 Fern Avenue • Lancaster, CA 93534 • 661.723.6000 www.cityoflancasterca.org The City provides a broad range of services associated with a municipality. These services include highway, street, drainage, sewer, and infrastructure construction and maintenance; planning and zoning; and parks, recreation, and cultural activities. Law enforcement, fire protection, and animal control services are provided under contract with Los Angeles County, whereas water, sanitation, school, and library are funded by special districts not under City control.

City of Lancaster Profile Lancaster is situated on the north side of Los Angeles County in the Antelope Valley about seventy miles from downtown Los Angeles and separated from the Los Angeles Basin by the Angeles National Forest. The City is bordered by several unincorporated Los Angeles County communities and the city of Palmdale. Lancaster is served by state route 14 and by two major grade-separated east-west thoroughfares: Avenue Hand Avenue L. With 94 square miles with residential communities, recreation and art venues, hi-tech industry, and retail businesses Lancaster is an exciting atmosphere for living and a place of limitless opportunity for business.

The City was incorporated on November 22, 1977, and on April 13, 2010, voters approved Measure C which granted the City its Charter City status. The mayor and city council are elected at large. Lancaster has grown significantly in size and diversity over the last 37 years. According to the 2010 Census, Lancaster's population is 156,633, an increase of nearly thirty two percent over the 2000 Census total. The California Department of Finance estimates the City's 2014 population to be 159,878.

With business-friendly policies, the City today attracts national and local companies in many businesses and industries as well as families pursuing the American Dream of homeownership in a close-knit community. Throughout its recent growth, Lancaster has retained a family-focused, hometown spirit. · Thousands of visitors come to Lancaster in the spring to enjoy our beautiful poppy and wildflower fields among the world famous Joshua trees. The movie industry has captured the essence of the high desert in multitudes of movies shot here each year, bringing many additional visitors to patronize our hotels and retail establishments.

Economic Development Successes Sustainable economic development is a major Council priority. Regardless of the crippling statewide elimination of redevelopment agencies in 2012, the City of Lancaster has continued to grow its economy by attracting such businesses as Build Your Dreams (BYD), Morton Manufacturing, Marriott, and Kaiser Permanente, to name just a few. Companies are continuing to recognize the potential for growth in Lancaster and are relocating or expanding businesses which are to add jobs to the City's recovering economy. Fiscal year 2013-2014 saw a tremendous amount of economic activity that promises great things for the City of Lancaster well into the future.

In a historic event attended by State of California Governor Jerry Brown, BYD unveiled the first California-made, all-electric, long-range, 40-foot rapid transit bus. The ceremony was held at BYD's first ever electric bus factory in the United States, which has created more than 60 new jobs for American workers.

ii BYD expects to increase the number of new jobs created to 100 by the end of the year, while adding 200 more by the end of next year. The company hopes this will be the first of many cities where BYD will provide clean energy electric buses, while creating more jobs for Americans.

BYD's breakthrough battery and EV technologies have resulted in an electric-powered, 24-hour, long-range battery that provides emission-free, silent, and economic public and private transportation. As the world's largest manufacturer of rechargeable batteries, BYD's mission is to create safer and more environmentally-friendly battery technologies. This has resulted in the BYD Iron Phosphate Battery.

In November 2013, the City of Lancaster and Morton Manufacturing, a well-established firm specializing in the manufacture of fasteners for the aerospace industry, celebrated the grand opening of Morton's new 88,000 square foot facility in the Lancaster Business Park. The company brings a total of 350 jobs to the Antelope Valley, including 220 existing employees as well as 130 new positions for local workers.

Launched in 1967, Morton Manufacturing specializes in the production of nickel-alloy bolts for gas-turbine aircraft engines. The firm, whose client list includes such companies as General Electric, Pratt Whitney and Rolls Royce, began seeking a new location in 2011 when incoming orders began to greatly outstrip the production capacity of their Santa Clarita facility. With approximately 40 percent of its existing workforce already residing in the Antelope Valley, Morton Manufacturing's search for a new site quickly led them to Lancaster.

Additional economic opportunities in the tourism and hospitality sector continue to arise. The Marriot TownPlace Suites Hotel and the accompanying complex of shops and restaurants generated more than 80 construction jobs and 280 permanent positions. An extended-stay property of Marriott, the four-story, 92-suite hotel is located at the southwest comer of 20th Street West and Avenue J-8. The TownePlace Suites, which is the first four-story hotel in Lancaster's history, opened its doors to travelers in 2014.

The Marriott is the first phase of a development project that will extend along 20th Street West from Avenue J-8 to J-13. The City has been working with developer Robert Martin of Martin Properties, Inc. and Nelson Marney, owner of Marney Investment Corporation, for years to bring this development to life, which will include a sit-down dinner house and shopping space. The hotel is also notable because it is the first EB-5 project to be carried out in Lancaster. EB-5 is a federal program encouraging foreign investment and increasing job creation in America. Being Lancaster's first-ever EB-5 program, this new Marriott is indicative of Lancaster's rising appeal to investors worldwide.

In the health care arena, Kaiser Permanente has expanded their employment in Lancaster with the construction of their new 136,000 square foot office complex completed in 2014. The location features both offices as well as a number of specialized care facilities. The complex is Kaiser Permanente's first to utilize solar water heating and reclaimed water. The new City of Hope facility on Antelope Valley Hospital grounds houses more than 56,000 square feet of patient care, office, and educational facilities. The location provided work to 175 construction workers, as well as 30 permanent staff members.

iii Along the education front, Lancaster's SOAR High School continues to be the crown jewel of the educational system, performing in the top 1% of high schools in the nation with an academic performance index (API) score of 945 at the end of the 2011-2012 school year. In addition, a partnership with the Lancaster University Center and California State University Long Beach has yielded a program in which one can earn a Bachelor's degree in engineering right here in the Antelope Valley in just 2 and a half years. The Lancaster University Center has also teamed up with the Coalition for Humane Immigrant Rights of Los Angeles to provide Spanish GED courses in Lancaster.

The film industry has a significant economic impact in the Antelope Valley. Recently over 4,000 residents participated in a casting call for The Fast and the Furious 7. 1,500 individuals were selected as extras for the film, making up to $400 over three days of filming. The impact goes beyond the money made by film extras and stretches into the hotel rooms that are filled and the local restaurants and stores that see an increase in sales throughout filming.

The City's dedication to economic growth was recognized by the Los Angeles County Economic Development Corporation (LAEDC). Lancaster was named "Most Business-Friendly City" in Los Angeles County at the 18th annual Eddy Awards. Lancaster is the first city in the history of the program to have won the award twice, with its first win in 2007.

"Lancaster understands that domestic and global competition for jobs, businesses and entire industries has never been fiercer," said Bill Allen, LAEDC president and CEO. "The City of Lancaster vigorously competes by training its residents for tomorrow's jobs, not for yesterday's; by keeping costs and fees down to attract new businesses and jobs; and by supporting its start-up sector, which will drive the city's economic growth in the future."

"Considered one of the least expensive places to conduct business by the Kosmont-Rose Survey, Lancaster's economic stimulus package, streamlined permit process, and reduced transactions fees have spurred economic, community and real estate development," states a press release issued by the LAEDC. "The downtown revitalization project created a vibrant urban center with 50 new businesses and hundreds of new jobs."

The BLVD Downtown Lancaster property owners approved the new Property-Based Improvement District (PBID) with 73.22% of voters in favor. Used in other downtown districts throughout the state (i.e. Pasadena, Long Beach, and Burbank), the PBID gives our downtown businesses the resources they need to thrive well into the future. The BLVD Association's annual budget has grown from just $25,000 to more than $260,000, providing funding for such services as additional private security and maintenance, administration and advocacy, and marketing and promotions. The PBID's efforts augment the City's existing services to build a stronger, more vibrant downtown than ever before.

The Auto Mall A new motorcycle and watercraft dealership, an entirely renovated Honda Superstore, and attractive landscaping improvements is on the horizon for the Lancaster Auto Mall. Clutter Motors, the parent company of Lancaster Honda, Antelope Valley Subaru, and Lancaster Tire Pros, announced plans to open a motorcycle and watercraft dealership, in addition to a full

iv renovation of their existing Lancaster Honda facility. The planned expansion also includes a City streetscape project which would greatly enhance the curb-appeal of the Lancaster Auto Mall adjacent to Lancaster Honda and Antelope Valley Subaru.

Improvements to Infrastructure The economic climate of the past six years has not held the City back from its aggressive Capital Improvement Program (CIP), which continues to enhance the quality of life for Lancaster residents. In all, 89 CIP projects are fully funded through sources such as MeasureR grants and specialty funds. By utilizing City crews to do the street rehabilitation projects, the City is producing 40% more output than if the work was outsourced. In fact, many of these projects are currently six weeks ahead of schedule, and being completed for 60% less in costs.

Reducing Dependence on Potable Water Lancaster recently completed a new recycled water irrigation system at Lancaster City Park. The City Park Recycled Water Conversion project allows the nearly 70 acre park, which includes Lancaster's Big 8 Softball Complex, to be irrigated entirely by recycled water. The project saves approximately 125 acre-feet of potable water per year; an equivalent of nearly 40,730,000 gallons annually. The City Park Recycled Water Conversion project, which cost approximately $456,000 to construct, is expected to save 625 acre-feet of potable water and more than $156,000 in water costs over the next five years.

The project, approved by both the Los Angeles County Health Department and the Sanitation Districts of Los Angeles County, utilizes recycled water from the local Lancaster Water Reclamation Plant. At the plant, reclaimed water goes through a three-stage treatment process, resulting in tertiary-treated water. The water from the reclamation plant travels nearly 8 miles through a series of special recycled-water pipelines which stretch from the reclamation facility on Avenue D to Lancaster City Park on Avenue K-8. This new pipeline, constructed over the past eight years with assistance from the Army Corps of Engineers, is the main artery of the City's recycled water system infrastructure.

The recycled water pipeline includes the capability to allow facilities with large-scale irrigation needs to tie into the pipeline, such as the new Kaiser Permanente medical office building near Avenue L & 5th Street West. The Lancaster University Center, located near Avenue I, has already connected to the recycled water pipeline and expects to use 11 acre-feet of recycled water annually thus saving the same amount of potable water.

Finances in the Future The City continues its fiscally conservative General Fund balance reserve to cover unanticipated revenue shortfalls or expenditure requirements. Also in safe and closely monitored condition is the City's status relative to Proposition 4, the Gann initiative, which limits appropriations by a formula, tied to the Consumer Price Index, population growth, and assessed value changes. This year the City continued its long-standing policy of maintaining the City's general fund unallocated 10% operating reserve and unallocated financial stability reserve of approximately 10%, for a total reserve of approximately 20%.

The continued weakened economy results in a loss of revenue to the City of Lancaster. However, through its long-range financial forecasting, the City has positioned itself to weather

v the current economic downturn. The City made a commitment to excellent customer service, public safety and maintaining long-term financial stability. This was accomplished by finding opportunities to improve efficiencies, deferring projects and reducing administrative costs. As mentioned, the City is also pursuing new and innovative sources of revenue, as evidenced by the Lancaster Power Authority and California Clean Energy Authority projects.

OTHER INFORMATION

Independent Audit The City requires an annual audit of the books of account, financial records, and transactions of all administrative departments of the City. This report was prepared with the assistance of the auditor, the independent certified public accounting firm of White Nelson Diehl Evans LLC. The auditor's opinion is included in this report.

Financial Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Lancaster for its Comprehensive Annual Financial Report for the fiscal year ended June 30, 2013. The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government fmancial reports.

In order to be awarded a certificate of Achievement, the City must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report must satisfy both Generally Accepted Accounting Principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. The City of Lancaster has received a Certificate of Achievement for the last twenty-eight consecutive years. We believe our current report continues to conform to the Certificate of Achievement Program's requirements, and we are submitting it to the GFOA.

Acknowledgments The preparation of this document is the result of the hard work of the entire Finance Department staff. Special recognition goes to Pam Statsmann, Assistant Finance Director and Tammie Holladay, Accounting Supervisor for their dedication, and whose efforts, coupled with the assistance of our auditors, have culminated in the timely completion of this report. We are pleased with the product and wish to thank all involved. Special appreciation goes to the members of the City Council for their continuing engagement and support in the financial activities of the City. The financial success of the City of Lancaster is greatly attributable to the City Council's progressive and responsible manner in addressing the business of this municipality.

Respectfully submitted, / /)~ ,(1 /1/;1 ~- Mark V. Bozigian Barbara Boswell City Manager Finance Director

vi CITY OF LANCASTER

CITY COUNCIL MEMBERS

Term Expires

R. Rex Parris Mayor 2016

Marvin E. Crist Vice Mayor 2018

Ronald D. Smith Council Member 2018

Kenneth G. Mann Council Member 2016

Sandra Johnson Council Member 2016

CITY OFFICIALS

Mark V. Bozigian City Manager

Allison E. Bums City Attorney

Jason D. Caudle Deputy City Manager

Kelvin Tainatongo Assistant to the City Manager

Barbara Boswell Finance Director

Elizabeth A. Brubaker Housing & Neighborhood Revitalization Director

Geri K. Bryan City Clerk

Beverly Glode Human Resources and Risk Management Director

Vern Lawson Economic Development Director

Brian S. Ludicke Planning Director

Ronda Perez Parks, Recreation and Arts Director

Robert C. Neal Public Works Director

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viii \'

City ofLancaster lancaster ca Fiscal Year 2015 Organization Chart ,"tJ~&/MV

City of Lancaster RESIDENTS PLANNING COMMISSION

AACHilfCTURAI. DESIGN COMMISSION CITY COUNCIL Asst to the CM KELVIN TAINATONGO

City Attorney City Manager Allison Bums MARK V. BOZIGIAN

Power Deputy City Mgr Authority JASON CAUDLE

Finance/rr BARBARA BOSWELL

Parks, Recreaffon &Arts RONDA PEREZ

CULTURAL ARTS

PARKS MAl NT

ix Government Finance Officers Association

Certificate of Achievement for Excellence in Financial Reporting

Presented to City of Lancaster California

For its Comprehensive Annual Financial Report for the Fiscal Year Ended

June 30, 2013

Executive Director/CEO

X AV Economic Region

xi CITY OF LANCASTER TOTAL INCORPORATED AREA- 94 SQUARE MILES .. r ·~"· · ( ~~ § lll H~ ~ ! AVEMJE B Ml'E ~ ~~ ! ~ g :~~ H \ f.t H " H t '\l,. EDWARD& AJA FORCE BABE A.Ve.I UE C

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D CITY BOUN DARY [__j SPHERE OF INFLUENCE

xii FINANCIAL SECTION

INDEPENDENT AUDITORS’ REPORT

Honorable Mayor and Members of the City Council of the City of Lancaster Lancaster, California

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activity, each major fund, and the aggregate remaining fund information of the City of Lancaster (the City), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

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

Auditors’ Responsibility

Our responsibility is to express opinions on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free from material misstatement.

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

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. - 1 - 2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893

Offices located in Orange and San Diego Counties

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activity, each major fund, and the aggregate remaining fund information of the City of Lancaster, as of June 30, 2014, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparisons for the General Fund, the HOME Program Special Revenue Fund and the Lancaster Housing Authority Special Revenue Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matters

As discussed in Note 16 to the financial statements, the net position of the governmental activities, and fiduciary private-purpose trust fund were restated as of July 1, 2013. Our opinion is not modified with respect to this matter.

Other Matters

Required Supplementary Information

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

Other Information

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

The supplementary information, as listed in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the basic financial statements as a whole. - 2 - Other Matters (Continued)

Other Information (Continued)

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

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 22, 2014, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Irvine, California December 22, 2014

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- 4 - Management’s Discussion and Analysis

As management of the City of Lancaster, we offer readers of the City of Lancaster's financial statements this narrative overview and analysis of the financial activities of the City of Lancaster for the fiscal year ended June 30, 2014. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal.

Financial Highlights

 The program and general revenues were $101,231,678  The cost of governmental activities was $120,192,654  The General Fund reported revenues and transfers-in in excess of expenditures and transfers-out of $15,092,375. This was a direct result of the reinstatement of pre-dissolution loans to the former RDA in the amount of $18,269,439.  For the General Fund, actual resources available for appropriation (revenue inflows and fund balance) was more than final budget by $18,848,807; while actual appropriations (outflows) were less than the final budget by $470,334.

Overview of the Financial Statements

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

Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Lancaster's finances, in a manner similar to a private-sector business.

The statement of net position presents information on all of the City of Lancaster's assets, deferred outflows, liabilities, and deferred inflow of resources with the net difference reported as net position. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Lancaster is improving or deteriorating.

The statement of activities presents information showing how the government's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned, but unused, vacation leave).

Both of the government-wide financial statements distinguish functions of the City of Lancaster that are principally supported by taxes and intergovernmental revenues (government activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Lancaster include General Government, Public Safety, Community Development, Parks and Recreation, Public Works, and Housing. The business-type activities include the Lancaster Power Authority.

The government-wide financial statements include the blending of a separate legal entity--the Lancaster Housing Authority. Although legally separate, this "component unit" is important because the City of Lancaster is financially accountable for it. Separate statements are provided for business activities of the Lancaster Power Authority and the fiduciary activities of the Agency Funds and Private Purpose Funds of the Lancaster Successor Agency.

See independent auditors’ report. - 5 - Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Lancaster, like other local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Lancaster can be divided into three categories: Governmental Funds, Proprietary Funds and Fiduciary Funds.

Governmental Funds. Governmental Funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements.

Because the focus of Governmental Funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for Governmental Funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The City of Lancaster maintains thirty-seven individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, one capital project fund, and two special revenue funds, both of which are considered to be major funds. Data from the other thirty-three governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these other governmental funds is provided in the form of combining statements elsewhere in this report.

The City of Lancaster adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget.

Proprietary Funds. A Proprietary or Enterprise Fund is used to report the same functions presented as business-type activities in the government-wide financial statements. The City of Lancaster uses an enterprise fund to account for the activities of the Lancaster Power Authority.

Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the Lancaster Power Authority.

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

Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statement.

Combining Statements. The combining statements referred to earlier in connection with non-major governmental are presented immediately following the notes.

See independent auditors’ report. - 6 - Government-wide Financial Analysis

Our analysis focuses on the net position and changes in net position of the City’s governmental activities.

City of Lancaster Net Position (in Thousands)

Governmental Activities Business-Type Activities Total 2014 2013 2014 2013 2014 2013 Current and other assets $ 236,096 $ 197,610 $ 2,728 3,238$ $ 238,824 $ 200,848 Capital Assets 926,113 940,305 21,138 22,077 947,251 962,382 Total Assets 1,162,209 1,137,915 23,866 25,315 1,186,075 1,163,230

Long Term Liabilities Outstanding 29,131 25,891 25,359 26,336 54,490 52,227 Other Liabilities 24,555 8,410 259 377 24,814 8,787 Total Liabilities 53,686 34,301 25,618 26,713 79,304 61,014

Net Pos ition Net Investment in Capital Assets 923,426 937,437 (4,221) (4,258) 919,205 933,179 Restricted 154,577 161,082 - - 154,577 161,082 Unrestricted 30,520 5,095 2,469 2,861 32,989 7,956 Total Net Assets $ 1,108,523 $ 1,103,614 $ (1,752) (1,397)$ $ 1,106,771 $ 1,102,217

Governmental Activities. Governmental activities increased the City of Lancaster's net position by $19,648,352.

 Sales tax increased $1,789,157 or 11% from the prior year.  Contribution of land from the Successor Agency accounted for an increase of $3,806,539.  Reinstatement of pre-dissolution loans from the former RDA accounted for an increase of $37,662,891.

Business-Type Activities. Business-type activities decreased the City of Lancaster’s net position by $355,039 due to debt service obligations and slower than expected revenue generation.

See independent auditors’ report. - 7 - City of Lancaster Changes in Net Position (in Thousands)

Governmental Activities Business-Type Activities Total 2014 2013 2014 2013 2014 2013 Revenues Program revenues: Charges for services $ 19,724 $ 19,605 $ 3,403 $ 2,938 $ 23,127 $ 22,543 Operating contributions and grants 22,339 27,016 - - 22,339 27,016 Capital contributions and grants 13,157 10,894 - - 13,157 10,894

General revenues: Taxes: Property taxes 14,371 14,143 - - 14,371 14,143 Sales taxes 18,044 16,254 - - 18,044 16,254

Franchise taxes 2,669 2,618 - - 2,669 2,618 Other taxes 2,657 2,628 - - 2,657 2,628 Motor vehicle in lieu 67 81 - - 67 81 Investment income 253 38 9 - 262 38 Other 4,492 1,117 48 45 4,540 1,162

Transfers 600 600 (600) (600) - - Special Items 41,469 - - - 41,469 -

Total revenues 139,842 94,994 2,860 2,383 142,702 97,377

Expenses General government 20,827 20,108 - - 20,827 20,108 Public safety 24,042 25,619 - - 24,042 25,619 Public works 54,079 53,655 - - 54,079 53,655 Parks and recreation 13,556 13,050 - - 13,556 13,050

Housing 3,072 421 - - 3,072 421 Community Development 4,383 6,554 - - 4,383 6,554 Interest on long-term debt 234 376 - - 234 376 Lancaster Power Authority - - 3,215 2,991 3,215 2,991

Extraordinary Loss - 14,483 - - - 14,483

Total expenses 120,193 134,266 3,215 2,991 123,408 137,257

Increase (decrease) in net position $ 19,649 $ (39,272) $ (355) $ (608) $ 19,294 $ (39,880)

Beginning Net Position 1,103,614 1,120,616 (1,397) (253) 1,102,217 1,120,363

Prior Period Adjustment (14,740) 22,270 - (536) (14,740) 21,734

Ending Net Position $ 1,108,523 $ 1,103,614 $ (1,752) $ (1,397) $ 1,106,771 $ 1,102,217

The City’s total revenues are $142,701,108 while the costs of all programs and services are $123,407,795.

See independent auditors’ report. - 8 - City of Lancaster Government Activities Revenue by Source (in Thousands)

expenses program revenues

60,000 50,000 40,000 30,000 20,000 10,000 - Safety Public Public Works Debt Housing General Parks and Parks Interest onInterest Recreation Long Term Comm Dev Comm Government

City of Lancaster Governmental Activities (in Thousands)

Motor Vehicle in Lieu 0% Charges for Services Sales Taxes 14% 13% Investment Income Property Taxes 0% 10% Contributions and Grants Other Taxes 16% 4%

Capital Contributions 9%

Other 34%

See independent auditors’ report. - 9 - City of Lancaster Governmental Activities (in Thousands)

The following presents the cost of each of the City’s five largest programs—general government, public safety, community development, parks and recreation, and public works—as well as each program’s net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on the City’s taxpayers by each of these functions.

Total Cost Net Cost of Services of Services 2014 2014 General Government $ 20,827 $ (13,276) Public Safety 24,042 (21,950) Community Development 4,383 (1,429)

Parks and Recreation 13,556 (9,785)

Public Works 54,079 (16,391)

Totals $ 116,887 $ (62,831)

The net cost of services indicates that the overall cost of government is more than the revenues generated to support it. The City is not fully recovering the cost of these services with program revenues from user fees and other contributions. See the Statement of Activities for further detail on program revenues and general revenues.

Financial Analysis of the City’s Funds

The City of Lancaster uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental Funds. The focus of the City of Lancaster's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Lancaster's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year.

As of the end of the current fiscal year, the City of Lancaster’s governmental funds reported combined ending fund balances of $190.4 million.

The General Fund is the chief operating fund of the City of Lancaster. At the end of the current fiscal year, including operating transfers, the General Fund reported revenues and transfers-in in excess of expenditures and transfers-out of $15,092,375. The increase in fund balance directly relates to the reinstatement of pre-dissolution loans to the former RDA in the amount of $18,269,439.

The HOME Program Fund is a special revenue fund used to capture activities performed under the U.S. Department of Housing and Urban Development (HUD)’s HOME Investment Partnerships Program. At the end of the fiscal year, the HOME Program Fund reported revenues in excess of expenditures in the amount of $65,733.

The Lancaster Housing Authority Fund is a special revenue fund used to capture activities performed by the Lancaster Housing Authority. At the end of the current fiscal year, the Lancaster Housing Authority Fund reported revenues and transfer-in in excess of expenditures and transfers-out of $3,778,467. The increase in fund balance directly relates to the reinstatement of pre-dissolution loans to the former RDA in the amount of $4,567,360.

See independent auditors’ report. 10 The Capital Projects Fund is a governmental fund used to record capital improvement project activities. Expenditures of this fund are funded by transfers in from other funds. In fiscal year 13/14, the Capital Projects Fund reported expenditures and matching transfers in totaling $10,079,834.

Proprietary Funds. The City of Lancaster’s proprietary fund provides the same type of information found in the government-wide financial statement, but in more detail. The City of Lancaster has only one fund of this type.

This is the third year for Proprietary reporting of the Lancaster Power Authority. Net position of the Lancaster Power Authority at the end of the year was ($1,752,308) mainly due to debt service obligations.

General Fund Budgetary Highlights

The actual amounts of expenditures for the General Fund at year-end were $1,084,918 less than the final budget before transfers. The budget to actual variance in appropriations was principally due to close control by management. Actual revenues were $18,828,073 more than the final budget before transfers.

Capital Asset and Debt Administration

Capital Assets. At the end of FY 2014, the City had $926.1 million invested in a broad range of capital assets, including land, buildings, infrastructure, and equipment.

The City’s Capital Improvement Plan projects spending $22.3 million through fiscal 2014-15 on new projects. Funding will come from current fund balances and projected revenues. The most significant projects include: Pavement Management Program; Avenue I street improvements from Challenger to Price, and Price to 35th St E; Avenue K and SR 14 interchange; Pedestrian and street improvements on 20th St W from Lancaster Blvd. to Avenue J.

Land $ 22,256 Buildings and Improvements 40,683 Furniture and Equipment 4,431 Infrastructure 828,855 Construction in Progress 29,888

Net Capital Assets $ 926,113

Note 4 provides a detailed analysis of the Capital Assets.

Long-term Debt. At the end of the current fiscal year, the City of Lancaster’s total long term debt increased by $3,240,774 or 12.5% from the prior year. As of June 30, 2014, the City of Lancaster had accrued employee benefits outstanding of $3,125,589.

Energy Revenue Bonds of the Lancaster Power Authority will be paid out of solar utility revenues.

See independent auditors’ report. 11 City of Lancaster Long-term Debt (in Thousands)

Governmental Activities Business-Type Activities Total 2014 2013 2014 2013 2014 2013 Notes Payable $ 3,130 $ 3,478 $ - $ - $ 3,130 $ 3,478 Accrued Employee Benefits 3,126 2,806 - - 3,126 2,806 Claims and Judgements 1,228 899 - - 1,228 899 Net OPEB Obligation 18,960 15,840 - - 18,960 15,840 Renew able Energy Bonds - - 25,895 26,895 25,895 26,895 Unamortized Bond Discount - - (536) (559) (536) (559) Loans 1,330 1,426 - - 1,330 1,426 Capital Lease 1,357 1,441 - - 1,357 1,441 Total $ 29,131 $ 25,890 $ 25,359 26,336$ $ 54,490 $ 52,226

Note 6 provides a detailed analysis of the Long Term Debt.

Economic Factors and Next Year’s Budgets and Rates

On June 24, 2014, the City Council adopted the 2014-15 Program and Financial Plan and 2014-15 Budget, with total appropriations of $109.2 million. Adequate resources are available to fund the proposed expenditures. Consistent with the City’s policy, General Fund operating revenues fully cover on-going operating expenses with Fund Balance funding one-time expenses. Ending fund balance meet’s the City’s policy minimum of 10% of operating expenditures.

Budgetary revenue estimates have been prepared using a variety of methods. Certain revenue sources, such as Federal and State grants and transportation funds are relatively fixed and known. Others, such as sales tax and development related revenues are more difficult to estimate. In those cases, a cautiously optimistic economic outlook has been assumed.

Current economic conditions allow the City to maintain core services, and to maintain current levels of public safety. However, prudent long-term fiscal planning dictates that we remain conservative, focus on the highest priorities, and fund only those enhancements we can sustain financially.

The largest single source of revenue for the City’s General Fund is sales tax, which represents 36.1% of all General Fund revenues for the upcoming fiscal year. The revenue and expenditure projections for development related activity are based upon local and regional economic forecasts and trends. Overall the budget is based on the information supplied by outside agencies, such as the State Department of Finance, State Board of Equalization, and the Los Angeles County Assessor's Office, to predict revenues. The revenue and expenditure projections are intended to serve as a guide in planning for the future.

A priority of the City is to maintain a high quality of services while adopting a balanced budget. Once again, the proposed budget is balanced and conservative in a highly volatile fiscal environment.

Contacting The City’s Financial Management

This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the City’s finances and to show the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact Pamela Statsmann, Assistant Finance Director, at the City of Lancaster, 44933 Fern Avenue, Lancaster, CA 93534, or by phone at (661)723-6038. See independent auditors’ report. 12 BASIC FINANCIAL STATEMENTS

CITY OF LANCASTER

STATEMENT OF NET POSITION

June 30, 2014

Governmental Business-Type Activities Activity Total ASSETS: Cash and investments $ 78,414,850 $ - $ 78,414,850 Receivables: Accounts 3,003,695 504,040 3,507,735 Taxes 4,177,178 - 4,177,178 Notes and loans 25,027,442 - 25,027,442 Accrued interest 140,392 - 140,392 Prepaid items 367,925 - 367,925 Due from other governments 3,238,524 - 3,238,524 Internal balances 19,786 (19,786) - Inventories 54,983 - 54,983 Land held for resale 53,829,614 - 53,829,614 Advances to Successor Agency 64,172,782 - 64,172,782 Resticted assets: Cash and investments 53,024 2,243,473 2,296,497 Prepaid pension asset 3,595,453 - 3,595,453 Capital assets: Non-depreciable 52,144,886 - 52,144,886 Depreciable 873,968,187 21,138,097 895,106,284

TOTAL ASSETS 1,162,208,721 23,865,824 1,186,074,545

LIABILITIES: Accounts payable 6,425,555 22,013 6,447,568 Accrued liabilities 1,319,912 681 1,320,593 Accrued interest 76,295 164,749 241,044 Unearned revenues 15,288,852 71,225 15,360,077 Deposits payable 1,443,937 - 1,443,937 Noncurrent liabilities: Due within one year 2,820,094 1,045,000 3,865,094 Due in more than one year 26,311,359 24,314,464 50,625,823

TOTAL LIABILITIES 53,686,004 25,618,132 79,304,136

NET POSITION: Net investment in capital assets 923,425,649 (4,221,367) 919,204,282 Restricted for: Community development projects 4,515,938 - 4,515,938 Public safety 51,975 - 51,975 Parks and recreation 2,195,355 - 2,195,355 Public works 45,157,433 - 45,157,433 Debt service 2,033,494 - 2,033,494 Housing 100,622,781 - 100,622,781 Unrestricted 30,520,092 2,469,059 32,989,151

TOTAL NET POSITION $ 1,108,522,717 $ (1,752,308) $ 1,106,770,409

See independent auditors' report and notes to financial statements. - 13 - CITY OF LANCASER

STATEMENT OF ACTIVITIES

For the year ended June 30, 2014

Program Revenues Charges Operating Capital for Grants and Grants and Functions/programs Expenses Services Contributions Contributions Governmental activities: General government $ 20,826,798 $ 198,193 $ 7,352,995 $ - Public safety 24,042,237 978,834 1,112,948 - Community development 4,382,821 568,214 2,385,156 - Parks and recreation 13,555,843 3,683,705 87,163 - Public works 54,078,702 13,285,244 11,245,588 13,157,118 Housing 3,072,338 1,009,550 154,883 - Interest and other charges 233,915 - - -

Total governmental activities 120,192,654 19,723,740 22,338,733 13,157,118

Business-Type Activity: Lancaster Power Authority 3,215,141 3,402,736 - -

Total primary government $ 123,407,795 $ 23,126,476 $ 22,338,733 $ 13,157,118

General revenues: Taxes: Property taxes, levied for general purposes Transient occupancy taxes Sales taxes Franchise taxes Business licenses taxes Other taxes Motor vehicle in lieu - unrestricted Investment income Miscellaneous Gain on sale of property Transfers

Total general revenues and transfers

Change in net position before special items

Special Items: Contribution of land from Successor Agency Reinstatement of pre-dissolution loans to former RDA

Change in net position

Net Position - Beginning of Year, as Restated

Net Position - End of Year

See independent auditors' report and notes to financial statements. - 14 - Net (Expenses) Revenue and Changes in Net Position Primary Government

Governmental Business-Type Activities Activity Total

$ (13,275,610) $ - $ (13,275,610) (21,950,455) - (21,950,455) (1,429,451) - (1,429,451) (9,784,975) - (9,784,975) (16,390,752) - (16,390,752) (1,907,905) - (1,907,905) (233,915) - (233,915)

(64,973,063) - (64,973,063)

- 187,595 187,595

(64,973,063) 187,595 (64,785,468)

14,370,865 - 14,370,865 1,313,033 - 1,313,033 18,043,706 - 18,043,706 2,669,286 - 2,669,286 929,618 - 929,618 413,913 - 413,913 67,299 - 67,299 252,605 9,533 262,138 331,511 47,833 379,344 4,160,149 - 4,160,149 600,000 (600,000) -

43,151,985 (542,634) 42,609,351

(21,821,078) (355,039) (22,176,117)

3,806,539 - 3,806,539 37,662,891 - 37,662,891

19,648,352 (355,039) 19,293,313

1,088,874,365 (1,397,269) 1,087,477,096

$ 1,108,522,717 $ (1,752,308) $ 1,106,770,409

- 15 - CITY OF LANCASTER

BALANCE SHEET - GOVERNMENTAL FUNDS

June 30, 2014

Special Revenue Funds Lancaster HOME Housing General Program Authority ASSETS: Pooled cash and investments $ 11,042,226 $ 459,703 $ 11,921,899 Receivables: Accounts 1,451,809 4,329 41,470 Taxes 4,002,620 - - Notes and loans 8,383,972 13,653,828 2,989,642 Accrued interest 31,957 823 21,363 Prepaid items 367,925 - - Due from other governments 283,497 - - Due from other funds 5,525,812 - - Inventories 54,983 - - Land held for resale - - 53,579,848 Advances to Successor Agency 32,328,612 - 31,844,170 Restricted assets: Cash and investments - - 53,024 TOTAL ASSETS $ 63,473,413 $ 14,118,683 $ 100,451,416 LIABILITIES: Accounts payable $ 4,760,364 $ 15,684 $ 700 Accrued liabilities 1,308,179 - 1,358 Unearned revenues 780,755 13,063,766 826,842 Deposits payable 1,404,969 - 38,968 Due to other funds - - TOTAL LIABILITIES 8,254,267 13,079,450 867,868 DEFERRED INFLOWS OF RESOURCES: Unavailable revenues 13,575,232 - 2,973,695 FUND BALANCES: Nonspendable: Notes and loans 7,368,200 - - Prepaid items 367,925 - - Advances to Successor Agency 20,430,127 - - Inventories 54,983 - - Restricted: Community development projects - - - Public safety - - - Parks and recreation - - - Public works - - - Debt service - - - Housing - 1,039,233 96,609,853 Assigned: Employee benefits 1,248,302 - - Building replacement 24,792 - - Capital facilities 87,750 - - Technology infrastructure 2,071,958 - - Legal claims 1,247,824 - - Capital projects - - - Unassigned 8,742,053 - - TOTAL FUND BALANCES 41,643,914 1,039,233 96,609,853 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 63,473,413 $ 14,118,683 $ 100,451,416

See independent auditors' report and notes to financial statements. - 16 - Other Total Capital Governmental Governmental Projects Funds Funds

$ 725,010 $ 54,266,012 $ 78,414,850

12,533 1,493,554 3,003,695 - 174,558 4,177,178 - - 25,027,442 - 86,249 140,392 - - 367,925 - 2,955,027 3,238,524 - - 5,525,812 - - 54,983 - 249,766 53,829,614 - - 64,172,782

- - 53,024 $ 737,543 $ 59,225,166 $ 238,006,221

$ 737,034 $ 911,773 $ 6,425,555 - 10,375 1,319,912 - 617,489 15,288,852 - - 1,443,937 - 5,506,026 5,506,026 737,034 7,045,663 29,984,282

- 1,024,098 17,573,025

- - 7,368,200 - - 367,925 - - 20,430,127 - - 54,983

- 4,515,938 4,515,938 - 51,975 51,975 - 2,195,355 2,195,355 - 44,996,066 44,996,066 - 2,033,494 2,033,494 - - 97,649,086

- - 1,248,302 - - 24,792 - - 87,750 - - 2,071,958 - - 1,247,824 509 - 509 - (2,637,423) 6,104,630 509 51,155,405 190,448,914

$ 737,543 $ 59,225,166 $ 238,006,221

- 17 - This page intentionally left blank

- 18 - CITY OF LANCASTER

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION

June 30, 2014

Fund balances - total governmental funds $ 190,448,914

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

Capital assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds balance sheet: Capital assets $ 1,713,207,714 Accumulated depreciation (787,094,641) 926,113,073 Long-term liabilities applicable to the City governmental activities are not due and payable in the current period and accordingly are not reported. Interest on long-term liabilities is not accrued in governmental funds, but rather is recognized as an expenditures when due. All liabilities, both current and long-term, are reported in the Statement of Net Position. Balances as of June 30, 2014 are: Bonds, notes, loans and capital leases payable (5,817,424) Claims and judgments (1,228,000) Compensated absences (3,125,589) (10,171,013)

Governmental funds report all Other Post-Employment Benefit (OPEB) and pension contributions as expenditures, however, in the Statement of Net Position, any excesses or deficiencies in contributions in relation to the Annual Required Contribution (ARC) are recorded as an asset or liability: Net pension asset 3,595,453 Net OPEB obligation (18,960,440) (15,364,987)

Accrued interest payable for the current portion of interest due on bonds are not reported in the governmental funds (76,295)

Long-term assets are not available to pay for current period expenditures and, therefore, are reported as deferred inflows of resources in the fund financial statements: Unavailable revenues 17,573,025

Net position of governmental activities $ 1,108,522,717

See independent auditors' report and notes to financial statements. - 19 - CITY OF LANCASTER

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS

For the year ended June 30, 2014

Special Revenue Funds Lancaster HOME Housing General Program Authority REVENUES: Taxes $ 38,941,534 $ - $ - Licenses and permits 1,300,032 - - Intergovernmental 1,328,264 65,122 - Charges for services 3,452,960 - - Use of money and property 715,013 5,007 4,618,318 Fines and forfeitures 735,551 - - Miscellaneous 548,765 - 261,856 TOTAL REVENUES 47,022,119 70,129 4,880,174

EXPENDITURES: Current: General government 11,760,368 4,396 - Public safety 24,095,351 - - Community development 2,720,694 - - Parks and recreation 12,324,636 - - Public works 3,368,701 - - Housing - - 4,797,697 Capital outlay 384,904 - - Debt service: Principal retirement 180,151 - - Interest and fiscal charges 103,868 - - TOTAL EXPENDITURES 54,938,673 4,396 4,797,697

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (7,916,554) 65,733 82,477

OTHER FINANCING SOURCES (USES): Transfers in 6,905,944 - - Transfers out (2,166,454) - (871,370) TOTAL OTHER FINANCING SOURCES (USES) 4,739,490 - (871,370)

NET CHANGE IN FUND BALANCES, BEFORE SPECIAL ITEM (3,177,064) 65,733 (788,893)

SPECIAL ITEM: Reinstatement of pre-dissolution loans to former RDA 18,269,439 - 4,567,360

NET CHANGE IN FUND BALANCES 15,092,375 65,733 3,778,467

FUND BALANCES - BEGINNING OF YEAR, AS RESTATED 26,551,539 973,500 92,831,386

FUND BALANCES - END OF YEAR $ 41,643,914 $ 1,039,233 $ 96,609,853

See independent auditors' report and notes to financial statements. - 20 - Other Total Capital Governmental Governmental Projects Funds Funds

$ - $ 4,200,515 $ 43,142,049 - 2,465,099 3,765,131 - 24,048,020 25,441,406 - 7,602,201 11,055,161 - 650,392 5,988,730 - 428,558 1,164,109 - 297,732 1,108,353 - 39,692,517 91,664,939

- 2,233,269 13,998,033 - 142,878 24,238,229 - 1,300,608 4,021,302 - - 12,324,636 - 14,271,036 17,639,737 - 265,462 5,063,159 10,079,834 657,099 11,121,837

- 348,000 528,151 - 140,715 244,583 10,079,834 19,359,067 89,179,667

(10,079,834) 20,333,450 2,485,272

10,079,834 6,071,123 23,056,901 - (19,419,077) (22,456,901)

10,079,834 (13,347,954) 600,000

- 6,985,496 3,085,272

- - 22,836,799

- 6,985,496 25,922,071

509 44,169,909 164,526,843

$ 509 $ 51,155,405 $ 190,448,914

- 21 - CITY OF LANCASTER

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES

For the year ended June 30, 2014

Net change in fund balances - total governmental funds $ 25,922,071

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

Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital expense in the current period. Capital outlays $ 15,058,519 Contributed capital assets 8,976,525 Depreciation expense (38,867,250) (14,832,206)

The issuance of long term debt provides current financial resources to governmental funds, while the repayment of the principal of long term-debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Principal payments 528,151 528,151

Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmental funds. Change in compensated absences payable (319,485) Change in claims payable (329,000) (648,485)

Accrued interest for long-term liabilities. This is the net change in accrued interest for the current period. 10,668

Governmental funds report all contributions in relation to the annual required contribution (ARC) for OPEB and pension as expenditures, however in the statement of activites only the ARC is reported as an expense Change in net OPEB obligation (3,120,440) Change in net pension asset (167,611) (3,288,051)

Revenues are deferred in the governmental funds when they are not received soon after year-end to be considered to be available. The availability criteria does not apply to the Statement of Net Position and therefore, the revenue is recognized. 11,956,204

Change in net position of governmental activities $ 19,648,352

See independent auditors' report and notes to financial statements. - 22 - CITY OF LANCASTER

BUDGETARY COMPARISON STATEMENT GENERAL FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

Budgetary Fund Balance, July 1, as Restated $ 26,551,539 $ 26,551,539 $ 26,551,539 $ -

Resources (Inflows): Taxes 38,667,100 38,667,100 38,941,534 274,434 Licenses and permits 1,131,875 1,131,875 1,300,032 168,157 Intergovernmental 1,097,000 1,097,000 1,328,264 231,264 Charges for services 3,119,580 3,189,580 3,452,960 263,380 Use of money and property 812,950 902,950 715,013 (187,937) Fines and forfeitures 851,280 851,280 735,551 (115,729) Miscellaneous 623,700 623,700 548,765 (74,935) Transfers in 6,885,210 6,885,210 6,905,944 20,734 Special items - - 18,269,439 18,269,439

Amounts Available for Appropriations 79,740,234 79,900,234 98,749,041 18,848,807

Charges to Appropriations (Outflows): General government 11,783,984 12,451,094 11,760,368 690,726 Public safety 25,019,939 24,542,606 24,095,351 447,255 Community development 3,250,550 2,816,291 2,720,694 95,597 Parks and recreation 11,708,873 12,399,962 12,324,636 75,326 Public works 3,835,364 3,414,960 3,368,701 46,259 Capital outlay 159,678 398,678 384,904 13,774 Debt service: Principal retirement - - 180,151 (180,151) Interest and fiscal charges - - 103,868 (103,868) Transfers out 1,571,926 1,551,870 2,166,454 (614,584)

Total Charges to Appropriations 57,330,314 57,575,461 57,105,127 470,334

Budgetary Fund Balance, June 30 $ 22,409,920 $ 22,324,773 $ 41,643,914 $ 19,319,141

See independent auditors' report and notes to financial statements. - 23 - CITY OF LANCASTER

BUDGETARY COMPARISON STATEMENT HOME PROGRAM SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

Budgetary Fund Balance, July 1 $ 973,500 $ 973,500 $ 973,500 $ -

Resources (Inflows): Intergovernmental - 48,000 65,122 17,122 Use of money and property - - 5,007 5,007

Amounts Available for Appropriations 973,500 1,021,500 1,043,629 22,129

Charges to Appropriations (Outflows): General government 41,133 35,500 4,396 31,104

Total Charges to Appropriations 41,133 35,500 4,396 31,104

Budgetary Fund Balance, June 30 $ 932,367 $ 986,000 $ 1,039,233 $ 53,233

See independent auditors' report and notes to financial statements. - 24 - CITY OF LANCASTER

BUDGETARY COMPARISON STATEMENT LANCASTER HOUSING AUTHORITY SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1, as Restated $ 92,831,386 $ 92,831,386 $ 92,831,386 $ -

Resources (Inflows): Use of money and property 3,044,500 5,044,500 4,618,318 (426,182) Miscellaneous - 84,100 261,856 177,756 Special Items - - 4,567,360 4,567,360

Amounts Available for Appropriations 95,875,886 97,959,986 102,278,920 4,318,934

Charges to Appropriations (Outflows): Housing 1,970,510 2,319,210 4,797,697 (2,478,487) Transfers out 871,370 871,370 871,370 -

Total Charges to Appropriations 2,841,880 3,190,580 5,669,067 (2,478,487)

Budgetary Fund Balance, June 30 $ 93,034,006 $ 94,769,406 $ 96,609,853 $ 1,840,447

See independent auditors' report and notes to financial statements. - 25 - CITY OF LANCASTER

STATEMENT OF NET POSITION PROPRIETARY FUND

June 30, 2014 Business-Type Activity - Enterprise Fund Lancaster Power Authority

ASSETS: CURRENT ASSETS: Receivables: Accounts $ 504,040 Restricted assets: Cash and investments 2,243,473 TOTAL CURRENT ASSETS 2,747,513

NONCURRENT ASSETS: Capital assets: Depreciable 21,138,097

TOTAL ASSETS 23,885,610

LIABILITIES: CURRENT LIABILITIES: Accounts payable 22,013 Accrued liabilities 681 Interest payable 164,749 Unearned revenues 71,225 Due to other funds 19,786 Current portion of long-term liabilities 1,045,000 TOTAL CURRENT LIABILITIES 1,323,454

LONG-TERM LIABILITIES: Noncurrent portion of long-term liabilities 24,314,464

TOTAL LIABILITIES 25,637,918

NET POSITION: Net investment in capital assets (4,221,367) Unrestricted 2,469,059

TOTAL NET POSITION $ (1,752,308)

See independent auditors' report and notes to financial statements. - 26 - CITY OF LANCASTER

STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUND

For the year ended June 30, 2014 Business-Type Activity - Enterprise Fund Lancaster Power Authority

OPERATING REVENUES: Sales and service charges $ 3,402,736

TOTAL OPERATING REVENUES 3,402,736

OPERATING EXPENSES: Administration and general 1,257,056 Depreciation expense 939,471

TOTAL OPERATING EXPENSES 2,196,527

OPERATING INCOME 1,206,209

NONOPERATING REVENUES (EXPENSES): Interest revenue 9,533 Other nonoperating income 47,833 Interest expense (1,018,614)

TOTAL NONOPERATING REVENUES (EXPENSES) (961,248)

INCOME BEFORE TRANSFERS 244,961

TRANSFERS OUT (600,000)

CHANGE IN NET POSITION (355,039)

NET POSITION - BEGINNING OF YEAR (1,397,269)

NET POSITION - END OF YEAR $ (1,752,308)

See independent auditors' report and notes to financial statements. - 27 - CITY OF LANCASTER

STATEMENT OF CASH FLOWS PROPRIETARY FUND

For the year ended June 30, 2014 Business-Type Activity - Enterprise Fund Lancaster Power Authority CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers and users $ 3,190,432 Cash paid to suppliers for goods and services (1,367,140) NET CASH PROVIDED BY OPERATING ACTIVITIES 1,823,292

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Cash transfers out (600,000) Cash paid to other funds 19,786 NET CASH USED BY NONCAPITAL FINANCING ACTIVITIES (580,214)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Interest paid on capital debt (1,998,493) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (1,998,493)

CASH FLOWS FROM INVESTING ACTIVITIES: Interest received 9,533 NET CASH PROVIDED BY INVESTING ACTIVITIES 9,533

NET DECREASE IN CASH AND CASH EQUIVALENTS (745,882)

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 2,989,355

CASH AND CASH EQUIVALENTS - END OF YEAR $ 2,243,473

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income $ 1,206,209 Other income 47,833 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 939,471 Changes in assets and liabilities: (Increase) decrease in accounts receivable (255,901) (Increase) decrease in prepaid costs 412 Increase (decrease) in accounts payable (90,842) Increase (decrease) in accrued liabilities (19,654) Increase (decrease) in unearned revenues (4,236) NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,823,292

See independent auditors' report and notes to financial statements. - 28 - CITY OF LANCASTER

STATEMENT OF NET POSITION FIDUCIARY FUNDS

June 30, 2014

Private-Purpose Trust Fund Successor Agency of the Agency Former RDA Funds ASSETS: Pooled cash and investments $ 11,943,850 $ 5,337,591 Receivable: Accounts 272,252 6,797 Taxes - 84,296 Notes and loans 5,736,770 - Less allowance for loan forgiveness (3,544,574) - Accrued interest - 7,017 Land held for resale 12,306,662 - Restricted assets: Cash and investments with fiscal agents 22,401,340 3,487,054

TOTAL ASSETS 49,116,300 $ 8,922,755

DEFERRED OUTLFOWS OF RESOURCES: Deferred charges on bond refunding 5,149,220

LIABILITIES: Accounts payable 35,434 $ 98,493 Accrued liabilities 655 - Interest payable 4,639,743 - Deposits payable 15,099 702,994 Due to other governments 388 - Due to bondholders - 8,121,268 Advances from City of Lancaster 32,328,612 - Advances from Lancaster Housing Authority 31,844,170 Long-term liabilities: Due in one year 9,805,000 - Due in more than one year 228,713,321 - TOTAL LIABILITIES 307,382,422 $ 8,922,755

NET POSITION: Held in trust for other purposes $ (253,116,902)

See independent auditors' report and notes to financial statements. - 29 - CITY OF LANCASTER

STATEMENT OF CHANGES IN NET POSITION FIDUCIARY FUND

For the year ended June 30, 2014

Private-Purpose Trust Fund Successor Agency of the Former RDA ADDITIONS: Taxes $ 19,500,422 Intergovernmental - Lancaster Financing Authority 483,028 Intergovernmental - Lancaster Housing Authority 2,143,681 Intergovernmental - Other 3,751,622 Interest and change in fair value of investments 511,380 Miscellaneous 580,946

TOTAL ADDITIONS 26,971,079

DEDUCTIONS: Administrative expenses 513,117 Bad debt expense 453,054 Developer disposition agreements 1,014,529 Interest expense 13,754,603 Payment to Lancaster Financing Authority 2,368,751

TOTAL DEDUCTIONS 18,104,054

CHANGE IN NET POSITION, BEFORE SPECIAL ITEMS 8,867,025

SPECIAL ITEMS: Contribution of land to City of Lancaster (3,806,539) Reinstatement of pre-dissolution loans from City of Lancaster (37,662,891)

CHANGE IN NET POSITION (32,602,405)

NET POSITION - BEGINNING OF YEAR, AS RESTATED (220,514,497)

NET POSITION - END OF YEAR $ (253,116,902)

See independent auditors' report and notes to financial statements. - 30 - NOTES TO FINANCIAL STATEMENTS

CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

a. Description of the Reporting Entity:

The City of Lancaster (the City) was incorporated on November 22, 1977, under the laws of the State of California. The City is a charter city administered under a council/manager form of government. The accompanying financial statements present the City of Lancaster and its component units, entities for which the City is considered to be financially accountable. The City is considered to be financially accountable for an organization if the City appoints a voting majority of that organization’s governing body and the City is able to impose its will on that organization or there is a potential for that organization to provide specific financial benefits to or impose specific financial burdens on the City. The City is also considered to be financially accountable for an organization if that organization is fiscally dependent (i.e., it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval from the City). In certain cases, other organizations are included as component units if the nature and significance of their relationship with the City are such that their exclusion would cause the City’s financial statements to be misleading or incomplete.

Because each component unit has the same governing board as the City, and the management of the primary government has operational responsibility for each of the component units, included within the financial reporting entity of the City of Lancaster are the Lancaster Housing Authority, the Lancaster Community Services Foundation, the Lancaster Public Financing Authority and the Lancaster Power Authority.

A brief description of each component unit follows:

The Housing Authority (the Authority) was formed for the purpose of providing affordable, decent housing for lower income residents of the City of Lancaster. The Authority assumed responsibilities for the prior low/moderate Housing Fund. Separate financial statements are not available for the Authority.

The Lancaster Community Services Foundation (the Foundation) was formed to provide certain community services to the residents of the City. Separate financial statements are not available for the Foundation.

See independent auditors’ report. - 31 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

a. Description of the Reporting Entity (Continued):

The Lancaster Public Financing Authority (the Financing Authority) was formed for the purpose to provide, through the issuance of debt, financing necessary for various capital improvements. Separate financial statements are not available for the Financing Authority.

The Lancaster Power Authority (the Power Authority) was formed to own and operate a municipal gas and electric utility, for the benefit of the residents of the City, and customers, businesses and property owners in the City. Separate financial statements are not available for the Power Authority.

b. Basis of Accounting and Measurement Focus:

The basic financial statements of the City are composed of the following:

 Government-wide financial statements  Fund financial statements  Notes to the financial statements

Government-wide Financial Statements

Government-wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business-type activities of the primary government (including its blended component units). Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the City. Interfund services provided and used are not eliminated in the process of consolidation.

Government-wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the government-wide financial statements. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements.

See independent auditors’ report. - 32 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

b. Basis of Accounting and Measurement Focus (Continued):

Government-wide Financial Statements (Continued)

Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets and liabilities resulting from nonexchange transaction are recognized in accordance with the requirements of GASB Statement No. 33.

Program revenues include: 1) charges to customers or applicants for goods, services or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments that are restricted to meeting the operational or capital requirements of a particular function. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes.

Amounts paid to acquire capital assets are capitalized as assets in the government-wide financial statements, rather than reported as an expenditure. Proceeds of long-term debt are recorded as a liability in the government-wide financial statements, rather than as an other financing source. Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure.

Fund Financial Statements

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

Fund financial statements for the primary government’s governmental, proprietary, and fiduciary funds are presented after the government-wide financial statements. These statements display information about the major funds individually and other governmental funds in the aggregate for governmental funds. Fiduciary statements, even though excluded from the government-wide financial statements, represents private purpose trust funds and agency funds.

See independent auditors’ report. - 33 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

b. Basis of Accounting and Measurement Focus (Continued):

Governmental Funds

In the fund financial statements, governmental funds are presented using the modified-accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period.

Revenue recognition is subject to the measurable and available criteria for the governmental funds in the fund financial statements. Significant revenues subject to the criteria include taxes, licenses and permits, and intergovernmental revenues. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place. Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government-mandated and voluntary nonexchange transactions are recognized as revenues when all applicable eligibility requirements have been met.

In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets deferred outflows of resources current liabilities, and deferred inflows of resources are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of “available spendable resources.” Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of “available spendable resources” during a period.

Non-current portions of long-term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered “available spendable resources”, since they do not represent net current assets.

See independent auditors’ report. - 34 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

b. Basis of Accounting and Measurement Focus (Continued):

Governmental Funds (Continued)

Revenues, expenses, assets, and liabilities resulting from nonexchange transactions are recognized in accordance with the requirements of GASB Statement No. 33 which requires that local governments defer revenue that does not meet the “available” criteria of revenue recognition. Therefore recognition of governmental fund type revenue represented by non-current receivables are reported as deferred inflows of resources until they meet the “availability” criteria.

Property taxes, franchise taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period to the extent normally collected within the availability period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available where cash is received by the government. The availability period for these revenues is 60 days.

Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures.

Proprietary and Fiduciary Funds

The City’s enterprise fund is a proprietary fund. In the fund financial statements, the proprietary fund and fiduciary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds and fiduciary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or noncurrent) associated with their activity are included on their statements of net position. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net position.

See independent auditors’ report. - 35 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

b. Basis of Accounting and Measurement Focus (Continued):

Proprietary and Fiduciary Funds (Continued)

Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies, taxes, and investment earnings result from nonexchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the enterprise fund financial statements, rather than reported as an expenditure. Proceeds of long-term debt are recorded as a liability in the enterprise fund financial statements, rather than as an other financing source. Amounts paid to reduce long-term indebtedness of the enterprise fund are reported as a reduction of the related liability, rather than as an expenditure.

The City’s Fiduciary private purpose trust fund is accounted for using the economic resources measurement focus and accrual basis of accounting. The private purpose trust fund accounts for the assets held by the City as the Successor Agency of the Former Redevelopment Agency (Former RDA). The City’s Fiduciary agency funds have no measurement focus but utilize the accrual basis for reporting its assets and liabilities. Because these funds are not available for use by the City, fiduciary funds are not included in the governmental-wide statements.

c. Fund Classifications:

The City reports the following major governmental funds:

General Fund - This is the primary operating fund of the City. It accounts for all unrestricted resources, except those required to be accounted for in another fund.

HOME Program Special Revenue Fund - This fund accounts for the grant program administered by the State of California Department of Housing and Community Development and implemented by the City to fund a wide range of activities that build, buy, and/or rehabilitate affordable housing for rent or homeownership or provide direct rental assistance to low-income people.

Lancaster Housing Authority Special Revenue Fund - This fund is used to account for the purpose of providing affordable, decent housing for lower income residents of the City. Also, to account for the housing assets and functions previously performed by the former redevelopment agency.

See independent auditors’ report. - 36 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

c. Fund Classifications (Continued):

Major Governmental Funds (Continued):

Capital Projects Fund - This fund is used to account for the capital improvement projects of the City.

The City reports the following major proprietary fund:

Lancaster Power Authority - This fund is used to account for the ownership and operation of a municipal gas and electric utility, for the benefit of the residents of the City, and customers, businesses and property owners in the City.

Additionally, the City reports the following fund types:

Governmental Fund Types

Special Revenue Funds - are used to account for specific revenues that are legally restricted to expenditure for particular purposes.

Debt Service Fund - is used to account for the accumulation of resources for, and the payment of, long-term debt principal, interest and related costs other than those being financed by the proprietary fund.

Fiduciary Fund Types

Private Purpose Trust Fund - This fund is used to account for the assets and liabilities of the former redevelopment agency. The City, in its capacity as the Successor Agency, receives revenue to pay estimated installment payments of enforceable obligations until obligations of the former redevelopment agency are paid in full and assets have been liquidated.

Agency Funds - These funds are used to report resources held by the City in a purely custodial capacity, which involves only the receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations or other governments. They are accounted for on the accrual basis.

See independent auditors’ report. - 37 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

c. Fund Classifications (Continued):

Fiduciary Fund Types (Continued)

The City reports the following Agency Funds:

 Assessment Districts - to account for the City, acting in the capacity as an agent, for various 1915 Act Assessment District Bonds.  Community Facilities Districts - to account for collection of special assessments within the Mello-Roos District to provide public waterworks improvements and basic infrastructure within the Districts.  Agency - to account for various performance and construction deposits.

d. New Accounting Pronouncements:

Current Year Standards

GASB 66 - “Technical Corrections, an amendment of GASB Statement No. 10 and Statement No. 62”, required to be implemented in the current fiscal year did not impact the City.

GASB 70 - “Accounting and Financial Reporting for Nonexchange Financial Guarantees”, required to be implemented in the current fiscal year did not impact the City.

Pending Accounting Standards

GASB has issued the following statements which may impact the City’s financial reporting requirements in the future:

 GASB 68 - “Accounting and Financial Reporting for Pensions, an amendment of GASB Statement No. 27”, effective for the fiscal years beginning after June 15, 2014.

 GASB 69 - “Government Combinations and Disposals of Government Operations”, effective for periods beginning after December 15, 2013.

 GASB 71 - “Pension Transition for Contributions Made Subsequent to the Measurement Date, an Amendment of GASB Statement No. 68”, effective for the periods beginning after June 15, 2014.

See independent auditors’ report. - 38 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

e. Deposits and Investments:

The City’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. The City pools idle cash from all funds for the purpose of increasing income through investment activities.

Investments for the City, as well as for its component units, are reported at fair value. The State Treasurer’s Investment Pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool shares.

f. Receivables and Payables:

Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to / from other funds” (i.e., the current portion of interfund loans) or “advances to / from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to / from other funds”.

Advances between funds, as reported in the fund financial statements, are offset by a nonspendable fund balance account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. All trade and property tax receivables are shown net of an allowance for uncollectibles.

Property tax revenue is recognized in the fiscal year for which the taxes have been levied providing they become available. Available means then due, or past due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter (not to exceed 60 days) to be used to pay liabilities of the current period. The County of Los Angeles collects property taxes for the City. Tax liens attach annually as of 12:01 A.M. on the first day in January preceding the fiscal year for which the taxes are levied. Taxes are levied on both real and personal property as it exists on that date. The tax levy covers the fiscal period July 1 to June 30. All secured personal property taxes and one-half of the taxes on real property are due November 1; the second installment is due February 1. All taxes are delinquent, if unpaid, on December 10 and April 10, respectively. Unsecured personal property taxes become due on the first of March each year and are delinquent on August 31.

See independent auditors’ report. - 39 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

g. Inventories and Prepaid Items:

Inventories of materials and supplies are carried at cost on a moving average basis. The City uses the consumption method of accounting for inventories. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements.

h. Restricted Assets:

Certain proceeds of debt issues, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. In addition, funds have been assigned for future capital improvements by City resolution.

i. Capital Assets:

Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks and similar items), are reported in the government-wide financial statements. The government defines capital assets as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed.

Property, plant and equipment of the primary government, as well as the component units, are depreciated using the straight-line method over the following estimated useful lives:

Building and structures 40 years Machinery and equipment 7-10 years Public domain infrastructure 50 years

See independent auditors’ report. - 40 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

j. Deferred Outflows/Inflows of Resources:

In addition to assets, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until that time. The City has one item that qualifies for reporting in this category. It is the deferred charges on bond refunding reported in the fiduciary funds statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the life of the refunding debt.

In addition to liabilities, the statement of net position and the governmental funds balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to future periods and will not be recognized as an inflow of resources (revenue) until that time. The City has only one type of item, which arises only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, unavailable revenues, is reported only in the governmental fund balance sheet. The governmental funds report unavailable revenues from three sources: investment, income taxes and grants. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available.

k. Net Position Flow Assumptions:

Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied.

It is the City’s practice to consider restricted - net position to have been depleted before unrestricted - net position is applied.

See independent auditors’ report. - 41 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

l. Land Held for Resale:

The former Lancaster Redevelopment Agency acquired parcels of land as part of its primary purpose to develop or redevelop blighted properties and creating affordable housing. The City records these parcels as land held for resale in its financial records.

The Lancaster Housing Authority acquired property via the Neighborhood Stabilization Program to reduce blight and provide affordable housing to our citizens. These parcels are shown in the Lancaster Housing Authority Special Revenue Fund and the Housing and Community Development Special Revenue Fund.

All property is recorded at lower of cost or fair market value.

m. Compensated Absences:

It is the government’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Vacation pay is payable to employees at the time a vacation is taken or upon termination of employment. Vacation accruals are based on years of service, with the maximum balance of unused accruals set at 362 hours after 10 years of service.

Sick leave is payable when an employee is unable to work because of illness. Accrued sick leave may be accumulated without limit. Employees resigning in good standing from City service shall receive up to a maximum of 50% of unused sick leave, depending on years of service.

All vacation and sick leave pay is accrued when incurred in the government-wide financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. The liability is generally liquidated by the General Fund.

n. Long-Term Obligations:

In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the governmental activities statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses.

See independent auditors’ report. - 42 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

o. Fund Balance Classification:

In the fund financial statements, government funds report the following fund balance classification:

Nonspendable include amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. The “not in spendable form” criterion includes items that are not expected to be converted to cash, for example: inventories and prepaid amounts. It also includes the long-term portion of notes and loan’s receivable with no constraints on how the eventual proceeds can be spent.

Restricted include amounts that are constrained on the use of resources by either (a) external creditors, grantors, contributors, or laws of regulations of other governments or (b) by law through constitutional provisions or enabling legislation.

Committed include amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest authority, City Council. The formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution.

Assigned include amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed. The City Manager and/or Finance Director is authorized to assign amounts to a specific purpose, which was established by the governing body in Resolution 10-11.

Unassigned include the residual amounts that have not been restricted, committed, or assigned to specific purposes.

An individual governmental fund could include nonspendable resources and amounts that are restricted or unrestricted (committed, assigned, or unassigned) or any combination of those classifications. Restricted amounts are to be considered spent when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available and committed, assigned, then unassigned amounts are considered to have been spent when an expenditure is incurred for purposes for which amounts in any of those unrestricted fund balance classifications can be used.

See independent auditors’ report. - 43 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

p. Use of Estimates:

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates.

2. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY:

General Budget Policies

The City Council approves each year’s budget submitted by the City Manager prior to the beginning of the new fiscal year. Public hearings are conducted prior to its adoption by the Council. Supplemental appropriations, where required during the period, are also approved by the Council. Intradepartmental budget changes are approved by the City Manager or designee. Expenditures may not exceed appropriations at the function level. At fiscal year end, all unencumbered operating budget appropriations lapse. During the year, several supplementary appropriations were necessary.

Encumbrances

Encumbrances are estimations of costs related to unperformed contracts for goods and services. These commitments are recorded for budgetary control purposes in the General, Special Revenue and similar governmental funds. They represent the estimated amount of the expenditure ultimately to result if unperformed contracts in process at year-end are completed. They do not constitute expenditures or estimated liabilities.

Budget Basis of Accounting

Budgets for all governmental funds, except for the Capital Projects Fund which is budgeted on a project basis, are adopted on a basis consistent with generally accepted accounting principles (GAAP).

See independent auditors’ report. - 44 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

2. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY (CONTINUED):

Excess of Expenditures over Appropriations

The following are funds in which certain expenditures exceeded appropriations for the fiscal year ended June 30, 2014.

Final Variance with Budget Actual Final Budget Major Funds: General Fund: Debt service -principal retirements $ - $ 180,151 $ (180,151) Debt service - interest and fiscal charges - 103,868 (103,868) Lancaster Housing Authority Special Revenue Fund: Housing 1,970,510 4,797,697 (2,827,187) Other Governmental Special Revenue Funds: Gas Tax: General government 220 225 (5) Landscape Maintenance District: General government - 15 (15) Public works 1,375,528 1,409,064 (33,536) Housing and Community Development: Debt service - principal retirement 333,000 348,000 (15,000) Federal Grants Special Revenue: Community development - 192,418 (192,418) Public works - 3,675 (3,675) Other Governmental Debt Service Fund: Lancaster Financing Authority: General government - 483,866 (483,866)

Deficit Fund Balances

The following funds contained deficit fund balances as of June 30, 2014:

Deficit Amount Other Governmental Special Revenue Funds: State Grants $ 1,524,545 County and Other 233,234 Recycle Water 272,460 Miscellaneous Grants 349,420 Engineering Fees 85,300 LA County Reimbursement 169,942 HPRP 2,522

These fund balance deficits will be eliminated as grant reimbursements become available or transfers are made.

See independent auditors’ report. - 45 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

3. CASH AND INVESTMENTS:

Cash and Investments

Cash and investments held by the City at June 30, 2014 are reported in the accompanying financial statements as follows:

Statement of Net Position: Cash and investments $ 78,414,850 Restricted: Cash and investments 2,296,497 Statement of Net Position - Fiduciary Funds: Pooled cash and investments 17,281,441 Restricted: Cash and investments with fiscal agents 25,888,394 Total cash and investments $ 123,881,182

The City of Lancaster maintains a cash and investment pool that is available for use for all funds. Each fund type’s position in the pool is reported on the combined balance sheet as pooled cash and investments. The City has adopted an investment policy, which authorizes it to invest in various investments.

Deposits

At June 30, 2014, the carrying amount of the City’s deposits was $5,312,173 and the bank balance was $4,603,407. The $708,766 difference represents outstanding checks and other reconciling items.

The California Government Code requires California banks and savings and loan associations to secure a City’s deposits by pledging government securities with a value of 110% of a City’s deposits. California law also follows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of a City’s total deposits. The City Treasurer may waive the collateral requirement for deposits which are fully insured up to $250,000 by the FDIC. The collateral for deposits in federal and state chartered banks is held in safekeeping by an authorized Agent of Depository recognized by the State of California Department of Banking. The collateral for deposits with savings and loan associations is generally held in safekeeping by the Federal Home Loan Bank in San Francisco, California as an Agent of Depository. These securities are physically held in an undivided pool for all California public agency depositors. Under Government Code Section 53655, the placement of securities by a bank or savings and loan association with an “Agent of Depository” has the effect of perfecting the security interest in the name of the local governmental agency. Accordingly, all collateral held by California Agents of Depository are considered to be held for, and in the name of, the local governmental agency.

See independent auditors’ report. - 46 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

3. CASH AND INVESTMENTS (CONTINUED):

Deposits (Continued)

Under provision of the City’s investment policy, and in accordance with the California Government Code, the following investments are authorized:

 United States Treasury Securities  United States Government Sponsored Agency Securities  Certificates of Deposit  Medium-Term Notes  Prime Commercial Paper  Banker’s Acceptances  Repurchase Agreements  Local Agency Investment Fund (State Pool)  Money Market Mutual Funds

Investments Authorized by Debt Agreements

The above investments do not address investment of debt proceeds held by a bond trustee. Investments of debt proceeds held by a bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City’s investment policy.

Investments in State Investment Pool

The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute. The State Treasurer’s Office audits the fund annually. The fair value of the position in the investment pool is the same as the value of the pool shares.

GASB Statement No. 31

The City adopted GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, as of July 1, 1997. GASB Statement No. 31 establishes fair value standards for investments in participating interest earning investment contracts, external investment pools, equity securities, option contracts, stock warrants and stock rights that have readily determinable fair values. Accordingly, the City reports its investments at fair value in the balance sheet. All investment income, including changes in the fair value of investments, is recognized as revenue in the operating statement.

See independent auditors’ report. - 47 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

3. CASH AND INVESTMENTS (CONTINUED):

Credit Risk

The City’s investment policy limits investments in medium term notes (MTNs) to those rated AA- or better by a nationally recognized statistical rating organization. At June 30, 2014, the City invested in various MTNs which were rated AA- or better by Standard & Poors (S&P). At June 30, 2014 the City’s investments with federal agency securities were rated AA+ and money market mutual funds were rated AAA by S&P. Investments in U.S. government securities are not considered to have credit risk and, therefore, their credit quality in not disclosed.

As of June 30, 2014, the City’s investment in LAIF is unrated. The City has amounts invested in investment agreements held with fiscal agents and invested under the direction of the City which are unrated.

Custodial Credit Risk

The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. As of June 30, 2014, none of the City’s deposits or investments were exposed to custodial credit risk.

Concentration of Credit Risk

The City’s investment policy imposes restrictions on the maximum percentage it can invest in a single type of investment. These limitations are 25% of the City’s invested funds for non- negotiable certificates of deposit, 15% of the City’s invested funds for banker acceptances with no more than 2% in anyone issuer, 25% of the City’s invested funds for commercial paper with no more than 5% in anyone issuer, 20% of the City’s invested funds for medium term notes with no more than 5% in anyone issuer, and 20% of the City’s invested funds for money market funds with no more than 10% in anyone issuer. In accordance with GASB Statement No. 40, if the City has invested more than 5% of its total investments in anyone issuer then it is exposed to credit risk.

See independent auditors’ report. - 48 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

3. CASH AND INVESTMENTS (CONTINUED):

Concentration of Credit Risk (Continued)

As of June 30, 2014, the City’s investment in the following issuers exceeded 5%:

Reported Issuer Investment Type Amount Federal National Mortgage Association U.S. Government Sponsored Agency Securities $ 6,958,536 Federal Home Loan Bank U.S. Government Sponsored Agency Securities $ 8,829,114

Interest Rate Risk

The City’s investment policy limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The City’s investment policy states that investments in United Stated Treasury Securities and securities for which the full faith and credit of the United States is pledges should have a maturity no longer than five years. Reserve funds relating to the bonds issues may be invested in securities for more than five years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds. The City has elected to use the segmented time distribution method of disclosure for its interest rate risk.

The City has elected to use the segmented time distribution method of disclosure for its interest rate risk. As of June 30, 2014, the City had the following investments and original maturities:

Remaining Maturity (in Years) 1 year 1 Year 3 Years 5 Years Investment Type or Less to 3 Years to 5 Years and More Total United States Treasury Securities $ - $ 2,018,868 $ 2,642,953 $ - $ 4,661,821 United States Government Sponsored Agency Securities - 8,260,307 12,266,893 - 20,527,200 Medium-Term Corporate Notes - 5,650,550 - - 5,650,550 Commercial Paper 1,133,481 - - - 1,133,481 Certificates of Deposit 650,000 - - - 650,000 California Local Agency Investment Fund (LAIF) 57,645,253 - - - 57,645,253 Money Market Mutual Funds 168,839 - - - 168,839 Held by Fiscal Agent: Money Market Mutual Funds 15,479,117 - - - 15,479,117 Certificates of Deposit 240,653 - - - 240,653 Investment Agreements - 3,635,663 699,600 8,076,926 12,412,189 $ 75,317,343 $ 19,565,388 $ 15,609,446 $ 8,076,926 $ 118,569,103

See independent auditors’ report. - 49 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

4. CAPITAL ASSETS:

Capital asset activity for the year ended June 30, 2014 was as follows:

Governmental Activities

Balance at July 1, 2013 Construction Balance at (As Restated) In Progress Balance at (See Note 16) Transfers Additions Deletions June 30, 2014 Capital assets, not being depreciated: Land $ 17,878,053 $ - $ 4,378,539 $ - $ 22,256,592 Construction in progress 36,753,870 (12,874,042) 6,211,929 (203,463) 29,888,294 Total capital assets, not being depreciated 54,631,923 (12,874,042) 10,590,468 (203,463) 52,144,886

Capital assets, being depreciated: Structures and improvements 65,962,704 174,290 997,652 (358,134) 66,776,512 Furniture and equipment 13,136,542 - 625,423 (83,283) 13,678,682 Infrastructure 1,555,703,851 12,699,752 12,204,031 - 1,580,607,634 Total capital assets, being depreciated 1,634,803,097 12,874,042 13,827,106 (441,417) 1,661,062,828

Less accumulated depreciation for: Structures and improvements (24,621,600) - (1,651,267) 179,067 (26,093,800) Furniture and equipment (8,403,339) - (927,905) 83,283 (9,247,961) Infrastructure (715,464,802) - (36,288,078) - (751,752,880) Total accumulated depreciation (748,489,741) - (38,867,250) 262,350 (787,094,641)

Total capital assets, being depreciated, net 886,313,356 12,874,042 (25,040,144) (179,067) 873,968,187

Total governmental activities capital assets, net $ 940,945,279 $ - $ (14,449,676) $ (382,530) $ 926,113,073

Depreciation expense was charged in the following functions in the Statement of Activities for the year ended June 30, 2014 as follows:

General government $ 605,751 Public safety 42,612 Public works 36,319,177 Community development 416,820 Parks and recreation 1,482,890 $ 38,867,250 See independent auditors’ report. - 50 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

4. CAPITAL ASSETS (CONTINUED):

Capital asset activity for the year ended June 30, 2014 was as follows:

Business-type Activities

Balance at Balance at July 1, 2013 Additions Deletions June 30, 2014 Capital assets, being depreciated: Intangible assets $ 23,486,774 $ - $ - $ 23,486,774 Less accumulated depreciation for: Intangible assets (1,409,206) (939,471) - (2,348,677)

Total business-type activities capital assets, net $ 22,077,568 $ (939,471) $ - $ 21,138,097

The depreciation expense of $939,471 was charged to the Lancaster Power Authority program for the year ended June 30, 2014.

5. INTERFUND RECEIVABLE, PAYABLE AND TRANSFERS:

Due To/From Other Funds

Interfund receivable and payable balances at June 30, 2014 are as follows:

Receivable Payable Amount

General Fund Other Governmental Funds $ 5,506,026 Lancaster Power Authority Enterprise Fund 19,786

$ 5,525,812

The due to General Fund of $5,506,026 from the various other governmental funds and $19,786 from Lancaster Power Authority Enterprise Fund were a result of temporary deficit cash balances in those funds.

See independent auditors’ report. - 51 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

5. INTERFUND RECEIVABLE, PAYABLE AND TRANSFERS (CONTINUED):

Transfers

The following schedule summarizes the City’s transfer activity:

Transfers In Transfers Out Amount

General Fund Lancaster Housing Authority Special Revenue Fund $ 871,370 Other Governmental Funds 5,434,574 Lancaster Power Authority Enterprise Fund 600,000

Capital Projects General Fund 1,375,640 Other Governmental Funds 8,704,194

Other Governmental Funds General Fund 790,814 Other Governmental Funds 5,280,309

$ 23,056,901

The City uses the Capital Projects Fund to account for all of its capital projects. The funding sources for those projects were reported as transfers from various funds to the Capital Projects fund. The total of the Capital Projects transfers for the year were $10,079,834.

During the year, certain funds made payments to the General Fund for administrative costs incurred. These transfers to the General Fund for the year were $ 5,371,390.

See independent auditors’ report. - 52 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

6. LONG-TERM LIABILITIES:

Governmental Activities

Changes in long-term liabilities for the governmental activities for the year ended June 30, 2014 are as follows:

Due Due in Balance Balance Within More Than June 30, 2013 Additions Deletions June 30, 2014 One Year One Year City of Lancaster: Section 108 Notes: Series 2003-A $ 935,000 $ - $ (69,000) $ 866,000 $ 72,000 $ 794,000 Series 2004-A 1,038,000 - (69,000) 969,000 71,000 898,000 Series 2010-A 1,505,000 - (210,000) 1,295,000 220,000 1,075,000 Capital lease 1,441,438 - (84,548) 1,356,890 88,266 1,268,624 Loans 1,426,137 - (95,603) 1,330,534 98,493 1,232,041 Accrued employee benefits 2,806,104 2,048,473 (1,728,988) 3,125,589 1,728,988 1,396,601 Claims and judgments (Note 12) 899,000 712,399 (383,399) 1,228,000 541,347 686,653 Net OPEB obligation (Note 8) 15,840,000 3,635,496 (515,056) 18,960,440 - 18,960,440 Total long-term liabilities Governmental activities $ 25,890,679 $ 6,396,368 $ (3,155,594) $ 29,131,453 $ 2,820,094 $ 26,311,359

Business-type Activity

Changes in long-term liabilities for the business-type activity for the year ended June 30, 2014 are as follows:

Due Due in Balance Balance Within More Than June 30, 2013 Additions Deletions June 30, 2014 One Year One Year 2012A Solar Renewable Energy Revenue Bonds $ 26,895,000 $ - $ (1,000,000) $ 25,895,000 $ 1,045,000 $ 24,850,000 Unamortized bond discount (558,990) - 23,454 (535,536) - (535,536) Total long-term liabilities Business-type activities $ 26,336,010 $ - $ (976,546) $ 25,359,464 $ 1,045,000 $ 24,314,464

See independent auditors’ report. - 53 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

6. LONG-TERM LIABILITIES (CONTINUED):

Governmental Activities (Continued)

Notes

A description of individual issues of notes (excluding defeased issues) outstanding as of June 30, 2014, follows:

Section 108 Notes

Series 2003-A

On August 7, 2003, the City issued $1,450,000 of U.S. Government Guaranteed Notes, Series 2003-A, guaranteed by the Secretary of Housing and Urban Development. The City has pledged as security for repayment of the notes from (a) future entitlements that the City may become eligible for under Section 108 of Title I of the Housing and Community Development Act of 1974; and (b) program income. The notes mature from 2004-2023 and bear varying rates of interest. The principal balance outstanding as of June 30, 2014, was $866,000.

Series 2004-A

On June 30, 2004, the City issued $1,500,000 of U.S. Government Guaranteed Notes, Series 2004-A, guaranteed by the Secretary of Housing and Urban Development. The City has pledged as security for repayment of the notes from (a) future entitlements that the City may become eligible for under Section 108 of Title I of the Housing and Community Development Act of 1974; and (b) program income. The notes mature from 2006-2024 and bear varying rates of interest. The principal balance outstanding as of June 30, 2014, was $969,000.

Series 2010-A

On April 28, 1999, the City issued $3,100,000 of U.S. Government Guaranteed Notes, Series 1999-A, guaranteed by the Secretary of Housing and Urban Development. The City has pledged as security for repayment of the notes from (a) future entitlements that the City may become eligible for under Section 108 of Title I of the Housing and Community Development Act of 1974; and (b) program income. The notes were consolidated into the series 2010-A note. The consolidated notes mature from 2011 to 2018 and bear varying rates of interest. The principal balance outstanding as of June 30, 2014, was $1,150,000.

See independent auditors’ report. - 54 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

6. LONG-TERM LIABILITIES (CONTINUED):

Governmental Activities (Continued)

Section 108 Notes (Continued)

Series 2010-A (Continued)

On June 14, 2000, the City issued $320,000 of U.S. Government Guaranteed Notes, Series 2000-A, guaranteed by the Secretary of Housing and Urban Development. The City has pledged as security for repayment of the notes from (a) future entitlements that the City may become eligible for under Section 108 of Title I of the Housing and Community Development Act of 1974; and (b) program income. The notes were consolidated into the series 2010-A note. The consolidated notes mature from 2011-2019 and bear varying rates of interest. The principal balance outstanding as of June 30, 2014, was $145,000.

The annual requirements to amortize the outstanding indebtedness as of June 30, 2014, are as follows:

Year Ending June 30, Principal Interest Total 2015 $ 363,000 $ 130,291 $ 493,291 2016 390,000 118,143 508,143 2017 410,000 104,066 514,066 2018 427,000 88,279 515,279 2019 429,000 65,462 494,462 2020 - 2024 1,005,000 178,932 1,183,932 2025 106,000 3,185 109,185 Totals $ 3,130,000 $ 688,358 $ 3,818,358

Capital Lease

On March 1, 2011, the City entered into an equipment lease/purchase agreement for various capital improvements including lighting upgrades, athletic field lighting upgrades, HVAC system replacement, plumbing fixture upgrades, irrigation weather stations, and solar hot water heating. This lease agreement qualifies as a capital lease for accounting purpose (title transfers at end of lease) and, therefore has been recorded at the present value of future minimum lease payments as of the date of inception. The total cost of the equipment acquired under the lease agreement was $1,600,000. The financing was obtained from Municipal Finance Corporation on March 1, 2011, for $1,600,000 with an interest rate of 4.35% per annum and annual payments of $146,341 through the end of the lease (March 2026). The outstanding balance at June 30, 2014, is $1,356,890. See independent auditors’ report. - 55 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

6. LONG-TERM LIABILITIES (CONTINUED):

Governmental Activities (Continued)

Capital Lease (Continued)

The calculation of present value of the future lease payments is as follows:

Year Ending June 30, 2015 $ 146,341 2016 146,341 2017 146,341 2018 146,341 2019 146,341 2020 - 2024 731,705 2025 - 2026 292,682 Subtotal 1,756,092 Less: amount representing interest (399,202) Total $ 1,356,890

Loans

In January 2011, the City entered into a loan agreement with the State of California Energy Resources Conservation and Development Commission for loan of $1,469,146 to be used for energy savings projects consisting of athletic field lighting upgrades, HVAC retrofit, weather station installation, and solar hot water. The loan is at an interest rate of 3%. Principal, together with interest thereon, is due and payable in semiannual installments beginning on December 22, 2012 through December 22, 2025. The outstanding balance at June 30, 2014, is $1,330,534.

The annual requirements to amortize the outstanding indebtedness as of June 30, 2014, are as follows:

Year Ending June 30, Principal Interest Total 2015 $ 98,493 $ 39,185 $ 137,678 2016 101,373 36,305 137,678 2017 104,534 33,144 137,678 2018 107,693 29,985 137,678 2019 110,948 26,730 137,678 2020 - 2024 607,025 81,367 688,392 2025 - 2026 200,468 6,050 206,518 Totals $ 1,330,534 $ 252,766 $ 1,583,300 See independent auditors’ report. - 56 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

6. LONG-TERM LIABILITIES (CONTINUED):

Business-type Activity

2012A Solar Renewable Energy Revenue Bonds

On May 17, 2012, the Lancaster Power Authority issued $26,895,000 of 2012A Solar Renewable Energy Revenue Bonds. These bonds were used to finance the prepayment for specified supply of electricity from a 7,319.98 DC kW capacity system. Interest on these bonds is due semi-annually on May 1 and November 1 of each year commencing November 1, 2012. Interest rates vary from 2.000% to 4.375%. The principal portion of these bonds is payable from November 1, 2013 to November 1, 2036. The outstanding balance at June 30, 2013, is $25,895,000.

The annual requirements to amortize the outstanding indebtedness as of June 30, 2014, are as follows:

Year Ending June 30, Principal Interest Total 2015 $ 1,045,000 $ 972,819 $ 2,017,819 2016 1,105,000 951,619 2,056,619 2017 1,140,000 928,994 2,068,994 2018 410,000 905,744 1,315,744 2019 460,000 892,694 1,352,694 2020 - 2024 3,150,000 4,203,094 7,353,094 2025 - 2029 4,995,000 3,441,334 8,436,334 2030 - 2034 7,515,000 2,170,903 9,685,903 2035 - 2037 6,075,000 411,519 6,486,579

Totals $ 25,895,000 $ 14,878,780 $ 40,773,780

7. PUBLIC EMPLOYEES RETIREMENT SYSTEM (DEFINED BENEFIT PENSION PLAN):

Plan Description

The City of Lancaster contributes to the California Public Employees Retirement System (CalPERS), an agent multiple-employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and City ordinance. Copies of CalPERS’ annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. See independent auditors’ report. - 57 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

7. PUBLIC EMPLOYEES RETIREMENT SYSTEM (DEFINED BENEFIT PENSION PLAN) (CONTINUED):

Funding Policy

CalPERS membership is categorized as “Classic” or “New”. Employees hired prior to January 1, 2013 or those hired after January 1, 2013 with “Classic” CalPERS status from a previous employer are categorized as “Classic” members. All other employees hired on or after January 1, 2013 are categorized as “New” members.

Classic members hired prior to January 1, 2013:

Participants are required to contribute 8% of their annual covered salary. The City makes the contributions required of City employees on their behalf. Employees share the cost of the employer rate by contributing 2.5% (for the period July 1, 2013 to December 31, 2013) and 3.5% (for the period January 1, 2014 to June 30, 2014) of their annual covered salary. The City is required to contribute an actuarially determined rate; the current rate is 18.672% of annual covered payroll for miscellaneous employees. The contribution requirements of plan members and the City are established and may be amended by CalPERS.

Classic members hired on or after January 1, 2013:

Participants are required to contribute 8% of their annual covered salary. Participants pay the employee portion and the City pays the employer portion of the CalPERS contribution. The City is required to contribute an actuarially determined rate; the current rate is 18.672% of annual covered payroll for miscellaneous employees. The contribution requirements of plan members and the City are established and may be amended by CalPERS.

New members hired on or after January 1, 2013:

Participants are required to contribute 6.25% of their annual covered salary. Participants pay the employee portion and the City pays the employer portion of the CalPERS contribution. The City is required to contribute an actuarially determined rate; the current rate is 18.672% of annual covered payroll for miscellaneous employees. The contribution requirements of plan members and the City are established and may be amended by CalPERS.

See independent auditors’ report. - 58 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

7. PUBLIC EMPLOYEES RETIREMENT SYSTEM (DEFINED BENEFIT PENSION PLAN) (CONTINUED):

Annual Pension Cost and Net Pension Asset

The City of Lancaster annual pension cost and change in net pension asset for fiscal year ended June 30, 2014, were as follows:

Annual required contribution $ 5,001,531 Interest on net pension asset (282,230) Adjustment to annual required contribution 449,841 Annual pension cost 5,169,142 Contributions made (5,001,531) Decrease in net pension asset 167,611 Net pension asset - beginning of year (3,763,064) Net pension asset - end of year $ (3,595,453)

Three-Year Trend Information for PERS

The required contributions were determined as part of the June 30, 2012, actuarial valuation using the entry age normal actuarial cost method.

Annual Percentage Net Pension Fiscal Pension APC Obligation Year Cost (APC) Contributed (Asset) 6/30/12 $ 3,388,184 96% $ (3,909,887) 6/30/13 4,167,713 96% (3,763,064) 6/30/14 5,169,142 96% (3,595,453)

Funded Status and Funding Progress

The schedule of funding progress below presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

Actuarial Unfunded Actuarial Accrued Liability UAAL as a Actuarial Value of Liability (Excess Assets) % of Valuation Assets (AAL) AAL Funded Covered Covered Date (AVA) Entry Age (UAAL) Ratio Payroll Payroll 6/30/2011 $ 76,449,622 $ 98,568,012 $ 22,118,390 77.6 % $ 19,662,333 112.5 % 6/30/2012 81,445,409 104,536,742 23,091,333 77.9 % 18,560,272 124.4 % 6/30/2013 78,516,820 114,027,036 35,510,216 68.9 % 18,749,842 189.4 %

See independent auditors’ report. - 59 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

7. PUBLIC EMPLOYEES RETIREMENT SYSTEM (DEFINED BENEFIT PENSION PLAN) (CONTINUED):

Principle Assumptions and Methods Used

A summary of principle assumptions and methods used to determine the APC is shown below:

Valuation Date June 30, 2011 Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level Percent of Payroll Average Remaining Period 26 Years as of the Valuation Date Asset Valuation Method 15-Year Smoothed Market Actuarial Assumptions: Investment Rate of Return 7.50% (net of administrative expenses) Projected Salary Increases 3.30% to 14.20% depending on age, service, and type of employment Inflation 2.75% Payroll Growth 3.00% Individual Salary Growth A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 2.75% and an annual production growth of 0.25%

Initial unfunded liabilities are amortized over a closed period that depends on the Plan’s date of entry into CalPERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling period, which results in an amortization of about 6% of unamortized gains and losses each year. If the Plan’s accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30-year amortization period.

8. OTHER POST-EMPLOYMENT BENEFITS PLAN:

Plan Description

The City provides other postemployment benefits (OPEB) through a single-employer defined benefit healthcare plan by contributing a portion of premiums charged under the health benefit plan for all eligible employees. These medical, dental, vision and long-term care benefits are provided per contract between the City and the employee associations. A separate financial report is not available for the plan.

See independent auditors’ report. - 60 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

8. OTHER POST-EMPLOYMENT BENEFITS PLAN (CONTINUED):

Funding Policy

The contribution requirements of plan members and the City are established and may be amended by the City, City Council, and/or employee associations. Currently, contributions are not required from plan members. A contribution of $515,056 was made during the 2013-2014 fiscal year. The purpose of the contribution was to pay current year premiums for retirees. As a result, the City calculated and recorded a Net OPEB Liability, representing the difference between the Annual Required Contribution (ARC) and actual contributions, as presented below:

Annual required contribution (ARC) $ 3,883,000 Interest on net OPEB obligation 724,715 Adjustment to ARC (972,219) Annual OPEB cost 3,635,496 Contributions made (515,056) Increase in net OPEB obligation 3,120,440 Net OPEB Obligation - beginning of year 15,840,000

Net OPEB Obligation - end of year $ 18,960,440

The contribution rate is based on the ARC of $3,883,000, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis is projected to cover the annual normal cost and the amortization of unfunded actuarial liabilities (or funding excess) over a thirty year period.

Annual OPEB Costs and Net OPEB Obligation

For the fiscal year 2013-2014, the City’s annual OPEB cost (expense) was $3,635,496. The City’s annual OPEB cost, the actual contributions, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the three years ended June 30, 2014, were as follows:

Percentage Fiscal Annual of Annual Net Year OPEB Actual OPEB Cost OPEB Ended Cost Contributions Contributed Obligation 06/30/12 $ 5,458,501 $ 579,814 10.62 % $ 13,328,600 06/30/13 3,249,000 472,819 14.55 % 15,840,000 06/30/14 3,635,496 515,056 14.17 % 18,960,440

See independent auditors’ report. - 61 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

8. OTHER POST-EMPLOYMENT BENEFITS PLAN (CONTINUED):

Funded Status and Funding Progress

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

Actuarial Unfunded Actuarial Accrued Liability UAAL as a Actuarial Value of Liability (Excess Assets) % of Valuation Assets (AAL) AAL Funded Covered Covered Date (AVA) Entry Age (UAAL) Ratio Payroll Payroll 6/30/2009 $ - $ 32,340,000 $ 32,340,000 0.0% $ 18,385,000 175.90 % 6/30/2011 - 28,794,000 28,794,000 0.0 % 18,429,000 156.24 % 6/30/2013 - 36,371,000 36,371,000 0.0 % 17,391,000 209.14 %

Actuarial Methods and Assumptions

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

In the June 30, 2013, actuarial valuation, the entry age normal cost method was used. The actuarial assumptions include a 4.00% investment rate of return, which is a blended rate of the expected long-term investment return on plan assets and on the employer’s own investments calculated based on the funded level of the plan at the valuation date. The annual healthcare cost trend rate is 8.5% for non-medicare participants and 8.9% for medicare participants beginning in 2014, and reduced by decrements to an ultimate rate of 5.0% after seven years. The trend rates for dental, vision and long-term care benefits is 3.0%. A general inflation rate was assumed to increase at a rate of 3% per annum. The actuarial value of assets is set equal to the reported market value of assets. The UAAL is being amortized as a level percentage of payroll on an open basis. The remaining amortization period of the initial unfunded actuarial accrued liability at June 30, 2013, was 25 years. The number of active participants is 248. See independent auditors’ report. - 62 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

9. STADIUM OPERATING LEASE:

The City of Lancaster leases the Lancaster Municipal Stadium to Hawks Nest for the Jethawks, a California “A” League professional baseball team. This facility is leased from March 1 through September 1 at which time the operation returns to the City for City recreational functions.

10. ANTELOPE VALLEY TRANSIT AUTHORITY JOINT VENTURE:

The City is a member of the Antelope Valley Transit Authority, a joint powers authority of the County of Los Angeles and the cities of Palmdale and Lancaster. The Authority was formed to provide public transit service to Palmdale and Lancaster. The governing board consists of one person from each member agency. Each member has one vote.

Description of Debt

On October 1, 1991, the California Special Districts Association Finance Corporation, on behalf of the Los Angeles County Transportation Commission, issued Certificate of Participation Notes in the amount of $19,340,000. This issue was for the benefit of several different transit authorities. The Certificates of Participation were issued prior to the formation of the Antelope Valley Transit Authority. Los Angeles County participated in this issuance on behalf of the Authority to provide financing of $7,690,000 for the purchase of transportation equipment.

Subsequent to the Certificate of Participation issue, the Authority entered into a “Reimbursement Agreement” with the County of Los Angeles to repay the obligation incurred by the County on their behalf.

As of June 30, 2014, (latest information available), Antelope Valley Transit Authority’s financial position was as follows:

Assets $ 76,016,365

Liabilities $ 5,235,885 Net Position 70,780,480 Total Liabilities and Net Position $ 76,016,365

Revenues $ 30,077,455 Expenses 26,136,355 Changes in Net Position $ 3,941,100

See independent auditors’ report. - 63 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

10. ANTELOPE VALLEY TRANSIT AUTHORITY JOINT VENTURE (CONTINUED):

The Authority is funded, in part, by revenues allocated to the City and redirected to the Authority and, in part, by a shared formula based on the level of service provided to the jurisdiction. The City of Lancaster is the primary recipient of local services from the Authority. The City does not have a financial responsibility because the Authority do not depend on revenue from the City to continue existence.

Separate financial statements of the Authority are available from the Authority office located at 1031 W. Avenue L-12, Lancaster, California 93534.

11. RISK MANAGEMENT:

The City is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City handled those risks with the purchase of commercial insurance. The City maintained liability insurance coverage up to a limit of $10,000,000 with $100,000 self-insurance retention for its general liabilities. Workers’ compensation insurance is provided by Southern California Risk Management Associates, with statutory limit coverage. The City also maintained property coverage including earthquake and flood.

At June 30, 2014, $1,228,000 has been accrued for general liability claims. This amount represents an estimate of amounts to be paid for reported claims and incurred but not yet reported claims based upon past experience, modified for current trends and information. While the ultimate amount of losses incurred through June 30, 2014, is dependent on future developments, based upon information from the City Attorney, the City’s claims administrators and others involved with the administration of the programs, City management believes the accrual is adequate to cover such losses.

Changes in the claims liability amount in fiscal years 2013 and 2014 were as follows:

Beginning of Claims and End of Fiscal Year Changes in Claim Fiscal Year Fiscal Year Liability Estimates Payments Liability 2012 - 2013 $ 1,126,000 $ (50,230) $ (176,770) $ 899,000 2013 - 2014 899,000 712,399 (383,399) 1,228,000

For worker’s compensation insurance, the City has transferred all risk of loss with the purchase of commercial insurance policies and has not reported any estimated loss in the financial statements.

There were no significant reductions in insurance coverage from the previous year. In addition, insurance coverage exceeded the amount of settlements for each of the past three fiscal years.

See independent auditors’ report. - 64 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

12. CONTINGENT LIABILITIES:

Various claims and lawsuits are pending against the City. Although the outcome of these claims and lawsuits is not presently determinable, in the opinion of the City’s management, on advice of legal counsel, it is unlikely that they will have a material adverse effect on the accompanying financial statements.

13. CONSTRUCTION COMMITMENTS:

The following material construction commitments existed at June 30, 2014:

Expenditures Contract to date as of Remaining Amount June 30, 2014 Commitments Project Name: Park Improvements $ 281,353 $ 215,194 $ 66,159 2012 Pavement Management Program 1,314,988 236,985 21,172 City-wide Bridge Rehabilitation 767,707 686,619 81,088 Ave I/Hwy 14 Intersection 22,508,549 10,944,224 2,200 Ave K/SR14 Interchange-MSR R 467,353 44,130 423,223 Ave K-8 Bike Facility Improvement 83,627 65,047 18,580 Downtown Gateway 2,300,216 197,852 2,102,364 Miller Elem Street and Sidewalk Improvement 695,716 598,964 96,752 Valley View Ped Improvement 1,146,451 1,000 655,684 25th E. Roadway Alignment 415,689 - 415,689 Ave L & Challenger Roundabout 100,245 96,009 38 15th St W/Lanc Blvd Roundabout 193,662 16,008 16,008 Traffic Signal, Ave I & 25th St E 581,905 44,617 537,288 Recycled Water Conversions 978,782 837,268 16,455

See independent auditors’ report. - 65 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

14. CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES:

On June 29, 2011, Assembly Bills 1x 26 (the “Dissolution Act”) and 1x 27 were enacted as part of the fiscal year 2011-12 state budget package.

On June 27, 2012, as part of the fiscal year 2012-13 state budget package, the Legislature passed and the Governor signed AB 1484, which made technical and substantive amendments to the Dissolution Act based on experience to-date at the state and local level in implementing the Dissolution Act.

Under the Dissolution Act, each California redevelopment agency (each “Dissolved RDA”) was dissolved as of February 1, 2012, and the sponsoring community that formed the Dissolved RDA, together with other designated entities, have initiated the process under the Dissolution Act to unwind the affairs of the Dissolved RDA. A Successor Agency was created for each Dissolved RDA which is the Sponsoring Community of the Dissolved RDA, unless the Sponsoring Community elected not to serve as the Successor Agency. On January 10, 2012, the City elected to serve as the Successor Agency to the Lancaster Redevelopment Agency.

The Dissolution Act also created oversight boards which monitor the activities of the successor agencies. The roles of the successor agencies and oversight boards are to administer the wind down of each Dissolved RDA which includes making payments due on enforceable obligations, disposing of the assets (other than housing assets) and remitting the unencumbered balances of the Dissolved RDAs to the County Auditor-Controller for distribution to the affected taxing entities.

The Dissolution Act allowed the sponsoring community that formed the Dissolved RDA to elect to assume the housing functions and take over certain housing assets of the Dissolved RDA. If the sponsoring community does not elect to become the Successor Housing Agency and assume the Dissolved RDA’s housing functions, such housing functions and all related housing assets will be transferred to the local housing authority in the jurisdiction. AB 1484 modified and provided some clarifications on the treatment of housing assets under the Dissolution Act. On January 24, 2012, the City’s Housing Authority elected to serve as the Housing Successor Agency.

After the date of dissolution, the housing assets, obligations, and activities of the Dissolved RDA have been transferred and are reported in the Lancaster Housing Authority Special Revenue Fund in the financial statements of the City. All other assets, obligations, and activities of the Dissolved RDA have been transferred and are reported in a fiduciary fund (private-purpose trust fund) in the financial statements of the City.

The Dissolution Act and AB 1484 also establish roles for the County Auditor-Controller, the California Department of Finance (the “DOF”) and the California State Controller’s office in the dissolution process and the satisfaction of enforceable obligations of the Dissolved RDAs. See independent auditors’ report. - 66 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

14. CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED):

The County Auditor-Controller is charged with establishing a Redevelopment Property Tax Trust Fund (the “RPTTF”) for each Successor Agency and depositing into the RPTTF for each six-month period the amount of property taxes that would have been redevelopment property tax increment had the Dissolved RDA not been dissolved. The deposits in the RPTTF fund are to be used to pay to the Successor Agency the amounts due on the Successor Agency’s enforceable obligations for the upcoming six-month period.

The Successor Agency is required to prepare a Recognized Obligation Payment Schedule (the “ROPS”) which is then approved by the Oversight Board, setting forth the amounts due for each enforceable obligation during each six month period. The ROPS is submitted to the DOF for approval. The County Auditor-Controller will make payments to the Successor Agency from the RPTTF fund based on the ROPS amount approved by the DOF. The ROPS is prepared in advance for the enforceable obligations due over the next six months.

The process of making RPTTF deposits to be used to pay enforceable obligations of the Dissolved RDA will continue until all enforceable obligations have been paid in full and all non-housing assets of the Dissolved RDA have been liquidated.

As part of the dissolution process AB1484 required the Successor Agency to have Due Diligence Reviews of both the Low and Moderate Income Housing Fund and all other funds. These reviews were required to be completed by October 15, 2012 and January 15, 2013 to compute the funds (cash) which were not needed by the Successor Agency to be retained to pay for existing enforceable obligations. The Successor Agency remitted a total of $118,244 to the CAC on March 12, 2013.

The DOF issued a Finding of Completion on August 7, 2013, in which DOF concurred that the Successor Agency has made full payments of any payments required as a result of the Due Diligence Reviews.

The State Controller of the State of California was directed to review the propriety of any transfers of assets between the Dissolved RDAs and other public bodies that occurred after January 1, 2011. If the public body that received such transfers was not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller was required to order the available assets be transferred to the public body designated as the successor agency.

On January 17, 2011, the Board of Directors of the Lancaster Redevelopment Agency approved a transfer of land amounting to $14,482,945 to the City as a repayment of advances made by the City to the Lancaster Redevelopment Agency. The Department of Finance disallowed the transfer. The City transferred the land back to the Successor Agency during the year ended June 30, 2013.

See independent auditors’ report. - 67 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

14. CHANGES IN LEGISLATION AFFECTING CALIFORNIA REDEVELOPMENT AGENCIES (CONTINUED):

The Finding of Completion allowed two subsequent actions by the Successor Agency:

 The Successor Agency was permitted to complete its Long Range Property Management Plan (LRPMP). The LRPMP specifies the disposition and use of the real properties of the former Lancaster Redevelopment Agency. Pursuant to Health and Safety Code (HSC) Section 34191.5, the Successor Agency submitted the LRPMP to DOF on August 14, 2013. On February 21, 2014, DOF completed its review of the LRPMP and approved the use or disposition of all properties listed on the LRPMP, subject to the provisions of OB Resolution 02-14 and OB Resolution 04-14. o As required by HSC Section 34191.4, the Successor Agency transferred all real property and interests in real property to the Community Redevelopment Property Trust Fund of the Successor Agency. o Pursuant to HSC Section 34181(a), the Successor Agency then transferred properties constructed and used for a governmental purpose to the City of Lancaster.

 The Successor Agency was allowed to recognize loan agreements between the former Lancaster Redevelopment Agency and the City on the ROPS, as enforceable obligations, provided the Oversight Board made a finding that the loans were for legitimate redevelopment purposes. o The Oversight Board adopted Resolution Nos. OB 23-13 through OB 46-13, which amended and restated the agreements between the City and the former RDA and made the finding that the loans were for legitimate redevelopment purposes and therefore, should be recognized as enforceable obligations. o DOF disallowed 9 of the 24 OB Resolutions. The Successor Agency is pursuing legal action regarding these loans. o Approval of the remaining 15 Resolutions enabled reinstatement of the majority of the loan obligations. The loans are reflected in these financial statements as liabilities due to the City (80%) and Lancaster Housing Authority (20%). When repayments begin, 20% of the repayments amounts are required to be allocated to the Low and Moderate Income Housing Asset Fund maintained by the Lancaster Housing Authority.

Management believes, in consultation with legal counsel, that the obligations of the Dissolved RDA due to the City are valid enforceable obligations payable by the Successor Agency under the requirements of the Dissolution Act and AB 1484. The City’s position on this issue is not a position of settled law and there is considerable legal uncertainty regarding this issue. It is reasonably possible that a legal determination may be made at a later date by an appropriate judicial authority that would resolve this issue unfavorably to the City. See independent auditors’ report. - 68 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES:

The assets and liabilities of the former Redevelopment Agency were transferred to the Successor Agency of the City of Lancaster Redevelopment Agency on February 1, 2012 as a result of the dissolution of the former Redevelopment Agency. The City is acting in a fiduciary capacity for the assets and liabilities. Disclosures related to Private-Purpose Trust Fund are as follows:

LONG-TERM LIABILITIES:

Long-term liability activity for the year ended June 30, 2014 was as follows:

Due Due in Balance Balance Within More Than July 1, 2013 Additions Deletions June 30, 2014 One Year One Year Residential Project Area 2003 Development $ 5,358,088 $ - $ (96,162) $ 5,261,926 $ 170,074 $ 5,091,852 2003B Development 1,257,285 - (68,640) 1,188,645 31,065 1,157,580 2004B Development 959,714 - (21,305) 938,409 21,006 917,403 2004 Sheriff’s Facilities 1,676,367 - (118,323) 1,558,044 123,518 1,434,526 2004 Fire Facilities 868,957 - (61,887) 807,070 64,438 742,632 2004 Library 196,439 - (8,160) 188,279 8,412 179,867 2006 Development 259,066 - (8,274) 250,792 7,675 243,117 Total 10,575,916 - (382,751) 10,193,165 426,188 9,766,977

Central Business District Project Area 1994 Refunding 965,000 - (65,000) 900,000 70,000 830,000 2004 Sheriff’s Facilities 427,545 - (30,237) 397,308 31,498 365,810 2004 Fire Facilities 181,826 - (12,948) 168,878 13,484 155,394 2004 Library 38,047 - (1,576) 36,471 1,629 34,842 2010 Lease Revenue 5,200,000 - (125,000) 5,075,000 130,000 4,945,000 Total 6,812,418 - (234,761) 6,577,657 246,611 6,331,046

Fox Field Project Area 2004 Sheriff’s Facilities 285,967 - (20,191) 265,776 21,070 244,706 2004 Fire Facilities 175,698 - (12,513) 163,185 13,029 150,156 2004 Library 33,952 - (1,423) 32,529 1,453 31,076 2006 Development 2,128,264 - (71,344) 2,056,920 62,952 1,993,968 Total 2,623,881 - (105,471) 2,518,410 98,504 2,419,906

See independent auditors’ report. - 69 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

Due Due in Balance Balance Within More Than July 1, 2013 Additions Deletions June 30, 2014 One Year One Year Amargosa Project Area 1999 Refunding $ 2,335,000 $ - $ (90,000) $ 2,245,000 $ 250,000 $ 1,995,000 2003 Development 4,444,300 - (79,701) 4,364,599 141,070 4,223,529 2003B Development 7,178,018 - (391,836) 6,786,182 177,356 6,608,826 2004B Development 2,177,681 - (42,489) 2,135,192 47,795 2,087,397 2004 Sheriff’s Facilities 2,801,246 - (197,726) 2,603,520 206,400 2,397,120 2004 Fire Facilities 1,434,858 - (102,180) 1,332,678 106,405 1,226,273 2004 Library 329,121 - (13,679) 315,442 14,093 301,349 2006 Development 4,315,720 - (142,870) 4,172,850 127,710 4,045,140 Total 25,015,944 - (1,060,481) 23,955,463 1,070,829 22,884,634

Project Area 5 2003 Development 14,255,917 - (255,899) 14,000,018 452,502 13,547,516 2003B Development 1,131,927 - (62,146) 1,069,781 27,958 1,041,823 2004B Development 3,477,516 - (79,267) 3,398,249 76,066 3,322,183 2004 School Refunding 1,872,598 - (35,220) 1,837,378 36,639 1,800,739 2004 Sheriff’s Facilities 4,286,567 - (302,639) 3,983,928 315,835 3,668,093 2004 Fire Facilities 2,094,764 - (149,195) 1,945,569 155,337 1,790,232 2004 Library 514,259 - (21,382) 492,877 22,021 470,856 2006 Development 3,669,976 - (120,946) 3,549,030 108,618 3,440,412 2006 School 4,441,498 - (89,308) 4,352,190 91,418 4,260,772 Total 35,745,022 - (1,116,002) 34,629,020 1,286,394 33,342,626

Project Area 6 2003 Development 12,171,695 - (218,238) 11,953,457 386,354 11,567,103 2003B Development 1,967,770 - (107,378) 1,860,392 48,621 1,811,771 2004B Development 3,210,089 - (76,939) 3,133,150 70,133 3,063,017 2004 School Refunding 5,027,402 - (94,780) 4,932,622 98,361 4,834,261 2004 Sheriff’s Facilities 4,854,059 - (342,647) 4,511,412 357,653 4,153,759 2004 Fire Facilities 2,053,896 - (146,276) 1,907,620 152,307 1,755,313 2004 Library 2,742,983 - (113,987) 2,628,996 117,458 2,511,538 2006 Development 11,426,972 - (381,564) 11,045,408 338,045 10,707,363 2006 School 7,948,502 - (160,692) 7,787,810 163,582 7,624,228 Total 51,403,368 - (1,642,501) 49,760,867 1,732,514 48,028,353 See independent auditors’ report. - 70 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

Due Due in Balance Balance Within More Than July 1, 2013 Additions Deletions June 30, 2014 One Year One Year Project Area 7 2004 Sheriff’s Facilities $ 258,250 $ - $ (18,238) $ 240,012 $ 19,026 $ 220,986 2004 Library 115,201 - (4,795) 110,406 4,934 105,472 Total 373,451 - (23,033) 350,418 23,960 326,458

Combined Low and Moderate Housing 1997 Mobile Home 2,370,000 - (100,000) 2,270,000 2,270,000 - 2003 Housing 53,505,000 - (1,145,000) 52,360,000 1,190,000 51,170,000 2003B Housing 13,945,000 - (415,000) 13,530,000 435,000 13,095,000 2004 Housing 11,520,000 - (265,000) 11,255,000 275,000 10,980,000 2009 Housing 36,145,000 - (9,515,000) 26,630,000 750,000 25,880,000 Total 117,485,000 - (11,440,000) 106,045,000 4,920,000 101,125,000

Total Successor Agency 250,035,000 - (16,005,000) 234,030,000 9,805,000 224,225,000

Unamortized original issue (discount) or premium 4,777,923 - (289,602) 4,488,321 - 4,488,321

Net Long-Term Debt $ 254,812,923 $ - $ (16,294,602) $ 238,518,321 $ 9,805,000 $ 228,713,321

Combined Tax Allocation Notes and Bonds

1. On August 19, 2009, the Agency issued $37,500,000 of Combined Redevelopment Project Areas (Housing Programs), Tax Allocation Bonds, issue of 2009. This financing was undertaken to (i) fund certain low and moderate income housing projects of the agency, (ii) fund capitalized interest on the bonds through September 1, 2010, (iii) fund a reserve account for the 2009 Bonds; and (iv) pay the costs of issuing the 2009 bonds. The principal portion of these bonds is payable from August 1, 2011 to 2039. Interest is payable semi-annually at rates of 4.0% to 6.875% per annum, on February 1 and August 1 of each year commencing on February 1, 2010.

See independent auditors’ report. - 71 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

Combined Tax Allocation Notes and Bonds (Continued)

2. On December 7, 2006, the Agency issued $25,660,000 of Tax Allocation Revenue Bonds, Issue of 2006. This financing was undertaken to refund $5,845,000 in outstanding Agency bonds and to provide the Agency with additional funds for projects. The principal portion of these bonds is payable from February 1, 2008 to 2039. Interest is payable semi-annually on February 1 and August 1 of each year commencing on August 1, 2007. Interest rates vary from 3.80% to 5.00%. The principal portion of these bonds has been allocated to the following project areas:

Residential Area $ 305,000 Fox Field Area 2,505,000 Amargosa Area 5,080,000 Area Number 5 4,320,000 Area Number 6 13,450,000 Total $ 25,660,000

3. On November 8, 2006, the Agency issued $13,655,000 of Tax Allocation Bonds (School District Projects), Series 2006. This financing was undertaken to finance school district projects pursuant to certain school district pass through agreements with respect to Redevelopment Project No. 5 and No. 6, pay costs of issuing the Bonds, and fund a debt service reserve account. The principal portion of these bonds is payable from February 1, 2008 to 2037. Interest is payable semi-annually on February 1 and August 1 of each year commencing on February 1, 2007. Interest rates vary from 4.00% to 5.00%. Project Area Number 5 received $4,895,000 of the principal portion of these bonds with the remaining amount of $8,760,000 being allocated to Project Area Number 6.

4. On December 15, 2004, the Agency issued $10,200,000 of Combined Redevelopment Project Areas (Fire Protection Facilities Project), Tax Allocation Refunding Bonds, Issue of 2004. Interest on these bonds is payable semi-annually on June 1 and December 1 of each year, commencing June 1, 2006. Interest rates vary from 2.00% to 5.25%. Principal redemptions are payable starting December 1, 2006 through December 1, 2023. The proceeds of this bond issue were utilized to refund all of the Agency’s outstanding Combined Redevelopment Project Areas (Fire Protection Facilities Project) Tax Allocation Bonds, Issue of 1993, pay costs of issuing the Bonds, and fund a debt service reserve account.

See independent auditors’ report. - 72 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

Combined Tax Allocation Notes and Bonds (Continued)

5. On December 15, 2004, the Agency issued $21,540,000 of Combined Redevelopment Project Areas (Sheriff’s Facility Project), Tax Allocation Refunding Bonds, Issue of 2004. Interest on these bonds is payable semi-annually on June 1 and December 1 of each year, commencing June 1, 2006. Interest rates vary from 2.00% to 5.25%. Principal redemptions are payable starting December 1, 2006 through December 1, 2019. The proceeds of this bond issue were utilized to refund all of the Agency’s outstanding Combined Redevelopment Project Areas (Sheriff’s Facility Project) Tax Allocation Bonds, Issue of 1993, pay costs of issuing the Bonds, and fund a debt service reserve account.

6. On December 15, 2004, the Agency issued $5,135,000 of Combined Redevelopment Project Areas (Library Project), Tax Allocation Refunding Bonds, Issue of 2004. Interest on these bonds is payable semi-annually on June 1 and December 1 of each year, commencing June 1, 2006. Interest rates vary from 3.00% to 4.75%. Principal redemptions are payable starting December 1, 2006 through December 1, 2029. The proceeds of this bond issue were utilized to refund all of the Agency’s outstanding Combined Redevelopment Project Areas (Library Project) Tax Allocation Bonds, Issue of 1993, and Combined Redevelopment Project Areas (Library Project) Subordinated Tax Allocation Refunding Bonds, Issue of 1999, pay costs of issuing the Bonds, and fund a debt service reserve account.

7. On September 9, 2004, the Agency issued $7,830,000 of Lancaster Financing Authority, Tax Allocation Refunding Bonds (Lancaster Redevelopment Project No. 5 and Project No. 6 (School Districts), Issue of 2004. Interest on these bonds is payable semi-annually on February 1 and August 1 of each year, commencing February 1, 2006. Interest rates vary from 2.00% to 5.60%. Principal redemptions are payable starting February 1, 2006 through February 1, 2034. The proceeds of this bond issue were utilized to advance refund and defease all of the Agency’s outstanding Lancaster Redevelopment Project No. 6, Tax Allocation Refunding Bonds (School District), Issue of 1996, finance school district projects pursuant to certain school district pass through agreements with respect to Redevelopment Project No. 5 and No. 6, pay costs of issuing the Bonds, and fund a debt service reserve account.

8. On November 9, 2004, the Agency issued $13,575,000 of Combined Redevelopment Project Areas (Housing Programs), Subordinate Tax Allocation Bonds, Issue of 2004 (Taxable). This financing was undertaken to provide funding for certain low and moderate income housing projects of the Agency, fund a reserve account for the Bonds and to pay the costs of issuance. The principal portion of these bonds is payable from August 1, 2006 to 2035. Interest is payable semi-annually on February 1 and August 1 of each year commencing on February 1, 2006. See independent auditors’ report. - 73 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

Combined Tax Allocation Notes and Bonds (Continued)

9. On November 9, 2004, the Agency issued $11,005,000 of Lancaster Financing Authority, Subordinate Tax Allocation Revenue Bonds (Lancaster Residential, Amargosa, Project No. 5 and Project No. 6 Redevelopment Projects), Issue of 2004B. Interest on these bonds is payable semi-annually on February 1 and August 1 of each year, commencing February 1, 2006. Interest rates vary from 2.35% to 5.00%. Principal redemptions are payable starting February 1, 2008 through February 1, 2035. The proceeds of this bond issue were utilized to finance redevelopment activities of the Agency with respect to four of its Project Areas, fund capitalized interest through August 1, 2007, pay costs of issuing the Bonds, and fund a debt service reserve account.

10. On June 11, 2003, the Agency issued $101,575,000 of Series 2003 Bonds ($60,980,000 Combined Housing Financing and $40,595,000 of Combined Economic Development Financing). This financing was undertaken to refund $75,065,000 in outstanding Agency debt and to provide the Agency with additional funds for projects. The principal portion of these bonds is payable from August 1, 2004 to 2034 on the Economic Development Financing (Combined Tax Allocation Bonds, Series 2003) and August 1, 2006 to 2033, on the Housing Financing (Combined Housing Bonds). Interest is payable semi-annually on February 1 and August 1, of each year commencing on August 1, 2004.

11. On December 12, 2003, the Agency issued $34,640,000 of Series 2003 B Bonds ($18,080,000 Combined Housing Financing and $16,560,000 of Subordinate Tax Allocation Revenue Bonds). This financing was undertaken to refund $13,375,000 in outstanding Agency debt and to provide the Agency with additional funds for projects. The principal portion of these bonds is payable from August 1, 2004 to 2034, on the Subordinate Tax Allocation Revenue Bonds and February 1, 2004 to 2034, on the Housing Financing (Combined Housing Bonds). Interest is payable semi-annually on February 1 and August 1 of each year commencing on February 1, 2004.

See independent auditors’ report. - 74 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

Combined Tax Allocation Notes and Bonds (Continued)

11. (Continued):

The principal portion of these bonds has been allocated to the following project areas:

Economic Development Housing Residential Area $ 1,805,000 $ 3,372,853 Central Business District Area - 175,098 Fox Field Area - 173,720 Amargosa Area 10,305,000 4,687,320 Area Number 5 1,625,000 4,396,360 Area Number 6 2,825,000 4,704,068 Area Number 7 - 570,581 Total $ 16,560,000 $ 18,080,000

On February 14, 2011, Standard and Poor’s rating service downgraded its underlying rating on the housing portion of these bonds to “BBB+” from “A” due to an insufficient amount of revenue coverage pledged for this debt.

12. On February 23, 1993, the Agency, City of Lancaster, Los Angeles County Public Library and the County of Los Angeles entered into a Memorandum of Understanding whereby the Agency will provide a contribution in the amount of $1,500,000, and a loan to the Library in the approximate principal amount of $5,870,000, for construction and development of the Library Project. The Agency contribution and loan amounts will be provided in addition to net proceeds from the Library Bonds and Subordinated Bonds for development and construction of the Library Project. The exact amount of the Agency loan will be determined by subtracting the amount of net bond proceeds, subordinated note proceeds and contributions proceeds from the total development and construction costs of the Library Project.

13. On February 1, 2000, the Agency took over the operation of the Desert Sands Mobile Home Park Project. In connection with this, the Agency is accomplishing the servicing of its previously issued Mobile Home Park Revenue Bonds (Desert Sands Mobile Home Park Project), Series 1997 A and B Bonds issued November 1, 1997. The bonds outstanding as of February 1, 2000, were $3,280,000. The principal portion of these bonds is payable from May 1, 2000 to 2028. Interest is payable semi-annually on May 1 and November 1 of each year at rates of 4.0% to 7.5% per annum.

See independent auditors’ report. - 75 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

Central Business District Project Area

1. On January 1, 1994, the Agency issued $3,065,000 of Lancaster Central Business District Redevelopment Project Area, Tax Allocation Refunding Bonds, Issue of 1994. The principal portion of these bonds is payable from August 1, 1994 to August 1, 2023. Interest is payable semi-annually on February 1 and August 1 each year commencing August 1,1994, at rates of 3.00% to 6.125% per annum. The proceeds of these bonds was utilized to defease $1,055,000 of the Tax Allocation Refunding Bonds, Issue of 1986, and $1,900,000 of Subordinated Tax Allocation Refunding Notes, Issue of 1988.

2. On April 22, 2010, the Agency issue $5,555,000 of Lancaster Redevelopment Agency, Lease Revenue Refunding Bonds (Lancaster Public Capital Improvement Projects), Issue of 2010. The purpose of these bonds was to (i) refund on a current basis the Lancaster Redevelopment Agency Lease Revenue Refunding Bonds (Lancaster Public Capital Improvement Projects) Issue of 1999, (ii) fund the Reserve Account, and (iii) pay costs of issuance of the Bonds. The principal portion of these bonds is payable from December 1, 2010 to December 1, 2035. Interest is payable semi-annually at rates of 2.0% to 5.9% per annum, commencing December 1, 2010. The Bonds are payable from Lease Payments to be made by the City of Lancaster to the Agency or its assignee. The property covered by the Lease consists of the Lancaster Performing Arts Center. Neither the Bonds nor the obligation of the City to make Lease Payments under the Lease Agreement constitutes an indebtedness of the City, the Agency, the State of California or any political subdivision thereof, within the meaning of the Constitution of the State of California or otherwise.

Amargosa Redevelopment Project

1. On March 18, 1999, the Agency issued $4,380,000 of Lancaster Redevelopment Agency, Amargosa Redevelopment Project, Tax Allocation Refunding Bonds, Issue of 1999. The purpose of these bonds was to defease a portion of the $7,005,000 Tax Allocation Refunding Bonds, Issue of 1991. The principal portion of these bonds is payable from February 1, 2000 to February 1, 2024. Interest is payable semi-annually at rates of 3.0% to 5.0% per annum, commencing August 1, 1999.

See independent auditors’ report. - 76 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

LONG-TERM LIABILITIES (CONTINUED)

The annual requirements to amortize the outstanding bond indebtedness for the Lancaster Redevelopment Agency Bonds and Notes, as of June 30, 2014, including interest, are as follows:

Year Ending June 30, Principal Interest Total 2015 $ 7,640,000 $ 12,427,743 $ 20,067,743 2016 7,990,000 12,058,140 20,048,140 2017 8,375,000 11,661,540 20,036,540 2018 8,775,000 11,237,190 20,012,190 2019 9,225,000 10,793,983 20,018,983 2020 - 2024 52,280,000 46,599,669 98,879,669 2025 - 2029 50,850,000 33,837,148 84,687,148 2030 - 2034 58,395,000 19,967,679 78,362,679 2035 - 2039 30,500,000 5,513,667 36,013,667

Totals $ 234,030,000 $ 164,096,759 $ 398,126,759

On June 14, 2012, Moody’s Investors Service (“Moody’s”) downgraded all California tax allocation bonds rated ‘Baa3’ and above. As such, the Bonds’ insured rating was downgraded from ‘A3’ to ‘Ba1’ and underlying rating was downgraded from ‘A3’ to ‘Ba1’. According to Moody’s, all California tax allocation bond ratings remain on review for possible withdrawal.

See independent auditors’ report. - 77 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

DUE TO THE CITY OF LANCASTER

1. SERAF Advance:

Advances were made in previous years in the amount of $24,303,115 to assist in accomplishing payment to the Educational Revenue Augmentation Fund from the former redevelopment agency low and moderate income housing fund. The advances are now payable to the Lancaster Housing Authority as a result of the dissolution of redevelopment.

2. Administrative Loans:

The City has made several administrative loans to the Successor Agency. The loans bear interest at a rate equal to LAIF rates. Outstanding balances on these administrative loans at June 30, 2014 total $2,164,393.

3. Reinstatement of Prior Advances:

The City made multiple loans to the former Lancaster Redevelopment Agency. During the 13/14 fiscal year, many of those loans were reinstated as enforceable obligations of the Successor Agency: The outstanding principal totals $22,836,799; the interest at 6/30/14 totals $14,868,475. The total reinstatement of prior advances due to the City from the Successor Agency is $37,705,274.

PLEDGED REVENUE

The City pledged, as security for bonds issued, either directly or through the Financing Authority, a portion of tax increment revenue (including Low and Moderate Income Housing set-aside and pass through allocations) that it receives. The bonds issued were to provide financing for various capital projects, accomplish Low and Moderate Income Housing projects and to defease previously issued bonds. Assembly Bill 1 X 26 provided that upon dissolution of the Redevelopment Agency, property taxes allocated to redevelopment agencies no longer are deemed tax increment but rather property tax revenues and will be allocated first to successor agencies to make payments on the indebtedness incurred by the dissolved redevelopment agency. Total principal and interest remaining on the debt is $383,388,377 with annual debt service requirements as indicated below. For the current year, the total property tax revenue recognized by the City and Successor Agency for the payment of indebtedness incurred by the dissolved redevelopment agency was $23,252,044 and the debt service obligation on the bonds was $28,317,894.

See independent auditors’ report. - 78 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

DEFEASANCE OF DEBT

In prior years, the Agency defeased certain tax allocation bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the Agency’s financial statements. At June 30, 2014, the following bond issues are considered defeased:

Original Amount Combined Redevelopment Project Areas: Subordinated Tax Allocation Notes $ 7,000,000 Tax Allocation Refunding Notes, Issue of 1988 25,990,000 Housing Programs, Tax Allocation Bonds, Issue of 1993 32,000,000 Library Project, Issue of 1993 3,860,000 Sheriff’s Facility Project, Issue of 1993 27,380,000 Fire Protection Facility Project, Issue of 1993 14,020,000 Library Project, Issue of 1999 1,780,000

Residential Project Area: Tax Allocation Refunding Notes, Issue of 1992 13,800,000 Subordinated Tax Allocation Refunding Bonds, Issue of 1997 3,065,000

Central Business District Project Area: Tax Allocation Refund Bonds, Issue of 1986 1,800,000

Fox Project Area: Tax Allocation Refunding Bonds, Issue of 1984 3,050,000

Amargosa Redevelopment Project Area: Tax Allocation Notes 5,400,000 Tax Allocation Refunding Notes, Issue of 1989 9,000,000 Subordinated Tax Allocation Refunding Notes, Issue of 1991 4,000,000 Tax Allocation Refunding Bonds, Issue of 1991 9,000,000 Tax Allocation Refunding Bonds 6,190,000 Tax Allocation Refunding Bonds (amount defeased) 2,590,000 Lease Revenue Notes, Issue of 1995 7,475,000 Tax Allocation Refunding Bonds, Issue of 1996 12,700,000

See independent auditors’ report. - 79 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

15. SUCCESSOR AGENCY DISCLOSURES (CONTINUED):

DEFEASANCE OF DEBT (CONTINUED)

Original Amount Project Area Number 5: Tax Allocation Notes $ 6,250,000 Subordinated Tax Allocation Refunding Notes, Issue of 1989 16,000,000 Subordinated Tax Allocation Refunding Notes, Issue of 1991 4,500,000 School District Tax Allocation Notes, Issue of 1991 4,250,000 Tax Allocation Refunding Bonds, Issue of 1991 13,755,000 Tax Allocation Refunding Bonds, Issue of 1996 10,750,000 Tax Allocation Refunding Bonds, Issue of 1997 6,480,000

Project Area Number 6: School District Tax Allocation Notes, Issue of 1991 3,250,000 Tax Allocation Refunding Bonds, Issue of 1993 14,100,000 School District Tax Allocation Refunding Bonds, Issue of 1996 3,650,000

Total $ 273,085,000

NON-COMMITMENT DEBT

The Agency has issued $94,710,000 of Residential Mortgage Revenue Bonds that have not been reflected in Long-Term Debt because these bonds are special obligations payable solely from and secured by specific revenue sources described in the bond resolutions and official statements of the respective issues. Neither the faith and credit nor the taxing power of the City, the Agency, the State of California or any political subdivision thereof, is pledged for the payment of these bonds.

INSURANCE

The Successor Agency is covered under the City’s insurance policies. Therefore, the limitation and self-insured retentions applicable to the City also apply to the Successor Agency. Additional information as to coverage and self-insured retentions can be found in Note 11.

See independent auditors’ report. - 80 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

16. RESTATEMENT OF NET POSITION/FUND BALANCES:

Beginning net position for the government-wide financial statements was restated as follows: Governmental Activities Net position as previously reported as of June 30, 2013 $1,103,613,756

Decrease in net position to correct encumbrance balance (29,036)

Decrease in net position to correct the recording of sale of property (116,329)

Decrease in net position to correct previously recognized revenue related to long-term receivables (15,234,461)

Decrease in net position to record adjustment to the value of land in conjunction with the preparation of the Successor Agency’s Long Range Property Management Plan 640,435

Net position as restated July 1, 2013 $1,088,874,365

Beginning fund balances for the governmental fund financial statements were restated as follows:

Lancaster Housing Authority General Special Fund Revenue Fund Fund balances as previously reported as of June 30, 2013 $ 26,580,575 $ 92,947,715

Decrease in net position to correct encumbrance balance (29,036) -

Decrease in net position to correct error in recording sale of property - (116,329)

Fund balances as restated July 1, 2013 $ 26,551,539 $ 92,831,386 See independent auditors’ report. - 81 - CITY OF LANCASTER

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 2014

16. RESTATEMENT OF NET POSITION/FUND BALANCES (CONTINUED):

Beginning net position for the fiduciary funds financial statement was restated as follows:

Private-Purpose Trust Fund Net position as previously reported as of June 30, 2013 $ (222,144,753)

Increase in net position to record adjustment to the value of land in conjunction with the preparation of the Successor Agency’s Long Range Property Management Plan 1,630,256

Net position as restated July 1, 2013 $ (220,514,497)

17. SUBSEQUENT EVENTS:

Events occurring after June 30, 2014 have been evaluated for possible adjustments to the financial statements or disclosure as of December 22, 2014 which is the date these financial statements were available to be issued.

See independent auditors’ report. - 82 - SUPPLEMENTARY INFORMATION

COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES

- 83 - CITY OF LANCASTER

COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS

June 30, 2014

Special Revenue Funds

Landscape Housing and Community Maintenance Community Gas Tax Services District Development ASSETS: Pooled cash and investments 4,983,433$ 67,426$ 2,709,476$ 4,350,699$ Receivables: Accounts 24,877 - 3,498 - Taxes 2,368 - 15,548 - Accrued interest - - 4,848 - Due from other governments - 1,000 - 5,175 Land held for resale - - - 249,766

TOTAL ASSETS $ 5,010,678 $ 68,426 $ 2,733,370 $ 4,605,640

LIABILITIES: Accounts payable 146,553$ 32$ 170,808$ 14,709$ Accrued liabilities 2,729 - 628 220 Unearned revenues - - - - Due to other funds - - - 143,167

TOTAL LIABILITIES 149,282 32 171,436 158,096

DEFERRED INFLOWS OF RESOURCES: Unavailable revenues - - - -

TOTAL DEFERRED INFLOWS OF RESOURCES - - - -

FUND BALANCES (DEFICITS): Restricted: Community development projects - 68,394 - 4,447,544 Public safety - - - - Parks and recreation - - - - Public works 4,861,396 - 2,561,934 - Debt service - - - - Unassigned - - - -

TOTAL FUND BALANCES (DEFICITS) 4,861,396 68,394 2,561,934 4,447,544

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 5,010,678 $ 68,426 $ 2,733,370 $ 4,605,640

See independent auditors' report. - 84 - Special Revenue Funds (Continued)

Transportation Development Bikeway Federal State Parks Authority Proposition A Improvement Proposition C Grants Grants Development

$ - $ 3,048,077 $ 134,019 $ 7,147,810 394,331$ -$ $ 1,016,540

681,739 - - - 68,189 ------10,241 5,616 240 12,793 - - 1,819 - - - - 346,577 2,535,552 ------

$ 691,980 $ 3,053,693 $ 134,259 $ 7,160,603 $ 809,097 $ 2,535,552 $ 1,018,359

$ 19,498 $ 3,115 $ - $ 2,032 2,351$ 7,596$ $ - - 3 - - 4 28 ------74,909 - 503,328 - - - 336,703 3,369,130 -

522,826 3,118 - 2,032 339,058 3,451,663 -

- - - - 346,577 608,434 -

------1,018,359 169,154 3,050,575 134,259 7,158,571 123,462 ------(1,524,545) -

169,154 3,050,575 134,259 7,158,571 123,462 (1,524,545) 1,018,359

$ 691,980 $ 3,053,693 $ 134,259 $ 7,160,603 $ 809,097 $ 2,535,552 $ 1,018,359

(Continued) - 85 - CITY OF LANCASTER

COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS (CONTINUED)

June 30, 2014

Special Revenue Funds (Continued)

County Developer Developer and Fees - Fees - Recycled Other Signals Drainage Water ASSETS: Pooled cash and investments 6,041$ 4,654,647$ 4,138,168$ -$ Receivables: Accounts - 98,058 234,028 1,150 Taxes - - - - Accrued interest - 8,331 7,406 - Due from other governments - - - - Land held for resale - - - -

TOTAL ASSETS $ 6,041 $ 4,761,036 $ 4,379,602 $ 1,150

LIABILITIES: Accounts payable -$ -$ -$ 7,364$ Accrued liabilities - - - 70 Unearned revenues - 98,058 234,028 - Due to other funds 239,275 - - 246,176

TOTAL LIABILITIES 239,275 98,058 234,028 253,610

DEFERRED INFLOWS OF RESOURCES: Unavailable revenues - - - 20,000

TOTAL DEFERRED INFLOWS OF RESOURCES - - - 20,000

FUND BALANCES (DEFICITS): Restricted: Community development projects - - - - Public safety - - - - Parks and recreation - - - - Public works - 4,662,978 4,145,574 - Debt service - - - - Unassigned (233,234) - - (272,460)

TOTAL FUND BALANCES (DEFICITS) (233,234) 4,662,978 4,145,574 (272,460)

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 6,041 $ 4,761,036 $ 4,379,602 $ 1,150

See independent auditors' report. - 86 - Special Revenue Funds (Continued) Lancaster Biological Traffic Lancaster Drainage Impact Impact Lighting Maintenance Miscellaneous Traffic Engineering Fees Fees AQMD District District Grants Safety Fees

400,353$ 400,353$ 4,795,625$ 177,909$ 338,702$ $ 887,468 $ 28,516 20,071$ -$

1,979 1,979 210,494 - 18,953 1,999 - - 33,867 - - - - 71,342 29,543 - - - 717 717 8,591 318 261 1,588 23 755 ------31,149 ------

$ 403,049 $ 5,014,710 $ 178,227 $ 429,258 $ 920,598 $ 28,539 $ 51,975 $ 33,867

-$ -$ 113,258$ -$ 303,920$ $ 17,717 $ - -$ 520$ - - - - 1,280 1,092 - - 1,712 - - 210,494 ------377,959 - 116,935

- - 323,752 - 305,200 18,809 377,959 - 119,167

------

------51,975 ------403,049 403,049 4,690,958 178,227 124,058 901,789 ------(349,420) - (85,300)

403,049 403,049 4,690,958 178,227 124,058 901,789 (349,420) 51,975 (85,300)

$ 403,049 $ 5,014,710 $ 178,227 $ 429,258 $ 920,598 $ 28,539 $ 51,975 $ 33,867

(Continued) - 87 - CITY OF LANCASTER

COMBINING BALANCE SHEET OTHER GOVERNMENTAL FUNDS (CONTINUED)

June 30, 2014

Special Revenue Funds (Continued)

Urban LA County Structure Mariposa Reimbursement MTA Grant Program Lily ASSETS: Pooled cash and investments $ - 146,477$ 1,411,204$ 62,478$ Receivables: Accounts - - 24,275 - Taxes - - - - Accrued interest - - 2,526 112 Due from other governments 21,944 13,630 - - Land held for resale - - - -

TOTAL ASSETS $ 21,944 $ 160,107 $ 1,438,005 $ 62,590

LIABILITIES: Accounts payable $ 16,154 7,349$ -$ -$ Accrued liabilities - - - - Unearned revenues - - - - Due to other funds 164,550 6,281 - -

TOTAL LIABILITIES 180,704 13,630 - -

DEFERRED INFLOWS OF RESOURCES: Unavailable revenues 11,182 13,630 24,275 -

TOTAL DEFERRED INFLOWS OF RESOURCES 11,182 13,630 24,275 -

FUND BALANCES (DEFICITS): Restricted: Community development projects - - - - Public safety - - - - Parks and recreation - - 1,176,996 - Public works - 132,847 236,734 62,590 Debt service - - - - Unassigned (169,942) - - -

TOTAL FUND BALANCES (DEFICITS) (169,942) 132,847 1,413,730 62,590

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 21,944 $ 160,107 $ 1,438,005 $ 62,590

See independent auditors' report. - 88 - Debt Service Special Revenue Funds (Continued) Fund Total Sewer Lancaster Other Maintenance Proposition Proposition Financing Governmental District 1B 42 HPRP Measure R Authority Funds

$ 6,334,594 $ 339,205 $ 958,204 -$ 3,681,045$ $ 2,033,494 $ 54,266,012

100 - - - 90,348 - 1,493,554 55,757 - - - - - 174,558 11,422 607 1,715 - 6,320 - 86,249 ------2,955,027 ------249,766

$ 6,401,873 $ 339,812 $ 959,919 $ - $ 3,777,713 $ 2,033,494 $ 59,225,166

$ 15,956 $ 6,083 $ - -$ 56,758$ $ - $ 911,773 2,609 - - - - - 10,375 ------617,489 - - - 2,522 - - 5,506,026

18,565 6,083 - 2,522 56,758 - 7,045,663

------1,024,098

------4,515,938 ------51,975 ------2,195,355 6,383,308 333,729 959,919 - 3,720,955 - 44,996,066 - - - - - 2,033,494 2,033,494 - - - (2,522) - - (2,637,423)

6,383,308 333,729 959,919 (2,522) 3,720,955 2,033,494 51,155,405

$ 6,401,873 $ 339,812 $ 959,919 $ - $ 3,777,713 $ 2,033,494 $ 59,225,166

- 89 - CITY OF LANCASTER

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OTHER GOVERNMENTAL FUNDS

For the year ended June 30, 2014

Special Revenue Funds

Landscape Housing and Community Maintenance Community Gas Tax Services District Development REVENUES: Taxes -$ -$ -$ -$ Licenses and permits - - - - Intergovernmental 4,746,453 - - 1,553,110 Charges for services 10,481 - 1,662,753 - Use of money and property 292 - 16,515 361,632 Fines and forfeitures - - - - Miscellaneous 33,100 41,566 - - TOTAL REVENUES 4,790,326 41,566 1,679,268 1,914,742

EXPENDITURES: Current: General government 225 558 15 6,918 Public safety - - - - Community development - 53,819 - 578,690 Public works 3,275,250 - 1,409,064 - Housing - - - 265,462 Capital outlay - - - - Debt service: Principal retirement - - - 348,000 Interest and fiscal charges - - - 140,715 TOTAL EXPENDITURES 3,275,475 54,377 1,409,079 1,339,785

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 1,514,851 (12,811) 270,189 574,957

OTHER FINANCING SOURCES (USES): Transfers in 5,032,505 - - - Transfers out (1,686,517) - (216,104) (219,388)

TOTAL OTHER FINANCING SOURCES (USES) 3,345,988 - (216,104) (219,388)

NET CHANGE IN FUND BALANCES 4,860,839 (12,811) 54,085 355,569

FUND BALANCES (DEFICITS) - BEGINNING OF YEAR 557 81,205 2,507,849 4,091,975

FUND BALANCES (DEFICITS) - END OF YEAR $ 4,861,396 $ 68,394 $ 2,561,934 $ 4,447,544

See independent auditors' report. - 90 - Special Revenue Funds (Continued)

Transportation Development Bikeway Federal State Parks Authority Proposition A Improvement Proposition C Grants Grants Development

$ - $ - $ - $ - -$ -$ $ ------63,000 3,749,920 2,692,235 - 2,201,254 718,716 3,469,126 ------14,030 14,078 1,595 40,631 - - 7,019 ------3,763,950 2,706,313 1,595 2,241,885 718,716 3,469,126 70,019

- 1,647,393 ------96,376 46,502 - - - - - 192,418 310,123 - - - - 43,425 3,675 254,398 ------28,340 ------

------28,340 1,647,393 - 43,425 292,469 611,023 -

3,735,610 1,058,920 1,595 2,198,460 426,247 2,858,103 70,019

------(8,081,576) (133,656) (102,098) (892,035) (590,361) (539,978) (61,158)

(8,081,576) (133,656) (102,098) (892,035) (590,361) (539,978) (61,158)

(4,345,966) 925,264 (100,503) 1,306,425 (164,114) 2,318,125 8,861

4,515,120 2,125,311 234,762 5,852,146 287,576 (3,842,670) 1,009,498

$ 169,154 $ 3,050,575 $ 134,259 $ 7,158,571 $ 123,462 $(1,524,545) $ 1,018,359

(Continued) - 91 - CITY OF LANCASTER

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OTHER GOVERNMENTAL FUNDS (CONTINUED)

For the year ended June 30, 2014

Special Revenue Funds (Continued)

County Developer Developer and Fees - Fees - Recycled Other Signals Drainage Water REVENUES: Taxes -$ -$ -$ -$ Licenses and permits - 99,586 146,068 - Intergovernmental - - - - Charges for services - - - 12,010 Use of money and property - 35,073 28,555 - Fines and forfeitures - - - - Miscellaneous - - - 178,000 TOTAL REVENUES - 134,659 174,623 190,010

EXPENDITURES: Current: General government - - - - Public safety - - - - Community development - - - - Public works - - - 133,066 Housing - - - - Capital outlay - - - - Debt service: Principal retirement - - - - Interest and fiscal charges - - - - TOTAL EXPENDITURES - - - 133,066

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES - 134,659 174,623 56,944

OTHER FINANCING SOURCES (USES): Transfers in - - - 110,000 Transfers out - (530,609) (198,139) (28,040)

TOTAL OTHER FINANCING SOURCES (USES) - (530,609) (198,139) 81,960

NET CHANGE IN FUND BALANCES - (395,950) (23,516) 138,904

FUND BALANCES (DEFICITS) - BEGINNING OF YEAR (233,234) 5,058,928 4,169,090 (411,364)

FUND BALANCES (DEFICITS) - END OF YEAR $ (233,234) $ 4,662,978 $ 4,145,574 $ (272,460)

See independent auditors' report. - 92 - Special Revenue Funds (Continued) Lancaster Biological Traffic Lancaster Drainage Impact Impact Lighting Maintenance Miscellaneous Traffic Engineering Fees Fees AQMD District District Grants Safety Fees

-$ -$ -$ -$ -$ $ - $ 11,505 -$ -$ 393,210 393,210 114,665 - - - - - 1,261,791 - - - 100,000 ------4,282,657 1,634,300 - - - 3,399 3,399 32,873 849 218 4,705 38 127 13 ------428,558 - - - - - 45,066 - - - - 396,609 396,609 147,538 100,849 4,327,941 1,639,005 11,543 428,685 1,261,804

------28,230 ------50,908 4,166,734 1,063,937 - - 1,268,477 ------572,000 572,000 ------

------572,000 572,000 - 50,908 4,166,734 1,063,937 - - 1,296,707

(175,391) 147,538 49,941 161,207 575,068 11,543 428,685 (34,903)

- - - - 192,804 - - - 735,814 (29,990) (314,272) (11,262) (354,010) (473,965) (10,000) (401,500) (700,910)

(29,990) (314,272) (11,262) (161,206) (473,965) (10,000) (401,500) 34,904

(205,381) (166,734) 38,679 1 101,103 1,543 27,185 1

608,430 608,430 4,857,692 139,548 124,057 800,686 (350,963) 24,790 (85,301)

$ 403,049 $ 4,690,958 $ 178,227 $ 124,058 $ 901,789 $ (349,420) $ 51,975 $ (85,300)

(Continued) - 93 - CITY OF LANCASTER

COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OTHER GOVERNMENTAL FUNDS (CONTINUED)

For the year ended June 30, 2014

Special Revenue Funds (Continued)

Urban LA County Structure Mariposa Reimbursement MTA Grant Program Lily REVENUES: Taxes $ - -$ -$ -$ Licenses and permits - - 169,366 8,153 Intergovernmental 158,905 532,627 - - Charges for services - - - - Use of money and property - - 16,664 365 Fines and forfeitures - - - - Miscellaneous - - - - TOTAL REVENUES 158,905 532,627 186,030 8,518

EXPENDITURES: Current: General government - 63,666 - - Public safety - - - - Community development 165,558 - - - Public works - - - - Housing - - - - Capital outlay - - - - Debt service: Principal retirement - - - - Interest and fiscal charges - - - - TOTAL EXPENDITURES 165,558 63,666 - -

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (6,653) 468,961 186,030 8,518

OTHER FINANCING SOURCES (USES): Transfers in - - - - Transfers out - (28,267) (1,214,977) -

TOTAL OTHER FINANCING SOURCES (USES) - (28,267) (1,214,977) -

NET CHANGE IN FUND BALANCES (6,653) 440,694 (1,028,947) 8,518

FUND BALANCES (DEFICITS) - BEGINNING OF YEAR (163,289) (307,847) 2,442,677 54,072

FUND BALANCES (DEFICITS) - END OF YEAR $ (169,942) $ 132,847 $ 1,413,730 $ 62,590

See independent auditors' report. - 94 - Debt Service Special Revenue Funds (Continued) Fund Total Sewer Lancaster Other Maintenance Proposition Proposition Financing Governmental District 1B 42 HPRP Measure R Authority Funds

$ 4,189,010 $ - $ - -$ -$ $ - $ 4,200,515 209,260 - - - - - 2,465,099 - - - - 1,756,923 2,368,751 24,048,020 ------7,602,201 38,435 3,165 6,631 - 20,158 3,332 650,392 ------428,558 ------297,732 4,436,705 3,165 6,631 - 1,777,081 2,372,083 39,692,517

2,398 - - - - 483,866 2,233,269 ------142,878 ------1,300,608 2,602,102 - - - - - 14,271,036 ------265,462 - - - - 56,759 - 657,099

------348,000 ------140,715 2,604,500 - - - 56,759 483,866 19,359,067

1,832,205 3,165 6,631 - 1,720,322 1,888,217 20,333,450

------6,071,123 (1,083,820) (140,145) (15,858) - (1,360,442) - (19,419,077)

(1,083,820) (140,145) (15,858) - (1,360,442) - (13,347,954)

748,385 (136,980) (9,227) - 359,880 1,888,217 6,985,496

5,634,923 470,709 969,146 (2,522) 3,361,075 145,277 44,169,909

$ 6,383,308 $ 333,729 $ 959,919 $ (2,522) $ 3,720,955 $ 2,033,494 $ 51,155,405

- 95 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

GAS TAX SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 557 $ 557 $ 557 $ -

Resources (Inflows): Intergovernmental 4,572,430 4,572,430 4,746,453 174,023 Charges for services 10,000 10,000 10,481 481 Use of money and property - - 292 292 Miscellaneous 5,000 5,000 33,100 28,100 Transfers in 300,000 300,000 5,032,505 4,732,505

Amounts Available for Appropriations 4,887,987 4,887,987 9,823,388 4,935,401

Charges to Appropriations (Outflows): General government 220 220 225 (5) Public works 3,569,184 3,568,295 3,275,250 293,045 Transfers out 1,323,505 1,822,772 1,686,517 136,255

Total Charges to Appropriations 4,892,909 5,391,287 4,961,992 429,295

Budgetary Fund Balance, June 30 $ (4,922) $ (503,300) $ 4,861,396 $ 5,364,696

See independent auditors' report. - 96 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

COMMUNITY SERVICES SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 81,205 $ 81,205 $ 81,205 $ -

Resources (Inflows): Miscellaneous - 422,500 41,566 (380,934)

Amounts Available for Appropriations 81,205 503,705 122,771 (380,934)

Charges to Appropriations (Outflows): General government 22,136 423,636 558 423,078 Community development 78,250 99,250 53,819 45,431

Total Charges to Appropriations 100,386 522,886 54,377 468,509

Budgetary Fund Balance, June 30 $ (19,181) $ (19,181) $ 68,394 $ 87,575

See independent auditors' report. - 97 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

LANDSCAPE MAINTENANCE DISTRICT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 2,507,849 $ 2,507,849 $ 2,507,849 $ -

Resources (Inflows): Charges for services 1,701,500 1,701,500 1,662,753 (38,747) Use of money and property 10,000 10,000 16,515 6,515

Amounts Available for Appropriations 4,219,349 4,219,349 4,187,117 (32,232)

Charges to Appropriations (Outflows): General government - - 15 (15) Public works 1,357,266 1,375,528 1,409,064 (33,536) Transfers out 434,929 434,929 216,104 218,825

Total Charges to Appropriations 1,792,195 1,810,457 1,625,183 185,274

Budgetary Fund Balance, June 30 $ 2,427,154 $ 2,408,892 $ 2,561,934 $ 153,042

See independent auditors' report. - 98 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

HOUSING AND COMMUNITY DEVELOPMENT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 4,091,975 $ 4,091,975 $ 4,091,975 $ -

Resources (Inflows): Intergovernmental 1,721,768 1,766,768 1,553,110 (213,658) Use of money and property 250,000 900,000 361,632 (538,368)

Amounts Available for Appropriations 6,063,743 6,758,743 6,006,717 (752,026)

Charges to Appropriations (Outflows): General government 10,175 419,542 6,918 412,624 Community development 770,499 770,499 578,690 191,809 Housing 20,133 4,297,394 265,462 4,031,932 Debt service: Principal retirement 348,000 348,000 348,000 - Interest and fiscal charges 150,892 150,892 140,715 10,177 Transfers out 458,244 458,244 219,388 238,856

Total Charges to Appropriations 1,757,943 6,444,571 1,559,173 4,885,398

Budgetary Fund Balance, June 30 $ 4,305,800 $ 314,172 $ 4,447,544 $ 4,133,372

See independent auditors' report. - 99 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

TRANSPORTATION DEVELOPMENT AUTHORITY SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 4,515,120 $ 4,515,120 $ 4,515,120 $ -

Resources (Inflows): Intergovernmental 5,181,740 5,181,740 3,749,920 (1,431,820) Use of money and property 15,000 15,000 14,030 (970)

Amounts Available for Appropriations 9,711,860 9,711,860 8,279,070 (1,432,790)

Charges to Appropriations (Outflows): Capital outlay 30,000 590,000 28,340 561,660 Transfers out 9,558,196 9,473,058 8,081,576 1,391,482

Total Charges to Appropriations 9,588,196 10,063,058 8,109,916 1,953,142

Budgetary Fund Balance, June 30 $ 123,664 $ (351,198) $ 169,154 $ 520,352

See independent auditors' report. - 100 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

PROPOSITION A SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 2,125,311 $ 2,125,311 $ 2,125,311 $ -

Resources (Inflows): Intergovernmental 2,163,800 2,163,800 2,692,235 528,435 Use of money and property - - 14,078 14,078

Amounts Available for Appropriations 4,289,111 4,289,111 4,831,624 542,513

Charges to Appropriations (Outflows): General government 1,843,810 1,843,810 1,647,393 196,417 Transfers out 1,778,463 1,778,463 133,656 1,644,807

Total Charges to Appropriations 3,622,273 3,622,273 1,781,049 1,841,224

Budgetary Fund Balance, June 30 $ 666,838 $ 666,838 $ 3,050,575 $ 2,383,737

See independent auditors' report. - 101 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

BIKEWAY IMPROVEMENT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 234,762 $ 234,762 $ 234,762 $ -

Resources (Inflows): Intergovernmental 142,605 142,605 - (142,605) Use of money and property - - 1,595 1,595

Amounts Available for Appropriations 377,367 377,367 236,357 (141,010)

Charges to Appropriations (Outflows): Transfers out 352,337 352,337 102,098 250,239

Total Charges to Appropriations 352,337 352,337 102,098 250,239

Budgetary Fund Balance, June 30 $ 25,030 $ 25,030 $ 134,259 $ 109,229

See independent auditors' report. - 102 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

PROPOSITION C SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 5,852,146 $ 5,852,146 $ 5,852,146 $ -

Resources (Inflows): Intergovernmental 1,758,000 1,758,000 2,201,254 443,254 Use of money and property 10,000 10,000 40,631 30,631

Amounts Available for Appropriations 7,620,146 7,620,146 8,094,031 473,885

Charges to Appropriations (Outflows): Public works 60,700 107,248 43,425 63,823 Transfers out 7,521,145 7,521,145 892,035 6,629,110

Total Charges to Appropriations 7,581,845 7,628,393 935,460 6,692,933

Budgetary Fund Balance, June 30 $ 38,301 $ (8,247) $ 7,158,571 $ 7,166,818

See independent auditors' report. - 103 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

FEDERAL GRANTS SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 287,576 $ 287,576 $ 287,576 $ -

Resources (Inflows): Intergovernmental 6,339,466 6,408,665 718,716 (5,689,949)

Amounts Available for Appropriations 6,627,042 6,696,241 1,006,292 (5,689,949)

Charges to Appropriations (Outflows): Public safety 78,392 147,591 96,376 51,215 Community development - - 192,418 (192,418) Parks and recreation 6,201 6,201 - 6,201 Public works - - 3,675 (3,675) Transfers out 5,824,696 5,824,696 590,361 5,234,335

Total Charges to Appropriations 5,909,289 5,978,488 882,830 5,095,658

Budgetary Fund Balance, June 30 $ 717,753 $ 717,753 $ 123,462 $ (594,291)

See independent auditors' report. - 104 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

STATE GRANTS SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

Budgetary Fund Balance (Deficit), July 1 $ (3,842,670) $ (3,842,670) $ (3,842,670) $ -

Resources (Inflows): Intergovernmental 3,456,398 3,511,798 3,469,126 (42,672)

Amounts Available for Appropriations (386,272) (330,872) (373,544) (42,672)

Charges to Appropriations (Outflows): Public safety 51,404 51,404 46,502 4,902 Community development 786,027 843,016 310,123 532,893 Public works 456,131 457,109 254,398 202,711 Transfers out 3,008,226 3,008,226 539,978 2,468,248

Total Charges to Appropriations 4,301,788 4,359,755 1,151,001 3,208,754

Budgetary Fund Balance (Deficit), June 30 $ (4,688,060) $ (4,690,627) $ (1,524,545) $ 3,166,082

See independent auditors' report. - 105 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

PARKS DEVELOPMENT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 1,009,498 $ 1,009,498 $ 1,009,498 $ -

Resources (Inflows): Licenses and permits 75,000 75,000 63,000 (12,000) Use of money and property 2,500 2,500 7,019 4,519

Amounts Available for Appropriations 1,086,998 1,086,998 1,079,517 (7,481)

Charges to Appropriations (Outflows): Transfers out 140,000 140,000 61,158 78,842

Total Charges to Appropriations 140,000 140,000 61,158 78,842

Budgetary Fund Balance, June 30 $ 946,998 $ 946,998 $ 1,018,359 $ 71,361

See independent auditors' report. - 106 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

COUNTY AND OTHER SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance (Deficit), July 1 $ (233,234) $ (233,234) $ (233,234) $ -

Resources (Inflows): Contributions 55,000 55,000 - (55,000)

Amounts Available for Appropriations (178,234) (178,234) (233,234) (55,000)

Charges to Appropriations (Outflows): Parks and recreation 5,000 5,000 - 5,000 Transfers out 50,000 50,000 - 50,000

Total Charges to Appropriations 55,000 55,000 - 55,000

Budgetary Fund Balance (Deficit), June 30 $ (233,234) $ (233,234) $ (233,234) $ -

See independent auditors' report. - 107 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

DEVELOPER FEES - SIGNALS SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 5,058,928 $ 5,058,928 $ 5,058,928 $ -

Resources (Inflows): Licenses and permits 200,000 200,000 99,586 (100,414) Use of money and property 20,000 20,000 35,073 15,073

Amounts Available for Appropriations 5,278,928 5,278,928 5,193,587 (85,341)

Charges to Appropriations (Outflows): Transfers out 3,192,318 3,192,318 530,609 2,661,709

Total Charges to Appropriations 3,192,318 3,192,318 530,609 2,661,709

Budgetary Fund Balance, June 30 $ 2,086,610 $ 2,086,610 $ 4,662,978 $ 2,576,368

See independent auditors' report. - 108 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

DEVELOPER FEES - DRAINAGE SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 4,169,090 $ 4,169,090 $ 4,169,090 $ -

Resources (Inflows): Licenses and permits 400,000 400,000 146,068 (253,932) Use of money and property 10,000 10,000 28,555 18,555

Amounts Available for Appropriations 4,579,090 4,579,090 4,343,713 (235,377)

Charges to Appropriations (Outflows): Transfers out 3,826,592 3,826,592 198,139 3,628,453

Total Charges to Appropriations 3,826,592 3,826,592 198,139 3,628,453

Budgetary Fund Balance, June 30 $ 752,498 $ 752,498 $ 4,145,574 $ 3,393,076

See independent auditors' report. - 109 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

RECYCLE WATER SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance (Deficit), July 1 $ (411,364) $ (411,364) $ (411,364) $ -

Resources (Inflows): Charges for services 10,000 10,000 12,010 2,010 Miscellaneous - - 178,000 178,000 Transfers in 110,000 110,000 110,000 -

Amounts Available for Appropriations (291,364) (291,364) (111,354) 180,010

Charges to Appropriations (Outflows): Public works 200,401 200,401 133,066 67,335 Transfers out 28,040 28,040 28,040 -

Total Charges to Appropriations 228,441 228,441 161,106 67,335

Budgetary Fund Balance (Deficit), June 30 $ (519,805) $ (519,805) $ (272,460) $ 247,345

See independent auditors' report. - 110 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

BIOLOGICAL IMPACT FEES SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 608,430 $ 608,430 $ 608,430 $ -

Resources (Inflows): Licenses and permits 300,000 300,000 393,210 93,210 Use of money and property 2,000 2,000 3,399 1,399

Amounts Available for Appropriations 910,430 910,430 1,005,039 94,609

Charges to Appropriations (Outflows): Capital outlay - 572,000 572,000 - Transfers out 173,002 173,002 29,990 143,012

Total Charges to Appropriations 173,002 745,002 601,990 143,012

Budgetary Fund Balance, June 30 $ 737,428 $ 165,428 $ 403,049 $ 237,621

See independent auditors' report. - 111 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

TRAFFIC IMPACT FEES SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 4,857,692 $ 4,857,692 $ 4,857,692 $ -

Resources (Inflows): Licenses and permits 300,000 300,000 114,665 (185,335) Use of money and property 25,000 25,000 32,873 7,873

Amounts Available for Appropriations 5,182,692 5,182,692 5,005,230 (177,462)

Charges to Appropriations (Outflows): Transfers out 4,745,259 4,744,587 314,272 4,430,315

Total Charges to Appropriations 4,745,259 4,744,587 314,272 4,430,315

Budgetary Fund Balance, June 30 $ 437,433 $ 438,105 $ 4,690,958 $ 4,252,853

See independent auditors' report. - 112 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

AQMD SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 139,548 $ 139,548 $ 139,548 $ -

Resources (Inflows): Intergovernmental 75,000 75,000 100,000 25,000 Use of money and property 1,000 1,000 849 (151)

Amounts Available for Appropriations 215,548 215,548 240,397 24,849

Charges to Appropriations (Outflows): Public works 46,000 51,000 50,908 92 Transfers out 134,561 134,561 11,262 123,299

Total Charges to Appropriations 180,561 185,561 62,170 123,391

Budgetary Fund Balance, June 30 $ 34,987 $ 29,987 $ 178,227 $ 148,240

See independent auditors' report. - 113 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

LANCASTER LIGHTING DISTRICT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 124,057 $ 124,057 $ 124,057 $ -

Resourcs (Inflows): Charges for services 4,170,000 4,170,000 4,282,657 112,657 Use of money and property - - 218 218 Miscellaneous 20,000 20,000 45,066 25,066 Transfers in 730,000 730,000 192,804 (537,196)

Amounts Available for Appropriations 5,044,057 5,044,057 4,644,802 (399,255)

Charges to Appropriations (Outflows): Public works 4,563,370 4,563,370 4,166,734 396,636 Transfers out 354,010 354,010 354,010 -

Total Charges to Appropriations 4,917,380 4,917,380 4,520,744 396,636

Budgetary Fund Balance, June 30 $ 126,677 $ 126,677 $ 124,058 $ (2,619)

See independent auditors' report. - 114 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

LANCASTER DRAINAGE MAINTENANCE SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 800,686 $ 800,686 $ 800,686 $ -

Resources (Inflows): Charges for services 1,675,000 1,675,000 1,634,300 (40,700) Use of money and property 5,000 5,000 4,705 (295)

Amounts Available for Appropriations 2,480,686 2,480,686 2,439,691 (40,995)

Charges to Appropriations (Outflows): General government 1,020 1,020 - 1,020 Public works 1,266,844 1,269,483 1,063,937 205,546 Transfers out 620,834 598,762 473,965 124,797

Total Charges to Appropriations 1,888,698 1,869,265 1,537,902 331,363

Budgetary Fund Balance, June 30 $ 591,988 $ 611,421 $ 901,789 $ 290,368

See independent auditors' report. - 115 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

MISCELLANEOUS GRANTS SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance (Deficit), July 1 $ (350,963) $ (350,963) $ (350,963) $ -

Resources (Inflows): Taxes 10,000 10,000 11,505 1,505 Use of money and property - - 38 38

Amounts Available for Appropriations (340,963) (340,963) (339,420) 1,543

Charges to Appropriations (Outflows): Transfers out 10,000 10,000 10,000 -

Total Charges to Appropriations 10,000 10,000 10,000 -

Budgetary Fund Balance (Deficit), June 30 $ (350,963) $ (350,963) $ (349,420) $ 1,543

See independent auditors' report. - 116 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

TRAFFIC SAFETY SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 24,790 $ 24,790 $ 24,790 $ -

Resources (Inflows): Use of money and property 1,500 1,500 127 (1,373) Fines and forfeitures 400,000 400,000 428,558 28,558

Amounts Available for Appropriations 426,290 426,290 453,475 27,185

Charges to Appropriations (Outflows): Transfers out 401,500 401,500 401,500 -

Total Charges to Appropriations 401,500 401,500 401,500 -

Budgetary Fund Balance, June 30 $ 24,790 $ 24,790 $ 51,975 $ 27,185

See independent auditors' report. - 117 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

ENGINEERING FEES SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative)

Budgetary Fund Balance (Deficit), July 1 $ (85,301) $ (85,301) $ (85,301) $ -

Resources (Inflows): Licenses and permits 1,090,000 1,090,000 1,261,791 171,791 Use of money and property - - 13 13 Transfers in 928,860 928,860 735,814 (193,046)

Amounts Available for Appropriations 1,933,559 1,933,559 1,912,317 (21,242)

Charges to Appropriations (Outflows): General government 44,875 44,875 28,230 16,645 Public works 1,278,168 1,278,168 1,268,477 9,691 Transfers out 700,910 700,910 700,910 -

Total Charges to Appropriations 2,023,953 2,023,953 1,997,617 26,336

Budgetary Fund Balance (Deficit), June 30 $ (90,394) $ (90,394) $ (85,300) $ 5,094

See independent auditors' report. - 118 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

LA COUNTY REIMBURSEMENT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance (Deficit), July 1 $ (163,289) $ (163,289) $ (163,289) $ -

Resources (Inflows): Intergovernmental 111,200 203,650 158,905 (44,745)

Amounts Available for Appropriations (52,089) 40,361 (4,384) (44,745)

Charges to Appropriations (Outflows): Community development 75,200 167,650 165,558 2,092 Transfers out 36,000 36,000 - 36,000

Total Charges to Appropriations 111,200 203,650 165,558 38,092

Budgetary Fund Balance (Deficit), June 30 $ (163,289) $ (163,289) $ (169,942) $ (6,653)

See independent auditors' report. - 119 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

MTA GRANT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance (Deficit), July 1 $ (307,847) $ (307,847) $ (307,847) $ -

Resources (Inflows): Intergovernmental 3,257,992 3,257,992 532,627 (2,725,365)

Amounts Available for Appropriations 2,950,145 2,950,145 224,780 (2,725,365)

Charges to Appropriations (Outflows): General government 66,688 66,688 63,666 3,022 Transfers out 3,068,210 3,068,210 28,267 3,039,943

Total Charges to Appropriations 3,134,898 3,134,898 91,933 3,042,965

Budgetary Fund Balance, June 30 $ (184,753) $ (184,753) $ 132,847 $ 317,600

See independent auditors' report. - 120 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

URBAN STRUCTURE PROGRAM SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 2,442,677 $ 2,442,677 $ 2,442,677 $ -

Resources (Inflows): Licenses and permits 145,000 145,000 169,366 24,366 Use of money and property 9,000 9,000 16,664 7,664

Amounts Available for Appropriations 2,596,677 2,596,677 2,628,707 32,030

Charges to Appropriations (Outflows): Transfers out 2,139,894 2,139,069 1,214,977 924,092

Total Charges to Appropriations 2,139,894 2,139,069 1,214,977 924,092

Budgetary Fund Balance, June 30 $ 456,783 $ 457,608 $ 1,413,730 $ 956,122

See independent auditors' report. - 121 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

MARIPOSA LILY SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 54,072 $ 54,072 $ 54,072 $ -

Resources (Inflows): Licenses and permits - - 8,153 8,153 Use of money and property - - 365 365

Amounts Available for Appropriations 54,072 54,072 62,590 8,518

Budgetary Fund Balance, June 30 $ 54,072 $ 54,072 $ 62,590 $ 8,518

See independent auditors' report. - 122 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

SEWER MAINTENANCE DISTRICT SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 5,634,923 $ 5,634,923 $ 5,634,923 $ -

Resources (Inflows): Taxes 4,000,000 4,000,000 4,189,010 189,010 Licenses and permits 500,500 500,500 209,260 (291,240) Use of money and property 25,000 25,000 38,435 13,435

Amounts Available for Appropriations 10,160,423 10,160,423 10,071,628 (88,795)

Charges to Appropriations (Outflows): General government 2,505 2,505 2,398 107 Public works 2,924,280 2,924,280 2,602,102 322,178 Transfers out 2,190,520 2,190,520 1,083,820 1,106,700

Total Charges to Appropriations 5,117,305 5,117,305 3,688,320 1,428,985

Budgetary Fund Balance, June 30 $ 5,043,118 $ 5,043,118 $ 6,383,308 $ 1,340,190

See independent auditors' report. - 123 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

PROPOSITION 1B SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 470,709 $ 470,709 $ 470,709 $ -

Resources (Inflows): Intergovernmental - 361,000 - (361,000) Use of money and property - - 3,165 3,165

Amounts Available for Appropriations 470,709 831,709 473,874 (357,835)

Charges to Appropriations (Outflows): Transfers out 846,624 1,207,624 140,145 1,067,479

Total Charges to Appropriations 846,624 1,207,624 140,145 1,067,479

Budgetary Fund Balance, June 30 $ (375,915) $ (375,915) $ 333,729 $ 709,644

See independent auditors' report. - 124 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

PROPOSITION 42 SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 969,146 $ 969,146 $ 969,146 $ -

Resources (Inflows): Use of money and property - - 6,631 6,631

Amounts Available for Appropriations 969,146 969,146 975,777 6,631

Charges to Appropriations (Outflows): Transfers out 714,967 714,967 15,858 699,109

Total Charges to Appropriations 714,967 714,967 15,858 699,109

Budgetary Fund Balance, June 30 $ 254,179 $ 254,179 $ 959,919 $ 705,740

See independent auditors' report. - 125 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

HPRP SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance (Deficit), July 1 $ (2,522) $ (2,522) $ (2,522) $ -

Amounts Available for Appropriations (2,522) (2,522) (2,522) -

Budgetary Fund Balance (Deficit), June 30 $ (2,522) $ (2,522) $ (2,522) $ -

See independent auditors' report. - 126 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

MEASURE R SPECIAL REVENUE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 3,361,075 $ 3,361,075 $ 3,361,075 $ -

Resources (Inflows): Intergovernmental 2,675,000 2,895,000 1,756,923 (1,138,077) Use of money and property 15,000 15,000 20,158 5,158

Amounts Available for Appropriations 6,051,075 6,271,075 5,138,156 (1,132,919)

Charges to Appropriations (Outflows): Capital outlay - 320,145 56,759 263,386 Transfers out 5,762,349 5,971,243 1,360,442 4,610,801

Total Charges to Appropriations 5,762,349 6,291,388 1,417,201 4,874,187

Budgetary Fund Balance, June 30 $ 288,726 $ (20,313) $ 3,720,955 $ 3,741,268

See independent auditors' report. - 127 - This page intentionally left blank

- 128 - CITY OF LANCASTER

SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL

LANCASTER FINANCING AUTHORITY DEBT SERVICE FUND

For the year ended June 30, 2014

Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Budgetary Fund Balance, July 1 $ 145,277 $ 145,277 $ 145,277 $ -

Resources (Inflows): Intergovernmental - - 2,368,751 2,368,751 Use of money and property - - 3,332 3,332

Amounts Available for Appropriations 145,277 145,277 2,517,360 2,372,083

Charges to Appropriations (Outflows): General government - - 483,866 (483,866)

Total Charges to Appropriations - - 483,866 (483,866)

Budgetary Fund Balance, June 30 $ 145,277 $ 145,277 $ 2,033,494 $ 1,888,217

See independent auditors' report. - 129 - CITY OF LANCASTER

COMBINING STATEMENT OF ASSETS AND LIABILITIES ALL AGENCY FUNDS

June 30, 2014

Assessment District Agency AD 93-3 AD 92-101 ASSETS Pooled cash and investments $ 154,596 $ 742,941 $ 674,190 $ 405,945 Receivable: Accounts - 6,797 - - Taxes - - 1,405 1,787 Accrued interest - - 276 727 Restricted: Cash and investments with fiscal agents - - 452,693 157,545

TOTAL ASSETS $ 154,596 $ 749,738 $ 1,128,564 $ 566,004

LIABILITIES Accounts payable $ - $ 62,554 $ 5,887 $ 4,184 Deposits payable - 687,184 - - Due to bondholders 154,596 - 1,122,677 561,820

TOTAL LIABILITIES $ 154,596 $ 749,738 $ 1,128,564 $ 566,004

See independent auditors' report. - 130 - IFD 92-1 CFD 89-1 CFD 90-1 CFD 91-1 CFD 91-2 Totals

$ 2 $ 577,097 $ 1,178,135 $ 1,189,382 $ 415,303 $ 5,337,591

- - - - - 6,797 - 3,811 3,821 1,628 71,844 84,296 - 1,033 2,109 2,129 743 7,017

- 863,463 778,809 534,942 699,602 3,487,054

$ 2 $ 1,445,404 $ 1,962,874 $ 1,728,081 $ 1,187,492 $ 8,922,755

$ - $ 4,118 $ 3,180 $ 3,903 $ 14,667 $ 98,493 - - - - 15,810 702,994 2 1,441,286 1,959,694 1,724,178 1,157,015 8,121,268

$ 2 $ 1,445,404 $ 1,962,874 $ 1,728,081 $ 1,187,492 $ 8,922,755

- 131 - CITY OF LANCASTER

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS

For the year ended June 30, 2014

Balance Balance July 1, 2013 Additions Deletions June 30, 2014 ASSESSMENT DISTRICTS

ASSETS: Pooled cash and investments $ 154,596 $ - $ - $ 154,596 TOTAL ASSETS $ 154,596 $ - $ - $ 154,596

LIABILITIES: Due to bondholders $ 154,596 $ - $ - $ 154,596 TOTAL LIABILITIES $ 154,596 $ - $ - $ 154,596

AGENCY

ASSETS: Pooled cash and investments $ 697,761 $ 253,448 $ (208,268) $ 742,941 Receivable: Accounts - 40,861 (34,064) 6,797 TOTAL ASSETS $ 697,761 $ 294,309 $ (242,332) $ 749,738

LIABILITIES: Accounts payable $ 17,373 $ 252,729 $ (207,548) $ 62,554 Deposits payable 680,388 261,570 (254,774) 687,184 TOTAL LIABILITIES $ 697,761 $ 514,299 $ (462,322) $ 749,738

AD 93-3

ASSETS: Pooled cash and investments $ 662,710 $ 543,896 $ (532,416) $ 674,190 Receivable: Taxes 10,350 1,405 (10,350) 1,405 Accrued interest 1,647 276 (1,647) 276 Restricted: Cash and investments with fiscal agents 452,868 65 (240) 452,693 TOTAL ASSETS $ 1,127,575 $ 545,642 $ (544,653) $ 1,128,564

LIABILITIES: Accounts payable $ 344 $ 537,223 $ (531,680) $ 5,887 Due to bondholders 1,127,231 545,641 (550,195) 1,122,677 TOTAL LIABILITIES $ 1,127,575 $ 1,082,864 $ (1,081,875) $ 1,128,564

See independent auditors' report. (Continued) - 132 - CITY OF LANCASTER

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS (CONTINUED)

For the year ended June 30, 2014

Balance Balance July 1, 2013 Additions Deletions June 30, 2014 AD 92-101

ASSETS: Pooled cash and investments $ 374,172 $ 236,718 $ (204,945) $ 405,945 Receivable: Taxes 1,879 1,787 (1,879) 1,787 Accrued interest 930 727 (930) 727 Restricted: Cash and investments with fiscal agents 157,606 23 (84) 157,545 TOTAL ASSETS $ 534,587 $ 239,255 $ (207,838) $ 566,004

LIABILITIES: Accounts payable $ 177 $ 207,185 $ (203,178) $ 4,184 Due to bondholders 534,410 239,253 (211,843) 561,820 TOTAL LIABILITIES $ 534,587 $ 446,438 $ (415,021) $ 566,004

IFD 92-1

ASSETS: Pooled cash and investments $ 2 $ - $ - $ 2 TOTAL ASSETS $ 2 $ - $ - $ 2

LIABILITIES: Due to bondholders $ 2 $ - $ - $ 2 TOTAL LIABILITIES $ 2 $ - $ - $ 2

CFD 89-1

ASSETS: Pooled cash and investments $ 616,939 $ 428,810 $ (468,652) $ 577,097 Receivable: Taxes 2,280 3,811 (2,280) 3,811 Accrued interest 1,533 1,033 (1,533) 1,033 Restricted: Cash and investments with fiscal agents 829,917 33,546 - 863,463 TOTAL ASSETS $ 1,450,669 $ 467,200 $ (472,465) $ 1,445,404

LIABILITIES: Accounts payable $ 731 $ 467,142 $ (463,755) $ 4,118 Due to bondholders 1,449,938 467,200 (475,852) 1,441,286 TOTAL LIABILITIES $ 1,450,669 $ 934,342 $ (939,607) $ 1,445,404

See independent auditors' report. (Continued) - 133 - CITY OF LANCASTER

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS (CONTINUED)

For the year ended June 30, 2014

Balance Balance July 1, 2013 Additions Deletions June 30, 2014 CFD 90-1

ASSETS: Pooled cash and investments $ 1,191,184 $ 770,627 $ (783,676) $ 1,178,135 Receivable: Taxes 7,445 3,821 (7,445) 3,821 Accrued interest 2,960 2,109 (2,960) 2,109 Restricted: Cash and investments with fiscal agents 779,121 112 (424) 778,809 TOTAL ASSETS $ 1,980,710 $ 776,669 $ (794,505) $ 1,962,874

LIABILITIES: Accounts payable $ 448 $ 779,370 $ (776,638) $ 3,180 Due to bondholders 1,980,262 776,671 (797,239) 1,959,694 TOTAL LIABILITIES $ 1,980,710 $ 1,556,041 $ (1,573,877) $ 1,962,874

CFD 91-1

ASSETS: Pooled cash and investments $ 1,019,095 $ 714,286 $ (543,999) $ 1,189,382 Receivable: Taxes 74,365 1,628 (74,365) 1,628 Accrued interest 2,532 2,129 (2,532) 2,129 Restricted: Cash and investments with fiscal agents 535,596 - (654) 534,942 TOTAL ASSETS $ 1,631,588 $ 718,043 $ (621,550) $ 1,728,081

LIABILITIES: Accounts payable $ 561 $ 540,449 $ (537,107) $ 3,903 Due to bondholders 1,631,027 718,041 (624,890) 1,724,178 TOTAL LIABILITIES $ 1,631,588 $ 1,258,490 $ (1,161,997) $ 1,728,081

See independent auditors' report. (Continued) - 134 - CITY OF LANCASTER

COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES ALL AGENCY FUNDS (CONTINUED)

For the year ended June 30, 2014

Balance Balance July 1, 2013 Additions Deletions June 30, 2014 CFD 91-2

ASSETS: Pooled cash and investments $ 539,734 $ 929,287 $ (1,053,718) $ 415,303 Receivable: Taxes 4,386 71,844 (4,386) 71,844 Accrued interest 1,341 743 (1,341) 743 Restricted: Cash and investments with fiscal agents 564,973 560,427 (425,798) 699,602 TOTAL ASSETS $ 1,110,434 $ 1,562,301 $ (1,485,243) $ 1,187,492

LIABILITIES: Accounts payable $ 3,665 $ 854,320 $ (843,318) $ 14,667 Deposits payable 15,810 - - 15,810 Due to bondholders 1,090,959 1,375,067 (1,309,011) 1,157,015 TOTAL LIABILITIES $ 1,110,434 $ 2,229,387 $ (2,152,329) $ 1,187,492

TOTAL - ALL AGENCY FUNDS

ASSETS: Pooled cash and investments $ 5,256,193 $ 3,877,072 $ (3,795,674) $ 5,337,591 Receivable: Accounts - 40,861 (34,064) 6,797 Taxes 100,705 84,296 (100,705) 84,296 Accrued interest 10,943 7,017 (10,943) 7,017 Restricted: Cash and investments with fiscal agents 3,320,081 594,173 (427,200) 3,487,054 TOTAL ASSETS $ 8,687,922 $ 4,603,419 $ (4,368,586) $ 8,922,755

LIABILITIES: Accounts payable $ 23,299 $ 3,638,418 $ (3,563,224) $ 98,493 Deposits payable 696,198 261,570 (254,774) 702,994 Due to bondholders 7,968,425 4,121,873 (3,969,030) 8,121,268 TOTAL LIABILITIES $ 8,687,922 $ 8,021,861 $ (7,787,028) $ 8,922,755

See independent auditors' report. - 135 - This page intentionally left blank

- 136 - STATISTICAL SECTION

City of Lancaster

Statistical Section

This part of the City of Lancaster's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the city's overall financial health.

Contents Page

Financial Trends 139-143 These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time.

Revenue Capacity 144-148 These schedules contain information to help the reader assess the factors affecting the City's ability to generate its property and sales taxes.

Debt Capacity 149-153 These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the city's ability to issue additional debt in the future.

Demographic and Economic Information 154-155 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place and to help make comparisons over time and with other governments.

Operating Information 157-160 These schedules contain information about the City's operations and resources to help the reader understand how the city's financial information relates to the services the city provides and the activities it performs.

Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The city implemented Statement 34 for the fiscal year ended June 30, 2003; schedules presenting government-wide information include information beginning in that year.

- 137 - This page intentionally left blank

- 138 - CITY OF LANCASTER

Net Position by Component Last Ten Fiscal Years (accrual basis of accounting)

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Governmental activities Net invested in capital assets $ 78,497,929 $ 94,068,075 $ 822,650,031 $ 880,722,283 $ 898,682,290 $ 702,012,782 $ 726,729,266 $ 924,786,002 $ 937,437,269 $ 923,425,649 Restricted 49,398,517 87,569,015 120,838,558 115,527,885 107,858,231 102,128,746 93,277,881 172,781,575 161,081,541 154,576,976 Unrestricted (84,993,525) (80,808,829) (111,545,878) (108,634,823) (107,716,546) 93,233,996 71,812,198 23,048,243 5,094,946 30,520,092 Total governmental activities net position $ 42,902,921 $ 100,828,261 $ 831,942,711 $ 887,615,345 $ 898,823,975 $ 897,375,524 $ 891,819,345 $ 1,120,615,820 $ 1,103,613,756 $ 1,108,522,717

Business-type activities Net invested in capital assets $ - $ - $ - $ - $ - $ - $ - $ - $ - $ (4,221,367) Unrestricted ------(252,698) (1,397,269) 2,469,059 Total business-type activities net position $ - $ - $ - $ - $ - $ - $ - $ (252,698) $ (1,397,269) $ (1,752,308)

Primary government Net invested in capital assets $ 78,497,929 $ 94,068,075 $ 822,650,031 $ 880,722,283 $ 898,682,290 $ 702,012,782 $ 726,729,266 $ 924,786,002 $ 937,437,269 $ 919,204,282 Restricted 49,398,517 87,569,015 120,838,558 115,527,885 107,858,231 102,128,746 93,277,881 172,781,575 161,081,541 154,576,976 Unrestricted (84,993,525) (80,808,829) (111,545,878) (108,634,823) (107,716,546) 93,233,996 71,812,198 22,795,545 3,697,677 32,989,151 Total primary government net position $ 42,902,921 $ 100,828,261 $ 831,942,711 $ 887,615,345 $ 898,823,975 $ 897,375,524 $ 891,819,345 $ 1,120,363,122 $ 1,102,216,487 $ 1,106,770,409

- 139 - CITY OF LANCASTER

Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting)

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Expenses Governmental activities: General government $ 13,422,227 $ 15,996,662 $ 16,300,790 $ 19,703,043 $ 22,895,700 $ 37,870,880 $ 25,975,571 $ 24,809,328 $ 20,108,707 $ 20,826,798 Public safety 13,624,832 15,057,609 17,142,744 22,155,873 24,365,048 24,802,866 25,206,610 23,493,486 25,618,865 24,042,237 Community development 29,372,001 19,043,934 13,669,830 14,734,792 20,533,196 16,187,846 14,847,798 12,796,592 6,554,237 4,382,821 Parks and recreation 11,285,183 14,715,042 13,423,273 60,663,940 13,053,273 12,239,846 12,526,273 52,220,277 13,049,889 13,555,843 Public works 16,503,565 22,087,634 59,019,071 1,786,468 59,454,167 52,992,594 52,085,914 1,722,135 53,654,875 54,078,702 Housing 3,116,089 1,232,174 5,361,600 6,650,286 959,974 4,805,507 5,993,185 10,355,215 421,279 3,072,338 Interest on long-term debt 13,069,272 14,921,363 16,351,722 16,512,637 14,194,203 15,149,746 14,873,413 2,316,858 375,667 233,915 Total primary governmental activities expenses $ 100,393,169 $ 103,054,418 $ 141,269,030 $ 142,207,039 $ 155,455,561 $ 164,049,285 $ 151,508,764 $ 127,713,891 $ 119,783,519 $ 120,192,654 Business-type activities: Lancaster Power Authority $ 1,138,830 $ 2,990,770 $ 3,215,141 Total business-type activities expenses ------1,138,830 2,990,770 3,215,141 Total primary government expenses $ 100,393,169 $ 103,054,418 $ 141,269,030 $ 142,207,039 $ 155,455,561 $ 164,049,285 $ 151,508,764 $ 128,852,721 $ 122,774,289 $ 123,407,795

Program Revenues (see Schedule 3) Governmental activities: Charges for services: General government $ 3,901,133 $ 3,403,979 $ 406,451 $ 1,647,842 $ 3,690,259 $ 3,976,962 $ 1,436,838 $ 935,460 $ 284,461 $ 198,193 Public safety 6,162,797 7,371,936 2,211,141 3,505,516 2,921,179 3,091,957 2,729,238 1,935,658 1,070,125 978,834 Community development 3,968,166 4,838,078 805,132 1,478,571 579,523 1,045,149 738,985 3,156,519 428,817 568,214 Parks and recreation 3,377,830 3,534,430 3,175,710 2,991,204 2,888,631 2,814,076 3,527,840 21,175,600 3,560,430 3,683,705 Public works 24,022,612 29,098,965 24,686,902 17,556,965 14,308,525 14,165,751 14,103,957 1,306,309 13,352,265 13,285,244 Housing 1,708,513 1,789,277 2,633,713 1,610,734 1,655,770 1,652,359 1,676,262 283,252 908,953 1,009,550 Operating grants and contributions 29,134,303 36,717,092 21,790,093 22,304,176 20,916,807 26,034,713 36,719,976 22,221,889 27,016,113 22,338,733 Capital grants and contributions 1,170,980 - - 65,570,808 55,674,240 43,298,860 16,288,773 6,133,131 10,893,821 13,157,118 Total governmental activities program revenues $ 73,446,334 $ 86,753,757 $ 55,709,142 $ 116,665,816 $ 102,634,934 $ 96,079,827 $ 77,221,869 $ 57,147,818 $ 57,514,985 $ 55,219,591 Business-type activities: Charges for services: Lancaster Power Authority $ - $ - $ - $ - $ - $ - $ - $ 1,479,116 $ 2,937,736 $ 3,402,736 Operating grants and contributions ------Capital grants and contributions ------Total business-type activities program revenues ------$ 1,479,116 $ 2,937,736 $ 3,402,736

Total primary government program revenues $ 73,446,334 $ 86,753,757 $ 55,709,142 $ 116,665,816 $ 102,634,934 $ 96,079,827 $ 77,221,869 $ 58,626,934 $ 60,452,721 $ 58,622,327

Governmental activities $ (26,946,836) $ (16,300,661) $ (85,559,888) $ (25,541,223) $ (52,820,627) $ (67,969,458) $ (74,286,895) $ (70,566,073) $ (62,268,534) $ (64,973,063) Business-type activities ------$ 340,286 $ (53,034) $ 187,595 Net Primary Government Revenue (Expense) $ (26,946,836) $ (16,300,661) $ (85,559,888) $ (25,541,223) $ (52,820,627) $ (67,969,458) $ (74,286,895) $ (70,225,787) $ (62,321,568) $ (64,785,468)

- 140 - CITY OF LANCASTER

Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting)

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

General Revenues and Other Changes in Net Position Governmental activities: Taxes Property taxes $ 17,982,717 $ 32,672,098 $ 30,773,463 $ 44,679,962 $ 47,841,204 $ 41,226,311 $ 35,895,395 $ 25,370,913 $ 14,142,727 $ 14,370,865 Transient occupancy taxes 1,300,448 1,257,943 1,452,827 1,211,514 1,327,022 1,380,790 1,300,067 1,338,016 1,314,747 1,313,033 Sales taxes 17,471,173 21,377,455 25,879,313 19,449,760 14,934,911 14,523,154 15,607,533 17,259,589 16,254,549 18,043,706 Franchise taxes 2,430,956 2,844,195 2,754,230 2,484,807 2,902,408 2,593,418 2,697,165 2,655,535 2,617,877 2,669,286 Business licenses taxes 686,682 493,197 886,625 846,911 855,453 883,017 1,008,810 955,466 906,896 929,618 Other taxes 19,079 522,999 1,002,095 453,943 518,992 430,826 310,397 284,519 406,441 413,913 Intergovernmental unrestricted 7,918,606 3,129,626 3,129,626 918,534 493,557 426,464 679,772 78,065 80,905 67,299 Use of money and property 25,347,471 16,088,474 16,088,474 22,647,525 10,270,036 4,275,530 3,952,452 2,102,259 38,131 252,605 Miscellaneous 1,530,139 83,925 83,925 557,331 619,185 293,490 336,649 3,913,577 1,008,418 331,511 Gain on sale of land held for resale/property - 5,078,193 109,072 4,160,149 Transfers - 600,000 600,000 600,000 Total governmental activities $ 74,687,271 $ 78,469,912 $ 82,050,578 $ 93,250,287 $ 79,762,768 $ 66,033,000 $ 61,788,240 $ 59,636,132 $ 37,479,763 $ 43,151,985 Business-type activities: Use of Money and Property ------$ 7,016 $ 2,421 $ 9,533 Miscellaneous 42,750 47,833 Transfers ------(600,000) (600,000) (600,000) Total business-type activities $ - $ - $ - $ - $ - $ - $ - $ (592,984) $ (554,829) $ (542,634) Extraordinary gain/(loss) due to dissolution of redevelopment agency $ - $ - $ - $ - $ - $ - $ - $ 236,809,943 $ - $ -

Total Primary Government Revenues, Contributions, Extraordinary Items, Special Items and Transfers $ 74,687,271 $ 78,469,912 $ 82,050,578 $ 93,250,287 $ 79,762,768 $ 66,033,000 $ 61,788,240 $ 295,853,091 $ 36,924,934 $ 42,609,351

Extraordinary, Special gain/(loss) $ - $ - $ - $ - $ - $ - $ - $ - $ (14,482,945) $ 41,469,430

Change in Net Position Governmental activities $ 47,740,435 $ 62,169,251 $ (7,089,976) $ 67,709,064 $ 26,942,141 $ (1,936,458) $ (12,498,655) $ 225,880,002 $ (39,271,716) $ 19,648,352 Business-type activities (252,698) (607,863) (355,039)

Total Primary Government $ 47,740,435 $ 62,169,251 $ (7,089,976) $ 67,709,064 $ 26,942,141 $ (1,936,458) $ (12,498,655) $ 225,627,304 $ (39,879,579) $ 19,293,313

- 141 - CITY OF LANCASTER

Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting)

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

General Fund Reserved $ 59,892,933 $ 59,733,381 $ 64,019,546 $ 54,513,982 $ 52,461,253 $ 50,723,608 $ - $ - $ - $ - Unreserved 29,082,237 31,733,381 31,986,738 37,322,306 34,818,644 25,945,055 - - - - Nonspendable ------40,175,246 22,319,854 8,852,742 28,221,235 Assigned ------6,665,011 4,889,386 4,800,218 4,680,626 Unassigned ------16,502,115 11,700,986 12,927,615 8,742,053 Total general fund $ 88,975,170 $ 91,466,762 $ 96,006,284 $ 91,836,288 $ 87,279,897 $ 76,668,663 $ 63,342,372 $ 38,910,226 $ 26,580,575 $ 41,643,914

All Other Governmental Funds Reserved $ 30,210,474 $ 47,888,239 $ 71,637,570 $ 59,478,125 $ 74,432,801 $ 105,561,942 $ 96,050,746 $ - $ - $ - Unreserved, reported in: - - - Special revenue funds 37,928,560 68,008,628 52,767,008 59,541,994 56,919,624 40,794,756 44,504,625 - - - Capital projects funds (19,195,383) (49,662,040) (30,507,293) (34,197,147) (62,191,991) (64,562,712) (55,635,744) - - - Debt service funds 18,337,445 20,211,147 23,919,282 24,959,978 32,721,659 14,030,167 6,665,509 - - - Nonspendable ------94,373,593 87,303,062 - Restricted ------60,392,063 56,185,252 151,441,914 Assigned ------509 509 509 Unassigned ------(4,902,734) (5,397,190) (2,637,423) Total all other governmental funds $ 67,281,096 $ 86,445,974 $ 117,816,567 $ 109,782,950 $ 101,882,093 $ 95,824,153 $ 91,585,136 $ 149,863,431 $ 138,091,633 $ 148,805,000

- 142 - CITY OF LANCASTER

Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting)

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Revenues

Taxes (see Schedule 6) $ 40,966,235 $ 58,059,847 $ 65,926,362 $ 70,162,583 $ 69,730,798 $ 59,689,451 $ 57,914,640 $ 48,495,344 $ 49,816,195 $ 43,142,049 Licenses, fees, and permits 30,541,425 39,580,124 18,406,355 8,360,699 4,376,841 3,593,907 3,742,427 10,644,481 4,758,487 3,765,131 Intergovernmental 33,466,522 22,928,483 27,189,039 25,236,245 22,924,589 28,496,569 30,291,807 23,563,011 20,477,373 25,441,406 Charges for services 9,421,165 14,083,950 8,901,806 9,319,279 9,647,677 13,069,923 10,645,688 10,166,791 10,773,394 11,055,161 Use of money and property 24,358,065 14,994,933 13,121,339 11,222,381 10,057,206 5,087,601 4,750,765 3,491,243 2,515,570 5,988,730 Fines and forfeitures 1,334,858 1,673,103 2,158,669 3,505,516 2,921,179 3,091,957 2,729,238 1,935,658 1,253,922 1,164,109 Other revenues 8,723,822 1,647,768 1,893,388 2,841,166 4,338,209 2,534,139 2,148,883 8,697,718 4,693,687 1,108,353 Total revenues $ 148,812,092 $ 152,968,208 $ 137,596,958 $ 130,647,869 $ 123,996,499 $ 115,563,547 $ 112,223,448 $ 106,994,246 $ 94,288,628 $ 91,664,939

Expenditures General government $ 13,081,822 $ 19,475,290 $ 16,056,247 $ 18,935,026 $ 20,400,983 $ 35,400,480 $ 20,564,844 $ 19,429,696 $ 16,729,037 $ 13,998,033 Public safety 13,595,775 15,019,081 17,107,689 21,945,315 24,303,445 24,764,758 25,188,927 23,456,553 25,349,866 24,238,229 Community development 29,315,974 18,412,648 13,609,531 6,258,047 20,383,837 16,000,405 14,737,406 11,423,703 7,171,105 4,021,302 Parks and recreation 10,324,903 11,837,309 11,696,144 11,878,211 11,853,863 10,961,119 11,335,806 16,530,854 11,639,064 12,324,636 Public Works 15,412,990 19,278,112 21,456,745 20,335,433 22,454,629 17,517,257 17,367,107 1,722,135 18,383,201 17,639,737 Housing 3,116,089 1,232,174 5,361,600 1,781,432 959,974 4,805,507 5,993,185 10,207,101 452,079 5,063,159 Capital outlay 19,486,835 22,048,652 37,806,315 36,955,971 19,004,734 38,183,765 20,847,133 22,019,463 17,762,739 11,121,837 Debt service Principal 3,184,000 5,466,252 5,240,000 6,128,000 5,745,000 14,262,517 6,382,000 4,832,000 6,556,996 528,151 Interest 12,785,258 14,753,943 16,541,783 16,518,213 13,873,812 12,838,000 14,315,824 7,195,509 463,045 244,583 Debt Issuance Costs 2,784,440 ------Payment to escrow agent - - 853,689 ------Total expenditures $ 123,088,086 $ 127,523,461 $ 145,729,743 $ 140,735,648 $ 138,980,277 $ 174,733,808 $ 136,732,232 $ 116,817,014 $ 104,507,132 $ 89,179,667 Excess of revenues over (under) expenditures $ 25,724,006 $ 25,444,747 $ (8,132,785) $ (10,087,779) $ (14,983,778) $ (59,170,261) $ (24,508,784) $ (9,822,768) $ (10,218,504) $ 2,485,272

Other Financing Sources (Uses) Bonds, Notes and Loans Issued $ - $ - $ - $ - $ - $ 42,160,938 $ - $ - $ - $ - Refunding bonds issued 69,285,000 - 39,315,000 ------Payments to escrow agent (42,219,454) - (5,180,403) ------Bonds issuance premium - - 1,320,578 ------Gain/(Loss) on sale of land - - 8,409,173 - - - - 5,078,193 - - Transfers in 83,787,767 52,066,330 68,139,732 63,668,972 55,359,163 82,081,243 48,993,462 49,040,910 24,370,408 23,056,901 Transfers out (83,787,767) (52,066,330) (68,139,732) (63,668,972) (55,359,163) (82,081,243) (48,993,462) (48,440,910) (23,770,408) (22,456,901) Total other financing sources (uses) 27,065,546 - 43,864,348 - - 42,160,938 - 5,678,193 600,000 600,000 Extraordinary, special gain/(loss) ------32,325,866 (14,842,945) 22,836,799 Net change in fund balances $ 52,789,552 $ 25,444,747 $ 35,731,563 $ (10,087,779) $ (14,983,778) $ (17,009,323) $ (24,508,784) $ 28,181,291 $ (24,461,449) $ 25,922,071

Debt service as a percentage of noncapital expenditures 15.41% 19.17% 20.18% 21.82% 16.35% 19.85% 17.86% 12.97% 8.15% 1.04%

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Tax Revenues by Source, Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting)

Fiscal Property Transient Sales Franchise Business Other Year Taxes Occupancy Taxes Taxes Licenses Taxes Taxes Total

2005 $ 17,982,717 $ 1,300,448 $ 17,471,173 $ 2,430,956 $ 686,682 $ 19,079 $ 39,891,055 2006 32,672,098 1,257,943 21,377,455 2,844,195 493,197 522,999 59,167,887 2007 30,773,463 1,452,827 25,879,313 2,754,230 886,625 1,002,095 62,748,553 2008 44,679,962 1,211,514 19,449,760 2,484,807 846,911 453,943 69,126,897 2009 47,841,204 1,327,022 14,934,911 2,902,408 855,453 518,992 68,379,990 2010 41,226,311 1,380,790 14,523,154 2,593,418 883,017 430,826 61,037,516 2011 35,895,395 1,300,067 15,607,533 2,697,165 1,008,810 310,397 56,819,367 2012 25,370,913 1,338,016 16,435,979 2,655,535 1,001,935 304,942 47,107,320 2013* 14,142,727 1,314,747 16,254,549 2,617,877 906,896 406,441 35,643,237 2014 14,370,865 1,313,033 18,043,706 2,669,286 929,618 413,913 37,740,421

Change 2005-2014 -20.1% 1.0% 3.3% 9.8% 35.4% 2069.5% -5.4%

*Substantially less due to dissolution of Lancaster Redevelopment Agency Source: City of Lancaster Finance Department

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Assessed Value and Estimated Actual Value of Taxable Property (in thousands) Last Ten Fiscal Years

Total Estimated Taxable Assessed Less: Total Taxable Direct Actual Valuea as a Fiscal Residential Commercial Industrial Other Unsecured Tax-Exempt Assessed Tax Taxable Percentage of Year Property* Property* Property* Property* Property* Property Value Rate (1) Value (2) Actual Taxable Value (2)

2005 $ 4,223,643 $ 649,833 $ 233,527 $ 752,034 $ 219,664 $ - $ 6,078,701 0.0686 $ 6,032,659 99.243% 2006 5,180,079 717,158 269,923 958,725 245,265 - 7,371,150 0.0693 7,323,839 99.358% 2007 6,926,915 803,807 323,171 1,218,049 291,323 - 9,563,265 0.0697 9,563,265 100.000% 2008 8,706,013 1,078,852 459,229 1,031,785 322,058 - 11,597,937 0.0700 11,597,937 100.000% 2009 8,698,733 1,164,920 459,459 998,914 318,702 - 11,640,728 0.0702 11,640,728 100.000% 2010 6,922,218 1,120,681 421,199 1,403,444 353,362 (392,871) 9,828,033 0.0676 9,935,752 101.096% 2011 5,752,260 1,119,257 405,506 1,217,476 331,486 (428,418) 8,397,567 0.0676 8,249,711 98.239% 2012 5,881,635 1,099,774 410,978 1,108,713 316,057 (457,271) 8,359,886 0.0676 8,100,717 96.900% 2013 5,775,643 1,109,273 417,524 1,093,610 309,749 (447,236) 8,258,563 0.0676 8,491,853 102.825% 2014 6,028,269 1,142,422 421,089 1,086,064 290,049 (491,828) 8,476,065 0.0676 10,751,310 102.825%

Source: Los Angeles County Assessor data, MuniServices, LLC Source: 2008-09 and prior, values were reported incorrectly and have been restated to reflect the correct assessment values. *For 2008-09 and prior, net values are reported. a Includes tax-exempt property.

Notes: 1) Total direct tax rate is the City share of the 1% ad valorem tax for TRA 005-438

2) Estimated Actual Value is derived from a series of calculations comparing median assessed values from 1940 to current median sale prices. Based on these calculations a multiplier value was extrapolated and applied to current assessed values.

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Direct and Overlapping Property Tax Rates Last Ten Fiscal Years

Los Antelope Valley Total Fiscal Angeles Union High Westside Community Direct & Total Year General County School District School District College Water Overlapping Direct (1)

2005 1.00000% 0.00092% 0.02572% 0.12668% 0.00000% 0.09560% 1.24892% 0.06865 2006 1.00000% 0.00080% 0.02266% 0.10365% 0.01630% 0.07050% 1.21391% 0.06933 2007 1.00000% 0.00066% 0.01996% 0.08454% 0.02905% 0.07049% 1.20470% 0.06970 2008 1.00000% 0.00000% 0.01908% 0.08488% 0.00983% 0.07049% 1.18428% 0.06999 2009 1.00000% 0.00000% 0.02095% 0.09374% 0.01682% 0.07049% 1.20200% 0.07015 2010 1.00000% 0.00000% 0.02421% 0.02282% 0.02460% 0.07049% 1.14212% 0.06759 2011 1.00000% 0.00000% 0.02902% 0.03061% 0.02539% 0.07049% 1.15551% 0.06759 2012 1.00000% 0.00000% 0.02913% 0.03074% 0.02599% 0.07049% 1.15635% 0.06759 2013 1.00000% 0.00000% 0.03075% 0.03380% 0.02949% 0.07049% 1.16453% 0.06759 2014 1.00000% 0.00000% 0.02602% 0.05503% 0.02741% 0.07049% 1.17895% 0.06759

Source: Los Angeles County Assessor data, MuniServices, LLC

Note 1: Total direct tax rate is the City share of the 1% ad valorem tax for TRA 005-438

In 1978, California voters passed Proposition 13 which set the property tax rate at 1.00% fixed amount. This 1.00% is shared by all taxing agencies in which the subject property resides. In addition, property owners are charged, as a percentage of assessed valuation, for the payment of any voter approved bonds.

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Principal Property Tax Payers Last Fiscal Year and Nine Years Prior

2013-2014 2004-2005 Percentage Percentage of Total City of Total City Taxable Taxable Taxable Taxable Assessed Assessed Assessed Assessed Taxpayer Value Rank Value Taxpayer Value Rank Value

Avenue K Lancaster Ucm Cadence 47,476,449 1 0.56% Provident Affordable Housing 54,304,500 1 0.89% Us Industrial Reit Ii 45,284,000 2 0.53% BPP Valley Central 46,316,999 2 0.76% Wal Mart Real Estate 43,796,846 3 0.52% Thrifty Payless Inc. 43,818,808 3 0.72% Bank Of America 39,004,745 4 0.46% Passco Lancaster LLC Et Al 36,992,435 4 0.61% Thrifty Payless Inc. 35,830,534 5 0.42% Lexington Lancaster LLC 26,209,360 5 0.43% Mgf Cordova Park Lp 33,950,000 6 0.40% Woodcreek Garden Apartments 24,715,784 6 0.41% Kaiser 32,225,003 7 0.38% Lancaster Hospital Corp 20,606,237 7 0.34% Mgp Ix Properties Llc 28,246,860 8 0.33% Antelope Pines Estates 19,147,789 8 0.31% Sygma Network Inc. 26,827,703 9 0.32% Citadel Properties Lancaster L 15,827,232 9 0.26% K Partners Lancaster Ii Lp 24,372,583 10 0.29% Caritas Affiliated Corp 15,488,058 10 0.25% Mg Sienna Heights Apt I Lp 23,501,100 11 0.28% Michaels Stores Inc. 15,033,911 11 0.25% Mg Granada Villas Apt I Lp 22,750,000 12 0.27% Avp Lancaster Llc 22,339,627 13 0.26%

Top 5% Total $ 357,014,723 5.02% Top 5% Total $ 318,461,113 5.24% City Total 8,476,068,865 100.00% City Total 6,078,701,394 100.00%

Source:Los Angeles County Assessor data, MuniServices, LLC

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Property Tax Levies and Collections Last Ten Fiscal Years

Fiscal Collected within the Year Taxes Levied Fiscal Year of the Levy Collections Total Collections to Date Ended for the Percentage in Subsequent Percentage June 30, Fiscal Year Amount of Levy Years Amount of Levy 2005 $ 1,747,125 $ 1,747,125 100% $ - $ 1,747,125 100% 2006 2,198,749 2,198,749 100% - 2,198,749 100% 2007 3,745,240 3,745,240 100% - 3,745,240 100% 2008 4,507,321 4,507,321 100% - 4,507,321 100% 2009 4,127,058 4,127,058 100% - 4,127,058 100% 2010 1,590,352 1,590,352 100% - 1,590,352 100% 2011 2,947,289 2,947,289 100% - 2,947,289 100% 2012 3,188,619 3,188,619 100% - 3,188,619 100% 2013* 5,545,157 5,545,157 100% - 5,545,157 100% 2014 3,686,297 3,686,297 100% - 3,686,297 100%

*Large increase due to state repayment of Prop 1A

Source: City of Lancaster Finance Department

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Ratios of Outstanding Debt by Type Last Ten Fiscal Years (dollars in thousands, except per capita)

Tax Allocation Assessment Community Total Percentage Fiscal Redevelopment Revenue District Facilities Dist. Primary of Personal Per Year Bonds Bonds Bonds Bonds Government Income a Capita

2005 $ 216,425 $ 17,225 $ 7,375 $ 23,178 $ 264,203 10.97% 2.15 2006 211,740 16,750 7,245 21,928 257,663 10.65% 1.96 2007 240,720 16,245 5,775 17,965 280,705 10.27% 2.03 2008 235,660 15,720 5,455 17,758 274,593 9.23% 1.91 2009 230,465 15,170 5,070 17,598 268,303 8.59% 1.85 2010 261,145 15,000 4,680 17,439 298,264 9.13% 2.06 2011 255,605 14,455 4,265 15,579 289,904 8.97% 1.85 2012 249,160 40,780 3,760 13,694 307,394 10.14% 1.95 2013 242,465 34,465 3,295 9,476 289,701 9.56% 1.83 2014 228,955 30,970 2,805 9,561 272,291 8.71% 1.70

Notes: Details regarding the city's outstanding debt can be found in the notes to the financial statements.

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Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years (dollars in thousands, except per capita)

General Bonded Debt Outstanding Percentage of General Tax Allocation Actual Taxable Fiscal Obligation Redevelopment Value a of Per Year Bonds Bonds Total Property Capita b

2005 $ - $ 216,425 $ 216,425 3.4630% 1.76 2006 - 211,740 211,740 2.8071% 1.61 2007 - 240,720 240,720 2.4853% 1.74 2008 - 235,660 235,660 2.0094% 1.64 2009 - 230,465 230,465 1.9798% 1.59 2010 - 261,145 261,145 2.6571% 1.80 2011 - 255,605 255,605 3.0438% 1.63 2012 - 249,160 249,160 2.9804% 1.58 2013 - 242,465 242,465 2.9359% 1.54 2014 - 228,955 228,955 2.7012% 1.43

Notes: Details regarding the outstanding redevelopment debt can be found in the notes to the financial statements. a See Schedule 6 (Exhibit C-1) for property value data. b Population data can be found in Schedule 14 (Exhibit E-1).

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Direct and Overlapping Governmental Activities Debt As of June 30, 2014

Estimated Share of Estimated Direct and Debt Percentage Overlapping Governmental Unit Outstanding Applicable a Debt

Debt repaid with property taxes:

Antelope Valley Joint Community College District $ 129,451,900 32.90% $ 42,589,675 Antelope Valley Union High School District 77,754,873 37.726 29,333,803 Eastside Union School District 8,822,547 59.155 5,218,978 Lancaster School District 47,938,614 96.21 46,414,645 Westside Union School District 71,957,788 28.837 20,750,467 Westside Union School District Community Facilities Districts 20,150,000 100 20,150,000 City of Lancaster Community Facilities Districts 9,561,454 100 9,561,454 City of Lancaster 1915 Act Bonds 2,805,000 100 2,805,000 Los Angeles County Regional Park and Open Space Assessment District 113,615,000 0.755 857,793 Total Overlapping Tax And Assessment Debt $ 177,681,815

Direct And Overlapping General Fund Debt:

Los Angeles County General Fund Obligations $ 1,835,420,030 0.755% $13,857,421 Los Angeles County Superintendent of Schools Certificates of Participation 9,529,882 0.755 71,951 Antelope Valley Joint Community College District Certificates of Participation 8,295,000 32.9 2,729,055 Eastside Union School District Certificates of Participation 7,000,000 59.155 4,140,850 Lancaster School District Certificates of Participation 8,135,000 96.821 7,876,388 Los Angeles County Sanitation District No. 14 Certificates of Participation 2,974,460 75.998 2,260,530 City of Lancaster Power Authority Revenue Bonds 25,895,000 100 25,895,000 Total Gross Direct And Overlapping General Fund Debt $ 56,831,195 Less: Los Angeles County General Fund Obligations supported by landfill revenues 38,016 Lancaster Power Authority Revenue Bonds supported by solar utility revenues 25,895,000 Total Net Direct And Overlapping General Fund Debt $ 30,898,179

Overlapping Tax Increment Debt: City of Lancaster Tax Allocation Bonds $228,955,000 100.00% $228,955,000 City of Lancaster Lease Revenue Bonds 5,075,000 100 5,075,000 Total Overlapping Tax Increment Debt $234,030,000

TOTAL GROSS DIRECT DEBT $25,895,000 TOTAL NET DIRECT DEBT $0 TOTAL GROSS OVERLAPPING DEBT $442,648,010 TOTAL NET OVERLAPPING DEBT $442,609,994

GROSS COMBINED TOTAL DEBT $468,543,010 NET COMBINED TOTAL DEBT $442,609,994

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Legal Debt Margin Last Ten Fiscal Years (dollars in thousands)

Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Assessed Valuation $ 6,202,361 $ 7,494,593 $ 9,685,762 $11,727,911 $11,777,155 $9,828,032 $8,397,567 $ 8,359,886 $ 8,258,563 $ 8,476,065

Debt limit (3.75% of Gross AV) $ 232,589 $ 281,047 $ 363,216 $ 439,797 $ 441,643 $ 368,551 $ 314,909 $ 313,496 $ 309,696 $ 317,852

Total net debt applicable to limit ------

Legal debt margin $ 232,589 $ 281,047 $ 363,216 $ 439,797 $ 441,643 $ 368,551 $ 314,909 $ 313,496 $ 309,696 $ 317,852

Total net debt applicable to the limit as a percentage of debt limit 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Source: Los Angeles County Assessor data, MuniServices, LLC

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Pledged-Revenue Coverage Last Ten Fiscal Years (dollars in thousands)

Redevelopment Tax Allocation Bonds Property Fiscal Tax Debt Service Year Increment Principal Interest Coverage

2005 $ 45,926 $ 2,886 $ 9,572 3.69 2006 58,787 4,910 10,604 3.79 2007 69,681 4,870 11,284 4.31 2008 78,378 5,060 11,537 4.72 2009 84,269 5,270 11,403 5.05 2010 66,205 6,895 12,144 3.48 2011 55,395 5,620 13,299 2.93 2012: 7/1/11-1/31/12* 24,020 4,155 6,717 2.21 2012: 1/31/12-6/30/12* 9,288 2,495 6,629 1.02 2012 33,308 6,650 13,346 1.67 2013 19,564 6,695 12,618 1.01 2014 23,252 16,005 12,313 0.82

Notes: Details regarding the city's outstanding redevelopment debt can be found in the notes to the financial statements. *Fiscal year 2012 is split because the Redevelopment Agency officially dissolved on 2/1/2012 and started receiving property taxes from the County of Los Angeles instead of "Property Tax Increment."

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Demographic and Economic Statistics Last Ten Calendar Years

Personal Per Income Capita Calendar (thousands Personal Unemployment Year Population of dollars) Income Rate

2005 122,989 $ 2,409,109 $ 19,588 7.70% 2006 131,246 2,418,995 18,431 4.20% 2007 138,392 2,731,957 19,741 5.90% 2008 143,818 2,975,908 20,692 8.60% 2009 145,243 3,123,674 21,507 13.87% 2010 145,074 3,267,564 22,523 17.10% 2011 156,633 3,231,182 20,629 17.20% 2012 157,902 3,030,085 19,190 15.40% 2013 158,630 3,289,828 20,739 15.20% 2014 159,878 3,126,734 19,557 11.98%

Sources: - Population statistics gathered from State of California, Department of Finance, E-5 Population and Housing Estimates for Cities, Counties, and the State, except during decennial census years, FY 2000-2001 and 2010-2011, U.S. Census Bureau. - Average Household and Personal Income gathered from Greater Antelope Valley Economic Alliance - Unemployment Rate gathered from State of California Employment Development Department http://www.labormarketinfo.edd.ca.gov/cgi/dataanalysis/areaselection.asp?tablename=labforce - Unemployment Rate not seasonally adjusted - 2014 Unemployment Rate preliminary

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Principal Employers Current Calendar Year and Ten Years Prior

2014 2005 Percentage Percentage of Total Valley of Total Valley Employer Employees Rank Employment Employer Employees Rank Employment

Edwards Air Force Base 10,647 1 15.75% Edwards Air Force Base 12,270 1 14.14% China Lake Navel Weapons Center 9,172 2 13.57% Lockheed Martin 4,200 2 4.84% County of Los Angeles 3,743 3 5.54% China Lake Navel Weapons 3,985 3 4.59% Northrop Grumman 2,772 4 4.10% County of Los Angeles 3,383 4 3.90% Lockheed Martin 2,712 5 4.01% Palmdale School District 2,986 5 3.44% Palmdale School District 2,682 6 3.97% Antelope Valley Hospital 2,300 6 2.65% AV Union High School District 2,689 7 3.98% AV Union High School 1,876 7 2.16% Antelope Valley Hospital 2,300 8 3.40% Lancaster School District 1,800 8 2.07% California Correctional Institute 1,915 9 2.83% Northrop Grumman 1,750 9 2.02% Wal Mart Stores (5) 1,922 10 2.84% Wal-Mart Stores (4) 1,496 10 1.72%

TOTAL AV Employment 67,601 59.99% 86,790 41.53%

Source: 2014 City of Lancaster Economic Development;CA EDD; GAVEA. 2005: Greater Antelope Valley Economic Alliance 2005 Economic Roundtable Report

Notes: Total employment as used above represents total employment located within the Greater Antelope Valley region. The Antelope Valley region is considered to be the City's economic region and covers 3,514.2 square miles of area and includes the City of Lancaster, Palmdale, Tehachapi, and Ridgecrest.

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Full-time-Equivalent City Government Employees by Function Last Ten Fiscal Years Full-time-Equivalent Employees as of June 30th, 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Function

General government City Manager 3.625 3 4 5 5 7.63 7.63 8.25 8.25 9.25 City Clerk 4 5 5 5 5 3.62 3.62 4 4 3 Administrative Services 10 8.5 6.9 4 4 4 4 2 4 8 Finance 11 14.75 16.75 21 21 21 21 22 21 25 Human Resources 3 3 4 10 10 10 11 5 5 5 Planning 17 14 16 16 16 12 12 12 - Redevelopment 9 20.3 22.3 37 37 38 38 - - - Housing & Neighborhood Revitalization ------30 22 20 Economic Development ------4 2 2 Public Safety 17 17.75 21 21 16 20 16 15 13 Parks and Recreation 61 65 67 66 66 59 59 56 54 51 Public Works 105 117 137 144 144 125 124 128 - Development Services ------124 125

Less vacancies filled by internal recruitments -11

Total 223.625 267.55 296.7 329 329 296.25 300.25 287.25 259.25 250.25

Year over year 43.925 29.15 32.3 0 -32.75 4 -13 -28 -9

Source: City Finance Department Note: The Lancaster Redevelopment Agency was dissolved according to ABx126 which was signed into law June 29, 2011.

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Operating Indicators by Function/Program

Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 Function/Program

General government Business licenses New business licenses issued 1,426 825 606 1,272 1,326 1,238 1,201 1,169 1,178 Business licenses renewed 4,070 3,313 2,499 4,103 3,904 4,101 3,972 3,989 4,073

Business improvement district BID licenses issued 21 10 4 23 23 38 73 42 21 BID licenses renewed 201 159 100 152 144 151 149 161 183

Taxi Business licenses New business licenses issued 24 31 21 39 38 29 24 Business licenses renewed - 21 27 40 45 46 39

Tow Business licenses New business licenses issued 8 14 12 23 20 25 16 Business licenses renewed 2 24 41 44 44 37 45

Group Home Business licenses New business licenses issued 3 14 16 6 1 2 7 Business licenses renewed - 3 17 25 33 33 42

LANCAP Business licenses New business licenses issued 79 848 844 1,168 781 579 577 Business licenses renewed 818 1,137 1,864 2,693 3,228 3,522 3,774

Massage Business licenses New business licenses issued 56 79 103 63 43 29 16 Business licenses renewed 5 72 66 69 63 48 44

News rack Permits New permits issued 4 1 - - - Permits renewed - 4 3 4 5

Human Resource Recruitments 33 44 30 23 22 4 2 12 22

Public Safety Physical arrests 12,064 11,042 17,606 17,867 27,854 12,778 11,371 11,929 7,474 Citations 18,555 24,216 23,031 26,407 25,386 22,025 15,401 3,265 10,487

Community Safety Parking violations 40,115 17,458 28,389 17,616 41,505 31,089 26,632 20,784 17,224

Public Works Building permits issued 4,416 2,363 1,400 907 1,444 2,228 2,600 3,192 1,777 Centerline miles maintained 1,208 590 627 621 630 630 633 640 640 No of Traffic Signals 129 130 139 145 141 138 138 137 139 Fleet Vehicles Maintained 296 272 307 320 295 292 301 301 318 Sponsored recycling event 1 4 12 30 - - 5 7 4

Street sweeping - residential miles 14,880 18,000 14,770 15,678 15,678 16,274 16,375 16,522 16,651 Street sweeping - arterial miles 8,900 8,876 8,960 9,224 2,220 2,234 2,245 2,267 2,279 Street sweeping - alley miles 900 900 900 900 - - - - - Street sweeping - raised median curb miles 1,800 1,794 2,015 2,106 - - 10 - -

Parks and RecreationMaintenance Services No. of developed park sites 12 13 13 13 13 14 14 14 14 No. of acres maintained 430 362 365 438 449 463 463 463 463 No. of trees in right of way 43,615 53,176 44,773 47,022 58,987 61,225 61,324 61,462 68,000 Recreation Community Events Sponsored 7 12 10 10 16 21 21 21 22 Youth Sport Participants 300 289 315 295 315 315 323 329 349 Adult league basketball teams 69 61 67 74 67 65 58 63 62 Adult league softball teams 472 434 474 493 545 542 474 511 495 Softball tournaments- no. of teams 891 680 572 681 582 624 500 533 597 Soccer tournaments-no. of teams 2,240 2,222 2,057 2,130 2,530 1,959 2,100 2,203 3,699 Instructional class enrollments* 2,900 19,103 7,499 7,425 6,839 6,814 6,115 7,468 6,607

- 158 - CITY OF LANCASTER

Operating Indicators by Function/Program

Fiscal Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 Function/Program Performing Arts Center Season Performances 108 95 94 94 97 68 55 74 59 Tickets Sold 45,789 51,694 34,850 45,360 39,376 33,590 27,913 31,525 23,829 Outreaches 22 28 32 35 32 33 23 20 19 Master Classes 2 2 2 2 1 3 - 9 2 Acting Workshops - - 4 4 - - - 1 - Theater Rentals 140 118 85 126 92 51 55 75 78 Rental tickets sold 43,791 38,400 25,500 29,940 29,940 21,009 16,705 17,770 16,094

Sources: Various city departments.

Notes: Operating indicators are available as of FY 2005-06, ten year history will be developed and presented beginning with FY 2005-06. Pubilc Safety numbers are estimates by querying Lancaster sheriffs station computer assisted dispatching system and using GIS to extract citations given within city boundary.

- 159 - CITY OF LANCASTER

Capital Asset Statistics by Function/Program

Fiscal Year Function/Program 2006 2007 2008 2009 2010 2011 2012 2013

General government City Hall 1 1 1 1 1 1 1 1 Annex/Record Center 1 1 1 1 1 1 - - Weed and Seed Office 1 1 1 1 1 1 1 1

Community Development Acreage - Redevelopment Brierwood Mobile Home Park 1 1 1 1 1 1 - - Desert Sands Mobile Home Park 1 1 1 1 1 1 1 1 Lancaster Business Incubator 1 1 1 1 1 1 1 1

Development Services Maintenance Yard - Modular Office Bldg. 1 1 1 1 1 1 1 1 Maintenance Yard - Office/Warehouse 1 1 1 1 1 1 1 1 Maintenance Yard - Maintenance Garage 1 1 1 1 1 1 1 1 Maintenance Yard - Canopy 1 1 1 1 1 1 1 1 Maintenance Yard - Storage Bldg 3 3 3 3 4 4 4 4 Maintenance Yard - Wash Bay 1 1 1 1 1 1 1 1 Maintenance Yard - HazMat Storage Bldg 1 1 1 1 1 1 1 1

Streets (miles) 591 591 627 621 630 630 633 640 Streetlights (owned by City) 1,000 1,405 1,600 1,141 1,112 1,149 1,157 1,875 Traffic Signals 129 130 139 145 141 138 138 137 Street Signs 24,000 26,000 27,000 28,000 28,533 29,058 26,334 26,378 Fleet Vehicles 296 272 307 320 295 292 301 301 Storm Drain Pipe (LF) 117,142 381,110 381,821 434,005 485,113 Storm Drain Box (LF) 20,803 31,570 31,570 26,169 27,993 Storm Drain Channel (LF) 48,715 48,715 48,715 44,883 44,883 Sewer Pipe (LF) 2055473* 2244000* 2,077,192 2,265,580 2,261,609 Sewer Manholes 8000* 9083* 8,089 9,005 9,035 Sewer Lift Station 1 1 1 1 1

Parks and Recreation Acreage 362 362 365 525 525 538 538 538 Developed park sites 12 13 12 13 13 14 14 14 Pools 2 2 2 2 2 2 2 2 Big 8 Tournament Baseball complex 1 1 1 1 1 1 1 1 Batting Cage Facility 1 1 1 1 1 1 1 1 Soccer Complex 1 1 1 1 1 1 1 1 Community/Activity Centers 7 7 7 7 7 7 7 8 Cedar Center 1 1 1 1 Prime Desert Woodlands Preserve & Nature Center 1 1 1 1 1 1 1 1 Lancaster University Center 1 1 1 1 1 1 1 1 Municipal Golf Center 1 1 1 1 1 1 1 1 Municipal Baseball Stadium 1 1 1 1 1 1 1 1 Performing Arts Center 1 1 1 1 1 1 1 1 Museum and Art Gallery 1 1 1 1 1 1 1 1 Western Hotel (historic site) 1 1 1 1 1 1 1 1 Metrolink Station 1 1 1 1 1 1 1 1 Park and Ride Lots 4 4 4 8 8 8 8 8

Sources: Various city departments.

- 160 - lancaster ca ifJ fOJtf"t"ve/'1 c/«4-Y

44933 FERN AVENUE LANCASTfR, CA 93534

www.cityoflancasterca.org APPENDIX F

Financial Advisor’s Report

F-1

February 2, 2015

Barbara Boswell Finance Director City of Lancaster 44933 N. Fern Ave. Lancaster, California 93534

RE: Successor Agency to the Lancaster Redevelopment Agency Combined Redevelopment Project Areas (Housing Programs) Tax Allocation Refunding Bonds, Issue of 2015A, and Taxable Tax Allocation Refunding Bonds, Issue of 2015B

FISCAL CONSULTANT’S REPORT

Dear Ms. Boswell:

Urban Futures, Inc. (UFI) is pleased to present this report of projected tax increment revenues to the Successor Agency to the Lancaster Redevelopment Agency (the "Agency") for the Combined Lancaster Redevelopment Project Areas (the "Project Areas"). The following information is included as exhibits to this report:

Exhibit A: Tax Increment Projections – Combined Areas Exhibits A-1 to A-7: Tax Increment Projections – by Project Area Exhibit B: Historical Assessed Valuations and Revenue Exhibits C-1 to C-7: Top Taxpayers, by Project Area Exhibits D-1 to D-7: Land Uses, by Project Area Exhibit E: Assessment Appeals Exhibit F: Project Area Map

Projected taxable valuations and tax revenues contained in this report are based on assumptions derived from the following information:

1. Historical growth trends; 2. Trended growth in valuation as permitted by Article XIIIA of the California Constitution (Proposition 13); 3. Financial reports and information supplied or prepared by the Agency; 4. Information provided by the County of Los Angeles, from the offices of the Auditor-Controller and Assessor; and 5. Data provided by Metroscan for land use and assessed valuation information.

The purpose of the projections is to demonstrate the availability of property tax revenues expected to be generated from the Project Areas, to secure debt service requirements of the Agency for the (proposed) 2015A & B Tax Allocation Refunding Bonds. Tax revenues will be paid to the Agency pursuant to the procedures described in AB X1 26, as amended by AB 1484 (the “Dissolution Act”), which include requirements that the Agency periodically file a Recognized Obligation Payment Schedule (the “ROPS”) with the County and the State, and that each such ROPS be approved by the Agency’s oversight board (the “Oversight Board”) and by the State Department of Finance (“DOF”).

Revenue projections have been conservatively estimated based on assumed 2% annual assessed valuation increases, in order to reduce the risk of overstating future tax increment revenues.

Background

Prior to the enactment of the Dissolution Act, the California Community Redevelopment Law (the “Law”) together with Article 16, Section 16 of the California Constitution, authorized redevelopment agencies to receive that portion of property tax revenue generated by project area taxable values that are over and above the Base Year value. The Base Year value is defined as the amount of the taxable values within the project area boundaries on the last equalized tax roll prior to adoption of the project area. The amount of current year taxable value that is in excess of the Base Year value is referred to as incremental taxable value.

The Dissolution Act authorizes refunding bonds, including the 2015A & B Bonds, to be secured by a pledge of the same revenues pledged to the bonds being refunded, and to be payable from and secured by monies deposited from time to time in the Redevelopment Property Tax Trust Fund (“RPTTF”) held by the County Auditor-Controller. Discussions of tax increment revenues in this report refer to those monies that will be deposited into the RPTTF by the County Auditor-Controller.

Project Areas

Table 1 below illustrates general information regarding the Project Areas, including dollar and time limitations included in each Redevelopment Plan.

TABLE 1 LANCASTER REDEVELOPMENT PLANS – General info, Plan Limits and Dates

Residential Redevelopment Project

Adoption Date: November 13, 1979 Ordinance No. 158

Term of Plan: 2020 (per SB 1045) Base Year: 1978-79

Total Area: 600 acres Sub Areas: 36 noncontiguous areas

Base Year Assessed Value: $7,049,501 2014-15 Assessed Value: $388,901,307

Maximum Tax Increment: $80,000,000 Cumulative T.I. (June 2014): $42,197,000 (Est.)

Maximum Bonded Indebtedness: $33,000,000 Last Date to collect taxes: November 13, 2030

Last Date to Incur Debt: Eliminated (per SB 211)

Central Business District Redevelopment Project

Adoption Date: June 1, 1981 Ordinance No. 226

Term of Plan: 2022 (per SB 1045) Base Year: 1980-81

Total Area: 438 acres Sub Areas: 4 noncontiguous areas

Base Year Assessed Value: $48,332,693 2014-15 Assessed Value: $156,216,721

Maximum Tax Increment: $80,000,000 Cumulative T.I. (June 2014): $10,014,000 (Est.)

Maximum Bonded Indebtedness: $25,000,000 Last Date to collect taxes: June 1, 2032

Last Date to Incur Debt: Eliminated (per SB 211)

Fox Field Redevelopment Project

Adoption Date: December 20, 1982 Ordinance No. 289

Term of Plan: 2023 (per SB 1045) Base Year: 1982-83

Total Area: 3,290 acres Sub Areas: 2 noncontiguous areas

Base Year Assessed Value: $14,970,009 2014-15 Assessed Value: $198,339,744

Maximum Tax Increment: $250,000,000 Cumulative T.I. (June 2014): $14,116,000 (Est.)

Maximum Bonded Indebtedness: $125,000,000 Last Date to collect taxes: December 20, 2033

Last Date to Incur Debt: Eliminated (per SB 211)

Amargosa Redevelopment Project

Adoption Date: October 17, 1983 Ordinance No. 321

Term of Plan: 2024 Base Year: 1983-84

Total Area: 4,599 acres Sub Areas: 4 noncontiguous areas

Base Year Assessed Value: $92,091,937 2014-15 Assessed Value: $1,482,953,538

Maximum Tax Increment: $225,000,000 Cumulative T.I. (June 2014): $99,572,000 (Est.)

Maximum Bonded Indebtedness: $92,000,000 Last Date to collect taxes: October 17, 2034

Last Date to incur debt: Eliminated (per SB 211)

TABLE 1 LANCASTER REDEVELOPMENT PLANS – General info, Plan Limits and Dates

Lancaster Redevelopment Project No. 5

Adoption Date: November 26, 1984 Ordinance No. 360

Term of Plan: 2025 (per SB 1045) Base Year: 1984-85

Total Area: 4,523 acres Sub Areas: 7 noncontiguous areas

Base Year Assessed Value: $366,873,983 2014-15 Assessed Value: $1,674,287,292

Maximum Tax Increment: $400,000,000 Cumulative T.I. (June 2014): $113,476,000 (Est.)

Maximum Bonded Indebtedness: $100,000,000 Last Date to collect taxes: November 26, 2035

Last Date to Incur Debt: Eliminated (per SB 211)

Lancaster Redevelopment Project No. 6

Adoption Date: July 3, 1989 Ordinance No. 505

Term of Plan: 2030 (per SB 1045) Base Year: 1988-89

Total Area: 12,748 acres Sub Areas: 8 noncontiguous areas

Base Year Assessed Value: $605,741,455 2014-15 Assessed Value: $2,868,995,149

Maximum Tax Increment: $750,000,000 Cumulative T.I. (June 2014): $146,413,000 (Est.)

Maximum Bonded Indebtedness: $250,000,000 Last Date to collect taxes: July 3, 2040

Last Date to Incur Debt: Eliminated (per SB 211)

Lancaster Redevelopment Project No. 7

Adoption Date: November 28, 1992 Ordinance No. 624

Term of Plan: 2033 (per SB 1045) Base Year: 1992-93

Total Area: 1,504 acres Sub Areas: 10 noncontiguous areas

Base Year Assessed Value: $226,784,287 2014-15 Assessed Value: $407,668,301

Maximum Tax Increment: $750,000,000 Cumulative T.I. (June 2014): $9,269,000 (Est.)

Maximum Bonded Indebtedness: $250,000,000 Last Date to collect taxes: November 28, 2043

Last Date to Incur Debt: Eliminated (per SB 211)

Project Tax Rate Areas

The FY 2014-15 tax rate area numbers used by the Los Angeles County Auditor-Controller’s Office to identify tax revenue apportionment for the Project Area are summarized in the following Table 2.

TABLE 2: PROJECT TAX RATE AREA ID NUMBERS

02541, 05227, 05292, 05372, 05397, 05398, 05401, 05402, 05403, 05405, 05406, Residential Project 05407, 05409, 05410, 05412, 05553, 06084, 06106, 06124, 06478, 09816, 09817, Area 10264, 10482

04841, 04852, 04860, 04863, 04879, 04889, 04891, 04892, 04893, 04895, 04896, C.B.D. Project Area 04897, 04899, 04900, 04901, 05404, 05456, 05457, 05458, 05459, 05460, 05469, 05471, 05833, 05859, 05863

01739, 04890, 05467, 05800, 05809, 05812, 05813, 05814, 05816, 05817, 05818, Fox Field Project Area 06026, 09813, 09814, 10775, 11822

00237, 00242, 00254, 02279, 03648, 03853, 03895, 04840, 04866, 04904, 04906, 05455, 05723, 05724, 05725, 05726, 05727, 05729, 05733, 05737, 05739, 05742, Amargosa Project Area 05743, 05744, 05746, 05747, 05853, 05880, 05889, 06093, 06153, 06317, 08736, 08773, 09815, 10402, 10572, 11430, 11846, 12748, 13377, 13378, 13446, 13585

00255, 01751, 02498, 03440, 03453, 03468, 03733, 03905, 03907, 04786, 04796, 04817, 04846, 04878, 05228, 05385, 05436, 05438, 05439, 05494, 05498, 05502, 05558, 05559, 05569, 05605, 05606, 05607, 05610, 05618, 05627, 05628, 05631, Project No. 5 05634, 05635, 05636, 05642, 05695, 05711, 05815, 05823, 05824, 05835, 05836, 05837, 05489, 05855, 05858, 05872, 05877, 05884, 05885, 05888, 05891, 06020, 06085, 06117, 06176, 06257, 06306, 06673, 10261, 10322, 10553, 11090, 11336, 11361, 11441, 11442, 11443, 11697, 12751, 12480 00264, 02203, 02459, 02959, 03446, 03452, 03466, 03650, 03881, 04647, 04837, 04903, 04905, 05221, 05452, 05454, 05720, 05852, 05861, 05866, 05868, 05870, 05871, 05878, 05879, 05881, 05882, 05895, 05897, 06024, 06083, 06098, 06104, 06105, 06109, 06145, 06146, 06164, 06171, 06228, 06239, 06244, 06273, 06587, 07613, 07638, 07639, 08021, 08545, 08583, 09805, 09810, 09812, 09827, 09886, Project No. 6 09895, 09905, 09915, 09919, 09920, 09921, 09923, 09927, 09929, 09934, 09991, 10218, 10219, 10221, 10226, 10228, 10229, 10233, 10234, 10236, 10238, 10239, 10241, 10242, 10243, 10244, 10249, 10259, 10282, 10331, 10332, 10351, 10460, 10604, 10664, 10665, 10776, 11230, 11398, 11435, 11781, 11848, 12128, 12640, 12659, 12660, 12662, 12735, 12746, 12760, 12762, 12777, 12834, 13447, 13468

01993, 02464, 04813, 04847, 05850, 05896, 06048, 06067, 11487, 11489, 11490, Project No. 7 11491, 11494, 11495, 11528, 11530, 11531, 11647, 11649

Source: Los Angeles County Auditor-Controller

Low- and Moderate-Income Housing Set-Aside

Pursuant to the Dissolution Act, the Agency is no longer required to set aside twenty percent of annual tax increment allocated to the Agency, for use in projects benefiting low- and moderate- income housing (the "Housing Set-Aside Amount"). However, the Housing Set-Aside amounts are used as the basis for the revenues shown in Exhibits A, and A-1 to A-7, due to the pledge of like revenues to bonds issued by the former Lancaster Redevelopment Agency (the “Prior Agency”) in 2003 and 2009 (the “Existing Parity Bonds”). The 2015A and 2015B Bonds will be issued on a parity basis with the Existing Parity Bonds.

Assessment Appeals

In Los Angeles County, a property owner desiring to reduce the assessed value of such owner's property in any one year must submit an application to the Los Angeles County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. The Appeals Board, within two years of each applicant's filing date, will hold a hearing and then either reduce the assessment or confirm the assessment.

Current appeals pending in the Project Areas represent real property with a total assessed valuation of $1,306,505,054. Based on the actual valuation reductions allowed by the Appeals Board for property in the Project Areas over the last three years, the amount of the allowed reductions represented approximately 12.51% of the requested valuation reduction amount. Based on the current requested valuation reduction amount of $727,970,425, it is estimated that the resolution of the current appeals pending could potentially result in a valuation reduction in the Project Areas of approximately $82,269,152 which could then result in a reduction to the gross tax increment revenue of approximately $822,692.

The estimated gross tax increment reduction amounts from pending appeals have not been deducted from the projections of Tax Revenues in Exhibits A, and A-1 to A-8, as the outcome of pending assessment appeals cannot be predicted with certainty.

While UFI has taken steps to assure the accuracy of the data used in the formulation of these projections, we cannot insure that projected valuations will, in fact, be realized because actual values will most likely be affected by future events and conditions that cannot be predicted with certainty.

We believe that this report provides the Lancaster Successor Agency with a reasonable basis for demonstrating the available tax increment revenues from the Project Areas. We are available to answer any questions that you may have regarding this information.

Sincerely,

Douglas P. Anderson, Managing Principal URBAN FUTURES, INC.

Exhibit A Lancaster Successor Agency Combined Project Areas

Pledged Tax Revenues (Housing Set‐Aside Amount)

Residential C.B.D. Fox Field Amargosa Project No. 5 Project No. 6 Project No. 7 COMBINED Fiscal Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Pledged Tax Year Revenues Revenues Revenues Revenues Revenues Revenues Revenues Revenues

14‐15$ 767,712 $ 217,473 $ 367,764 $ 2,788,629 $ 2,636,875 $ 4,532,387 $ 362,318 $ 11,673,160 15‐16 783,268 223,722 375,698 2,847,948 2,703,847 4,647,147 378,625 11,960,254 16‐17 799,135 230,096 383,790 2,908,452 2,772,157 4,764,202 395,258 12,253,091 17‐18 815,320 236,597 392,044 2,970,167 2,841,835 4,883,598 412,223 12,551,784 18‐19 831,828 243,228 400,464 3,033,116 2,912,905 5,005,382 429,528 12,856,451 19‐20 848,667 249,992 409,051 3,097,323 2,985,397 5,129,602 447,179 13,167,211 20‐21 865,842 256,891 417,811 3,162,815 3,059,339 5,256,306 465,183 13,484,187 21‐22 883,360 263,928 426,745 3,229,617 3,134,760 5,385,544 483,547 13,807,502 22‐23 901,229 271,106 435,858 3,297,755 3,211,689 5,517,367 502,278 14,137,283 23‐24 919,456 278,427 445,154 3,367,256 3,290,157 5,651,827 521,384 14,473,660 24‐25 938,047 285,895 454,635 3,438,147 3,370,194 5,788,975 540,872 14,816,764 25‐26 957,009 293,512 464,306 3,510,455 3,451,832 5,928,867 560,750 15,166,731 26‐27 976,351 301,281 474,170 3,584,210 3,535,103 6,071,556 581,025 15,523,697 27‐28 996,080 309,206 484,232 3,659,439 3,620,039 6,217,099 601,706 15,887,802 28‐29 1,016,204 317,289 494,495 3,736,174 3,706,673 6,365,553 622,801 16,259,189 29‐30 1,036,730 325,534 504,963 3,814,443 3,795,041 6,516,977 644,317 16,638,005 30‐31 333,944 515,641 3,894,277 3,885,176 6,671,428 666,264 15,966,730 31‐32 342,522 526,532 3,975,708 3,977,113 6,828,969 688,650 16,339,494 32‐33 4,058,768 4,070,890 6,989,660 711,483 15,830,801 33‐34 4,143,489 4,166,541 7,153,565 734,773 16,198,369 34‐35 4,264,106 7,320,749 758,529 12,343,384 35‐36 7,491,276 782,760 8,274,036 36‐37 7,665,213 807,475 8,472,689 37‐38 7,842,630 832,685 8,675,315 38‐39 8,023,594 858,399 8,881,994 Exhibit A-1

Lancaster Successor Agency RESIDENTIAL Project Area

TAX INCREMENT PROJECTIONS

(1) (2) (3) ASSESSED GROSS T.I. HOUSING VALUATION REVENUE SET-ASIDE FY GROWTH (A.V.-BASE)*.01 AMOUNT

Base$ 7,049,501

14-15 388,901,307 3,838,561 767,712 15-16 396,679,333 3,916,341 783,268 16-17 404,612,920 3,995,677 799,135 17-18 412,705,178 4,076,600 815,320 18-19 420,959,282 4,159,141 831,828 19-20 429,378,467 4,243,333 848,667 20-21 437,966,037 4,329,208 865,842 21-22 446,725,357 4,416,802 883,360 22-23 455,659,865 4,506,147 901,229 23-24 464,773,062 4,597,279 919,456 24-25 474,068,523 4,690,233 938,047 25-26 483,549,894 4,785,047 957,009 26-27 493,220,891 4,881,757 976,351 27-28 503,085,309 4,980,401 996,080 28-29 513,147,016 5,081,018 1,016,204 29-30 523,409,956 5,183,648 1,036,730 Exhibit A-2

Lancaster Successor Agency C.B.D. Project Area

TAX INCREMENT PROJECTIONS

(1) (2) (3) ASSESSED GROSS T.I. HOUSING VALUATION REVENUE SET-ASIDE FY GROWTH (A.V.-BASE)*.01 AMOUNT

Base$ 48,332,693

14-15 156,216,721 1,087,367 217,473 15-16 159,341,055 1,118,611 223,722 16-17 162,527,877 1,150,479 230,096 17-18 165,778,434 1,182,984 236,597 18-19 169,094,003 1,216,140 243,228 19-20 172,475,883 1,249,959 249,992 20-21 175,925,400 1,284,454 256,891 21-22 179,443,908 1,319,639 263,928 22-23 183,032,787 1,355,528 271,106 23-24 186,693,442 1,392,134 278,427 24-25 190,427,311 1,429,473 285,895 25-26 194,235,857 1,467,559 293,512 26-27 198,120,575 1,506,406 301,281 27-28 202,082,986 1,546,030 309,206 28-29 206,124,646 1,586,447 317,289 29-30 210,247,139 1,627,671 325,534 30-31 214,452,081 1,669,721 333,944 31-32 218,741,123 1,712,611 342,522 Exhibit A-3

Lancaster Successor Agency FOX FIELD Project Area

TAX INCREMENT PROJECTIONS

(1) (2) (3) ASSESSED GROSS T.I. HOUSING VALUATION REVENUE SET-ASIDE FY GROWTH (A.V.-BASE)*.01 AMOUNT

Base$ 14,970,009

14-15 198,339,744 1,838,822 367,764 15-16 202,306,539 1,878,490 375,698 16-17 206,352,670 1,918,952 383,790 17-18 210,479,723 1,960,222 392,044 18-19 214,689,318 2,002,318 400,464 19-20 218,983,104 2,045,256 409,051 20-21 223,362,766 2,089,053 417,811 21-22 227,830,021 2,133,725 426,745 22-23 232,386,622 2,179,291 435,858 23-24 237,034,354 2,225,768 445,154 24-25 241,775,041 2,273,175 454,635 25-26 246,610,542 2,321,530 464,306 26-27 251,542,753 2,370,852 474,170 27-28 256,573,608 2,421,161 484,232 28-29 261,705,080 2,472,476 494,495 29-30 266,939,182 2,524,817 504,963 30-31 272,277,965 2,578,205 515,641 31-32 277,723,525 2,632,660 526,532 Exhibit A-4

Lancaster Successor Agency AMARGOSA Project Area

TAX INCREMENT PROJECTIONS

(1) (2) (4) ASSESSED GROSS T.I. HOUSING VALUATION REVENUE SET-ASIDE FY GROWTH (A.V.-BASE)*.01 AMOUNT

Base$ 92,091,937

14-15 1,482,953,538 13,943,147 2,788,629 15-16 1,512,612,609 14,239,738 2,847,948 16-17 1,542,864,861 14,542,260 2,908,452 17-18 1,573,722,158 14,850,833 2,970,167 18-19 1,605,196,601 15,165,578 3,033,116 19-20 1,637,300,533 15,486,617 3,097,323 20-21 1,670,046,544 15,814,077 3,162,815 21-22 1,703,447,475 16,148,086 3,229,617 22-23 1,737,516,424 16,488,776 3,297,755 23-24 1,772,266,753 16,836,279 3,367,256 24-25 1,807,712,088 17,190,733 3,438,147 25-26 1,843,866,330 17,552,275 3,510,455 26-27 1,880,743,656 17,921,048 3,584,210 27-28 1,918,358,529 18,297,197 3,659,439 28-29 1,956,725,700 18,680,869 3,736,174 29-30 1,995,860,214 19,072,214 3,814,443 30-31 2,035,777,418 19,471,386 3,894,277 31-32 2,076,492,967 19,878,541 3,975,708 32-33 2,118,022,826 20,293,840 4,058,768 33-34 2,160,383,282 20,717,444 4,143,489 Exhibit A-5

Lancaster Successor Agency Redevelopment Project No. 5

TAX INCREMENT PROJECTIONS

(1) (2) (3) ASSESSED GROSS T.I. HOUSING VALUATION REVENUE SET-ASIDE FY GROWTH (A.V.-BASE)*.01 AMOUNT

Base$ 366,873,983

14-15 1,674,287,292 13,184,375 2,636,875 15-16 1,707,773,038 13,519,233 2,703,847 16-17 1,741,928,499 13,860,787 2,772,157 17-18 1,776,767,069 14,209,173 2,841,835 18-19 1,812,302,410 14,564,526 2,912,905 19-20 1,848,548,458 14,926,987 2,985,397 20-21 1,885,519,427 15,296,696 3,059,339 21-22 1,923,229,816 15,673,800 3,134,760 22-23 1,961,694,412 16,058,446 3,211,689 23-24 2,000,928,300 16,450,785 3,290,157 24-25 2,040,946,866 16,850,971 3,370,194 25-26 2,081,765,804 17,259,160 3,451,832 26-27 2,123,401,120 17,675,513 3,535,103 27-28 2,165,869,142 18,100,194 3,620,039 28-29 2,209,186,525 18,533,367 3,706,673 29-30 2,253,370,256 18,975,205 3,795,041 30-31 2,298,437,661 19,425,879 3,885,176 31-32 2,344,406,414 19,885,566 3,977,113 32-33 2,391,294,542 20,354,448 4,070,890 33-34 2,439,120,433 20,832,707 4,166,541 34-35 2,487,902,842 21,320,531 4,264,106 Exhibit A-6

Lancaster Successor Agency Redevelopment Project No. 6

TAX INCREMENT PROJECTIONS

(1) (2) (3) ASSESSED GROSS T.I. HOUSING VALUATION REVENUE SET-ASIDE FY GROWTH (A.V.-BASE)*.01 AMOUNT

Base$ 605,741,455

14-15 2,868,995,149 22,661,937 4,532,387 15-16 2,926,375,052 23,235,736 4,647,147 16-17 2,984,902,553 23,821,011 4,764,202 17-18 3,044,600,604 24,417,991 4,883,598 18-19 3,105,492,616 25,026,912 5,005,382 19-20 3,167,602,468 25,648,010 5,129,602 20-21 3,230,954,518 26,281,531 5,256,306 21-22 3,295,573,608 26,927,722 5,385,544 22-23 3,361,485,080 27,586,836 5,517,367 23-24 3,428,714,782 28,259,133 5,651,827 24-25 3,497,289,078 28,944,876 5,788,975 25-26 3,567,234,859 29,644,334 5,928,867 26-27 3,638,579,556 30,357,781 6,071,556 27-28 3,711,351,147 31,085,497 6,217,099 28-29 3,785,578,170 31,827,767 6,365,553 29-30 3,861,289,734 32,584,883 6,516,977 30-31 3,938,515,529 33,357,141 6,671,428 31-32 4,017,285,839 34,144,844 6,828,969 32-33 4,097,631,556 34,948,301 6,989,660 33-34 4,179,584,187 35,767,827 7,153,565 34-35 4,263,175,871 36,603,744 7,320,749 35-36 4,348,439,388 37,456,379 7,491,276 36-37 4,435,408,176 38,326,067 7,665,213 37-38 4,524,116,339 39,213,149 7,842,630 38-39 4,614,598,666 40,117,972 8,023,594 39-40 4,706,890,640 41,040,892 8,208,178 Exhibit A-7

Lancaster Successor Agency Redevelopment Project No. 7

TAX INCREMENT PROJECTIONS

(1) (2) (3) ASSESSED GROSS T.I. HOUSING VALUATION REVENUE SET-ASIDE FY GROWTH (A.V.-BASE)*.01 AMOUNT

Base$ 226,784,287

14-15 407,668,301 1,811,590 362,318 15-16 415,821,667 1,893,124 378,625 16-17 424,138,100 1,976,288 395,258 17-18 432,620,862 2,061,116 412,223 18-19 441,273,280 2,147,640 429,528 19-20 450,098,745 2,235,895 447,179 20-21 459,100,720 2,325,914 465,183 21-22 468,282,735 2,417,734 483,547 22-23 477,648,389 2,511,391 502,278 23-24 487,201,357 2,606,921 521,384 24-25 496,945,384 2,704,361 540,872 25-26 506,884,292 2,803,750 560,750 26-27 517,021,978 2,905,127 581,025 27-28 527,362,417 3,008,531 601,706 28-29 537,909,666 3,114,004 622,801 29-30 548,667,859 3,221,586 644,317 30-31 559,641,216 3,331,319 666,264 31-32 570,834,040 3,443,248 688,650 32-33 582,250,721 3,557,414 711,483 33-34 593,895,736 3,673,864 734,773 34-35 605,773,650 3,792,644 758,529 35-36 617,889,123 3,913,798 782,760 36-37 630,246,906 4,037,376 807,475 37-38 642,851,844 4,163,426 832,685 38-39 655,708,881 4,291,996 858,399 39-40 668,823,058 4,423,138 884,628 40-41 682,199,520 4,556,902 911,380 41-42 695,843,510 4,693,342 938,668 42-43 709,760,380 4,832,511 966,502 Exhibit B Lancaster Successor Agency Combined Project Areas

Historical Assessed Values, Tax Revenues and Housing Set‐Aside Amounts

Housing Set‐Aside Fiscal Year Assessed Value Tax Revenues* Amount (20%)

2009‐10$ 7,576,463,943 $ 66,204,939 $ 13,240,988 2010‐11 6,409,536,314 55,395,291 11,079,058 2011‐12 6,392,661,204 53,209,699 10,641,940 2012‐13 6,338,285,012 53,335,938 10,667,188 2013‐14 6,539,684,775 54,555,224 10,911,045 2014‐15** 7,177,362,052 58,365,800 11,673,160

* Revenues include 1% increment, override (through FY 11‐12), and unitary revenues. ** FY 14‐15 Tax Revenues and Housing Set‐Aside Amount are estimated. Exhibit C-1 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Lancaster Residential Project Area Largest Local Secured Taxpayers/Property Owners Fiscal Year 2014-15 Taxable Secured Primary Percent of Property Owner Assessed Valuation Land Use Secured AV(1) 1. Provident Housing Resources Inc $47,323,685 Multifamily Residential 12.24% 2. Riva Park Dev LLC 17,104,446 Multifamily Residential 4.42% 3. Mg Woodlands West Apartments LP 11,550,214 Multifamily Residential 2.99% 4. Forbush Mark S Co Tr 10,492,699 Multifamily Residential 2.71% 5. Lane Family Trust 4,215,180 Commercial 1.09% 6. Cambridge Ln LLC 3,193,401 Commercial 0.83% 7. Agate Consortium Inc 2,170,338 Commercial 0.56% 8. Byd Energy LLC 1,908,626 Industrial 0.49% 9. Antelope Valley Residential 1,032,764 Single Family Residential 0.27% 10. Newman Wayne A & Shana L Trs 719,090 Industrial 0.19% Total $99,710,443 25.79%

(1) Based on fiscal year 2014-15 secured assessed valuation of $386,576,587 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit C-2 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Lancaster Central Business Project Area Largest Local Secured Taxpayers/Property Owners Fiscal Year 2014-15 Taxable Secured Primary Percent of Property Owner Assessed Valuation Land Use Secured AV(1) 1. Downtown Renual LP $22,883,843 Multifamily Residential 16.47% 2. Lean Mean Fighting Machine LP 14,089,594 Commercial 10.14% 3. Lancaster Promenade LLC 11,875,341 Commercial 8.55% 4. Cedar St Assoc Ltd 5,723,064 Institutional 4.12% 5. University Of Antelope 4,949,059 Institutional 3.56% 6. Grow A Pear LP 4,548,549 Commercial 3.27% 7. Holmberg Hilding A & Jean Y 4,301,787 Commercial 3.10% 8. H K Realty Inc 3,976,890 Multifamily Residential 2.86% 9. Larson Max W Tr 3,648,087 Commercial 2.63% 10. Mental Health America Of 3,041,187 Commercial 2.19% Total $79,037,401 56.89%

(1) Based on fiscal year 2014-15 secured assessed valuation of $138,941,121 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit C-3 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Fox Field Project Area Largest Local Secured Taxpayers/Property Owners Fiscal Year 2014-15 Taxable Secured Primary Percent of Property Owner Assessed Valuation Land Use Secured AV(1) 1. Thrifty Payless Inc $35,993,203 Industrial 21.34% 2. Sygma Network Inc 22,018,620 Industrial 13.05% 3. Campus Business Park II LLC 6,476,841 Industrial 3.84% 4. Hanes & Associates Inc 5,840,067 Commercial 3.46% 5. Extra Space Properties Forty 5,264,962 Industrial 3.12% 6. Education Cap Solutions LLC 3,246,200 Industrial 1.92% 7. Vintners Cucamonga 3,075,373 Industrial 1.82% 8. Oberman Edith Tr 3,014,664 Industrial 1.79% 9. R Brown K 8 LLC 2,700,000 Industrial 1.60% 10. Lauren & James Young 2,599,617 Commercial 1.54% Total $90,229,547 53.48%

(1) Based on fiscal year 2014-15 secured assessed valuation of $168,704,794 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit C-4 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Amargosa Project Area Largest Local Secured Taxpayers/Property Owners Fiscal Year 2014-15 Taxable Secured Primary Percent of Property Owner Assessed Valuation Land Use Secured AV(1) 1. MG Properties $80,577,388 Multifamily Residential 5.88% 2. Cp Antelope Shops LLC 44,394,429 Commercial 3.24% 3. Kaiser Foundation Health Plan 32,876,066 Commercial 2.40% 4. Mk Rrp 176 Holston Drive LLC 31,600,000 Commercial 2.31% 5. Mgp Ix Properties LLC 28,375,096 Commercial 2.07% 6. Wal Mart Real Estate 23,697,104 Commercial 1.73% 7. Valley Central L P 19,062,986 Commercial 1.39% 8. Westwood Park Ltd 17,927,929 Multifamily Residential 1.31% 9. Cinema Properties Inc 17,900,000 Commercial 1.31% 10. Winco Foods LLC 15,641,687 Commercial 1.14% Total $312,052,685 22.77%

(1) Based on fiscal year 2014-15 secured assessed valuation of $1,370,318,832 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit C-5 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Redevelopment Project No. 5 Largest Local Secured Taxpayers/Property Owners Fiscal Year 2014-15 Taxable Secured Primary Percent of Property Owner Assessed Valuation Land Use Secured AV(1) 1. Wal Mart Real Estate $20,190,993 Commercial 1.23% 2. Front Gate Plaza LLC 17,318,709 Commercial 1.06% 3. Security Title Tr 13,134,059 Multifamily Residential 0.80% 4. 30th Street West Apt Associates 12,501,735 Multifamily Residential 0.76% 5. How Bout Them Apples LP 12,330,787 Multifamily Residential 0.75% 6. Cedar Creek LP 10,807,837 Multifamily Residential 0.66% 7. Leaps & Bounds LP 9,223,662 Multifamily Residential 0.56% 8. I Yam What I Yam LP 8,484,222 Multifamily Residential 0.52% 9. Lancaster Avenue Lllc 8,212,653 Commercial 0.50% 10. Mgp Xvii LLC 7,344,363 Multifamily Residential 0.45% Total $119,549,020 7.30%

(1) Based on fiscal year 2014-15 secured assessed valuation of $1,637,450,768 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit C-6 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Redevelopment Project No. 6 Largest Local Secured Taxpayers/Property Owners Fiscal Year 2014-15 Taxable Secured Primary Percent of Property Owner Assessed Valuation Land Use Secured AV(1) 1. Us Industrial Reit II $45,284,000 Industrial 1.61% 2. Caritas Affordable Housing Inc 24,325,757 Multifamily Residential 0.87% 3. Avp Lancaster LLC 22,441,042 Commercial 0.80% 4. Unified Investments V LLC 16,701,146 Institutional 0.59% 5. Vallarta Supermarkets Shopping 13,985,017 Commercial 0.50% 6. Reliant-San Gabriel LP 13,318,300 Multifamily Residential 0.47% 7. Caesars Plaza LLC 9,889,920 Commercial 0.35% 8. Ap Lancaster LLC 8,407,338 Commercial 0.30% 9. Youtheman LP 7,425,028 Multifamily Residential 0.26% 10. Antelope Valley Residential 6,985,309 Single Family Residential 0.25% Total $168,762,857 6.00%

(1) Based on fiscal year 2014-15 secured assessed valuation of $2,810,987,264 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit C-7 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Redevelopment Project No. 7 Largest Local Secured Taxpayers/Property Owners Fiscal Year 2014-15 Taxable Secured Primary Percent of Property Owner Assessed Valuation Land Use Secured AV(1) 1. Quartz Hill Station LLC $21,095,335 Commercial 5.37% 2. Tru 2005 Re I LLC 12,900,000 Commercial 3.29% 3. 2429 Danalda LLC & Kab Plaza LLC 10,645,910 Commercial 2.71% 4. United Insurance Company 9,793,480 Commercial 2.50% 5. Chen Yi S 5,900,000 Commercial 1.50% 6. Arroyo Plaza LLC 5,285,583 Commercial 1.35% 7. G6 Hospitality Property LLC 4,598,081 Commercial 1.17% 8. Lancaster Avenue J LLC 4,159,317 Commercial 1.06% 9. Lancaster Triangle Co 4,066,179 Commercial 1.04% 10. Miner Kurt J & Lord Miner Michelle 3,781,000 Commercial 0.96% Total $82,224,885 20.95%

(1) Based on fiscal year 2014-15 secured assessed valuation of $392,495,299 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit D-1 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Residential Project Area Land Use Summary Fiscal Year 2014-15

Secured Assessed Percent of Secured Land Use Number of Parcels Valuation A.V.(1) Single Family Residential 2,140 $291,912,482 75.51% Multifamily Residential 13 80,336,959 20.78% Commercial 9 7,685,847 1.99% Industrial 13 5,646,825 1.46% Vacant Industrial 12 552,622 0.14% Vacant Residential 7 403,905 0.10% Vacant Governmental/Institutional/Other 3 26,869 0.01% Vacant Commercial 2 11,079 0.00% Governmental/Institutional/Other 8 0 0.00% Recreational 1 0 0.00% Total All Secured 2,208 $386,576,587 100.00%

(1) Based on Fiscal Year 2014-15 secured assessed valuation of $386,576,587 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit D-2 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Central Business District Project Area Land Use Summary Fiscal Year 2014-15

Secured Assessed Percent of Secured Land Use Number of Parcels Valuation A.V.(1) Commercial 287 $75,641,340 54.44% Multifamily Residential 33 31,958,355 23.00% Governmental/Institutional/Other 110 10,437,404 7.51% Industrial 54 7,760,846 5.59% Recreational 5 3,120,213 2.25% Vacant Industrial 254 3,069,855 2.21% Vacant Residential 43 2,466,489 1.78% Vacant Governmental/Institutional/Other 221 1,939,145 1.40% Single Family Residential 34 1,590,411 1.14% Vacant Commercial 35 948,274 0.68% Vacant Recreational 2 8,790 0.01% Total All Secured 1,078 $138,941,121 100.00%

(1) Based on Fiscal Year 2014-15 secured assessed valuation of $138,941,121 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit D-3 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Fox Field Project Area Land Use Summary Fiscal Year 2014-15

Secured Assessed Percent of Secured Land Use Number of Parcels Valuation A.V.(1) Industrial 55 $109,378,158 64.83% Vacant Industrial 513 26,718,278 15.84% Commercial 19 14,772,140 8.76% Governmental/Institutional/Other 10 10,953,981 6.49% Vacant Agricultural 9 2,381,340 1.41% Vacant Residential 11 1,916,082 1.14% Vacant Governmental/Institutional/Other 13 1,337,456 0.79% Recreational 1 987,264 0.59% Vacant Commercial 3 150,987 0.09% Single Family Residential 1 109,108 0.06% Total All Secured 635 $168,704,794 100.00%

(1) Based on Fiscal Year 2014-15 secured assessed valuation of $168,704,794 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit D-4 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Amargosa Project Area Land Use Summary Fiscal Year 2014-15

Secured Assessed Percent of Secured Land Use Number of Parcels Valuation A.V.(1) Commercial 229 $532,930,775 38.89% Single Family Residential 1,763 279,241,655 20.38% Multifamily Residential 78 218,570,593 15.95% Industrial 129 158,403,776 11.56% Vacant Commercial 108 47,113,366 3.44% Vacant Industrial 247 45,473,456 3.32% Governmental/Institutional/Other 74 25,902,313 1.89% Recreational 9 21,747,086 1.59% Vacant Residential 184 20,150,221 1.47% Vacant Governmental/Institutional/Other 142 15,105,918 1.10% Vacant Agricultural 24 5,679,673 0.41% Total All Secured 2,987 $1,370,318,832 100.00%

(1) Based on Fiscal Year 2014-15 secured assessed valuation of $1,370,318,832 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit D-5 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Redevelopment Project No. 5 Land Use Summary Fiscal Year 2014-15

Secured Assessed Percent of Secured Land Use Number of Parcels Valuation A.V.(1) Single Family Residential 10,288 $1,121,371,144 68.48% Multifamily Residential 617 220,757,711 13.48% Commercial 317 189,874,301 11.60% Industrial 66 37,125,259 2.27% Government/Institutional/Other 156 33,600,779 2.05% Vacant Residential 208 11,820,640 0.72% Vacant Industrial 89 9,232,473 0.56% Vacant Commercial 62 9,079,869 0.55% Vacant Governmental/Institutional/Other 84 4,413,353 0.27% Recreational 4 175,239 0.01% Total All Secured 11,891 $1,637,450,768 100.00%

(1) Based on Fiscal Year 2014-15 secured assessed valuation of $1,637,450,768 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit D-6 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Redevelopment Project No. 6 Land Use Summary Fiscal Year 2014-15

Secured Assessed Percent of Secured Land Use Number of Parcels Valuation A.V.(1) Single Family Residential 13,621 $2,155,021,949 76.66% Commercial 147 166,407,026 5.92% Vacant Residential 1,875 115,013,244 4.09% Multifamily Residential 120 112,115,564 3.99% Governmental/Institutional/Other 125 89,666,133 3.19% Industrial 58 89,515,645 3.18% Vacant Governmental/Institutional/Other 419 39,514,273 1.41% Vacant Industrial 431 26,182,709 0.93% Vacant Commercial 38 6,501,222 0.23% Vacant Agricultural 42 4,586,194 0.16% Agricultural 1 3,628,738 0.13% Recreational 4 2,834,566 0.10% Total All Secured 16,881 $2,810,987,264 100.00%

(1) Based on Fiscal Year 2014-15 secured assessed valuation of $2,810,987,264 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit D-7 SUCCESSOR AGENCY TO THE LANCASTER REDEVELOPMENT AGENCY Redevelopment Project No. 7 Land Use Summary Fiscal Year 2014-15

Secured Assessed Percent of Secured Land Use Number of Parcels Valuation A.V.(1) Single Family Residential 2,017 $260,904,992 66.47% Commercial 53 106,898,040 27.24% Vacant Industrial 168 9,549,880 2.43% Multifamily Residential 18 7,921,088 2.02% Governmental/Institutional/Other 17 4,167,780 1.06% Vacant Residential 12 1,918,496 0.49% Vacant Commercial 5 1,066,293 0.27% Industrial 1 68,102 0.02% Vacant Governmental/Institutional/Other 4 629 0.00% Total All Secured 2,295 $392,495,299 100.00%

(1) Based on Fiscal Year 2014-15 secured assessed valuation of $392,495,299 Source: Urban Futures, Inc. with information from the Los Angeles County 2014-15 Secured Property Tax Roll. Exhibit E

Historical Assessment Appeals For Closed Appeals Reviewed from January 2011 through November 2014

Allowed Number of Number of Assessed Value of Owner's Opinion Total Requested Reduction Reduction as % of Project Area Appeals Filed Successful Appeals Property of Value Reduction Allowed by Board Requested Amargosa Project Area 243 79 $564,327,790 $324,256,586 $240,071,204 $27,565,228 11.48% CBD Project Area 30 9 $34,069,557 $15,613,255 $18,456,302 $2,141,547 11.60% Foxfield Project Area 40 7 $86,591,032 $51,412,326 $35,178,706 $2,028,891 5.77% Residential Project Area 17 2 $21,186,695 $11,283,856 $9,902,839 $59,053 0.60% Project Area No. 5 277 83 $228,643,326 $77,562,814 $151,080,512 $12,454,488 8.24% Project Area No.6 619 207 $345,518,671 $178,147,036 $167,371,635 $30,254,772 18.08% Project Area No.7 76 23 $85,474,530 $41,717,948 $43,756,582 $8,793,152 20.10%

Outstanding Assessment Appeals as of December 1, 2014

Estimated Number of Reduction (based Appeals Assessed Value of Owner's Opinion of Potential Loss of Historical on Historical Project Area Outstanding Property Value Assessed Value Success Rate Success) Amargosa Project Area 140 $467,027,559 $227,892,594 $239,134,965 11.48% $27,457,728 CBD Project Area 14 $29,940,563 $7,750,000 $22,190,563 11.60% $2,574,846 Foxfield Project Area 32 $98,605,241 $56,301,149 $42,304,092 5.77% $2,439,839 Residential Project Area 37 $50,535,536 $8,217,580 $42,317,956 0.60% $252,352 Project Area No. 5 157 $339,695,090 $128,573,900 $211,121,190 8.24% $17,404,007 Project Area No.6 397 $219,719,356 $110,599,694 $109,119,662 18.08% $19,724,910 Project Area No.7 40 $100,981,709 $39,199,712 $61,781,997 20.10% $12,415,469

Source: Urban Futures, Inc. with information from the County of Los Angeles. Dec 2004 LOS ANGELES LOS ANGELES LOS ANGELES LOS ANGELES LOS ANGELES LOS ANGELES LOS ANGELES LOS ANGELES LOS ANGELES CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA 20th20th20th St.St.St. EastEastEast CALIFORNIA CALIFORNIA CALIFORNIA 20th20th20th St.St.St. EastEastEast LANCASTER LANCASTER LANCASTER 20th20th20th St.St.St. EastEastEast LANCASTER LANCASTER LANCASTER LANCASTER LANCASTER LANCASTER

10th10th10th St.St.St. EastEastEast

DivisionDivision St.St.

SierraSierra HighwayHighway

10th10th10th St.St.St. WestWestWest FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1 FIGURE 1

20th20th20th St.St.St. WestWestWest Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster

20th20th20th St.St.St. WestWestWest Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster Lancaster

AntelopeAntelope ValleyValley FreewayFreeway Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas Project Areas

30th30th30th St.St.St. WestWestWest

40th40th40th St.St.St. WestWestWest

50th50th50th St.St.St. WestWestWest LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND LEGEND Project Area No. 6 Project Area No. 7 Amargosa Project Area Project Area No. 5 CBD Project Area Residential Project Area Foxfield Project Area Avenue L Avenue L Avenue L Avenue K Avenue K Avenue K Avenue J Avenue J Avenue J Avenue H Avenue H Avenue H Avenue G Avenue G Avenue G Avenue F Avenue F Avenue F Avenue E Avenue E Avenue E Avenue L Avenue L Avenue L Avenue K Avenue K Avenue K Avenue J Avenue J Avenue J Avenue H Avenue H Avenue H Avenue G Avenue G Avenue G Avenue F Avenue F Avenue F Avenue E Avenue E Avenue E Avenue L Avenue L Avenue L Avenue K Avenue K Avenue K Avenue J Avenue J Avenue J Avenue H Avenue H Avenue H Avenue G Avenue G Avenue G Avenue F Avenue F Avenue F Avenue E Avenue E Avenue E Avenue I Avenue I Avenue I Avenue I Avenue I Avenue I Avenue I Avenue I Avenue I Prepared By: Urban Futures, Inc. LC_AB1290_2005-09 APPENDIX G

DOF Determination Letter

G-1 ~t-IT 0,_ """ . """-z-

December 10, 2014

Ms. Barbara Boswell, Finance Director City of Lancaster 44933 Fern Avenue Lancaster, CA 93534

Dear Ms. Boswell:

Subject: Approval of Oversight Board Action

The City of Lancaster Successor Agency (Agency) notified the California Department of Finance (Finance) of its October 29, 2014 Oversight Board (OB) resolution on October 30, 2014. Pursuant to Health and Safety Code (HSC) section 34179 (h), Finance has completed its review of the OB action.

Based on our review and application of the law, OB Resolution No. 22-14 approving the issuance and sale of tax allocation refunding bonds by the Agency, is approved. The Agency is refunding their 2003 Subordinate Tax Allocation Refunding Bonds, Series B and the 2004 Subordinate Tax Allocation Refunding Bonds. This approval is specifically conditioned on the understanding that no refunding bonds will be issued unless such bonds meet the limitations in HSC section 34177.5 (a). Any debt service obligations listed in a Recognized Obligation Payment Schedule stemming from bonds issued not in compliance with that section will not be approved by Finance.

This is our determination with respect to the OB action taken.

Please direct inquiries to Cindie Lor, Supervisor, or Veronica Green, Lead Analyst at (916) 445-1546. IF~J~~NHoWAF -- ·· :A:cti~am Budget Manager

cc: Ms. Pam Statsmann, Assistant Finance Director, City of Lancaster Ms. Kristina Burns, Manager, Department of Auditor-Controller, Los Angeles County California State Controller's Office

G-2 APPENDIX H

Specimen Municipal Bond Insurance Policy

H-1

MUNICIPAL BOND INSURANCE POLICY

ISSUER: [NAME OF ISSUER] Policy No: _____

MEMBER: [NAME OF MEMBER]

BONDS: $______in aggregate principal Effective Date: ______amount of [NAME OF TRANSACTION] [and maturing on] Risk Premium: $______Member Surplus Contribution: $ ______Total Insurance Payment: $______

BUILD AMERICA MUTUAL ASSURANCE COMPANY (“BAM”), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the “Trustee”) or paying agent (the “Paying Agent”) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer.

On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner’s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner’s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner’s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment.

Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. “Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer’s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. “Due for Payment” means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. “Nonpayment” means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. “Nonpayment” shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. “Notice” means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. “Owner” means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that “Owner” shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

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BAM may appoint a fiscal agent (the “Insurer’s Fiscal Agent”) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer’s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer’s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer’s Fiscal Agent on behalf of BAM. The Insurer’s Fiscal Agent is the agent of BAM only, and the Insurer’s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer’s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked.

This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds prior to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT MUTUAL LIABILITY FOR ASSESSMENT.

In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has caused this Policy to be executed on its behalf by its Authorized Officer.

BUILD AMERICA MUTUAL ASSURANCE COMPANY

By: ______Authorized Officer

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Notices (Unless Otherwise Specified by BAM)

Email: [email protected] Address: 1 World Financial Center, 27th floor 200 Liberty Street New York, New York 10281 Telecopy: 212-962-1524 (attention: Claims)

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