NEW ISSUE — BOOK-ENTRY ONLY RATING: Standard & Poor's: “AA (Stable Outlook)” (See “MISCELLANEOUS — Rating” herein).

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to certain qualifications described herein, under existing law, the portion of lease payments designated as and comprising interest and received by the owners of the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Special Counsel, such interest is exempt from California personal income taxes. See “LEGAL MATTERS - Tax Matters” herein.

$17,470,000 2011 CERTIFICATES OF PARTICIPATION Evidencing and Representing Proportionate Undivided Interests of the Owners Thereof in Lease Payments to be Made by the CITY OF LIVERMORE (Alameda County, California) to the LIVERMORE CAPITAL PROJECTS FINANCING AUTHORITY

Dated: Date of Delivery Due: August 1, as shown on inside cover hereof

The Certificates are being executed and delivered pursuant to the provisions of a Trust Agreement, dated as of June 1, 2011, among the Livermore Capital Projects Financing Authority (the “Authority”), the City of Livermore (the “City”) and Union Bank, N.A., as Trustee, to provide funds for certain capital projects, and pay related costs of financing, all as more particularly described herein. Each Certificate represents a direct, undivided fractional interest of the owner thereof in the Lease Payments to be made by the City to the Authority under a Lease Agreement, dated as of June 1, 2011, by and between the Authority and the City, pursuant to which the Authority will lease certain real property to the City.

Interest with respect to Certificates is payable semiannually on February 1 and August 1 of each year, commencing February 1, 2012. Principal is payable on August 1 as shown on the inside cover hereof. The Certificates will be executed and delivered as fully registered certificates and will initially be subject to a book-entry system (as described herein) of registration and transfer. Under the book-entry system, the Certificates, when delivered, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the Certificates. The beneficial ownership interests of individual purchasers of the Certificates will be recorded through the records of a DTC Participant, as described herein, in amounts equal to $5,000 or an integral multiple thereof. Individual purchasers will not receive securities certificates representing their beneficial ownership interests in the Certificates purchased. On and after August 1, 2020, the Certificates will be subject to optional prepayment prior to maturity, as described herein. The Certificates are also subject to mandatory sinking fund prepayment and prepayment from net proceeds of insurance and condemnation, as described herein.

THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION, OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE CERTIFICATES NOR THE OBLIGATION OF THE CITY TO MAKE ITS LEASE PAYMENTS CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION OR A PLEDGE OF THE FAITH AND CREDIT OF THE CITY, THE AUTHORITY OR THE STATE OF CALIFORNIA, OR ANY OF ITS POLITICAL SUBDIVISIONS.

The following firm, serving as financial advisor, has structured this issue

.

The maturity schedule for the Certificates appears on the inside cover hereof.

The Certificates were sold by competitive bid on June 16, 2011 at a true interest cost of 5.034% in accordance with the provisions of the Official Notice of Sale, dated May 27, 2011. The Certificates will be offered when, as and if executed and delivered and accepted by the Underwriter, subject to approval as to legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel and to certain other conditions. Special Counsel will also provide a disclosure opinion to the City and the Underwriter. It is anticipated that the Certificates, in book-entry form, will be available for delivery through The Depository Trust Company Book-Entry System in New York, New York on or about June 30, 2011.

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

June 16, 2011 MATURITY SCHEDULE (Base CUSIP (a) No.: 538164-)

Maturity Principal Interest Price CUSIP Maturity Principal Interest Price CUSIP (August 1) Amount Rate or Yield Suffix (August 1) Amount Rate or Yield Suffix

2013 $330,000 3.00% 1.00% GP3 2025 $490,000 4.25% 4.40% HB3 2014 340,000 3.00 1.30 GQ1 2026 515,000 4.50 4.60 HC1 2015 350,000 3.00 1.75 GR9 2027 540,000 4.70 4.80 HL1 2016 360,000 3.00 2.10 GS7 2028 565,000 4.75 4.90 HM9 2017 370,000 3.00 2.50 GT5 2029 590,000 5.00 5.00 HN7 2018 380,000 3.00 2.80 GU2 2030 625,000 5.00 5.05 HP2 2019 395,000 3.10 3.10 GV0 2031 655,000 5.00 5.08 HD9 2020 405,000 3.40 3.40 GW8 2032 690,000 5.00 5.12 HE7 2021 420,000 3.60 3.60 GX6 2033 725,000 5.00 5.16 HF4 2022 435,000 3.80 3.80 GY4 2034 760,000 5.00 5.20 HG2 2023 455,000 4.00 4.00 GZ1 2035 800,000 5.25 5.25 HH0 2024 470,000 4.00 4.20 HA5 2036 845,000 5.25 5.30 HJ6

$4,960,000 5.25% Term Certificates due August 1, 2041, Priced to Yield 5.35%; CUSIP Suffix: HK3

(a) CUSIP is a registered trademark of the American Bankers Association. CUSIP data on the cover hereof is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of The American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services. The City, the Authority, the Financial Advisor and the Underwriter are not responsible for the selection or correctness of the CUSIP numbers set forth herein. No dealer, broker, salesperson or other person has been authorized by the City of Livermore (the “City”) to give any information or to make any representations with respect to the Certificates other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Certificates by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Certificates. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The summaries and references to documents, statutes, and constitutional provisions referred to herein do not purport to be comprehensive or definitive, and are qualified in their entirety by reference to each such documents, statutes, and constitutional provisions.

The information set forth herein has been obtained from either the books and records of the City or from sources which are believed to be reliable. The information and expression of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. This Official Statement is submitted in connection with the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. No assurance is given that actual results will meet the forecasts of the City in any way, regardless of the level of optimism communicated in the information. The City is not obligated to issue any updates or revisions to the forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based occur.

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

THE CERTIFICATES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON THE EXEMPTION CONTAINED IN SECTION 3(A)(2) OF SUCH ACT, AND HAVE NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT.

The City maintains an internet website, but the information on that website is not incorporated in this Official Statement. CITY OF LIVERMORE

CITY COUNCIL

Dr. Marshall H. Kamena Mayor

John Marchand Marj Leider Vice Mayor Council Member

Doug Horner Jeff Williams Council Member Council Member

CITY OFFICIALS

Linda M. Barton City Manager Troy Brown John Pomidor, Esq. Assistant City Manager City Attorney

Holly Brock-Cohn Susan Neer Director of Administrative Services City Clerk

Douglas Alessio Marc Roberts Financial Services Manager Director of Community Development

PROFESSIONAL SERVICES

SPECIAL AND DISCLOSURE COUNSEL

Jones Hall, A Professional Law Corporation San Francisco, California

FINANCIAL ADVISOR

KNN Public Finance A Division of Zions First National Bank Oakland, California

TRUSTEE

Union Bank, N.A. San Francisco, California TABLE OF CONTENTS

INTRODUCTION ...... 1 General ...... 1 The City ...... 2 Purpose of the Certificates ...... 2 Authority to Execute and Deliver the Certificates ...... 2 Sources of Payment of the Certificates ...... 2 Reserve Fund ...... 2 Limited Liability ...... 3 Description of the Certificates ...... 3 Tax Matters...... 3 Professionals Involved in the Offering ...... 3 Offering and Delivery of the Certificates...... 3 Certificate Owner's Risks...... 4 Other Information...... 4

THE CERTIFICATES...... 5 Authority for Execution and Delivery of the Certificates...... 5 Purpose of the Certificates ...... 5 Leased Property ...... 6 Estimated Sources and Uses of Funds ...... 7 General Description of the Certificates ...... 7 Security and Sources of Payment for the Certificates ...... 7 Reserve Fund ...... 8 Insurance...... 8 Lease Payments ...... 9 Additional Payments...... 10 Prepayment...... 11 Book-Entry Only System ...... 12 Discontinuation of Book-Entry System; Payment to Beneficial Owners ...... 14 Substitution or Release of Leased Property ...... 15 Additional Lease ...... 16

RISK FACTORS...... 16 General Considerations – Security for the Certificates...... 16 Eminent Domain...... 17 Abatement...... 17 Remedies Against the City...... 18 No Acceleration Upon Default ...... 18 City Bankruptcy ...... 18 No Liability by the Authority to the Owners ...... 19 State Law Limitations on Appropriations...... 19 Substitution or Release of Leased Property ...... 19 Tax Exemption of the Certificates ...... 19

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS ...... 20 Article XIIIA - Limit on Property Tax ...... 20 Litigation Involving Assessment Practices ...... 20 Article XIIIB - Appropriations Limit ...... 21 Articles XIIIC and XIIID - Right to Vote on Taxes, Assessments, Fees and Charges ...... 21 Proposition 26 ...... 23 Future Initiatives ...... 23 GENERAL CITY FINANCIAL INFORMATION ...... 24 County Services ...... 24 Assessed Valuation ...... 24 State-Assessed Utility Property ...... 25 Tax Levies, Collections and Delinquencies ...... 25 Teeter Plan ...... 26 Other Taxes...... 26 Franchises...... 27 Motor Vehicle License Fee...... 27 Propositions 57 and 58 - California Economic Recovery Bond Act and State Budget Requirements ...... 27 Triple Flip...... 27 Proposition 1A - Limit On ERAF Shifts To School Districts ...... 28 ERAF and SERAF Payments...... 28 Proposition 22 - Further Limit on State Use and Shifts of Local Government Funds ...... 29 State Budget ...... 29

THE AUTHORITY...... 30

THE CITY...... 31 Introduction ...... 31 Labor Relations...... 31 Retirement Programs...... 31 Other Post Employment Benefits...... 32 Assessed Valuation ...... 33 Tax Levies, Collections and Delinquencies ...... 33 Largest Taxpayers...... 34 City Tax Revenues ...... 35 Appropriations Limit ...... 35 Budget Process ...... 35 Comparative Financial Statements...... 37 Statement of Direct and Overlapping Debt...... 38 Short Term Obligations...... 39 Long Term Obligations ...... 39 City Investment Policy and Portfolio...... 42 Financial and Accounting Information...... 43

ECONOMIC PROFILE ...... 43 Population ...... 43 Employment ...... 44 Major Employers ...... 45 Construction Activity ...... 46 Commercial Activity...... 46 Median Household Income...... 47

LEGAL MATTERS ...... 47 Tax Matters...... 47 Certain Legal Matters...... 48 Absence of Litigation ...... 48

MISCELLANEOUS ...... 48 Ratings ...... 48 Underwriting ...... 48 Continuing Disclosure ...... 49 Financial Advisor ...... 49 Availability of Documents ...... 49 Additional Information...... 50 APPENDIX A:Summary of Principal Legal Documents...... A-1 APPENDIX B: Independent Auditor’s Letter, Management’s Discussion and Analysis, Basic Financial Statements and Supplemental Information for Year Ended June 30, 2010 for the City of Livermore...... B-1 APPENDIX C:Form of Special Counsel Opinion...... C-1 APPENDIX D:Form of Continuing Disclosure Certificate...... D-1 (THIS PAGE INTENTIONALLY LEFT BLANK) OFFICIAL STATEMENT

$17,470,000 2011 CERTIFICATES OF PARTICIPATION Evidencing and Representing Proportionate Undivided Interests of the Owners Thereof in Lease Payments to be Made by the CITY OF LIVERMORE (Alameda County, California) to the LIVERMORE CAPITAL PROJECTS FINANCING AUTHORITY

INTRODUCTION

This Introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Certificates to potential investors is made only by means of the entire Official Statement. Capitalized terms used, but not otherwise defined, herein, shall have the meanings ascribed to them in “APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — Definitions.”

General

The purpose of this Official Statement, which includes the cover page, table of contents and appendices hereto (the “Official Statement”), is to provide certain information concerning the sale, execution and delivery of the “City of Livermore (Alameda County, California) 2011 Certificates of Participation” (the “Certificates”) in the aggregate principal amount of $17,470,000 representing the direct, undivided fractional interest of the owners thereof (the “Owners”) in lease payments (the “Lease Payments”) to be made by the City of Livermore, California (the “City”), as lessee, to the Livermore Capital Projects Financing Authority (the “Authority”), as lessor, pursuant to a Lease Agreement, dated as of June 1, 2011 (the “Lease Agreement”).

Pursuant to a Property Lease, dated as of June 1, 2011 (the “Property Lease”), between the City, as lessor, and the Authority, as lessee, the City is leasing to the Authority certain City property and the facilities thereon (“Leased Property”, as described under “THE CERTIFICATES - Leased Property” herein). Pursuant to the Lease Agreement, the Authority will lease the Leased Property back to the City. Pursuant to an Assignment Agreement, dated as of June 1, 2011 (the “Assignment Agreement”), by and between the Authority and Union Bank, N.A. (the “Trustee”), the Authority will assign and transfer substantially all of its rights under the Lease Agreement, including its rights (a) to receive and collect Lease Payments, (b) to receive and collect the proceeds of any insurance maintained under the Lease Agreement and (c) to exercise such rights and remedies conferred on the Authority pursuant to the Lease Agreement as may be necessary or convenient to enforce payment of the Lease Payments and any other amounts required, to the Trustee. Pursuant to a Trust Agreement dated as of June 1, 2011 (the “Trust Agreement”), by and among the City, the Authority and the Trustee, the Trustee will execute and deliver the Certificates, and, in accordance with the provisions thereof, administer all rights assigned by the Authority pursuant to the Assignment Agreement for the equal and proportionate benefit of all Certificate Owners. Pursuant to the Trust Agreement, the Trustee will also serve as registrar and paying agent with respect to the Certificates. 1 The City

The City is located in southeast Alameda County (the “County”) approximately 43 miles southeast of San Francisco. The City was incorporated in 1876 and has a current population of approximately 81,687. See “THE CITY OF LIVERMORE” and “ECONOMIC PROFILE” herein.

Purpose of the Certificates

The Lease Agreement and the Certificates are being executed and delivered for the purposes of funding a portion of the costs of constructing certain City capital projects and the costs related to executing and delivering the Certificates. See “THE CERTIFICATES - Purpose of the Certificates” herein. The capital projects being financed do not constitute the Leased Property.

Authority to Execute and Deliver the Certificates

The Certificates are being executed and delivered pursuant to the Trust Agreement, authorizing resolutions of the City and the Authority, and applicable law (see the “THE CERTIFICATES - Authority to Execute and Deliver the Certificates” herein).

Sources of Payment of the Certificates

In general, the City is required to pay to the Trustee specified Lease Payments for use and possession of the Leased Property, which amounts are intended to be sufficient, in both time and aggregate amount, to pay, when due, the principal and interest with respect to the Certificates. In addition, the City is required to pay Additional Payments, consisting of all costs and expenses incurred by the City and the Authority in complying with the provisions of the Lease Agreement and the Trust Agreement or otherwise arising from the financing, including without limitation all costs of executing and delivering the Certificates (to the extent not paid from amounts on deposit in the Costs of Issuance Fund, described in “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS”), compensation, reimbursable expenses and fees due to the Trustee, all costs and expenses of auditors, engineers, counsel and accountants and any amounts required to be rebated to the federal government. In the Lease Agreement, the City has covenanted that as long as the Leased Property is available for its use, the City will take such action as may be necessary to include all Lease Payments and Additional Payments in its annual budgets and to make the necessary annual appropriations therefor. The amount of Lease Payments that the City is obligated to pay under the Lease Agreement may be adjusted or abated during any period in which there is substantial interference with the City's use and possession of the Leased Property. Such adjustment or abatement will end if the replacement or restoration to use of the Leased Property is substantially completed. See “THE CERTIFICATES — Sources of Payment of the Certificates” and “RISK FACTORS — Abatement” herein. For information about the City’s finances see “GENERAL CITY FINANCIAL INFORMATION” and “THE CITY” herein.

Reserve Fund

The Trust Agreement provides for the establishment of a Reserve Fund, which shall be maintained in an amount equal to, as of the date of calculation, the lesser of (a) maximum annual fiscal year Lease Payments, (b) ten percent of the original par amount of the Certificates or (c) 125% of the average annual Lease Payments (the “Reserve Requirement”). The Reserve Fund, which may be funded from proceeds of the sale of the Certificates or cash deposited by the City, is being funded from proceeds of the sale of the Certificates.

2 Limited Liability

The obligation of the City to make Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation, or for which the City has levied or pledged any form of taxation. Neither the Certificates nor the obligation of the City to make its Lease Payments constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction or a pledge of the faith and credit of the City, the Authority or the State of California (the “State”), or any of its political subdivisions.

Description of the Certificates

The Certificates will be executed and delivered as fully-registered current interest Certificates without coupons in denominations of $5,000 principal amount each, or any integral multiple thereof, and will be registered initially in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the Certificates. See “THE CERTIFICATES — Form, Denomination and Payment; Book-Entry System” and “— Discontinuation of Book-Entry System; Payment to Beneficial Owners” herein.

The Certificates will be dated the date of delivery thereof. Interest with respect to Certificates is payable semiannually on each February 1 and August 1, commencing February 1, 2012. Interest payable February 1, 2012 is from the date of delivery of the Certificates. Principal with respect to the Certificates is payable on August 1 in each year due, as set forth on the inside cover page hereof. On and after August 1, 2020, the Certificates are subject to optional prepayment prior to maturity, as described herein. The Certificates are also subject to mandatory sinking fund prepayment and prepayment from net proceeds of insurance and condemnation, as described herein. See “THE CERTIFICATES— Prepayment” herein.

Tax Matters

Assuming compliance with certain covenants and provisions of the Internal Revenue Code of 1986, as amended, in the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel and Disclosure Counsel to the City (“Special Counsel”), the portion of the Lease Payments designated as and comprising interest will not be includable in gross income for federal income tax purposes, although it may be includable in the calculation for certain taxes. Further in the opinion of Special Counsel, such interest is exempt from State of California personal income taxes. See “LEGAL MATTERS — Tax Matters” herein.

Professionals Involved in the Offering

KNN Public Finance, A Division of Zions First National Bank, Oakland, California, is the City's financial advisor with respect to the Certificates (the “Financial Advisor”). The Financial Advisor, Special Counsel, and Trustee will receive compensation from the City contingent upon the execution and delivery of the Certificates.

Offering and Delivery of the Certificates

The Certificates will be offered when, as and if issued by the City and received by Morgan Stanley & Co., Incorporated, as Underwriter, subject to approval as to their legality by Special Counsel. It is anticipated that the Certificates, in book-entry form, will be available for delivery through DTC in New York, New York on or about June 30, 2011.

3 Certificate Owner's Risks

Prospective investors should review this Official Statement and the appendices hereto in their entirety and should consider certain risk factors associated with the purchase of the Certificates, some of which have been summarized in the section herein entitled “RISK FACTORS.”

Also, see under “THE CITY - Long Term Debt - Future General Fund Obligation” for a proposal to incur a future contingent general fund lease payment obligation.

Other Information

This Official Statement speaks only as of its date, and the information contained herein is subject to change. The City has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide notices of the occurrence of certain enumerated events. See “MISCELLANEOUS - Continuing Disclosure” herein. Copies of documents referred to herein and information concerning the Certificates are available for inspection at the offices of the City, 1052 South Livermore Avenue, Livermore, California, 94550, telephone: (925) 960-4000. The City may impose a charge for copying, mailing and handling.

END OF INTRODUCTION

4 THE CERTIFICATES

Authority for Execution and Delivery of the Certificates

The Certificates are being executed and delivered pursuant to the Trust Agreement, respective authorizing resolutions of the City and the Authority adopted on May 23, 2011, and applicable law.

Purpose of the Certificates

Net proceeds of the Certificates in the amount of $11,800,000 will be applied by the City towards the costs of design and construction of (a) a two mile extension of Jack London Boulevard, including a bridge over Arroyo Las Positas, a sewer force main and water and electrical utilities, which will complete the Jack London Boulevard connection from State Route 84 to the El Charro Road Interchange with I-580, a major east-west freeway between the San Francisco Bay Area and California’s Central Valley, and (b), in the same area, storm drainage facilities, including a 40 acre southern conveyance facility, two approximately 5 acre storm water basins and various runs of culverts and storm drain piping. Jack London Boulevard services the south side of the Livermore Municipal Airport, zoned for up to 900,000 square feet of aviation development, and the El Charro Specific Plan Area, which is zoned for up to 1.5 million square feet of business commercial development. Construction is anticipated to begin this year and the City expects all improvements to be complete approximately December 2012. None of the foregoing improvements and sites are Leased Property.

Net proceeds of the Certificates in the amount of $4,000,000 will be applied by the City towards the expected $5,000,000 cost of design and construction of a new Airport Administration Building for the Livermore Municipal Airport on a 1 acre lot directly adjacent to the existing building located at 636 Terminal Circle in Livermore, California. The new, approximately 12,000 square foot, building will be two stories. The building will include a public lobby, a full service restaurant with kitchen with a lounge/cocktail area and space for concessions, airport administrative offices and meeting space and restrooms. The building will meet “LEED Silver” certification (“Leadership in Energy and Environmental Design” certification is a rating system of the U. S. Green Building Council, a 501(c)(3) non-profit corporation, that measures a building’s compliance with the Council’s criteria for design, construction and operation of buildings, primarily in respect to environmental impacts and energy use). The Livermore Municipal Airport is a general aviation airport that houses 530 fixed base aircraft and experiences 130,000 operations annually. It is located in the middle of the Tri-Valley directly south of I-580 and adjacent to State Route 84. The City has selected the firm of VBN Architects to complete design and construction of the new Airport Administration Building. Construction is anticipated to begin in 2012 and be completed approximately December, 2012. The Airport Administration Building and site are not Leased Property (see “Leased Property” below).

A portion of the proceeds of the Certificates in the amount of the Reserve Requirement will be deposited in the Reserve Fund established pursuant to the Trust Agreement, held by the Trustee.

A portion of the proceeds of the Certificates will be deposited in a Costs of Issuance Fund established pursuant to the Trust Agreement, held by the Trustee and used to fund the costs of delivery and execution of the Certificates. Any funds remaining in the Costs of Issuance Fund 180 days after execution and delivery of the Certificates shall be transferred to the City.

5 Leased Property

The Leased Property consists of four City owned fire stations as follows:

Fire Station No. 6. Fire Station No. 6, was built in the 1970’s, with a 1,100 square foot addition in 1997. It is located at 4550 East Avenue, on a 1.29 acre site. It is a Type V-N, one-story 9,622 square foot, engineered wood shear wall facility that includes three apparatus bays, sleeping quarters, kitchen, offices and meeting space. The facility also has paved parking areas and driveways, landscaping, an emergency generator and other street and on site improvements.

Fire Station No. 7. Fire Station No. 7, completed in May 2004, is located at 951 Rincon Avenue, on a 0.94 acre site. It is a 8,276 square foot, one-story, Type V-N, fully sprinklered, reinforced concrete masonry shear wall facility that includes two apparatus bays, offices, sleeping quarters and kitchen. The building is designed and built according to essential service building standards. The facility also has concrete paved parking areas and driveways, landscaping, an emergency generator and other street and on site improvements.

Fire Station No. 8. Fire Station No. 8, completed in 1999, is located at 5750 Scenic Avenue, on a 0.85 acre site. It is an 8,000 square foot, one-story, Type V-N, fully sprinklered, engineered wood shear wall facility that includes two apparatus bays, sleeping quarters, offices and a kitchen. The facility also has concrete paved parking areas and driveways, landscaping, an emergency generator and other street and on site improvements.

Fire Station No. 9. Fire Station No. 9, completed in 1976, is located at 1919 Cordoba, on a 0.44 acre site. It is a 3,264 square foot, one-story, Type V-N, engineered wood shear wall facility that includes one apparatus bay, sleeping quarters, office and a kitchen. The facility also has concrete paved parking areas and driveways, landscaping, an emergency generator and other street and on site improvements.

All of the fire stations were built according to California Building Code provisions in existence at the time of construction. While all of the City is classified Zone 4 by the California Building Code, the highest seismic risk category, and the closest known faults, running north-south both to the west and east of the City, are estimated as capable of producing an earthquake of 6.7 Richter Scale magnitude or more, historically, none of the Leased Property have experienced any significant seismic damage.

The majority of the City, according to Federal Emergency Management Agency maps, is subject to minimal flooding risk. Except right along few creek beds, the City generally is not within a 100 year flood zone.

6 Estimated Sources and Uses of Funds

The sources and uses of the proceeds of the Certificates are estimated to be applied as shown below:

ESTIMATED SOURCES AND USES

Sources: Par Amount $17,470,000.00 Plus/(Less) Original Issue Premium/(Discount) (96,009.40) Less Underwriter’s Discount (272,012.97) Total $17,101,977.63

Uses: Deposit to Project Fund 15,800,000.00 Deposit to Reserve Fund (a) 1,129,000.00 Deposit to the Costs of Issuance Fund (b) 172,977.63 Total $17,101,977.63

(a) Equal to the Reserve Requirement. (b) Includes legal, printing, title insurance and other costs of issuance.

General Description of the Certificates

The Certificates will be executed and delivered in the aggregate principal amount of $17,470,000 and will be dated the date of delivery thereof. Interest with respect to the Certificates will be payable semiannually on each February 1 and August 1, commencing February 1, 2012 (each, a “Payment Date”), and will mature on August 1 in each of the designated years and in the principal amounts shown on the inside cover page hereof.

The Certificates are executed and delivered in fully registered form and, when delivered, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”), New York, New York. DTC will act as securities depository for the Certificates. Purchases will be made in book-entry form only, in the principal amount of $5,000 each or any integral multiple thereof. Principal, premium, if any, and interest due with respect to the Certificates at maturity or upon prepayment, will be paid by the Trustee to DTC, which will in return remit such payments to the DTC Participants (as defined herein) for subsequent disbursement to the beneficial owners of the Certificates as described herein. See “THE CERTIFICATES — Book-Entry System.”

Security and Sources of Payment for the Certificates

Each Certificate evidences and represents a proportionate undivided interest of the Owner thereof in the principal and interest components of Lease Payments to be made by the City to the Authority under the Lease Agreement. The Authority, pursuant to the Assignment Agreement, will assign its rights and remedies under the Lease Agreement to the Trustee for the benefit of the Owners, including its right to receive Lease Payments thereunder. Principal and interest due with respect to the Certificates will be made from the Lease Payments payable by the City for the use and possession of the Leased Property, insurance net proceeds pertaining to the Leased Property to the extent that such net proceeds are not used for repair or replacement, rental interruption insurance proceeds, if any, amounts deposited in the Lease Payment Fund established under the Trust Agreement, interest or other income derived from the investment of the funds and accounts held by the Trustee for the City pursuant to the Trust Agreement, or in certain instances from the Reserve Fund established under the Trust Agreement.

7 The City has covenanted under the Lease Agreement to make Lease Payments for the use and possession of the Leased Property and, as long as the Leased Property is available for its use, to take such action each year as may be necessary to include all payments in its annual budget and annually to appropriate an amount necessary to make such Lease Payments.

Under California law, the obligation of the City to make Lease Payments (other than to the extent that funds to make Lease Payments are available in the Lease Payment Fund or the Reserve Fund) may be abated in whole or in part if the City does not have full use and possession of the Leased Property. See “RISK FACTORS - Abatement”.

The obligation of the City to make Lease Payments does not constitute an obligation of the City to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the City to make Lease Payments constitutes an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction or a pledge of the faith and credit of the City, the Authority, or the State or any of its political subdivisions.

Reserve Fund

The Trust Agreement provides that a Reserve Fund initially will be funded in an amount equal to the Reserve Requirement from proceeds of the sale of the Certificates.

If on any Payment Date the moneys available in the Lease Payment Fund do not equal the amount of the principal and interest and prepayment premiums (if any) represented by the Certificates then coming due and payable, the Trustee shall apply the moneys available in the Reserve Fund to make delinquent Lease Payments on behalf of the City by transferring the amount necessary for this purpose to the Lease Payment Fund. Upon receipt of any delinquent Lease Payment or portion thereof with respect to which moneys have been advanced from the Reserve Fund, such Lease Payment or portion thereof shall be deposited in the Reserve Fund to the extent of such advance. Any amounts on hand in the Reserve Fund in excess of the Reserve Requirement shall, on or prior to each Payment Date, be transferred to the Lease Payment Fund.

If on any Payment Date the moneys on deposit in the Reserve Fund and the Lease Payment Fund (excluding amounts required for payment of principal, interest and prepayment premium, if any, represented by any Certificates theretofore having come due but not presented for payment) are sufficient to pay all Outstanding Certificates, including all principal, interest and prepayment premiums (if any), the Trustee shall, upon the written request of the City, transfer all amounts then on deposit in the Reserve Fund to the Lease Payment Fund to be applied to the payment of the Lease Payments on behalf of the City, and applied to payment of the Certificates. Any amounts remaining in the Reserve Fund on the date of payment in full or provision for such payment of all Outstanding Certificates shall be withdrawn by the Trustee and paid to the City.

Under the Trust Agreement, moneys held by the Trustee in the Reserve Fund will be invested by the Trustee upon the written request of the City only in Investment Securities. Investment earnings on the Reserve Fund, to the extent they are not needed to maintain the Reserve Fund at the Reserve Requirement, will be transferred to the Lease Payment Fund to pay principal of, interest on and premium, if any, on the Certificates as they become due and payable.

Insurance

Pursuant to the Lease Agreement the City will obtain a title insurance policy insuring the City’s leasehold estate in the Leased Property in an amount equal to the aggregate original principal amount of the Certificates, subject only to Permitted Encumbrances (as defined in the Lease Agreement). In addition, the Lease Agreement requires that the City must maintain rental interruption insurance to insure against loss of rental income from the Leased Property in an amount not less than the maximum annual Lease Payment due 8 and payable during any two consecutive Fiscal Years during the remaining term of the Lease Agreement. The City is also obligated to obtain a standard comprehensive general public liability and property damage insurance policy or policies. See “APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”

The net proceeds of property damage insurance or condemnation award will be deposited in the Insurance and Condemnation Fund established pursuant to the Trust Agreement and held by the Trustee. The Trust Agreement requires the City to apply the net proceeds of any insurance award either to replace or repair the Leased Property or to prepay Certificates (see “APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS”). The amount of Lease Payments will be subject to abatement and Lease Payments due under the Lease Agreement may be reduced during any period in which material damage or destruction to all or part of the Leased Property substantially interferes with the City’s use and possession thereof. See “RISK FACTORS — Abatement” herein.

If all of the Leased Property (or portions thereof such that the remainder is not useable for essential public purposes of the City) shall have been taken in eminent domain proceedings or sold to a government threatening the use of eminent domain powers, or if the City has given written notice to the Trustee of its determination that such proceeds are not needed for repair or rehabilitation of the Leased Property, the Trustee shall transfer such proceeds to the accounts within the Lease Payment Fund to be credited towards the prepayments of the Lease Payments in accordance with the Lease Agreement and applied to the prepayment of Certificates in the manner provided in the Trust Agreement. See “APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”

If less than all of the Leased Property shall have been taken in eminent domain proceedings or sold to a government threatening the use of eminent domain powers and the remainder is useable for essential public purposes of the City, and if the City has given written notice to the Trustee of its determination that such proceeds are needed for repair, rehabilitation or replacement of the Leased Property, the Trustee shall pay to the City, or to its order, from said proceeds such amounts as the City may expend for such repair or rehabilitation, in accordance with the Trust Agreement. See “APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”

Lease Payments

The Lease Payments are required to be made by the City under the Lease Agreement on the fifteenth day next preceding each Interest Payment Date (the “Lease Payment Dates”) for use and possession of the Leased Property for the annual period commencing on each August 2 and extending to the next succeeding August 1 (a “Rental Period”); except that the first Rental Period shall commence on the date of the initial delivery of the Certificates.

The Lease Agreement requires that the Lease Payments be deposited in the Lease Payment Fund maintained by the Trustee under the Trust Agreement. On each Interest Payment Date, the Trustee will withdraw from the Lease Payment Fund the aggregate amount of Lease Payments and will apply such amounts to make principal and interest payments with respect to the Certificates, sufficient to meet the following annual lease payment schedule:

9 LEASE PAYMENT SCHEDULE

Fiscal Year Ending June 30, Principal Interest Total Lease Payments

2012 $471,113.18 $471,113.18 2013 803,795.00 803,795.00 2014 $330,000.00 798,845.00 1,128,845.00 2015 340,000.00 788,795.00 1,128,795.00 2016 350,000.00 778,445.00 1,128,445.00 2017 360,000.00 767,795.00 1,127,795.00 2018 370,000.00 756,845.00 1,126,845.00 2019 380,000.00 745,595.00 1,125,595.00 2020 395,000.00 733,772.50 1,128,772.50 2021 405,000.00 720,765.00 1,125,765.00 2022 420,000.00 706,320.00 1,126,320.00 2023 435,000.00 690,495.00 1,125,495.00 2024 455,000.00 673,130.00 1,128,130.00 2025 470,000.00 654,630.00 1,124,630.00 2026 490,000.00 634,817.50 1,124,817.50 2027 515,000.00 612,817.50 1,127,817.50 2028 540,000.00 588,540.00 1,128,540.00 2029 565,000.00 562,431.25 1,127,431.25 2030 590,000.00 534,262.50 1,124,262.50 2031 625,000.00 503,887.50 1,128,887.50 2032 655,000.00 471,887.50 1,126,887.50 2033 690,000.00 438,262.50 1,128,262.50 2034 725,000.00 402,887.50 1,127,887.50 2035 760,000.00 365,762.50 1,125,762.50 2036 800,000.00 325,762.50 1,125,762.50 2037 845,000.00 282,581.25 1,127,581.25 2038 890,000.00 237,037.50 1,127,037.50 2039 940,000.00 189,000.00 1,129,000.00 2040 990,000.00 138,337.50 1,128,337.50 2041 1,040,000.00 85,050.00 1,125,050.00 2042 1,100,000.00 28,875.00 1,128,875.00

Total $17,470,000.00 $16,492,540.68 $33,962,540.68

Additional Payments

In addition to the Lease Payments, the City shall pay when due, during the term of the Lease Agreement, all costs and expenses incurred by the Authority to comply with the provisions of the Trust Agreement, including without limitation all costs related to execution and delivery of the Certificates (to the extent not paid from amounts on deposit in the Costs of Issuance Fund), compensation or indemnification due to the Trustee and all reasonable costs and expenses of auditors, engineers and accountants.

The City will also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Authority or the City affecting the Leased Property or the interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City is obligated to pay only such installments as are required to be paid during the term of the Lease Agreement.

10 Prepayment

Mandatory Prepayment

The 5.25% Term Certificates maturing on August 1, 2041 are subject to mandatory sinking fund prepayment prior to their stated maturity, in the amounts and years set forth below, at the prepayment price equal to the principal amount thereof to be prepaid, together with accrued interest to the date fixed for prepayment, without premium.

Redemption Date Principal Amount August 1, 2037 $890,000 August 1, 2038 940,000 August 1, 2039 990,000 August 1, 2040 1,040,000 August 1, 2041 1,100,000

Optional Prepayment

The Certificates maturing on or before August 1, 2020, are not subject to optional prepayment. Certificates maturing on and after August 1, 2021, are subject to prepayment prior to their respective stated maturity dates, at the option of the City, from the proceeds of optional prepayments of Payments made by the City pursuant to the Lease Agreement, in whole or in part, on any date on or after August 1, 2020 at a price of 100% of the Lease Payments to be prepaid plus accrued interest, without premium.

Prepayment From Net Proceeds of Insurance or Condemnation

The Certificates are subject to mandatory prepayment in whole on any date or in part on any Interest Payment Date from the Net Proceeds of an insurance award or eminent domain proceedings to the extent credited towards the prepayment of the Lease Payments by the City pursuant to the Lease Agreement, at a prepayment price equal to the principal amount thereof to be prepaid, together with accrued interest to the date fixed for prepayment, without premium. See “APPENDIX A — Summary of Principal Legal Documents” herein.

General Prepayment Provisions

In the event the City gives notice to the Trustee of its intention to prepay, but fails to deposit with the Trustee on or prior to the prepayment date an amount equal to the prepayment price, the City shall be obligated to continue to pay Lease Payments as if no such notice were given and no prepayment of the applicable Certificates shall occur.

Whenever less than all of the outstanding Certificates are to be prepaid on any one date as a result of an optional prepayment, the Trustee will select Certificates for prepayment from the Outstanding Certificates not previously called for prepayment, among maturities as selected by the City in integral multiples of $5,000 and by lot within a maturity in any manner deemed appropriate by the Trustee. Whenever less than all of the outstanding Certificates are to be prepaid on any one date as a result of prepayment from Net Proceeds of insurance or condemnation, the Trustee will select Certificates for prepayment from the Outstanding Certificates not previously called for prepayment, proportionately among maturities, in integral multiples of $5,000, and by lot within a maturity, in any manner deemed appropriate by the Trustee For the purposes of such selection, Certificates will be deemed to be composed of $5,000 11 portions, and any such portion may be separately prepaid. The Trustee will promptly notify the City and the Authority in writing of the Certificates so selected for prepayment.

When prepayment is authorized or required, the Trustee shall give notice of the prepayment of the Certificates. Such notice shall specify: (a) that the Certificates or a designated portion thereof are to be prepaid, (b) the date of prepayment, and (c) the place or places where the prepayment will be made. Such notice shall further state that on the specified date there shall become due and payable upon each Certificate, the principal and premium, if any, together with interest accrued to said date, and that from and after such date interest represented thereby shall cease to accrue and be payable.

Notice of such prepayment shall be mailed by first class mail to the respective Owners of Certificates designated for prepayment at their addresses appearing on the Registration Books, at least thirty (30) days but not more than forty-five (45) days prior to the prepayment date, which notice shall, in addition to setting forth the above information, set forth, in the case of each Certificate called only in part, the portion of the principal thereof which is to be prepaid; provided that neither failure to receive such notice so mailed nor any defect in any notice so mailed shall affect the sufficiency of the proceedings for the prepayment of such Certificates.

Upon surrender of any Certificate prepaid in part only, the Trustee shall execute, and deliver to the Owner thereof, a new Certificate or Certificates in an amount equal in aggregate principal amount to the unprepaid portion of the Certificate surrendered and of the same interest rate and the same principal payment date.

Effect of Prepayment. If notice of prepayment has been duly given and moneys for the payment of the prepayment price of the Certificates to be prepaid are held by the Trustee, then the Certificates will become due and payable on the date of prepayment, and, upon presentation and surrender thereof at the Corporate Trust Office of the Trustee, those Certificates will be paid at the unpaid principal amount (or applicable portion thereof) with respect thereto, plus interest accrued and unpaid to the date of prepayment. From and after the date of prepayment, interest represented by the prepaid Certificates will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the prepayment of Certificates will be held in trust for the account of the owners of the Certificates so to be prepaid.

Book-Entry Only System

The information in this section concerning DTC and DTC’s book-entry system has been furnished by DTC for use in disclosure documents, and the City takes no responsibility for the accuracy or completeness thereof. The City cannot and does not give any assurances that DTC will distribute to Direct Participants, or that Direct Participants or Indirect Participants will distribute to the Beneficial Owners, payments of principal of, interest, and premium, if any, on the Certificates paid or any redemption or other notices or that they will do so on a timely basis or will serve and act in the manner described in this Remarketing Supplement. Neither the City nor the Trustee are responsible or liable for the failure of DTC or any Direct or Indirect Participant to make any payments or give any notice to a Beneficial Owner or any error or delay relating thereto. Accordingly, no representations can be made concerning these matters and neither the Direct nor Indirect Participants nor the Beneficial Owners should rely on the following information with respect to such matters but should instead confirm the same with DTC or the DTC Participants, as the case may be.

DTC will act as securities depository for the Certificates. The Certificates will be executed and delivered 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 executed and delivered for each maturity of the Certificates, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

12 DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information set forth on such websites is not incorporated herein by reference thereto.

Purchases of the Certificates under the DTC system must be made by or through Direct Participants, which will receive a credit for the Certificates on DTC’s records. The ownership interest of each actual purchaser of a Certificate (“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 Certificates 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 the Certificates, except in the event that use of the book-entry system for the Certificates is discontinued.

To facilitate subsequent transfers, all Certificates 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 Certificates 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 Certificates; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Certificates 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 Certificates may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Certificates, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Certificates may wish to ascertain that the nominee holding the Certificates 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 Certificates within an issue are being prepaid, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be prepaid. 13 Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Certificates unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Certificates are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payment of redemption proceeds, principal of, and interest on, the Certificates will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or Agent, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

A Beneficial Owner shall give notice to elect to have its Certificates purchased, through its Participant, to the Remarketing Agent, and shall effect delivery of such Certificates by causing the Direct Participant to transfer the Participant’s interest in the Certificates, on DTC’s records, to the Remarketing Agent. The requirement for physical delivery of Certificates in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Certificates are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Certificates to the Remarketing Agent’s DTC account.

DTC may discontinue providing its services as depository with respect to the Certificates at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered.

The City may decide to discontinue use of the system of book-entry transfers through DTC. Under such circumstances, in the event that a successor depository is not obtained, Certificates are required to be printed and delivered.

Discontinuation of Book-Entry System; Payment to Beneficial Owners

The following provisions governing the payment, transfer and exchange of the Certificates apply to holders of the Certificates. As long as the DTC book-entry system described above is in effect, Cede & Co., or such other nominee of DTC, but not the Beneficial Owners, are holders of the Certificates. Only in the event that Certificates are printed and delivered to the Beneficial Owners do these provisions then apply directly to Beneficial Owners as holders of the Certificates.

Principal of the Certificates and any premium upon the prepayment thereof prior to the maturity will be payable upon presentation and surrender of the Certificates at the principal corporate trust office of the Trustee, or such other location as the Trustee may specify. Interest shall be paid by check to the owner of any Certificate at the address of such owner shown on the registration books of the Trustee, or at such other address the owner of the Certificate has filed with the Trustee for such purpose on or before the Record Date. Owners of not less than $1,000,000 in principal amount of Certificates may, by written request received by the Trustee not later than the Record Date immediately preceding any Interest Payment Date, have interest payments made on the date due by wire transfer to an account maintained in the United States of America in immediately available funds.

14 Any Certificate may be exchanged for Certificates of any authorized denominations of the same maturity and interest rate upon presentation and surrender at the principal corporate trust office of the Trustee, together with a request for exchange signed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Trustee. A Certificate may be transferred only on the Certificate registration books upon presentation and surrender of the Certificate at the principal corporate trust office of the Trustee together with an assignment executed by the registered owner or by a person legally empowered to do so in a form satisfactory to the Trustee. Upon exchange or transfer, the designated City official shall execute, and the Trustee shall authenticate and deliver a new Certificate or Certificates of any authorized denomination or denominations requested by the registered owner or by a person legally empowered to do so, equal in the aggregate to the unmatured principal amount of the Certificate surrendered and bearing interest at the same rate and maturing on the same date.

The Trustee will not be required to exchange or transfer any Certificate during the period from the close of business on the applicable Record Date next preceding any Interest Payment Date or prepayment date, to and including such Interest Payment Date or prepayment date.

Substitution or Release of Leased Property

Substitution of Leased Property. Under the Lease Agreement, the City will have the option at any time to substitute other land, facilities, improvements or other property (a “Substitute Property” for the Leased Property or any portion thereof (a “Former Property”)), provided that the City satisfies certain requirements, including the following:

(a) The City subjects the Substitute Property to the terms and provisions of the Lease and the Property Lease.

(b) The City certifies in writing to the Authority and the Trustee, and provides them with an appraisal prepared by an appraiser who is independent of the City, that the estimated fair market value of the Substitute Property is at least equal to the estimated fair market value of the Former Property, except that the estimated fair market value of the Substitute Property, together with the portion of the Leased Property remaining after the removal of the Former Property, is not required to exceed the aggregate principal components of the unpaid Lease Payments.

(c) The City certifies in writing to the Authority and the Trustee that the Substitute Property serves essential public purposes of the City and constitutes property which the City is permitted to lease under the laws of the State.

(d) The City certifies in writing to the Authority and the Trustee that the estimated useful life of the Substitute Property at least extends to the date on which the final Lease Payment becomes due and payable.

(e) The City obtains a title insurance policy covering the Substitute Property that meets the requirements of the Lease Agreement.

(f) The Substitute Property does not cause the City to violate any of its covenants, representations and warranties made in the Lease Agreement or in the Trust Agreement.

(g) The substitution will not cause the rating then assigned to the Certificates to be reduced or withdrawn

15 Removal of Property from Leased Property. The City also will have the option at any time to remove any property from the description of the Leased Property, provided that the City satisfies certain conditions set forth in the Lease Agreement, including the following:

(a) The City obtains a report of an independent appraiser certifying that the appraised value of the Leased Property which will remain following such removal is not less than the aggregate principal amount of the Outstanding Certificates, and that the useful life of the Leased Property is not less than the final payment date of the unpaid Lease Payments; and

(b) The City obtains and causes to be filed with the Trustee and the Authority an opinion of Bond Counsel stating that such removal is permitted under the Lease Agreement and does not cause interest represented by the Certificates to become includable in the gross income of the Certificate Owners for federal income tax purposes.

(c) The substitution will not cause the rating then assigned to the Certificates to be reduced or withdrawn.

Additional Lease

The Lease may be amended to obligate the City to pay additional amounts of rental under the Lease for the use and occupancy of the Leased Property or any portion thereof, but only if the following conditions are met:

(a) such additional amounts of rental do not cause the total rental payments made by the City under the Lease Agreement to exceed the fair rental value of the Leased Property,

(b) the City obtains and files with the Trustee and the Authority an appraisal of the Leased Property showing that the estimated fair market value of the Leased Property is not less than the aggregate unpaid principal components of such additional amount of rental plus the existing aggregate unpaid principal components of the Lease Payments,

(c) such additional amounts of rental are pledged or assigned for the payment of any Certificates, notes, leases or other obligations, the proceeds of which are applied to finance the completion of public facilities, and

(d) the City sends notification of the additional financing to each rating agency then rating the Certificates.

RISK FACTORS

The following risk factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating the Lease Agreement and the Certificates.

General Considerations – Security for the Certificates

The obligation of the City to make Lease Payments does not constitute an obligation of the City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to make Lease Payments does not constitute a debt or indebtedness of the City, the Authority, the State or any of its political subdivisions within the meaning of any constitutional or statutory

16 debt limitation or restriction. The obligation of the City to make Lease Payments is in consideration of the right of the City to the continued use and possession of the Leased Property. In the event of failure of such use and possession, the obligations of the City may be abated in whole or in part as described herein.

Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Lease Payments from any source of legally available funds and the City has covenanted in its Lease Agreement that, for so long as the Leased Property is available for its use, it will make the necessary annual appropriations within its budget for its Lease Payments. See “GENERAL CITY FINANCIAL INFORMATION” and “THE CITY” herein for information about the City’s finances.

The City is currently liable and may become additionally liable on other obligations payable from general revenues, some of which may have a priority over the Lease Payments. To the extent that additional obligations are incurred by the City, the funds available to make Lease Payments may be decreased.

See “THE CERTIFICATES — Security and Sources of Payment for the Certificates” herein.

Eminent Domain

If all of the Leased Property is taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the term of the Lease Agreement will cease as of the day possession is taken. If less than all of the Leased Property is taken permanently, or if the Leased Property or any part thereof is taken temporarily, under the power of eminent domain, (a) the Lease Agreement will continue in full force and effect and will not be terminated by virtue of such taking, and (b) there will be a partial abatement of Lease Payments as a result of the application of the Net Proceeds of any eminent domain award to the prepayment of the Lease Payments, in an amount to be agreed upon by the City and the Authority such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portion of the Leased Property. The City covenants in the Lease Agreement to contest any eminent domain award which is insufficient to either: (a) redeem the Certificates in whole, if all of the Leased Property is condemned; or (b) prepay a pro rata share of Certificates, in the event that less than all of the Leased Property is condemned.

Abatement

Use and Possession of the Leased Property. Lease Payments are paid by the City for and in consideration of the right of beneficial use and occupancy of the Leased Property. If due to damage or destruction to the Leased Property, eminent domain or for any reason, there is substantial interference with the use and possession of all or part of the Leased Property, the City’s obligation to make Lease Payments from its funds will be subject to abatement. See “APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS”. Abatement of Lease Payments is not an event of default under the Trust Agreement, the Lease Agreement or the Certificates and will not permit the Trustee to take any action or avail itself of any remedy against the City. The City will not have an obligation to make Lease Payments with respect to the Leased Property other than from amounts in the Reserve Fund or Lease Payment Fund or eminent domain award or the proceeds of any rental interruption insurance until such substantial interference with the use and possession of the Leased Property, or a portion thereof, has been remedied.

Absence of Earthquake and Flood Insurance. The obligation to make Lease Payments may be adversely affected if the Leased Property or any improvements thereon are damaged or destroyed by natural hazard such as earthquake or flood. The City, however, is not obligated under the Lease Agreement to procure and maintain, or cause to be maintained, earthquake or flood insurance on the Leased Property. The City, however, is obligated under the Lease Agreement to maintain other types of insurance. See “APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”

17 In the event of damage or destruction to the Leased Property caused by perils for which the City is not required to provide insurance under the Lease Agreement, the City will not be obligated to repair, replace or reconstruct the Leased Property, though the City may choose to do so.

Remedies Against the City

Failure by the City to pay Lease Payments or other payments required to be made under the Lease Agreement, or failure to observe and perform its other covenants and agreements under the Lease Agreement for a period of thirty days (or greater period as described in “APPENDIX A — SUMMARY OF PRINCIPAL LEGAL DOCUMENTS”) after written notice of such failure and request that it be remedied has been given to the City by the Authority, the Trustee, as the assignee of the Authority, or the owners of not less than 25% of the outstanding principal amount of the Certificates constitutes an event of default under the Lease Agreement and permits the Trustee to pursue remedies at law or in equity to enforce such covenants and agreements.

The enforcement of any remedies provided in the Lease Agreement and Trust Agreement could prove both expensive and time consuming. Although the Lease Agreement and the Trust Agreement provide that the Trustee may take possession of the Leased Property and lease it if there is a default by the City, and the Lease Agreement provides that the Trustee may have such rights of access to the Leased Property as may be necessary to exercise any remedies, portions of the Leased Property may not be easily recoverable and even if recovered, could be of little value to others. Furthermore, it is not certain whether a court would permit the exercise of the remedies of repossession and leasing of the Leased Property, particularly with respect to essential public buildings like the fire stations comprising the Leased Property.

No Acceleration Upon Default

In the event of a default, there is no available remedy of acceleration of the total Lease Payments due over the term of the Lease Agreement. The City will only be liable for Lease Payments on an annual basis, and the Trustee would be required to seek a separate judgment in each fiscal year for that fiscal year's Lease Payments.

City Bankruptcy

In addition to the limitation on remedies contained in the Trust Agreement, the rights and remedies provided in both the Trust Agreement and the Lease Agreement may be limited by and are subject to the provisions of federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect the enforcement of creditors' rights.

Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies, there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Lease Agreement and from taking any steps to collect amounts due from the City under the Lease Agreement.

If a Bankruptcy Court were to determine that the Lease Agreement is a lease for the purposes of the Bankruptcy Code, the City would have the right to reject (i.e., terminate) the Lease Agreement. If the City elects to reject the Lease Agreement, the Leased Property could be re-let for the benefit of the Owners, but there can be no assurance that the Leased Property can be re-let for an amount sufficient to pay the Certificates or that such re-letting will not adversely affect the exclusion of any interest component of rental payments from federal or state income taxation. In addition the Bankruptcy Code severely limits any claim for damages suffered as a result of rejection of a lease.

18 No Liability by the Authority to the Owners

The Authority shall not have any obligation or liability to the Owners with respect to the payment when due of the Lease Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Trust Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Trust Agreement.

State Law Limitations on Appropriations

Article XIIIB of the California Constitution limits the amount that local governments can appropriate annually. The City’s ability to make Lease Payments may be affected if the City should reach its appropriations limit. The City does not anticipate reaching said limit in the foreseeable future. See “CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS” herein.

Substitution or Release of Leased Property

The Lease Agreement permits the City to substitute additional real property and/or improvements for existing Leased Property upon compliance with certain conditions set forth in the Lease Agreement.

In the case of both substitution and release of Leased Property, the Lease Agreement requires with respect to the value of the remaining Leased Property that its value at least equal the aggregate principal components of the unpaid Lease Payments and the Outstanding Certificates. Consequently, a portion of the Leased Property could be replaced with less valuable property, or could be released altogether. Such replacement or release could have an adverse impact on the security for the Certificates, particularly if an event requiring abatement of Lease Payments were to occur subsequent to such substitution or release.

Tax Exemption of the Certificates

The City has covenanted in the Lease Agreement that it shall not use or permit the use of any proceeds of the Certificates or any funds of the Authority or the City, directly or indirectly, in any manner, and shall not take or omit to take any action that would cause the interest component of the Lease Payments to be included in the gross income of the Owners for federal income tax purposes. In the event the City fails to comply with the foregoing tax covenant, the interest component of the Certificates may be includable in the gross income of the Owners thereof for federal tax purposes. In such event, such Owners will be entitled to bring a damages action against the City. See “LEGAL MATTERS — Tax Matters” herein.

19 CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS

Article XIIIA - Limit on Property Tax

Article XIIIA of the Constitution of the State limits the amount of ad valorem taxes on real property to 1% of “full cash value” of the 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,” subject to exemptions in certain circumstances of property transfer or reconstruction. The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% for any year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors.

Article XIIIA requires a vote of two-thirds of those voting in an election in a city, county, special district or other public agency to impose special taxes. Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service (a) on any indebtedness approved by the voters prior to July 1, 1978, and (b) on any bonded indebtedness approved by two-thirds of the votes cast by the voters for the acquisition or improvement of real property on or after July 1, 1978. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State taxes for the purpose of increasing tax revenues, and prohibits the State Legislature from imposing any new ad valorem, sales or transaction taxes on real property.

Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1979.

That portion of annual property tax revenues generated by increases in assessed valuations within each tax rate area within a county, subject to redevelopment agency, if any, claims on tax increment and subject to changes in organization, if any, of affected jurisdictions, is allocated to each jurisdiction within the tax rate area in the same proportion that the total property tax revenue from the tax rate area for the prior year was allocated to such jurisdictions.

All taxable property is shown at “full cash value” on the tax rolls. The tax rate is expressed as $1 per $100 of taxable value.

Litigation Involving Assessment Practices

Section 51 of the California Revenue and Taxation Code allows properties which have been reassessed to a lower value by the county assessor as a result of natural disasters, economic downturns or other factors, to be reassessed at a higher value later, up to the pre-decline value of the property, plus the aggregate of any annual increases, up to 2% annually, occurring for any years between reduction and such “recapture” of assessed value, according to the extent of restoration of value following repairs, economic upturn or other factors. Such recapture of assessed value, when it occurs, may represent more than a 2% increase in that year. In 2003, an Orange County Superior Court ruled that a reassessment to a lower value creates a new “base year value” under Article XIIIA and that subsequent increases in assessed value of property in excess of 2% in a single year violate Article XIIIA (see “Article XIIIA - Limit on Property Tax” above). Orange County submitted an appeal of the case to the State’s Fourth District Court of Appeal. On March 26, 2004, this Appeals Court ruled that a new “base year value” was not created by a reduction in assessed value pursuant to Section 51 of the California Revenue and Taxation Code, effectively upholding

20 Section 51 and the ability of county assessors to reassess upwards in excess of 2% in one year subsequent to such a reduction.

Article XIIIB - Appropriations Limit

Article XIIIB of the State Constitution, as amended by Propositions 98 and 111, limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State, to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and in population, for transfers in the financial responsibility for providing services, and for certain declared emergencies.

For fiscal years beginning on or after July 1, 1990, the appropriations limit of each government entity shall be the appropriations limit for the 1986/87 fiscal year adjusted for the changes made from that fiscal year pursuant to the provisions of Article XIIIB, as amended.

The appropriations of an entity of local government subject to Article XIIIB limitations include the proceeds of taxes levied by or for that entity and the proceeds of certain State subventions to that entity. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to the entity from (a) regulatory licenses, user charges and user fees (but only to the extent that these proceeds exceed the reasonable costs in providing the regulation, product or service), and (b) the investment of tax revenues.

Appropriations subject to limitation do not include (a) refunds of taxes, (b) appropriations for debt service on indebtedness existing or legally authorized as of January 1, 1979 or bonded indebtedness thereafter approved according to law by vote of the electors voting in an election for such purpose, (c) appropriations required to comply with certain mandates of the courts or the federal government, (d) appropriations of certain special districts, (e) appropriations for all qualified capital outlay projects as defined by the legislature, (f) appropriations derived from certain fuel and vehicle taxes, and (g) appropriations derived from certain taxes on tobacco products.

The appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate “proceeds of taxes” received by a local agency over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years.

Article XIIIB also requires that fifty percent of all revenues received by the State in a fiscal year and in the fiscal year immediately following it in excess of the amount permitted to be appropriated during that fiscal year and the fiscal year immediately following it shall be transferred and allocated to the State School Fund pursuant to Section 8.5 of Article XVI of the State Constitution.

Article XIIIB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and constitutional voting requirements, but any such voter-approved change can only be effective for a maximum of four years.

The City does not anticipate exceeding its appropriations limit. See “THE CITY - Appropriations Limit” herein.

Articles XIIIC and XIIID - Right to Vote on Taxes, Assessments, Fees and Charges

Articles XIIIC and XIIID of the State Constitution contain a number of provisions affecting the ability of local governments, including cities, counties, school districts and special districts with taxing power, to levy and collect both existing and future taxes, assessments, fees and charges. Among other things, Article XIIIC establishes that every tax is either a “general tax” (imposed for general governmental purposes) or a “special tax” (imposed for specific purposes); prohibits special purpose government agencies 21 such as school districts from levying general taxes; and prohibits any local government from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote. Article XIIIC also provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the State Constitution, and special taxes approved by a two-thirds vote under Article XIIIA, Section 4.

Article XIIID requires that, before any “fee or charge” (defined as “any levy other than an ad valorem tax, a special tax or an assessment imposed by a local government upon a parcel or upon a person merely as an incident of property ownership, including user fees or charges for a property related service”) may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. The local government must then hold a hearing upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the local government may not impose or increase the fee or charge. Moreover, except for fees or charges for sewer, water and refuse collection services, no fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local government, two-thirds voter approval by the electorate residing in the affected area.

In addition to the above, Article XIIID includes additional substantive requirements governing all fees and charges, including existing fees and charges that are not proposed to increase. Such requirements include the following: (a) revenues derived from the fee or charge may not exceed the funds required to provide the service for which the fee or charge was imposed; (b) revenues derived from the fee or charge may not be used for any purpose other than that for which the fee or charge was imposed; (c) the amount of a fee or charge imposed upon any parcel or person may not exceed the proportional cost of the service attributable to the parcel; (d) no fee or charge may be imposed for a service unless that service is actually used by, or is immediately available to, the owner of the property in question; and (e) no fee or charge may be imposed for general governmental services where the service is available to the public at large in substantially the same manner as it is to property owners.

Under Article XIIIC, Section 3, the initiative power available under the State Constitution is expressly extended to matters of local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Articles XIIIC and XIIID, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees, and charges, subject to overriding federal constitutional principles relating to the impairment of contracts. However, on July 1, 1997, a bill was signed into law enacting Government Code Section 5854, which states:

Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996 general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protection by Section 10 of Article I of the United States Constitution.

No court has yet considered the relationship between Government Code Section 5854 and Article XIIIC.

Based on its analysis, the City has concluded that its present revenue sources are either in compliance with or not impacted by Articles XIIIC and XIIID.

The foregoing discussion of Articles XIIIC and XIIID should not be considered an exhaustive or authoritative treatment of the issues. Certain provisions of Articles XIIIC and XIIID may be examined by the courts for their constitutionality under both State and federal constitutional law. The City is not able to predict the outcome of any such examination. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard.

22 Proposition 26

On November 2, 2010, the voters approved Proposition 26 ("Proposition 26"), revising certain provisions of Articles XIIIA and XIIIC of the California Constitution. Proposition 26 re-categorizes many State and local fees as taxes, requires local governments to obtain two-thirds voter approval for taxes levied by local governments, and requires the State to obtain the approval of two-thirds of both houses of the State Legislature to approve State laws that increase taxes. Furthermore, pursuant to Proposition 26, any increase in a fee beyond the amount needed to provide the specific service or benefit is deemed to be a tax and the approval thereof will require a two-thirds vote. In addition, for State-imposed charges, any tax or fee adopted after January 1, 2010 with a majority vote which would have required a two-thirds vote if Proposition 26 were effective at the time of such adoption is repealed as of November 2011 absent the re- adoption by the requisite two-thirds vote.

Proposition 26 amends Article XIIIC of the State Constitution to state that a "tax" means a levy, charge or exaction of any kind imposed by a local government, except (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property or the purchase rental or lease of local government property; (e) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law, including late payment fees, fees imposed under administrative citation ordinances, parking violations, etc.; (f) a charge imposed as a condition of property development; or (g) assessments and property related fees imposed in accordance with the provisions of Proposition 218. Fees, charges and payments that are made pursuant to a voluntary contract that are not "imposed by a local government" are not considered taxes and are not covered by Proposition 26.

Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010. Accordingly, fees adopted prior to that date are not subject to the measure until they are increased or extended or if it is determined that an exemption applies.

If the local government specifies how the funds from a proposed local tax are to be used, the approval will be subject to a two-thirds voter requirement. If the local government does not specify how the funds from a proposed local tax are to be used, the approval will be subject to a fifty percent voter requirement. Proposed local government fees that are not subject to Proposition 26 are subject to the approval of a majority of the governing body. In general, proposed property charges will be subject to a majority vote of approval by the governing body although certain proposed property charges will also require approval by a majority of property owners.

Future Initiatives

Articles XIIIA, XIIIB, XIIIC and XIIID were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting city revenues or ability to expend revenues.

23 GENERAL CITY FINANCIAL INFORMATION

County Services

In California, taxing agencies within each county, including cities, use the services of that county for the assessment of property values and collection of property taxes. All property taxes and assessments on property due all taxing agencies in each county generally are included on the same unified tax bill from the county to property owners twice each year, based on the same county administered tax rolls. Property tax revenue is apportioned by each county according to purpose and taxing agency as prescribed by State law to that county and all cities, school districts, special districts and other agencies within that county with property tax levies.

Assessed Valuation

All property is assessed using full cash value as defined by Article XIIIA of the California Constitution (the “Constitution”). State law exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling, provided that the owner files for such exemption. This exemption does not result in any loss of tax revenue to local agencies, since the State reimburses local agencies for the value of taxes on exempted property. State law also provides exemptions from ad valorem property taxation for certain classes of property based on ownership or use, such as churches, colleges, non-profit hospitals and charitable institutions; the State does not reimburse local agencies for any tax not levied due to these exemptions. State and federal government property also is not taxed.

For assessment and collection purposes, property is classified as either “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed property and other property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Unsecured property comprises all other taxable property. Unsecured property is assessed on the “unsecured roll.” Every tax levied by a county that becomes a lien on secured property has priority over all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property owned by the taxpayer. Valuation of secured property and a statutory tax lien is established as of January 1 prior to the tax year (the tax year is the July 1 - June 30 fiscal year of the State) of the related tax levy, and the secured and unsecured tax rolls are certified as of July 1 of the tax year by the County Assessor. New property and improvements are assessed and added to “supplemental” rolls during the year acquired or improvements are completed, and taxed at the secured or unsecured rate then in effect, as the case may be, for the remaining portion of that year. The next year and thereafter such assets are assessed on the regular tax rolls.

Future growth in assessed valuation allowed under Article XIIIA is allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of “base” revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year.

See “THE CITY” herein for a history of assessed valuation and a list of the largest secured tax payers for the current tax year within the City.

24 State-Assessed Utility Property

The Constitution provides that the State Board of Equalization (the “SBE”) rather than counties assess certain property owned or used by regulated utilities. Such property is grouped and assessed by the SBE as “going concern” operating units, which may cross local tax jurisdiction boundaries, rather than as individual parcels of real or personal property separately assessed. Such utility property is known as “unitary property.” The SBE assesses property at “fair market value,” determined by various methods and formulae depending on the nature of the property, except that certain railroad property is assessed at a specified percentage of the fair market value determined by the SBE, in conformity with federal law. The SBE assesses values as of January 1 prior to the tax year of the related tax levy. Property tax on SBE- assessed property is then levied and collected by each county in the same manner as county assessed property, but at special county-wide tax rates, and distributed to each taxing agency within that county, subject to certain adjustments, according to the approximate percentage allocated to each taxing agency in the prior year.

Recent changes in the California electric utility industry structure and in the way in which components of that industry are regulated and owned, including the sale of electric generation assets to largely unregulated, non-utility companies, have caused some property that had been assessed by the SBE to be assessed locally instead. A change in property status from assessment by the SBE to assessment locally or the reverse may result in a change in property tax revenue received by local agencies and an adjustment in any ad valorem tax rates and debt capacity for local agency bonds.

Tax Levies, Collections and Delinquencies

Property tax rates are set by the first business day of September of the tax year of the related tax levy. The secured property tax is payable in two equal installments due November 1 and February 1, and payments become delinquent if not postmarked or paid by end of business day on December 10 and April 10, respectively. Taxes on unsecured property (personal property and leasehold interests) are levied at the preceding fiscal year's secured tax rate and have a due date set by each county effective no earlier than July 1 and no later than July 31 of each year. Taxes on unsecured property become delinquent if not postmarked or paid by end of business day on August 31, or if added to the unsecured roll after July 31, become delinquent at the end of the month succeeding the month of enrollment.

A 10% penalty attaches to any delinquent payment for secured roll taxes. In addition, property on the secured roll for which taxes are delinquent becomes tax-defaulted. Such property may thereafter be redeemed by payment of the delinquent taxes and the 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 subject to auction sale by the County Tax-Collector.

In the case of unsecured property taxes, a 10% penalty attaches to delinquent taxes on property on the unsecured roll, and after the last day of the second month after the 10% penalty attaches, an additional penalty of 1.5% per month begins to accrue, and a lien is recorded against the assessee. The taxing authority may collect delinquent unsecured personal property taxes by: (a) a civil action against the taxpayer; (b) filing a certificate of delinquency in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on specific property of the taxpayer; and (c) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

Supplemental roll taxes are due on the date mailed. If the tax bill is mailed within the months of July through October, the first installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on December 10 of the same year and the second installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on April 10 of the next year; if the bill is mailed within the months of November through June, the first installment shall become delinquent at 5 p.m., or the end of the business day, whichever is later, on the last day of the month following the month in which the bill is mailed and the second installment shall become delinquent at 5 p.m., or the end of the business day, 25 whichever is later, on the last day of the fourth calendar month following the date the first installment is delinquent. A 10% penalty attaches to any delinquent payment for supplemental roll taxes.

All tax due dates and delinquency dates become the next business day if they fall on a day that is not a business day.

Teeter Plan

The Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”) has been adopted by 53 of the 58 counties, including Alameda County, as provided for in Section 4701 et seq. of the State Revenue and Taxation Code. Under the Teeter Plan, each participating local agency, including cities, levying property taxes in a county receives the amount of uncollected taxes credited to its fund, in the same manner as if the amount credited had been collected. In return, the county receives and retains delinquent payments, penalties and interest as collected, that would have been due the local agency. However, although a local agency receives the total levy for its property taxes without regard to actual collections, to the extent of a reserve established and held by its county for this purpose, the basic legal liability for property tax deficiencies at all times remains with the local agency. The Teeter Plan is to remain in effect unless the county board of supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the county, the board of supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the county. The board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in its county. See “THE CITY — Tax Levies, Collections and Delinquencies” herein.

The City has elected not to participate in the County Teeter Plan. That means that the City suffers any delinquencies but gains all penalty and interest amounts when such delinquencies are collected.

Other Taxes

Cities in California are authorized to levy and collect other taxes for deposit in the general fund in addition to property taxes. Among these other taxes are: Sales and Use Tax, Construction Tax, Business License Tax, Transient Occupancy Tax, Real Property Transfer Tax, and other miscellaneous taxes. For the City, the most significant of these taxes are the following:

Sales and Use Tax. The sales tax is imposed on retail sales of tangible personal property. A similar use tax is imposed on purchases out-of-state and delivered for use in California. Since the passage of the Bradley-Burns Act in 1955, the State has collected, along with its own sales taxes, a uniform 1% sales and use tax for allocation to cities and counties based on a point-of-sale formula. The passage of Proposition 172 in 1993 permanently extended an additional 0.5% sales tax dedicated to local public safety. As of July 1, 2004, 0.25% from the 1% Bradley-Burns tax rate has been diverted to the State for payment of the State’s Economic Recovery Bonds for as long as these Bonds remain outstanding (see “Triple Flip” below), resulting in a combined sales and use tax rate of 1.25% allocated to cities and counties. Sales and use tax receipts to the City are deposited in the City’s general fund.

Business License Tax. The Business License Tax is a type of excise tax imposed on businesses for the privilege of conducting business within the City. Major businesses exempted from the tax are banks and insurance companies. In the majority of cases the City’s tax is based on gross receipts.

Transient Occupancy Tax. Sometimes referred to as a hotel tax, this tax is imposed on occupants for the privilege of occupying rooms in hotels, motels, inns and other taxed properties.

26 Franchises

Several State statutes provide cities with the authority to impose fees on privately-owned utility companies and other businesses for the privilege of using city right-of-way. The City collects franchise fees from gas and electric utilities, cable television and garbage franchises.

Motor Vehicle License Fee

The Motor Vehicle License Fee (“VLF”) is a tax in lieu of any ad valorem property tax on vehicles and is administered by the State Department of Motor Vehicles. Revenues generated by the VLF are constitutionally required to be apportioned to local governments (Article XI, Section 15 (a)) for use for their general fund purposes. These revenues are statutorily split between counties and cities. Rather than assessing the value of each individual vehicle and imposing a 1% property tax, as is done with real property, the State uniformly applies a 0.65% tax on each vehicle based on its purchase price adjusted by a depreciation schedule. Prior to 2004/05, this VLF rate was 2%, and any difference between 2% and any lower rate actually levied on vehicles was made up to cities and counties from State general funds. With the change in rate to 0.65% in fiscal year 2004/05, the State ended such “VLF backfill” to cities and counties and replaced it with a like amount of property taxes. Subsequent to the fiscal year 2004/05 base year, each city’s property tax in lieu of VLF increases annually in proportion to the growth in gross assessed valuation in that jurisdiction.

Propositions 57 and 58 - California Economic Recovery Bond Act and State Budget Requirements

On March 2, 2004, State voters passed Proposition 57, the California Economic Recovery Bond Act, authorizing the issuance by the State of up to $15 billion of Economic Recovery Bonds to finance the State’s negative general fund balance as of June 30, 2004 and other general fund obligations undertaken prior to June 30, 2004. The State has issued the full $15 billion Economic Recovery Bonds under this authorization. In the same election State voters passed Proposition 58, the Balanced Budget Amendment, requiring the State to adopt and maintain a balanced budget, establish a reserve and restrict future long-term deficit-related borrowing.

Triple Flip

As part of the State’s budget efforts and pledge of revenues from a 0.25% sales and use tax for payment of its Economic Recovery Bonds, the State adopted a complex set of revenue allocations and offsets known as the “triple flip.” To offset the reduction in revenue to local agencies from allocating 0.25% from the 1% Bradley-Burns sales and use tax rate for local agencies to payment of the Economic Recovery Bonds, the State in return diverted a portion of the property tax revenue previously allocated to the Education Revenue Augmentation Fund in each county (“ERAF”; ERAF monies are allocated to the funding of school districts) to each such local agency in the same dollar amount lost, minus the amount that the State determined such local agencies were to contribute to relieving the State’s budget. The State determined that for two years only, 2004/05 and 2005/06, cities, counties and special districts other than school districts in aggregate would contribute $350 million each year, and redevelopment agencies in aggregate would contribute $250 million each year, in property tax revenue, for a total relief to the State of $1.3 billion for the two years. The reduction in ERAF funding of school districts, to the extent necessary to meet State revenue limit funding requirements for school districts, was offset by the State dollar for dollar by increasing apportionments to school districts from State general funds.

27 Proposition 1A - Limit On ERAF Shifts To School Districts

At the November 2004 election, State voters approved Proposition 1A, limiting the amount and frequency of such ERAF shifts of property tax revenue from other taxing agencies to school districts.

Under Proposition 1A, beginning in fiscal year 2008/09, the State may divert no more than eight percent of local property tax revenues for State purposes (including, but not limited to, funding K-12 education) only if: (a) the Governor declares such action to be necessary due to a State fiscal emergency; (b) two-thirds of both houses of the Legislature approve the action; (c) the amount diverted is required by statute to be repaid within three years; (d) the State does not owe to local agencies any repayment for past property tax or Vehicle License Fee diversions; and (e) such property tax diversions do not occur in more than two of any ten consecutive fiscal years. Because ERAF shifts are capped and limited in frequency, the State has to rely more heavily on State general fund moneys for Proposition 98 funding of school districts.

ERAF and SERAF Payments

As a part of its Revised 2009/10 Budget legislation, the State enacted ABX4 - 26, which shifted $1.7 billion in 2009/10 and $350 million in 2010/11 out of city and county redevelopment agencies into “Supplemental Education Revenue Augmentation Funds” (“SERAF”) in each county for payment only to school districts and county offices of education wholly or partially within redevelopment agency project areas and used only to serve students living within project areas or in housing supported by redevelopment funds. SERAF are deemed by the State to be property tax revenue of the receiving school district or county office of education that reduces dollar for dollar the State’s requirement to fund any shortfall there may be between the recipient district’s or county office’s own property tax revenue and its revenue limit funding entitlement under Proposition 98; it alters only the mix of property tax revenue and State appropriations, not the total amount of revenue limit funding received by a school district.

The California Redevelopment Association, an association of California redevelopment agencies, and others, filed a law suit aimed at overturning ABX4 - 26 as a violation of the State constitutional requirement that redevelopment agency tax increment be used for redevelopment purposes. On May 4, 2010, the Sacramento Superior Court found in favor of the State and other defendants, upholding the provisions of ABX4 - 26. The State had enacted a somewhat similar taking of redevelopment agency tax increment for ERAF, without requiring any relationship with a redevelopment project area for receipt of funds, in the 2008/09 State budget that was overturned by the same Sacramento Superior Court on April 30, 2009. The central argument in that decision was that taking redevelopment agency tax increment to balance the State budget was not a redevelopment purpose under the Law. The State dropped its appeal of that decision on September 28, 2009, making that decision final. In response, the State enacted ABX4 - 26. In the May 4, 2010 decision, among other things, the Superior Court found that the ABX4 - 26 restriction on SERAF disbursements to only school districts and county offices of education located wholly or partially within a redevelopment project area and used only to serve students living within a project area or in housing supported by redevelopment funds means SERAF disbursements are for redevelopment purposes, regardless of whatever other purposes may be met; the fact that the State enacted this legislation in order to help balance the State budget was found to be immaterial to the constitutionality of ABX4 - 26. The California Redevelopment Association is appealing this decision. Whether this appeal will be successful is unknown. Going forward, the constitutional provisions enacted by Proposition 22 (see below), prohibit ERAF and SERAF and similar takings from redevelopment and other local agencies by the State.

ERAF and SERAF payments by redevelopment agencies were and are subordinate to pledges of tax increment revenue for payment of their tax allocation bonds, though penalties were imposed on redevelopment agencies and, under certain circumstances, on their related city or county for non-payment.

28 Proposition 22 - Further Limit on State Use and Shifts of Local Government Funds

Proposition 22, The Local Taxpayer, Public Safety, and Transportation Protection Act, approved by the voters of the State on November 2, 2010, reduces or eliminates the State’s authority: (a) to use State fuel tax revenues to pay debt service on state transportation bonds; (b) to borrow or change the distribution of state fuel tax revenues; (c) to direct redevelopment agency property taxes to any other local government; (d) to temporarily shift property taxes from cities, counties, and special districts to schools; (e) and to use vehicle license fee revenues to reimburse local governments for state mandated costs. As a result, Proposition 22 impacts resources in the State’s general fund and transportation funds, the State’s main funding source for schools and community colleges, as well as universities, prisons and health and social services programs. According to an analysis of Proposition 22 submitted by the State Legislative Analyst’s Office (“LAO”; the LAO is a fiscal and policy advisory organization overseen by the Joint Legislative Budget Committee of the State legislature, funded by the State legislature) on July 15, 2010, the expected reduction in resources available for the State to spend on these other programs as a consequence of the passage of Proposition 22 will be approximately $1 billion in fiscal year 2010/11, with an estimated immediate fiscal effect equal to approximately 1 percent of the State’s total General Fund spending. The longer-term effect of Proposition 22, according to the LAO analysis, will be an increase in the State’s general fund costs by approximately $1 billion annually for several decades.

State Budget

The State budget approval process begins with the release to the State legislature by January 10 of the Governor's proposed budget for the following fiscal year. State fiscal years begin July 1. In May, the Governor submits a revision of the proposed budget that reflects updated estimates of revenues and expenditures. After a series of public hearings and other steps in the legislative process, the budget must be approved by majority vote in each house of the State legislature and submitted to the Governor. The Governor may reduce or eliminate any appropriation through the line-item veto. Although the budget is required by the Constitution to be approved no later than June 15, it often has not been approved until later, sometimes months later.

2010/11 Budget

On January 8, 2010, the Governor published his proposed budget for 2010/11, on May 14, 2010, released his May Revision 2010-11 and on October 8, 2010, signed the 2010 Budget Act (the “2010/11 Budget”). The 2010/11 Budget projected a potential short-fall in the State general fund of $19.274 billion, which it addressed with proposed expenditure reductions of $8.388 billion, requested federal funding of $5.403 billion, and anticipated other revenues of $5.483 billion. Proposition 98 education funding was largely unchanged by the 2010/11 Budget from the original January 2010/11 budget proposal, with non- education areas of government taking direct cuts and schools having increased “deferrals” in the State’s payments of their revenue limit apportionments, which of course are cash funding cuts for the duration of the deferrals.

For the State’s general fund, the 2010/11 Budget reports for 2009/10 prior year resources available of ($5.375) billion and projects revenues and transfers-in of $86.920 billion, for a total of $81.545 billion in total resources available; and for 2010/11 projects prior year resources available of ($4.804) billion and revenues and transfers-in of $94.230 billion, for a total of $89.426 billion in total resources available. General fund expenditures are projected to be $86.349 billion for 2009/10 and $86.552 billion for 2010/11, with general fund ending balances of ($4.804) billion and $2.874 billion, respectively. The positive ending balance outcome of the 2010/11Budget was predicated on the Legislature’s timely adoption of the Governor’s fiscal proposals and successful requests for $5.403 billion from federal sources that the Governor’s office believes should be due the State. As it has turned out, among other things, not all of the Governor’s fiscal proposals were adopted and the federal funding did not occur in 2010/11.

29 2011/12 Budget

On January 10, 2011, the Governor published his proposed budget for 2011/12 and on May 10, 2011 released his 2011-12 Governor’s Budget May Revision (the “May Revision”; together, the “2011/12 Budget”). The 2011/12 Budget projects that under current law the State general fund will be short an estimated $12.0 billion and addresses this with proposed 2010/11 and 2011/12 expenditure reductions, projected revenue increases and by continuing certain “temporary” sales and other taxes scheduled to sunset. The May Revision calls for disestablishing redevelopment agencies, so that what is now redevelopment agency tax revenue will flow through to local taxing agencies as normal property tax revenue. Continuation of the tax measures for a proposed additional four years and disestablishment of redevelopment agencies will require voter approval, originally proposed for a June, 2011 ballot but now not specified in the May Revision. Proposition 98 education funding is described as increased by $1.6 billion in the May Revision over the January proposal, due to a projected additional $6.6 billion in General Fund revenue.

For the State’s general fund, the 2011/12 Budget reported for 2010/11 prior year resources available of ($6.950) billion and projects revenues and transfers-in of $95.740 billion, for a total of $88.790 billion in total resources available; and for 2011/12 projects prior year resources available of ($2.776) billion and revenues and transfers-in of $93.623 billion, for a total of $90.847 billion in total resources available. General fund expenditures are projected to be $91.566 billion for 2010/11 and $88.803 billion for 2011/12, with general fund ending balances of ($2,776) billion and $2.044 billion, respectively. The positive ending balance outcome of the 2011/12 Budget is predicated, as of the May Revision, on projection of realizing an additional $6.6 billion in General Fund revenue, the Legislature’s timely adoption of the Governor’s fiscal proposals and voter approval of the proposed continuation of tax measures. The Governor has said that if voters do not approve the proposed tax measures, he will propose additional budget cuts in the same amount as the projected tax revenue.

In his July 2010 Summary Analysis, the State Controller reported that the State’s general fund negative cash balance, which was at ($11.908 billion) at the beginning of 2009/10, had lessened to ($9.922 billion) as of June 30, 2010. In his June 2011 Summary Analysis, the State Controller reported that the State’s general fund negative cash balance as of May 31, 2011 stood at ($14.872 billion).

On June 15, 2011 the State legislature passed and presented a budget for 2011/12 to the Governor, which the Governor vetoed on June 16, 2011 as, among other things, not being a truly balanced budget. It remains unknown when a State budget for 2011/12 will be enacted, or how and to what extent it will differ from the May Revision.

While in a sense State budgets do not focus on city finances, the State has often made changes over the years in its efforts to balance its budgets that affect the allocation of property taxes and sales tax in ways that noticeably affect the revenues, expenditures and economic growth of cities. Past examples are the “Triple Flip” (see “Triple Flip” previously) and the ERAF and SERAF shifts (see “Proposition 1A - Limit On ERAF Shifts To School Districts; SERAF Shifts” previously). It cannot be predicted what actions will be taken in the future by the State to respond to its own requirements and changes in economic conditions, or what the effects on the City may be.

THE AUTHORITY

The Authority is a joint exercise of powers authority created between the City and the Livermore Redevelopment Agency for the purpose of aiding the financing of projects by these two entities. The members of the City Council also serve as the members of the governing boards of both the Livermore Redevelopment Agency and the Authority. The Authority is empowered to act as lessor under the Lease Agreement in this financing.

30 THE CITY

Introduction

The City is a general law city with a council-manager form of government, which was incorporated on April 1, 1876. It comprises approximately 24.72 square miles and is located in southeastern Alameda County, approximately 43 miles southeast of San Francisco and 30 miles southeast of Oakland.

The estimated January 1, 2011 population of the City is 81,687. The City is part of the rapidly developing Tri-Valley area which contains the cities of Pleasanton, Livermore, Dublin and San Ramon and has an estimated January 1, 2011 population of 272,182.

The primary industry in the City is research and development. There are approximately 4,500 acres zoned for research and development and light/heavy industry, including 49 industrial parks. The City was originally a rural community and still has many agricultural activities occurring in its sphere of influence, including ranching uses and a significant wine industry. The Livermore Valley Wine Country in and around the City covers over 5,000 acres, is one of California's oldest wine regions and is home to over three dozen wineries, many with tasting rooms and visitor centers. The region is also a developing golf destination with the PGA and LPGA choosing the Tri-Valley as one of its Nationwide Tournament hosts.

The City is served by Interstates 580, 680 and State Route 84. Local bus service includes connector routes to the Bay Area Rapid Transit System (“BART”). BART has extended the system to Dublin, approximately five miles west of the City. A further extension to the City is planned. The Livermore Municipal Airport is a general aviation airport serving members of the general public and three major commercial airports are within close proximity. Rail service is provided by the Union Pacific Railroad.

Labor Relations

There are 416.725 full equivalent (FTE) City employees, the majority of which are assigned to representation units, with formal or informal labor organizations as follows:

CITY OF LIVERMORE Labor Relations

Employee Organization Number of FTE Positions Contract Expiration Date

Municipal Employee Agency for Negotiation 249.975 March 31, 2012 Management & Confidential 66.500 August 31, 2011 Livermore Police Officers Association 83.000 January 31, 2012 Police Management 6.000 August 31, 2012 405.475

Source: City of Livermore Personnel Department.

Retirement Programs

All permanent employees of the City are covered under the California Public Employees' Retirement System (“CalPERS”) of the State of California, a defined benefit plan. Pension costs are funded by monthly contributions from the City and covered employees. Contributions by the City during 2009/10 were $11,024,812 and in 2010/11 are estimated to be $10,815,268. The City’s CalPERS plan is discussed further in Note 10 of the City’s June 30, 2010 Basic Financial Statements in “APPENDIX B — INDEPENDENT 31 AUDITOR’S LETTER, MANAGEMENT’S DISCUSSION AND ANALYSIS, BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR YEAR ENDED JUNE 30, 2010 FOR THE CITY OF LIVERMORE” .

Other Post Employment Benefits

In addition to providing retirement benefits through CalPERS, the City provides post-employment health care benefits, in accordance with bargaining unit agreements, to certain retired employees meeting their employment group’s date of hire deadlines, the latest of which was April 1, 2007. Employees hired subsequent to the specified date of hire for their employment group are not provided with post-employment health care benefits by the City. Eligible employees also must have a minimum of five years full-time city employment and ten years of CalPERS service. The level of benefit payment varies with the number of years of CalPERS service beyond the minimum 10-year requirement.

In 2007/08, concurrent with implementing Governmental Accounting Standards Board Statement No. 45 (“GASB 45"), the City Council passed a resolution to participate in the California Employers Retirees Benefit Trust, an irrevocable Section 115 trust established to fund post-employment health benefits. In accordance with the City’s budget, a portion of the annual required contribution (“ARC”) is to be funded throughout the year as a percentage of payroll. The projected City contributions will be graded in, starting at approximately 39% of ARC in 2007/08 and increasing to approximately 95% of ARC in 2014/15. For 2009/10 and 2010/11, the contributions are as follows:

CITY OF LIVERMORE Other Post Employment Benefits GASB 45 Calculations and City Contribution

2009/10 2010/11 GASB 45 Calculations: Normal Cost $2,303,000 $2,378,000 Unfunded Actuarial Accrued Liability Amortization 2,857,000 2,949,000 ARC $5,160,000 $5,327,000

City Contribution Information: Projected Payroll $41,500,000 $37,000,000 ARC as a Percent of Payroll 12.4% 14.4% City Contribution $1,545,812 $1,700,000 City Contribution as a Percent of ARC 30.0% 31.9%

Source: City of Livermore

The City’s Other Post Employment Benefits plan is discussed further in “Note 10” of the City’s June 30, 2010 Basic Financial Statements in “APPENDIX B — INDEPENDENT AUDITOR’S LETTER, MANAGEMENT’S DISCUSSION AND ANALYSIS, BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR YEAR ENDED JUNE 30, 2010 FOR THE CITY OF LIVERMORE” .

32 Assessed Valuation

The following table represents the most recent five-year history of gross assessed valuation in the City:

CITY OF LIVERMORE Assessed Valuations

Total Before Redevelopment Tax Total After Redevelopment Fiscal Year Local Secured Utility Unsecured Increment Tax Increment

2006/07 $12,145,332,159 $20,308,948 $553,745,577 $12,719,386,684 $12,242,527,962 2007/08 12,844,123,180 17,462,826 614,043,672 13,475,629,678 13,027,985,041 2008/09 13,667,492,888 17,107,843 632,906,079 14,317,506,810 13,724,790,164 2009/10 12,647,832,001 17,094,558 655,633,860 13,320,560,419 12,749,892,819 2010/11 12,644,996,632 16,763,636 597,043,398 13,258,803,666 12,692,182,266

Source: California Municipal Statistics, Inc.

Tax Levies, Collections and Delinquencies

The following is a summary of ad valorem tax rates for a representative tax rate area, TRA 16-71, within the City. TRA 16-71 has a total 2010/11 secured assessed valuation of $4,389,093,552, approximately 34.31% of the City’s total local secured assessed valuation. See “AD VALOREM PROPERTY TAXATION” for further information on establishing tax rates.

CITY OF LIVERMORE Tax Rates - TRA 16-71

2006/07 2007/08 2008/09 2009/10 2010/11

General 1.0000% 1.0000% 1.0000% 1.0000% 1.0000% Livermore Valley Joint Unified School District 0.0692 0.0626 0.0616 0.0674 0.0635 Chabot Las Positas Community College District 0.0159 0.0164 0.0183 0.0195 0.0211 Flood Zone 7, State Water 0.1510 0.0150 0.0169 0.0203 0.0250 Bay Area Rapid Transit District 0.0050 0.0076 0.0090 0.0057 0.0031

TOTAL 1.1052% 1.1016% 1.1058% 1.1129% 1.1127%

Source: California Municipal Statistics, Inc.

33 The secured tax charges and year-end delinquencies for the most recent five years are reflected on the following table:

CITY OF LIVERMORE Secured Tax Charge and Delinquencies

Amount Delinquent Percent Delinquent Year Secured Tax Charge(a) as of June 30 June 30 2005/06 $18,456,022.17 $ 419,121.76 2.27% 2006/07 20,554,103.71 740,296.41 3.60 2007/08 22,052,675.41 1,048,657.54 4.76 2008/09 22,748,726.10 1,062,900.43 4.67 2009/10 21,272,625.30 683,945.46 3.22

Source: California Municipal Statistics, Inc.

The City does not participate in the Teeter Plan. See “GENERAL CITY FINANCIAL INFORMATION — Teeter Plan” herein.

Largest Taxpayers

The following table represents the twenty largest secured property tax payers in the City for 2010/11.

CITY OF LIVERMORE Largest Taxpayers

2010/11 Property Owner Primary Land Use Assessed Valuation Percent of Total (a)

Kaiser Foundation Hospitals Industrial $100,955,350 0.83% RT Tri Valley LLC Office Building 49,000,000 0.40 Catellus Development Corp. Shopping Center 46,464,343 0.38 Marathon Drive Buildings LLC Industrial 42,580,153 0.35 BNP Paribas Leasing Corporation Industrial 41,059,829 0.34 Walton CWCA Airway Business 25 LLC Industrial 39,789,045 0.33 Sutter Health Commercial Land 39,441,796 0.32 Shea Center Livermore LLC Industrial 37,826,332 0.31 Valley Care Senior Housing Inc. Rest Home 35,767,905 0.29 Vineyard Management Company Office Building 32,087,826 0.26 Greenville Holding Co. LLC Industrial 30,896,983 0.25 Arroyo/Livermore Business Park LP Industrial 29,381,201 0.24 Hospital Committee for the Livermore Pleasanton Area Medical Offices 29,238,703 0.24 Golden Bears LLC & Ellis Street Properties Auto Dealership 29,070,399 0.24 Livermore Airway Business Park Industrial 27,753,672 0.23 Seco/Arroyo Shopping Center LP Shopping Center 27,490,962 0.23 USF Propco I LLC Industrial 26,317,671 0.22 Property Reserve Inc. Industrial 25,117,496 0.21 PK I Plaza 580 SC LP Shopping Center 24,725,000 0.20 North Canyons LLC Industrial 24,298,252 0.20 Total $739,262,918 6.06%

(a) 2010/11 Local Secured Assessed Valuation: $12,196,428,820.

Source: California Municipal Securities, Inc.

34 City Tax Revenues

The City receives revenues from a number of other taxes and other sources in addition to property taxes. The following table summarizes the City’s most significant tax revenue which is deposited in the general fund.

CITY OF LIVERMORE General Fund Tax Revenues

Projected Projected Type of Revenue 2007/08(a) 2008/09(a) 2009/10(a) 2010/11(b) 2011/12(b)

Property Tax (c) $25,220,000 $25,409,603 $23,619,525 $23,115,000 $23,115,000 Sales Tax 19,235,000 17,142,178 13,789,658 15,707,000 16,709,100 Franchise Taxes 3,103,000 3,079,339 3,212,722 3,538,000 3,737,000 Business License Tax 3,766,000 3,470,153 3,530,881 3,400,000 3,450,000 Other Taxes 3,483,000 2,009,780 2,284,758 2,230,000 2,320,000 Other Taxes In Lieu 519,000 494,995 504,072 507,000 517,000 Total $55,326,000 $51,606,048 $46,941,616 $48,497,000 $49,848,100

(a) Restated from the City of Livermore Audited Financial Reports. (b) Provided by City Finance Department.

Source: City of Livermore.

Appropriations Limit

The following table shows the City of Livermore’s appropriation limit and estimated appropriations subject to limitation for the fiscal years 2009/10 and 2010/11.

CITY OF LIVERMORE Appropriations Limit and Appropriations Subject to Limitation

2009/10 2010/11

Appropriations Limit $160,959,709 $160,818,675 Appropriations Subject to Limitation 52,205,834 45,302,801

Source: City of Livermore

Budget Process

Development of an annual or bi-annual budget typically begins six months prior to the fiscal year or initial fiscal year of the two-year budget under consideration. Budgeting is a continuing process involving the presentation of budget estimates by all departments, review of requests by the City Manager and referral of a preliminary budget to the City Council for consideration. After the City Council review and public hearings on the proposed budget, adoption of the budget for the forthcoming year or two year period is normally enacted by resolution prior to July 1. For a bi-annual budget, the City Council reviews the budget at the end of the initial fiscal year to determine if changes or adjustments need to be made for the second fiscal year.

35 The fiscal year of the City begins on the first day of July and ends on the thirtieth day of June of the following year.

Operating Budget Policy

The operating budget takes the form of a two-year financial plan which is adopted in its entirety by the City Council. The operating budget is subject to supplemental appropriations throughout its term in order to provide flexibility to meet changing needs and conditions. A mid-period review is conducted in the off-year and appropriations are adjusted accordingly. The operating budget is presented on a program basis, with an emphasis on matching costs of services with appropriated revenues available to provide those services while maintaining stable reserves. The City has made expenditure cuts in accordance with this policy as necessary since 2008. See “Management’s Discussion and Analysis” in “APPENDIX B — INDEPENDENT AUDITOR’S LETTER, MANAGEMENT’S DISCUSSION AND ANALYSIS, BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR YEAR ENDED JUNE 30, 2010 FOR THE CITY OF LIVERMORE” for discussion of operating budget adjustments made in fiscal year 2009/10.

Operating Reserve Policy

In 2000 the City Council adopted a policy establishing operating reserves, for the general fund set initially at 10% of operating expenditures, plus debt service and recurring transfers, with the goal of increasing the fund to 20%. At June 30, 2010 the operating reserve was 21%.

Capital Improvement Budget Policy

A five-year capital improvement plan is prepared and updated every two years on the same cycle as the operating budget and is adopted to be consistent with the General Plan. The first two years of the five- year capital improvement plan are funded during the operating budget and a mid-period review is conducted in the off-year and appropriations are adjusted accordingly. The capital improvement budget is subject to supplemental appropriations throughout its term in order to provide flexibility to meet changing needs and conditions.

From the effective date of the budget, the amounts stated as recommended expenditures become appropriated to the various departments and programs. The City Manager may transfer appropriations between departments or programs within any fund. Any revisions or transfers that alter the total appropriations of any fund must be approved by the City Council. All general fund and certain special revenue funds appropriations lapse at the end of the fiscal year to the extent that they have not been expended or lawfully encumbered. At a public meeting after the adopting of the budget, the Council may amend or supplement the budget by motion adopted by the affirmative vote of at least three members of the five-member Council.

36 Comparative Financial Statements

The following table reflects the City's general fund revenues, expenditures and fund balances for fiscal years 2007/08 through 2011/12, actual 2007/08 through 2009/10 and projected 2010/11 and 2011/12:

CITY OF LIVERMORE General Fund Revenues, Expenditures and Fund Balance 2007/08 through 2011/12

Projected Actual Budget 2007/08(a) 2008/09(a) 2009/10(a) 2010/11(b) 2011/12(c) REVENUES: Property taxes $24,511,974 $25,409,601 $23,619,525 $23,115,000 $23,734,900 Sales taxes 19,338,334 15,692,177 13,789,658 15,707,000 15,049,000 Other taxes 9,863,971 8,559,271 9,028,361 9,168,000 9,641,000 Licenses and permits 2,324,087 1,690,189 1,794,011 1,573,000 2,085,000 Intergovernmental 7,629,992 7,663,997 7,562,037 7,268,000 7,542,000 Fines and forfeitures 680,340 599,111 711,616 735,000 752,000 Other in lieu taxes 486,623 494,996 504,072 507,800 517,000 Charges for current services 8,371,836 8,837,758 8,987,567 8,424,000 8,500,000 Use of money and property 5,432,735 3,708,973 4,685,113 4,064,400 3,667,700 Miscellaneous 1,200,203 3,693,583 1,238,361 2,324,450 1,314,000 Total Revenues 79,840,095 76,349,656 71,920,321 72,886,650 72,802,600

EXPENDITURES: Current: General government 3,630,117 3,536,563 3,511,444 3,150,765 3,302,700 Finance 7,546,976 6,583,668 5,852,309 6,359,710 5,677,680 Human Resources 1,296,682 1,338,912 1,310,061 1,172,097 1,207,810 Fire 14,976,861 15,457,071 14,841,732 13,882,340 14,643,190 Police 24,731,718 25,760,137 25,071,975 23,814,690 23,990,840 Public Works 7,175,388 7,729,713 7,029,100 5,072,720 6,094,160 Community Development 13,838,255 13,775,397 12,913,560 11,136,035 11,287,630 Economic Development 315,836 456,422 743,217 1,075,320 658,280 Library 4,859,894 5,057,367 4,707,427 4,282,070 4,356,970 Capital Outlay 1,009,144 202,157 268,224 506,100 185,100 Total Expenditures 79,380,871 79,897,407 76,249,049 70,451,847 71,404,360

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 459,224 (3,547,751) (4,328,728) 2,434,803 1,398,240

OTHER FINANCING SOURCES (USES) Operating transfers in 3,411,461 3,239,408 3,730,355 1,651,300 2,214,760 Operating transfers (out) (4,697,660) (5,199,825) (3,576,436) (4,086,150) (3,613,000) Total Other Financing Sources (Uses) (1,286,199) (1,960,417) 153,919 (2,434,850) (1,398,240)

EXCESS (DEFICIENCY) OF REVENUES AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER USES (826,975) (5,508,168) (4,174,809) (47) 0

Fund balances at end of prior year 38,004,655 37,177,680 31,669,512 27,494,703 27,494,656

Fund balances at end of year $37,177,680 $31,669,512 $27,494,703 $27,494,656 $27,494,656

(a) Restated from the City of Livermore Audited Financial Reports. (b) Provided by City Finance Department, May 27, 2011. (c) FY2010-2012 Financial Plan (budget) adopted June 14, 2010.

Source: City of Livermore.

37 Statement of Direct and Overlapping Debt

Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics Inc. and dated June 30, 2011. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representations in connection therewith. Any inquiries concerning the scope and methodology of procedures carried out to compile the information presented should be directed to California Municipal Statistics, Inc., San Francisco, California.

The Debt Report generally includes long term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases long term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

CITY OF LIVERMORE Statement of Direct and Overlapping Debt

2010/11 Assessed Valuation: $12,792,980,202 Redevelopment Incremental Valuation: (453,229,861) Adjusted Assessed Valuation: $12,339,750,341

Debt as of OVERLAPPING TAX AND ASSESSMENT DEBT Percent Applicable(a) June 30, 2011

Bay Area Rapid Transit District 2.836% $11,737,211 Chabot-Las Positas Community College District 15.973 72,648,290 Livermore Valley Joint Unified School District 91.427 94,494,376 East Bay Regional Park District 0.025 38,498 City of Livermore Community Facilities District No. 90-1 100.000 18,285,000 City of Livermore Community Facilities District No. 2006-1 100.000 9,905,000 California Statewide Communities Development Authority Assessment District Bonds 100.000 12,682,608 City of Livermore 1915 Act Bonds 100.000 12,950,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 232,740,983

DIRECT AND OVERLAPPING GENERAL FUND DEBT:

Alameda County General Fund Obligations and Coliseum Authority 7.316 52,054,218 Alameda County Pension Obligations 7.316 11,309,420 Chabot-Las Positas Community College District Certificates of Participation 15.973 717,986 City of Livermore Certificates of Participation 100.000 67,345,000(a) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $131,426,624

COMBINED TOTAL DEBT $364,167,607(b)

(a) Excludes certificates of participation to be sold. Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations..

Ratios to 2010/11 Assessed Valuation: Total Overlapping Tax and Assessment Debt...... 1.82%

Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($67,345,000) ...... 0.55% Combined Total Debt ...... 2.95%

State School Building Aid Repayable as of 6/30/10: $0

Source: California Municipal Statistics, Inc.

38 Short Term Obligations

The City has no outstanding short term obligations.

Long Term Obligations

Existing General Fund Obligations

The City has never defaulted on the payment of principal or interest on any of its general fund obligations. A summary of the City’s long-term general fund obligations as of June 30, 2010 and April 30, 2011 is as follows:

CITY OF LIVERMORE Outstanding Long-Term General Fund Obligations As of June 30, 2010

Originally Amount Amount Executed and Outstanding Outstanding Description Delivered June 30, 2010 April 30, 2011 Final Maturity

2007 Certificates of Participation (Refunding and Capital Projects) $15,085,000 $11,090,000 $9,665,000 April 1, 2017 2008 Variable Rate Demand Certificates of Participation (Refunding and Capital Projects) (a) 59,540,000 59,540,000 57,680,000 October 1, 2030 $70,630,000 $67,345,000

(a) Existing letter of credit expires September 22, 2013; it may be renewed at the option of the provider and the City.

While the certificates of participation are general fund obligations of the City, approximately a quarter of the lease payments on the 2008 Variable Rate Demand Certificates of Participation are variously offset from revenues of the City’s Airport Fund, Las Positas Golf Course Enterprise Fund and City Water Enterprise Funds.

In connection with the City’s Maintenance Service Center, the City entered into a long-term sublease agreement with the Livermore Area Recreation and Park District (the “District”) with respect to the District’s shared use of the Center. Pursuant to such agreement, the District is obligated to make sublease payments to the City in annual amounts ranging from $344,109 in 1998/99 to $363,246 in 2011/12. Financing for the Maintenance Service Center is currently through the 2007 Certificates of Participation.

39 The combined annual principal and interest and fee requirements for the City’s outstanding long- term general fund obligations as of June 30, 2010 are as follows:

CITY OF LIVERMORE Outstanding Long-Term General Fund Obligations Lease Payments As of June 30, 2010

Fiscal Year Ending June 30, Lease Payments

2011 $4,810,860 2012 4,850,085 2013 4,885,860 2014 4,931,999 2015 4,975,560 2015/16-2019/20 20,114,471 2020/21-2024/25 17,825,461 2025/26-2029/30 19,482,828 2030-2031 4,121,227 Total Lease Payments 85,998,351 Less Assumed Interest and Fees (15,368,351) Principal $70,630,000

Future General Fund Obligation

The City has approved the form of and is planning to enter into lease/leaseback agreements with the Livermore Redevelopment Agency (the “Agency”) and the Livermore Area Performing Arts Center, a 501(c)(3) non-profit corporation (“LVPAC”), for the purpose of financing the majority of the costs of design and construction of an approximately 2000 seat regional performing arts theater (the “Regional Theater”). Construction costs are to be funded by LVPAC from proceeds of revenue bonds (“LVPAC Bonds”), currently planned to be issued in either the late summer or early fall of 2011, from fund raising and from other revenue of LVPAC. LVPAC will be the obligor for the repayment of the LVPAC Bonds. It is estimated by LVPAC that the amount of the LVPAC Bonds issued will be approximately $92.6 million, and that annual debt service generally will vary from approximately $5 to $7.5 million. LVPAC will build and operate the Regional Theater on land owned by the Agency. LVPAC’s expected revenue consists primarily of revenue from operations of the Regional Theater, ongoing fund raising and non-housing tax increment revenue of the Agency not committed to tax allocation bonds of the Agency (payable under a lease agreement between the Agency and LVPAC). The obligation of the City under its proposed lease agreement with LVPAC is to make lease payments to LVPAC only and to the extent that all LVPAC revenue sources, including tax increment revenue from the Agency, are insufficient to make debt service payments on the LVPAC Bonds. LVPAC projects that its expected revenue mix, including tax increment revenues from the Agency, will be sufficient to meet all LVPAC expenses and debt service obligations, including the LVPAC Bonds, plus generate an overall operating surplus, and that the City will not actually have to fund any payments under its lease agreement with LVPAC. LVPAC has provided the City with estimates budgeting annual use of Agency tax increment revenue received towards payment of debt service on the LVPAC Bonds, to commence in 2015/16, in varying amounts depending on the year, up to $6,246,041 in some years. Whether LVPAC’s actual future revenues will match, exceed or fall short of its projections of generating sufficient revenue to pay debt service on the LVPAC Bonds is unknown.

As part of the Governor’s 2011/12 Budget effort, amended legislation, Senate Bill 77 and Assembly Bill 101, were introduced on March 15, 2011 (the “SB 77/AB 101") to disestablish redevelopment agencies as of July 1, 2011, take $1.7 billion State-wide of what would have been redevelopment agency tax 40 increment revenue for the State general fund in 2011/12, and thereafter have what would have been non- housing tax increment revenue in excess of the amount required to pay existing enforceable tax increment obligations flow to local taxing agencies as regular property tax revenue. All debt service and other payments in the amounts and as due on all redevelopment agency tax allocation bonds and other enforceable obligations of tax increment that were in existence prior to disestablishment would continue to be paid. Further, SB 77/AB 101 would prohibit any new redevelopment agreements or actions after its effective date, create and empower an oversight committee directed, subject to vote of the committee, to undo agreements a redevelopment agency has entered where it can, including to the extent of using tax increment revenue to pay damages to do so, and to generally liquidate redevelopment agency non-housing assets with the intent of maximizing revenue to the State and local taxing agencies. Under SB 77/AB 101 the composition of a seven person oversight committee would be appointees of local taxing agencies, weighted towards school districts and the County, with only one vote for the City, all of which would benefit from increased property tax revenue to the extent that the oversight committee terminated the tax increment obligations it could and liquidated the assets of the Agency upon its disestablishment. As of the date of this Official Statement, SB 77/AB 101 failed by one vote to pass in the State Assembly, there have been no subsequent attempts at passage.

However, on June 15, 2011 the State legislature passed Assembly Bill ABX1 26 (“ABX1 26") with generally the same provisions found in SB 77/AB 101 in respect to disestablishment of redevelopment agencies as a “trailer” bill to a 2011-12 budget act passed by the State legislature on the same day. The proposed 2011-12 budget act was vetoed by the Governor on June 16, 2011 as, among other things, not truly being a balanced budget. ABX1 26 was not presented to the Governor so as of the date of this Official Statement has neither been vetoed nor signed, but could be presented to the Governor at any time. ABX1 26 has an October 1, 2011 date for disestablishment of redevelopment agencies, but the provisions blocking any further redevelopment actions and agreements by redevelopment agencies are effective as of the effective date of ABX1 26, whenever it might be enacted.

If the provisions of ABX1 26 or SB 77/AB 101 (either, “Proposed Legislation”) became law, it is unknown whether any of the proposed lease or other agreements of the Agency with the City or LVPAC would be challenged by an oversight committee created under the Proposed Legislation, or what the outcome of such a challenge would be. If LVPAC were blocked under the Proposed Legislation or similar legislation from receipt of Agency tax increment revenue, it would be a material loss of revenue to LVPAC that could result in a need for general fund lease payments by the City under the City’s lease agreement with LVPAC.

At the same time as the passage of ABX1 26, Assembly Bill ABX1 27 (“ABX1 27") was also passed by the State legislature and also not presented to the Governor. ABX1 27 basically would allow a city or county to “reinstate” its redevelopment agency if the city or county “voluntarily” undertakes an obligation to make payments to or as directed by the State based on it’s agency’s share of a State-wide take from redevelopment agencies of $1.7 billion in 2011/12 and State-wide annual takes of $400 million thereafter. If the city or county did not make such payment in the future, the redevelopment agency would be dissolved and the provisions of the Proposed Legislation would apply. It is permitted and presumed that the agency would provide tax increment revenue to fund such payments under agreement to be made with its city or county.

It is unknown whether the Proposed Legislation or other legislative proposals to limit or prohibit redevelopment agency projects or obligations or curtail or take tax increment revenue ultimately will be enacted, or if enacted, will withstand court challenge. Any redevelopment agency disestablishment legislation would seem to at least have to be compatible with (a) Article XVI, Section 16 of the State constitution establishing tax increment financing and requiring tax increment to be paid to redevelopment agencies, (b) Article XIII, Section 25.5 of the State constitution prohibiting the transfer of tax increment to the State, any agency of the State or any local jurisdiction and (c) State and federal constitutional provisions prohibiting legislation impairing the obligation of contracts.

41 Non-General Fund Obligations

In addition to long-term obligations payable from the general funds of the City, the City has issued or caused to be issued, certain other long-term obligations which are solely payable from specified enterprise funds, special assessments on property within assessment districts, special taxes on property within a community facilities district or project area tax increment revenue but not from the general funds of the City. These are summarized below.

The City had outstanding as of June 30, 2010, $3,128,866 through the State Revolving Fund program administered by the State Water Resources Control Board, all payable solely from the City’s Sewer Enterprise Fund.

As of June 30, 2010, City assessment or community facilities district had in aggregate $44,120,000 outstanding principal amount of bonds, payable solely from special assessments or special taxes levied on certain property within respective assessment or community facility districts within the City. The Series No. 1993-94 Bonds of Consolidated Refunding Assessment District No. 1993-4, one of the City’s districts, were purchased entirely by the Authority with the proceeds of the Authority’s 1998 Marks Roos Revenue Bonds. The Marks Roos Revenue Bonds are payable solely from the principal and interest payments payable on the Series No. 1993-4 Bonds received by the Authority. As of June 30, 2010, there were $11,375,000 outstanding Series No. 1993-4 Bonds held as an investment by a trustee on behalf of the Authority, and there were $11,820,000 outstanding 1998 Marks-Roos Revenue Bonds of the Authority.

As of June 30, 2010, the Livermore Redevelopment Agency had outstanding $32,625,000 aggregate principal amount of 2001 Tax Allocation Bonds, Series A, payable solely from non-housing tax increment revenue of the Agency, and had outstanding $9,672,339 of California Housing Finance Agency loans, payable solely from housing set-aside tax increment revenue of the Agency.

City Investment Policy and Portfolio

The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by outside fiscal agents under the provisions of bond indentures and deferred compensation plan agreements. Under provisions of the City’s investment policy and in accordance with California Government Code Section 53601, the City, subject to certain limits, may invest in the following types of investments: securities of the U.S. government, its agencies and instrumentalities; insured or collateralized certificates of deposit (or time deposits); negotiable certificates of deposit; bankers’ acceptances; commercial paper of “prime”quality; Local Agency Investment Fund (a State Treasurer’s pool) demand deposits; California State or local agency obligations; passbook savings account demand deposits; repurchase agreements with a maturity no greater than one year; reverse repurchase agreements with a maturity no greater than 92 days; mutual funds registered with the SEC which invest in securities authorized by law; medium-term corporate notes; and certain pass-through securities with a minimum term of five years.

42 At January 31, 2011, the City had no investments in repurchase agreements. In addition, at no time during the fiscal year did the City borrow funds through the use of reverse repurchase agreements, even though such transactions are authorized by the City’s investment policy. Investments at January 31, 2011 in all funds, exclusive of funds held by trustees, were as follows:

Type Book Value Market Value

Local Agency Investment Fund $77,001,853.00 $77,185,841.00 Commercial Paper – Discount 0.00 0.00 Federal Agency Issues – Coupon 62,840,671.00 62,553,838.00 Money Market 0.00 0.00 Cash and Accrued Interest at Purchase 703,000.00 703,000.00 Total Investments $140,545,524.00 $140,442,679.00

See also “Note 3" to the City’s June 30, 2010 Basic Financial Statements in “APPENDIX B — INDEPENDENT AUDITOR’S LETTER, MANAGEMENT’S DISCUSSION AND ANALYSIS, BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR YEAR ENDED JUNE 30, 2010 FOR THE CITY OF LIVERMORE” for further discussion of City investments.

Financial and Accounting Information

The City uses funds and account groups to report on its financial position and the results of its operations. The City’s auditors are Maze & Associates, Pleasant Hill, California. The City’s accounting methods are described in “APPENDIX B — INDEPENDENT AUDITOR’S LETTER, MANAGEMENT’S DISCUSSION AND ANALYSIS, BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR YEAR ENDED JUNE 30, 2010 FOR THE CITY OF LIVERMORE”. The City has neither sought nor obtained the consent of its auditors to include the audited financial statements in this Official Statement.

ECONOMIC PROFILE

Population

The following table summarizes population figures for the City of Livermore and for Alameda County.

CITY OF LIVERMORE AND ALAMEDA COUNTY Population

Year City of Livermore Alameda County

2007 82,646 1,522,597 2008 83,604 1,543,000 2009 84,470 1,557,749 2010 80,905 1,509,240 2011 81,687 1,521,157

Source: Data for years 2007 through 2009 is from State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and the State, 2001-2010, with 2000 Benchmark. Sacramento, California, May 2010. Data for 2010 and 2011 is from State of California, Department of Finance, E-5 Population and Housing Estimates for Cities, Counties and the State, 2010-2011, with 2010 Benchmark. Sacramento, California, May 2011. Data with a 2000 Benchmark is not compatible with data with a 2010 Benchmark.

43 Employment

The following table summarizes historical employment and unemployment in the Oakland-Fremont- Hayward Metropolitan Division, comprised of Alameda and Contra Costa Counties.

OAKLAND METROPOLITAN STATISTICAL AREA Civilian Labor Force, Employment and Unemployment Annual Averages

2006 2007 2008 2009 2010 Civilian Labor Force(a) Employment 1,209,700 1,220,600 1,208,500 1,153,000 1,133,200 Unemployment 55,500 60,900 79,200 135,600 144,200 Total 1,265,200 1,281,500 1,287,700 1,288,600 1,277,400

Unemployment Rate(b) 4.4% 4.8% 6.2% 10.5% 11.3%

(a) Based on place of residence; March 2010 Benchmark. (b) The unemployment rate is calculated using unrounded data.

Source: California Employment Development Department, Labor Market Information Division

The following table summarizes the historical numbers of workers in the Oakland-Fremont-Hayward Metropolitan Division by industry.

OAKLAND-FREMONT-HAYWARD METROPOLITAN DIVISION Estimated Number of Wage and Salary Workers by Industry(a) (in thousands)

2006 2007 2008 2009 2010

Agricultural 1,500 1,500 1,400 1,400 1,500 Natural Resources and Mining 1,200 1,200 1,200 1,200 1,200 Construction 73,300 71,700 64,900 53,500 47,600 Manufacturing 95,800 94,400 93,100 82,800 78,600 Trade, Transportation and Utilities 197,100 199,300 193,000 179,900 173,900 Information 30,100 29,000 27,800 25,300 23,900 Financial Activities 67,700 62,400 57,200 48,000 48,300 Professional and Business Services 154,900 158,000 162,200 148,700 148,000 Educational and Health Services 121,800 124,200 128,700 137,200 139,700 Leisure and Hospitality 85,600 88,000 89,000 85,100 85,600 Other Services 35,900 36,200 36,100 34,700 34,600 Government 182,000 183,900 177,200 172,500 167,100

Total All Industries 1,046,900 1,049,800 1,031,800 969,400 950,000

(a) The industry employment data are now based upon the North American Industry Classification System (NAICS). Newly released data are not comparable to the data based on the Standard Industrial Classification (SIC). Items may not add to totals due to independent rounding. March 2010 Benchmark.

Source: California Employment Development Department, Labor Market Information Division.

44 Major Employers

The following table summarizes the major employers in the City:

CITY OF LIVERMORE Major Employers

Company Product/Service Employees

Lawrence Livermore National Laboratory Government Research and Development 8,750 Valley Care Health System Lifestyle Rx Fitness Center Medical Center, Fitness Center 1,300 Livermore Valley Joint Unified School District Public School System 1,120 Comcast Cable Services 1,000 Sandia Nation Laboratory Government Research and Development 910 FormFactor, Inc. Semiconductor Testing 850 Wente Vineyards Winery, Golf, Entertainment, Restaurant 676 Kaiser Permanente Regional Distribution Center Warehouse, Distribution, and Records Storage 675 City of Livermore Government 656 Livermore Area Recreation and Park District Government 508 Topcon Positioning Systems Manufacturing 394 Activant Solutions Business Management Solutions 363 Johnson Control, Inc. Manufacturing 279 WalMart Stores Retail 265 Costco Wholesale Retail 245 Target Retail 185 Rental & Sales of modular offices & classrooms, & electronic McGrath RentCorp test equipment 185 Valmark Industries Manufacturing 180 Circuit City Retail Warehouse & Distribution 150 Lowe’s Home Retail 150 Kaiser Permanente Health Center Medical Offices and Pharmacy 130

Source: 2011 Copyright Livermore Chamber of Commerce

45 Construction Activity

The following table summarizes historical residential building permit valuation for the City and the County.

CITY OF LIVERMORE AND ALAMEDA COUNTY Residential Building Permit Valuation (Dollars in Thousands)

City of Livermore Alameda County Year(a) Units(b) Valuation(c) Units(b) Valuation(c)

2005 440 $119,330 4,376 $1,008,662 2006 207 61,450 6,229 1,153,501 2007 191 53,486 2,912 680,081 2008 70 18,720 1,925 390,845 2009 109 23,518 1,333 328,890

(a) As of January 1. (b) Does not include alterations and additions. (c) Includes all residential building activity.

Source: "California Building Permit Activity," Economic Sciences Corporation.

Commercial Activity

The following table summarizes historical taxable transactions in the City and the County.

CITY OF LIVERMORE AND ALAMEDA COUNTY Taxable Transactions (Dollars in Thousands)

City of Livermore Alameda County Year Outlets Taxable Transactions Outlets Taxable Transactions

2005 2,232 $1,688,249 42,792 $24,242,981 2006 2,219 1,792,708 41,951 25,223,384 2007 2,252 1,815,682 42,014 25,831,140 2008 2,262 1,768,293 41,783 23,862,957 2009 2,177 1,575,305 38,663 20,430,195

Source: State Board of Equalization.

46 Median Household Income

Effective Buying Income (EBI) is defined as money income less personal income tax and non-tax payments, such as fines, fees or penalties. The following table summarizes historical median household EBI, for the City, County, State and United States of America.

CITY OF LIVERMORE, ALAMEDA COUNTY, STATE OF CALIFORNIA AND UNITED STATES OF AMERICA Median Household Effective Buying Income

Year(a) City of Livermore Alameda County State of California United States of America

2005 $64,845 $51,415 $43,915 $39,324 2006 Data Not Available 2007 Data Not Available 2008 71,226 54,688 48,203 41,792 2009 73,908 55,987 48,952 42,303 2010 69,452 57,997 49,736 49,726

(a) As of January 1.

Source: The Nielsen Company.

LEGAL MATTERS

Tax Matters

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Special Counsel, subject, however to the qualifications set forth below, under existing law, the portion of each Lease Payment designated as and comprising interest paid by the City and received by the registered owners of the Certificates is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings.

The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 (the “Code”) that must be satisfied subsequent to the delivery of the Lease Agreement in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Lease Agreement.

In the further opinion of Special Counsel, interest payable with respect to the Certificates is exempt from California personal income taxes.

Owners of the Certificates should also be aware that the ownership or disposition of, or the accrual or receipt of interest with respect to, the Certificates may have federal or state tax consequences other than

47 as described above. Special Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Lease Agreement and the Certificates other than as expressly described above.

Certain Legal Matters

Jones Hall, A Professional Law Corporation , San Francisco, California, Special Counsel, will render opinions with respect to the validity and enforceability of the Lease Agreement and the Trust Agreement. Copies of such approving opinion will be available at the time of delivery of the Certificates. Special Counsel will also provide an opinion of the adequacy of disclosure of this Official Statement to the Underwriter.

Absence of Litigation

There is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the execution or delivery of the Certificates, the Lease Agreement or the Trust Agreement or in any way contesting or affecting the validity of the foregoing or any proceedings of the City taken with respect to any of the foregoing, or that would have a material adverse impact on the general fund of the City.

MISCELLANEOUS

Ratings

Standard & Poor's has assigned its municipal bond rating of “AA” with a “Stable Outlook” to the Certificates. Such rating reflects only the view of such organization and any desired explanation of the significance of such rating should be obtained from the rating agency at the following address: Standard & Poor’s, 55 Water Street, 38th Floor, New York, New York 10041.

Generally, a rating agency bases its rating on the information and materials furnished to it (some of which may not be included in this Official Statement) and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgement of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Certificates.

Underwriting

Pursuant to the terms of a public bid held on June 16, 2011, Morgan Stanley & Co., Incorporated, as Underwriter (the “Underwriter”), has agreed to purchase the Certificates from the City at the purchase price of $17,101,977.63. The Underwriter has represented to the City that the Certificates were reoffered to the public at the prices or yields set forth on the inside cover page of this Official Statement, at an aggregate reoffering price of par less an original issue discount of $96,009.40 or $17,373,990.60. The Underwriter will be obligated to take and pay for all of the Certificates, if any Certificate is purchased.

Morgan Stanley, parent company of the Underwriter, has entered into a retail brokerage joint venture with Citigroup Inc. As part of the joint venture, the Underwriter will distribute municipal securities to retail investors through the financial advisor network of a new broker-dealer, Morgan Stanley Smith Barney LLC. This distribution arrangement became effective on June 1, 2009. As part of this arrangement, the

48 Underwriter will compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Certificates.

The Trustee's ultimate parent company, Mitsubishi UFJ Financial Group, Inc. ("MUFG") beneficially owns up to 24.9%, of the voting shares of Morgan Stanley and is also represented on the Morgan Stanley board of directors. For purposes of clarity, this percentage interest includes managed shares, which are shares of common stock held by certain MUFG affiliates (including the Trustee) solely in a fiduciary capacity as the trustee of trust accounts or as the manager of investment funds, other investment vehicles, and managed accounts.

Continuing Disclosure

The City has covenanted for the benefit of the holders and beneficial owners of the Certificates to provide certain financial information and operating data relating to the City by not later than 270 days following the end of the City’s fiscal year (the “Annual Report”), commencing with the Annual Report for the 2010/11 Fiscal Year, which is due no later than April 1, 2012, and to provide notices of the occurrence of certain enumerated events. Currently, the City’s Fiscal Year ends on June 30 of each year. The Annual Report will be filed by the City in readable PDF or other acceptable electronic form with the Electronic Municipal Market Access system of the Municipal Securities Rulemaking Board (“EMMA”). Any notices of enumerated events will be filed with EMMA in the same manner as an Annual Report. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is set forth below under the caption “APPENDIX D — Form of Continuing Disclosure Certificate.” These covenants have been made to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of enumerated events.

Financial Advisor

The City has entered into an agreement with the Financial Advisor whereunder the Financial Advisor provides financial advisory services to the City with respect to preparation and sale of the Certificates. The Financial Advisor has read and participated in the drafting of certain portions of this Official Statement and has supervised the completion and editing thereof. The Financial Advisor has not audited, authenticated or otherwise verified the information set forth in the Official Statement, or any other related information available to the City, with respect to accuracy and completeness of disclosure of such information, and the Financial Advisor makes no guaranty, warranty or other representation respecting accuracy and completeness of the Official Statement or any other matter related to the Official Statement.

Availability of Documents

Copies of the Lease Agreement, the Trust Agreement and the Assignment Agreement are available, upon request, from the City of Livermore, 1052 South Livermore Avenue, Livermore, California 94550.

49 Additional Information

The purpose of this Official Statement is to supply information to prospective buyers of the Certificates. Quotations from and summaries and explanations of the Certificates, the Trust Agreement, the Lease Agreement, the Property Lease, the Assignment Agreement and the documents, statutes and constitutional provisions referenced herein, do not purport to be complete, and reference is made to said documents, statutes, and constitutional provisions for full and complete statements of their provisions. Appropriate City officials, acting in their official capacities, have determined that as of the date hereof, to the best of their knowledge and belief, the information contained herein (excluding the description of the DTC and its book-entry system and information relating to the reoffering prices of the Certificates to investors, provided by the Underwriter), did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. This Official Statement has been approved by the City.

CITY OF LIVERMORE

By: /s/ Holly Brock-Cohn Director of Administrative Services

50 APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

A-1 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following are brief summaries of the provisions of the principal legal documents. These summaries are not intended to be definitive. Reference is made to the actual documents (copies of which are available from the City) for the complete terms thereof.

DEFINITIONS

“Assignment Agreement” means the Assignment Agreement, dated as of June 1, 2011, by and between the Authority and the Trustee, together with any duly authorized and executed amendments thereto.

“Authority Representative” means the Chair or Executive Director of the Authority, or any other person authorized by resolution of the Authority to act on behalf of the Authority under or with respect to the Trust Agreement and the Lease Agreement.

“Authority” means the Livermore Capital Projects Financing Authority, a joint exercise of powers agency duly formed, organized, operating and existing under the laws of the State, and its successors and assigns.

“Certificates” means the 2011 Certificates of Participation.

“City Representative” means the City Manager or the Financial Services Manager of the City or any other person authorized by resolution of the City Council to act on behalf of the City under or with respect to the Trust Agreement and the Lease Agreement.

“Code” means the Internal Revenue Code of 1986, as amended.

“Corporate Trust Office” means the corporate trust office of the Trustee at 350 California Street, 11th Floor, San Francisco, CA 94104, Attention: Corporate Trust, or at such other address designated by the Trustee in written notice filed with the City, the Authority and the Owners.

“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City or the Authority relating to the execution, sale and delivery of the Certificates, including but not limited to settlement costs, printing costs, reproduction and binding costs, initial fees and charges of the Trustee, financing discounts, legal fees and charges, bond insurance or title insurance fees and charges, financial and other professional consultant fees, costs of rating agencies for credit ratings, fees for execution, transportation and safekeeping of the Certificates and charges and fees in connection with the foregoing.

“Costs of Issuance Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Event of Default” means an event of default under the Lease Agreement, as defined in the Lease Agreement.

“Federal Securities” means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein:

A-1 (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America); and

(b) obligations of any department, agency or instrumentality of the United States of America the timely payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America.

“Fiscal Year” means each twelve-month period beginning on July 1 of any year and ending on June 30 of the succeeding year, or any other twelve-month period hereafter adopted by the City as its official fiscal year period.

“Independent Counsel” means an attorney duly admitted to the practice of law before the highest court of the state in which such attorney maintains an office and who is not an employee of the Authority, the Trustee or the City.

“Insurance and Condemnation Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Investment Securities” means any of the following to the extent then permitted by law:

(a) Federal Securities;

(b) 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 (formerly the Farmers Home Administration); —U.S. Maritime Administration; —Small Business Administration; —U.S. Department of Housing & Urban Development (PHAs); —Federal Housing Administration; —Federal Financing Bank;

(c) 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); and

—Senior debt obligations of the Federal Home Loan Bank System.

(d) U.S. dollar denominated deposit accounts, federal funds and bankers’ acceptances with domestic commercial banks, including the Trustee and its affiliates, which have a rating on their short- term certificates of deposit on the date of purchase of “A-1” or “A-1+” by S&P and “P-1” by Moody’s and maturing no more than 360 calendar days after the date of purchase (ratings on holding companies are not considered as the rating of the bank);

A-2 (e) commercial paper which is rated at the time of purchase in the single highest classification, “A-1+” by S&P and “P-1” by Moody’s, and which matures not more than 270 calendar days after the date of purchase;

(f) investments in a money market fund rated “AAAm” or “AAAm-G” or better by S&P, including funds for which the Trustee or its affiliates receive fees for investment advisory or other services to the fund;

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

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

(ii) (A) 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 clause (b) of the definition of Government 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 (B) 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;

(h) municipal obligations rated “Aaa/AAA” or general obligations of states with a rating of least “A2/A” or higher by both Moody’s and S&P; and

(i) the Local Agency Investment Fund of the State of California.

“Lease Agreement” means the Lease Agreement dated as of June 1, 2011, by and between the Authority, as lessor, and the City, as lessee, together with any further duly authorized and executed amendments thereto.

“Lease Default Event” means any of the events of default specified in the Lease Agreement and summarized on page A-11.

“Lease Payments” means all payments required to be paid by the City pursuant to the Lease Agreement, including any prepayment thereof pursuant to the Lease Agreement.

“Lease Payment Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Leased Property” means: four of the City’s fire stations, consisting of: (i) Fire Station No. 6, located at 4550 East Avenue; (ii) Fire Station No. 7, located at 951 Rincon Avenue; (iii) Fire Station No. 8, located at 5750 Scenic Avenue; and (iv) Fire Station No. 9, located at 1919 Cordoba, all located in the City, as more explicitly described in the Lease Agreement.

“Moody's” means Moody's Investors Service, of New York, New York, or its successors.

A-3 “Net Proceeds” means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to the Leased Property, to the extent remaining after payment therefrom of all expenses incurred in the collection thereof.

“Outstanding”, when used as of any particular time with reference to Certificates, means (subject to the provisions of the Trust Agreement) all Certificates theretofore, or thereupon being, executed and delivered by the Trustee under the Trust Agreement except (1) Certificates theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation; (2) Certificates with respect to which all liability of the City shall have been discharged in accordance with the Trust Agreement, including Certificates (or portions of Certificates) referred to in the Trust Agreement; and (3) Certificates for the transfer or exchange of or in lieu of or in substitution for which other Certificates shall have been executed and delivered by the Trustee pursuant to the Trust Agreement.

“Owner” or “Certificate Owner”, when used with respect to a Certificate means the person in whose name the ownership of such Certificate shall be registered.

“Payment Date” means (i) with respect to the interest component of the Lease Payments payable to the Owners of the Certificates, February 1, 2012, and the first day of each August and February thereafter so long as any Certificates are Outstanding hereunder, and (ii) with respect to the principal of the Certificates, August 1, 2013 and each August 1 thereafter so long as the Certificates are Outstanding.

“Principal Amount” means the total unpaid principal component of the Lease Payments due under the Lease Agreement.

“Project” means: (a) the costs of design and construction of a two mile extension of Jack London Boulevard, including a bridge over Arroyo Las Positas, a sewer force main and water and electrical utilities, which will complete the Jack London Boulevard connection from State Route 84 to the El Charro Road Interchange with I-580, and (b) in the same area, the installation of storm drainage facilities, including a 40 acre southern conveyance facility, two approximately 5 acre storm water basins and various runs of culverts and storm drain piping; and (c) the cost of design and construction of an approximately 12,000 square foot new Airport Administration Building for the Livermore Municipal Airport on a 1 acre lot directly adjacent to the existing building located at 636 Terminal Circle in the City, acquired and constructed with the proceeds of the Certificates, together with associated costs, and includes any other public capital improvement selected by the City.

“Project Costs” means all costs of payment of, or reimbursement for, acquisition and construction of the Project, including but not limited to, inspection costs, and includes Costs of Issuance not paid out of the Costs of Issuance Fund.

“Project Fund” means the fund by that name established and held by the Trustee pursuant to the Trust Agreement.

“Rating Category” means any generic rating category of Moody's or S&P, without regard to any refinement of such category by plus or minus sign or by numerical or other qualifying designation.

“Record Date” means the close of business on the fifteenth day of the month preceding each Payment Date, whether or not such fifteenth day is a Business Day.

“Registration Books” means the records maintained by the Trustee pursuant to the Trust Agreement for registration and transfer of ownership of the Certificates.

“Regulations” means temporary and permanent regulations promulgated under the Code.

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“Reserve Fund” means the fund established and held by the Trustee pursuant to the Trust Agreement.

“Reserve Requirement" means, as of the date of calculation, an amount equal to the lesser of (i): ten percent (10%) of the original Principal Amount of the Lease Payments; (ii) 125% of average annual Lease Payments; or (iii) maximum annual Lease Payments. For purposes of this definition, “annual” shall be calculated on a Fiscal Year basis.

“S&P” means Standard & Poor's Corporation, of New York, New York, or its successors.

“State” means the State of California.

“Tax Code” means the Internal Revenue Code of 1986, as amended, or any federal statutes enacted in lieu of the Internal Revenue Code of 1986. Any reference herein to a provision of the Tax Code shall include all applicable regulations of the United States Department of the Treasury promulgated be deemed to be and shall refer to any statute of similar import enacted in lieu or in amendment of such section or contained in any federal statutes enacted in lieu of the Internal Revenue Code of 1986.

“Term of the Lease Agreement” means the time during which the Lease Agreement is in effect, as provided in the Lease Agreement.

“Trust Agreement” or “Agreement” means the Trust Agreement, together with any amendments or supplements hereto permitted to be made hereunder.

“Written Request of the City” means an instrument in writing signed by the City Representative.

PROPERTY LEASE

Under the Property Lease, the City leases the Leased Property to the Authority, to enable the Authority to lease the Leased Property back to the City under the Lease Agreement.

LEASE AGREEMENT

Lease of Leased Property; Term

The term of the Property Lease is coterminous with the term of the Lease Agreement.

The Authority leases the Leased Property to the City pursuant to the Lease Agreement. The Lease Agreement commences on the Closing Date, and terminates on August 1, 2041, or such earlier or later date (but not beyond August 1, 2051) on which the obligations represented by the Certificates are paid or deemed to have been paid in full, except under certain circumstances such as the taking of all of any portion of the Leased Property in eminent domain proceedings.

Acquisition and Construction of the Project

The Authority has appointed the City as its agent for the purposes of acquiring and constructing the Project. The City, as agent of the Authority, shall be diligent in acquiring and constructing the Project. In addition, in the event that the costs of acquiring and constructing the Project or any portion thereof are

A-5 greater than the amount of money deposited in or transferred to the Project Fund, together with investment earnings thereon, the City agrees if, under such circumstances, it nonetheless desires to acquire the Project, to deposit into the Project Fund an amount of money necessary to pay such increased Project Costs, but only from legally available funds.

Substitution and Removal

The City has been granted the option at any time and from time to time during the Term of the Lease, to substitute other land, facilities, improvements or other property (a "Substitute Property") for the Leased Property or any portion thereof (a "Former Property"), provided that the City shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such substitution:

(a) The City shall take all actions and shall execute all documents required to subject such Substitute Property to the terms and provisions of the Lease and the Property Lease, including the filing with the Authority and the Trustee an amended Exhibit B to the Lease and Exhibit A to the Property Lease which adds thereto a description of such Substitute Property and deletes therefrom the description of such Former Property, and including the recordation of the Lease or a memorandum hereof with respect to such Substitute Property in the office of the Alameda County Recorder;

(b) The City shall certify in writing to the Authority and the Trustee, such certification to be accompanied by an appraisal prepared by an appraiser who is independent of the City, that the estimated fair market value of such Substitute Property is at least equal to estimated fair market value of such Former Property, except that the estimated fair market value of such Substitute Property, together with the portion of the Leased Property remaining after the removal of the Former Property, shall not be required to exceed the aggregate principal components of the unpaid Lease Payments;

(c) The City shall certify in writing to the Authority and the Trustee that such Substitute Property serves the public purposes of the City and constitutes property which the City is permitted to lease under the laws of the State of California;

(d) The City shall certify in writing to the Authority and the Trustee that the estimated useful life of such Substitute Property at least extends to the date on which the final Lease Payment becomes due and payable hereunder;

(e) The City shall obtain a CLTA policy of title insurance meeting the requirements of the Lease Agreement with respect to such Substitute Property;

(f) The Substitute Property shall not cause the City to violate any of its covenants, representations and warranties made herein or in the Trust Agreement; and

(g) Such substitution will not cause the rating then assigned to the Certificates to be reduced or withdrawn.

From and after the date on which all of the foregoing conditions precedent to such substitution are satisfied, the Term of the Lease shall cease with respect to the Former Property and shall be continued with respect to the Substitute Property, and all references herein to the Former Property shall apply with full force and effect to the Substitute Leased Property. The City shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such substitution.

A-6 The City has been granted the option at any time and from time to time during the Term of the Lease, to remove any property from the description of the Leased Property, provided that the City shall satisfy all of the following requirements which are hereby declared to be conditions precedent to such removal:

(a) The City shall file with the Authority and the Trustee and cause to be recorded with the Alameda County Recorder an amended Exhibit B to the Lease and Exhibit A to the Property Lease, which deletes therefrom the description of the property to be removed;

(b) The City shall obtain a report of an independent appraiser certifying that the appraised value of the Leased Property which will remain following such removal is not less than the aggregate principal amount of the Outstanding Certificates, and that the useful life of the Leased Property is not less than the final payment date of the unpaid Lease Payments; and

(c) The City shall obtain and cause to be filed with the Trustee and the Authority an opinion of Bond Counsel stating that such removal is permitted hereunder and does not cause interest represented by the Certificates to become includable in the gross income of the Certificate Owners for federal income tax purposes; and

(d) Such substitution will not cause the rating then assigned to the Certificates to be reduced or withdrawn.

From and after the date on which all of the foregoing conditions precedent to such removal are satisfied, the Term of the Lease shall cease with respect to the property which is so removed. The City shall not be entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such removal.

Lease Payments; Budget and Appropriation

The City agrees to pay semiannual Lease Payments as the rental for the use and possession of the Leased Property. On each Lease Payment Date, the City is obligated to deposit with the Trustee the full amount of the Lease Payments coming due and payable on the next Interest Payment Date. Any amount on deposit in the Lease Payment Fund on any Lease Payment Date is required to be credited towards the payment then required to be deposited by the City with the Trustee.

The City agrees to take such actions as may be necessary to include all Lease Payments in its annual budgets and to appropriate such Lease Payments in each Fiscal Year during the term of the Lease Agreement. The City agrees to file with the Trustee a certificate stating that the Lease Payments in any Fiscal Year have been included in the final budget for such Fiscal Year.

In addition, the City has agreed to pay compensation due to the Trustee and all costs and expenses of auditors, engineers and accountants, and costs of issuance to the extent not paid out of Certificate proceeds.

Abatement of Lease Payments

The Lease Payments shall be abated under the Lease Agreement during any period in which due to damage or destruction of the Leased Property in whole or in part, or due to taking in eminent domain proceedings of the Leased Property in whole or in part, there is substantial interference with the City's use and occupancy of all or any portion of the Leased Property. The amount of such abatement shall be an amount agreed upon by the City and the Authority such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property; except

A-7 that there shall be no abatement of Lease Payments to the extent that the net proceeds of rental interruption insurance and amounts in the Reserve Fund are available to pay Lease Payments. In the event of such abatement, the City will have no obligation to pay abated Lease Payments and there is no remedy available to Certificate owners arising from such abatement.

Title

During the term of the Lease Agreement, the City shall hold title to the Leased Property and any and all additions which comprise fixtures, repairs, replacements or modifications to the Leased Property, including those fixtures, repairs, replacements or modifications which are added to the Leased Property by the City at its own expense and which may be removed without damaging the Leased Property and including any items added to the Leased Property by the City. During the term of the Lease Agreement, the Authority holds a leasehold estate in the Leased Property. If the City pays or prepays the Lease Payments relating to the Leased Property in full pursuant to the Lease Agreement, the Authority's leasehold estate in the Leased Property terminates without the necessity for any further instrument of transfer.

Maintenance, Utilities, Taxes and Modifications

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

Insurance

The Lease Agreement requires the City to maintain or cause to be maintained the following insurance against risk of physical damage to the Leased Property and other risks for the protection of the Certificate owners, the Authority and the Trustee.

Public Liability and Property Damage Insurance

The City shall maintain or cause to be maintained, throughout the Term of the Lease Agreement, a standard comprehensive general insurance policy or policies in protection of the Authority, City, and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $150,000 (subject to a deductible clause of not to exceed $250,000, or such higher amount as the City shall determine, provided that such higher deductible shall be considered a self insured retention for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 per occurrence covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried by the City. The proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the proceeds of such insurance shall have been paid.

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Fire and Extended Coverage Insurance

The City shall procure and maintain, or cause to be procured and maintained, throughout the remainder of the Term of the Lease Agreement, insurance against loss or damage to any structures constituting any part of the Leased Property by fire and lightning, with extended coverage and vandalism and malicious mischief insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount equal to one hundred percent (100%) of the replacement cost of the Leased Property. Such insurance may be subject to deductible clauses of not to exceed $100,000 for any one loss. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage carried by the City. The City hereby assigns to the Authority all right of the City to collect and receive Net Proceeds under any of said policies, which right has been assigned by the Authority to the Trustee pursuant to the Assignment Agreement. The Net Proceeds of such insurance shall be applied as provided in the Lease.

Rental Interruption Insurance

The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of the buildings, facilities and other improvements constituting any part of the Leased Property, as a result of casualty loss, in an amount at least equal to the maximum Lease Payments coming due and payable during any two consecutive Fiscal Years during the remaining Term of the Lease. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers authority or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance, if any, shall be paid to the Trustee and deposited in the Lease Payment Fund, and shall be credited towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable.

All policies of insurance (other than the policy of public liability and property damage insurance) must provide that the net proceeds thereof shall be payable to the Trustee and applied as provided in the Lease Agreement and the Trust Agreement. In the event that any such insurance is provided by the City in whole or in part in the form of self-insurance, such self-insurance program shall be approved by independent insurance consultant. In the event that any such insurance is provided in the form of self- insurance by the City, the City is not obligated to make any payment with respect to any insured event except from such reserves.

Title Insurance

The City shall procure, and deliver to the Trustee on the Closing Date, a title insurance policy which insures the leasehold estate created under the Lease Agreement, in an amount equal to the principal amount of the Certificates.

Option to Prepay

The City has the option to prepay the Lease Payments or post a security deposit to pay the Lease Payments, in whole or in part, in the amounts and on the dates set forth in the Lease Agreement. The optional prepayment dates and prices have been determined to correspond to the optional prepayment dates and prices applicable to the Certificates under the Trust Agreement.

A-9 Assignment; Subleases

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

Events of Default; Remedies

Each of the following constitutes an "event of default" under the Lease Agreement:

(i) Failure by the City to make a Lease Payment or other payment required under the Lease Agreement when due;

(ii) Failure by the City to comply with any covenant, condition or agreement in the Lease Agreement, other than default described in (i) above, and the continuance of such failure or default for a period of 30 days after written notice thereof by the Trustee, the Authority or the owners of not less than 25% in aggregate principal amount of outstanding Certificates provided, if the failure stated in the notice can be corrected, but not within such 30-day period, the Trustee, the Authority and such owners shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the City within such 30-day period and diligently pursued until the default is corrected; or

(iii) Certain events relating to bankruptcy of the City.

Upon the occurrence and continuance of any event of default, the Authority has the right to terminate the Lease Agreement or, with or without such termination, re-enter, take possession of and re- let the Leased Property. When the Authority does not elect to terminate the Lease Agreement, the City remains liable to pay all Lease Payments as they come due and liable for damages resulting from such event of default. Any amounts collected by the Authority from the reletting of the Leased Property shall be credited towards the City's unpaid Lease Payments. Any net proceeds of re-leasing or other disposition of the Leased Property are required to be deposited in the Lease Payment Fund and applied to Lease Payments in order of payment date. Pursuant to the Assignment Agreement, the Authority assigns all of its rights with respect to remedies in an event of default to the Trustee, so that all such remedies shall be exercised by the Trustee and the Certificate owners as provided in the Trust Agreement.

The Trustee has no right to accelerate Lease Payments and it is uncertain whether a court would permit the exercise of the remedies of re-entry, repossession or re-letting.

Amendment

(1) Except as provided in paragraph (2) below, without the prior written consent of the Trustee, the City will not alter, modify or cancel, or agree or consent to alter, modify or cancel the Lease Agreement, except (1) to add to the covenants and agreements of any party, other covenants to be observed, or to surrender any right or power herein or therein reserved to the City, (2) to cure, correct or supplement any ambiguous or defective provision contained herein or therein so long as such modification or amendment is not inconsistent with any other provision contained herein, (3) in regard to questions arising under the Lease, as the parties thereto may deem necessary or desirable and which shall not adversely affect the interests of the Owners of the Certificates, (4) to correct any incorrect property

A-10 description or (5) to make such additions, deletions or modifications as may be necessary to assure exemption from federal income taxation of the interest component of the Lease Payments.

(2) In addition, the Lease may be amended to obligate the City to pay additional amounts of rental under the Lease Agreement for the use and occupancy of the Leased Property or any portion thereof, but only if (a) such additional amounts of rental do not cause the total rental payments made by the City under the Lease Agreement to exceed the fair rental value of the Leased Property (b) the City shall have obtained and filed with the Trustee and the Authority an appraisal of the Leased Property showing that the estimated fair market value thereof is not less than the aggregate unpaid principal components of such additional amount of rental plus the existing aggregate unpaid principal components of the Lease Payments, (c) such additional amounts of rental shall be pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which shall be applied to finance the completion of public facilities and (d) the City shall send notification of the additional financing to the rating agency then rating the Certificates.

TRUST AGREEMENT

Trustee

The Trustee is appointed pursuant to the Trust Agreement and is authorized to prepare, execute and deliver the Certificates thereunder, and to act as a depository of amounts held thereunder. The Trustee is required to make deposits into and withdrawals from funds, and invest amounts held under the Trust Agreement in accordance with the City's instructions.

Funds

The Trust Agreement creates the Lease Payment Fund, the Costs of Issuance Fund, the Project Fund, the Reserve Fund and the Insurance and Condemnation Fund to be held in trust by the Trustee.

Lease Payment Fund. There shall be deposited in the Lease Payment Fund, when received by the Trustee, all Lease Payments and prepayments thereof (except reimbursement for funds drawn from the Reserve Fund, as described below). Moneys on deposit in the Lease Payment Fund will be used to pay principal of, redemption premiums, if any, and interest represented by the Certificates. Any earnings on investment of moneys in the Lease Payment Fund will remain therein and will be credited towards payment of the next Lease Payments. Any surplus remaining in the Lease Payment Fund after the payment of all Certificates, or provision for their payment has been made, shall be repaid to the City.

Costs of Issuance Fund. The Trustee shall establish a special fund known as the “Costs of Issuance Fund.” The moneys in the Costs of Issuance Fund shall be disbursed to pay the Costs of Issuance from time to time upon the receipt of Written Requests of the City setting forth the amounts to be disbursed for payment or reimbursement of Costs of Issuance and the name and address of the person or persons to whom said amounts are to be disbursed, stating that the amounts to be disbursed are for Costs of Issuance properly chargeable to the Costs of Issuance Fund. Each such Written Request of the City shall be sufficient evidence to the Trustee of the facts stated therein, and the Trustee shall have no duty to confirm the accuracy of such facts. Any amounts remaining in the Costs of Issuance Fund on the date sixty (60) days after the Closing Date shall be withdrawn therefrom by the Trustee and transferred to the Lease Payment Fund.

Project Fund. The Trustee shall establish and maintain a separate fund to be known as the “Project Fund”. The Trustee shall disburse moneys in the Project Fund for the purpose of paying the Project Costs, upon receipt of a Requisition substantially in the form provided in the Trust Agreement.

A-11 Upon completion of acquisition and construction of the Project, which shall be determined by receipt by the Trustee of a Certificate of Completion signed by the City, and following payment of all Project Costs, the Project Fund shall be closed, and any balance remaining therein shall be transferred to the Lease Payment Fund.

Reserve Fund. The Reserve Fund will be initially funded from the proceeds of the Certificates, in an amount equal to the Reserve Requirement. If on any Interest Payment Date, there are insufficient moneys in any Lease Payment Fund to pay principal and interest then due, the Trustee shall transfer so much of the Reserve Fund as shall be necessary to make such payment. Any moneys on deposit in the Reserve Fund in excess of the Reserve Requirement shall be transferred to the Lease Payment Fund. Any deficiency in Lease Payments which are paid from the Reserve Fund and thereafter reimbursed by the City shall be deposited in the Reserve Fund. Any amounts remaining in the Reserve Fund after the payment of all Certificates, or provision for their payment has been made, at the option of the City shall be applied towards such payment or paid to the City.

Insurance and Condemnation Fund; Application of Net Proceeds of Insurance and Eminent Domain Any net proceeds of insurance or condemnation awards with respect to the Leased Property will be deposited in the Insurance and Condemnation Fund. In the event of an insurance award, the net proceeds on deposit in the Insurance and Condemnation Fund shall be used, as directed by the City, either (a) to replace, repair, restore, modify or improve such Leased Property if the City determines that such is economically feasible or in the best interests of the City, or (b) to the extent not so used, to prepay the Lease Payments allocable to such Leased Property and thereby prepay Certificates. In the event of an eminent domain award with respect to the Leased Property, the net proceeds on deposit in any Insurance and Condemnation Fund shall be used as directed by the City, as follows: (a) if the City determines that such eminent domain proceedings have not materially affected the interest of the City in such Leased Property or its ability to make payments under the Lease Agreement, such proceeds shall be used either for repair, replacement or rehabilitation of such Leased Property, or credited towards the allocable Lease Payments next coming due and payable; or (b) if the City determines otherwise, and in any event if all of the Leased Property is taken in eminent domain proceedings, such proceeds shall be used to prepay the Lease Payments and Certificates.

Investment of Funds

The Trustee is required to invest and reinvest all moneys held under the Trust Agreement, in Investment Securities maturing not later than the date moneys are expected to be required for expenditure. All income or profit on any investments of funds held by the Trustee under the Trust Agreement shall be deposited in the respective funds from which such investments were made, except that amounts derived from the investment of the Reserve Fund, to the extent not required to be maintained in the Reserve Fund, shall be transferred to the Lease Payment Fund to be applied as a credit towards the City's next deposit of Lease Payments. All Investment Securities shall be valued at the market price thereof.

Remedies Upon Event of Default

Upon the occurrence of an event of default by the City under the Lease Agreement the Trustee may, and at the written direction of the owners of a majority in aggregate principal amount of the outstanding Certificates, will exercise any and all remedies available at law or pursuant to the Lease Agreement; provided, however, that there shall be no right under any circumstances to accelerate the maturities of any Certificates or otherwise declare any Lease Payment not then in default to be immediately due and payable. The Trustee is granted the power to control the proceedings in the event of a default, for the equal benefit of the Certificate owners, and no Certificate owner shall have the right to institute any suit, action or proceeding at law or in equity, unless (a) such owner has previously notified the Trustee of the occurrence of an event of default, (b) the owners of at least 25% in aggregate principal

A-12 amount of the outstanding Certificates have requested the Trustee in writing to exercise its powers, (c) said owners have tendered the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in complying with such request, and (d) the Trustee has failed to comply with such request for 60 days after receipt of such request and tender of such indemnity.

Any amounts collected by the Trustee in an event of default are required to be applied first to the payment of the costs and expenses of the Trustee incurred in connection with such event of default and second to the payment of principal and interest represented by the Certificates (including interest on overdue installments of interest at the net effective rate of interest per annum then represented by the outstanding Certificates, but only to the extent funds are available for such purpose after payment of all other overdue amounts), ratably if necessary.

Amendment of Trust Agreement or Lease Agreement

The Trust Agreement or the Lease Agreement may be amended by agreement among the parties thereto without the consent of the owners of the Certificates, but only (i) to add to the covenants and agreements of any party, other covenants to be observed, or to surrender any right or power reserved to the Authority or the City, (ii) to cure, correct or supplement any ambiguous or defective provision, (iii) in regard to questions arising thereunder, which do not, in the opinion of nationally recognized bond counsel, materially adversely affect the interest of such owners, (iv) to correct any incorrect property description, or (v) with the consent of nationally recognized bond counsel, to amend certain provisions relating to compliance with federal tax law. Any other amendment shall require the approval of the owners of a majority in aggregate principal amount of the Certificates then outstanding, provided that no such amendment shall (a) extend the maturity or time of interest payment, or reduce the interest rate, amount of principal or premium payable on, any Certificate without such owner's consent; (b) reduce the percentage of owners of Certificates required to consent to any amendment or modification; or (c) modify any of the Trustee's rights or obligations without its consent.

Defeasance

Upon payment of the outstanding Certificates in whole or in any integral multiple of $5,000, either at or before maturity, or upon the deposit of cash or Federal Securities with the Trustee sufficient with other available funds to retire the obligations represented by such Certificates at or before maturity, all rights thereunder of the owners of such Certificates and all obligations of the Authority, the Trustee and the City with respect to such Certificates shall cease and terminate, except only the obligation of the Trustee to pay or cause to be paid, from Lease Payments paid by or on behalf of the City from funds so deposited, all sums represented thereby when due.

ASSIGNMENT AGREEMENT

The Authority and the Trustee will enter into the Assignment Agreement under which the Authority assigns and sets over to the Trustee, for the benefit of the owners of the Certificates, all of the Authority's rights under the Lease Agreement (subject to certain exceptions), including the right of the Authority to receive and collect Lease Payments, its right to receive and collect proceeds of condemnation and insurance awards and the right to exercise rights and remedies of the Authority in the Lease Agreement to enforce payments of amounts thereunder. The Trustee accepts such assignment for the purpose of securing such payments due to and rights of the owners of the Certificates, subject to the provisions of the Trust Agreement.

A-13 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX B INDEPENDENT AUDITOR’S LETTER, MANAGEMENT’S DISCUSSION AND ANALYSIS, BASIC FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR YEAR ENDED JUNE 30, 2010 FOR THE CITY OF LIVERMORE

B-1

(THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C

FORM OF FINAL OPINION OF SPECIAL COUNSEL

C-1 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX C

FORM OF SPECIAL COUNSEL OPINION

[LETTERHEAD OF JONES HALL]

June 30, 2011

City of Livermore 1052 South Livermore Avenue Livermore, California 94550

OPINION: $17,470,000 2011 Certificates of Participation Evidencing and Representing Proportionate Undivided Interests of the Owners Thereof in Lease Payments to be Made by the City of Livermore to the Livermore Capital Projects Financing Authority

Members of the City Council:

We have acted as special counsel in connection with the delivery by the City of Livermore, California (the "City"), of the Lease Agreement, dated as of June 1, 2011 (the "Lease Agreement") by and between the Livermore Capital Projects Financing Authority (the "Authority") and the City. Pursuant to the Trust Agreement, dated as of June 1, 2011 (the "Trust Agreement") by and among the City, the Authority and Union Bank, N.A., as trustee thereunder (the "Trustee"), the Trustee has executed and delivered $17,470,000 aggregate principal amount of 2011 Certificates of Participation (the "Certificates") evidencing and representing proportionate undivided interests of the owners thereof in lease payments to be made by the City pursuant to the Lease Agreement (the "Lease Payments") which have been assigned by the Authority to the Trustee pursuant to the Assignment Agreement dated as of June 1, 2011 (the "Assignment Agreement") by and between the Authority and the Trustee. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the City contained in the Lease Agreement and the Trust Agreement, and in certified proceedings and other certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation.

Based upon the foregoing, we are of the opinion, under existing law, as follows:

1. The City is a municipal corporation and general law city duly organized and validly existing under the laws of the State of California with the full power to enter into the City of Livermore June 30, 2011 Page 2

Lease Agreement and the Trust Agreement and to perform the agreements on its part contained therein.

2. The Lease Agreement has been duly authorized, executed and delivered by the City, and is an obligation of the City, which is valid, binding and enforceable against the City in accordance with its terms.

3. The Trust Agreement and the Assignment Agreement are valid, binding and enforceable in accordance with their terms.

4. Subject to the terms and provisions of the Lease Agreement, the Lease Payments are payable from general funds of the City lawfully available therefor. By virtue of the Assignment Agreement, the owners of the Certificates are entitled to receive their fractional share of the Lease Payments in accordance with the terms and provisions of the Trust Agreement.

5. The portion of the Lease Payments, designated as and comprising interest and received by the owners of the Certificates, is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the delivery of the Lease Agreement in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of delivery of the Lease Agreement. We express no opinion regarding other federal tax consequences arising with respect to the Lease Agreement and the Certificates.

6. The portion of the Lease Payments designated as and comprising interest and received by the owners of the Certificates is exempt from personal income taxation imposed by the State of California.

City of Livermore June 30, 2011 Page 3

The rights of the owners of the Certificates and the enforceability of the Lease Agreement, the Trust Agreement and the Assignment Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to the exercise of judicial discretion in appropriate cases.

Respectfully submitted,

A Professional Law Corporation

(THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE

D-1 (THIS PAGE INTENTIONALLY LEFT BLANK) CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of Livermore (the “City”) in connection with the execution and delivery of its 2011 Certificates of Participation (Capital Projects) (the “Certificates”). The Certificates are being executed and delivered under a Trust Agreement dated as of June 1, 2011 (the “Trust Agreement”), by and among the City, the Livermore Capital Projects Financing Authority and Union Bank, N.A., as trustee. The City hereby covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Certificates and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

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

“Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

“Annual Report Date” means the date that is nine months after the end of the City's fiscal year (currently April 1, based on the City’s fiscal year end of June 30).

“Dissemination Agent” means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

“Listed Events” means any of the events listed in Section 5(a) of this Disclosure Certificate.

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.

“Official Statement” means the final official statement executed by the City in connection with the execution and delivery of the Certificates.

“Participating Underwriter” means ______, the original underwriter of the Certificates required to comply with the Rule in connection with offering of the Certificates.

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

Section 3. Provision of Annual Reports.

(a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing April 1, 2012 with the report for the 2010-11 fiscal year, file with the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate.

Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City, as pursuant to Section 8 hereof). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(b). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent (if other than the City) to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.

(b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A.

(c) With respect to each Annual Report, the Dissemination Agent shall:

(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and

(ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.

Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following:

(a) The City’s audited financial statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) (i) The adopted budget of the City for the then-current fiscal year, or a summary of budgeted general fund revenues and appropriations for the then-current fiscal year.

(ii) A summary of the aggregate amount of, final maturity date or, and debt service or lease payments for the then-current year with respect to any debt or obligations payable from

2 the City’s general fund issued or incurred in the then-current fiscal year (if and to the extent not included in the audited financial statements or adopted budget of the City contained in the City’s Annual Report).

(iii) The aggregate assessed valuation of taxable property in the City for the then- current fiscal year and the amount of property taxes delinquent for the prior year (if the County of Alameda is not on the Teeter Plan for that year) if and to the extent not included in the audited financial statements of the City.

(c) In addition to any of the information expressly required to be provided pursuant to this Disclosure Certificate, the City shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

(d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.

(a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Certificates:

(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 City or other obligated person. (13) The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the

3 assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material. (14) Appointment of a successor or additional trustee or the change of name of a trustee, if material.

(b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Certificates.

(c) The City acknowledges that the events described in paragraphs (a)(2), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13), and (a)(14) of this Section 5 contain the qualifier “if material.” The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event’s occurrence is material for purposes of U.S. federal securities law.

(d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(12) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the City, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the City.

Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Section 7. Termination of Reporting Obligation. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Certificates. If such termination occurs prior to the final maturity of the Certificates, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(b).

Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the City. Any Dissemination Agent may resign by providing 30 days’ written notice to the City.

Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

4 (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Certificates, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Certificates, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Certificates in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Certificates.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first Annual Report 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.

If an amendment is made to this Disclosure Certificate modifying the accounting principles to be followed in preparing financial statements, the Annual Report for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Listed Event under Section 5(b).

Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the Certificates may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City

5 agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City hereunder, and shall not be deemed to be acting in any fiduciary capacity for the City, the Certificate holders or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Certificates.

(b) The Dissemination Agent (if other than the City) shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees, as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the Certificates, and shall create no rights in any other person or entity.

Date: June __, 2011 CITY OF LIVERMORE

By:

6 EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: City of Livermore (the “City”)

Name of Issue: $______City of Livermore 2011 Certificates of Participation (Capital Projects)

Date of Issuance: June 30, 2011

NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Certificates of Participation as required by the Continuing Disclosure Certificate executed by the City in connection with the execution and delivery of the Certificates captioned above. The City anticipates that the Annual Report will be filed by ______.

Dated:

CITY OF LIVERMORE

By: Its: s

Exhibit A