NEW ISSUE S&P Insured Rating: “AA”
FULL BOOK-ENTRY S&P Underlying Rating: “A”
See “RATINGS” herein In the opinion of Lozano Smith, LLP, Sacramento, California, Special Counsel, under existing law, subject, however to certain qualifications described herein, under existing law the interest represented by the Certificates is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, interest on the Certificates is taken into account in determining certain income and earnings. In the further opinion of Special Counsel, interest represented by the Certificates is exempt from State of California personal income taxes. See “LEGAL MATTERS—Tax Matters” herein.
$ 1 0 9 , 9 1 0 , 0 0 0
2016 CERTIFICATES OF PARTICIPATION (CAPITAL FACILITIES PROJECT) Evidencing the Direct, Undivided Fractional Interest of the Registered Owners Thereof In Lease Payments to be Made by the
ELK GROVE UNIFIED SCHOOL DISTRICT (SACRAMENTO COUNTY, CALIFORNIA)
As the Rental for Certain Property Pursuant to a Lease Agreement with the PUBLIC PROPERTY FINANCING CORPORATION OF CALIFORNIA
DATED: Date of Delivery DUE: February 1, as shown on the inside cover
The Elk Grove Unified School District 2016 Certificates of Participation (Capital Facilities Project) (the “Certificates”) are being executed and delivered by the Elk Grove Unified School District (the “District”) to (i) finance the construction, acquisition, and installation of capital facilities at certain of the District’s campuses, (ii) refund certain outstanding special tax bonds of the Elk Grove Unified School District Community Facilities District No. 1, and (iii) pay certain costs of executing and delivering the Certificates, including premiums for a municipal bond insurance policy and debt service reserve insurance policy. See “PLAN OF FINANCE” herein.
The Certificates evidence the direct, undivided fractional interests of the registered owners thereof in Lease Payments to be made by the District to the Public Property Financing Corporation of California (the “Corporation”) for the use and occupancy of the Leased Property (as defined herein) under and pursuant to a lease agreement between the District and the Corporation dated April 1, 2016 (the “Lease Agreement”). The Corporation has assigned its right to receive Lease Payments from the District under the Lease Agreement and its right to enforce payment of the Lease Payments when due or otherwise protect its interest in the event of a default by the District thereunder to The Bank of New York Mellon Trust Company, N.A. as trustee (the “Trustee”) for the benefit of the registered owners of the Certificates. See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS” attached hereto.
The Certificates will be executed and delivered in book-entry form only, and will be initially executed and registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”). Purchasers of the Certificates (the “Beneficial Owners”) will not receive physical certificates representing their interest in the Certificates. See “APPENDIX F—BOOK-ENTRY SYSTEM” attached hereto. Interest with respect to the Certificates is payable semiannually on February 1 and August 1 of each year, commencing February 1, 2017. The Certificates are subject to prepayment prior to maturity as described herein. See “THE CERTIFICATES—Prepayment Provisions” herein.
The District has covenanted in the Lease Agreement to make all Lease Payments due under the Lease Agreement, subject to abatement during any period in which by reason of damage or destruction of the Leased Property, or by reason of eminent domain proceedings with respect to the Leased Property, there is substantial interference with the use and occupancy by the District of the Leased Property or any portion thereof. The District has covenanted in the Lease Agreement to take such action as may be necessary to include all Lease Payments in its annual budgets and to make the necessary annual appropriations for all such Lease Payments. See “SPECIAL RISK FACTORS” herein.
The obligation of the District to make Lease Payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments under the Lease Agreement constitutes a debt or indebtedness of the Corporation, the District, or the State of California or any political subdivision thereof within the meaning of any Constitutional or statutory debt limitation or restriction or an obligation for which the Corporation or the District is obligated to levy or pledge any form of taxation.
The scheduled payment of principal of and interest with respect to the Certificates when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Certificates by Build America Mutual Assurance Company. See “BOND INSURANCE” herein and “APPENDIX E—SPECIMEN MUNICIPAL BOND INSURANCE POLICY” attached hereto.
This cover page contains certain information for general reference only. It is not a summary of all provisions of the Certificates. Prospective investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used on this cover page not otherwise defined will have their meanings set forth herein.
MATURITY SCHEDULE See Inside Cover
The Certificates are being purchased for re-offering by Mesirow Financial, Inc. as Underwriter of the Certificates. The Certificates will be offered when, as and if executed and delivered and received by the Underwriter, subject to the approval as to their legality by Lozano Smith, LLP, Special Counsel. It is anticipated that the Certificates, in definitive form, will be available for delivery through the facilities of DTC on or about April 27, 2016.
$109,910,000
ELK GROVE UNIFIED SCHOOL DISTRICT (SACRAMENTO COUNTY, CALIFORNIA) 2016 CERTIFICATES OF PARTICIPATION
(CAPITAL FACILITIES PROJECT)
MATURITY SCHEDULE SERIAL CERTIFICATES Maturity Date February 1 Principal Amount Coupon Interest Rate Reoffering Yield CUSIP+ 2017 $1,145,000 5.000% 0.630% 287286 AS7 2018 2,415,000 5.000 0.760 287286 AT5 2019 2,530,000 5.000 0.900 287286 AU2 2020 2,635,000 5.000 1.090 287286 AV0 2021 2,760,000 5.000 1.240 287286 AW8 2022 2,895,000 5.000 1.400 287286 AX6 2023 1,390,000 5.000 1.540 287286 AY4 2024 1,460,000 5.000 1.680 287286 AZ1 2025 1,520,000 5.000 1.800 287286 BA5 2026 1,590,000 5.000 1.950 287286 BB3 2027 1,660,000 5.000 2.070 C 287286 BC1 2028 1,725,000 5.000 2.150 C 287286 BD9 2029 1,795,000 5.000 2.230 C 287286 BE7 2030 1,855,000 5.000 2.320 C 287286 BF4 2034 9,235,000 3.000 3.050 287286 BH0 2035 10,360,000 3.000 3.100 287286 BJ6 2036 11,360,000 3.000 3.140 287286 BK3 2037 8,980,000 3.000 3.190 287286 BL1 2038 11,955,000 3.000 3.240 287286 BM9
C = Yield to call at par on February 1, 2026.
TERM CERTIFICATES Maturity Date February 1 Principal Amount Coupon Interest Rate Reoffering Yield CUSIP+ 2033 $5,630,000 3.000% 3.020% 287286 BG2 2040 25,015,000 3.125 3.308 287286 BN7
+ CUSIP is a registered trademark of the American Bankers Association. CUSIP data herein 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. Neither the District nor the Underwriter is responsible for the selection or correctness of the CUSIP numbers set forth herein.
Use of Official Statement. This Official Statement is submitted with respect to the sale of the Certificates referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Certificates.
No Securities Laws Registration. The Certificates have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exceptions therein for the issuance and sale of municipal securities. The Certificates have not been registered or qualified under the securities law of any state.
No Unlawful Offers of Solicitations. This Official Statement does not constitute an offer to sell nor 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 an offer, solicitation or sale.
No Offering Except by This Official Statement. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations, other than those contained herein, and if given or made, such other information or representations must not be relied upon as having been authorized by the District.
Information in Official Statement. The information set forth herein has been furnished by the District, and other sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness. The information and expressions of opinion 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 District since the date hereof. Estimates and Projections. Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” expect,” “estimate,” “project,” “budget” or similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves 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. The District does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based change.
Website. The District maintains a website; however, the information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Certificates.
Statement of Underwriter. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities under federal securities laws, as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
Stabilization of and Changes to Offering Prices. In connection with the offering, the Underwriter may over-allot or effect transactions that stabilize or maintain the market price of the Certificates offered hereby at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Certificates to certain dealers, institutional investors, banks or others at prices lower or higher than the public offering prices stated on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter.
Bond Insurance. Build America Mutual Assurance Company (“BAM”) makes no representation regarding the Certificates or the advisability of investing in the Certificates. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “BOND INSURANCE” and “APPENDIX E—SPECIMEN Municipal Bond Insurance Policy.”
$109,910,000
ELK GROVE UNIFIED SCHOOL DISTRICT (SACRAMENTO COUNTY, CALIFORNIA) 2016 CERTIFICATES OF PARTICIPATION
(CAPITAL FACILITIES PROJECT)
DISTRICT BOARD OF EDUCATION Bobbie Singh-Allen, President Carmine S. Forcina, Board Clerk
Beth Albiani, Trustee Nancy Chaires Espinoza, Trustee
Chet Madison, Sr., Trustee Crystal Martinez-Alire, Ed.D., Trustee
Anthony Perez, Trustee DISTRICT ADMINISTRATION Christopher R. Hoffman, Superintendent
Mark Cerutti, Associate Superintendent, Education Services Donna Cherry, Associate Superintendent, PreK-6 Education Rich Fagan, Associate Superintendent, Finance and School Support
Christina Penna, Associate Superintendent, Secondary Education Robert Pierce, Associate Superintendent, Facilities and Planning
David Reilly, Associate Superintendent, Human Resources Elk Grove Unified School District
9510 Elk Grove-Florin Road Elk Grove, California 95624
(916) 686-5085 MUNICIPAL ADVISOR Government Financial Strategies inc.
1228 N Street, Suite 13 Sacramento, California 95814-5609
(916) 444-5100 SPECIAL COUNSEL
Lozano Smith, LLP One Capitol Mall, Suite 640 Sacramento, California 95814
(916) 329-7433
TRUSTEE AND ESCROW AGENT The Bank of New York Mellon Trust Company, N.A.
400 South Hope Street, Suite 400 Los Angeles, California 90017
(213) 630-6409 VERIFICATION AGENT
AMTEC Corporation
90 Avon Meadow Lane, Second Floor Avon, Connecticut 06001
$109,910,000
ELK GROVE UNIFIED SCHOOL DISTRICT (SACRAMENTO COUNTY, CALIFORNIA) 2016 CERTIFICATES OF PARTICIPATION
(CAPITAL FACILITIES PROJECT)
TABLE OF CONTENTS Page # INTRODUCTORY STATEMENT ... 1 The District ... 1 The Corporation ... 1 Purpose of Issue ... 1 The Certificates ... 2
Authority for Delivery and Security and Source of Repayment for the Certificates ... 2
Bond Insurance and Debt Service Reserve Insurance ... 3
Tax Matters ... 3
Continuing Disclosure ... 4
Professionals Involved ... 4
Other Information ... 5
THE CERTIFICATES ... 5
Amount and Purpose of the Certificates ... 5
Form and Registration ... 5
Payment of Principal and Interest ... 5
Transfer and Exchange ... 6
Prepayment Provisions ... 6
Lease Payments ... 8
Source of Payment for the Certificates ... 10
Reserve Fund ... 10
Insurance ... 11
Payment Plan for the Certificates ... 11
BOND INSURANCE ... 12
Bond Insurance Policy ... 12
Build America Mutual Assurance Company ... 13
THE LEASED PROPERTY ... 14
PLAN OF FINANCE ... 14
Application and Investment of Certificate Proceeds ... 14
The Refunded Bonds ... 15
Sources and Uses of Funds ... 16
SPECIAL RISK FACTORS ... 16
Payments Not District Debt ... 16
Additional Obligations ... 17
Levy of Special Taxes ... 17
Abatement ... 17
Substitution of or Removal from the Leased Property ... 18
No Earthquake Insurance Coverage ... 18
Hazardous Substances ... 18
No Acceleration Upon Default ... 19
Enforcement of Remedies ... 19
Bankruptcy ... 19
Loss of Tax Exemption ... 20
State Finances ... 20
THE DISTRICT ... 20
General Information ... 20
The Board of Education and Key Administrative Personnel ... 20
Enrollment ... 21
Charter Schools ... 21
Pupil-to-Teacher Ratios ... 22
Pension Plans ... 23
Other Postemployment Benefits (OPEBs) ... 25
DISTRICT FINANCIAL INFORMATION ... 26
Accounting Practices ... 26
Budget and Financial Reporting Process ... 27
Financial Statements ... 28
Revenues ... 30
Expenditures ... 32
Short-Term Borrowings ... 32
Capitalized Lease Obligations and Certificates of Participation ... 32
Long-Term Borrowings ... 32
Direct and Overlapping Bonded Debt ... 33
TAXATION AND APPROPRIATIONS ... 35
Property Taxation System ... 35
Assessed Valuation of Property Within the District ... 35
Historical Assessed Valuation ... 36
Largest Taxpayers ... 37
Alternative Method of Tax Apportionment ... 38
Tax Collections and Delinquencies ... 39
CITY AND COUNTY ECONOMIC PROFILE ... 39
General Information ... 39
Population ... 40
Personal Income ... 40
Labor Force and Employment ... 40
Major Employers ... 42
Commercial Activity ... 42
CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND EXPENDITURES ... 44
Overview ... 44
Government Taxation and Appropriation ... 44
State Authority Over Local Government Funds ... 48
State and School District Reserves ... 49
Impact of Future Changes to the Law ... 50
STATE FUNDING OF PUBLIC EDUCATION ... 50
Sources of Revenue for Public Education ... 50
The State Budget Process ... 53
The 2015-16 State Budget ... 54
The Proposed 2016-17 State Budget ... 56
Future Budgets ... 59
LEGAL MATTERS ... 59
No Litigation ... 59
Legal Opinion ... 59
Tax Matters ... 60
Legality for Investment ... 61
RATINGS ... 61
MUNICIPAL ADVISOR ... 61
INDEPENDENT AUDITOR ... 61
UNDERWRITING AND INITIAL OFFERING PRICE ... 62
CONTINUING DISCLOSURE ... 62
ADDITIONAL INFORMATION ... 62 APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
APPENDIX B THE FINANCIAL STATEMENTS OF THE DISTRICT FOR THE YEAR ENDED JUNE 30, 2015 APPENDIX C FORM OF CONTINUING DISCLOSURE CERTIFICATE
APPENDIX D FORM OF OPINION OF SPECIAL COUNSEL
APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY APPENDIX F BOOK-ENTRY SYSTEM
OFFICIAL STATEMENT
$ 1 0 9 ,9 1 0 ,0 0 0
2016 CERTIFICATES OF PARTICIPATION
(CAPITAL FACILITIES PROJECT)Evidencing the Direct, Undivided Fractional Interest of the Registered Owners Thereof in Lease Payments to be Made by the
ELK GROVE UNIFIED SCHOOL DISTRICT
(SACRAMENTO COUNTY, CALIFORNIA) As the Rental for Certain Property Pursuant to a Lease Agreement with the PUBLIC PROPERTY FINANCING CORPORATION OF CALIFORNIA
INTRODUCTORY STATEMENT
The purpose of this Official Statement, which includes the cover page, inside cover page, table of contents and attached appendices (the “Official Statement”), is to provide certain information concerning the sale and delivery of the Elk Grove Unified School District 2016 Certificates of Participation (Capital Facilities Project) (the “Certificates”).
This INTRODUCTORY STATEMENT is not a summary of this Official Statement. It is only a brief description of and guide to this Official Statement. This INTRODUCTORY STATEMENT is qualified by more complete and detailed information contained in the entire Official Statement, including the cover page, inside cover page and attached appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement by prospective investors in the Certificates. The offering of the Certificates to potential investors is made only by means of the entire Official Statement.
The District
The Elk Grove Unified School District (the “District”) is a political subdivision of the State of California (the “State”) established in 1959 upon the unification of seven elementary school districts and a high school district. The District occupies approximately 320 square miles in the central portion of Sacramento County (the “County”), extending almost from the County’s western border to the foothills of the County’s eastern border, and serves a population of approximately 322,500 people residing in the Cities of Elk Grove, Sacramento and Rancho Cordova as well as unincorporated areas of the County. The District provides education to approximately 62,000 students in transitional kindergarten through grade 12 as well as students in adult education. The District operates 40 elementary schools, nine middle schools, nine comprehensive high schools, three continuation schools, one special education school, one independent study program, one charter school, and one virtual online school, as well as an adult education program and an adult career training center. The District is governed by a seven-member Board of Education (the “Board”). See “THE DISTRICT” and “DISTRICT FINANCIAL INFORMATION” herein.
The Corporation
The Public Property Financing Corporation of California (the “Corporation”) is a non-profit, public benefit corporation duly organized in 1991 and existing under the laws of the State. The Corporation was previously established for the purpose of providing financial assistance to government entities in the State. The Corporation has no liability to the owners of the Certificates.
Purpose of Issue
The Certificates are being executed and delivered to (i) finance the construction, acquisition, and installation of capital facilities at certain of the District’s campuses, including but not limited to the site acquisition, design and construction of two elementary schools (the “Project”), (ii) refund certain outstanding special tax bonds of the Elk Grove Unified School District Community Facilities District No. 1 (“CFD No. 1”) and (iii) pay certain costs of executing and delivering the Certificates, including the premiums for a municipal bond insurance policy and debt service reserve insurance policy. See “PLAN OF FINANCE” herein.
The Certificates
The Certificates are being executed and delivered in the aggregate principal amount of $109,910,000. The Certificates evidence the direct, undivided fractional interests of the registered owners thereof (the “Registered Owners”) in lease payments (the “Lease Payments”) to be made by the District as the rental for the use and possession of the property located at 8350 Lotz Parkway, Elk Grove, California, known as the Cosumnes Oaks High School, 9050 Vicino Drive, Elk Grove, California, known as the Laguna Creek High School, and 8661 Power Inn Road, Elk Grove, California, known as the Monterey Trail High School (together, the “Leased Property”), leased from the Corporation pursuant to a lease agreement dated April 1, 2016 (the “Lease Agreement”). See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—LEASE” attached hereto.
Proceeds from the sale and delivery of the Certificates will be deposited into the funds and accounts as established under a trust agreement dated April 1, 2016 (the “Trust Agreement”) by and among the District, the Corporation and The Bank of New York Mellon Trust Company, N.A. (the “Trustee”). See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS— TRUST AGREEMENT” attached hereto.
The Certificates are executed and delivered as fully registered Certificates, without coupons, in book-entry form only, and are initially executed and delivered and registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”). Payments of the principal of and interest with respect to the Certificates will be made by the Trustee to DTC for subsequent disbursement to the Beneficial Owners (as defined herein). See “APPENDIX F—BOOK-ENTRY SYSTEM” attached hereto.
The Certificates are dated their date of delivery and mature on February 1 in each of the years and in the amounts set forth on the inside cover page hereof. The Certificates are executed and delivered in denominations of $5,000 principal amount or any integral multiple thereof. Interest with respect to the Certificates is payable on February 1 and August 1 of each year, commencing February 1, 2017. Interest with respect to the Certificates is computed on the basis of a 360-day year comprised of twelve 30-day months. See “THE CERTIFICATES” herein.
The Certificates are subject to prepayment prior to maturity. See “THE CERTIFICATES—Prepayment Provisions” herein.
Authority for Delivery and Security and Source of Repayment for the Certificates
The Certificates are executed and delivered pursuant to certain provisions of the State Education Code (the “Education Code”) and other applicable law, and pursuant to a resolution adopted by the District on March 15, 2016 (the “Resolution”) and the Trust Agreement.
Under the terms of a site lease dated April 1, 2016 between the District and the Corporation (the “Site Lease”), the District will lease the Leased Property to the Corporation. See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS— SITE LEASE” attached hereto.
Under the terms of the Lease Agreement, the District will lease back the Leased Property from the Corporation and is required to pay Lease Payments from any source of legally available funds for the use and possession of the Leased Property, which amounts are sufficient in both time and aggregate amount to pay the principal of and interest with respect to the Certificates. The District is also required to make additional payments as necessary to pay all costs and expenses incurred by the District under the Lease Agreement or Trust Agreement, or incurred by the Corporation to comply with the provisions of the Lease Agreement or the Trust Agreement, including without limitation all costs of issuance of the Certificates, annual compensation due to the Trustee and all of its reasonable costs and expenses (including amounts payable to the Trustee by virtue of indemnification) payable as a result of the performance of and compliance with its duties under the Trust Agreement, all charges, fees, costs and expenses and other amounts owed to Build American Mutual Assurance Company (“BAM”), the issuer of the municipal bond insurance policy and debt service reserve insurance policy, and all reasonable costs and expenses of attorneys, auditors, engineers and accountants engaged by the Corporation or the Trustee in connection with the Leased Property or the performance of their duties under the Lease Agreement or Trust Agreement (the “Additional Payments”).
Pursuant to the terms of an assignment agreement dated April 1, 2016 between the Corporation and the Trustee (the “Assignment Agreement”), the Corporation will assign to the Trustee, for the benefit of the Registered Owners of the Certificates, (i) the right to receive and collect all of the Lease Payments from the District under the Lease Agreement, (ii) the right to receive and collect any proceeds of any insurance maintained thereunder with respect to the Leased Property, or any eminent domain award (or proceeds of sale under threat of eminent domain) paid with respect to the Leased Property, and (iii) the right to exercise such rights and remedies conferred on the Corporation under the Lease Agreement as may be necessary or convenient (a) to enforce
payment of the Lease Payments and any other amounts required to be deposited under the Trust Agreement, or (b) otherwise to protect the interests of the Registered Owners in the event of a default by the District under the Lease Agreement. See “THE CERTIFICATES—Sources of Payment of the Certificates” herein.
The District has covenanted under the Lease Agreement to take such action as may be necessary to include all Lease Payments and Additional Payments in its annual budgets and make the necessary annual appropriations therefor from any source of legally available funds of the District, subject to abatement due to damage, destruction or eminent domain with respect to the Leased Property. Lease Payments are subject to abatement during any period during which, by reason of material damage or destruction of the Leased Property or any portion thereof, there is substantial interference with the District’s use of the Leased Property or any portion thereof. See “SPECIAL RISK FACTORS—Abatement” herein and “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—LEASE—Lease Payments; Abatement” attached hereto.
The obligation of the District to make Lease Payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments under the Lease Agreement constitutes a debt or indebtedness of the Corporation, the District or the State or any political subdivision thereof within the meaning of any Constitutional or statutory debt limitation or restriction or an obligation for which the Corporation or the District is obligated to levy or pledge any form of taxation.
Bond Insurance and Debt Service Reserve Insurance
The scheduled payment of principal of and interest with respect to the Certificates when due will be guaranteed under a municipal bond insurance policy (the “Policy”) to be issued concurrently with the delivery of the Certificates by BAM. See “BOND INSURANCE” herein and “APPENDIX E—SPECIMEN MUNICIPAL BOND INSURANCE POLICY” attached hereto. The District has also elected to purchase from BAM a debt service reserve insurance policy (the “Reserve Policy”) to satisfy the initial reserve requirement for the Certificates.
Tax Matters
Federal Tax Status. In the opinion of Lozano Smith, LLP, Sacramento, California, Special Counsel, subject, however to the qualifications set forth below, under existing law, the interest represented by the Certificates is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, interest represented by the Certificates 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 District comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Certificates in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The District 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 issuance of the Certificates.
Tax Treatment of Original Issue Discount and Premium. If the initial offering price to the public (excluding bond houses and brokers) at which a Certificate is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes of federal income taxes and State personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which each Certificate is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of federal income taxes and State personal income taxes. De minimis original issue discount is disregarded.
Under the Code, original issue discount is treated as interest excluded from federal gross income and exempt from State of California personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Certificates to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Certificate. The Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Certificates who purchase the Certificates after the initial offering of a substantial amount of such maturity. Owners of such Certificates should consult their own tax advisors with respect to the tax consequences of ownership of Certificates with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any
loss on a sale or other disposition, and the treatment of accrued original issue discount on such Certificates under federal individual and corporate alternative minimum taxes.
Under the Code, original issue premium is amortized on an annual basis over the term of the Certificate (said term being the shorter of the Certificate's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Certificate for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Certificate is amortized each year over the term to maturity of the Certificate on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of Premium Certificates, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State personal income tax and federal income tax consequences of owning such Certificates.
California Tax Status. In the further opinion of Special Counsel, interest represented by the Certificates is exempt from State personal income taxes.
Other Tax Considerations. Owners of the Certificates should also be aware that the ownership or disposition of, or the accrual or receipt of interest represented by, the Certificates may have federal or state tax consequences other than as described above. Special Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Certificates other than as expressly described above.
There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Certificates. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Certificates should consult their own tax advisors regarding any pending or proposed federal tax legislation. Special Counsel expresses no opinion regarding any pending or proposed federal tax legislation.
The Internal Revenue Service (the “Service”) has an ongoing program of auditing tax exempt obligations to determine whether, in the view of the Service, interest on such tax exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Certificates. If an audit is commenced, then under current procedures the Service may treat the District as a taxpayer and the Certificateholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Certificates until the audit is concluded, regardless of the ultimate outcome.
Form of Opinion. A copy of the proposed form of opinion of Special Counsel with respect to the Certificates is attached to this Official Statement as “APPENDIX D.”
Continuing Disclosure
The District will covenant for the benefit of the Registered Owners and Beneficial Owners (as defined herein) to make available certain financial information and operating data relating to the District and to provide notices of the occurrence of certain enumerated events in compliance with S.E.C. Rule 15c2-12(b)(5). The specific nature of the information to be made available and of the notices of certain enumerated events are set forth in “APPENDIX C—FORM OF CONTINUING DISCLOSURE CERTIFICATE.” See also “CONTINUING DISCLOSURE” herein.
Professionals Involved
Government Financial Strategies inc., Sacramento, California, has acted as municipal advisor (the “Municipal Advisor”) to the District with respect to the sale and delivery of the Certificates. See “MUNICIPAL ADVISOR” herein. All proceedings in connection with the sale and delivery of the Certificates are subject to the approving legal opinion of Lozano Smith, LLP, Special Counsel to the District with respect to the Certificates. The Bank of New York Mellon Trust Company, N.A. will act as the trustee, registrar, and transfer agent with respect to the Certificates, and as escrow agent (the “Escrow Agent”) with respect to the refunded special tax bonds of CFD No. 1. Lozano Smith, LLP and The Bank of New York Mellon Trust Company, N.A. will receive compensation contingent upon the execution and delivery of the Certificates.
Other Information
This Official Statement may be considered current only as of its dated date affixed to the cover page hereof, and the information contained herein is subject to change. Brief descriptions of the Certificates, the security for the Certificates and the District are included in this Official Statement, together with summaries of certain provisions relating to the Trust Agreement, the Lease Agreement, the Site Lease, and the Assignment Agreement (collectively, the “Legal Documents”). Such descriptions do not purport to be comprehensive or definitive, and all references made herein to the Legal Documents approved by the District are qualified in their entirety by reference to such document, and all references herein to the Certificates are qualified in their entirety by reference to the form thereof included in the Legal Documents.
Information concerning this Official Statement, the Certificates, the District, the Legal Documents or any other information relating to the sale and delivery of the Certificates is available for public inspection and may be obtained by contacting the Elk Grove Unified School District, 9510 Elk Grove-Florin Road, Elk Grove, California 95624, Attention: Associate Superintendent of Facilities and Planning, telephone (916) 686-7711, or by contacting the Municipal Advisor, Government Financial Strategies inc., 1228 N Street, Suite 13, Sacramento, California 95814-5609, telephone (916) 444-5100.
THE CERTIFICATES
Amount and Purpose of the Certificates
The Certificates are being sold in the principal amount of $109,910,000 to (i) finance the Project, (ii) refund certain outstanding special tax bonds of CFD No. 1, and (iii) pay certain costs of executing and delivering the Certificates, including the premiums for a municipal bond insurance policy and a debt service reserve insurance policy. See “PLAN OF FINANCE” herein.
Form and Registration
The Certificates are dated their date of delivery and executed and delivered as fully registered certificates, without coupons, in book-entry form only. Pursuant to the Trust Agreement, the Trustee will keep and maintain for and on behalf of the District books (the “Registration Books”) for recording the Registered Owners, the transfer, exchange, and replacement of the Certificates, and the payment of the principal of and interest with respect to the Certificates to the Registered Owners. All transfers, exchanges, and replacement of the Certificates will be noted in the Registration Books. The Registration Books will at all times be open to inspection during regular business hours by the District and Corporation.
The Certificates will be initially executed and delivered and registered in the name of Cede & Co. as nominee of DTC. Purchases of Certificates under the DTC book-entry system must be made by or through a DTC participant, and ownership interests in Certificates will be recorded as entries on the books of said participants. Except in the event that use of this book-entry system is discontinued for the Certificates, purchasers of the Certificates (the “Beneficial Owners”) will not receive physical certificates representing their ownership interests in the Certificates. See “APPENDIX F—BOOK-ENTRY SYSTEM” attached hereto. So long as the Certificates are registered in the name of Cede & Co., as nominee for DTC, references in this Official Statement to the Registered Owners shall mean Cede & Co., and shall not mean the purchasers or Beneficial Owners of the Certificates.
Payment of Principal and Interest
The Certificates are executed and delivered in denominations of $5,000 principal amount, or any integral multiple thereof, and mature on February 1 in each of the years and in the amounts set forth on the inside cover page hereof. Interest with respect to the Certificates is payable on February 1 and August 1 of each year (each, an “Interest Payment Date”), commencing February 1, 2017. Interest with respect to the Certificates is computed on the basis of a 360-day year comprised of twelve 30-day months. The principal of the Certificates is payable in lawful money of the United States of America by wire transfer on each principal and prepayment date to Cede & Co., so long as Cede & Co. is the sole Registered Owner, or if the book-entry system is no longer in use, to the Registered Owner thereof upon surrender thereof at the office of the Trustee.
Interest with respect to the Certificates is payable in lawful money of the United States of America by wire transfer on each Interest Payment Date to Cede & Co., so long as Cede & Co. is the sole Registered Owner. In the event the book-entry system is no longer in use, interest with respect to the Certificates will be made to the Registered Owner as of the close of business on the fifteenth day of the month immediately preceding an Interest Payment Date (the “Record Date”), such interest to be paid by check mailed on the applicable Interest Payment Date to such Registered Owner, by first class mail postage prepaid, at such Registered Owner’s address as it appears on the Registration Books. At the written request of a Registered Owner in an aggregate principal amount of at least $1,000,000, which written request is on file with the Trustee prior to the Record Date preceding any Interest Payment Date, the Trustee will pay interest represented by such Certificates coming due and payable on such Interest Payment Date by wire transfer in immediately available funds to such account in the United States as is specified in such written request.
Transfer and Exchange
If the book-entry system as described above is no longer used with respect to the Certificates, the provisions in the Trust Agreement summarized below will govern the transfer and exchange of the Certificates.
The registration of any Certificate may, in accordance with its terms, be transferred upon the Registration Books by the person in whose name it is registered, in person or by duly authorized attorney, upon surrender of such Certificate for cancellation at the office of the Trustee, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, manually executed. Whenever any Certificate or Certificates is surrendered for registration of transfer, the Trustee will execute and deliver a new Certificate or Certificates representing the same maturity, interest rate and aggregate principal amount, in any authorized denominations. Certificates may be exchanged at the office of the Trustee, for a like aggregate principal amount of Certificates representing other authorized denominations of the same interest rate and maturity. The District will pay all costs of the Trustee incurred in connection with any such transfer or exchange, except that the Trustee may require the payment by the Registered Owner requesting such transfer or exchange of any tax or other governmental charge required to be paid with respect to such transfer or exchange.
The Trustee is not required to transfer or exchange (i) any Certificate during the period established by the Trustee for the selection of Certificates for prepayment or (ii) any Certificate that has been selected for prepayment in whole or in part.
Prepayment Provisions
Optional Prepayment. The Certificates maturing before February 1, 2026 are not subject to optional prepayment prior to their respective maturity dates. The Certificates maturing on or after February 1, 2027 are subject to optional prepayment prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after February 1, 2026, prepayment price equal to 100 percent of the principal amount to be prepaid, together with accrued interest represented thereby to the date fixed for prepayment, without premium, upon notice as described below.
Mandatory Sinking Fund Prepayment. The Certificates maturing by their terms on February 1, 2033 (the “2033 Term Certificate”) and February 1, 2040 (the “2040 Term Certificate”) are subject to mandatory prepayment from the principal components of scheduled Lease Payments, at a prepayment price equal to 100 percent of the principal component thereof to be prepaid, together with accrued interest represented thereby to the date fixed for prepayment, without premium, as specified in the following tables.
Mandatory Sinking Fund Prepayments $5,630,000 2033 Term Certificate
Prepayment Date
February 1 Principal Component
2031 $1,905,000
2032 1,895,000
2033 1,830,000 1
Mandatory Sinking Fund Prepayments $25,015,000 2040 Term Certificate
Mandatory Prepayment From Net Proceeds of Insurance and Condemnation. The Certificates are subject to mandatory prepayment in whole or in part on any date (pro rata among maturities and by lot within a maturity) at a prepayment price equal to the principal amount to be prepaid, together with accrued interest represented thereby to the date fixed for prepayment, without premium, from net insurance proceeds or condemnation awards not used to repair or replace the Leased Property or portions thereof which have been materially damaged, destroyed or taken in eminent domain proceedings.
Selection of Certificates for Prepayment. If less than all of the outstanding Certificates of any maturity are to be prepaid, the Trustee will select the particular Certificates to be prepaid by lot. For the purposes of such selection, the Certificates will be deemed to be composed of $5,000 portions, and any such portion may be separately prepaid. The Trustee will promptly notify the District and the Corporation in writing of the Certificates or portions thereof so selected for prepayment.
Notice of Prepayment. Written notice of prepayment will be given by the District to the Trustee at least 45 days prior to the date of prepayment (unless a shorter time is acceptable to the Trustee). The Trustee will mail notice of prepayment by first class mail with postage prepaid, at least 30 days but not more than 60 days prior to the prepayment date, to (i) the Electronic Municipal Market Access System (“EMMA”), a facility of the Municipal Securities Rulemaking Board (the “MSRB”) or, in accordance with then current guidelines of the Securities and Exchange Commission (the “SEC”), such other addresses and/or such other national information services providing information with respect to called bonds as the District designates in written notice filed with the Trustee, (ii) DTC; and, in accordance with then current guidelines of the SEC, such other addresses and/or such other securities depositories as the District designates in written notice filed with the Trustee, and (iii) the Registered Owners of Certificates designated for prepayment at their respective addresses appearing on the Registration Books.
Each notice of prepayment will (i) state the prepayment date and prepayment price; (ii) state the CUSIP numbers or maturities of the Certificates to be prepaid, if less than all of the then outstanding Certificates are to be called for prepayment; (iii) if a Certificate is to be prepaid only in part, identify the portion of the Certificate which is to be prepaid; (iv) require that such Certificates be surrendered on the prepayment date at the office of the Trustee for prepayment at said prepayment price; (v) state that interest represented by the Certificates will not accrue from and after the prepayment date; and (vi) state that on the prepayment date the principal and premium, if any, represented by each Certificate will become due and payable, together with accrued interest represented thereby to the prepayment date, and that from and after such date interest represented thereby ceases to accrue and be payable.
Neither the failure to receive any such notice nor any defect in any notice so mailed will affect the sufficiency of the proceedings for the prepayment of such Certificates or the cessation of accrual of interest represented thereby from and after the date fixed for prepayment. The Trustee has no liability for any designation of the CUSIP numbers of the Certificates to be prepaid, and neither the failure to identify the CUSIP numbers of the Certificates to be prepaid nor any incorrect designation of such CUSIP numbers will affect the sufficiency of the proceedings for the prepayment of such Certificates or the cessation of accrual of interest represented thereby from and after the date fixed for prepayment.
Upon surrender of any Certificate prepaid in part only, the Trustee will execute and deliver to the Registered Owner thereof, at the expense of the District, a new Certificate or Certificates of authorized denominations equal in aggregate principal amount to the unprepaid portion of the Certificate surrendered and of the same interest rate and the same maturity.
Effect of Prepayment. Moneys for the prepayment (including the interest to the applicable date of prepayment) of Certificates having been set aside pursuant to the Trust Agreement, the Certificates will become due and payable on the date of such prepayment, and, upon presentation and surrender thereof at the office of the Trustee, said Certificates will be paid at the unpaid principal amount (or applicable portion thereof) represented thereby plus interest accrued and unpaid to said date of prepayment.
Prepayment Date
February 1 Principal Component
2039 $12,315,000
2040 12,700,000 1
If, on said date of prepayment, moneys for the prepayment of all the Certificates to be prepaid, together with interest represented thereby to said date of prepayment, are held by the Trustee so as to be available therefor on such date of prepayment, then, from and after said date of prepayment, interest represented by the Certificates will cease to accrue and become payable. All moneys held by the Trustee for the prepayment of Certificates are to be held in trust for the account of the Registered Owners of the Certificates so to be prepaid, and held by the Trustee in cash uninvested or any direct general obligations of the United States of America or other obligations, the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America.
All Certificates paid at maturity or prepaid prior to maturity will be canceled upon surrender thereof.
Right to Rescind Notice. The District may rescind any optional prepayment and notice thereof for any reason on any date prior to the date fixed for prepayment by causing written notice of the rescission to be given to the Registered Owners so called for prepayment. Any optional prepayment and notice thereof will be rescinded if for any reason sufficient monies are not available on the date fixed for prepayment for such purpose. Notice of rescission of prepayment will be given in the same manner in which notice of prepayment was originally given. The actual receipt by the Registered Owner of notice of such rescission is not a condition precedent to rescission, and failure to receive such notice or any defect in such notice does not affect the validity of the rescission.
Lease Payments
Lease Payments are required to be made by the District under the Lease Agreement on or before the fifteenth day of the month immediately preceding each Interest Payment Date for the use and possession of the Leased Property. The Trust Agreement requires that Lease Payments be made to the Trustee for deposit in a special fund (the “Lease Payment Fund”). On each Interest Payment Date, the Trustee will withdraw from the Lease Payment Fund the aggregate amount necessary to make annual principal and semiannual interest payments with respect to the Certificates, as shown in the following table.
Lease Payments Schedule 2016 Certificates of Participation
Interest
Payment Date Principal Interest
Semiannual Debt Service Annual Debt Service February 1, 2017 $1,145,000.00 $2,950,118.99 $4,095,118.99 $4,095,118.99 August 1, 2017 1,909,409.38 1,909,409.38 February 1, 2018 2,415,000.00 1,909,409.38 4,324,409.38 6,233,818.76 August 1, 2018 1,849,034.38 1,849,034.38 February 1, 2019 2,530,000.00 1,849,034.38 4,379,034.38 6,228,068.76 August 1, 2019 1,785,784.38 1,785,784.38 February 1, 2020 2,635,000.00 1,785,784.38 4,420,784.38 6,206,568.76 August 1, 2020 1,719,909.38 1,719,909.38 February 1, 2021 2,760,000.00 1,719,909.38 4,479,909.38 6,199,818.76 August 1, 2021 1,650,909.38 1,650,909.38 February 1, 2022 2,895,000.00 1,650,909.38 4,545,909.38 6,196,818.76 August 1, 2022 1,578,534.38 1,578,534.38 February 1, 2023 1,390,000.00 1,578,534.38 2,968,534.38 4,547,068.76 August 1, 2023 1,543,784.38 1,543,784.38 February 1, 2024 1,460,000.00 1,543,784.38 3,003,784.38 4,547,568.76 August 1, 2024 1,507,284.38 1,507,284.38 February 1, 2025 1,520,000.00 1,507,284.38 3,027,284.38 4,534,568.76 August 1, 2025 1,469,284.38 1,469,284.38 February 1, 2026 1,590,000.00 1,469,284.38 3,059,284.38 4,528,568.76 August 1, 2026 1,429,534.38 1,429,534.38 February 1, 2027 1,660,000.00 1,429,534.38 3,089,534.38 4,519,068.76 August 1, 2027 1,388,034.38 1,388,034.38 February 1, 2028 1,725,000.00 1,388,034.38 3,113,034.38 4,501,068.76 August 1, 2028 1,344,909.38 1,344,909.38 February 1, 2029 1,795,000.00 1,344,909.38 3,139,909.38 4,484,818.76 August 1, 2029 1,300,034.38 1,300,034.38 February 1, 2030 1,855,000.00 1,300,034.38 3,155,034.38 4,455,068.76 August 1, 2030 1,253,659.38 1,253,659.38 February 1, 2031 1,905,000.00 1 1,253,659.38 3,158,659.38 4,412,318.76 August 1, 2031 1,225,084.38 1,225,084.38 February 1, 2032 1,895,000.00 1 1,225,084.38 3,120,084.38 4,345,168.76 August 1, 2032 1,196,659.38 1,196,659.38 February 1, 2033 1,830,000.00 1 1,196,659.38 3,026,659.38 4,223,318.76 August 1, 2033 1,169,209.38 1,169,209.38 February 1, 2034 9,235,000.00 1,169,209.38 10,404,209.38 11,573,418.76 August 1, 2034 1,030,684.38 1,030,684.38 February 1, 2035 10,360,000.00 1,030,684.38 11,390,684.38 12,421,368.76 August 1, 2035 875,284.38 875,284.38 February 1, 2036 11,360,000.00 875,284.38 12,235,284.38 13,110,568.76 August 1, 2036 704,884.38 704,884.38 February 1, 2037 8,980,000.00 704,884.38 9,684,884.38 10,389,768.76 August 1, 2037 570,184.38 570,184.38 February 1, 2038 11,955,000.00 570,184.38 12,525,184.38 13,095,368.76 August 1, 2038 390,859.38 390,859.38 February 1, 2039 12,315,000.00 2 390,859.38 12,705,859.38 13,096,718.76 August 1, 2039 198,437.50 198,437.50 February 1, 2040 12,700,000.00 2 198,437.50 12,898,437.50 13,096,875.00 Total $109,910,000.00 $61,132,906.71 $171,042,906.71 $171,042,906.71 1 Indicates mandatory sinking fund payments of the $5,630,000 2033 Term Certificate due February 1, 2033.
Source of Payment for the Certificates
Each Certificate represents a direct, undivided, fractional interest in the Lease Payments to be made by the District to the Corporation. The Corporation, pursuant to the Assignment Agreement, will assign its rights under the Lease Agreement to the Trustee for the benefit of the Registered Owners, including (i) the right to receive and collect all of the Lease Payments from the District under the Lease Agreement, (ii) the right to receive and collect any proceeds of any insurance maintained thereunder with respect to the Leased Property, or any eminent domain award (or proceeds of sale under threat of eminent domain) paid with respect to the Leased Property, and (iii) the right to exercise such rights and remedies conferred on the Corporation under the Lease Agreement as may be necessary or convenient (a) to enforce payment of the Lease Payments and any other amounts required to be deposited under the Trust Agreement, or (b) otherwise to protect the interests of the Registered Owners in the event of a default by the District under the Lease Agreement. Principal and interest with respect to the Certificates when due will be made from Lease Payments payable by the District for the use and occupancy of the Leased Property, rental interruption insurance proceeds, if any, net insurance proceeds pertaining to the Leased Property to the extent that such net proceeds are not used for repair or replacement, and from money in a reserve fund established and held by the Trustee solely for the purpose of making up any deficiencies (the “Reserve Fund”).
The District has covenanted under the Lease Agreement to take such action as may be necessary to include all Lease Payments and any Additional Payments due under the Lease Agreement in its annual budget and to make the necessary annual appropriations therefor. Such covenants are deemed in the Lease Agreement to be duties imposed by law and the ministerial duty of each and every public official of the District.
The amount of Lease Payments due under the Lease Agreement will be abated during any period in which, by reason of damage, destruction, eminent domain or otherwise, there is substantial interference with the use and occupancy of the Leased Property or any portion thereof by the District. If abatement occurs, the amount of abatement will be such that the resulting Lease Payments and Additional Payments represent fair consideration for use of that portion of the Leased Property that is available for use as determined by the District. Such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. Notwithstanding the foregoing, there will be no abatement of Lease Payments to the extent that the proceeds of hazard insurance, rental interruption insurance or amounts in the Reserve Fund are available to pay Lease Payments which would otherwise be abated. The failure to make such payments of principal and interest with respect to the Certificates due to abatement does not constitute an Event of Default under the Trust Agreement, the Lease Agreement or the Certificates. See “SPECIAL RISK FACTORS—Abatement” herein and “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—LEASE—Lease Payments; Abatement” attached hereto.
The obligation of the District to make Lease Payments does not constitute an obligation of the District for which the District is obligated to levy or pledge any form of taxation. Neither the Certificates nor the obligation of the District to make Lease Payments under the Lease Agreement constitutes a debt or indebtedness of the Corporation, the District, or the State or any political subdivision thereof within the meaning of any Constitutional or statutory debt limitation or restriction or an obligation for which the Corporation or the District is obligated to levy or pledge any form of taxation.
Reserve Fund
Moneys in the Reserve Fund will be held in trust by the Trustee as a reserve for the payment when due of the Lease Payments on behalf of the District. The Reserve Fund will be funded in an amount equal to the lesser of, as of the date of calculation, (i) 10 percent of the initial principal amount of the Certificates, (ii) the maximum amount of Lease Payments coming due in the current or any future fiscal year or (iii) 125 percent of average annual Lease Payments (the “Reserve Requirement”) from proceeds of the sale of the Certificates or cash deposited by the District. In lieu of a cash funded reserve, the District may purchase a debt service reserve insurance policy in the amount required thereunder in favor of the Trustee. The Reserve Fund initially will be funded with the Reserve Policy in the amount of $8,998,048.64, the initial Reserve Requirement, issued by BAM upon the closing of the Certificates.
If on any Interest Payment Date the moneys available in the Lease Payment Fund are insufficient for the payment of the amount of the Lease Payment then coming due and payable, the Trustee will apply the moneys available in the Reserve Fund to make such payments on behalf of the District by transferring the amount necessary for this purpose to the Lease Payment Fund. The Trustee will use any amounts held in cash and investments in the Reserve Fund for such purposes before the Trustee makes a draw upon the Reserve Policy. Upon receipt of any delinquent Lease Payment with respect to which moneys have been advanced from the Reserve Fund, such Lease Payment will be deposited in the Reserve Fund to the extent of such advance.
See “APPENDIX A—SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—TRUST AGREEMENT—Funds—Reserve Fund” attached hereto.
Insurance
The District will maintain or cause to be maintained, throughout the term of the Lease Agreement, the following insurance: (i) Standard comprehensive public liability and property damage insurance in protection of the Corporation, the District and their respective members, officers, agents, employees and assigns. Such insurance must 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.
(ii) Casualty insurance against loss or damage to the insured buildings, facilities and other improvements constituting any part of the Leased Property, in an amount at least equal to the lesser of (a) the replacement value of such buildings, facilities and improvements, or (b) the aggregate principal amount of the then outstanding Certificates.
(iii) Rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of the buildings, facilities and other improvements constituting any part of the Leased Property, as a result of any of the hazards covered under the casualty insurance policy, in an amount at least equal to the maximum Lease Payments coming due and payable during the two consecutive fiscal years occurring at the time such insurance is being purchased.
(iv) CLTA title insurance insuring the District’s leasehold estate in the Leased Property, in an amount at least equal to the aggregate principal amount of the Certificates.
Such insurance (exclusive of title insurance) may be maintained through a system of self-insurance, under certain circumstances, as set forth in the Lease Agreement.
Payment Plan for the Certificates
The Lease Payments are payable from any source of legally available funds, including but not limited to unrestricted moneys of the District, the majority of which are deposited in the District’s general fund (the “General Fund”). See “SPECIAL RISK FACTORS—Payments Not District Debt” herein.
Although not pledged for repayment, the District intends to use special taxes levied in CFD No. 1 as a source of repayment for the Certificates. To the extent that the revenues received from special taxes are insufficient to make principal and interest payments on the Certificates, the District intends to cover any shortfall from developer impact fees or its General Fund.
CFD No. 1 is a community facilities district organized by the District for the purpose of providing for the acquisition, construction, and installation of certain public facilities to serve property within CFD No. 1. The seven members of the Board serve as the legislative body of CFD No. 1 by virtue of their election to the Board. The boundaries of CFD No. 1 are coterminous with the boundaries of the District.
The CFD No. 1 special tax is to be levied against taxable units of property within CFD No. 1, with the number of taxable units and the amount of special tax varying depending on the land use of the property, the status of development approval, and the date on which a taxable unit is placed in a category of development approval status. The special tax formula establishes maximum rates that may be levied against taxable land, depending on these various factors.
The following table identifies historical and projected special tax revenues collected within CFD No. 1, debt service associated with the outstanding CFD No. 1 special tax bonds, the remaining special tax revenues available for debt service on the Certificates, and the debt service due on the Certificates.
Projected Special Tax Revenues Available for Debt Service Elk Grove Unified School District
Historical and Projected
Fiscal Projected Available
Year CFD No. 1 CFD No. 1 CFD No. 1 CFD No. 1 Certificate
Ending Special Total Net Coverage Special Certificate Coverage
June 30 Tax Revenues Debt Service1 Ratio Tax Revenues Debt Service2 Ratio 2015 $14,921,063 a $13,082,368 114.1% $1,838,695 -- -- 2016 15,138,965 a 9,042,590 167.4 6,096,375 $4,095,119 148.9% 2017 15,138,965 6,906,013 219.2 8,232,953 6,233,819 132.1 2018 15,138,965 6,907,913 219.2 8,231,053 6,228,069 132.2 2019 15,138,965 6,930,052 218.5 8,208,913 6,206,569 132.3 2020 15,138,965 6,938,749 218.2 8,200,216 6,199,819 132.3 2021 15,138,965 6,942,130 218.1 8,196,835 6,196,819 132.3 2022 15,138,965 8,588,379 176.3 6,550,586 4,547,069 144.1 2023 15,138,965 8,592,332 176.2 6,546,633 4,547,569 144.0 2024 15,138,965 8,601,697 176.0 6,537,268 4,534,569 144.2 2025 15,138,965 8,611,338 175.8 6,527,627 4,528,569 144.1 2026 15,138,965 8,621,758 175.6 6,517,207 4,519,069 144.2 2027 15,138,965 8,635,168 175.3 6,503,797 4,501,069 144.5 2028 15,138,965 8,653,263 175.0 6,485,702 4,484,819 144.6 2029 15,138,965 8,685,381 174.3 6,453,584 4,455,069 144.9 2030 15,138,965 8,726,171 173.5 6,412,794 4,412,319 145.3 2031 15,138,965 8,796,342 172.1 6,342,623 4,345,169 146.0 2032 15,138,965 8,920,713 169.7 6,218,253 4,223,319 147.2 2033 15,138,965 1,571,859 963.1 13,567,106 11,573,419 117.2 2034 15,138,965 687,197 2203.0 14,451,768 12,421,369 116.3 2035 15,138,965 0 n/a 15,138,965 13,110,569 115.5 2036 15,138,965 2,722,387 556.1 12,416,578 10,389,769 119.5 2037 15,138,965 0 n/a 15,138,965 13,095,369 115.6 2038 15,138,965 0 n/a 15,138,965 13,096,719 115.6 2039 15,138,965 0 n/a 15,138,965 13,096,875 115.6 aActual.
1CFD No. 1 debt service on outstanding special tax bonds is net of reserve fund deposits and withdrawals and assumes no interest earnings on reserve fund balances.
2CFD No. 1 special tax revenues in a given fiscal year are assumed to be available for payment of debt service on the Certificates in the following fiscal year.
BOND INSURANCE
Bond Insurance Policy
Concurrently with the issuance of the Certificates, Build America Mutual Assurance Company (“BAM”) will issue its Municipal Bond Insurance Policy for the Certificates (the “Policy”). The Policy guarantees the scheduled payment of principal of and interest with respect to the Certificates when due as set forth in the form of the Policy included as an appendix to this Official Statement.
