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03-09-2010 CC Rpt A12 COUNCIL AGENDA STAFF REPORT CITY CLERK USE ONLY Meeting Date: March 9. 2010 RECEIVED 2010 HAR -4 Mill: 29 Public Hearing: 0 Discussion Item: [J� OFFICE OF Cf'/Y CLERK m o, o.,:, Consent Item: CHINO HILLS MARCH 2, 2010 TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS FROM: CITY MANAGER SUBJECT: RESOLUTIONS APPROVING THE CONTINUING DISCLOSURE ANNUAL REPORTS FOR THE WATER UTILITY 2002 $9,545,000 CERTIFICATES OF PARTICIPATION DEBT ISSUE, WATER UTILITY 2003 $18,210,000 REFUNDING CERTIFICATES OF PARTICIPATION DEBT ISSUE, COMMUNITY FACILITIES DISTRICT NO. 9 $14,860,000 SPECIAL TAX BONDS, SERIES 1998, COMMUNITY FACILITIES DISTRICT NO. 10 $13,040,000 SPECIAL TAX BONDS, SERIES 2000, AND 2007 $22,040,000 CERTIFICATES OF PARTICIPATION (CIVIC CENTER INTERIM FINANCING PROJECT) RECOMMENDATION: 1, Review (and modify if necessary) the Continuing Disclosure Annual Reports for the Water Utility 2002 $9,545,000 Certificates of Participation (COP), Water Utility 2003 $18,210,000 Refunding Certificates of Participation, Community Facilities Districts (CFD) No. 9 $14,860,000 Special Tax Bonds, Series 1998, CFD No. 10$13,040,000 Special Tax Bonds, Series 2000 (Bonds), and 2007 $22,040,000 Certificates of Participation (Civic Center Interim Financing Project) debt issues as required by the Securities and Exchange Commission (SEC). 2. Adopt the resolutions approving the content and the distribution of the annual reports. BACKGROUND/ANALYSIS: The SEC issued amended regulations in 1994 which now require a public agency that issues debt on or after July 3, 1995, to file annual continuing disclosure reports for those debt issues. The City debt issues that are affected by these regulations are the Water Utility 2002 $9,545,000 COP's that were issued in June 2002, the Water Utility 2003$18,210,000 COP's that were issued in December 2003, the CFD No. 9 $14,860,000 Bonds that were issued in August 1998, the CFD No. 10 $13,040,000 Bonds, that were issued in June 2000, and the 2007 $22,040,000 Certificates of Participation (Civic Center Interim Financing Project) that were issued in May 2007. lc9 1 • AGENDA DATE: MARCH 9, 2010 PAGE TWO SUBJECT: RESOLUTIONS APPROVING THE CONTINUING DISCLOSURE ANNUAL REPORTS FOR THE WATER UTILITY 2002 $9,545,000 CERTIFICATES OF PARTICIPATION DEBT ISSUE, WATER UTILITY 2003 $18,210,000 REFUNDING CERTIFICATES OF PARTICIPATION DEBT ISSUE, COMMUNITY FACILITIES DISTRICT NO. 9 $14,860,000 SPECIAL TAX BONDS, SERIES 1998, COMMUNITY FACILITIES DISTRICT NO. 10 $13,040,000 SPECIAL TAX BONDS, SERIES 2000, AND 2007 $22,040,000 CERTIFICATES OF PARTICIPATION (CIVIC CENTER INTERIM FINANCING PROJECT) The purpose of the amended SEC disclosure requirements is to ensure that the public agencies that issue debt provide, on a continuing basis, complete, accurate, and objective information concerning certain relevant factors that a reasonable investor needs in order to make an informed investment decision when considering purchasing public agency debt issues. The regulations place a significant obligation on the City Council and staff to disclose certain financial information and any significant event that affect the COP's and/or the Bonds. A key element of the annual reports is that Council Members and staff have the responsibility to disclose any additional "material information" that they may have in order to ensure that the statements included in the annual report are not misleading. The term "material" is not defined by the SEC but a general definition has evolved through litigation. The courts have said that "an omitted fact is material if there is a substantial likelihood that, under all the circumstances, the information would have assumed actual significance to a reasonable investor." Stated another way, "there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." The Continuing Disclosure Annual Report for each of the debt issues (Exhibits I) is attached to its respective resolution. The content of the annual reports includes a copy of the City's Comprehensive Annual Financial Report (CAFR) and the City's Adopted Budget for Fiscal Year 2009-10. Since copies of the Adopted Budget were distributed to the City Council in August 2009, and a copy of the CAFR was made available to the City Council via the City's website in November 2009, and distributed in January 2010, a copy is not being included with this staff report. However, a copy of the CAFR and Adopted Budget will be included as part of the annual reports when they are forwarded to the City's dissemination agent, U.S. Bank. A dissemination agent's responsibility is to distribute the annual reports to State and national repositories. The repositories provide the annual reports to the public. REVIEW BY OTHERS: This agenda item has been reviewed by the City Attorney, City's Disclosure Counsel (Fulbright & Jaworski L. L. P.), City's Financial Advisor (Harrell & Company Advisors, L. L. C.), and all department heads. 2 AGENDA DATE: MARCH 9, 2010 PAGE THREE SUBJECT: RESOLUTIONS APPROVING THE CONTINUING DISCLOSURE ANNUAL REPORTS FOR THE WATER UTILITY 2002 $9,545,000 CERTIFICATES OF PARTICIPATION DEBT ISSUE, WATER UTILITY 2003 $18,210,000 REFUNDING CERTIFICATES OF PARTICIPATION DEBT ISSUE, COMMUNITY FACILITIES DISTRICT NO. 9 $14,860,000 SPECIAL TAX BONDS, SERIES 1998, COMMUNITY FACILITIES DISTRICT NO. 10 $13,040,000 SPECIAL TAX BONDS, SERIES 2000, AND 2007 $22,040,000 CERTIFICATES OF PARTICIPATION (CIVIC CENTER INTERIM FINANCING PROJECT) FISCAL IMPACT: There is no fiscal impact caused by this item. Respectfully submitted, Recommended by: Michael S'. Flia er, City Manager Ju j/F9. Lataster, Finance Director MSF:JRL:ddk jJ 3 RESOLUTION NO. 10R- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, APPROVING THE ANNUAL REPORT AS REQUIRED BY THE CONTINUING DISCLOSURE CERTIFICATE FOR THE $9,545,000 CERTIFICATES OF PARTICIPATION (2002 WATER SYSTEM PROJECT). WHEREAS, the City of Chino Hills (City) issued in June 2002 the $9,545,000 Certificates of Participation (2002 COP's) to finance the acquisition, construction and installation of certain improvements to the City's water system; and WHEREAS, the City issued a Continuing Disclosure Agreement (CDA) for the 2002 COP's in accordance with Securities and Exchange Commission (SEC) regulations; and WHEREAS, the CDA provides for the issuance of an annual report that discloses financial and operational information relating to the City's water utility; and WHEREAS, the SEC regulations and CDA provisions require the City to distribute its Annual Report to its dissemination agent at least 15 business days prior to April 1, 2010; and WHEREAS, the City's dissemination agent is the City's trustee for the 2002 COP's; and WHEREAS, the City's trustee for the 2002 COP's is U.S. Bank National Association. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHINO HILLS DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The Annual Report for the 2008-09 fiscal year, Exhibit I, attached and made a part hereof, which was prepared in accordance with the CDA for the 2002 COP's, is approved as to form and content, and is approved to be released to the City's dissemination agent. 1 of 3 4 SECTION 2: The City Clerk shall certify as to the adoption of this resolution. PASSED, APPROVED, and ADOPTED this 9th day of March 2010. W. C. "BILL" KRUGER, MAYOR ATTEST: MARY M. McDUFFEE, CITY CLERK APPROVED AS TO FORM: MARK D. HENSLEY, CITY ATTORNEY 2 of 3 5 EXHIBIT I City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Provision of Annual Report: This Annual Report is being issued pursuant to the covenants contained in the Continuing Disclosure Certificate executed for the $9,545,000 Certificates of Participation (2002 Water System Project) issued by the City of Chino Hills, San Bernardino, California (City). The Annual Report is being disseminated to the Electronic Municipal Market Access (EMMA) system of the Municipal Securities Rulemaking Board by U.S. Bank National Association on behalf of the City of Chino Hills. Material Events: Payment of principal and interest on the Certificates of Participation (2002 Water System Project) is insured by Ambac Assurance Corporation ("Ambac"). In 2009, the City filed the following Material Event Notices with the Repositories, the Electronic Municipal Market Access site and the Municipal Securities Rulemaking Board with respect to Ambac's ratings: Filing Date Reporting Event April 20, 2009 Moody's downgrade of Ambac rating September 8, 2009 S&P and Moody's downgrade of Ambac rating Ambac's current ratings are as follows: Rating Agency Rating Last Changed Moody's Investors Service Caa2, Developing Outlook July 29, 2009 Standard & Poor's CC, Negative Outlook July 28, 2009 Standard & Poor's has assigned an underlying rating of "AA-" to the 2002 Certificates of Participation, notwithstanding the bond insurance policy. Content of Annual Report: The content of the Annual Report is presented below pursuant to Section 3 of the Continuing Disclosure Certificate. (a) Audited Financial Statements: Enclosed with this Annual Report is the City's Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended June 30, 2009. The general purpose financial statements (GPFS) contained with the Financial Section of the CAFR were 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. The GPFS have been audited by the City's Independent Auditors, Lance, Soil and Lunghard, and the Independent Auditors' Report on the GPFS may be seen on page 1 of the CAFR. (b) Financial Information and Operating Data (i) Principal outstanding as of January 1, 2010 2002 Certificates of Participation $ 9,300,000 2003 Certificates of Participation 11,815,000 (ii) Reserve Fund: Amount as of January 1, 2010 891,787 Reserve requirement as of January 1, 2010 $ 891,787 (iii) Acquisition Fund amount as of January 1, 2010 $ 0 6 Page 2 City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 (c) The summary report showing in reasonable detail Gross Revenues, Operation and Maintenance Expenses, Net Revenues and Debt Service may be seen in Exhibit A attached to this report. (d) On January 22, 2008, the City Council approved increases in the Water Utility's rates for the next five years. The rate increases, which consist of both the cost for water and a monthly service charge depending on the meter size, effective January 1, 2010, may be seen on Exhibit B and the approved rate increases for the next two years, may be seen on Exhibit C attached to this report. (e) An update of the information contained in the following tables of the Official Statement, for the current fiscal year, is provided as described below: (i) The ten largest water users may be seen in Exhibit D attached to this report. (ii) The water consumption table may be seen in Exhibit E attached to this report. (iii) The Historic Operating Results and Debt Service coverage may be seen in Exhibit F attached to this report. The City supplies water to its residents through a variety of sources including, city- owned groundwater production wells and delivery from the Chino Basin Desalter Authority, Water Facilities Authority (MWD), and Monte Vista Water District. The City's operational plan takes advantage of all of these sources to maintain operational flexibility, efficiency, and cost containment. In the event that one or more of these supply sources should fail, the City has the ability to purchase additional water to meet demand from the Water Facilities Authority (MWD), Monte Vista Water District or increased groundwater production, If the City is forced to make these choices there may be increased costs incurred as a result of the purchase of penalty water or increased assessments for over production of groundwater. (f) The City of Chino ("Chino") has alleged that certain deep aquifer pumping by the City has caused ground subsidence within the city limits of Chino. This claim was raised by motion in connection with Chino Basin Municipal Water District v. City of Chino, et al, San Bernardino Superior Court Number 164327, dated January 27, 1978, in which all groundwater rights in the Chino Basin were adjudicated and where the court has retained continuing jurisdiction. In connection with this claim, the City and Chino entered into an agreement (the "Forbearance Agreement") under which each agreed to reduce pumping in the subsidence area by 1,500 acre feet per year for a period of three successive one year terms. The Forbearance Agreement was extended for an additional one year period that ended in August 2005. During the forbearance period, the Watermaster monitored ground water levels and conducted studies to determine the cause of the subsidence. As of January 31, 2006, the Watermaster asserted that it had concluded the necessary subsidence studies and distributed a draft Guidance Criteria for MZ-1 Producers calling for the voluntary reduction of pumping from the deep aquifer to certain levels based upon the Watermaster's studies. The City disputed the conclusions of the studies and believes additional studies are necessary to determine the amount of water that can be safely drawn from the subsidence area. The City and the Watermaster in the fall of 2007, stipulated to a Long Term Plan ("Stipulation") that provides for (i) continued testing in the subsidence area to determine how much water can be safely pumped from 7 Page 3 City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 the deep aquifer, and (ii) to the extent that it is determined it would be prudent for the City to relocate some of its pumping activities, that the parties would work together to review other areas of the Basin from which the City can pump water to replace the amount it had been pumping from the deep aquifer. If it is finally established that pumping from the deep aquifer by the City is contributing to the subsidence, the City along with other pumping entities may be required to permanently reduce its pumping activities in the subsidence area. The City believes the Watermaster is required to provide the City with an alternative source, at no cost to the City, or otherwise provide remuneration to the City if the City relocates its pumping facilities, should it be determined that it would be prudent for the City to reduce its pumping in the subsidence area. The Watermaster believes that it has no such obligation. However, as part of the Stipulation, the parties agreed that this issue would be resolved, if necessary, in the future. Further information may be obtained from Director of Finance, City of Chino Hills, 14000 City Center Drive, Chino Hills, California 91709; (909) 364-2641. Attachments End of Annual Report. 8 Exhibit A City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Summary Report and Debt Service (a) Revenues: Water sales $ 17,152,513 Other Revenues 534,034 Total Revenues 17,686,547 Operating Maintenance Expenses: Purchased water 8,263,246 Salaries and benefits 2,134,426 Utilities 988,289 Contractual services 546,555 Repairs and maintenance 1,220,956 Services and supplies 309,995 Other general and administrative 1,673,520 Total Operating and Maintenance Expenses 15,136,987 Net Revenue $ 2,549,560 2002 Certificates Debt Service $ 506,104 2003 Certificates Debt Service 1,615,320 Total Debt Service $ 2,121,424 Debt Service Coverage 120 (a) Excludes receipt and expenditure of development fees and proceeds from sales of assets. 9 Exhibit B City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Water Rates and Water Service Charges In Effect as of January 1, 2010 Meter Installation Charge. The schedule of regular service meter installation charges is as follows: Service Line and Curb Meter & Service Size Cock Already Installed No Service Line Installed 1 inch $ 330.00 $ 875.00 1 1/2 inch 400.00 1,000.00 2 inch 500.00 1,300.00 All meter installation charges for meter sizes 3 inches or larger are made at cost, plus, ten percent(10%). Water Capital Connection Charge, The schedule of water capital connection charges are shown below. Meter Size Capital Connection Fee Meter Size Capital Connection Fee 1 inch $ 5,358.00 6 inch 178,582.00 1 1/2 inch 17,842.00 8 inch 285,742.00 2 inch 28,558.00 10 inch 430,408.00 3 inch 53,580.00 12 inch 582,254.00 4 inch 89,318.00 Monthly Service Charge. The City has a monthly service charge based on meter size ranging from $12.59 per month for a 5/8' meter to $2,167.56 per month for an 12" meter. Meter Size Rates Meter Size Rates 5/8 inch $ 12.59 4 inch $ 319.62 3/4 inch 18,85 6 inch 641.66 1 inch 31.48 8 inch 1,058.28 1 1/2 inch 62.95 10 inch 1,587.42 2 inch 100.73 12 inch 2,167.56 3 inch 191.29 Commodity Charge. Residential domestic water rates and non-residential water rates are set forth in the following tables. Low, Intermediate and High Zones refer to pumping zones. Residential Rates (per hundred cubic feet) Low Intermediate High Single Family Multi-Family Zone Zone Zone 0-12 hcf 0-7 hcf $ 1.45 $ 1.74 $ 1.77 13-35 hcf 8-20 hcf 1.65 1.93 1.99 36+ hcf 21+ hcf 2.00 2.29 2.32 Non-Residential Rates (per hundred cubic feet) Non-Residential Recycled Water Rates Water Rates Low Zone 1.56 1.13 Intermediate Zone 1.85 1.35 High Zone 1.88 1.40 Agricultural 0.96 0.79 Construction 2.06 1.54 10 Exhibit C City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Water Rate Increases through January 1, 2012 Commodity Charge Effective Jan. 1, 2010 Jan. 1, 2011 Jan. 1, 2012 Residential SFR MFR $/ccf $/ccf $/ccf Low Zone 0-12 ccf 0-12 ccf 1.45 1.55 1.66 13-35 ccf 13-25 ccf 1.65 1.77 1.90 36+ ccf 26+ ccf 2.00 2.15 2.31 Intermediate Zone 0-12 ccf 0-5 ccf 1.74 1.87 2.01 13-35 ccf 6-25 ccf 1.93 2.07 2.22 36+ ccf 26+ ccf 2.29 2.46 2.64 High Zone 012 ccf 0-5 ccf 1.77 1.90 2.04 13-35 ccf 6-11 ccf 1.99 2.14 2.30 36+ ccf 12+ ccf 2.32 2.49 2.68 Non-Residential Low Zone 1.56 1.67 1.79 Intermediate Zone 1.85 1.99 2.14 High Zone 1.88 2.02 2.17 Temporary(Construction Meter) 2.06 2.21 2.37 Agricultural 0.96 1.04 1.12 Institutional Low Zone 1.56 1.67 1.79 Intermediate Zone 1.85 1.99 2.14 High Zone 1.88 2.02 2.17 Reclaimed Water Low Zone 1.13 1.22 1.32 Intermediate Zone 1.35 1.46 1.58 High Zone 1.40 1.51 1.63 Temporary (Construction Meter) 1.54 1.66 1.79 Agricultural Meter 0.79 0.85 0.92 Private Fire Protection Private Fire Protection 1.45 1.55 1.66 Standard Rates - Monthly Service Charge Meter Size Jan. 1, 2010 Jan. 1, 2011 Jan. 1, 2012 5/8" 12.59 13.60 14.69 3/4" 18.85 20.36 21.99 1" 31.48 34.00 36.72 11/2" 62.95 67.99 73.43 2" 100.73 108.79 117.49 3" 191.29 206.59 223.12 4" 319.62 345.19 372.81 6" 641.66 692.99 748.43 8" 1,058.28 1,142.94 1,234.38 10" 1,587.42 1,714.41 1,851,56 12" 2,167.56 2,340.96 2,528.24 11 Exhibit D City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Ten Largest Water Users 12 Month Consumption Percentage Customers (100 Cubic Feet) of Total City of Chino Hills 589,138 7.68 % Vellano Golf Course 264,785 3.45 Los Serranos Golf Course 201,417 2.63 Chino Valley Unified School District 158,701 2.07 Western Hills Golf Course Association 122,851 1.60 Vellano Homeowners Association 79,920 1.04 Rancho Monte Vista M.H.P. 54,932 0.72 Opus Property Services LLC 50,255 0.66 Caltrans-08 46,186 0.60 Canyon Hills S.B.H.O.A. 44,046 0.57 Total 1,612,231 21.02 % Total Consumption 7,669,653 12 Exhibit E City of China Hills Participation $9,545,000 Certificats of Project) ao i (2002 Water SystemProje t) Continuing Disclosure ate Annual Report Fiscal Year 2008-09 Water Consumption Table Fiscal Years fJune 30, 2009 z00�g Number of Water 2008 2006 21,185 2005 21,179 20,980 20,986 20 gg1 17,607 B Connections1" 18,962 18,967 16,293 968 $16,826,684 Total Water 15,428 $16,213, numPtiontzl $ 16,275,679 Bill lings ial $13,593,433 $14,715,870 water meters. revenues (1)(3 Includes the City's owned landscaping operating and non-operatingn ants. (2) In acre-feet. amount excludes other income and lease pay revenues such as meter connection fee, 3Billings amount is for water sales only; collections from J co Exhibit F City of Chino Hills $9,545,000 Certificates of Participation (2002 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2005-09 Historic Operating Results and Debt Service Coverage For Fiscal Years Ending June 30 2005 2006 2007 2008 2009 Revenues: Charges for Service $14,309,457 $15,959,757 $16,481,946 517,781,444 $ 16,901,021 Permit and Inspection Fees - - _ - - Meter and Installation Fees 71,360 94,397 103,216 81,603 29,399 Interest Earnings 245,141 491,691 831,094 808,084 472,763 Other 2,688,500 528,916 1,290,584 303,073 283,364 Total Revenues 17,314,458 17,074,761 18,706,820 18,974,204 17,686,547 Expenses: Purchased water" 4,003,559 2,852,071 2,602,390 3,784,953 4,695,417 Utilities 513,239 463,049 816,243 749,308 988,289 Salaries and benefits 1,488,930 1,510,945 1,682,261 1,861,303 2,134,426 Contractual services 517,743 402,632 400,560 728,999 546,555 Repairs and maintenance 441,959 825,967 899,125 550,780 1,220,955 Services and supplies 164,555 177,990 244,025 257,098 309,995 Other general and administrative 1,693,917 1,427,265 1,474,157 1,547,594 1,673,520 Water Purchase Agreement 1,721,795 2,249,090 3,295,815 2,677,570 3,557,829 Total Expenses 10,545,697 9,909,009 11,414,576 12,157,605 15,136,987 Net Revenues $ 6,768,761 $ 7,165,752 $ 7,292,244 $ 6,816,599 $ 2,549,560 2002 installment Sales Agreement $ 510,341 $ 519,561 $ 513,361 $ 512,259 $ 506,104 2003 Installment Sales Agreement 1,609,295 1,598,295 1,607,095 1,605,295 1,615,320 Total Debt Service $ 2,119,636 $ 2,117,856 $ 2,120,456 $ 2,117,554 5 2,121,424 Debt Service Coverage 3.19 3.38 3.44 3.22 1.20 ' The City purchases a portion of its water from the Chino Basin Desalter Authority('Desalter Authority°).The cost of water charged by the Desalter Authority includes debt service on bonds issued to finance the treatment facilities. The Desalter Authority had Issued 2004A Adjustable Rate Desalter Revenue Refunding Bonds as Auction Rate Securities to finance and refinance the cost of the treatment facilities. Between January 2006 and May 2006, interest rates on such Auction Rate Securities went as high as 10%. This increased interest cost was passed through to the participants In the Desalter Authority,including the City of Chino Hills,and accounts for a portior,of the increased cost of purchased water shown in 2007/08. The Desalter Authority refinanced the 2004A Adjustable Rate Desalter Revenue Refunding Bonds in June 2008 with a fixed rale bond issue,and the City does not expect fluctuations in the portion of the purchased water cost related to the Desalter Authority bonds to occur in future years. RESOLUTION NO. 10R- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, APPROVING THE ANNUAL REPORT AS REQUIRED BY THE CONTINUING DISCLOSURE CERTIFICATE FOR THE $18,210,000 REFUNDING CERTIFICATES OF PARTICIPATION (2003 WATER SYSTEM REFINANCING PROJECT). WHEREAS, the City of Chino Hills (City) issued in December 2003 the $18,210,000 Refunding Certificates of Participation (2003 COP's) to refinance existing water utility COP's; and WHEREAS, the City issued a Continuing Disclosure Agreement (CDA) for the 2003 COP's in accordance with Securities and Exchange Commission (SEC) regulations; and WHEREAS, the CDA provides for the issuance of an annual report that discloses financial and operational information relating to the City's water utility; and WHEREAS, the SEC regulations and CDA provisions require the City to distribute its Annual Report to its dissemination agent at least 15 business days prior to April 1, 2010; and WHEREAS, the City's dissemination agent is the City's trustee for the 2003 COP's; and WHEREAS, the City's trustee for the 2003 COP's is U.S. Bank National Association. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHINO HILLS DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The Annual Report for the 2008-09 fiscal year, Exhibit I, attached and made a part hereof, which was prepared in accordance with the CDA for the 2003 COP's, is approved as to form and content, and is approved to be released to the City's dissemination agent. 1 of 3 15 SECTION 2: The City Clerk shall certify as to the adoption of this resolution. PASSED, APPROVED, and ADOPTED this 9th day of March 2010. W. C. "BILL" KRUGER, MAYOR ATTEST: MARY M. McDUFFEE, CITY CLERK APPROVED AS TO FORM: MARK D. HENSLEY, CITY ATTORNEY 2 of 3 16 EXHIBIT I City of Chino Hills $18,210,000 Refunding Certificates of Participation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Provision of Annual Report: This Annual Report is being issued pursuant to the covenants contained in the Continuing Disclosure Certificate executed for the $18,210,000 Refunding Certificates of Participation (2003 Water System Project) issued by the City of Chino Hills, San Bernardino, California (City). The Annual Report is being disseminated to the Electronic Municipal Market Access (EMMA) system of the Municipal Securities Rulemaking Board by U.S. Bank National Association on behalf of the City of Chino Hills. Material Events: Payment of principal and interest on the Refunding Certificates of Participation (2003 Water System Project) was insured by Financial Guaranty Insurance Company ("FGIC"). In addition, FGIC had provided a debt service reserve facility in the amount of $1,630,270 with respect to the Refunding Certificates of Participation (2003 Water System Project) ("Surety Bond"). On October 2, 2008, MBIA Insurance Corporation ("MBIA") closed its transaction to reinsure a portion of FGIC's public financial portfolio. The insurance policy for the Certificates and the Surety Bond are two of the policies affected by the transaction and were reinsured by MBIA. On February 19, 2009, MBIA ceded its entire public finance business to a subsidiary, MBIA Insurance Corp of Illinois. MBIA Insurance Corp of Illinois has been renamed National Public Financial Guarantee Corp. ("National"). In 2009, the City filed the following Material Event Notices with the Repositories, the Electronic Municipal Market Access site and the Municipal Securities Rulemaking Board with respect the reinsurance transactions: Filing Date Reporting Event October 13, 2009 Reinsurance of FGIC insurance policies and surety bond by MBIA. Reinsurance of MBIA insurance polices by National Public Financial Guarantee Corp. National's current ratings are as follows: Rating Aoencv Rating Moody's Investors Service Baal, Outlook Developing Standard & Poor's A, Outlook Developing Standard & Poor's has assigned an underlying rating of "AA-" to the 2003 Certificates of Participation, notwithstanding the bond insurance policy. Content of Annual Report: The content of the Annual Report is presented below pursuant to Section 3 of the Continuing Disclosure Certificate. (a) Audited Financial Statements: Enclosed with this Annual Report is the City's Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended June 30, 2009. The general purpose financial statements (GPFS) contained with the Financial Section of the CAFR were 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, The GPFS have been audited by the City's Independent Auditors, Lance, Soil and Lunghard, and the Independent Auditors' Report on the GPFS may be seen on page 1 of the CAFR. 17 Page 2 City of Chino Hills $18,210,000 Refunding Certificates of Participation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 (b) Financial Information and Operating Data (i) Principal outstanding as of January 1, 2010 2003 Certificates of Participation $ 11,815,000 2002 Certificates of Participation 9,300,000 (ii) Reserve Fund: Amount as of January 1, 2010 Surety Bond in the face amount of $ 1,624,240 Reserve requirement as of January 1, 2010 $ 1,601,070 (c) The summary report showing in reasonable detail Gross Revenues, Operation and Maintenance Expenses, Net Revenues and Debt Service may be seen in Exhibit A attached to this report. ' (d) On January 22, 2008, the City Council approved increases in the Water Utility's rates for the next five years. The rate increases, which consist of both the cost for water and a monthly service charge depending on the meter size, effective January 1, 2010, may be seen on Exhibit B and the approved rate increases for the next two years, may be seen on Exhibit C attached to this report. (e) An update of the information contained in the following tables of the Official Statement, for the current fiscal year, is provided as described below: (i) The ten largest water users may be seen in Exhibit D attached to this report. (ii) The water consumption table may be seen in Exhibit E attached to this report. (iii) The Historic Operating Results and Debt Service coverage may be seen in Exhibit F attached to this report. The City supplies water to its residents through a variety of sources including, city- owned groundwater production wells and delivery from the Chino Basin Desalter Authority, Water Facilities Authority (MWD), and Monte Vista Water District. The City's operational plan takes advantage of all of these sources to maintain operational flexibility, efficiency, and cost containment. In the event that one or more of these supply sources should fail, the City has the ability to purchase additional water to meet demand from the Water Facilities Authority (MWD), Monte Vista Water District or increased groundwater production. If the City is forced to make these choices there may be increased costs incurred as a result of the purchase of penalty water or increased assessments for over production of groundwater. (f) The City of Chino ("Chino") has alleged that certain deep aquifer pumping by the City has caused ground subsidence within the city limits of Chino. This claim was raised by motion in connection with Chino Basin Municipal Water District v. City of Chino, et al, San Bernardino Superior Court Number 164327, dated January 27, 1978, in which all groundwater rights in the Chino Basin were adjudicated and where the court has retained continuing jurisdiction. In connection with this claim, the City and Chino entered into an agreement (the "Forbearance Agreement") under which each agreed to reduce pumping in the subsidence area by 1,500 acre feet per year for a period of three successive one year terms, The Forbearance Agreement was 18 Page 3 City of Chino Hills $18,210,000 Refunding Certificates of Participation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 extended for an additional one year period that ended in August 2005. During the forbearance period, the Watermaster monitored ground water levels and conducted studies to determine the cause of the subsidence. As of January 31, 2006, the Watermaster asserted that it had concluded the necessary subsidence studies and distributed a draft Guidance Criteria for MZ-1 Producers calling for the voluntary reduction of pumping from the deep aquifer to certain levels based upon the Watermaster's studies. The City disputed the conclusions of the studies and believes additional studies are necessary to determine the amount of water that can be safely drawn from the subsidence area. The City and the Watermaster in the fall of 2007, stipulated to a Long Term Plan ("Stipulation") that provides in essence for (i) continued testing in the subsidence area to determine how much water can be safely pumped from the deep aquifer, and (ii) to the extent that it is determined it would be prudent for the City to relocate some of its pumping activities, that the parties would work together to review other areas of the Basin from which the City can pump water to replace the amount it had been pumping from the deep aquifer. If it is finally established that pumping from the deep aquifer by the City is contributing to the subsidence, the City along with other pumping entities may be required to permanently reduce its pumping activities in the subsidence area. The City believes the Watermaster is required to provide the City with an alternative source, at no cost to the City, or otherwise provide remuneration to the City if the City relocates its pumping facilities, should it be determined that it would be prudent for the City to reduce its pumping in the subsidence area. The Watermaster believes that it has no such obligation. However, as part of the Stipulation, the parties agreed that this issue would be resolved, if necessary, in the future. Further information may be obtained from Director of Finance, City of Chino Hills, 14000 City Center Drive, Chino Hills, California 91709; (909) 364-2641. Attachments End of Annual Report. 19 Exhibit A City of Chino Hills $9,545.V00CeAifioaiesofParticipation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Summary Report and Debt Service (a) Revenues: Water sales $ 17.152,513 Other Revenues 534,034 Total Revenues 17,686,547 Operating Maintenance Expenses: Purchased water 8'263.246 Salaries and benefits 2,134,426 U0ihes 980.289 Contractual services 546,555 Repairs and maintenance 1,220,956 Services and supplies 308.995 Other general and administrative 1.673,520 Total Operating and Maintenance Expenses 15.136.307 Net Revenue $ 2'549.560 2002 Certificates Debt Service % 500.104 2003 Certificates Debt Service 1'615.320 Total Debt Service $ 2,121,424 Debt Service Coverage 1.20 (a) Excludes receipt and expenditure of development fees and proceeds from sales of assets. 20 Exhibit B City of Ghino Hills $9,545,000 Certificates of Participation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Water Rates and Water Service Charges In Effect as of January 1, 2010 Meter Installation Charge. The schedule of regular service meter installation charges is as follows: Service Line and Curb Meter & Service Size Cock Already Installed No Service Line Installed 1 inch $ 330.00 $ 875.00 1 1/2 inch 400.00 1,000.00 2 inch 500.00 1,300.00 All meter installation charges for meter sizes 3 inches or larger are made at cost, plus, ten percent(10%). Water Capital Connection Charge. The schedule of water capital connection charges are shown below. Meter Size Capital Connection Fee Meter Size Capital Connection Fee 1 inch $ 5,358,00 6 inch $ 178,582.00 1 1/2 inch 17,842,00 8 inch 285,742.00 2 inch 28,558.00 10 inch 430,408.00 3 inch 53,580.00 12 inch 582,254.00 4 inch 89,318.00 Monthly Service Charge. The City has a monthly service charge based on meter size ranging from $12.59 per month for a 5/8' meter to $2,167.56 per month for an 12" meter. Meter Size Rates Meter Size Rates 5/8 inch $ 12.59 4 inch $ 319.62 3/4 inch 18.85 6 inch 641.66 1 inch 31.48 8 inch 1,058.28 1 1/2 inch 62.95 10 inch 1,587.42 2 inch 100,73 12 inch 2,167,56 3 inch 191.29 Commodity Charge. Residential domestic water rates and non-residential water rates are set forth in the following tables. Low, Intermediate and High Zones refer to pumping zones. Residential Rates (per hundred cubic feet) Low Intermediate High Single Family Multi-Family Zone Zone Zone 0-12 hcf 0-7 hcf $ 1.45 $ 1.74 $ 1.77 13-35 hcf 8-20 hcf 1.65 1.93 1.99 36+ hcf 21+ hcf 2.00 2.29 2.32 Non-Residential Rates (per hundred cubic feet) Non-Residential Recycled Water Rates Water Rates Low Zone 1.56 1.13 Intermediate Zone 1.85 1.35 High Zone 1.88 1.40 Agricultural 0.96 0.79 Construction 2,06 1,54 21 Exhibit C City of Chino Hills $9,545,000 Certificates of Participation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Water Rate Increases through January 1, 2012 Commodity Charae Effective Jan. 1, 2010 Jan. 1, 2011 Jan. 1, 2012 Residential SFR MFR $/ccf $/ccf $/ccf Low Zone 0-12 ccf 0-12 ccf 1.45 1.55 1.66 13-35 ccf 13-25 ccf 1.65 1.77 1.90 36+ ccf 26+ ccf 2.00 2.15 2.31 Intermediate Zone 0-12 ccf 0-5 ccf 1.74 1.87 2.01 13-35 ccf 6-25 ccf 1.93 2.07 2.22 36+ ccf 26+ ccf 2.29 2.46 2.64 High Zone 0-12 ccf 0-5 ccf 1.77 1.90 2.04 13-35 ccf 6-11 ccf 1.99 2.14 2.30 36+ ccf 12+ ccf 2.32 2.49 2.68 Non-Residential Low Zone 1.56 1,67 1.79 Intermediate Zone 1.85 1.99 2.14 High Zone 1.88 2.02 2.17 Temporary (Construction Meter) 2.06 2.21 2.37 Agricultural 0.96 1.04 1.12 Institutional Low Zone 1.56 1.67 1.79 Intermediate Zone 1.85 1.99 2.14 High Zone 1.88 2.02 2.17 Reclaimed Water Low Zone 1.13 1.22 1.32 Intermediate Zone 1.35 1.46 1.58 High Zone 1.40 1.51 1.63 Temporary(Construction Meter) 1.54 1.66 1.79 Agricultural Meter 0.79 0.85 0.92 Private Fire Protection Private Fire Protection 1.45 1.55 1.66 Standard Rates - Monthly Service Charae Meter Size Jan. 1, 2.010 Jan. 1, 2011 Jan. 1, 2012 5/8" 12.59 13.60 14.69 3/4" 18.85 20.36 21.99 1" 31.48 34.00 36.72 1 1/2" 62.95 67.99 73.43 2" 100.73 108.79 117.49 3" 191.29 206.59 223.12 4" 319.62 345.19 372.81 6" 641.66 692.99 748.43 8" 1,058.28 1,142.94 1,234.38 10" 1,587.42 1,714.41 1,851.56 12" 2,167.56 2,340.96 2,528.24 22 Exhibit D City of Chino Hills $9,545,000 Certificates of Participation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Ten Largest Water Users 12 Month Consumption Percentage Customers (100 Cubic Feet) of Total City of Chino Hills 589,138 7.68 % Vellano Golf Course 264,785 3.45 Los Serranos Golf Course 201,417 2.63 Chino Valley Unified School District 158,701 2.07 Western Hills Golf Course Association 122,851 1.60 Vellano Homeowners Association 79,920 1.04 Rancho Monte Vista M.H.P. 54,932 0.72 Opus Properly Services LLC 50,255 0.66 Caltrans- 08 46,186 0.60 Canyon Hills S.B.H.O.A. 44,046 0,57 Total 1,612,231 21.02 % Total Consumption 7,669,653 23 Exhibit E City of Chino Hills $9,545,000 Certificates of Participation (2003 Water System Projec9 Continuing Disclosure Certificate Annual Repo Fiscal Year 2000-09 Water Consumption Table June 30, 2 2`! Fiscal Years E 21 165 2f 21,179 2005 2p 986 20,960 17 607 Water 2o,8g1 18,962 Number of 16,967 Connections 16,293 13,968 $16,976,684 Water 15 A28 $16,275679 $16,2 Total g $14,715 970 COnsumPtion rz) $13,593,433 t3) Billings non °Perat'Oie�enues Water meters. payments. caned landscapingeludes other operating andd lease PaYm (1j Includes the City's s ° amount ex In acre water sales I connection interest income a feet. only; fee, ( .1 amount is for s such as meter (3) Billings grom revenue collections N Exhibit F City of Chino Hills $9,545,000 Certificates of Participation (2003 Water System Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Historic Operating Results and Debt Service Coverage For Fiscal Years Ending June 30 2005 2006 2007 2008 2009 Revenues: Charges for Service $14,309,457 $15,959,757 $16,481,946 $17,781,444 $ 16,901,021 Permit and Inspection Fees - - - - _ Meter and Installation Fees 71,360 94,397 103,216 81,603 29,399 Interest Earnings 245,141 491,691 831,094 808,084 472,763 Other 2,688,500 528,916 1,290,564 303,073 283,364 Total Revenues 17,314,458 17,074,761 18,706,820 18,974,204 17,686,547 Expenses: Purchased water" 4,003,559 2,852,071 2,602,390 3,784,953 4,695,417 Utilities 513,239 463,049 816,243 749,308 988,289 Salaries and benefits 1,488,930 1,510,945 1,682,261 1,861,303 2,134,426 Contractual services 517,743 402,632 400,560 728,999 546,555 Repairs and maintenance 441,959 825,967 899,125 550,780 1,220,956 Services and supplies 164,555 177,990 244,025 257,098 309,995 Other general and administrative 1,693,917 1,427,265 1,474,157 1,547,594 1,673,520 Water Purchase Agreement 1,721,795 2,249,090 3,295,815 2,677,570 3,567,829 Total Expenses 10,545,697 9,909,009 11,414,576 12,157,605 15,136,987 Net Revenues $ 6,768,761 $ 7,165,752 $ 7,292,244 $ 6,816,599 $ 2,549,560 2002 Installment Sales Agreement $ 510,341 $ 519,561 $ 513,361 $ 512,259 $ 506,104 2003 Installment Sales Agreement 1,609,295 1,598,295 1,607,095 1,605,295 1,615,320 Total Debt Service $ 2,119,636 $ 2,117,856 $ 2,120,456 $ 2,117,554 $ 2,121,424 Debt Service Coverage 3.19 3.38 3.44 3.22 1,20 The City purchases a portion of its water from the Chino Basin Desalter Authority('Desalter Authority).The cost of water charged by the Desalter Authonty includes debt service on bonds issued to finance the treatment facilities. The Desalter Authority had issued 2004A Adjustable Rate Desalter Revenue Refunding Bonds as Auction Rate Securities to finance and refinance the cost of the treatment facilities. Between January 2008 and May 2008, interest rates on such Auction Rate Securities went as high as 10%. This increased Interest cost was passed through to the participants In the Desalter Authority,including the City of Chino Hills,and accounts for a portion of the increased cost of purchased water shown in 2007/08. The Desalter Authority N refinanced the 2004A Adjustable Rate Desalter Revenue Refunding Bonds in June 2008 with a fixed rate bond issue,and the City does not expect Cn fluctuations in The portion of the purchased water cost related to the Desalter Authority bonds to occur in future years. RESOLUTION NO. 10R- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, ACTING IN ITS CAPACITY AS THE GOVERNING BODY OF THE COMMUNITY FACILITIES DISTRICT NO. 9, APPROVING THE ANNUAL REPORT AS REQUIRED BY THE CONTINUING DISCLOSURE AGREEMENT FOR THE $14,860,000 SPECIAL TAX BONDS, SERIES 1998. WHEREAS, the City of Chino Hills (City), acting in its capacity as the governing body of the Community Facilities District No. 9 (CFD #9), issued in August 1998 the $14,860,000 Special Tax Bonds, Series 1998 (Bonds) to refinance existing CFD bonds; and WHEREAS, the City/CFD issued a Continuing Disclosure Agreement (CDA) for the Bonds in accordance with Securities and Exchange Commission (SEC) regulations; and WHEREAS, the CDA provides for the issuance of an annual report that discloses financial information relating to the CFD; and WHEREAS, the SEC regulations and CDA provisions require the City/CFD to distribute its Annual Report to its dissemination agent at least 15 business days prior to April 1, 2010; and WHEREAS, the City's/CFD's dissemination agent is the City's/CFD's trustee for the Bonds; and WHEREAS, the City's/CFD's trustee for the Bonds is U. S. Bank National Association. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHINO HILLS, ACTING IN ITS CAPACITY AS THE GOVERNING BODY OF THE COMMUNITY FACILITIES DISTRICT NO. 9, DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The Annual Report for the 2008-09 fiscal year, Exhibit I, attached and made a part hereof, which was prepared in accordance with the CDA for the Bonds, is approved as to form and content, and is approved to be released to the City's/CFD's dissemination agent. 1 of 3 26 SECTION 2: The City Clerk shall certify as to the adoption of this resolution. PASSED, APPROVED, and ADOPTED this 9th day of March 2010. W. C. "BILL" KRUGER, MAYOR ATTEST: MARY M. McDUFFEE, CITY CLERK APPROVED AS TO FORM: MARK a HENSLEY, CITY ATTORNEY 2 of 3 27 EXHIBIT I City of Chino Hills Community Facilities District No. 9 (Rincon Village Area) $14,860,000 Special Tax Bonds, Series 1998 Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Provision of Annual Report: This Annual Report is being issued pursuant to the covenants contained in the Continuing Disclosure Agreement executed for the $14,860,000 Special Tax Bonds, Series 1998 issued by the City of Chino Hills, San Bernardino County, California, Community Facilities District No. 9 (CFD). The Annual Report is being disseminated to the Electronic Municipal Market Access (EMMA) system of the Municipal Securities Rulemaking Board by U. S. Bank National Association on behalf of the CFD. Content of Annual Report: The content of the Annual Report is presented below pursuant to Section 3 of the Continuing Disclosure Agreement. (a) Audited Financial Statements: Enclosed with this Annual Report is the City's Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended June 30, 2009. The general purpose financial statements (GPFS) contained within the Financial Section of the CAFR were 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. The GPFS have been audited by the City's Independent Auditors, Lance, Soll and Lunghard, and the Independent Auditors' Report on the GPFS may be seen on page 1 of the CAFR. (b) Financial Information and Operating Data: (i) Series 1998 Bonds outstanding principal as of September 30,2009: $ 4,765,000 (ii) Series 1998 Bond Reserve Fund: Amount as of September 30, 2009: $ 832,100 Reserve requirement as of September 30, 2009: $ 714,700 (iii) The assessed valuation and assessed value-to-lien ratio information may be seen in Exhibit A attached to this report. (iv) The Special Tax delinquency information may be seen in Exhibits B-1, B-2, and B-3 attached to this report. (v) As of September 30, 2009, foreclosure proceedings have not been initiated for any parcels within the CFD. (vi) As of September 30, 2009, there are no property owners representing more than 5 percent of the annual Special Tax Levy who are delinquent in payment of such Special Taxes. (vii) As of September 30, 2009, no property owner owned parcels responsible for more than 5 percent of the annual 2009/10 Special Tax levy. The land ownership summary may be seen in Exhibit C attached to this report. (c) Richland Pinehurst v. City of Chino Hills. This matter arises from Richland Pinehurst and two other developers (referred to herein, collectively, as the"Developers")filing an action against the City and Community Facilities Districts("CFD") Nos. 5, 8, and 9(referred to herein, collectively, as the"City'), seeking approximately $4.5 million plus interest based upon its contention that it is entitled to reimbursement from 20% of the special tax revenues collected in CFDs 5 and 8 for improvements financed by CFD 9, wherein the Developers projects are located. The City prevailed at trial. The 28 Page 2 City of Chino Hills Community Facilities District No. 9 (Rir,con Village Area) $14'8G8.000Special Tax Bonds, Series 1898 Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Developers appealed the judgment and the Court of Appeal reversed the decision of the Superior Court and remanded the case to the Superior Court for a determination of damages. The City filed a Petition for Review to the California Supreme Court which was denied. On January 24, 2008, the Superior Court entered judgment in favor of the Developers inthe total amount of5G.000.00Obobe paid from 20% of the special tax revenues collected in CFDs 5 and 8. Commencing in Fiscal Year 28O4'2OO5. thaCitybagana*hingeside2U%ofthnnpocia|taXoavnnueoco||ededinCFDo5and8 and has made payments from such funds in partial satisfaction of the judgment in the amount of $3,867,349 with a remaining liability as of July 1, 2009 of$2,132,651. The City will continue to set aside 20% of the special tax revenues collected in CFDs 5 and 8 and remit such collections in payment of the judgment semi-annually by March 1 and July 1 until such time as the judgment is satisfied in full. Interest does not accrue on any portion of the unpaid balance of the judgment unless the semi-annual remittances are not made. Attachments End of Report. 2 9 EXHIBIT A CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO.9 (RINCON VILLAGE AREA) $14,860,000 SPECIAL TAX BONDS,SERIES 1998 ASSESSED VALUE TO LIEN RATIOt'I Assessed Fiscal Year 2009/10 Percentage of Bonded Value to Developed-Single Family Parcels Value ti3) Special Tax Bonded Indebtedness indebtednessre Lien Area 1 303 $126,724,526,00 $152,05449 20.47% $975,570,09 129.90 Area 2 693 299,292,97400 347,769.19 46.83% 2,231,254,38 134,14 Area3 319 125 499.259.00 160,083.77 21,55% 1.027 0E3534 122,14 Subtotal 1.315 5551.466,769.00 9659.906.45 88.85% $4133,909.81 130,26 Developed-Neighborhood Commercial Area 1 0 $000 $D.CD 0.00% $4.00 000 Area 2 32 39,534,943 00 57,710.61 7.77% 370,266,00 107,04 Area3 0 0,00 0,00 0,0D% 0.00 004 Subtotal 32 939.634.94300 $57.710.61 7.77% 5370,26990 107,04 Undeveloped-Large Lots Area 1 1 $8,476,139,00 $25,066.27 3,38% $160,823.29 52,70 Area 2 0 0,00 0.00 000% 0.00 0 DO Area3 0 0.00 000 000% 0,00 0.00 Subtotal 1 $8476,13900 625,066.27 3.38% $160,823.29 52.70 District Total 1.348 $599677,8514)_,00 9742.653.33 100.0tl% $4,766000.00_._ 125,83 (1)Source:Wnldan Financial Services (2)Source:County of San Bernardino Secured Property Tax Roil for Fiscal Year 2009/10. (3)in comparison to the prior years Annual Continuing Disclosure Information Statement,the reduction in total assessed value in the District Is due to the annual review of the San Bernardino County Assessor to reflect taxable values accurately in consideration of recent market declines, Under Proposition 13,reel property Is reappraised only when a changreln-ownership occurs,or when new construction takes place.Generally,a change In ownership is a sale or transfer of property,while new construction is any improvement to property which is not considered normal maintenance.Except for these two Instances,properly assessments cannot be Increased by more than two percent(2%)annually. Revenue and Taxation Code Section 61 requires the assessor to enrol the lower of either the property's Factored-Base-Near Value(established under Proposition 13)or its market value as of the Can date(January 1). The reduction Is temporary and the assessor Is required to review the market value of the property each lien date after the reduction until such time as the Factored-Base-Year Value is less than or equal to the market value, Wen the Factored-Base-Year Value Is again enrolled,the property is no longer subject to the annual review,and wit receive Indexing not to exceed two percent (2%)per year, (4)Bonded Indebtedness as of September 2,2009.Bonded Indebtedness Is equal to each parcels prorate share of the Fiscal Year 2009/10 Special Tax multiplied by the remaining bonded debt, Note:Slight differences In totals due to rounding, 3al EXHIBIT B-1 CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO.9 (RINCON VILLAGE AREA) HISTORICAL SPECIAL TAX DELINQUENCIES (EXCLUDING APN 1017-231-10) Total Special Amount Percent Tax Levy Delinquent as of Delinquent as of Remaining Remaining Number of Fiscal (Excluding June 30 of Each June 30 of Each Amount Percent of Parcels Year 1017-231-10) Fiscal Year Fiscal Year Delinquent In Dollars Delinquent 111 Delinquent 2008/09 $703,546 $43,606 6.20% $24,120 3,43% 50 2007/08 689,746 67,742 9.82% 15,053 2.18% 26 2006/07 674,800 42,796 6.34% 4,729 0,70% 11 2005/06 661,557 56,559 8.55% 2,086 0.32% 7 2004/05 645,268 31,588 4.90% 0 0.00% 0 2003/04 611,192 5,700 0,93% 0 0.00% 0 2002/03 793,255 9,392 1.18% 437 0.06% 1 2001/02 846,889 7,561 0.89% 262 0.03% 1 2000/01 1,028,705 5,513 0.54% 0 0.00% 0 1999/00 937,659 4,117 0.44% 0 0.00% 0 1998/99 1,062,976 3,738 0.35% 0 0.00% 0 1997/98 1,472,791 36,725 2.49% 0 0.00% 0 1996/97 1,726,949 872 0.05% 0 0.00% 0 1995/96 2,080,464 1,121 0.05% 0 0.00% 0 1994/95 1,810,344 478,901 26.45% 0 0.00% 0 1993/94 1,721,541 0 0.00% 0 0.00% 0 TOTALS $17,467,682 $795,932 4.56% $46,687 0.27% (1)As of September 20,2009. Source: San Bernardino County,as compiled by Wiilden Financial Services. Note:Slight differences in totals due to rounding 31 EXHIBIT B-2 CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO.9 (RINCON VILLAGE AREA) HISTORICAL SPECIAL TAX DELINQUENCIES APN 1017-231-10 (formerly known as DeVries Parcel) Amount of 1017-231-10 % of 1017-231-10 Remaining Remaining Total Delinquent as of Delinquent as of Amount of %of Fiscal District Special June 30 of Each June 30 of Each 1017-231-10 1017-231-10 Year Tax Levy Fiscal Year Fiscal Year Delinquentlrl Delinquent(1) 2008/09 $757,490 $0 0.00% $0 0.00% 2007/08 741,245 0 0.00% 0 0.00% 2006/07 725,018 0 0.00% 0 0.00% 2005/06 711,998 0 0.00% D 0.00% 2004/05 685,904 0 0.00% 0 0.00% 2003/04 654,917 43,725 6.66% 0 0.00% 2002/03 856,259 63,004 7.36% 0 0.00% 2001/02 930,973 84,083 9,03% 0 0.00% 2000/01 1,122,270 93,566 8.34% 0 0.00% 1999/00 1,016,511 78,852 7.76% 0 0.00% 1998/99 1,149,214 86,237 7.50% 0 0.00% 1997198 1,607,833 135,041 8.40% 0 0.00% 1996/97 1,856,046 129,097 6.96% 0 0.00% 1995/96 2,246,506 166,043 7,39% 0 0.00% 1994/95 1,911,997 101,653 5.32% 0 0.00% 1993/94 1,817,962 96,421 5.30% 0 0.00%, TOTALS $18,792,142 $1,077,722 5.73% $0 0.00% (1)As of September 20, 2009. Source: San Bernardino County,as compiled by Willdan Financial Services 32 EXHI[3IT 5-3 CITY OF CHINO HILLS COMMUNITY FACILITIES DISTIRCT NO.9 (RINCON VILLAGE AREA) PARCELS WITH DELINQUENCIES GREATER THAN$2,000 Fiscal Years Amount of APN Property Owner Delinquent Delinquency (1) 1027-581-17-0000 HEG L L C 2007/2008 $774.35 2008/2009 1,579.69 Subtotal $2,354.04 1027-581-18-0000 HEG L L C 2007/2008 774.35 2008/2009 1,579.69 Subtotal $2,354.04 1027-581-24-0000 CHINO HILLS PODIATRY GROUP INC 2007/2008 1,446.64 2008/2009 1,475.58 Subtotal $2,922.22 Total $7,630.30 (1)As of September 20, 2009.Amounts do not include penalties and interest. Source: San Bernardino County,as compiled by Willdan Financial Services. 33 EXHIBIT C CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO.9 (RINCON VILLAGE AREA) OWNERSHIP SUMMARY OF LARGEST PROPERTY OWNERS t'1 FY 2009/10 Special Tax Percent of FY 2009110 Bonded Owner(2) Area(s) Parcels Levy Special Tax Levy Indebtednesst31 LPC CHINO HILLS LP 1 1 $25,066.27 3.38% $160,823.29 5651 PINE AVE LLC 2 2 10,434,11 1.40% 66,944.46 INDIVIDUAL OWNERS 1,2,3 1,345 707,182.95 95.22% 4,537,232.25 TOTALS 1,348 $742,683.33 100.00% $4,765000.00 (1)Source:County of San Bernardino Secured Property Tax Roll for Fisrai Year 2009/10. (2)Property owners responsible for more than one percent(1%)of the Special Taxes are listed separately while property owners responsible for less than one percent(1%)of the Special Taxes are listed collectively as'Individual Owners'. (3)Bonded Indebtedness as of September 2,2009,Bonded Indebtedness is equal to each parcels prorate share of the Fiscal Year 2009/10 Special Tax multiplied by the remaining bonded debt. 34 RESOLUTION NO. 10R- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, ACTING IN ITS CAPACITY AS THE GOVERNING BODY OF THE COMMUNITY FACILITIES DISTRICT NO. 10 (FAIRFIELD RANCH), APPROVING THE ANNUAL REPORT AS REQUIRED BY THE CONTINUING DISCLOSURE AGREEMENT FOR THE $13,040,000 SPECIAL TAX BONDS, SERIES 2000. WHEREAS, the City of Chino Hills (City), acting in its capacity as the governing body of the Community Facilities District No. 10 (Fairfield Ranch) (CFD #10), issued in June 2000 the $13,040,000 Special Tax Bonds, Series 2000 (Bonds) to finance the construction and acquisition of various public improvements within the District; and WHEREAS, the City/CFD issued a Continuing Disclosure Agreement (CDA) for the Bonds in accordance with Securities and Exchange Commission (SEC) regulations; and WHEREAS, the CDA provides for the issuance of an annual report that discloses financial information relating to the CFD; and WHEREAS, the SEC regulations and CDA provisions require the City/CFD to distribute its Annual Report to its dissemination agent at least 15 business days prior to April 1, 2010; and WHEREAS, the City's/CFD's dissemination agent is the City's/CFD's trustee for the Bonds; and WHEREAS, the City's/CFD's trustee for the Bonds is U. S. Bank National Association. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHINO HILLS, ACTING IN ITS CAPACITY AS THE GOVERNING BODY OF THE COMMUNITY FACILITIES DISTRICT NO. 10, DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The Annual Report for the 2008-09 fiscal year, Exhibit I, attached and made a part hereof, which was prepared in accordance with the CDA for the Bonds, is approved as to form and content, and is approved to be released to the City's/CFD's dissemination agent. 1 of 3 35 SECTION 2: The City Clerk shall certify as to the adoption of this resolution. PASSED, APPROVED, and ADOPTED this 9th day of March 2010. W. C. "BILL" KRUGER, MAYOR ATTEST: MARY M. McDUFFEE, CITY CLERK APPROVED AS TO FORM: MARK D. HENSLEY, CITY ATTORNEY 2 of 3 36 EXHIBIT I City of Chino Hills Community Facilities District No. 10 (Fairfield Ranch) $13,040,000 Special Tax Bonds, Series 2000 Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Provision of Annual Report: This Annual Report is being issued pursuant to the covenants contained in the Continuing Disclosure Agreement executed for the$13,040,000 Special Tax Bonds, Series 2000 issued by the City of Chino Hills, San Bernardino County, California, Community Facilities District No. 10(Fairfield Ranch)(CFD#10). The Annual Report is being disseminated to the Electronic Municipal Market Access (EMMA) system of the Municipal Securities Rulemaking Board by U. S. Bank National Association on behalf of the CFD. Content of Annual Report: The content of the Annual Report is presented below pursuant to Section 3 of the Continuing Disclosure Agreement. (a) Audited Financial Statements: Enclosed with this Annual Report is the City's Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended June 30, 2009. The general purpose financial statements (GPFS) contained within the Financial Section of the CAFR were 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. The GPFS have been audited by the City's Independent Auditors, Lance, Soli and Lunghard, and the Independent Auditors' Report on the GPFS may be seen on page 1 of the CAFR. (b) Financial Information and Operating Data: (i) The principal amount of Bonds outstanding as of September 30,2009: $12,525,000 (ii) Series 2000 Bond Reserve Fund: Amount as of September 30, 2009: $ 1,219,230 Reserve requirement as of September 30, 2009: $ 1,219,230 (iii) The balance in the Acquisition Account as of September 30,2009: $ 0 (iv) The balance in the Construction Account as of September 30,2009: $ 452,311 (v) The assessed valuation and assessed value-to-lien ratio information may be seen in Exhibit A attached to this report. (vi) The Special Tax delinquency information may be seen on Exhibit B-1 and B-2 attached to this report. (vii) As of September 30, 2009, foreclosure proceedings have not been initiated for any parcels within the CFD. (viii) As of September 30, 2009, there are no property owners representing more than 5 percent of the annual Special Tax Levy who are delinquent in payment of such Special Taxes. (ix) As of September 30, 2009, no property owner owned parcels responsible for more than 5 percent of the annual 2009/10 Special Tax levy. The land ownership summary and zones may be seen in Exhibit C attached to this report. Attachments End of Report. 37 entia T A CM(OF CHINO HIS LS COMMUNITY so.10 GILI-DES DISTR FARFIELD rJ DEO DESTtrl TOTAL ASSESSED VALUETO g 863. VBonded Zone 1 and 2:$250,072, 12+525,000. Percent of Bonded 141 petit Parcels in Zon e 1 and 2r 2009110 Indebtedness 1/444 Para y009 for Zone lndeb ed Value of as of September 2, Total 2009110 Spacial Tax Total Assess 20A4 lue to Outstanding Ixri3l Special Sax 55,260,496 5 260 496 TotalDete.onesnt 2009NOAsrucSedvawe Total 42.00% 19.63 SWature %455,387 7 264,5p4 19.97 Land 8107,498,602 58.00% 812,525,000 parcels 626,869 100.00°�° ones 870.208,068 4 261 4 256 Gate+ 142,574,261 4257 , 8108 + annual 837,290,5,0 92,,957,8 5 8250,072,863 to the Zone 1 -Developed 319 833 the District is due Single Family Lots 49,524 496 8102,957, assessed value in Zone 2-Develop 403 887,115,030 the n total ass ownership Lots 009110• eduction dectrnes. change in Single Family 722 Fiscal Year 2 Statement, of recent Market Generally,a two instance TORI ProPeTaxRollfor information Statem Services. n consideration takes place. Exceptfor�hes Financial$eNdfno Secured Continuing Disclosure accurately when new construction aintenance. wilSan es Contin taxable values normal m underP San Bernardino Ann to d only when ownership occurs,or w of considered Proposition (11 Source. Drums fe S riot Y property which is n (established (2)Source. to the P County Assessor a change-in-ownership Prof Year Value (31 In comparison only when property's a m s Bernardino raised is any improvement annually f ctored Ba s ed- of the San property is reappraised construction two Percent(2.°/0) e a the Factor review real Prof cequire than either theuntil such time rope 'white newer of r the reduction Under Proposition 13 sed by more enroll the low date atter percent not be increa assessor to e ty each lien is a sale or IransR?entsPan ulres the exceed two prof i assess 51 req of the prof Bion u not to the markntvalue Vein e. lien view,and w 11 rete ded de ection tit Pet zon Re a m Ta value asgon ooeth date(January aired to rewew emaining bon d annual re vena rket or is req 13)it its ma and the assess market value. er subject to the nd within by the temporary or equal to the the P n t1 rs no long share of Special Tax reduction n than roP This Inns enrolled, the prorata gase-Year Value is Value is a9am ness is Year gonded Indebted when ten factored-gase 2009. (2°kl per yea�debtedness as of September 2, (4�Bonded w Co EXHIBIT B-1 CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO.10 (FAIRFIELD RANCH) DELINQUENCY SUMMARY Amount Percent Delinquent as of Delinquent as of Remaining Remaining Percent Number of Total Special Tax June 30 of Each June 30 of Each Amount of Dollars Parcels Fiscal Year Levy Fiscal Year Fiscal Year Delinquent I'I Delinquent(1) Delinquent 2000/01 $928,057 $4,433 0.48% $0 0.00% 0 2001/02 926,058 20,022 2.16% 0 0.00% 0 2002/03 916,256 19,151 2.09% 0 0.00% 0 2003/04 947,274 3,933 0.42% 0 0.00% 0 2004/05 965,285 56,879 5.89% 0 0.00% 0 2005/06 986,074 77,113 7.82% 1,211 0.12% 1 2006/07 1,018,841 71,095 6.98% 3,133 0.31% 3 2007/08 1,039,598 109,214 10.51% 10,355 1.00% 7 2008/09 1,058,526 64,255 6.07% 28,434 2.69% 27 Total $8,783,971 $426,095 4.85% $43,132 0.49% (1)As of September 20,2009. Source:San Bernardino County, as compiled by Willdan Financial Services. 39 EXHIBIT B-2 CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO. 10 (FAIRFIELD RANCH) PARCELS WITH DELINQUENCIES GREATER THAN$2,000.00 Amount of APN Name Date Due Dellnquencyl" 1027-532-05 Landicho,Guilberto A&Annelle Q 12/10/07 $924.58 04/10/07 924.58 12/10/08 941,34 04/10/09 941.33 Subtotal $3,731.63 1027-541-15 Villegas,Angel 12/10/07 $811.90 04/10/08 811.90 12/10/08 626.62 04/10/09 826.61 Subtotal $3,277.03 1027-551-10 Kwon, Eun Jung 12/10/07 626.57 04/10/08 626.56 12/10/08 637.92 04/10/09 637,92 Subtotal $2,528.97 1027-561-11 Rater, Herman&Simpson,Lakisha D 12/10/06 650.18 04/10/07 650.17 12/10/07 663.42 04/10/08 663.42 Subtotal $2,627.19 1028-591-37 Lucas,Deborah 12/10/05 543.35 04/10/07 543.35 12/10/07 554.42 04/10/08 554.42 12/10/07 564.47 04/10/08 564.47 Subtotal $3,324.48 1028-601-49 Using,Armando Lalic Sr&Amelia Hernande 12/10/06 835.74 04/10/07 835.74 12/10/07 850.89 04/10/08 850.66 Subtotal $3,373.25 1028-611-22 Ruvalcaba,Raul 04/10/07 745,60 12/10/07 760,79 04/10/08 760.79 04/10/09 774,57 Subtotal $3,041.75 Total $21,904.50 (1)As of September 20,2009, Source:San Bernardino County,as compiled by Willdan Financial Services. 40 EXHIBIT C CITY OF CHINO HILLS COMMUNITY FACILITIES DISTRICT NO.10 (FAIRFIELD RANCH) PRINCIPAL TAX PAYERS WITHIN EACH ZONE111 Percent of Fiscal Year 2009110 Assessed Valuel'x't Total 2009/10 2009110 Bonded Value to Property Owner Parcels Land Structure Total Special Tax Special Tax Indebtedness)4) Lien Zone 1 -Richmond American Homes Individual Homeowners 319 $37,290,534 $70,208,068 $107,498,602 8455,387 42,00% $5,260,496 20.44 Zone 1 Subtotal 319 $37,290,534 $70,208,068 $107,495,502 5455,357 42.00% $5,260.496 20.44 Zone 2-Centex Homes Individual Homeowners 403 549,824,496 $92,749,765 $142,574,261 $628,869 58.00% $7,264,504 19.63 ' Zone 2 Subtotal 403 $49,824,496 $92,749,765 $142,574,261 $628,869 58.00% $7,264,504 19.63 Total 722 $87,115,030 $162,957,833 $250,072,863 $1,064,256 100.00% $12,525,000 19.97 (1)Source:Willdan Financial Services. (2)Source:County of San Bernardino Secured Property Tax Roll for Fiscal Year 2009/10. (3) In comparison to the prior year's Annual Continuing Disclosure Information Statement,the reduction in total assessed value in the Distirct is due to the annual review of the San Bernardino County Assessor to reflect taxable values accurately in consideration of recent market declines. Under Proposition 13, real property is reappraised only when a change-in-ownership ocwrs, or when new construction takes place.Generally,a change in ownership is a sale or transfer of property,while new construction is any improvement to property which is not considered normal maintenance. Except for these two instances, property assessments cannot be increased by more than two percent(2%)annually. Revenue and Taxation Code Section 51 requires the assessor to enroll the lower of either the property's Factored-Base-Year Value(established under Proposition 13)or its market value as of the lien date(January 1). This reduction is temporary and the assessor is required to review the market value of the property each lien date after the reduction until such time as the Factored-Base-Year Value is less than or equal to the market value. When the Factored-Base-Year Value is again enrolled,the property is no longer subject to the annual review,and will receive indexing not to exceed two percent(2%)per year. (4)Bonded Indebtedness as of September 2,2009.Bonded Indebtedness is the prorate share of Special Tax multiplied by the remaining bonded debt per zone. A J RESOLUTION NO. 10R- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, APPROVING THE ANNUAL REPORT AS REQUIRED BY THE CONTINUING DISCLOSURE AGREEMENT FOR THE 2007 $22,040,000 CERTIFICATES OF PARTICIPATION (CIVIC CENTER INTERIM FINANCING PROJECT). WHEREAS, the City of Chino Hills issued in May 2007 the $22,040,000 Certificates of Participation (Civic Center Interim Financing Project) to provide funds (a) to finance a portion of the costs of the construction and installation of a new Civic Center, including a new City Hall complex, a new sheriff substation, a new fire administration facility, a new library and related infrastructure, (b) finance a portion of the costs of certain storm drain facilities and street improvements; (c) fund a reserve fund, (d) fund capitalized interest to September 1, 2007, and (e) pay delivery costs incurred in connection with the execution, delivery and sale of the Certificates; and WHEREAS, the City issued a Continuing Disclosure Agreement (CDA) for the 2007 COP's in accordance with Securities and Exchange Commission (SEC) regulations; and WHEREAS, the CDA provides for the issuance of an annual report that discloses financial information relating to the 2007 COP's; and WHEREAS, the SEC regulations and CDA provisions require the City to distribute its Annual Report to its dissemination agent at least 15 business days prior to April 1, 2010; and WHEREAS, the City's dissemination agent is the City's trustee for the 2007 COP's; and WHEREAS, the City's trustee for the 2007 COP's is U.S. Bank National Association, NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CHINO HILLS DOES RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1: The Annual Report for the 2008-09 fiscal year, Exhibit I, attached and made a part hereof, which was prepared in accordance with the CDA for the 2007 COP's, is approved as to form and content, and is approved to be released to the City's dissemination agent. 1 of 3 42 SECTION 2: The City Clerk shall certify to the passage and adoption of this resolution. PASSED, APPROVED, and ADOPTED this 9th day of March 2010. W. C. "BILL" KRUGER, MAYOR ATTEST: MARY M. McDUFFEE, CITY CLERK APPROVED AS TO FORM: MARK D. HENSLEY, CITY ATTORNEY 2 of 3 43 EXHIBIT I City of Chino Hills $22,040,000 Certificates of Participation (2007 Civic Center Interim Financing Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 Provision of Annual Reoort: This Annual Report is being issued pursuant to the covenants contained in the Continuing Disclosure Certificate executed for the $22,040,000 Certificates of Participation (2007 Civic Center Interim Financing Project) issued by the City of Chino Hills, San Bernardino, California (City). The Annual Report is being disseminated to the Electronic Municipal Market Access (EMMA) system of the Municipal Securities Rulemaking Board by U.S. Bank National Association on behalf of the City of Chino Hills. Content of Annual Reoort: The content of the Annual Report is presented below pursuant to Section 3 of the Continuing Disclosure Certificate. (a) Audited Financial Statements: Enclosed with this Annual Report is the City's Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended June 30, 2009. The general purpose financial statements (GPFS) contained with the Financial Section of the CAFR were 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. The GPFS have been audited by the City's Independent Auditors, Lance, Soil and Lunghard, and the Independent Auditors' Report on the GPFS may be seen on page 1 of the CAFR. (b) An update of the information contained in the following tables of the Official Statement for the current fiscal year, is provided as described below: (1) The "Assessed Valuation" table may be seen in Exhibit A attached to this report. (2) The "Property Tax Levies and Collections" table may be seen in Exhibit B attached to this report. (c) Enclosed with this Annual Report is the City's adopted budget for the 2009-10 fiscal year. (d) The City has adopted an investment policy to cover all funds and investment activities of the City, except investments governed by bond indentures and employee deferred compensation funds. The text of the Investment Policy is attached (see Exhibit C). An update of the information provided in the Official Statement may be seen in Exhibit D attached to this report. (e) Outstanding borrowings and long-term obligations include: (1) General Obligation Bonds N/A Certificates of Participation: i. 2007 Civic Center Interim Financing Project $21,865,000 ii. 2003 Water System Project 11,815,000 iii. 2002 Water System Project 9,300,000 Capital Leases i. Copier Lease-De Lage Landen Public Finance LLC 391,336 Operating Leases: i. McCoy Equestrian Center Trust $13 44 Page 2 City of Chino Hills $22,040,000 Certificates of Participation (2007 Civic Center Interim Financing Project) Continuing Disclosure Certificate Annual Report Fiscal Year 2008-09 (2) The City has not issued, entered into or incurred any general obligation bonds, certificates of participation, capital leases or operating leases since the beginning of the current fiscal year. (3) The City does not expect to issue, enter into or incur any general obligation bonds, certificates of participation, capital leases or operating leases within the 60 day period following the date of filing the Annual Report. Attachments End of Report. 45 EXHIBIT A CITY OF CHINO HILLS ASSESSED VALUATION FISCAL YEARS 2004 THROUGH 2009 Year Local Secured Utility Unsecured Total 2003/04 5,604,985,688 24,870 61,578,723 5,666,589,281 2004/05 6,160,508,317 23,669 64,882,412 6,225,414,398 2005/06 6,790,326,334 24,135 70,452,994 6,860,803,463 2006/07 7,589,433,739 22,606 67,127,371 7,656,583,716 2007/08 8,474,229,615 - 86,163,878 8,560,393,493 2008/09 8,917,694,424 - 114,517,484 9,032,211,908 Source:California Municipal Statistics, Inc. 46 EXHIBIT B CITY OF CHINO HILLS PROPERTY TAX LEVIES AND COLLECTIONS FISCAL YEARS 2004 THROUGH 2009 Total Current Tax Collections Percent of Current Levy Fiscal Year Tax Levy as of June 30 Collected as of June 30 2004 2,250,501 2,217,021 98.5% 2005 2,462,079 2,312,787 93.9% 2006 2,720,557 2,537,125 93.3% 2007 3,030,270 2,687,944 88.7% 2008 3,390,298 2,980,778 87.9% 2009 3,571,077 3,194,990 89.5% Source:San Bernardino County Auditor/Controller-Recorder 47 EXHIBIT C CITY OF CHINO HILLS Statement of Investment Policy Fiscal Year 2009-10 I. POLICY It is the policy of the City of Chino Hills ("City") to meet the short and long-term cash flow demands of the City in a manner, which will provide for the safety of principal and sufficient liquidity, while providing an investment return. The purpose of this Statement of Investment Policy (hereinafter, this "Investment Policy") is to outline a process of the investment of City funds in a prudent manner in order to meet City objectives. II. SCOPE This investment policy applies to all investment activities and financial assets of the City, held by the City and its agents and trustees, except for funds held by investment providers of deposits made pursuant to provisions of the City's Deferred Compensation Plan (hereinafter, the "Funds"). Bond proceeds shall be invested in accordance with the requirements and restrictions outlined in the bond documents. Bond proceeds are not considered part of the Funds nor subject to this Investment Policy. The following funds are covered by this Investment Policy and are accounted for in the City's Comprehensive Annual Financial Report; a) General Fund b) Special Revenue Fund c) Debt Service Funds d) Capital Project Funds e) Enterprise Funds f) Internal Services Funds g) Fiduciary Funds (Trust and Agency Funds) h) Any new funds created by the City Council III. DELEGATION OF AUTHORITY Pursuant to City of Chino Hills Municipal Code Sections 3.12.010 et seq, the City Treasurer is authorized to invest the City's Funds in accordance with California Government Code Sections 53600, 16429.1 and 53684 et seq.l' In accordance with VAII subsequent references to code sections refer to the California Government Code unless otherwise indicated. -1- 48 section 53607, the City Council may annually in July of a fiscal year, delegate to the City Treasurer the responsibility to invest the City's funds for the fiscal year. In the absence of the City Treasurer (hereinafter, the "Treasurer"), the investment of the Funds will be delegated to the Assistant Finance Director. Investments made by the Assistant Finance Director will be restricted to the State Pool ("LAIF"), the County of Los Angeles Investment Pool, or to securities maturing within six months. Prior to investing in securities, the Assistant Finance Director will consider the cash flow requirements of the City and may invest in securities maturing over six months if directed by the Treasurer in writing or verbally, if confirmed in writing within 30 days. The Treasurer may delegate to subordinates the execution of daily investment transactions. These investment transactions shall be approved by the Treasurer. IV. PRUDENCE All investments purchased shall have daily liquidity or a final stated maturity date, upon which the full principal value of the security will be received. Although the investment will mature at full principal value, it is recognized that the market will vary throughout the life of the security. In a diversified portfolio it must be further recognized that occasional measured losses are inevitable in a diversified portfolio due to economic, bond market, or individual security credit analysis. These occasional losses must be evaluated and considered within the context of the overall investment return. The "Prudent Investor" standard shall be applied in the context of managing the Funds. The Treasurer and other investment employees, acting within the intent and scope of the investment policy and other written procedures and exercising due diligence, shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments. V. OBJECTIVES The objective of the investment portfolio is to meet the short and long-term cash flow demands of the City. To achieve this objective, the portfolio will be structured to provide Safety of Principal and Liquidity, while then providing a Return on Investments. The following criteria, in priority order, shall govern all investment decisions. A. Safety of Principal Investments of the City shall be undertaken in a manner that seeks to ensure that capital losses are minimized, whether from institution default, broker-dealer default, or erosion of the market value of securities. The City shall seek to preserve principal by mitigating the two types of risk in order of importance: credit risk and market risk. -2- 49 1. Credit Risk. Credit risk, defined as the risk of loss due to failure of an issuer of a security, shall be mitigated by purchasing Treasuries or high- grade securities. All investments beyond Treasury securities will be diversified so that the failure of any one issuer would not unduly harm the City's cash flow. Credit risk shall also be mitigated by pre-qualifying financial institutions, broker/dealers, intermediaries and advisors with which the City does business. 2. Market or Interest Rate Risk. Interest rate risk is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. Interest rate risk may be mitigated by structuring the Funds so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and by investing operating funds primarily in shorter-term securities. The cash flow is updated on a daily basis and will be considered prior to the investment of securities, which will reduce the necessity to sell investments for liquidity purposes. Long-term securities shall not be purchased for the sole purpose of short-term speculation. Securities shall not be sold prior to maturity with the following exceptions: 1) a declining credit security would be sold early to minimize loss of principal, 2) a security swap would improve the quality, yield, or target duration in the portfolio, or 3) liquidity needs of the portfolio require that the security be sold. Purchases of investments will be restricted to securities with a final stated maturity not to exceed three years. B. Liquidity The Funds shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity). Furthermore, since all possible cash demands cannot be anticipated, the Funds will maintain a liquidity buffer and invest primarily in securities with active secondary or resale markets (dynamic liquidity). C. Return on Investments The Funds shall be designed to attain a return on investments through budgetary and economic cycles, taking into account the investment risk constraints and liquidity needs. Return on investment is of least importance compared to the safety and liquidity objectives described above, The core of investments are limited to relatively low risk securities in anticipation of earning a fair return relative to the risk being assumed. -3- 50 VI. ETHICS AND CONFLICTS OF INTEREST The Treasurer and other employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program or which could impair their ability to make impartial investment decisions. The Treasurer and investment employees shall disclose any material interests in financial institutions with which they conduct business. They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio and shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of their entity. The Treasurer and investment employees are required to file annual disclosure statements as required by the Fair Political Practices Commission (FPPC). During the course of the year, if there is an event subject to disclosure that could impair the ability of the Treasurer or investment employees to make impartial decisions, the City Council will be notified in writing within 10 days of the event. VII. SAFEKEEPING OF SECURITIES To protect against fraud, embezzlement, or losses caused by collapse of individual securities dealers, all securities owned by the City shall be held in safekeeping by the City's custodial bank, a third party bank trust department, acting as agent for the City under the terms of a custody agreement. Such custodial bank must be a federal or state association (as defined by Section 5102 of the Financial Code), a trust company or a state or national bank located within this state or with the Federal Reserve Bank of San Francisco or any branch thereof within this state, or with any Federal Reserve bank or with any state or national bank located in any city designated as a reserve city by the Board of Governors of the Federal Reserve System. Collateral for repurchase agreements will be held by a third party custodian under the terms of a Public Securities Association ("PSA") master repurchase agreement. All securities will be received and delivered using standard delivery versus payment ("DVP") procedures which ensures that securities are deposited with the third party custodian prior to the release of funds. Securities will be held by a third party custodian as evidenced by safekeeping receipts. Investments in the State Pool or money market mutual funds are undeliverable and are not subject to delivery or third party safekeeping. The Treasurer shall not be responsible for securities delivered to and receipted for by a financial institution until they are withdrawn from the financial institution by the Treasurer. On a daily basis, investment trades shall be verified against the bank transactions and broker confirmation tickets to ensure accuracy. On a monthly basis, the custodial asset statement shall be reconciled with the month end portfolio holdings. On an annual basis, the external auditor confirms investment holdings. -4- 51 VIII. REPORTING In accordance with amended Section 53646 of the Government Code, effective January 1, 1996, the Treasurer will annually render to the City Council in July of each fiscal year, a statement of investment policy. The policy shall be reviewed on an annual basis by the Treasurer. Any investment currently held that does not meet the guidelines of this policy shall be exempted from the requirements of this policy. At maturity or liquidation, such moneys shall be reinvested only as provided by this policy. Pursuant to Section 53607 and Section 53646 of the Government Code, the Treasurer shall render a report to the City Council and City Manager, containing detailed information on all securities, investments, and moneys of the City. The report will be submitted on a monthly basis and be provided to the Council within 30 days following the end of the month. The report will contain the following information on the funds that are subject to this investment policy: 1) the type of investment, name of the insurer, date of maturity, par and cost in each investment, 2) any investments, including loans and security lending programs, that are under the management of contracted parties, 3) the market value and source of the valuation, 4) a description of the compliance with the statement of investment policy, and 5) a statement denoting the City's ability to meet its pool's expenditure requirements for the next six months, The Treasurer shall submit copies of the report for the second and fourth quarter of each calendar year to the California Debt and Investment Advisory Commission within 60 days after the close of such quarter. To the extent the City has funds invested with county investment pools, the Treasurer shall request copies of all the investment reports generated by the counties pursuant to Government Code Section 27133 and the annual audit required by Government Code Section 27134. The investment report shall reflect a summary of these reports and audits. IX. INTERNAL CONTROLS The Treasurer shall develop a system of internal investment controls and a segregation of responsibilities of investment functions in order to assure an adequate system of internal control over the investment function. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. -5- 52 X. EXTERNAL AUDIT On at least an annual basis the City shall have an external auditor review the City's investments and provide an opinion to the City respecting the City's compliance with this Investment Policy. XI. QUALIFIED DEALERS AND INSTITUTIONS The City shall transact business only with banks, savings and loans, and registered investment securities dealers. The purchase of any investment, other than those purchased directly from the issuer, shall be purchased either from an institution licensed by the State as a broker-dealer, as defined in Section 25004 of the Corporation Code, who is a member of the National Association of Securities Dealers, or a member of a Federally regulated securities exchange, a National or State- Chartered Bank, a Federal or State Association (as defined by Section 5102 of the Financial Code), or a brokerage firm designed as a Primary Government Dealer by the Federal Reserve Bank. The Treasurer's staff shall review all institutions which wish to do business with the City, in order to determine if they are adequately capitalized, make markets in securities appropriate to the City's needs, and agree to abide by the conditions set forth in this Investment Policy. All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must provide a current audited financial statement and complete the appropriate City questionnaire (See Attachment "A" and Attachment "B"). XII. COLLATERAL REQUIREMENTS California Government Code, Sections 53652 through 53667 requires depositories to post certain types and levels of collateral for public funds above the Federal Deposit Insurance Corporation ("FDIC") insurance amounts. The collateral requirements apply to bank deposits, both active (checking and savings accounts) and inactive (non- negotiable time certificates of deposit). The bank or savings and loan must secure the active and inactive deposits with eligible securities having a market value of 110% of the total amount of the deposits. State law also allows as an eligible security, first trust deeds having a value of 150% of the total amount of the deposits. A third class of collateral is letter of credit drawn on the Federal Home Loan Bank (FHLB). • The City's Treasurer has the authority to waive security for that portion of a deposit which is insured pursuant to federal law. Currently, the first ,$:1;0,0;;;0;0:0:.98 . 2 ...,.00.-..,., , . 0._ .,, :, .,> $,25;Q; 1)00,00, of a deposit is federallyinsured. It is the _City✓ policy to waive this ` $$5;b„0:0©;OD because a hi, her P � collateral requirement for the first $'1.00 000 OEC g interest rate can be obtained on this increment This'ntcrea4.erexp�res4on ©epemt* 3i2013 at whi't:,ti`rzie'.tf a%incur d.depositzamount°w Il:reOlitback fq°;th&$1 oo,;0,00 lij t; -6- 53 From time to time certain institutions ask to reduce the existing certificate of deposit kern- $100 000-to;:$99,000.,,',or",$98,000 td:;below' the ;federally, insured;,limit. This is requested in order that the accrued interest on the deposit will also be insured. It is to the City's advantage to reduce the principal deposit to the lower level for full insurance coverage of principal and accrued interest if the financial institution requests the reduction and if there is no penalty assessed for the reduction. If funds are to be collateralized, the collateral we accept is 110% of the deposit in government securities. Collateral is also required for repurchase agreements. The collateral level shall be valued daily and must be maintained at a level of 102% for the life of the repurchase agreement. XIII. AUTHORIZED INVESTMENTS The investments set forth in this section are authorized investments pursuant to Section 53601 of the Government Code and are authorized investments for the City subject, however, to the prohibitions set forth in Section XIV of this Investment Policy. (a) Bonds issued by the City, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the City or by a department, board, agency, or authority of the City. The maximum maturity for these investments is five (5) years. (b) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest. The maximum maturity for these investments is five (5) years. (c) Registered state warrants or treasury notes or bonds of this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the state or by a department, board, agency, or authority of the state. The maximum maturity for these investments is five (5) years. (d) Registered treasury notes or bonds of any of the other 49 United States in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 United States, in addition to California. The maximum maturity for these investments is five (5) years. (e) Bonds, notes, warrants, or other evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the local agency, -7- 54 or by a department, board, agency, or authority of the local agency. The maximum maturity for these investments is five (5) years. (f) Obligations issued by banks for cooperatives, federal land banks, federal intermediate credit banks, federal home loan banks, the Federal Home Loan Bank Board, the Tennessee Valley Authority, or in obligations, participations, or other instruments of, or issued by, or fully guaranteed as to principal and interest by, the Federal National Mortgage Association; or in guaranteed portions of Small Business Administration notes; or in obligations, participations, or other instruments of, or issued by, a federal agency or a United States government-sponsored enterprises (see Section XIV for prohibited investments in Small Business Administration Notes). The maximum maturity for these investments is five (5) years. (g) Bills of exchange or time drafts drawn on and accepted by a commercial bank, otherwise known as bankers acceptances. Purchases of bankers' acceptances may not exceed 180 days maturity or 40 percent of the agency's surplus money that may be invested pursuant to this section. However, no more than 30 percent of the agency's surplus funds may be invested in the bankers acceptances of any one commercial bank pursuant to this section (see Section XIV for prohibited investments in bankers acceptances). resNide- c -.rnl"o min`N p,t rrnT o ey �ts.:.reas,ury°ins;.' - . . . . . ` csCod (h) Commercial paper of "prime" quality of the highest ranking or of the highest letter and number rating as provided for by a nationally recognized statistical-rating organization (NRSRO), such as Moody's Investors Service, Inc. (Moody's), Standard and Poor's Corporation (S&P) or Fitch Financial Services, Inc. (Fitch). Eligible paper is further limited to issuing corporations that are organized and operating within the United States and having total assets in excess of five hundred million dollars ($500,000,000) and having an "A" or higher rating for the issuer's debt, other than commercial paper, if any, as provided for by nationally recognized statistical-rating organization (NRSRO). Purchases of eligible commercial paper may not exceed 270 days maturity. Investments in commercial paper are subject to the following concentration limits: (1) No more than 40 percent of the City's surplus money may be invested in eligible commercial paper, (2) No more than 10 percent of the City's surplus money may be invested in any one issuer's commercial paper. (See Section XIV for prohibited investments in commercial paper). (i) Certificates of deposit at a selected depository institution that is a nationally or state chartered commercial bank, savings bank, or savings and loan association. The selected depository institution may use a private sector entity to assist in the placement of certificates of deposit with one or more depository institutions, provided that the purchases of certificates of deposit are pursuant to Section -8- 55 53635.8, and subdivision (I) (i) of Section 53601 and the following conditions shall apply: 1) Not to exceed 30 percent of the City's total surplus funds, 2) Certificates of deposit are fully insured by the Federal Deposit Insurance Corporation, 3) The selected depository institution shall serve as a custodian for each certificate of deposit that is issued with the placement service with other depository institutions for the City's account, 4) An amount of deposit that is greater or equal to the full principal of the City's initial investment for each certificate of deposit with the selected depository institution, shall be put forth by the other depository institutions if placement service of the certificates of deposit is used, and 5) The City may not invest its surplus funds with a selected depository institution for placement as certificates of deposit after January 1, 2012. The maximum maturity for these investments is five (5) years, subject to limitation as stated in 5) above. (See Section XIV for prohibited investments in certificates of deposit). (i) Negotiable certificates of deposits issued by a nationally or state-chartered bank or a state or federal association (as defined by Section 5102 of the Financial Code) or by a state-licensed branch of a foreign bank. Purchases of negotiable certificates of deposit may not exceed 30 percent of the agency's surplus money which may be invested pursuant to this section. For purposes of this section, negotiable certificates of deposits do not come within Article 2 (commencing with Section 53630), except that the amount so invested shall be subject to the limitations of Section 53638. The maximum maturity for these investments is five (5) years. (k) (1) Investments in repurchase agreements or reverse repurchase agreements or security lending agreements of any securities authorized by this section, so long as the agreements are subject to this subdivision, including, the delivery requirements specified in this section (see Section XIV for prohibited investments in reverse repurchase agreements). (2) Investments in repurchase agreements may be made, on any investment authorized in this section, when the term of the agreement does not exceed one year. The market value of securities that underlay a repurchase agreement shall be valued at 102 percent or greater of the funds borrowed against those securities and the value shall be adjusted no less than quarterly. Since the market value of the underlying securities is subject to daily market fluctuations, the investments in repurchase agreements shall be in compliance if the value of the underlying securities is brought back up to 102 percent no later than the next business day. (3) Reverse repurchase agreements or security lending agreements may be utilized only when all of the following conditions are met: A. The security to be sold on reverse repurchase agreement or securities lending agreement has been owned and fully paid for by the City for a minimum of 30 days prior to sale. -9- 56 B. The total of all reverse repurchase agreements and securities lending agreements on investments owned by the City does not exceed 20 percent of the base value of the portfolio. C. The agreement does not exceed a term of 92 days, unless the agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. D. Funds obtained or funds with the pool of an equivalent amount to that obtained from selling a security to a counter party by way of a reverse repurchase agreement or securities lending agreement shall not be used to purchase another security with a maturity longer than 92 days from the initial settlement date of the reverse repurchase agreement or securities lending agreement, unless the reverse repurchase agreement or securities lending agreement includes a written codicil guaranteeing a minimum earning or spread for the entire period between the sale of a security using a reverse repurchase agreement or securities lending agreement and the final maturity date of the same security. (4) Investments in reverse repurchase agreements, securities lending agreements, or similar investments in which the City sells securities prior to purchase with a simultaneous agreement to repurchase the security may only be made upon prior approval of the City Council and shall only be made with primary dealers of the Federal Reserve Bank of New York or with a nationally or State-chartered bank that has or has had a significant banking relationship with the City. (See Section XIV for prohibited investments in reverse repurchase agreements), (5) (A) "Repurchase agreement" means a purchase of securities by the City pursuant to an agreement by which the counterparty seller will repurchase the securities on or before a specified date and for a specified amount and the counterparty will deliver the underlying securities to the City by book entry, physical delivery, or by third-party custodial agreement. The transfer of underlying securities to the counterparty bank's customer book-entry account may be used for book-entry delivery. (B) "Securities," for purpose of repurchase under this subdivision, means securities of the same issuer, description, issue date, and maturity. (C) "Reverse repurchase agreement" means a sale of securities by the City pursuant to an agreement by which the City will repurchase the securities on or before a specified date and includes other comparable agreements. -10- 57 (D) "Securities lending agreement" means an agreement under which the City agrees to transfer securities to a borrower who, in turn, agrees to provide collateral to the City. During the term of the agreement, both the securities and the collateral are held by a third party. At the conclusion of the agreement, the securities are transferred back to the City in return for the collateral. (E) For purposes of this section, the base value of the City's pool portfolio shall be that dollar amount obtained by totaling all cash balances placed in the pool by all pool participants, excluding any amounts obtained through selling securities by way of reverse repurchase agreements or security lending agreements or other similar borrowing methods. (F) For purposes of this section, the spread is the difference between the cost of funds obtained using the reverse repurchase agreement and the earnings obtained on the reinvestment of the funds. (I) Medium-term notes, defined as all corporate and depository institution debt securities with a maximum of five years maturity issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States. Notes eligible for investment under this subdivision shall be rated "A" or better by a nationally recognized rating service. Purchases of medium-term notes may not exceed 30 percent of the City's surplus money which may be invested pursuant to this section (see Section XIV for prohibited investments in medium term corporate notes). The maximum maturity for these investments is five (5) years. (m) (1) Shares of beneficial interest issued by diversified management companies that invest in the securities and obligations as authorized by subdivisions (a) to '(}, (lee), inclusive, or subdivisions (m) or (n;) (o), and that comply with the investment restrictions of this article and Article 2 (commencing with Section 53630). To be eligible for investment pursuant to this subdivision, these companies shall either: (A)Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience investing in the securities and obligations as authorized by subdivisions (a) to i (k), inclusive, or subdivisions (m) or O (o.), and with assets under management in excess of five hundred million dollars ($500,000,000). (2) Shares of benefit interest issued by diversified management companies that are money market fund registered with Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. sec. 80a-1 et seq). To -11- 58 be eligible for investment pursuant to this subdivision, these companies shall either: (A)Attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. (B) Retained an investment adviser registered or exempt from registration with the Securities and Exchange Commission with not less than five years' experience managing money market mutual funds with assets under management in excess of five hundred million dollars ($500,000,000). (3) The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that these companies may charge and shall not exceed 20 percent of the City's surplus money that may be invested pursuant to this section, However, no more than 10 percent of the City's funds may be invested in shares of beneficial interest of any one mutual fund. (n) Moneys held by a trustee or fiscal agent and pledged to the payment or security of bonds or other indebtedness, or obligations under a lease, installment sale, or other agreement of the City, or certificates of participation in those bonds, indebtedness, or lease installment sale, or other agreements, may be invested in accordance with the statutory provisions governing the issuance of those bonds, indebtedness, or lease installment sale, or other agreement, or to the extent not inconsistent therewith or if there are no specific statutory provisions, in accordance with the ordinance, resolution, indenture, or agreement of the City providing for the issuance. (o) Notes, bonds, or other obligations that are at all times secured by a valid first priority security interest in securities of the types listed by Section 53651 as eligible securities for the purpose of securing City deposits having a market value at least equal to that required by Section 53652 for the purpose of securing City deposits. The securities serving as collateral shall be placed by delivery or book entry into the custody of a trust company or the trust department of a bank which is not affiliated with the issuer of the secured obligation, and the security interest shall be perfected in accordance with the requirements of the Uniform Commercial Code or federal regulations applicable to the types of securities in which the security interest is granted. The maximum maturity for these investments is five (5) years. (p) Any mortgage pass-through security, collateralized mortgage obligation, mortgage-backed or other pay-through bond, equipment lease-backed certificate, consumer receivable pass-through certificate, or consumer receivable-backed bond of a maximum of five years maturity. Securities eligible for investment under this subdivision shall be issued by an issuer having an "A" -12- 59 or higher rating for the issuer's debt as provided by a nationally recognized rating service and rated in a rating category of "AA" or its equivalent or better by a nationally recognized rating service, Purchase of securities authorized by this subdivision may not exceed 20 percent of the City's surplus money that may be invested pursuant to this section (see Section XIV for prohibited investments in mortgage backed securities). (q) Shares of beneficial interest issued by a joint powers authority organized pursuant to Section 6509.7 that invests in the securities and obligations authorized in subdivisions (a) to (ta) (o), inclusive. Each share shall represent an equal proportional interest in the underlying pool of securities owned by the joint powers authority. To be eligible under this section, the joint powers authority issuing the shares shall have retained an investment adviser that meets all of the following criteria: (1) The adviser is registered or exempt from registration with the Securities and Exchange Commission. (2) The adviser has not less than five years of experience investing in the securities and obligations authorized in subdivisions (a) to (i) (o), inclusive. (3) The adviser has assets under management in excess of five hundred million dollars ($500,000,000). (r) State and County investment pools are defined as the State of California Local Agency Investment Fund, San Bernardino County Pooled Funds of Investments, and the Los Angeles County Pooled Funds of Investments in this Investment Policy. XIV. PROHIBITED INVESTMENTS AND TRANSACTIONS (a) The City shall not invest any funds in inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages. (b) The City shall not invest any funds in any security that could result in zero interest accrual if held to maturity. However, the City may hold prohibited instruments until their maturity dates. The limitation in this subdivision shall not apply to City investments in shares of beneficial interest issued by diversified management companies registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, and following) that are authorized for investment pursuant to subdivision (k) of Section XIII, above. (c) No credit union may act as a selected depository institution under section 53601.8 or Section 53635.8 for certificates of deposit. (d) The City shall not purchase or sell securities on margin. -13- 60 (e) The following types of investments shall not be directly used by the City: (i) Federal Agency Issues: Guaranteed Small Business Administration (SBA) Notes. (ii) Bankers Acceptances (iii) Commercial Paper (iv) Medium Term Corporate Notes (v) Reverse Repurchase Agreements (vi) Mortgage-Backed Securities However, it is acknowledged that investment pools in which the City invests may invest funds in the securities set forth in this subdivision (d). XV. DEFERRED COMPENSATION PLAN The City offers a deferred compensation plan (Plan) to its employees and has contracted with certain providers to offer investment options in which the employees may invest their contributions to the Plan. The Plan is established in accordance with Section 457 of the Internal Revenue Code (I.R.C). Currently, the assets of the deferred compensation plan are held in the deferred compensation plan trust for the exclusive benefit of the plan's participants and their beneficiaries, and the assets shall not be diverted to any other purpose. The City of Chino Hills serves as the trustee, The trustee's beneficial ownership of plan assets held in the deferred compensation plan trust shall be held for the further exclusive benefit of the plan participants and their beneficiaries. However, in accordance with the Plan, the employees have the exclusive responsibility to choose in which investments their contributions will be deposited. The City does not have any responsibility in selecting any investment options offered by the providers. The restrictions on investments contained within this Statement of Investment Policy do not apply to the deposits and investments made in accordance with the Plan. The Plan deposits and investments are governed by I.R.C. Section 457 and the provisions of the Plan, the contracts with the Plan providers, and the prospectus of the issuers of the various investment products offered by the Plan providers. Additionally, the plan deposits are governed by Section 17 of ArticleXVl of the California Constitution and Section 53609 of the Government Code. XVI. MONEY PURCHASE PLAN The City offers a Money Purchase Plan (MPP) to its employees and has contracted with certain providers to offer investment options in which the employees may invest their contributions to the MPP. The MPP is established in accordance with Section 401(a) of the Internal Revenue Code. Currently, Section 401(a) provides that the assets contributed to the MPP by the City's employees are immediately 100% vested to the contributor. Pursuant to the MPP, the employees have the exclusive responsibility to choose in which investments their contributions will be deposited. The City does not have any responsibility in selecting any investment options offered by the providers, -14- 61 The restrictions on investments contained within this Statement of Investment Policy do not apply to the deposits and investments made in accordance with the MPP. The MPP deposits and investments are governed by I.R.C. Section 401(a) and the provisions of the MPP, the contracts with the MPP providers, and the prospectus of the issuers of the various investment products offered by the MPP providers. XVII. POLICY REVIEW This Investment Policy shall be reviewed at least annually by the Treasurer and City Council to ensure its consistency with the overall objectives of preservation of principal, liquidity, and return, and its relevance to current law, financial and economic trends, and to meet the needs of the City. DATED: July 14, 2009 SUBMITTED BY: CITY TREASURER -15- 62 CITY OF CHINO HILLS CITY TREASURER INVESTMENT PORTFOLIO GUIDELINES These guidelines are established to direct and control investment activities in such a manner to assure that the goals established in the Investment Policy are attained. 1. Cash Forecast. The cash flow of the City shall be updated daily with an analysis of cash receipts and expenditures and a review of the scheduled investment maturities to ensure that adequate cash will be available to meet the disbursement requirements. 2, Pooled Cash. Whenever practical, the City's cash should be consolidated into one bank account and invested on a pooled concept basis. Interest earnings may be allocated according to fund cash and investment balances. 3. Diversification. Diversification will be used as a tool to control risk. 4. Competitive Bids. Purchase and sale of securities shall be made on the basis of competitive bids and offers with a minimum of three quotes being obtained, when practical. 5. Authorized Institutions. Investment transactions will only be executed with previously approved brokers-dealers, banks, and savings and loans, A list of these institutions shall be authorized and maintained by the Treasurer. 6. Certificate of Deposit Evaluation. (a) Time Certificates of Deposit (TCD) shall be evaluated in terms of financial strength. For deposits in excess of the FDIC insured maximum of MOM ;$2.5 OQd approved collateral shall be required, as specified by California Government Code Section 53652 ands 53651 fA7t}( ), ;afld 53661;. (b) Negotiable Certificate of Deposit (NCD) shall be evaluated in terms of the credit worthiness of the issuer, as these deposits are uninsured and uncollateralized promissory notes. 7. Investment Transaction, Every investment transaction must be reviewed and authorized by the Treasurer, In the absence of the Treasurer, the authority to review and authorize investment transactions is delegated to the Assistant Finance Director, within the scope outlined in the Investment Policy. The daily investment transactions may be delegated to the Assistant Finance Director, Accounting Supervisor, or one of the Department's three Senior Accountants/Accountants. All investment transactions will be reviewed and approved by the Finance Department's Accountant who is not responsible for the -1- 63 daily investment activity. Following the Accountant's review and approval, the Finance Director will review and approve the investment transactions. 8. Safekeeping. Securities purchased from broker-dealers shall be held at the City's custodial bank. Repurchase agreement collateral will be held at a tri-party custodial bank and valued daily. 9. Strategy. Strategy refers to the plan of action for managing financial resources in the most advantageous manner. The Treasurer uses the following elements in developing strategy. (a) Economic Forecast. Economic forecast information developed by economists and financial experts and obtained through bankers, brokers, financial databases, periodicals and universities are used to assist the Treasurer with the formulation of an investment strategy for the City. (b) Investment Implementation. Execute only investment transactions which conform with anticipated cash flow requirements, economic condition and interest rate trends and are consistent with the established Investment Policy Statement. (c) Rapport. A close working relationship with City Departments such as Finance, Utilities, Capital Projects Team, and all other Departments having a significant impact on cash flow, is maintained in order to maximize the efficiency of the City's cash management system and establish cash flow requirements. -2- 64 CITY OF CHINO HILLS OFFICE OF THE CITY TREASURER BANK/SAVINGS AND LOAN QUESTIONNAIRE AND CERTIFICATION 1 Name of Firm: 2 Address: 3 Telephone No. ( ) ) (Local) (Nat. Headquarters) 4 Primary Representative: Manager: Name: Name: Title: Title: Tel. No. ( ) TeL NL ( ) 5 What are the Total Assets of the Bank/Savings and Loan? 6 What is the current Net Worth Ratio of your institution? 7 What was the Net Worth Ratio for the Previous Year? 8 What is your required Capital Ratios? A. Tangible Capital Ratio B. Core Capital Ratio C. Risk-Based Capital Ratio 9 What are your Ratings (i.e., S&P, Moody's, Thompson, Fitch)? -3- (ATTACHMENT "A") 65 10 What is the date of your Fiscal Year-End? A. Has there been a year during the past three years in which the Bank/Savings and Loan did not make a profit? 11 Have you read the California Government Code Section 53630 through 53684 pertaining to the State's requirements governing the deposit of monies by Local Agencies which includes Cities? [ ] YES [ NO 12 Amounts above the FDIC insurance coverage must be collateralized as specified in the Government Code. Where is the collateral for Deposits held? Has there ever been a failure to fully collateralize? If Yes, please attach explanation. 13 What is the education level of the Primary Contact(s)? 14 How many years of related experience does the Primary Contact(s) have? 15 What transaction documents and reports would we receive? 16 What information would you provide to our City Treasurer? 17 Describe the precautions taken by your Bank/Savings and Loan to protect the interest of the public when dealing with government agencies as depositors or investors. 18 Please provide your Contract of Deposit of Moneys pre-signed and sealed by your institution, as well as, any signature cards that you may require. 19 Please provide your Wiring Instructions: -4- (ATTACHMENT "A") 66 20 Please provide your Bank/Savings and Loan most recent certified financial statement. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. - CERTIFICATION - I hereby certify that I have personally read City of Chino Hills Investment Policy and the California Government Codes pertaining to the investments and deposits of the City of Chino Hills, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of Chino Hills. I understand however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of City of Chino Hills' investment objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise due diligence in informing City of Chino Hills Investment Officers of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire. NOTE: Completion of Questionnaire is only part of City of Chino Hills Certification process and DOES NOT guarantee that the applicant will be approved to do business with the City of Chino Hills. SIGNED: DATE: COUNTERSIGNED: DATE: -5- (ATTACHMENT "A") 67 CITY OF CHINO HILLS OFFICE OF THE CITY TREASURER BROKER/DEALER QUESTIONNAIRE AND CERTIFICATION 1 Name of Firm 2 Address (Local) (Nat. Headquarters) 3 Tel. No. ( ) Tel. No. ( ) (Local) (Nat. Headquarters) 4 Primary Representative: Manager/Partner-in-Charge: Name: Name: Title: Title: Tel. No. ( ) Tel. No. ( ) No. of Years in Institutional No. of Years in Institutional Sales: Sales: No. of Years with Firm: No. of Years with Firm: 5 Are you a Primary Dealer in U.S. Government Securities? [ ] YES [ ] NO 6 Are you a Regional Dealer U.S. Government Securities? [ ] YES [ ] NO 7 Are you a Broker instead of a Dealer, i.e., You DO NOT own positions of securities? [ ] YES [ ] NO 8 Are you NASD certified and licensed to sell in California municipalities? [ ] YES [ ] NO 9 What is the net capitalization of your firm? 10 What is the date of your Firm's fiscal year-end? 11 Is your Firm owned by a Holding Company? If so, what is its name and net capitalization? -1- (ATTACHMENT "B") 68 12 Please provide your Wiring and Delivery Instructions: 13 Which of the following instruments are offered regularly by your local desk? [ ] T-Bills [ ] Treasury Notes/Bonds [ ] Discount Notes [ ] NCD'S [ ] Agencies (specify) [ ] BAs (Domestic) [ JBAs (Foreign) [ ] Mid-Term Notes [ ] Commercial Paper [ ] Repurchase Agreements [ ] Reverse Agreements 14 Which of the above does your Firm specialize in Marketing? 15 Please identify your most directly comparable City Local Agency clients in our geographical area. Entity Contact Person Telephone No. Client Since 16 What reports, transactions, confirmations and paper trail would we receive? 17 Please include samples of research reports or market information that your Firm regularly provides to local agency clients. 18 What precautions are taken by your Firm to protect the interest of the public when dealing with government agencies as investors. 19 Have you or your Firm been censored or punished by a Regulatory State or Federal Agency for improper or fraudulent activities, related to the sale of securities? [ ] YES [ ] NO 20 If yes, please explain. 21 Attach certified documentation of your capital adequacy and financial solvency. In addition, an audited financial statement must be provided within 120 days of your fiscal year-end. -2- (ATTACHMENT "B") 69 - CERTIFICATION - I hereby certify that I have personally read City of Chino Hills Investment Policy and the California Government Codes pertaining to the investments and deposits of the City of Chino Hills, and have implemented reasonable procedures and a system of controls designed to preclude imprudent investment activities arising out of transactions conducted between our firm and the City of Chino Hills. I understand however, that our firm is not obligated to monitor the percentage limits on the investments as described in the policy. All sales personnel will be routinely informed of City of Chino Hills' investment objectives, horizon, outlook, strategies and risk constraints whenever we are so advised. We pledge to exercise due diligence in informing City of Chino Hills Investment Officers of all foreseeable risks associated with financial transactions conducted with our firm. I attest to the accuracy of our responses to your questionnaire. NOTE: Completion of Questionnaire is only part of City of Chino Hills Certification process and DOES NOT guarantee that the applicant will be approved to do business with the City of Chino Hills. SIGNED: DATE: COUNTERSIGNED: DATE: (Person in charge of government securities operations.) -3- (ATTACHMENT "B") 70 EXHIBIT D CITY OF CHINO HILLS SCHEDULE OF CASH AND INVESTMENTS* DECEMBER 2009 I. Funds Held by City and Fiscal Agents: A. Funds Held by City: Market Investments Cost Value San Bernardino County Pooled Funds of Investments (SBCPFI) $ 47,525,498.47 $ 47,747,400.86 Los Angeles County Pooled Funds of Investments (LACPFI) 35,789,228.17 35,919,957.59 State of California Local Agency Investment Fund (LAIF) 39,588,757.81 39,626,281,01 Total Investments 122,903,484.45 123,293,639.45 Cash Bank of America-Checking 973,137.21 973,137.21 Bank of America - Payroll 10,000.00 10,000.00 Wells Fargo Bank-Credit Card 86,596.41 86,596.41 Total Cash in Bank 1,069,733.62 1,069,733.62 Petty Cash 2,800.00 2,800.00 Total Cash 1,072,533.62 1,072,533,62 Total Funds Held by City 123,976,018.07 124,366,173.07 'Does not include employee deferred compensation funds or funds held by fiscal agents persuant to bond indentures. Source;City or Chino Hills 71