$7,685,00) PISMO BEACH PUBLIC Fl NANCI NG AGENCY (San …cdiacdocs.sto.ca.gov/2017-1325.pdf · 2021...

NEW ISSUE - BOOK-ENTRY ONLY RATING: S&P:"AA-t" (See"RATING" herein)

In the opinion ofThe Weist Law Firm Scotts Valley, California, Bond Counsel, subject, ho.vever to certain qualifications described in this Official Statem,nt, under existing law, interest on the Bonds is excluded from gross incorre for federal incorre tax purpose5i and such interest is ootan item of tax preference for purrx,ses of the federal alternative ninirrumtaxirrposed on individual sand corporations, although for the purpose of corrputing the alternative ninirrumtax irrposed on certain cor(Xlfations, such interest is taken into account in detemining certain incorre and earnings. In the further opinion of Bond Counsel, such interest is exerrpt from California personal income taxes See" TAX MATTERS" herein.

Dated: Date of Delivery

$7,685,00) PISMO BEACH PUBLIC Fl NANCI NG AGENCY

(San Luis Obispo County, Califcrnia) SERIES 2017LEASE REVENUE BONDS

(Pismo Beach Municipal Pier Prqject)

Due: December 1, as shown on the Inside CCNer

The abCNe-captioned Series 201 llease Revenue Bonds (the" Bonds") are being issued t,,, the Pismo Beach Public Financing Agency (the" Agency") pursuant to an Indenture, dated as of June I, 2017 (the" Indenture"), t,,, and between the Agency and Wilnington Trust, N.A., as trustee (the "Trustee"). The Bonds will bear interest at the rates shwn belw, payable seniannually on June I and December I of each year (each an" Interest Paym,ntDate"), comm,ncing December I, 2017.

The Bonds are being issued as fully registered bonds, registered in the nam, of Cede & Co. as nominee of The Depository Trust Corrµuiy, New York, New York(" DTC"), and will be available to ultimate purchasers in the denonination of $5,000 or any integral multiple thereof, under the book-entry system maintained t,,, D TC. Purchasers ofB ands wi II not receive physical certificates representing their interest in the Bands. The Trustee will make paym,nts of the principal of, premium if any, and interest on the Bonds directly to DTC, or its noninee, Cede & Co., so long as DTC or Cede & Co. is the registered wner of the Bonds. Disbursements of such paym,nts to the Beneficial Owners of the Bonds is the responsibility of DTC' s Participants and Indirect Participants, as more fully described herein. See "THE BONDS- BOOK-ENTRY SYSTEM" herein.

The Bonds are subject to optional, mandatory sinking account and extraordinary redemption prior to their stated maturities, as described herein. See "THE BONDS- Redemption Provisions" herein.

The Bonds are being issued t,,, the Agency, to (i) finance the acquisition and construction of certain public capital imprcwem,nt~ and (ii) pay the costs of issuance associated with the issuance and sale of the Bonds See" PLAN OF FINANCE" herein.

Pursuant to a Lease Agreem,nt, dated as of June I, 2017 (the" Lease"), t,,, and between the Agency and the City, the Agency has leased to the City certain real property and the improvem,nts thereon comprising the Pismo Beach City Hall and the Pismo Beach Police Station (the" Leased Facilities"). Under the Lease, the City will pay to the Agency certain base rental paym,nts (the" Base Rental Paym,nts") in armunts equal to the scheduled debt service on the Bands. Pursuant to the Indenture, the Agency will assign its right to receive the Base Rental Payments to the Trustee for the benefit of the Owners of the Bonds See "SECURITY FOR THE BONDS" herein.

This cover page contains certain information for quick reference only and is not a summary of the security or terms of this issue. Potential investors are advised to read the entire Official Statement, including the section entitled" BOND OWNERS' RI SK S," to obtain information essential to the making of an informed investment decision with respect to the purchase of the Bonds.

MATURITY SCHEDULE (See Inside Cover Page)

The City is required under the Lease to make Base Rental Paym,nts in each year in consideration for the use of the Leased Facilities from any source of legally available fund~ and in an armunt sufficient to pay the annual principal of and interest on the Bonds. The City's obligation to make Base Rental Paym,nts is subject to abatement in the event of substantial interference with the use and possession of all or a part of the Leased Facilities. See "BOND OWNERS' RISKS -Abatem,nt' herein. The City has covenanted under the Lease to take such action as may be necessary to include and maintain all Base Rental Paym,nts in its annual budget and to make the necessary appropriations therefor, subject to such abatement

NEITHER THE BONDS NOR THE OBLIGATION TO PAY PRINCIPAL OF OR INTEREST THEREON CONSTITUTES A DEBT, LIABILITY OR OBLIGATION OF THE AGENCY, THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY, BUT ARE SECURED SOLELY BY THE PLEDGE OF REVENUES, CONSISTING PRIMARILY OF BASE RENTAL PAYMENTS PAID BY THE CITY PURSUANT TO THE LEASE AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY.

The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to the approving opinion of The Weist Law Firm Scotts Valley, California, Bond Counsel to the Agency. Certain legal matters will be passed on for theAgencyt,,,TheWeist Law Firm Scotts Valley, California, Disclosure Counsel, for the City and the Agency t,,, Hanley& Fleishman, LLP, Atascadero, California, as City Attorney and Agency Counsel, for the Underwriter byNi,on Peabody LLP, Los Angeles, California, and for the Trustee by its counsel. It is anticipated that the Bonds will be available for delivery through the book-entry facilities ofDTC on or aboutJ une 7, 2017.

Dated: May 24, 2017

DATES, PRINCIPAL AMOUNTS, INTEREST RATES AND YIELDS

$7,685,000 PISMO BEACH PUBLIC FINANCING AGENCY

(San Luis Obispo County, California) SERIES 2017 LEASE REVENUE BONDS

(Pismo Beach Municipal Pier Project)

MATURITY SCHEDULE (Base CUSIPt No. 72433P)

Maturity Date Principal Interest (December 12 Amount Rate Yield Price cusIPt

2017 $270,000 2.000% 0.800% 100.577% AA8 2018 135,000 2.000 0.920 101.587 AB6 2019 135,000 4.000 1.050 107.212 AC4 2020 145,000 4.000 1.200 109.524 AD2 2021 150,000 4.000 1.350 111.490 AEO 2022 155,000 5.000 1.500 118.357 AF7 2023 160,000 5.000 1.660 120.449 AG5 2024 170,000 5.000 1.830 122.075 AH3 2025 180,000 5.000 1.990 123.388 AJ9 2026 190,000 4.000 2.160 115.701 AK6 2027 195,000 4.000 2.310* 114.990* AL4 2028 205,000 4.000 2.500* 113.179* AM2 2029 210,000 4.000 2.720* 111.124* ANO 2030 220,000 4.000 2.880* 109.657* AP5 2031 230,000 4.000 3.000* 108.571 * AQ3 2032 240,000 4.000 3.120* 107.498* ARI 2033 250,000 3.000 3.240 96.953 AV2 2034 255,000 3.000 3.350 95.396 AWO 2035 260,000 3.125 3.400 96.248 AX8 2036 270,000 3.250 3.440 97.318 AY6 2037 280,000 3.250 3.480 96.650 AS9

$1,550,000 3.375% Term Bond due December 1, 2042 Yield: 3.610%- Price 96.105% CUSIPt No. AT7

$1,830,000 3.500% Term Bond due December 1, 2047 Yield: 3.670%- Price 96.896% CUSIPt No. AU4

* Yield and price calculated to first optional redemption date of June 1, 2027, at par t CU SIP© A registered trademark of the American Bankers Association. Copyright © 1999-2017 American Bankers Association. All rights

reseIVed. CU SIP© data herein is provided by CU SIP Global Services, managed by Standard & Poor's Financial Services LLC on behalf of the American Bankers Association. This data is not intended to create a database and does not seIVe in any way as a substitute for CUSIP Global SeIVices. CUSIP© numbers are provided for convenience of reference only. None of the Agency, the City or the UndeIWiiter take any responsibility for the accuracy of such numbers

PISMO BEACH PUBLIC FINANCING AGENCY Pismo Beach, Califontla

AGENCY BOARD/ CITY COUNCIL

Ed Waage, Chair/Mayor Erik Howell, Vice-Chair/Mayor Pro Tempore Sheila Blake, Agency M ember!Counci /member

Marcia Guthrie, Agency Member!Councilmember Mary Ann Reiss, Agency Member!Councilmember

CITY I AGENCY STAFF

James R. Lewis, City Manager/Executive Director Nadia K. Feeser, Administrative Services Director/Treasurer

Susan West-Jones, Finance Manager Benjamin A. Fine, Public Works Director/City Engineer

Eric Eldridge, Senior Engineer Erica Inderlied, City Clerk/Secretary

Hanley & Fleishman, LLP, City Attorney/Agency Counsel

PROFESSIONAL SERVICES

Bond Counsel and Disclosure Counsel

The Weist Law Firm Scotts Valley, California

Municipal Advisor

Urban Futures, Incorporated Tustin, California

Trustee

Wilmington Trust, N.A. Costa Mesa, California

In making an investment decision investors must rely on their own examination of the terms of the offering, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, neither the foregoing authorities nor Bond Counsel or Disclosure Counsel have confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.

No dealer, broker, salesperson or other person has been authorized by the Agency or City to provide any information or to make any representations in connection with the offering or sale of the Bonds other than as contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the Agency or City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. All references to and summaries of the Indenture or other documents contained in this Official Statement are subject to the provisions of those documents and do not pmport to be complete statements of those documents.

This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matter of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. Words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" and similar expressions identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other pmpose, unless authorized in writing by the Agency or City.

The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of its responsibilities to investors under the federal securities laws applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information set forth herein has been obtained from sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness. The information and expression of opinion herein are subj eel to change without notice and neither delivery of this Official Statement nor any sale made under the Indenture shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or City since the date hereof.

TI-IE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEi\!IPTION CONTAINED IN SUCH ACT. TI-IE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER TI-IE SECURITIES LAWS OF ANY STATE.

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

TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................................ 1

Purpose of Official Statement .................................................................................................................. 1 Authority for Issuance of the Bonds ......................................................................................................... 1 Purpose of the Bonds ................................................................................................................................ 1 Security for the Bonds .............................................................................................................................. 2 No Debt Service Reserve ......................................................................................................................... 3 The City .................................................................................................................................................... 3 The Agency .............................................................................................................................................. 3 Description of the Bonds .......................................................................................................................... 4 Additional Bonds ...................................................................................................................................... 4 Continuing Disclosure .............................................................................................................................. 4 Tax Matters .............................................................................................................................................. 5 Forward-Looking Statements ................................................................................................................... 5 Risk Factors .............................................................................................................................................. 5 Further Information .................................................................................................................................. 5

PLAN OF FINANCE ....................................................................................................................................... 6

~~~ 6 Estimated Sources and Uses of Bond Proceeds ....................................................................................... 7 Debt Service Requirements ...................................................................................................................... 8

THE LEASED FACILITIES ........................................................................................................................... 9

Description ............................................................................................................................................... 9 Estimated Values of the Leased Facilities ................................................................................................ 9 Modifications of Leased Facilities ......................................................................................................... 10 Subleasing of Leased Facilities .............................................................................................................. 10 Substitution or Release of Leased Facilities ........................................................................................... 10

THE BONDS .................................................................................................................................................. 11

Authority for Issuance ............................................................................................................................ 11 General Provisions ................................................................................................................................. 11 Redemption Provisions .......................................................................................................................... 13 Book-Entry System ................................................................................................................................ 15

SECURITY FOR THE BONDS .................................................................................................................... 15

General ................................................................................................................................................... 15 Revenues ................................................................................................................................................ 15 Base Rental Payments ............................................................................................................................ 16 Lease Payments; Covenant to Appropriate ............................................................................................ 16 Budget and Appropriation of Base Rental Payments ............................................................................. 16 Abatement .............................................................................................................................................. 17 Insurance ................................................................................................................................................ 17 No Debt Service Reserve ....................................................................................................................... 18 Additional Bonds .................................................................................................................................... 19 Maintenance, Utilities, Taxes and Assessments ..................................................................................... 21

TABLE OF CONTENTS (Cont.)

THE AGENCY .............................................................................................................................................. 22

THE CITY ...................................................................................................................................................... 22

General ................................................................................................................................................... 22

CITY FINANCIAL INFORMATION ........................................................................................................... 24

Budget Process ....................................................................................................................................... 24 Financial Reporting ................................................................................................................................ 27 General Fund Revenues and Expenditure .............................................................................................. 27 Transient Occupancy Tax ....................................................................................................................... 29 Property Taxes ........................................................................................................................................ 29 Sales Taxes ............................................................................................................................................. 32 Financial Statements .............................................................................................................................. 34 General Fund Historical Financial Data ................................................................................................. 34 Relevant Fiscal Policies ......................................................................................................................... 37 Risk Management. .................................................................................................................................. 39 Employee Retirement System; CalPERS ............................................................................................... 41 Other Post-Employment Benefits ("OPEB") ......................................................................................... 49

OVERLAPPING DEBT OF THE CITY ....................................................................................................... 52

Direct and Overlapping Bonded Debt .................................................................................................... 52

BOND OWNERS' RISKS ............................................................................................................................. 53

Future Financial Condition ..................................................................................................................... 53 Additional Obligations of the City ......................................................................................................... 53 Substitution or Release of Leased Facilities; Additional Bonds ............................................................ 53 Base Rental Payments Are Not Debt ..................................................................................................... 54 Abatement .............................................................................................................................................. 5 5 Risk of Uninsured Loss .......................................................................................................................... 55 Accuracy of Assumptions ...................................................................................................................... 5 5 Eminent Domain .................................................................................................................................... 56 Hazardous Substances ............................................................................................................................ 56 Nuclear Power Plant ............................................................................................................................... 56 Closure of DCPP .................................................................................................................................... 57 Bankruptcy ............................................................................................................................................. 5 8 No Liability of Agency to the Owners ................................................................................................... 59 State Budget Information ....................................................................................................................... 59 Risks Related to Taxation in California ................................................................................................. 60 Future Initiatives .................................................................................................................................... 64 Limitations on Remedies ........................................................................................................................ 64 Limited Recourse on Default; No Acceleration of Base Rental Payments ............................................ 64 Early Redemption Risk .......................................................................................................................... 65 Natural Disasters .................................................................................................................................... 65 Possible Insufficiency of Insurance Proceeds ........................................................................................ 65 Loss of Tax Exemption .......................................................................................................................... 66 IRS Audit of Tax-Exempt Bonds ........................................................................................................... 66

11

TABLE OF CONTENTS (Cont.)

Secondary Market Risk .......................................................................................................................... 66

FINANCIAL REPORT .................................................................................................................................. 66

TAX MATTERS ............................................................................................................................................ 67

CERTAIN LEGAL MATTERS ..................................................................................................................... 68

CONTINUING DISCLOSURE ..................................................................................................................... 68

LITIGATION ................................................................................................................................................. 69

RATING ......................................................................................................................................................... 69

MUNICIPAL ADVISOR ............................................................................................................................... 69

UNDERWRITING ......................................................................................................................................... 70

MISCELLANEOUS ....................................................................................................................................... 70

APPENDICES

APPENDIX A SUMMARY OF PRINCIPAL LEGAL DOCUMENTS A-1

APPENDIXB AUDITED FINANCIAL STATEMENTS OFTHECITYFORFISCAL YEAR2015-16 B-1

APPENDIXC FORM OF CONTINUING DISCLOSURE CERTIFICATE . C-1

APPENDIXD GENERAL INFORMATION REGARDING THE CITY OF PISMO BEACH AND SURROUNDING AREA D-1

APPENDIXE FORM OF OPINION OF BOND COUNSEL .E-1

APPENDIXF DTC AND THE BOOK-ENTRY ONLY SYSTEM . F-1

111

OFFICIAL STATEMENT

$7,685,000 PISMO BEACH PUBLIC FINANCING AGENCY

(San Luis Obispo County, California) SERIES 2017 LEASE REVENUE BONDS

(Pismo Beach Municipal Pier Project)

INTRODUCTION

This introduction contains only a brief summary of certain of the terms of the Bonds, and a brief overview of the contents of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement including the Appendices hereto.

The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined in the body of the Official Statement shall have the meanings given to them in ''APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" hereto.

Purpose of Official Statement

This Official Statement, which includes the cover page and the appendices hereto, is provided to furnish information in connection with the sale by the Pismo Beach Public Financing Agency (the "Agency") of its Series 2017 Lease Revenue Bonds (Pismo Beach Municipal Pier Project) (the "Bonds") in the aggregate principal amount of $7,685,000. Certain capitalized terms used herein are defined in "APPENDIX A -SUMMARY OF PRINCIPAL LEGAL DOCUMENTS- Definitions."

Authority for Issuance of the Bonds

The Bonds are issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act (commencing with Section 6584) (the "Bond Law"), a Resolution adopted by the Board of Directors of the Agency on May 16, 2017 (the "Agency Resolution"), a Resolution adopted by the City Council of the City of Pismo Beach (the "City") on May 16, 2017 (the "City Resolution," and together with the Agency Resolution, the "Resolutions"), and an Indenture (the "Indenture"), dated as June 1, 2017, by and between the Agency and Wilmington Trust, N.A., as trustee (the "Trustee").

Purpose of the Bonds

The Bonds are being issued to provide funds to (i) finance the acquisition and construction of certain public capital improvements, and (ii) pay the costs of issuance associated with the issuance and sale of the Bonds. See "PLAN OF FINANCE" herein.

I

Security for the Bonds

Pursuant to a Site Lease, dated as of June 1, 2017 (the "Site Lease"), by and between the City and the Agency, the Agency has agreed to lease from the City certain real property and the improvements thereon, more commonly known as the (i) City of Pismo Beach City Hall located at 760 Mattie Road, Pismo Beach, California, and (ii) City of Pismo Beach Police Department located at 1000 Bello Street, Pismo Beach, California (collectively, the "Leased Facilities"), in exchange for a portion of the proceeds from the sale of the Bonds. Pursuant to a Lease Agreement, dated as of June 1, 2017 (the "Lease"), by and between the Agency, as Lessor, and the City, as Lessee, the Agency has leased the Leased Facilities back to the City. Under the Lease, the City will pay to the Agency certain base rental payments (the "Base Rental Payments") in amounts equal to the scheduled debt service on the Bonds. See "LEASED FACILITIES" herein.

The Bonds are special obligations of the Agency secured by and payable solely from Revenues, defined in the Indenture as all amounts received by the Agency as lessor under the Lease, including, without limiting the generality of the foregoing, scheduled Base Rental Payments, prepayments, and insurance and condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established under the Indenture. Under the Lease, the City has covenanted and agreed, subject to abatement, to budget and appropriate from its General Fund amounts sufficient to make Base Rental Payments. The obligation of the City to make Base Rental Payments under the Lease is an unsecured obligation of the City, payable from legally available funds. See "SECURITY FOR THE BONDS" herein.

Pursuant to an Assignment Agreement, dated as of June 1, 2017 (the "Assignment Agreement"), by and between the Agency and the Trustee relating to the Bonds the Agency will assign, as further security for its obligations to make timely payment of principal of and interest on the Bonds to the Trustee for the benefit of the Owners certain of the Agency's rights under the Lease, including the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease in the event of a default by the City thereunder.

Under the Lease, in addition to Base Rental Payments, the City has agreed to pay Additional Rental payments in such amounts in each year as shall be required for the payment of all costs and expenses (not otherwise paid for or provided for out of the proceeds of sale of the Bonds) incurred by the Agency or the Trustee in connection with the execution, performance or enforcement of the Lease or the assignment thereof, the Indenture, or the Agency's or the Trustee's interest in the Leased Facilities.

Pursuant to the Indenture, the Agency transfers in trust, grants a security interest in and assigns to the Trustee, for the benefit of the Bondowners, all of the Revenues and other assets pledged under the Indenture, except only amounts required for the compensation or indemnification of the Trustee as provided in the Indenture, and all of the Agency's rights under the Lease, including its right to receive Base Rental Payments, but excluding the right to receive Additional Rental ( defined herein).

Under the Lease, the City has the right to substitute alternate real property or improvements for the Leased Facilities, release existing property or add additional real property or equipment to the Leased Facilities.

2

The obligation of the City to make Base Rental Payments under the Lease is an unsecured obligation of the City, payable from legally available funds. Under the Lease, the City has covenanted to budget and appropriate sufficient funds to make all rental payments required to be made under the Lease, subject only to abatement as provided therein. See "BOND OWNERS' RISKS - Base Rental Payments Are Not Debt" and "- Abatement" herein.

Neither the Bonds nor the obligation to pay principal of or interest thereon constitutes a debt, obligation or liability of the City, the County San Luis Obispo (the "County"), the State of California or any of its political subdivisions within the meaning of any Constitutional limitation on indebtedness, or a pledge of the full faith and credit of the City, but are secured solely by the pledge of Revenues by the Agency and certain funds held under the Indenture. The Bonds are not secured by a pledge of the taxing power of the City.

No Debt Service Reserve

Neither the City nor the Authority have undertaken to fund any debt service reserve to secure the payment of debt service on the Bonds.

The City

The City of Pismo Beach is located in the central coast area of California in the southern portion of San Luis Obispo County. It sits astride Highway 101 approximately eight miles south of the City of San Luis Obispo. Pismo Beach is approximately 196 miles north of Los Angeles and approximately 249 miles south of San Francisco. The City is a popular resort community situated directly on the Pacific Ocean and extends to the east into the foothills of the coast range mountains. Temperatures are mild year-round, with average highs between 60 and 80 degrees, and average lows between 45 and 55 degrees. Average annual rainfall, mostly occurring between December and March, is approximately 15 inches per year. See THE CITY" and "APPENDIX D - GENERAL INFORMATION REGARDING THE CITY OF PISMO BEACH AND SURROUNDING AREA" herein.

The Agency

The Pismo Beach Public Financing Agency is a joint powers authority formed by its members, the City and Industrial Development Authority of the City of Pismo Beach (the "Authority"). The Agency was established pursuant to that certain Joint Exercise of Powers Agreement dated May 2, 2017, by and between the City and the Authority (the "JPA Agreement"). Such JP A Agreement was entered into pursuant to the provisions of Articles 1, 2 and 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code. The Agency is governed by a five-member Board of Directors (the "Board"), which consists of the members of the City Council of the City.

The Agency was created for the purpose of assisting the financing or refinancing of certain public capital facilities within the City. Under the Bond Law, the Agency has the power to purchase bonds issued by any local agency at public or negotiated sale and may sell such bonds to public or private purchasers at public or negotiated sale. See "THE AGENCY" herein.

3

Description of the Bonds

Payment. Principal of the Bonds will be payable in each of the years and in the amounts set forth on the front cover hereof at the principal corporate office of the Trustee in Costa Mesa, California. Interest on the Bonds will be paid by check of the Trustee mailed on the interest payment date by first class mail to the person entitled thereto. Initially, interest on and principal and premium, if any, of the Bonds will be payable when due by wire of the Trustee to DTC which will in tum remit such interest, principal and premium, if any, to DTC Participants (as defined herein), which will in tum remit such interest, principal and premium, if any, to Beneficial Owners (as defined herein) of the Bonds. See "THE BONDS - Book-Entry System" herein.

Redemption. The Bonds are subject to optional, extraordinary and mandatory sinking account redemption prior to their stated maturity dates, as provided herein. See "THE BONDS - Redemption Provisions" herein.

Form of Bonds. The Bonds will be issued in fully registered form, without coupons, in the minimum denominations of $5,000 or any integral multiple thereof. Any Bond may, in accordance with its terms, be transferred or exchanged, pursuant to the provisions of the Indenture. See "THE BONDS - General" herein. When delivered, the Bonds will be registered in the name of The Depository Trust Company, New York, New York ("DTC"), or its nominee. DTC will act as securities depository for the Bonds. Purchasers of the Bonds will not receive certificates representing the Bonds purchased. See "THE BONDS - Book-Entry System" herein.

Additional Bonds

Pursuant to the Indenture and the Lease, the Agency may issue additional bonds, notes or other indebtedness (the "Additional Bonds") payable from Revenues on a parity with the Bonds so long as no default has occurred and is continuing under the Indenture, the Site Lease or the Lease and provided that certain conditions set forth in the Indenture have been satisfied. In addition, the City may issue or incur other obligations payable from the City's General Fund. See "SECURITY FOR THE BONDS-Additional Bonds" herein.

Continuing Disclosure

The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by the date that is nine months after the end of the City's Fiscal Year (currently March 31 based on the City's Fiscal Year end of June 30), commencing with the report for the fiscal year ended June 30, 2017 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events. Such reports are required to be filed with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system ("EMMA").

The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is described in "APPENDIX C - FORM OF CONTINUING DISCLOSURE CERTIFICATE" attached to this Official Statement. These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2 12(b)(5) (the "Rule"). See "CONTINUING DISCLOSURE" herein.

4

Tax Matters

Assuming compliance with certain covenants and provisions of the Internal Revenue Code of 1986, as amended (the "Tax Code"), in the opinion of Bond Counsel, interest with respect to the Bonds will not be includable in gross income for federal income tax purposes although it may be includable in the calculation for certain taxes. Also in the opinion of Bond Counsel, interest on the Bonds will be exempt from State of California (the "State") personal income taxes. See "TAX MATTERS" herein.

Forward-Looking Statements

Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27 A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "intend," "expect," "propose," "estimate," "project," "budget," "anticipate," or other similar words. The achievement of certain results or other expectations contained in such forwardlooking statements involves known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements described to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The presentation of information herein, including tables of receipt of revenues, is intended to show recent historical information and, except for a budget discussion for Fiscal Year 2016-17, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. See "BOND OWNERS' RISKS -Accuracy of Assumptions" herein.

NO UPDATES OR REVISIONS TO THESE FORWARD-LOOKING STATEMENTS ARE EXPECTED TO BE ISSUED IF OR WHEN THE EXPECTATIONS, EVENTS, CONDITIONS, OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED CHANGE. THE FORWARDLOOKING STATEMENTS IN THIS OFFICIAL STATEMENT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF.

Risk Factors

The purchase of the Bonds involves certain risks. For a general discussion of certain special factors and considerations relevant to an investment in the Bonds, in addition to the other matters set forth herein, see "BONDOWNERS' RISKS" herein. The Bonds are not appropriate investments for investors who are not able to bear the associated risks. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision.

Further Information

Brief descriptions of the Bonds, the Indenture, the Lease, the Site Lease, the Assignment Agreement and other documents agreements and statutes referred to in this Official Statement as well as the description

5

of the Bonds, do not purport to be comprehensive or definitive. Such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. For definitions of certain capitalized terms used herein and not otherwise defined, and a description of certain terms relating to the Bonds, see "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" herein.

PLAN OF FINANCE

The Project

The Agency will fund the Project Fund, in the amount set forth in Table 1 below, from the proceeds of the Bonds to partially fund the rehabilitation and renovation of the Pismo Beach Municipal Pier, which work includes upgrading the existing timber piles with steel piles; replacing the timber braces, decking, and handrails; and cleaning and recoating the existing steel piles and steel pile caps, a new electrical system, waterline for fire protection, upgraded lighting, benches, tables and other public amenities (the "Project"). The maintenance and repairs will not expand the Pier beyond the existing configuration and footprint with one exception at the entrance where a new PG&E electrical box will be located.

The estimated construction cost is approximately $8.8 million, and will be funded by the City through a combination of sources from transient occupancy taxes, sales tax, general fund revenues, and bond proceeds. Work will be performed in a series of phases and is anticipated to be completed by Fall of 2019.

The Pier, in its current location, was originally constructed in 1924. Since that time the Pier has suffered damage during several storms. A partial collapse of the Pier in 1983 prompted the State to reconstruct a portion of it in 1985. Sections of the Pier are more than 90 years old and, in a comprehensive structural inspection performed in 2015, it was recommended that several areas of the of the Pier be rehabilitated. This prompted the City to be proactive and address the Pier issues prior to any structural failures.

The Pier measures approximately 1,200 feet in overall length and varies in width from approximately 32 feet to more than 182 feet. The Pier is made up of both timber and steel piles. It is comprised of approximately 497 piles: 382 timber piles and 115 steel piles. The steel piles are located at the most seaward end of the Pier between the 51st and 72nd bents (rows of supports). The deck area is approximately 60,100 square feet and there is approximately 2,840 lineal feet of guard railing. The Pier includes cantilevered fishing decks, four widened diamond-shaped pop-outs, and one tapered section giving the Pismo Pier its unique and iconic shape. In addition to pedestrian and restricted vehicular traffic, the Pier supports electrical utility conduit, water and sewer piping, a bait shack, and an information kiosk.

The Pier is a popular venue for events and ceremonies for residents and visitors, hosting just under a million visitors a year, and is a symbol of Pismo Beach and its Classic California culture. This project is plarmed by the City to be part of a series of future projects that will transform the downtown, waterfront, and public parks in Pismo Beach.

6

Estimated Sources and Uses of Bond Proceeds

Table 1 sets forth the estimated sources and uses of funds relating to the issuance of the Bonds.

Table 1 PISMO BEACH PUBLIC FINANCING AGENCY

SERIES 2017 LEASE REVENUE BONDS

ESTIMATED SOURCES AND USES OF FUNDS

Sources of Funds: Par amount of Bonds Plus: Original Issue Premium Less: Underwriter's Discount

Total Sources

Uses of Funds: Project Fund Costs oflssuance Fund(!)

Total Uses

$7,685,000.00 190,762.65 (48,325.27)

$7 827 437.38

$7,694,000.00 133 437.38

$7 827 437.38

(1) Costs of Issuance include legal fees, municipal advisor fees, title insurance, printing costs, recording costs, rating agency fees, Trustee fees, and other miscellaneous expenses in connection with the issuance, sale and deliveiy of the Bonds

[Remainder of Page Intentionally Left Blank]

7

Debt Service Requirements

Table 2 sets forth annual principal aud interest on the Bonds (assuming no redemptions of the Bonds, other thau mandatory sinking account redemptions).

Bond Year



ANNUAL DEBT SERVICE SCHEDULE

Principal Portion of Interest Portion of Total (December 1) Debt Service Debt Service Debt Service

2017 $270,000 $133,236.88 $403,236.88 2018 135,000 270,262.50 405,262.50 2019 135,000 267,562.50 402,562.50 2020 145,000 262,162.50 407,162.50 2021 150,000 256,362.50 406,362.50 2022 155,000 250,362.50 405,362.50 2023 160,000 242,612.50 402,612.50 2024 170,000 234,612.50 404,612.50 2025 180,000 226,112.50 406,112.50 2026 190,000 217,112.50 407,112.50 2027 195,000 209,512.50 404,512.50 2028 205,000 201,712.50 406,712.50 2029 210,000 193,512.50 403,512.50 2030 220,000 185,112.50 405,112.50 2031 230,000 176,312.50 406,312.50 2032 240,000 167,112.50 407,112.50 2033 250,000 157,512.50 407,512.50 2034 255,000 150,012.50 405,012.50 2035 260,000 142,362.50 402,362.50 2036 270,000 134,237.50 404,237.50 2037 280,000 125,462.50 405,462.50 2038 290,000 116,362.50 406,362.50 2039 300,000 106,575.00 406,575.00 2040 310,000 96,450.00 406,450.00 2041 320,000 85,987.50 405,987.50 2042 330,000 75,187.50 405,187.50 2043 340,000 64,050.00 404,050.00 2044 355,000 52,150.00 407,150.00 2045 365,000 39,725.00 404,725.00 2046 380,000 26,950.00 406,950.00 2047 390 000 13 650.00 403 650.00

Totals $7,685,000 $4,880,349.38 $12,565,349.38

Source: The Underwriter

8

THE LEASED FACILITIES

Description

Under the Lease and the Site Lease, the Leased Facilities consist of the (i) City of Pismo Beach City Hall site and facilities located at 760 Mattie Road, Pismo Beach, California, (the "City Hall"), and (ii) City of Pismo Beach Police Department site and facilities located at 1000 Bello Street, Pismo Beach, California (the "Police Department"). The Agency will lease the Leased Facilities to the City pursuant to the Lease. Under the Lease, the City is required to maintain the Leased Facilities in good working order.

Description of City Hall. City Hall is comprised of a two story, 15, 7 47-square foot building that was constructed in 1990, and a single story 4, 718-square foot building that was constructed in 1990, both of which are built upon on land owned by the City. The City Hall building is made of Concrete mat foundation, wood load bearing and shear walls, truss floor and roof systems. The building contains a sprinkler system. The site is fully landscaped and includes parking and lighting.

The City Hall buildings and adjacent parking are located on an approximate sixty-six thousand square feet site. The City Hall houses the City Council Chambers and members' offices, the offices of City Manager, Administrative Services, Finance, Community Development and Public Works as well as other administration offices of the City.

Description of Police Department. The Police Department is comprised of a single story, 10,950-square foot Class A+ Police and Public Safety facility built to "special service standards" in 1997. The Police Department building is made of concrete spread and strip footings and light wood load bearing walls. The building contains a sprinkler system and complies with the Americans with Disabilities Act. The site is fully landscaped and includes parking and lighting.

The Police Department houses a jail facility, a communications center, administrative offices, training and conference rooms, locker rooms, interview rooms, a dispatch center and a secured lobby. The building was built to "Essential Services" standards, and meets California jail certification standards.

Estimated Values of the Leased Facilities

The City and the Agency, based on comparable properties, and other records they maintain, estimate the current fair rental value of the Leased Facilities to be not less than the amount of the annual Lease Payments; however, the City makes no assurances regarding the ability to rel et any component of the Leased Facilities or the amount of rental income to be received in the event that any component of the Leased Facilities is relet.

The City, based certain on comparable properties, insurance appraisals, third-party reports, and other records they maintain, estimate the collective value of the Leased Facilities to be more than $8.2 million. Bond Owners do not have a mortgage on any portion of the Leased Facilities. See the caption "BOND OWNERS' RISKS" herein.

9

Modifications of Leased Facilities

Under the Lease, the City will have the right during the term of the Lease to make additions, modifications and improvements to the Leased Facilities or any portion thereof. Such additions, modifications and improvements may not in any way damage the Leased Facilities, or cause the Leased Facilities to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Facilities, upon completion of any additions, modifications and improvements, must be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements.

Subleasing of Leased Facilities

Under the Lease, the City may sublease the Leased Facilities, or any portion thereof, subject to all of the following conditions:

the Lease and the obligation of the City to make Lease Payments thereunder must remain obligations of the City;

the City must, within 30 days after the delivery thereof, furnish or cause to be furnished to the Agency and the Trustee a true and complete copy of such sublease;

no such sublease by the City may cause the Leased Facilities to be used for a purpose which is not authorized under the provisions of the laws of the State; and

the City must furnish to the Agency and the Trustee a written opinion of Bond Counsel stating that such sublease does not cause the interest on the Bonds to become included in gross income for purposes of federal income taxation or to become subject to personal income taxation by the State.

Substitution or Release of Leased Facilities

Under the Lease, the City has the option, at any time and from time to time, to substitute other real property (the "Substitute Property") for any portion of the Leased Facilities (the "Former Property") or release any identifiable real property and/or improvements currently constituting the Leased Facilities (in such case, Substitute Property shall mean the Former Property less any released portion) upon satisfaction of all of the requirements set forth in the Lease, which include the following requirements:

No Event of Default under the Lease has occurred and is continuing;

The City must file with the Agency and the Trustee, and cause to be recorded in the office of the San Luis Obispo County Recorder, sufficient memorialization of amendments to the Lease and the Site Lease which replaces each respective Exhibit A with a description of such Substitute Property which deletes therefrom the description of the Former Property;

The City has obtained a California Land Title Association ("CLTA") or American Land Title Association (ALTA) policy of title insurance insuring the City's fee or leasehold estate under the Lease in the Substitute Property, and the Agency's leasehold estate under the Site Lease in such Substitute Leased Property subject only to Permitted Encumbrances ( as defined in the Lease), in

10

an amount at least equal to the aggregate principal amount of the Outstanding Bonds provided, however, that this requirement shall not apply to Substitute Property that consists only of Former Property less any released portion;

The City shall certify in writing to the Agency and to the Trustee that such Substitute Property serves an essential governmental function of the City, and constitutes property which the City is permitted to lease under the laws of the State of California;

The substitution of the Substitute Property will not cause the City to violate any of its covenants, representations and warranties made under the Lease;

The City has certified in writing to the Agency and the Trustee that the annual fair rental value of the Substitute Property after substitution or release will be at least equal to 100% of the maximum amount of the Base Rental Payments becoming due in the then current fiscal year or in any subsequent fiscal year, and that the useful economic life of the Substitute Property shall be at least equal to the maximum remaining term of the Lease; and

The City shall furnish to the Trustee an opinion of Bond Counsel addressed to the Trustee, the City and the Agency to the effect that the substitution or release is permitted under the Lease and will not in and of itself (i) impair the validity and enforceability of the Lease or (ii) impair the exclusion of interest on the Bonds, and, if applicable, any Additional Bonds, from the gross income of the owners thereof for federal income tax purposes.

Upon the satisfaction of all conditions precedent to substitution set forth in the Lease, the Term of the Lease will thereupon end as to the Former Property and commence as to the Substitute Property, and all references to the Former Property will apply with full force and effect to the Substitute Property. The City will not be entitled to any reduction, diminution, extension or other modification of the Base Rental Payments whatsoever as a result of such substitution or release. The City and the Agency will execute, deliver and cause to be recorded all documents required to properly discharge the Lease lien of record against the Former Property. See "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" herein.

THE BONDS

Authority for Issuance

The Bonds are being issued pursuant to the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Bond Law"), and pursuant to the Indenture.

General Provisions

General. The Bonds will initially be issued in book-entry only form, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Purchasers of the Bonds will not receive certificates representing their interests therein, which will be held at DTC. See "THE BONDS - Book-Entry System" herein.

11

The Bonds. The Bonds will be issued as fully registered bonds in denominations of $5,000 or any integral multiple thereof and will be dated the date of delivery. Interest on the Bonds will be payable semiannually on June 1 and December 1 of each year ( each, an "Interest Payment Date"), commencing December 1, 2017, by check mailed by the Trustee on each Interest Payment Date to the person whose name appears in the registration books kept by the Trustee as the registered owner thereof as of the close of business on the fifteenth calendar day of the month immediately preceding an interest payment date ( a "Record Date"); provided, however, that payment of interest may be by wire transfer in immediately available funds to an account in the United States of America to any Owner of Bonds in the aggregate principal amount of $1,000,000 or more. Interest on the Bonds shall be calculated based on a 360-day year consisting of twelve 30-day months.

Each Bond will bear interest from the Interest Payment Date next preceding the date of registration thereof, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (b) unless it is authenticated on or before November 15, 2017, in which event it shall bear interest from the date of delivery; provided, however, that if, as of the date of authentication of any Bond, interest thereon is in default, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon.

The Bonds will mature in the amounts and on the dates, and bear interest at the rates per annum, set forth on the inside front cover of this Official Statement. Principal of and premium, if any, on the Bonds are payable upon presentation and surrender of the Bonds at the principal office of the Trustee in Costa Mesa, California.

Transfer or Exchange of the Bonds. Any Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form approved by the Trustee.

Transfer of any Bond shall not be permitted by the Trustee during the period established by the Trustee for selection of Bonds for redemption or if such Bond has been selected for redemption pursuant to the Indenture.

Whenever any Bond or Bonds shall be surrendered for transfer, the Agency will execute and the Trustee will authenticate and deliver a new Bond or Bonds for a like aggregate principal amount and of like maturity. The Trustee will require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer.

If a Bond is mutilated, lost, stolen or destroyed, the Trustee, at the expense of the Owner of such Bond, will authenticate, subject to the provisions of the Indenture, a new Bond of like tenor and amount. In the case of a lost, stolen or destroyed Bond, the Trustee may require that an indemnity be furnished and payment of an appropriate fee for each new Bond delivered in replacement of such Bond, and the Agency may require payment of the expenses of the Agency, the City and the Trustee incurred in connection therewith.

12

Redemption Provisions

Optional Redemption. The Bonds maturing on or before December 1, 2026, are not subject to optional redemption prior to their stated maturities. The Bonds maturing on or after December 1, 2027, are subject to redemption prior to their stated maturities, on any Business Day on or after June 1, 2027, as a whole or in part by such maturities as may be designated by the Agency to the Trustee at least forty-five ( 45) days prior to the redemption date, and by lot within any one maturity, from prepayments of Base Rental Payments made at the option of the City pursuant to the Lease, at a redemption price equal to the principal amount of the Bonds to be redeemed, without premium, plus accrued but unpaid interest to the redemption date.

Extraordinary Redemption. The Bonds are subject to redemption on any date prior to their respective stated maturities, upon notice (as described below), as a whole, or in part on a pro rata basis among maturities, on any date, from any Net Proceeds of insurance or an eminent domain award with respect to the Leased Facilities which are not applied to repair, rebuild or replace the Leased Facilities as provided in the Lease and Indenture, at a redemption price equal to 100% of the principal amount to be redeemed plus interest accrued thereon to the date fixed for redemption, without premium.

Mandatory Sinking Account Redemption. The Term Bonds maturing December 1, 2042 are subject to mandatory redemption, in part by lot, from sinking account payments in each year as set forth in the following schedule, commencing December 1, 2038, and on December 1 in each year thereafter to and including December 1, 2042 at a redemption price equal to the principal amount of the Term Bonds to be redeemed, plus accrued but unpaid interest thereon to the date fixed for redemption, without premium.

Redemption Date (December 1)

2038 2039 2040 2041 2042 (Maturity)

Principal Amount To be Redeemed

$290,000 300,000 310,000 320,000 330,000

The Term Bonds maturing December 1, 2047 are subject to mandatory redemption, in part by lot, from sinking account payments in each year as set forth in the following schedule, commencing December 1, 2043, and on December 1 in each year thereafter to and including December 1, 2047 at a redemption price equal to the principal amount of the Term Bonds to be redeemed, plus accrued but unpaid interest thereon to the date fixed for redemption, without premium.

Redemption Date (December 1)

2043 2044 2045 2046 2047 (Maturity)

13

Principal Amount To be Redeemed

$340,000 355,000 365,000 380,000 390,000

Notwithstanding the foregoing, if some but not all of the Term Bonds are redeemed pursuant to the optional or special mandatory provisions of the Indenture, the aggregate principal amount of the Term Bonds to be prepaid in each year thereafter under shall be reduced by the aggregate principal amount of Term Bonds so prepaid, to be allocated among sinking fund payments on a pro rata basis in integral multiples of $5,000.

Selection of Bonds for Redemption. If less than all Outstanding Bonds maturing by their terms on any one date are to be redeemed at any one time, the Trustee shall select the Bonds of such maturity date to be redeemed in any manner that it deems appropriate and fair and shall promptly notify the Agency in writing of the numbers of the Bonds so selected for redemption. For purposes of such selection, Bonds shall be deemed to be composed of $5,000 multiples of principal and any such multiple may be separately redeemed.

Notice of Redemption. Notice of redemption shall be given by the Trustee not less than thirty (30) nor more than sixty (60) days prior to the redemption date by first class mail to each of the Owners designated for redemption at their addresses appearing on the Bond registration books of the Trustee and to one or more Securities Depositories and the Municipal Securities Rulemaking Board.

Neither failure to receive any notice of redemption nor any defect in such notice of redemption so given shall affect the sufficiency of the proceedings for such redemption.

Purchase in Lieu of Redemption. At any time prior to the selection of Bonds for redemption, the Trustee may, upon written direction of the City, apply amounts held for redemption of Bonds to the purchase of Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest payable from the Interest Account) as the City may direct the Trustee, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price of such Bonds; and provided further that in the case of optional redemption, in lieu of redemption at such next succeeding date of redemption, or in combination therewith, amounts for redemption may be used for payment of such Bonds to be redeemed in order of their due date as set forth in a request of the City.

Effectof Redemption. Notice of redemption having been duly given as provided above, and moneys for payment of the amount necessary for the redemption of the Bonds called for redemption having been set aside for that purpose pursuant to the Indenture, the Bonds designated for redemption shall become due and payable on the redemption date thereof.

No interest will accrue on such Bonds called for redemption after the redemption date specified in the notice of redemption. The Bonds called for redemption shall, after the redemption date, cease to be entitled to any benefit or security under the Indenture, and the Owners of such Bonds shall have no right in respect thereof except to receive payment of the redemption price. All Bonds redeemed shall be canceled by the Trustee and shall not be reissued.

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

14

Book-Entry System

The Bonds will be issued as fully registered bonds in book-entry only form, registered in the name of Cede & Co. as nominee ofDTC, and will be available to ultimate purchasers in integral multiples of $5,000, under the book-entry system maintained by DTC. While the Bonds are subject to the book-entry system, the principal, interest and any redemption premium with respect to a Bond will be paid by the Trustee to DTC, which in tum is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. Purchasers of the Bonds will not receive certificates representing their interests therein, which will be held at DTC.

The Agency and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal, interest or premium with respect to the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The Agency and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a beneficial Owner with respect to the Bonds or an error or delay relating thereto.

See "APPENDIX F - DTC AND THE BOOK-ENTRY ONLY SYSTEM" for further information regarding DTC and the book-entry system.

SECURITY FOR THE BONDS

General

This section provides summaries of the security for the Bonds and certain provisions of the Indenture and the Lease. See "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS" for a more complete summary of the Indenture and the Lease. Capitalized terms used but not defined in this section have the meanings given in APPENDIX A.

Revenues

The Bonds are special obligations of the Agency secured by and payable solely from Revenues, defined in the Indenture as all amounts received by the Agency as lessor under the Lease, including, without limiting the generality of the foregoing, scheduled Base Rental Payments, prepayments, and insurance and condemnation proceeds, and all interest, profits or other income derived from the investment of amounts in any fund or account established under the Indenture.

TI-IE BONDS ARE SPECIAL LiivlITED OBLIGATIONS OF THE AGENCY PAY ABLE SOLELY FROM REVENUES AND AMOUNTS HELD IN THE FUNDS AND ACCOUNTS ESTABLISHED UNDER THE INDENTURE. THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF TI-IE CITY TO MAKE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITI-IIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

15

Base Rental Payments

Under the Lease, the City will pay to the Agency the Base Rental Payments in amounts equal to the scheduled debt service on the Bonds.

Pursuant to the Indenture, the Agency transfers in trust, grants a security interest in and assigns to the Trustee, for the benefit of the Bondowners, all of the Revenues ( consisting primarily of Base Rental Payments) and other assets pledged under the Indenture, except only amounts required for the compensation or indemnification of the Trustee as provided in the Indenture, and all of the Agency's rights under the Lease, including its right to receive Base Rental Payments, but excluding the right to receive Additional Rental.

Under the Lease, the City agrees to make Base Rental Payments for the beneficial use of the Leased Facilities, and to take such action as is necessary to budget for and to appropriate such amounts.

See "THE LEASED FACILITIES" and "APPENDIX A- SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - The Lease" herein.

The Base Rental Payments are equal to the principal of and interest on the Bonds, and are payable in semiannual installments on the 25th day of the month immediately preceding each Interest Payment Date. The Base Rental Payments will be paid by the City to the Trustee for the benefit of the Owners of the Bonds.

The City's obligation to make Base Rental Payments is subject to abatement in the event of substantial interference with the use and possession of all or a part of the Leased Facilities. See "BOND OWNERS' RISKS - Abatement" herein.

Lease Payments; Covenant to Appropriate

The City covenants, under the Lease, to make Lease Payments as rental for the right to use and occupy the Leased Facilities under the Lease. Amounts of the scheduled Lease Payments are calculated to be sufficient to pay debt service on the Bonds when due. Lease Payments will be paid by the City semiannually to the Trustee on the Business Day immediately preceding each Interest Payment Date. Upon receipt, the Trustee will deposit the Lease Payments in the Bond Fund for the purposes of paying principal of and interest on the Bonds. The City covenants under the Lease to take such action as maybe necessary to include all Lease Payments in its annual budgets and to make the necessary annual appropriations for all such rental payments.

Under certain circumstances described in the Lease, however, Lease Payments are subject to abatement during periods of substantial interference with the City's use and occupancy of all or a portion of the Leased Facilities. See "-Abatement" below.

Budget and Appropriation of Base Rental Payments

The Lease provides that, from and after the date on which the City takes possession of the Leased Facilities and unless the Lease is terminated, the City shall take such action as may be necessary to include all Base Rental Payments in each of its budgets and to make necessary appropriations for all such Base Rental Payments coming due and payable during the period covered by such budget, and the public officials of the City shall take such actions and do other things required by law to enable the City to carry out and perform this covenant. The amounts payable to the Trustee under the Lease are to be used to make payments of the

16

principal of and interest on the Bonds, plus other fees, expenses and reimbursements as specified in the Indenture.

The City's revenues are derived in part from ad valorem property taxes. Such taxes are subject to limitations under Article XIIIA of the California Constitution. The City has the capacity to enter into other obligations which may constitute additional charges against its general revenues. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments and Additional Rental payments, if any, may be decreased. Appropriations of the City are subject to limitation under Article XIIIB of the California Constitution. See "BOND OWNERS' RISKS - Risks Related to Taxation in California" herein.

Abatement

The Lease provides that the obligation of the City to pay Lease Payments will be subject to abatement by reason of (i) any damage or destruction such that there is substantial interference with the use and occupancy of all or any portion of the Leased Facilities, or (ii) a temporary taking of the Leased Facilities or a permanent taking of a portion of the Leased Facilities. Such abatement will be in an amount determined by the City, such that the resulting unabated portion of the Lease Payments will represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Facilities not damaged or destroyed.

In the case of abatement due to damage or destruction of the Leased Facilities, such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, the Lease continues in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage and destruction.

In the case of abatement due to a partial or temporary taking of the Leased Facilities under the power of eminent domain, (i) the Lease shall continue in full force and effect with respect thereto and (ii) the Lease Payments are subject to abatement in an amount determined by the City such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Facilities not damaged or destroyed. If all of the Leased Facilities is taken permanently under the power of eminent domain or sold to ceases as of the day such possession is taken.

Notwithstanding the foregoing, under the Lease, the Lease Payments will not be subject to abatement to the extent that amounts in the Insurance and Condemnation Fund (i.e. proceeds of insurance against accident to or destruction of the Leased Facilities collected by the City or the Agency in the event of any such accident or destruction (including rental interruption insurance)) or in the Bond Fund are available to pay Lease Payments which would otherwise be abated.

Insurance

The Lease requires the City to maintain insurance coverage on the Leased Facilities, so long as the Lease is outstanding, consisting of the following types of insurance. The City may adopt alternative risk management programs to insure against any of the risks required to be insured against under the Lease, including a program of self-insurance, in whole or in part; provided that any such alternative risk management program shall be similar in nature and scope to self-insurance programs maintained by other California cities of comparable size and operations and shall be reviewed by a qualified independent insurance consultant. The

17

City is not required to maintain or cause to be maintained any insurance which is not available from reputable insurers on the open market or more insurance than is specifically required under the Lease.

Fire and Extended Coverage Insurance. The City is to maintain insurance against loss or damage to the Leased Facilities resulting from fire, lightning, vandalism, malicious mischief and such other perils as the City may determine should be insured against, in an amount equal to the replacement cost (subject to deductible clauses not exceeding $100,000 for any one loss) of improvements located on or to be located on the Leased Facilities, or an amount equal to or greater than the aggregate principal amount of the Bonds Outstanding (the "Hazard Insurance Policy").

Rental Interruption or Use and Occupancy Insurance. The City must maintain rental interruption insurance in an amount sufficient to pay the total Base Rental Payments attributable to the Leased Facilities for a period of at least 24 months to insure against loss of rental income from the Leased Facilities caused by the events that give rise to the right of abatement on the part of the City under the Lease, provided that the amount of such insurance need not exceed the total remaining Base Rental Payments attributable to the Leased Facilities.

The City must maintain rental interruption insurance throughout the term of the Lease, rental interruption insurance to cover loss, total or partial, of the use of any part of the Leased Property as the result of any of the hazards covered in the Hazard Insurance Policy and the resulting loss of rental income to the Trustee, as assignee of the Agency, in an amount sufficient to pay the maximum remaining principal and interest portions of Base Rental due under the Lease during a period equal to the greater of (i) two times Maximum Annual Debt Service, and (ii) the period certified by the City to be reasonably required to rebuild or reconstruct the Leased Property in the event of damage or destruction to the Leased Property. The City has covenanted in the Lease to use its best efforts to provide sufficient construction funds and to make all required payments the Lease, in excess of the available rental interruption insurance, if necessary, in order to ensure completion of the reconstruction, repair, restoration, modification or improvement of the Leased Property.

WorkeJ:S' Compensation. The City is required to maintain workers' compensation insurance covering all employees working in or on the Leased Facilities in the same amount as other workers' compensation insurance maintained by the City for similar employees that do similar work.

liability Insurance. The City is required to maintain or cause to be maintained casualty insurance in an amount not less than the aggregate principal amount of the Outstanding Bonds, insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement ( excluding earthquake), subject to a $100,000 loss deductible provision.

Title Insurance. The City is to obtain a CLTA or ALTA standard coverage leasehold policy of title insurance issued by a company of recognized standing duly authorized to issue the same on the Leased Facilities or any Substituted Property which becomes the Leased Facilities, in an amount at least equal to the aggregate principal amount of unpaid Base Rental Payments.

No Debt Service Reserve

Neither the City nor the Authority have undertaken to fund any debt service reserve to secure the payment of debt service on the Bonds.

18

Additional Bonds

The Agency has agreed pursuant to the Indenture that no additional bonds, notes or indebtedness shall be issued or incurred that are payable out of the Revenues in whole or in part, other than Additional Bonds as provided in the Indenture. However, the City may issue or incur other obligations payable from the City's General Fund. See "BOND OWNERS' RISKS -Additional Obligations of the City" herein.

The Agency and the Trustee may by execution of a Supplemental Indenture, without the consent of the Owners, provide for the issuance and delivery of Additional Bonds in one or more series. The Trustee may authenticate and deliver to or upon the Request of the Agency, such Additional Bonds, in an aggregate principal amount authorized by such Supplemental Indenture. The proceeds of such Additional Bonds may be used for any purpose, including for the purpose of refunding Outstanding Bonds. Such Additional Bonds may only be issued upon compliance by the Agency with the provisions of the Indenture, and subject to the following specific conditions, which are made conditions precedent to the issuance of any such Additional Bonds:

(a) Conditions for the Issuance of Additional Bonds. The Agency may at any time issue one or more Series of Additional Bonds (in addition to the Bonds) payable from Revenues as provided herein on a parity with all other Bonds issued under the Indenture, but only subject to the following conditions, which are a condition precedent to the issuance of such Additional Bonds:

( 1) neither the Agency nor the City shall be in default under the Indenture, the Lease or the Site Lease;

(2) the issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and under and pursuant hereto and shall have been provided for by a Supplemental Indenture which shall specify the following:

(i) the purposes for which such Additional Bonds are to be issued; provided, that the proceeds of the sale of such Additional Bonds shall be applied only for one or more of the following purposes: (A) providing funds to pay costs of City facilities (including capitalized interest), (B) providing funds to refund any Bonds issued hereunder or other obligations of the City, (C) providing funds to pay Costs oflssuance incurred in connection with the issuance of such Additional Bonds, and (D) providing funds to make any deposit to a reserve fund or account for such Additional Bonds;

(ii) the principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds, which shall be Authorized Denominations;

(iii) that such Additional Bonds shall be payable as to interest on the Interest Payment Dates, except that the first installment of interest may be payable on either June 1 or December 1;

(iv) the date, the maturity date or dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, that (A) the serial Bonds of such Series of Additional Bonds shall be payable as to principal

19

annually on December 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on December 1, (B) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (C) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates;

(v) the redemption premiums and terms, if any, for such Additional Bonds;

(vi) the form of such Additional Bonds; and

(vii) such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; and

(3) upon the issuance of such Additional Bonds, the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of the issuance of such Additional Bonds, plus Additional Rental Payments, in any Rental Period shall not be in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of such Additional Bonds (evidence of the satisfaction of such condition shall be made by a Written Certificate of the City).

(b) Procedure for the Issuance of Additional Bonds. Whenever the Agency and the City shall determine to authorize the issuance of any Additional Bonds, the Agency, the City and the Trustee shall enter into a Supplemental Indenture satisfying the applicable conditions of the Indenture. Before such Additional Bonds shall be issued, the Agency and the City shall file or cause to be filed with the Trustee the following:

(1) an Opinion of Counsel setting forth (i) that counsel rendering such opinion has examined the Supplemental Indenture, the amendment to the Lease, if any, and the amendment to the Site Lease, if any, (ii) that the issuance of the Additional Bonds has been duly authorized by the Agency, (iii) that the execution and delivery of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease have been duly authorized, executed and delivered by the Agency and the City, (iv) that upon execution and delivery of such Supplemental Indenture and any such amendments to the Lease and the Site Lease, the Indenture, as amended and supplemented by such Supplemental Indenture, and, if so amended, the Lease and the Site Lease, as amended by such amendments, will be valid and binding obligations of the Agency and the City, and (v) that the execution and delivery of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease, in and of themselves, do not adversely affect the exclusion from gross income for federal income tax purposes of interest on Tax-Exempt Bonds;

(2) a Written Certificate of the Agency that the requirements of the applicable conditions of the Indenture have been met;

(3) a Written Certificate of the City that the requirements of the applicable conditions of the Indenture have been met, which shall include a certification as to the fair rental value of the Property, after giving effect to any amendments to the Lease and the Site Lease entered into in

20

connection with the issuance of the Additional Bonds and taking into account the use of proceeds of such Additional Bonds;

( 4) certified copies of the resolutions of the Agency Board and the City Council of the City authorizing the execution and delivery of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease;

(5) executed counterparts or duly authenticated copies of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease, with satisfactory evidence that any such amendments to the Lease and the Site Lease have been duly recorded in the appropriate records of the county in which the Leased Property is located;

(6) certified copies of the policies of insurance required by the Lease or certificates thereof, which shall evidence that the amounts of the insurance required under the applicable provisions of the Lease have been increased, if applicable, to cover the amount of such Additional Bonds; and

(7) a CLTA or ALTA title insurance policy or other appropriate form of policy in the amount of the Additional Bonds of the type and with the endorsements described in the Lease.

Upon the delivery to the Trustee of the foregoing instruments and upon the Trustee's being satisfied from an examination of said instruments that all of the documents required by the applicable provisions of the Indenture have been delivered, the Trustee shall authenticate such Additional Bonds, and shall deliver such Additional Bonds to, or upon the request of, the Agency. See "APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - The Indenture - Additional Bonds" herein.

Maintenance, Utilities, Taxes and Assessments

During such time as the City or any assignee or sub lessee thereof is in possession of the Leased Facilities, all maintenance and repair, ordinary or extraordinary, of the Leased Facilities shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of (a) all utility services supplied to the Leased Facilities, (b) the cost of operation of the Leased Facilities, and (c) the costs of maintenance of and repair to the Leased Facilities resulting from ordinary wear and tear or want of care on the part of the City. The City shall, at the City's sole cost and expense, keep and maintain the Leased Facilities clean and in a safe and good condition and repair. The Agency has no obligation to alter, remodel, improve, repair, decorate, or paint the Leased Facilities or any part thereof.

The City shall comply with all statutes, ordinances, regulations, and other requirements of all goverrunental entities that pertain to the occupancy or use of the Leased Facilities. The Agency has no responsibility or obligation whatsoever to construct any improvements, modifications or alterations to the Leased Facilities.

The Agency and the City contemplate that the Leased Facilities will be used for public purposes by the City and, therefore, that the Leased Facilities will continue to be exempt from all taxes presently assessed and levied with respect to real and personal property. In the event that the use, possession or acquisition by the Agency or the City of the Leased Facilities is found to be subject to taxation in any form, the City will pay during the term of the Lease, as the same respectively become due, all taxes and goverrunental charges

21

of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Leased Facilities and any other property acquired by the City in substitution for, as a renewal or replacement of, or a modification, improvement or addition to the Leased Facilities; provided, that with respect to any govermnental charges or taxes that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are accrued during such time as the Lease is in effect.

THE AGENCY

The Pismo Beach Public Financing Agency is a joint exercise of powers authority duly organized and existing under and pursuant to that certain Joint Exercise of Powers Agreement, dated as of May 2, 2017 by and between the City and the Authority, and under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the California Govermnent Code.

The Agency was formed for the purpose, among others, of assisting the City in the acquisition, construction and financing of public improvements that are of public benefit to the City. Under the Bond Law, the Agency has the power to purchase bonds issued by any local agency at public or negotiated sale and may sell such bonds to public or private purchasers at public or negotiated sale.

The Agency is governed by a five-member Board of Directors (the "Board"), which consists of the members of the City Council of the City. The Mayor and the Mayor Pro Tempore of the City serve as the Chair and Vice-Chair, respectively, the City Manager serves as the Executive Director, the City Clerk serves as the Secretary, and the City's Administrative Services Director serves as the Treasurer of the Agency.

THE CITY

General

Location & Area Description. The City of Pismo Beach is located on the Central Coast of California along the ocean in San Luis Obispo County. The City is bordered by the Pacific Ocean, Arroyo Grande, Grover Beach, Avila Beach, and County rural land. The City sits astride Highway 101 approximately eight miles south of the City of San Luis Obispo and about 200 miles north of Los Angeles. The City is a popular resort community, visited annually by a substantial number of tourists seeking to enjoy the area's moderate climate, ocean views and sunsets, fine restaurants, and the relaxing atmosphere unique to coastal communities. The City's downtown core area and hotel areas are anchored by the City-owned Pier extending into the Pacific Ocean. The City is home to about 8,180 individuals, and most of the City is residential with a continuing trend of new homes being built with spectacular ocean views. See "APPENDIX D- GENERAL INFORMATION REGARDING THE CITY OF PISMO BEACH AND SURROUNDING AREA" herein.

City Services. The City provides a full range of municipal services including fire and police protection, construction and maintenance of City streets, storm drains, bridges, and similar infrastructure type assets; park maintenance; community recreation activities and public facilities. In terms of business-type activities, the City provides water, wastewater, parking and pier services through the operation of its enterprises.

22

City Government. The City was incorporated in 1946, and is operated under a Council-City Manager structure of government. Policy making and legislative authority are vested in the City Council, which is responsible, among other matters, for passing resolutions and ordinances, adopting the City budget, appointing committees, and hiring the City Manager. The City Council is comprised of five members elected by the voters citywide, serving in staggered 4-year terms. The Mayor is elected to two year terms, and the Council is elected to four year staggered terms, with two members elected every two years. The City Council hires a City Manager to run the City's day-to-day operations.

The City Council of the City currently consists of the following persons:

Council Member Position Expiration of Term

Ed Waage Mayor December 2018 Erik Howell Mayor Pro Tern December 2020 Sheila Blake Council Member December 2018

Marcia Guthrie Council Member December 2020 Mary Ann Reiss Council Member December 2018

Following are short biographies of certain senior City staff:

James R. Lewis. Mr. Lewis has been the City Manager of Pismo Beach since March of 2013. Prior to serving as City Manager of Pismo Beach, Mr. Lewis served as the Assistant City Manager and President of the Office of Economic Development for the City of Atascadero. He also served as the Assistant to the City Manager for the City of Claremont. In each City, Mr. Lewis was heavily involved in several significant redevelopment and capital projects. Mr. Lewis holds a master's degree in Public Administration with an emphasis in Public Finance from the Maxwell School of Citizenship and Public Affairs, Syracuse University and received a Bachelor of Science in Public Policy and Management from the University of Southern California. Mr. Lewis served as president of the Municipal Management Association of Southern California (MMASC) in 2001 and currently serves as the President-elect of the League of California Cities City Manager's Department and as a Trustee of the California City Management Foundation. In addition, Mr. Lewis is an ICMA credentialed manager (ICMA-RC). As City Manager of the City of Pismo Beach, Mr. Lewis is responsible for carrying out the policies and ordinances of the Council, for overseeing the daily operations of the City, and for appointing other employees and otherwise managing daily operations of the City.

Nadia K. Feeser. Ms. Feeser was hired in January 2012 as the City of Pismo Beach's Administrative Services Director/City Treasurer. She has over 16 years of experience in state and local government finance positions. Prior to serving as Administrative Services Director, she served six years with the City and County of San Francisco, most recently as the Chief Financial Officer for the San Francisco Planning Department. Prior to that, she was the Senior Administrative Analyst, Principal Administrative Analyst, and then Budget Manager in the San Francisco Controller's Office. Ms. Feeser has also held a Management and Budget analyst position in the Maricopa County Office of Management and Budget and a capital projects budget analyst position with the State of New York Division of the Budget. Ms. Feeser holds a bachelor's degree in business administration with a concentration in finance from Birmingham Southern College and a Master's degree in Public Administration with a concentration in public economics, finance, & local government management from the Rockefeller College of Public Policy, State University of New York at Albany. Ms. Feeser is now responsible for the financial and technology operations of the City of Pismo Beach.

23

Benjamin A. Fine. Mr. Fine was hired by the City of Pismo Beach in November 2008 and promoted to the City's Director of Public Works/City Engineer in January of 2013. Mr. Fine holds master's degrees in mechanical engineering and business administration as well as a bachelor's degree in agricultural engineering. He is a licensed civil engineer in the State of California with over fifteen years of private sector and municipal engineering and management experience. Mr. Fine is the current chair of the San Luis Obispo Council of Governments Technical Transportation Committee and the founding president of the Central Coast Chapter WaterReuse Association. He is also a member of the American Society of Civil Engineers and American Public Works Association. Mr. Fine serves as the City's technical advisor on Northern Cities Management Area Technical Group and Zone Three Technical Group which both help to manage the City's water supply. As Public Works Director for the City of Pismo Beach, Mr. Fine is responsible for the management of the water system, maintenance and construction of all public infrastructure which includes parks, water and sewer infrastructure as well as streets and public buildings.

Eric Eldridge. Mr. Eldridge was hired in July 2010 as the City of Pismo Beach's Public Works Engineer for capital improvement projects and development review. Mr. Eldridge holds a bachelor's degree in Enviromnental Engineering from California Polytechnic State University, San Luis Obispo and is a licensed civil engineer in the State of California. Prior to joining the City of Pismo Beach Mr. Eldridge has an additional 11 years of private sector engineering and project management experience in land development, hydrology, drainage, storm water management, construction management, contract management, budgeting, and project management. As the City of Pismo Beach Senior Engineer, Mr. Eldridge is charged with the execution of the maintenance and construction of all public infrastructure which includes parks, water and sewer infrastructure as well as streets and public buildings. Mr. Eldridge will be overseeing the Pier Rehabilitation project and the Shell Beach Streetscape project, and has managed several other key City projects including the Citywide street paving project, the Pismo Heights water system improvements project, and the Dinosaur Caves and Spyglass Parks construction and landscape project.

CITY FINANCIAL INFORMATION

Budget Process

Budget Process and Budgetary Control. The City operates on a fiscal year that begins on the first day of July of each year and ends on the thirtieth day of June the following year (the "Fiscal Year"). The City prepares a two-year balanced budget that incorporates the revenues and expenditures associated with providing services to the community, including capital investments to City infrastructure. The City's biennial budget serves as the foundation for the City of Pismo Beach's financial planning and control system. The City Manager presents a proposed budget to the City Council every two years. The Council holds public hearings on the proposed budget and then ultimately adopts a formal budget. The budget is adopted by fund, department, and object. The City Manager and Administrative Services Department staff review the budget compared to actual revenues received and expenditures incurred and provide an analysis and report to the Council quarterly in a budget status report. Periodically, staff prepares mid-cycle budget adjustments for Council's review and approval to provide minor adjustments to the two-year adopted budget (the "Adopted Budget").

24

Long-Term Financial Planning. The City incorporates long-term financial planning into its budget process in several ways.

• First, the City has established a set of financial policies that were reviewed by the City Council and Executive Management Team in April 2017 during the development of the two-year budget which is scheduled to be confirmed by the City Council on June 6, 2017. These policies establish goals for the allocation of public resources in the manner best suited to the efficient provision of services to citizens and visitors present within the City. Some of these policies call for maintaining adequate cash reserves and providing on-going maintenance of infrastructure and buildings, which are vital to sound fiscal management. In addition, on April 7, 2015, the City Council passed Ordinance No. 0-2015-003 adopting fiscal policies for General Fund Committed Fund Balances. See "- Relevant Fiscal Policies" below.

• Second, the Council undertakes a strategic planning process to establish goals and priorities for the organization after taking into account public input. Specifically, the Council engaged the community at a public hearing and by soliciting ideas and input through a variety of means, including three public community meetings, extensive outreach efforts, and through a public mailing delivered with the City's utility bills. Additionally, employees are able to collaborate by department as to investments strategy. Based on this input, the City Council adopts goals, objectives, and resources permit objectives.

• Third, the City maintains a five-year operating projection for the General Fund and the Water and Wastewater Enterprise Funds. The General Fund projection is updated quarterly and shared with Council annually.

• Fourth, the City maintains a ten-year long-range capital planning process that helps drive annual capital funding decisions as well as periodic bond issues for larger investments.

• Finally, all Governmental Accounting Standards Board pronouncements are monitored and implemented into the City's financial statements.

Current Budget and Historical Budget Information. Set forth in Table 3 are the General Fund budgets that were adopted for Fiscal Years 2014-15 through 2016-17 compared to the audited final results for Fiscal Years 2014-15 and 2015-16. During the course of each Fiscal Year, the budget may be amended and revised as necessary by the City Council.


25

Table 3 CITY OF PISMO BEACH

FISCAL YEARS 2014-15 THROUGH 2016-17

GENERAL FUND BUDGETS COMPARED TO AUDITED RESULTS

Adopted Fiscal Year Adopted Fiscal Year Adopted Fiscal Year 2014-15 Fiscal Year 2015-16 Fiscal Year

2014-15 Audited 2015-16 Audited 2016-17 Budget Results Budget Results Budget

Revenues: Property Taxes $3,970,000 $4,392,370 $4,496,068 $4,662,304 $4,578,263 Sales Taxes 3,666,000 4,497,958 4,503,053 4,485,779 4,451,115 Transient Occupancy Taxes 7,490,000 8,682,119 8,749,331 9,199,947 9,000,000 Other Taxes 775,000 890,811 812,963 912,732 827891 Licenses and Pennits 579,650 1,593,998 1,384,271 1,917,806 953487 Fines and Forfeitures 75,000 67,616 75,000 56,439 75000 Subventions and Grants 153,124 361,434 198,180 120,592 184680 Interest and Rents 297,889 379,550 256,794 376,053 257734 Charges for Services 166,775 223,769 160,392 216,928 161592 Miscellaneous 627,231 683,299 804,100 953,945 905100

Total Revenue $17,800,669 $21,772,924 $21,440,152 $22,902,525 $21,394,862

Expenditures: General Government 5,427,914 6,758,606 6,627,763 5,544,286 6,211,572 Public Safety 7,265,588 6,693,012 7,983,164 7,265,142 8,223,065 Highways and Streets 545,794 581,436 657,660 551,895 612,827 Community Services 2,531,962 1,558,091 3,030,467 1,414,147 2,655,160 Public works 832,331 1,833,858 1,042,153 2,255,214 1,027,266 Capital Outlay 103,463 239,566

Total Expenditures $16,603,589 $17,528,466 $19,Hl,207 $17,030,684 $18,729,890

Excess of Revenue Over Expenditures $1,197,080 $4,244,458 $2,098,945 $5,871,841 $2,664,972

Other Financing Sources (Uses):

Transfers in 237,489 250,160 264,400 208,116 240,000 Transfers outCll (1,030,212) (3,359,501) (4,641,316) (2,610,023) (1,605,157)

Net Other Financing Sources (Uses) (792,723) (3,109,341) (4,376,916) (2,401,907) (1,365,157)

Net Change in Fund Balances $404,357 $1,135,117 ($2,277,971) $3,469,934 $1,299,815

Fund Balance Beginning of Fiscal Year $14,507,452 $14,507,452 $15,642,569 $15,642,569 $19,112,503

Fund Balance End of Fiscal Year $14,911,809 $15,642,569 $13,364,598 $19,112,503 $20,412,318

(1) Transfers out consist of transfers to the Motor Vehicle Replacement Fund to prefund future vehicle purchases, transfers to the Pier Enterprise Fund for operations, and transfers to various funds for capital projects Sources: Audited Financial Statements for Fiscal Years 2014-15 and 2015-16, and Adopted Budgets for Fiscal Years 2014-15 through 2016-17.

26

Financial Reporting

The City Council employs, at the beginning of each Fiscal Year, an independent certified public accounting firm which, at such time or times as specified by the City Council, at least annually, at such other times as such firm shall determine, examines the books, records, inventories and reports of all officers and employees who receive, control, handle or disburse public funds and of all such other officers, employees or departments as the City Council may direct. As soon as practicable after the end of the Fiscal Year, a report is submitted by such firm to the City Council and a copy of the financial statements as of the close of the Fiscal Year is published.

The Governmental Accounting Standards Board ("GASB") published its Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, on June 30, 1999 ("GASB Statement No. 34"). GASB Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management's Discussion and Analysis; (ii) government-wide financial statements prepared using the economic measurement focus and the accrual basis of accounting and fund financial statements prepared using both the current financial resources measurement focus and the modified accrual method of accounting (governmental funds) and funds using the economic measurement focus and the accrual basis of accounting (proprietary funds) and (iii) required supplementary information. The City's financial statements are prepared in conformance with the requirements of GASB Statement No. 34.

General Fund Revenues and Expenditure

The City's General Fund is its primary operating fund, and is where the City accounts for all its general-purpose revenues. It is distinguished from the City's other governmental funds that are used to account for special purpose revenues, capital projects, debt service activities, and monies held for the benefit of others.

The General City Budget includes programs which are provided on a largely city-wide basis. The programs and services are financed primarily by the City's share of sales tax, property tax, revenues from the State and/or federal government, and charges for services provided.

The three major or general fund revenue sources of the City, which together accounted in Fiscal Year 2015-16 for about 79% of the general fund revenues (collectively, the "Key Revenue Sources"), are the Transient Occupancy Tax (40% of total general fund revenues), Sales Tax (19%) and Property Tax (20%). See "APPENDIX B-AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR 2015-16" herein.

The following Table 4 sets forth the audited revenues received by the City for each of the Key Revenue Sources for Fiscal Years 2007-08 through 2015-16, and the unaudited budgeted revenue expected to be received by the City for each of the Key Revenue Sources for Fiscal Year 2016-17, which have been totaled and compared to the prior Fiscal Year to illustrate the amount and percent of change.

27



GENERAL FUND KEY REVENUE SOURCES AND CHANGE FROM PRIOR YEAR

Transient Change From Prior Year Fiscal Occupancy Property Sales Total of Key Year Taxes Taxes Taxes Tax Sources Amount Percent

2008 $6,175,013 $3,660,083 $2,402,092 $12,237,188 2009 5,906,838 3,910,044 2,813,264 12,630,146 $392,958 3.12% 2010 5,779,594 3,494,959 3,136,677 12,411,230 <218,916> <1.74%>

2011 6,269,607 3,803,530 3,379,575 13,452,712 1,041,485 8.39% 2012 6,931,197 3,763,419 3,511,091 14,205,707 752,995 5.60% 2013 7,279,501 4,015,999 3,905,814 15,201,314 995,607 701% 2014 7,988,237 4,193,186 4,104,284 16,282,707 1,081,393 7.11% 2015 8,682,119 4,392,370 4,497,958 17,572,447 1,289,740 7.92% 2016 9,199,947 4,662,304 4,485,779 18,348,030 775,583 4.42% 2017(1) 9,305,000 5,097,844 4,500,974 18,903,818 555,788 303%

(1) Represents the City's estimate of unaudited budgeted revenue expected to be received by the City for each of the Key Revenue Sources for Frscal Year 2016-17

Source: The City

The following Table 5 sets forth the audited revenues received by the City for the total of Key Revenue Sources and total of Other General Fund Revenue Sources for Fiscal Years 2007-08through 2015-16, and the unaudited budgeted revenue expected to be received by the City from each such Revenue Source for Fiscal Year 2016-17, which have been totaled and compared to the prior Fiscal Year to illustrate the amount and percent of change.



SUMMARY OF GENERAL REVENUES AND CHANGE FROM PRIOR YEAR

Change From Prior Year Total of Key Other General Total General

Fiscal Year Tax Sources(1) Fund Revenues Fund Revenues Amount Percent

2008 $12,237,188 $3,501,312 $15,738,500 2009 12,630,146 3,150,308 15,780,454 $41,954 0.27% 2010(2) 12,411,230 3,219,023 15,630,253 <150,201> <0.96%>

2011 13,452,712 2,576,996 16,029,708 399,455 2.56% 2012 14,205,707 3,097,820 17,303,527 1,273,819 7.95% 2013 15,201,314 3,437,395 18,638,709 2,335,182 7.72% 2014 16,282,707 3,629,381 19,912,088 1,173,379 6.83% 2015 17,572,447 4,200,477 21,772,924 1,860,836 9.35% 2016 18,348,030 4,554,495 22,902,525 1,129,601 5.19% 2017(3) 18,903,818 3,764,294 22,668,112 ($234,413) <1.02%>

(1) Comprised of the Transient Occupancy Tax, Sales Tax and Property Tax totals set forth in Table 4, above (2) The City experienced declines in Property Tax and Transient Occupancy Tax as a result of the housing market crises impacts (3) Represents the City's estimate of unaudited budgeted revenue expected to be received by the City from each such Revenue Source

for Fiscal Year2016-17 Source: The City

28

Transient Occupancy Tax

In general, Transient Occupancy Tax revenues are equal to 10% of the rent charged by all lodging businesses for a person exercising occupancy for 30 consecutive calendar days or less, paid monthly to the City. As a resort and tourist destination, the City receives a sizable income from the Transient Occupancy Tax. The Transient Occupancy Tax revenue is the largest single source of revenue to the City, constituting approximately 45% of the City's budgeted annual General Fund income for the 2016-17 Fiscal Year. In fiscal year 2015-16, the Transient Occupancy Tax generated $9,199,947 in General Fund revenues, or approximately 40% of the City's total General Fund revenue for that period. Since fiscal year 2010-11 Transient Occupancy Tax receipts have trended steadily upward in each of the years, as shown in Table 4 above.

Property Taxes

Property tax revenue is the second largest source of revenue to the City, constituting approximately 20% of the City's budgeted annual General Fund income for the 2016-17 fiscal year. In fiscal year 2015-16, the property tax levies generated $4,662,304 in General Fund revenues, or approximately 20% of the City's total General Fund revenue for that period. With the exception of slight declines fiscal years 2009-10 and 2011-12 actual Property Tax receipts have trended upward in each of the years, as shown in Table 4 above.

Tax Levies and Delinquencies. Taxes are levied for each fiscal year on taxable real and personal property which is situated in the City as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured," and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll."

Property taxes on the secured roll are due in two installments, on November 1 and February 1 of the fiscal year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and may be sold at public auction.

Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent, if unpaid on August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue on November 1 of the fiscal year. The City has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's Office, in order to obtain a lien on certain property of the taxpayer; and ( 4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee.

Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county.

29

Teeter Plan. The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, the County apportions secured property taxes on an accrual basis when due (irrespective of actual collections) to local political subdivisions, including the City, for which the County acts as the tax-levying or tax-collecting agency. The Teeter Plan is applicable to all tax levies on secured property for which the County acts as the tax-levying or tax-collecting agency, or for which the County treasury is the legal depository of the tax collections, which includes the City.

The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year of the County which commences on July 1 ), the Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year.

If the Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions (including the City) for which the County acts as the tax-levying or tax-collecting agency.

Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS."

Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of"base" revenues from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year.

Proposition 13 and Proposition 8 Property Value Adjustments. Proposition 13, passed in 1978, established the base year value concept for property tax assessments. Under Proposition 13, the 1975-1976 fiscal year serves as the original base year used in determining the assessment for real property. Thereafter, armual increases to the base year value are limited to the inflation rate, as measured by the California Consumer Price Index, or 2%, whichever is less. A new base year value, however, is established whenever a property, or portion thereof, has had a change in ownership or has been newly constructed.

Proposition 8, enacted in 1978, allows for a temporary reduction in assessed value when a property suffers a "decline-in-value." As of January 1st (lien date) each year, the Assessor must enroll either a property's Proposition 13 value (adjusted annually for inflation by no more than 2%) or its current market value, whichever is less. When the current market value replaces the higher Proposition 13 value, the lower value is commonly referred to as a "Proposition 8 Value." "Proposition 8 values" are temporary and, once enrolled, must be reviewed armually by the assessor until the Proposition 13 adjusted base year value is enrolled.

30

Assessed Valuation History. Table 6 below presents the assessed valuation of taxable property in the City from Fiscal Year 2007-08 through Fiscal Year 2016-17.



ASSESSED VALUATIONS OF ALL TAXABLE PROPERTY

Fiscal Year Local Secured Utility Unsecured Total

2007-08 $2,219,482,215 $58,100 $41,671,580 $2,261,211,895 2008-09 2,381,355,739 58,100 37,444,278 2,418,858,117 2009-10 2,399,951,940 58,100 37,066,417 2,437,076,457 2010-11 2,389,253,225 58,100 37,225,018 2,426,536,343 2011-12 2,364,565,810 58,100 36,396,687 2,401,020,597 2012-13 2,374,585,587 58,100 36,716,614 2,411,360,301 2013-14 2,454,539,966 58,100 39,650,287 2,494,248,353 2014-15 2,561,701,832 58,100 38,783,155 2,600,543,087 2015-16 2,729,871,663 58,100 38,748,768 2,768,678,531 2016-17 2,938,594,272 58,100 39,556,096 2,978,208,468

Source: California Municipal Statistics Inc.

Top Tax Payers. The top ten taxpayers, based on local secured assessed values of taxable property in the City, as shown on the 2016-17 tax roll, are set forth in the following Table 7:


TOP 10 LARGEST 2016-17 LOCAL SECURED TAXPAYERS Percentage

Property Owner Land Use Assessed Valuation ofTotal (1)

I. Pismo Beach Mobile Home Park Mobile Home Park $60,646,383 2.06% 2. Martin Hotel Management Co. LLC Hotel/Motel 35,288,373 1.20 3. Prime Outlets at Pismo Beach LLC Outlet Stores 30,031,519 1.02 4. Core Pismo LLC Hotel/Motel 24,666,860 0.84 5. Spalding G. Wathen Inc. Residential Properties 20,196,741 0.69 6. Castleback Pismo Beach Owner LLC Hotel/Motel 16,940,950 0.58 7. Heron Crest Development Residential Properties 16,277,626 0.55 8. Cliffs Resort LLC Hotel/Motel 15,509,262 0.53 9. Pismo Coast Plaza LLC Shopping Center 15,459,465 0.53 10. Henry F. Myers, Trustee Hotel/Motel 13,677,759 0.47

(1) 2016-17Local Secured Assessed Valuation: $2,938,594,272. Source: California Municipal Statistics Inc.

31

Sales Taxes

Sales taxes were the third largest category of revenue source to the City, constituting approximately 22% of the City's budgeted annual General Fund income for the 2016-17 Fiscal Year. In fiscal year 2015-16, the Sales Tax generated $4,485,779 in General Fund revenues, or approximately 19% of the City's total General Fund revenue for that period. Sales Tax receipts have trended upward in each of the years shown in Table 4 above and Table 8 below. The City's sales tax revenue represents the City's share of the sales and use tax, imposed on taxable transactions occurring within the City's boundaries.

The voters in Pismo Beach approved Measure "C", a .50% transaction sales and use tax on June 3, 2008 that became effective on October 1, 2008. The expiration date of tax collections for this measure was March 31, 2015. In November 2014, the Pismo Beach voters approved Measure"!", the 0.50% transaction sales and use tax which expires on March 31, 2027. Voters approved Measure I at 71.22%. All proceeds of the tax levied and imposed are accounted for in the City's General Fund, and may be used for any lawful purpose, as designated by the City Council. Measure "I" generated $1,424,988 in sales tax revenue in Fiscal Year 2015-16.

The following Table 8 sets forth the Sales Tax Revenue Base Data, and corresponding Sales Tax revenues received by the City for Fiscal Years 2007-08 through 2015-16.



SALES TAX REVENUE BASE DATA

Revenue Base City-Wide Total City City

Retail Sales Retail Sales Direct Transaction Fiscal Year Subject to Tax Tax Rate Tax Rate TaxRate<1J

2008 $194,413,600 7.25% 100% 0.00% 2009 206,556,700 8.25% 100% 0.50% 2010(2) 190,984,200 8.25% 100% 0.50% 2011 192,386,300 8.25% 100% 0.50% 2012 214,465,200 7.25% 100% 0.50% 2013 248,116,800 7.50% 100% 0.50% 2014 268,253,800 7.50% 100% 0.50% 2015 275,456,400 7.50% 100% 0.50% 2016 284,997,500 7.50% 100% 0.50% 2017(3) 289,992,400 7.25% 100% 0.50%

(1) Represents Measure "C" and Measure "I" sales transaction tax rates, respectively, as discussed above (2) The City experienced declines in Sales Tax as a result of the housing market crises impacts

Sales Tax Revenue Recognized hr the Citr

$2,402,092 2,813,264 3,136,677 3,379,575 3,511,091 3,905,814 4,104,284 4,497,958 4,485,779 4,500,974

(3) Represents the City's estimate of unaudited budgeted revenue expected to be received by the City for each of the Key Revenue Sources for Fiscal Year 2016-17. The sales tax rate changed from 7.5% to 7.25% on January 1, 2017 Source: The City

Sales Tax Rates. The City collects a percentage of taxable sales in the City (minus certain administrative costs imposed by the State Board of Equalization) pursuant to the Bradley-Bums Uniform Local Sales and Use Tax (the "Sales and Use Tax Law"). As part of the State's fiscal year 2003-04 Budget, the State Legislature authorized, and the voters of the State approved, a redirection to the State from local jurisdictions (including the City) of sales revenues in the amount of 0.25% of the basic 1.0% local sales tax

32

rate, starting July 1, 2004. The State uses such revenues to pay the State's economic recovery bonds. Under the California Economic Recovery Act, which includes legislation commonly referred to as the "Triple Flip", the State redirected certain property taxes in the Education Augmentation Revenue Fund to local governments, including the City, to compensate for this redirection of sales taxes on a "dollar for dollar" basis. The "Triple Flip" ended in Fiscal Year 2015-16.

Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the use will occur within the State. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax.

Certain transactions are exempt from the State sales tax, including sales of the following products: food products for home consumption; prescription medicine; newspapers and periodicals; edible livestock and their feed; seed and fertilizer used in raising food for human consumption; and gas, electricity and water when delivered to consumers through mains, lines and pipes.

This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the State Board of Equalization's July 2014 Publication No. 61 entitled "Sales and Use Taxes: Exemptions and Exclusions," which can be found on the State Board of Equalization's website at http://www.boe.ca.gov/. The City and the Agency do not take any responsibility for the continued accuracy of the foregoing internet address or for the accuracy, completeness or timeliness of information on such website, and such information is not incorporated herein by this reference.

Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the California State Board of Equalization. According to the State Board of Equalization, it distributes quarterly tax revenues to cities, counties and special districts using the following method:

Using the prior year's like quarterly tax allocation as a starting point, the State Board of Equalization first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The State Board of Equalization disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter's actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections ( such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment.

Under the Sales and Use Tax Law, all sales and use taxes collected by the State Board of Equalization under a contract with any city, city and county, or county are required to be transmitted by the State Board of

33

http://www.boe.ca.gov/

Equalization to such city, city and county, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter.

Under its procedures, the State Board of Equalization projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the State Board of Equalization's quarterly projection. During the last month of each quarter, the State Board of Equalization adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter.

The Board of Equalization receives an administrative fee based on the cost of services provided by the Board to the City in administering the City's sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City.

Financial Statements

The City's accounting policies conform to generally accepted accounting principles and reporting standards set forth by the State Controller. The audited financial statements also conform to the principles and standards for public financial reporting established by the National Council of Govermnent Accounting and the Govermnental Accounting Standards Board ("GASB").

Basis of Accounting and Financial Statement Presentation. The govermnent-wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

Govermnental fund financial statements are reported using the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due.

Audited Financial Statements. The City's most recent audited financial statements for the fiscal year ending June 30, 2016, are attached as "APPENDIX B -AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR 2015-16" to this Official Statement, which were prepared by the City and audited by Glenn Burdette, Certified Public Accountants, Santa Maria, California (the "Auditor").

The Financial Statements should be read in their entirety. The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the City or the General Fund. In addition, the Auditor has not reviewed this Official Statement.

General Fund Historical Financial Data

The following Tables 9 and 10 provide a five-year history of (i) the City's Comparative Balance Sheet for Fiscal Years 2011-12 through 2015-16, and (ii) the City's General Fund revenues, expenditures, and changes in fund balances for Fiscal Years 2011-12 through 2015-16.

34


HISTORICAL GENERAL FUND DATA FISCAL YEARS 2011-2012 THROUGH 2015-16

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE

Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2011-12 2012-13 2013-14 2014-15 2015-16

Revenues: Property Taxes $3,763,419 $4,367,338 $4,193,186 $4,392,370 $4,662,304 Sales Taxes 3,511,091 3,905,814 4,104,284 4,497,958 4,485,779 Transient Occupancy Taxes 6,931,197 7,279,501 7,988,237 8,682,119 9,199,947 Other Taxes 778,402 816,251 850,072 890,811 912,732 Licenses and Pennits 885,974 814,115 1,354,904 1,593,998 1,917,806 Fines and Forfeitures 82,472 64,055 67,523 67,616 56,439 Subventions and Grants 219,649 342,792 188,760 361,434 120,592 Interest and Rents 268,512 261,027 279,274 379,550 376,053 Charges for Services 809,281 186,406 239,813 223,769 216,928 Miscellaneous 53,530 601,410 646,035 683,299 953,945

Total Revenue $17,303,527 $18,638,709 $19,912,088 $21,772,924 $22,902,525

Expenditures: General Goverrunent 4,106,989 5,375,785 4,761,409 6,758,606 5,304,720 Public Safety 6,791,824 6,855,693 6,823,152 6,693,012 7,265,142 Highways and Streets 536,506 479,346 591,476 581,436 551,895 CommW1ity Services 2,504,632 1,387,879 1,503,103 1,558,091 1,414,147 Public works 859,974 1,858,214 1,876,436 1,833,858 2,255,214 Capital Outlay 103,463 239,566

Total Expendituresl11 $14,799,925 $15,956,917 $15,555,576 $17,528,466 $17,030,684

Excess of Revenue Over Expenditures $2,503,602 $2,681,792 $4,356,512 $4,244,458 $5,871,841

Other Financing Sources (Uses): Transfers in 352,587 296,779 297,171 250,160 208,116 Transfers out(2l (1,385,046) (2,754,656) (780,292) (3,359,501) (2,610,023)

Net Other Fmancmg Sources (Uses) (1,032,459) (2,457,877) (483,121) (3,109,341) (2,401,907)

Net Change m Fund Balances 1,471,143 223,915 3,873,391 1,135,117 $3,469,934

Fund Balance Beginning of Fiscal Year $8,939,003 $10,410,146 $10,634,061 $14,507,452 $15,115,503

Fund Balance End of Fiscal Year $10,410,146 $10,634,061 $14,507,452 $15,642,569 $19,112,503

(1) Expenditures have increased by 4% on average each year, with the following one-time payments accounting for the large variances • Fiscal Year 2012-13 includes a $1. 1 million retrospective general liability payment (10-year lookback) • Fiscal Year 2014-15 includes a $1 million prepayment to the City's Miscellaneous Tier 1 Side Fund • Fiscal Year 2014-15 also includes a $575,000 one-time contribution for the Pismo Preserve

(2) Transfers out consist of transfers to the Motor Vehicle Replacement Fund to prefund future vehicle purchases, transfers to the Pier Enterprise Fund for operations, and transfers to various funds for capital projects Source: City's Audited Financial Statements

35


HISTORICAL GENERAL FUND DATA FISCAL YEARS 2011-2012 THROUGH 2015-16

BALANCE SHEET

Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2011-12 2012-13 2013-14 2014-15 2015-16

Assets: Cash and Cash Investments $9,762,230 $9,459,636 $15,098,803 $15,805,255 $19,042,046 Taxes Receivable 1,463,183 1,732,299 1,261,576 1,309,666 1,970,912 Accounts Receivable 194,609 259,390 102,575 265,032 109,922 Due from Other Goverrunents 351,339 153,654 10,051 Accrued Interest Receivable 3,850 2,549 3,609 4,180 10,999 Prepayments 462,005 965,312 96,011 37,096 91,815

Total Assets $12,237,216 $12,419,186 $16,716,228 17,431,280 $21,225,694

Liabilities: Accounts Payable $240,497 $439,509 $472,672 $336,421 $467,494 Accrued Liabilities 665,975 841,658 967,314 787,893 759,973 Deposits 302,259 236,958 501,790 664,397 866,863 Deferred Revenue 618,339 267,000 267,000 18,861

Total Liabilities 1,827,070 1,785,125 2,208,776 1,788,711 2,113,191

Fund Balance: Nonspendable 462,005 965,312 88,805 37,096 37,292 Committed for

Debt Semce 1,000,000 Capital Projects 204,139 City Facility Reserve 141,756 500,000 General Fund ReserveliJ 4,450,695 3,366,100 3,548,569 4,033,000 4,456,101 Capital Project Reserve 3,214,468 2,736,964 4,994,180 4,125,692 8,570,409 Risk Management Reserve 50,000 100,000 150,000

Unassignedi21 2,141,222 3,361,546 4,825,898 7,346,781 5,398,701

Total Fund Balances 10,410,146 10,634,061 14,507,452 15,642,569 19,112,503

Total Liabilities and Fund Balance $12,237,216 $12,419,186 $16,716,228 $17,431,280 $21,225,694

(1) The General Fund ReseIVe represents 20% to 23% of the General Fund operating budget and can be used for emergencies, economic downturns, decreased revenues, capital acquisitions and cash flow needs, and emergent opportunities. This reseIVe has grown to 24% in the Fiscal Year 2016-17 and is scheduled to increase to 25% of General Fund operating budget expenditures and remain at that level per policy

(2) The Unassigned Fund Balance are funds available for any lawful purpose as budgeted by the City Council. These funds are accumulated fund balances from operational savings that are used to support one-time investments. In Fiscal Year 2016-17, the City is projecting that the unassigned fund balance will grow to $6.9 million. The City Council has directed staff to set-aside $1.0 million of these funds to pre-fund impacts in the event of a mild recession and another $1.0 million to pre-fund the CalPERS discount rate impact over the next 5 years

Source: City's Audited Financial Statements

36

Relevant Fiscal Policies

The City has adopted a comprehensive set of fiscal policies to provide guidance for all fiscal activities and resource allocation decisions as defined in the Adopted Budget. The policies set forth guidelines for both current activities and long range planning. In addition, the City Council approved or adopted several other fiscal policies including:

• City's Investment Policy, adopted most recently in August 2016.

• Adopted an ordinance to amend the City's Municipal Code to add details on committed fund balances, including the General Fund Reserve, the General Fund City Facility Reserve, and the Risk Management Reserve policies in April 2015.

• Capital Assets Policies and Procedures, effective on July 1, 2014 as part of the City's Purchasing Policy.

• Debt Management Policy adopted March 21, 2017.

The following are certain highlighted aspects of the adopted policies.

General Fund Reserve: Goal is to establish and maintain a General Fund reserve of25% of budgeted expenditures in the General Fund, ramping up from 20% to 25% over 5 years. For Fiscal Year 2015-16 the City maintained a General Fund reserve of 23% of budgeted operating expenditures and did not use any of these reserves.

Risk Management Reserve: Goal is to establish and maintain a Risk Management Reserve to be used for unanticipated risk management costs, funded with $50 thousand per year, up to $250,000. The City maintained a reserve of $150 thousand in Fiscal Year 2015-16 and did not use any of these reserves.

Cash Management. The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal agents under provisions of bond indentures, trust agreements, or similar obligations. Interest income earned on pooled cash and investments is allocated monthly to the various funds based on monthly cash and investment balances. Interest Income from cash and investments with fiscal agents is credited directly to the related fund.

The City's investment policy is designed to maximize the productive use of assets entrusted to its care and to invest and manage those funds wisely and prudently. Criteria for selecting investments and the order of priority are: (1) safety, (2) liquidity and (3) yield. The basic premise underlying the City's investment policy is to ensure that money is always available when needed while at the same time reaping the highest and best return. Accordingly, deposits were either insured by federal depository insurance or collateralized.

Debt Management: The City annually considers reduction of long-term debt as a use of revenues. In Fiscal Year 2013-14, the City Council established a $1 million Debt/Pension Reduction reserve to consider reduction of long-term debt or pension liability. The Debt/Pension Reduction Reserve was made up of onetime savings from prior year expenditures and additional unanticipated revenues. A large portion of the onetime savings came from salary and benefit savings due to vacancies. Based on a reduced payroll, the contributions to the CalPERS pension costs were less in previous years and have not reduced the pension liability balance as much as anticipated. Contributing this Reserve to reducing the CalPERS pension liability uses prior year personnel savings and pays off the personnel unfunded liability costs. On March 17, 2015, the

37

City Council approved a $1 million payment to CalPERS to reduce the City's unfunded pension liability costs. This payment reduces the City's unfunded pension costs by an estimated $670 thousand and reduces the annual ongoing contribution of approximately $200 thousand per year to CalPERS starting in FISCAL YEAR 2018-19.

Debt Management Policy. The City's Debt Management Policy sets forth parameters for issuing debt and managing the City's debt portfolio and generally sets forth the following: (i) the purposes for which the debt proceeds may be used, (ii) the types of debt that may be issued, (iii) the relationship of the debt to, and integration with, the issuer's capital improvement program or budget, if applicable, (iv) policy goals related to the City's planning goals and objectives, and (v) the internal control procedures that the City has implemented, or will implement, to ensure that the proceeds of the proposed debt issuance will be directed to the intended use. This policy will also assist the City in pursuing and maintaining quality credit ratings in addition to providing guidance to decision makers.

Infrastructure: The General Fund contributes annually for the improvement of City infrastructure. In Fiscal Year 2015-16 the City contributed to various infrastructure improvements, including: street paving; purchasing land for parking on Shell Beach Road; City Hall improvements; and Shell Beach tennis court improvements.

Economic Development: The City seeks to promote and achieve organized, sustainable community development for the citizens of the City by providing a diverse economic base while preserving scenic beauty, small town charm, and historical assets. The City contributed various funds in Fiscal Year 2015-16 for the implementation of the Downtown Strategic Plan; the Price House Historical Park improvements; the Shell Beach Streetscape Phase 1 project; and a parking lot improvements to Dinosaur Caves Park.

City Investment Policy. The City invests its funds in accordance with the City's Investment Policy, which was last adopted by the City Council on January 17, 2017 in accordance with Section 53600 et seq. of the State Government Code. Idle cash management and investment transactions are the responsibility of the City Treasurer. The Investment Policy sets forth the policies and procedures applicable to the investment of City funds and designates eligible investments. The Investment Policy's stated overarching purpose is to (i) ensure that public funds are invested in such a manner as to comply with state and local laws; (ii) ensure prudent money management; (iii) provide for daily cash flow requirements; and (iv) meet the objectives of the Investment Policy (per California Government Code Section 53600.5) in the following order of priority:

1. Safety of Principal: Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, the City will diversify its investments by investing funds among a variety of securities with independent returns.

2. Liquidity: The City's investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated.

3. Return on Investments: The City's investment portfolio shall have the objective of attaining a comparative performance measurement or an acceptable rate of return throughout budgetary and economic cycles. These measurements should be commensurate with the City's investment risk constraints identified in the Investment Policy and the cash flow characteristics of the portfolio.

38

At June 30, 2016, the City held cash of $4,850,744 and investments of $42,070,093, for total cash and investments of $46,920,837.

The following is a summary of the fair value measurements as of June 30, 2016:

Investments classified by fair value hierarchy Negotiable certificates of deposit US Govermnent Agency Obligations Corporate bonds

Total investments by fair value hierarchy

Investments not subject to fair value hierarchy State Local Agency Investment Fund

Total investments not subject to fair value hierarchy

Total investments measured at fair value

Fair Value

$10,052,815 6,006,986 1,533,205

$17,593,006

$24,477,087 $24,477,087

$42,070,093

At June 30, 2016, credit risk ratings were as follows for the City's investments:

State Local Agency Investment Fund (LAIF) Negotiable certificates of deposit US Govermnent Agency Obligations Non-US corporate bonds US corporate bonds

Total investments

Rating

Unrated Unrated

Aaa AAAA+

Fair Value

$24,477,087 10,052,815 6,006,986 1,017,680

515,525

$42,070,093

See Note 2 to the audited financial statements set forth in Appendix B for further information with respect to the City's investment policies and investments as of June 30, 2016.

Risk Management

Self-Insurance. The City is exposed to various risks ofloss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the City carries insurance. The City, due to the costs of available coverage, participated as a member in the Central Coast Cities SelfInsurance Fund (CCCSIF) through June 30, 2003 for general liability insurance and through June 30, 2004 for workers compensation insurance. Thereafter, the City joined the California Joint Powers Insurance Authority (California JPIA). The California JPIA provides general liability insurance to the City with a $50 million per occurrence and $50 million per year aggregate limit and workers compensation insurance with statutory benefits and $10 million employer's liability coverage. The risk of loss is transferred to the California JPIA. The City is subject to retrospective premium adjustments under the arrangement. Claims liabilities in the govermnental funds are generally liquidated by the General Fund.

39

The City is responsible for payment of its respective claims that were outstanding with the CCCSIF at the time the City elected to insure with the California JPIA. The uninsured risk for these claims, referred to as tail-end claims, retained by the City was $300,000 per incident for workers compensation claims, $50,000 per incident for general liability claims, and $5,000 per property damage claim. The CCCSIF periodically obtains actuarial studies and valuations of the tail-end claim liabilities, and the City reports such estimated amounts payable as claim liabilities in the statement of net position.

Liabilities of the City are reported in the statement of net position for the governmental activities when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines, and damage awards. Accordingly, claims are reevaluated periodically to consider the effects of inflation, recent claim settlement trends (including frequency and amount of pay-outs), and other economic and social factors.

The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether allocated to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate. Settlements have not exceeded coverage for each of the past three fiscal years.

Self-Insurance activity as of and for the year ended June 30, 2016 is summarized as follows:

Interest earnings Claims expense

Estimated liability for reported claims and settlement expenses Assets on deposit

Estimated unpaid claims asset at June 30, 2016

$ 564 $ (21,101)

$ (127,750) 130,394

$ 2,644

Changes in the balances of claims liabilities during the past two fiscal years were as follows:

Estimated unpaid claims liabilities at June 30, 2014 Claim payments and related expenditures reimbursement Change in estimated claims liability for year ended June 30, 2015 Interest earnings Deposits Estimated unpaid claims liabilities at June 30, 2015 Claim payments and related expenditures reimbursement Change in estimated claims liability for year ended June 30, 2016 Interest earnings

Estimated unpaid claims asset at June 30, 2016

40

$ (199,209) (25,619) 13,109

450 161,488 (49,781) (21,101) 72,962

564

$ 2,644

Employee Retirement System; Ca!PERS.

The following information relating to the California Public Employees Retirement System ('Ca/PERS') is primarily derived from information produced by Ca/PERS, its independent accountants and actuaries, as interpreted by the City and its Auditor. The City and the Agency have not independently verified the information provided by Ca/PERS and make no representations nor express any opinion as to the accuracy oft he information provided by Ca/PERS. The comprehensive annual financial reports of Ca/PERS are available on its Internet website at www.calpers.ca.gov. The Ca/PERS website also contains Ca/PERS' most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference herein. None of the City the Agency nor the Underwriter can guarantee the accuracy of such information.

Actuarial assessments are forward-looking statements that reflect the ;udgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans.

Plan Description. The City contributes to the California Public Employees' Retirement System ("CalPERS"), a cost sharing multiple-employer public employee defined benefit pension plan. All qualified permanent and probationary employees are eligible to participate in the City's separate Safety (police and fire) and Miscellaneous (all other) Employee Pension Plans (the "Pension Plans").

CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State, including the City. Benefit provisions under the Pension Plans are established pursuant to State statute and City ordinance. CalPERS issues publicly available financial reports that include the financial statements and required supplementary information for the CalPERS. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Copies of CalPERS' annual financial report may be obtained from its executive office located at 400 Q Street, Sacramento, California 95811, or via http://www.calpers.ca.gov.

The City participates in the Safety and Miscellaneous CalPERS cost sharing multiple-employer plans. The Safety plans consists of Fire Tier l; Fire Tier 2; Police Tier 1, Police Tier 2, and Police PEPRA. The Miscellaneous plans consist of Tier 1, Tier 2 and PEPRA.

Benefits Provided. Cal PERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law.

While the City's Safety and Miscellaneous plan are not closed to new entrants, the component option of Safety Fire Tier 1, Safety Police Tier 1, and Miscellaneous Tier 1 are closed to new entrants. Classic members, as defined by CalPERS, entering the City's plans would enter the Tier 2 plans, and New Members, as defined by CalPERS, would enter the PEPRA plans.

41

http://www.calpers.ca.gov

http://www.calpers.ca.gov

The Pension Plans' provisions and benefits of each Pension Plan that in effect at June 30, 2016, are sununarized as follows:

H!fe Date

Benefit formula Benefit vestmg schedule Benefit payments Retirement age Monthly benefits, as a % of ehg1ble compensat10n Required employee contribution rates Required employer contribution rates

excludes employer share paid by employee Final average compensation period

Source: City's 2015-16 Audited Financial Statements.

H!fe Date

Benefit formula Benefit vestmg schedule Benefit payments Retirement age Monthly benefits, as a % of ehg1ble compensat10n Required employee contribution rates Required employer contribution rates



H!fe Date

Benefit formula Benefit vestmg schedule Benefit payments Retirement age Monthly benefits, as a % of ehg1ble compensation Required employee contribution rates Required employer contribution rates Final average compensation period


Tier 1 Prior to

January 1, 2013

2.5%@55 5 years service

monthly for hfe 50 - 55

20%to27%

8% 9.671 %

0.00%

Smgle Highest Year

Tier 1 Prior to

January 1, 2013



3.0%

12%

18.524%

-3.00%

Smgle Highest Year

MISCELLANEOUS

Tier2 On or after

December 17, 2012

20%@60 5 years service


10%to 2 0%

8% 6.710%

-100%

3-Year Average

SAFETY - POLICE

Tier2 On or after

December 17, 2012

3 0%@55 5 years service


3.0%

12%

15.630%

-3 00%

3-Year Average

SAFETY - FIRE

Tier 1 Prior to

January 1, 2013



20%

9% 13.813%

3-Year Average

42

PEPRA On or after

January 1, 2013



2 0% to 2.7%

9% 11500%

3-Year Average

PEPRA On or after

January 1, 2013



1.0% to 2.5%

8% 6.240%

-175%

3-Year Average

PEPRA On or after

January 1, 2013



2 0% to 2.7%

12%

11 150%

-0.50%

3-Year Average

Contributions. Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Pension Plans are determined annually on an actuarial basis as of June 30 by CalPERS.

The City is required to contribute at an actuarially determined rate of annual covered payroll, plus a fixed payment of unfunded liability. The actuarially determined rates and amounts for each Pension Plan for the fiscal years ended June 30, 2017 and June 30, 2018, are as follows:

CITY'S REQUIRED EMPLOYER CONTRIBUTION RA TES & PAYMENTS

Fiscal Year2016-17 Fiscal Year 2017-18 Employer Employer Employer Employer

Employer Normal Payment of Employer Normal Payment of Normal Cost Unfunded Normal Cost Unfunded

Pension Plan Cost Rate Payment Liability Cost Rate Payment Liability

Miscellaneous 10.11% $404,256 $ 528,079 10.11% $355,412 $600,952 Miscellaneous - PEPRA 6.56% 20,179 $11 6.53% 43,488 $70 Safety (Police) - Tier 1 19.54% 339,428 681,905 19.72% 255,342 752,693 Safety (Police) - Tier 2 16.66% 25,435 0 16.84% 29,381 0 Safety (Police) - PEPRA 1208% 33,547 62 11.99% 61,400 229 Safety (Fire) 14.79% 11,199 93,807 14.97% 6,847 104,291 Safety (Fire) - PEPRA 1208% 2,971 9 11.99% 10,621 30 Totals $837,051 $1,303,874 $762,479 $1,458,265

Source: Ca/PERS Annual Valuation Report as of June 30, 2015.

Funding History. The funding history for the Miscellaneous Tier 1 Pension Plan, the Safety (Police) Tier 1 Pension Plan and the Safety (Fire) Tier 1 Pension Plan is shown in the tables below, listing for each plan the actuarial accrued liability, share of the pool's market value of assets, share of the pool's unfunded liability, funded ratio, and annual covered payroll.

MISCELLANEOUS PLAN - TIER I

Share of Pool's Plan's Share Accrued Market Value of Pool's Annual

Valuation Liability of Assets Unfunded Funded Covered Date (AL) (MVA) Liability Ratio Payroll

06/30/11 $21,976,143 $15,491,040 $6,485,103 70.5% $4,542,331 06/30/12 23,619,753 15,779,479 7,840,274 66.8% 4,276,736 06/30/13 25,436,005 18,124,907 7,311,098 71.3% 3,900,481 06/30/14 28,242,498 21,370,780 6,871,718 75.7% 3,674,045 06/30/15 29,310,078 22,270,357 7,039,721 76.0% 3,217,138


43

SAFETY (POLICE) - TIER 1



06/30/11 $19,041,451 $12,953,138 $6,088,313 68.0% $1,963,553 06/30/12 20,079,863 13,021,001 7,058,862 64.9% 2,034,390 06/30/13 20,673,213 14,337,340 6,335,873 69.4% 1,810,388 06/30/14 22,779,865 16,951,477 5,828,388 74.4% 1,590,046 06/30/15 24,456,325 17,848,520 6,607,805 73.0% 1,184,781


SAFETY (FIRE) - TIER 1



06/30/11 $2,767,759 $1,947,941 $819,818 70.4% $152,140 06/30/12 2,956,392 2,008,531 947,861 67.9% 167,985 06/30/13 3,102,695 2,262,870 839,825 72.9% 63,567 06/30/14 3,379,984 2,602,066 777,918 77.0% 69,317 06/30/15 3,627,328 2,703,139 924,189 74.5% 41,853


Pension Liabilities, Pension Expenses and Deferred Ouiflows/Injlows of Resources Related to Pensions. As of June 30, 2016, the City reported net pension liabilities for its proportionate shares of the net pension liability of each Pension Plan as follows:

Plan's Proportionate Share of the Net Pension Liability

Miscellaneous

$ 6,684,633

Safety Total

$ 7,337,921 $ 14,022,554

The City's net position liability for each Plan is measured as the proportionate share of the net pension liability. The net pension liability of each of the Plans is measured as of June 30, 2015, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2014 rolled forward to June 30, 2015 using standard update procedures.

The City's proportion of the net pension liability was based on a projection of the City's long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The City's proportionate share of the net pension liability for each Plan as of June 30, 2014 and 2015 was as follows:

44

Proportionate share Percentage share at 6/30/2014 Percentage share at 6/30/2015 Change - Increase/(Decrease)

Miscellaneous 0.25233% 0.24366% -0.00867%

Safety 0.18584% 0.17809% -0.00775%

For the year ended June 30, 2016, the City recognized pension expense of $1,141,578. At June 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Pension contributions subsequent to measurement date

Differences between actual and expected experience Changes in assumptions Change in employer1s proportion and differences between the employer1s contributions and the employer1s proportionate share of contributions Net differences between projected and actual earnings on pension plan investments Adjustment due to difference m proportions

Total

All Pension Plans Deferred Outflows

of Resources

$1,787,700

45,852

187,855

898,498

$2,919,905

Deferred Inflows of Resources

$

(90,399) (849,583)

(62,043)

(428,192)

$(1,430,217)

Pension contributions subsequent to the measurement dates of $1,787,700 are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

All Pension Plans Measurement Period

Ended June 30 2016 2017 2018 2019 Total

Amount $ (246,187)

(262,390) (326,087)

536,652 $ (298,012)

Actuarial Assumptions. Actuarial calculations are based on a number of assumptions about longterm demographic and economic behavior. Unless these assumptions (terminations, deaths, disabilities, retirements, salary growth, and investment return) are exactly realized each year, there will be differences on a year-to-year basis. The year-to-year differences between actual experience and the assumptions are called actuarial gains and losses and serve to lower or raise required employer contributions from one year to the next. Therefore, employer contributions will inevitably fluctuate, especially due to the ups and downs of investment returns.

The total pension liabilities in the June 30, 2014 actuarial valuations were determined using the following actuarial assumptions:

45

Valuation Date Measurement Date Actuarial Cost Method Discount Rate Inflation Salary Increases Post Retirement Benefit Increase Mortality

All Pension Plans June 30, 2014 June 30, 2015

Entry-Age Normal Cost Method 7.65% 2.75%

Varies by Entry Age and Service (I) (2) (3)

(1) Dependmg on age, semce, and type of employment (2) Contract COLA up to 2. 75% until Purchasmg Power Protection

Allowance Floor on Purchasmg Power applies, 2.75% thereafter (3) Denved usmg CalPERS' Membership Data for all Funds

The mortality table used was developed based on CalPERS' specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. All other actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period from 1997 to 2011, including updates to salary increase, mortality and retirement rates. More information on this table and assumptions can be found in the Experience Study report on CalPERS' website under Forms and Publications.

Change in Assumptions. According to Paragraph 68 of GASB 68, the long-term expected rate of return should be determined net of pension plan investment expense but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of7.65% used for the June 30, 2015 measurement date is without reduction of pension plan administrative expense.

Discount Rate. The discount rate used to measure the total pension liability was 7.65% for each Pension Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would mostly likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans ran out of assets. Therefore, the current 7.65% discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of7.65% will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website.

The long-term expected rate of return on pension plan investments was determined using a buildingblock method in which best-estimate ranges of expected future real rates of return ( expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate

46

of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses.

New Strategic

Asset Class Allocation Global Equity 51.00% Global Fixed Income 19.00% Inflation Sensitive 6.00% Private Equity 10.00% Real Estate 10.00% Liquidity 2.00% Other 2.00%

Total 100.00%

(a) An expected inflation of2.5% used for this period. (b) An expected inflation of3.0% used for this period.

All Pension Plans

Real Return Real Return Years 1 - 10 (a) Years 11+ (b)

5.25% 5.71% 0.99% 2.43% 0.45% 3.36% 6.83% 6.95% 4.50% 5.13% 4.50% 5.09% -0.55% -1.05%

Discount Rate Being Lowered Over Next 3 Years. At the December 21, 2016, meeting, the CalPERS Board of Administration approved lowering the CalPERS discount rate assumption, the long-term rate of return, from 7.50 percent to 7.00 percent over the next three years. This will increase public agency employer contribution costs beginning in Fiscal Year 2018-19. The phase-in of the discount rate change approved by the CalPERS Board for the next three Fiscal Years is as follows:

Valuation Date June 30, 2016 June 30, 2017 June 30, 2018

Fiscal Year for Required

Contribution 2018-19 2019-20 2020-21

Discount Rate 7.375% 7.25% 7.00%

Lowering the discount rate means plans will see increases in both the normal costs and the accrued liabilities. These increases will result in higher required employer contributions. In addition, active members hired after January 1, 2013, under the Public Employees' Pension Reform Act (PEPRA) may also see their contribution rates rise.

Employer contribution increases as a result of the discount rate changes are estimated below by Normal Cost and required Unfunded Accrued Liability (UAL) payment. The Total Employer Contribution is the sum of the Normal Cost Rate applied to reported payroll plus the UAL payment. The Normal Cost portion of the Employer Contribution is expected to increase by the listed percentages of payroll. Increases to the UAL payments are provided as relative increases to be applied to the projected UAL payments in the June 30, 2015, valuation report.

The changes to the UAL due to changes of actuarial assumptions are amortized over a fixed 20-year period with a 5-year ramp up at the beginning and a 5-year ramp down at the end of the amortization period.

47

The 5-yearramp up means that the payments in the first four years of the amortization schedule are 20 percent, 40 percent, 60 percent and 80 percent of the ultimate payment, which begins in year five. The 5-year ramp down means that the reverse is true and the payments in the final four years are ramped down by the above percentages. A new ramp is established with each change to the discount rate. There will be three ramps established in the first three years. As a result of the 5-year ramp up and effective date of the increase, it will be seven years until the full impact of the discount rate change is completely phased in.

As one of the City's fiscal policies to annually consider reduction of long-term debt as a use of revenues, the City Council established a Debt/Pension Reduction Reserve of $1 million. This $1 million came from personnel cost savings accumulated in the General Fund unassigned fund balance over a few years due to staff vacancies and attrition. Staff reviewed all outstanding General Fund debt and determined that the best fiscal benefit to the City was to apply the $1 million to the CalPERS Miscellaneous Tier 1 Side Fund (the "Side Fund"). The City estimates that this prepayment will save $671 thousand in interest costs, and a reduction of approximately $200 thousand per year starting in Fiscal Year 2017-18 through Fiscal Year 2026-27 at the end of the original amortization period.

CalPERS discount rate change from 7.5 % to 7.0% impacts the City beginning in Fiscal Year 2018-19. After considering both of these changes (reducing the City's Side Fund obligation and the reduction of the CalPERS discount rate), the net fiscal impact to the City's General Fund is estimated to be an additional $50 thousand in Fiscal Year 2018-19, a net reduction of $187 thousand in Fiscal Year 2019-20, an additional $386 thousand in Fiscal Year 2020-21, and an additional $224 thousand in Fiscal Year 2021-22, for an average additional cost of $113 thousand per year for the next 4 years. Staff prepares a 5-year budget projection and anticipates that these costs and other budgeted expenditures can be managed to be supported by current ongoing revenues with no drastic changes in operations.

Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the City's proportionate share of the net pension liability for each Plan, calculated using the discount rate for each Plan, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate:

Miscellaneous Safe!_r 1 % Decrease 6.65% 6.65% Net Pension Liability $ 11,210,596 $ 11,765,208

Current Di<::count Rate 7.65% 7.65% Net Pension Liability $ 6,684,633 $ 7,337,921

1 % Increase 8.65% 8.65% Net Pension Liability $ 2,947,925 $ 3,707,628

Asset Volatility Ratio (AVR). Plans that have higher asset-to-payroll ratios experience more volatile employer contributions (as a percentage of payroll) due to investment return. For example, a plan with an asset-to-payroll ratio of8 may experience twice the contribution volatility due to investment return volatility, than a plan with an asset-to-payroll ratio of 4. Shown below is the asset volatility ratio, a measure of the plan's current contribution volatility. It should be noted that this ratio is a measure of the current situation. It increases over time but generally tends to stabilize as the plan matures.

48

Liability Volatility Ratio (LVR). Plans that have higher liability-to-payroll ratios experience more volatile employer contributions ( as a percentage of payroll) due to investment return and changes in liability. For example, a plan with a liability-to-payroll ratio of 8 is expected to have twice the contribution volatility of a plan with a liability-to-payroll ratio of 4. The liability volatility ratio is also shown in the table below. It should be noted that this ratio indicates a longer-term potential for contribution volatility. The asset volatility ratio, described above, will tend to move closer to the liability volatility ratio as the plan matures.

Rate Volatility

I. Market Value of Assets 2. Payroll 3. Asset Volatility Ratio (AVR) [(I)/ (2)] 4. Accrued Liability 5. Liability Volatility Ratio (L VR) [( 4) I (2)]

Miscellaneous Plan-Tier 1'

$22,270,357 3,217,138

6.9 $29,310,078

9.1

Source: Ca/PERS Annual Valuation Report as of June 30, 2015. *As of June 30, 2015

Other Post-Employment Benefits ("OPEB")

Safety PlanPolice-Tier 1'

$17,848,520 1,184,781

15.1 24,456,325

20.6

Safety PlanFire-Tier 1'

$2,703,139 41,853

64.6 3,627,328

86.7

Plan Description. The City administers the City's Retired Employees Healthcare Plan (the Plan), a single employer defined benefit healthcare plan. The Plan provides medical insurance benefits to eligible retirees and their spouses. City resolutions and agreements assign the authority to establish and amend benefit provisions to the City. Separate financial statements of the Plan are not issued by the City. A separate OPEB trust has been established by the City. The City's Comprehensive Annual Financial Report for the fiscal year ended June 30, 2015, and in particular Note ?thereto, includes information about the City's postemployment healthcare liabilities and funding.

Funding Policy. The contribution requirements of Plan members and the City are established by and may be amended by the City. The required contribution is based on projected pay-as-you-go financing requirements, with additional amounts to prefund benefits as determined annually by the City Council. For the year ended June 30, 2016, the City contributed $162,005 for current year premiums (100% of total premiums) and $234,000 to prefund benefits and pay down a portion of the implied subsidy. Plan members receiving benefits contributed no amounts of the total premiums.

Annual OPEB Cost and Net OPEB Obligation (Asset). The City's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years.

The following table shows components of the City's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the City's net OPEB obligation (asset):

49

Annual required contribution ( ARC) $ 372,000 Interest on net OPEB obligation (1,000) Adjustment to annual required contributions Annual OPEB cost 371,000 Contributions made (325,000)

Change in net OPEB obligation 46,000 Net OPEB asset, beginning of year (8,000)

Net OPEB obligation, end of year $ 38,000

The City's annual OPEB cost, the percentage of the annual OPEB cost contributed to the Plan, and the net OPEB obligation (asset) for the last three years were as follows:

Annual % of Annual NetOPEB OPEB Actual OPEB Cost Obligation

Fiscal Year Cost Contributions Contributed (Asset)

6130/2016 $ 371,000 $ 325,000 87.6% $ 38,000 6/30/2015 $ 359,000 $ 323,000 900% $ (8,000)

6/30/2014 $ 213,000 $ 234,000 109.9% $ (44,000)

Funding Status and Funding Progress. The funded status of the Plan as of June 30, 2015, the Plan's most recent actuarial valuation, was as follows:

Actuarial accrued liability Actuarial value of plan assets Unfunded actuarial accrued liability (UAAL) Funded ratio Covered payroll UAAL as a percentage of covered payroll

$ 4,336,000 1,573,000

$ 2,763,000 36.28%

$ 5,967,000

46.30%

Actuarial valuations of an ongoing plan involve estimates of the reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the health care cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information, following the notes to the financial statements, presents multiyeartrend information about whether the actuarial value of Plan assets is increasing or decreasing over time relative to actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions. Projection of benefits for financial reporting purposes are based on the substantive Plan (the Plan as understood by the employer and the Plan members) includes the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and Plan members to that point The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial liabilities and the actuarial value of plan assets, consistent with the long-term perspective of the calculations.

50

In the June 30, 2015 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions included a 6.75% investment rate of return which is a blended rate of the expected longterm invested returns on plan assets and on the employers own investments calculated based on the funded level of the plan at the valuation date, a general inflation rate of3%, and an armual health care cost trend of 7.5 to 7.8% initially, reduced to an ultimate rate of 5% after eight years. The UAAL is being amortized as a level percentage of projected payroll over 24 years, the remaining amortization period as of June 30, 2016. The amortization period is closed.


51

OVERLAPPING DEBT OF THE CITY

Direct and Overlapping Bonded Debt

The following Table 11 sets forth the statement of the City's direct and overlapping bonded indebtedness, as of April 1, 2017, and as prepared by California Municipal Statistics, Inc., Oakland, California (the "Debt Report"). The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long-term obligations issued by public agency are payable only from the general fund or other revenues of such public agency.



DIRECT AND OVERLAPPING BONDED DEBT

2016-17 Assessed Valuation: $2,978,208,468

OVERLAPPING TAX AND ASSESSMENT DEBT San Luis Obispo County Flood Control and Water Conservation District, Zone No. 3 San Luis Obispo Community College District Lucia Mar Unified School District San Luis Coastal Unified School District TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT

DIRECT AND OVERLAPPING GENERAL FUND DEBT San Luis Obispo County Certificates of Participation San Luis Obispo County Pension Obligation Bonds San Luis Obispo Community College District Certificates of Participation Lucia Mar Unified School District Certificates of Participation City of Pismo Beach General Fund Obligations<1J

TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT

COMBINED TOTAL DEBT

% Applicable 32.701 %

6.169 18.117 3.606

6.193% 6.193 6.169

18.117 100.000

Debt 4/1/17 $ 2,730,534

4,139,091 10,632,589

1 650 647 $19,152,861

$ 1,584,789 5,823,241

445,402 1,400,444 2,715,000

$11,968,876

$31,121,737(1)

(1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.

Ratios to 2016-17 Assessed Valuation: Total Overlapping Tax and Assessment Debt ....................... 0.64% Total Direct Debt ($2,715,000) ........................................... 0.09% Combined Total Debt ............................................................ 1. 04 %

(1) This obligation was prepaid in full on March 28, 2017, and is considered legally defeased and no longer outstanding llllder the pertinent issuance documents. Source: CaliforniaMW1icipal Statistics Inc.

52

BOND OWNERS' RISKS

The purchase of the Bonds involves investment risk. The following risk factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating the purchase of the Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations that may be relevant to an investment in the Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks.

Future Financial Condition

No representation is made as to the future financial condition of the City. Payment of the Base Rental Payments is a general fund obligation of the City and the ability of the City to make Base Rental Payments may be adversely affected by its financial condition as of any particular time. For example, weakness in the economy of the State and the United States could cause the general revenues of the City to decline. Such financial conditions may have a detrimental impact on the City's General Fund, and, accordingly, may reduce the City's ability to make Rental Payments. See the caption "CITY FINANCIAL INFORMATION" herein.

In addition, City expenses could also rise as a result of unforeseen events, including but not limited to increases in pension obligations. Such a determination could require the City to make payments from the General Fund that were expected to be funded from other sources, or cause moneys received from other sources to be lower than budgeted.

Additional Obligations of the City

The City has a significant amount of obligations payable from its General Fund, including but not limited to debt obligations, pension obligations, lease obligations and other obligations related to post employment retirement benefits as well as certain other liabilities. The Lease and Indenture provide for the issuance of Additional Bonds under certain enumerated conditions, and do not prohibit the City from incurring additional lease and other obligations payable from the City's General Fund. In that regard, the City from time to time incurs various General Fund obligations to finance public improvements, which may also include lease obligations payable from its General Fund. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. In the event that the City's revenue sources are less than its total obligations, the City could choose to fund other activities before making Base Rental Payments and other payments due under the Lease.

Substitution or Release of Leased Facilities; Additional Bonds

The Agency and the City may amend the Lease: (a) to substitute alternate real property for any portion of the Leased Facilities; or (b) to release a portion of the Leased Facilities from the Lease, upon compliance with certain conditions set forth in the Lease. After a substitution or release, the portion of the Leased Facilities for which the substitution or release has been effected will be released from the subleasehold encumbrance of the Lease. Moreover, the Agency may issue Additional Bonds secured by Revenues which are increased from current levels. See the captions "THE LEASED FACILITIES - Substitution or Release of Leased Facilities" and "SECURITY FOR THE BONDS - Additional Bonds" herein

53

The Lease requires, among other things, that the Base Rental Payments during each Rental Period do not exceed the annual fair rental value of the Leased Facilities, as constituted after such substitution or release. Thus, a portion of the Leased Facilities could be replaced with less valuable real property, or could be released altogether. Such a replacement or release could have an adverse impact on the security for the Bonds, particularly if an event requiring abatement of Base Rental Payments were to occur subsequent to such substitution or release.

The Indenture requires, among other things, that upon the issuance of Additional Bonds, the Lease will be amended, to the extent necessary, so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds; provided, however, the additional amounts of rental may not cause the total rental payments made by the City under the Lease to exceed the fair rental value of the Leased Facilities. See the caption "SECURITY FOR THE BONDS - Additional Bonds" for a full description of the requirements that must be met in order for the Agency to issue Additional Bonds.

Base Rental Payments Are Not Debt

The obligation of the City to make the Base Rental Payments under the Lease does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Bonds nor the obligation of the City to make Base Rental Payments constitute a debt of the City, the State of California or any political subdivision thereof ( other than the Agency) within the meaning of any constitutional or statutory debt limitation or restriction.

The Bonds are not general obligations of the Agency, but are limited obligations payable solely from and secured by a pledge of Revenues and amounts held in the funds and accounts created under the Indenture, consisting primarily of Base Rental Payments. The Agency has no taxing power.

The Bonds are being issued by the Agency pursuant to the Bond Law. The Supreme Court of the State in its 1998 decision of Rider v. City of San Diego, 18 Cal. 4th 1035, upheld the validity of ajointpowers agency financing and found that bonds issued pursuant to the Bond Law and payable from lease payments made pursuant to a lease with the City of San Diego were not subject to the State constitutional provisions that require two-thirds voter approval of indebtedness incurred by a city, county or school district. No voter approval of the Bonds or the Lease has been sought.

Although the Lease does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease to pay the Base Rental Payments from any source oflegally available funds and the City has covenanted in the Lease that, for so long as the Leased Facilities are available for its use, it will make the necessary annual appropriations within its budget for the Base Rental Payments. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have a priority over the Base Rental Payments, or which the City, in its discretion, may determine to pay prior to the Base Rental Payments.

The City has the capacity to enter into other obligations payable from the City's General Fund, without the consent of or prior notice to the Owners of the Bonds. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. In the event the City's revenue sources are less than its total obligations, the City could choose to fund other activities

54

before making Base Rental Payments and other payments due under the Lease. The same result could occur if state constitutional expenditure limitations were to prohibit the City from appropriating and spending all of its otherwise available revenues.

Abatement

In the event of loss or substantial interference in the use and possession by the City of all or any portion of the Leased Facilities caused by material damage, title defect, destruction to or condemnation of the Leased Facilities, Base Rental Payments will be subject to abatement. In the event that such component of the Leased Facilities, if damaged or destroyed by an insured casualty, could not be replaced during the period of time that proceeds of the City's rental interruption insurance will be available in lieu of Base Rental Payments, or in the event that casualty insurance proceeds or condemnation proceeds are insufficient to provide for complete repair or replacement of such component of the Leased Facilities or prepayment of the Bonds, there could be insufficient funds to make payments to Owners in full. Reduction in Base Rental Payments due to abatement as provided in the Lease does not constitute a default thereunder, and no remedy is available to the Bond Owners for nonpayment under such circumstances. See APPENDIX A -"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - The Lease - Abatement of Rental."

Risk of Uninsured Loss

The City covenants under the Lease to maintain certain insurance policies on the Leased Facilities. See "SECURITY FOR THE BONDS - Insurance" herein. These insurance policies do not cover all types of risk, and the City need not obtain insurance except as available on the open market from reputable insurers. For instance, the City does not covenant to maintain earthquake insurance. The Leased Facilities could be damaged or destroyed due to earthquake or other casualty for which the Leased Facilities is uninsured. Additionally, the Leased Facilities could be the subject of an eminent domain proceeding. Under these circumstances an abatement of Base Rental Payments could occur and could continue indefinitely. There can be no assurance that the providers of the City's liability and rental interruption insurance will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. Further, there can be no assurances that amounts received as proceeds from insurance or from condemnation of the Leased Facilities will be sufficient repair the Leased Facilities or to redeem the Bonds and any other obligations secured by Base Rental Payments.

Certain of the City's insurance policies provide for deductibles. Should the City be required to meet such deductible expenses, the availability of General Fund revenues to make Base Rental Payments may be correspondingly affected.

Accuracy of Assumptions

The City has made certain financial forecasts and assumptions with regard certain information provided in this Official Statement. The City believes these financial forecasts and assumptions to be reasonable, but variations in the any one of the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those forecasted and such variations may be material. Accordingly, such assumptions and projections are at best educated estimates, and are not in any way a guaranty of future performance, and the City assumes no responsibility for the accuracy of such financial forecasts and projections.

55

Eminent Domain

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

Hazardous Substances

The existence or discovery of hazardous materials may limit the beneficial use of the Leased Facilities. In general, the owners and lessees of the Leased Facilities may be required by law to remedy conditions of such parcel relating to release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or lessee is obligated to remedy a hazardous substance condition of the property whether or not the owner or lessee had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the City be affected by a hazardous substance, could be to reduce the marketability and value of such property by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller.

Further it is possible that the beneficial use of the Leased Facilities may be limited in the future resulting from the current existence on the Leased Facilities of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the Leased Facilities of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly limit the beneficial use of the Leased Facilities. The City has not independently verified, but is unaware of the existence of hazardous substances on the Leased Facilities site which would materially interfere with the beneficial use thereof.

Nuclear Power Plant

The Diab lo Canyon Power Plant (DCPP) is an electricity-generating nuclear power plant owned and operated by Pacific Gas and Electric Corporation (PG&E) and located on the Pacific Coast approximately 10 miles north of the City. DCPP began commercial operation in 1985. The plant is powered by two Westinghouse-designed 4-loop pressurized water reactors. The two reactors have a generation capacity of 2,300 megawatts and produce about 18,000 gigawatt hours of electricity annually. The two nuclear reactors

56

are currently licensed until 2024 and 2025, respectively, and PG&E has publicly announced that they will each be deconunissioned contemporaneously with license expiration. Spent nuclear fuel is stored on-site, and there are presently no operating facilities available in the United States for the reprocessing of nuclear fuel.

Risks associated with operating nuclear power plants such as DCPP include, among other things, the possibility that a nuclear power plant could experience a meltdown or be targeted for a terrorist attack, either of which might result in the release of radiation into the enviromnent. A meltdown is an accident in which severe overheating of the nuclear reactor results in the melting of the reactor's core. An uncontrolled release of radioactive material would have the potential to result in significant health and safety impacts to the City and surrounding area.

Since the March 1, 2011 earthquake and tsunami that damaged the Fukushima Dai-ichi nuclear facility in Japan, the U.S. Nuclear Regulatory Commission (NRC) established the Near-Term Task Force (NTTF) to conduct a systematic and methodical review ofNRC processes and regulations and determining if the agency should make additional improvements to its regulatory system. Ultimately, a comprehensive set of recommendations contained in a report to the NRC (dated July 12, 2011, SECY-11-0093 (Agency-wide Documents Access and Management System, Accession No. ML 111861807)) was developed using a defense-in-depth concept in which each level of defense-in-depth (namely prevention, mitigation, and emergency preparedness) is critically evaluated for its completeness and effectiveness in performing its safety function. The current regulatory approach, and the resultant plant capabilities, gave the NTTF and the NRC the confidence to conclude that an accident with consequences similar to the Fukushima accident is unlikely to occur in the United States (U.S.). The NRC concluded that continued plant operation and the continuation of licensing activities did not pose an inuninent risk to public health and safety.

While PG&E claims that the DCPP has been designed to withstand the impact a small plane crash, as well as the effects of natural phenomena such as earthquakes (up to a magnitude of 7.5), tomados, hurricanes, floods, tsunami and seiches, the City has not independently verified the safety or design standards of DCPP, and makes no assurances that a catastrophic natural or unnatural event in the future will not adversely affect the City and the associated ability of the City to make Base Rental Payments.

Closure of DCPP

PG&E has publicly armounced closure of DCPP after its current U.S. Nuclear Regulatory Commission operating licenses expire in November 2024 and August 2025. PG&E has also publicly stated that the power produced by DCPP's two nuclear reactors is expected to be replaced with investment in a greenhouse-gas-free portfolio of energy efficiency, renewables and energy storage. The proposal is contingent on a number of regulatory actions, including approvals from the California Public Utilities Conunission.

Based on preliminary research, the estimated cumulative impact during 2017 to 2025 on the City is approximately $867,000, of which approximately $839,000 impacts the General Fund and $28,000 impacts the Lodging Business Improvement District (LBID) Fund. According to the City, the ongoing impact is estimated to be a $228,000 (approximate) per year loss to the City, of which approximately $222,000 impacts the General Fund and approximately $6,000 is impacts the LBID Fund. There are many variables and assumptions associated with these fiscal impacts, which are likely to change. The largest components of this loss is to the City's unitary property tax revenues and to the TOT and LBID Assessment revenue loss. The City is expected to receive approximately $767,000 from PG&E in the form of an Economic Development

57

Fund to mitigate this financial loss. Although the City does not expect DCPP's closure to have a material impact on the City's ability to make Base Rental Payments, there can be no assurances that unforeseen consequences of the closure will not adversely affect the City and the associated ability of the City to make Base Rental Payments.

Bankruptcy

The City is a unit of State govermnent and therefore is not subject to the involuntary procedures of the United States Bankruptcy Code (the "Bankruptcy Code"). However, pursuant to Chapter 9 of the Bankruptcy Code, the City may seek voluntary protection from its creditors for purposes of adjusting its debts. In the event the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Among the adverse effects of such a bankruptcy might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence ofunsecured or court-approved secured debt which may have a priority of payment superior to that of Owners of Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the City's debt (a "Plan") without the consent of the Trustee or all of the Owners of Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable.

In addition, the City could either reject the Lease or assume the Lease despite any provision of the Lease which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event the City rejects the Lease, the Trustee, on behalf of the Owners of the Bonds, would have a pre-petition claim that may be limited under the Bankruptcy Code and treated in a mauner under a Plan over the objections of the Trustee or Owners of the Bonds. Moreover, such rejection would terminate the Lease and the City's obligations to make payments thereunder.

In a bankruptcy of the City, if a material unpaid liability is owed to Cal PERS or any other pension system ( collectively the "Pension Systems") on the filing date, or accrues thereafter, such circumstances could create additional uncertainty as to the City's ability to make Base Rental Payments. Given that municipal pension systems in California are usually administered pursuant to state constitutional provisions and, as applicable, other state and/or city law, the Pension Systems may take the position, among other possible arguments, that their claims enjoy a higher priority than all other claims, that Pension Systems have the right to enforce payment by injunction or other proceedings outside of a City bankruptcy case, and that Pension System claims cannot be the subject of adjustment or other impairment under the Bankruptcy Code because that would purportedly constitute a violation of state statutory, constitutional and/or municipal law. It is uncertain how a bankruptcy judge in a City bankruptcy would rule on these matters. In addition, this area of law is presently very unsettled as issues of pension underfunding claim priority, pension contribution enforcement, and related bankruptcy plan treatment of such claims (among other pension-related matters) have been the subject of litigation in the Chapter 9 cases of several California municipalities, including the cities of Stockton and San Bernardino.

The Agency is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Agency may also seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Agency were to become a debtor under the Bankruptcy Code, the Agency would be entitled

58

to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Agency or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Agency; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence ofunsecured or court-approved secured debt which may have priority of payment superior to that of the Owners of the Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the Agency's debt without the consent of the Trustee or all of the Owners of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that the Plan is fair and equitable. However, the bankruptcy of the Agency, and not the City, should not affect the Trustee's rights under the Lease. The Agency could still challenge the assigrunent, and the Trustee and/ or the Owners of the Bonds could be required to litigate these issues in order to protect their interests.

No Liability of Agency to the Owners

Except as expressly provided in the Indenture, the Agency will not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture.

State Budget Information

As described herein, the State is a source of City revenues, and the State's financial condition can adversely affect the financial condition of the City. From time to time in the past, the State has experienced significant financial stress, experiencing budget shortfalls in the billions of dollars. There can be no assurances state financial pressures in the future will not adversely affect the City.

State Budget for Fiscal Year 2016-17. On June 27, 2016, Governor Brown signed the State Budget for Fiscal Year 2016-17. Information about the State Budget is regularly available at various State-maintained websites, including the State Department of Finance at www.dof.ca.gov. The City and the Underwriter take no responsibility for the continued accuracy of for the accuracy or timeliness of information posted there, and such information is not incorporated herein by these references.

State Budget for Fiscal Year 2017-18. Governor Brown released his proposed fiscal year 2017-18 budget for the State on January 10, 2017. The May Revision was released on May 11, 2017. The City does not anticipate any material adverse effect on the City's finances based on this proposed fiscal year 2017-18 State budget. However, the City can make no predictions regarding the changes, if any, that will be made to proposed budget before it is finally adopted. The City also carmot predict what measures the State will adopt to respond to any future financial difficulties. The City can provide no guarantees regarding the outcome of future State budget negotiations, the actions that will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures, or the impact that such budgets or actions will have on the City's finances and operations.

Future State Budgets. The State has experienced significant financial stress in recent years, with budget shortfalls in the several billions of dollars. There can be no assurance that, as a result of such State financial stress, the State will not significantly reduce revenues to local governments (including the City) or

59

http://www.dof.ca.gov

shift financial responsibility for programs to local governments as part of its efforts to address the State's financial difficulties. In addition, the City cannot predict the final outcome offuture State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures.

Although the State is not a significant source of City revenues, there can be no assurance that actions taken by the State to address its financial condition, now or in the future, will not materially adversely affect the financial condition of the City.

Risks Related to Taxation in California

Constitutional Amendments Affecting Tax Revenues. Article XIIIA of the California Constitution limits the amounts of ad valorem tax on real property to I% of "full cash value" as determined by the county assessor. Article XIIIA defines "full cash value" to mean "the County Assessor's valuation of real property as shown on the 1975/76 tax bill under 'full cash value', or thereafter the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment period." Furthermore, all real property valuation may be increased to reflect the inflation rate, as shown by the consumer price index, not to exceed 2% per year, or may be reduced in the event of declining property values caused by damage, destruction or other factors.

Article XIIIA exempts from the I% tax limitation any taxes to repay indebtedness approved by the voters prior to July I, 1978, and any bonded indebtedness for the acquisition or improvement of real property approved on or after July I, 1978 by two-thirds of the voters voting on the proposition approving such bonds, and requires a vote of two-thirds of the qualified electorate to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to change any State tax law resulting in increased tax revenues.

Article XIIIB of the California Constitution limits the annual appropriations from the proceeds of taxes of the State and any city, county, school district, special district or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax or fee schedules over the subsequent two years.

Right to Vote on Taxes Act-Proposition 218. On November 5, 1996, California voters approved an initiative to amend the California Constitution known as the Right to Vote on Taxes Act ("Proposition 218"), which added Article XIIIC and XIIID to the California Constitution. Among other provisions, Proposition 218 requires majority voter approval for the imposition, extension or increase of general taxes and two-thirds voter approval for the imposition, extension or increase of special taxes by a local government, which is defined in Proposition 218 to include cities. Proposition 218 also provides that any general tax imposed, extended or increased without voter approval by any local government on or after January I, 1995 and prior to November 6, 1996 will continue to be imposed only if approved by a majority vote in an election held within two years of November 6, 1996. Proposition 218 also provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. This extension of the initiative power is not limited by the terms of Proposition 218 to impositions after November 6, 1996 and absent other legal authority, could result in retroactive reduction in any existing taxes,

60

assessments, fees and charges. In addition, Proposition 218 limits the application of assessments, fees and charges and requires certain existing, new and increased assessments, fees and charges to be submitted to property owners for approval or rejection, after notice and public hearing. The City does not expect Proposition 218 to have any immediate material effect on the revenues from which Base Rental Payments are expected to be appropriated.

The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and carmot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218.

Implementing Legislation. Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA of $4.00 per $100 assessed valuation (based on the traditional practice of using 25% of full cash value as the assessed value for tax purposes). The legislation further provided that, for Fiscal Year 1978/79 only, the tax levied by each county was to be appropriated among all taxing agencies within the county in proportion to their average share of taxes levied in certain previous years.

Future assessed valuation growth allowed under Article XIIIA (i.e., new construction, change of ownership, and 2% armual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of "base" revenue from the tax rate area. Each year's growth allocation becomes part of each agency's allocation in the following year. The Agency is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above those described above, even with the approval of the affected voters.

Constitutional Challenges to Property Tax System There have been many challenges to Article XIIIA of the California Constitution. The United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. Neither the Agency nor the City can predict whether there will be any future challenges to California's present system of property tax assessment and carmot evaluate the ultimate effect on the Agency's receipt of tax increment revenues should a future decision hold unconstitutional the method of assessing property.

Statutory Revenue Limitations - Proposition 62. Proposition 62 is a statewide statutory initiative adopted by the voters at the November 4, 1986 general election. It added Sections 53720 to 53730 to the Government Code to require that all new local taxes be approved by the voters. The statute provides that all local taxes are either general taxes or special taxes. General taxes are imposed for general governmental purposes. Special taxes are imposed for specific purposes only. General taxes may not be imposed by local government unless approved by a two-thirds vote of the entire legislative body and a majority of the voters

61

voting on the proposed general tax. Special taxes may not be imposed by local government unless approved by a majority of the entire legislative body and by two-thirds of the voters voting on the special tax. Soon after Proposition 62 was adopted by the voters, legal challenges to taxes adopted contrary to its provisions were filed. In 1991, in the most significant case, City of Woodlake v. Logan, the California Court of Appeal held that the statutory voter approval requirement for general taxes was unconstitutional. The California Supreme Court refused to review Woodlake.

On September 28, 1995, the California Supreme Court, on a 5-2 vote, in a decision entitled Santa Clara County Local Transportation Agency v. Guardino (Case No. S036269), "disapproved" Woodlake and held that the voter approval requirements of Proposition 62 are valid. On December 14, 1995, the Supreme Court made minor nonsubstantive changes to its written opinion and denied the petition for rehearing. The decision provides that the voter approval requirements of Proposition 62 for both general and special taxes are valid. The Guardino case fails to say (1) whether the decision is retroactively applicable to general taxes adopted prior to the decision; (2) whether taxpayers have any remedies for refund of taxes paid under a tax ordinance that was not voter approved; (3) what statute of limitations applies to taxes adopted without voter approval prior to Guardino; ( 4) whether Proposition 62 applies only to new taxes or to tax increases as well.

The Court of Appeals in a December 15, 1997 decision entitled McBearty v. City of Brawley (Case No. D027877) addressed some of these issues. In Brawley, a taxpayer challenged the city's utility tax that was passed by the city council in 1991 without a vote of the electorate. The Court of Appeals held that (i) a three year statute of limitations applies to challenges to a tax ordinance subject to Proposition 62; and (ii) the statute of limitations did not begin to run until September 1995 when the Guardino case determined that Proposition 62 was constitutional. The effect of the holding in Brawley is that any tax ordinances passed between November 1986 and December 1995 that were not approved by the electorate would be subject to a challenge until December 1998. The court ordered the city to either cease collecting the tax or seek voter approval to continue levying the tax. However, in Howard Jarvis Taxpayers Association v. City of La Habra, decided on June 4, 2001, the California Supreme Court overruled part of McBearty, finding that the three year statute of limitations applicable to such taxes does not run from the date of the Guardino decision, but rather the continued imposition and collection of such tax is an ongoing violation, upon which the limitations period begins with each new collection.

Several questions raised by the Guardino decision remain unresolved. Proposition 62 provides that if a jurisdiction imposes a tax in violation of Proposition 62, the portion of the one percent general ad valorem tax levy allocated to that jurisdiction is reduced by $1 for every $1 in revenue attributable to the improperly imposed tax for each year that such tax is collected. The practical applicability of this provision has not been fully determined. Potential future litigation and legislation may resolve some or all of the issues raised by the Guardino decision.

Neither the Agency nor the City can predict the outcome of any pending or future litigation concerning the validity of Proposition 62, nor can it predict the scope of the Guardino or Brawley decisions discussed above. Proposition 62 could affect the ability of the City to continue the imposition of, orto retain, certain taxes, and restrict the City's ability to raise revenue.

Proposition JA. Proposition IA ("Proposition IA"), proposed by the Legislature in connection with the 2004-05 Budget Act and approved by the voters in November 2004, restricts State authority to reduce major local tax revenues such as the tax shifts permitted to take place in Fiscal Years 2004/05 and 2005-06. Proposition IA provides that the State may not reduce any local sales tax rate, limit existing local government

62

authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions. Proposition IA generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local govermnents for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local govermnents within a county must be approved by two-thirds of both houses of the Legislature. Proposition IA provides, however, that beginning in Fiscal Year 2008-09, the State may shift to schools and community colleges up to 8% of local govermnent property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. Such a shift may not occur more than twice in any ten-year period. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local govermnents within a county.

Proposition IA provides that if the State reduces the vehicle license fee ("VLF") rate below 0.65% of vehicle value, the State must provide local govermnents with equal replacement revenues. Further, Proposition IA requires the State to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local govermnents for their costs to comply with such mandates.

Proposition 22. On November 2, 2010, voters in the State approved Proposition 22. Proposition 22, known as the "Local Taxpayer, Public Safety, and Transportation Protection Act of 2010," eliminates or reduces the State's authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle license fee revenues to reimburse local govermnents for state-mandated costs (the State will have to use other revenues to reimburse local govermnents ), (iii) redirect property tax increment from redevelopment agencies to any other local govermnent, (iv) use State fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues.

Proposition 26. On November 2, 2010, voters in the State also approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of "tax" to include "any levy, charge, or exaction of any kind imposed by a local govermnent" except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local govermnent of conferring the benefit or granting the privilege; (2) a charge imposed for a specific govermnent service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local govermnent of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local govermnent for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; ( 4) a charge imposed for entrance to or use of local govermnent property, or the purchase, rental, or lease of local govermnent property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of govermnent or a local govermnent, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID.

Proposition 26 provides that the local govermnent bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the govermnental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from,

63

the governmental activity. Neither the City nor the Agency expects provisions of Proposition 26 to materially impede the City's ability to pay Base Rental Payments when due.

Future Initiatives

From time to time, other initiative measures may be adopted, which may affect the City's revenues and its ability to expend said revenues. The above-mentioned measures and any future measures could restrict the City's ability to raise additional funds for its General Fund.

Limitations on Remedies

The enforceability of the rights and remedies of the owners of the Bonds and the Trustee, and the obligations incurred by the Agency and the City, respectively, may be subject to the following, among others: the limitations on legal remedies against joint powers authorities and cities in California; the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; principles of equity that may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the U.S. Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations or modification of their rights. See also, "- Bankruptcy" above.

Limited Recourse on Default; No Acceleration of Base Rental Payments

Failure by the City to make Base Rental Payments, or failure to pay Additional Rental Payments or to observe and perform any other terms, covenants or conditions contained in the Lease or in the Indenture for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Agency or the Trustee, constitute Events of Default under the Lease. Such events permit the Trustee or the Agency to pursue any and all remedies available. However, notwithstanding anything in the Lease or in the Indenture to the contrary, there is no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments that are not then in default to be immediately due and payable, nor do the Agency or the Trustee have any right to re-enter or re-let the Leased Facilities except as described in the Lease.

The enforcement of any remedies provided in the Lease and the Indenture could prove both expensive and time-consuming. If the City defaults on its obligation to make Base Rental Payments with respect to the Leased Facilities, the Trustee, as assignee of the Agency, may retain the Lease and hold the City liable for all Revenues thereunder on an annual basis and enforce any other terms or provisions of the Lease to be kept or performed by the City.

Alternatively, the Agency or the Trustee may terminate the Lease, retake possession of the Leased Facilities and proceed against the City to recover damages pursuant to the Lease. Due to the specialized and limited nature of the Leased Facilities, existing Permitted Encumbrances (as such term is defined in Appendix

64

A) on the Leased Facilities, and the restrictions on its use, it is unlikely that the Trustee would be able to relet the Leased Facilities so as to provide an amount of rental income that is sufficient to make all payments of principal of, interest and premium, if any, on the Bonds when due. Similar limitations and constraints would apply to any property substituted for the Leased Facilities pursuant to the Lease. Moreover, the Trustee is not empowered to sell the Leased Facilities for the benefit of the Owners of the Bonds. Any suit for money damages would be subject to limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest.

Early Redemption Risk

Early redemption of the Base Rental Payments and redemption of the Bonds may occur in whole or in part without premium, on any date if the Leased Facilities or a portion thereof is lost, destroyed or damaged beyond repair or taken by eminent domain and from the proceeds of title insurance, or on any Interest Payment Date, without a premium (see "SECURITY FOR THE BONDS-Redemption-Extraordinary Redemption"), if the City exercises its right to prepay Base Rental Payments in whole or in part pursuant to the provisions of the Lease and the Indenture.

Natural Disasters

The occurrence of any natural disaster in the City, including, without limitation, fire, windstorm, drought, landslide, earthquake or flood, could have an adverse material impact on the economy within the City, its General Fund and the revenues available for the payment of the Base Rental Payments.

Earthquakes are considered a threat to the City due to the general seismic region in which the City lies, however, no active faults are known to be present within or in the near vicinity of Pismo Beach. Although no major earthquake has caused substantial damage to the City, the City is located approximately 60 miles west of the San Andreas Fault. Secondary seismic hazards could result from the interaction of ground shaking with existing soil and bedrock conditions, and include liquefaction, settlement, landslides, dam failure, and tsunamis. The City does not maintain earthquake insurance for the Leased Facilities.

The occurrence of natural disasters in the City could result in substantial damage to the City which, in tum, could substantially reduce General Fund revenues and affect the ability of the City to make the Base Rental Payments. Reduced ability to make the Base Rental Payments could affect the payment of the principal of and interest on the Bonds. Furthermore, any uninsured natural disaster event that causes damage to the Leased Facilities could result in abatement of Lease Payments under the Lease. See "BOND OWNERS' RISKS - Abatement" above.

Possible Insufficiency oflnsurance Proceeds

The Lease obligates the City to keep in force various forms of insurance, subject to deductibles, for repair or replacement of the Leased Facilities in the event of damage, destruction or title defects, subject to certain exceptions. The Agency and the City make no representation as to the ability of any insurer to fulfill its obligations under any insurance policy obtained pursuant to the Lease. Also, no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Bonds when due. In addition, certain risks, such as earthquakes and floods, are not required to be covered under the Lease. See the captions "SECURITY FOR THE BONDS - Insurance" herein.

65

Loss of Tax Exemption

As discussed under the caption "TAX MATTERS," interest on the Bonds could fail to be excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for purposes of federal income taxation, in some cases retroactive to the date of execution and delivery of the Bonds, as a result of future acts or omissions of the Agency or the City in violation of certain covenants contained in the Indenture or the Lease, respectively. Should such an event of taxability occur, the Bonds are not subject to special redemption or any increase in interest rate and will remain outstanding until maturity or until redeemed pursuant to the Indenture.

In addition, Congress has considered in the past, is currently considering and may consider in the future, legislative proposals, including some that carry retroactive effective dates that, if enacted, would alter or eliminate the exclusion from gross income for federal income tax purposes of interest on municipal bonds, such as the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal tax legislation. The City can provide no assurance that federal tax law will not change while the Bonds are outstanding or that any such changes will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. If the exclusion of interest on the Bonds from gross income for federal income tax purposes were amended or eliminated, it is likely that the market price for the Bonds would be adversely impacted.

IRS Audit of Tax-Exempt Bonds

The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds ( or by an audit of similar bonds).

Secondary Market Risk

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

FINANCIAL REPORT

The City's financial statements for the Fiscal Year ended June 30, 2016 were prepared by the City and audited by Glenn Burdette, Certified Public Accountants, and excerpts from such report are contained in APPENDIX B hereto. The financial report should be read in its entirety. At the time of the execution and delivery of the Bonds, the City will certify that there has been no material adverse change in the City's financial position since June 30, 2016. The information set forth herein does not purport to be a summary of the City's financial report.

66

TAX MATTERS

In the opinion of The Weist Law Firm, Scotts Valley, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations ( as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings.

The opinions set forth in the preceding paragraph are subject to the condition that the Agency and the City comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds. The Agency and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds.

If the initial offering price to the public ( excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes "original issue discount" for purposes offederal income taxes and State personal income taxes. If the initial offering price to the public ( excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes "original issue premium" for purposes of federal income taxes and State personal income taxes. De mini mis original issue discount and original issue premium is disregarded.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes.

Under the Tax Code, original issue premium is amortized on an armual basis over the term of the Bond (said term being the shorter of the Bond's maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to State personal income tax and federal income tax consequences of owning such Bonds.

67

Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.

In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes.

Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. The proposed form of the opinion of Bond Counsel is attached as APPENDIX E.

CERTAIN LEGAL MATTERS

The Weist Law Firm, Scotts Valley, California, Bond Counsel, will render an opinion with respect to the validity of the Bonds, the form of which opinion is set forth in APPENDIX E. Certain legal matters will also be passed upon for the Agency and the City by The Weist Law Firm as Disclosure Counsel. Certain legal matters will be passed upon for the City and the Agency by the City Attorney, and for the Underwriter by Nixon Peabody LLP, Los Angeles, California. Payment of the fees and expenses of Bond Counsel, Disclosure Counsel, the Municipal Advisor and Underwriter's Counsel is contingent upon the sale and delivery of the Bonds.

CONTINUING DISCLOSURE

The City has covenanted in the Continuing Disclosure Certificate to provide the Annual Report by not later than nine months following the end of the City's Fiscal Year (currently, the City's Fiscal Year commences on July 1 and ends on June 30 of each year), commencing with the Annual Report for the fiscal year ended June 30, 2017 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events. Such Annual Reports are required to be filed with EMMA.

The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is described in "APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE," attached to this Official Statement. These covenants have been made in order to assist the Underwriter in complying with the Rule.

The City and its related governmental entities have previously entered into several disclosure undertakings under the Rule in connection with the issuance of long-term obligations. During the past five years, the City and its related entities have failed to materially comply with their respective undertakings. In particular, the City (i) filed its 2012-13 Audited Financial Statements and operating data one day late, (ii) did not include a chart detailing sewer rates based on meter size in Fiscal Years 2011-12 and 2012-13, and (iii)

68

did not timely report ratings upgrades of the bond insurer for a bond issue of the City on two separate occas10ns.

The City has made all required remedial filings and is currently in compliance with its existing undertakings under the Rule. Also, the City has since adopted necessary policies and procedures including hiring Urban Futures, Inc. to act as dissemination agent and, in such capacity, to monitor and complete all required continuing disclosure filings.

LITIGATION

The City is not aware of any pending or threatened litigation concerning the validity of the Bonds or challenging any action taken by the City with respect to the Bonds, the Indenture, the Lease, the Leased Facilities or any other agreements or actions undertaken in connection with the issuance of the Bonds. Furthermore, the City is not aware of any pending or threatened litigation to restrain, enjoin, question or otherwise affect the Indenture or the Lease or in any way contesting or affecting the validity or enforceability of any of the foregoing or any proceedings of the City taken with respect to any of the foregoing.

There are a number of lawsuits and claims that from time to time are pending against the City. In the opinion of the City Attorney, taking into account likely insurance coverage and litigation reserves, there are no lawsuits or claims pending against the City that will materially affect the City's finances or impair its ability to make the Lease Payments under the Lease or the debt service payments on the Bonds.

RATING

S&P Global Ratings, a division of Standard & Poor's Financial Services LLC ("S&P") has assigned its municipal bond rating of "AA+" to the Bonds. Such rating reflects only the view of S&P, and an explanation of the significance of such rating, and any outlook assigned to or associated with such rating, should be obtained from S&P.

Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. The City and the Agency have provided certain additional information and materials to S&P (some of which does not appear in this Official Statement).

There is no assurance that such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P, if in its judgment, circumstances so warrant. Any such downward revision or withdrawal of such rating on the Bonds may have an adverse effect on the market price or marketability of the Bonds.

MUNICIPAL ADVISOR

The Municipal Advisor has assisted the City and Agency with various matters relating to the planning, structuring and delivery of the Bonds. The Municipal Advisor is a municipal advisory firm and is not engaged in the business of underwriting or distributing municipal securities or other public securities. The Municipal Advisor assumes no responsibility for the accuracy, completeness or fairness of this Official Statement. The Municipal Advisor will receive compensation from the City contingent upon the sale and delivery of the Bonds.

69

UNDERWRITING

The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the "Underwriter"). The Underwriter has agreed to purchase the Bonds at a price of $7,827,437.38 (which price is equal to the $7,685,000 aggregate principal amount of the Bonds, plus net Original Issue Premium of$190,762.65, and less Underwriter's Discount of $48,325.27).

The Bond Purchase Contract pursuant to which the Underwriter has agreed to purchase the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Bond Purchase Contract, including the approval of certain legal matters by counsel and certain other conditions. The Underwriter intends to offer the Bonds to the public at the offering prices set forth on the cover page of this Official Statement. After the initial public offering, the public offering price may be varied from time to time by the Underwriter.

MISCELLANEOUS

So far as any statements made in this Official Statement involve matters of opinion, assumptions, projections, anticipated events or estimates, whether or not expressly stated, they are set forth as such and not as representations of fact, and actual results may differ substantially from those set forth herein. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the Bonds.

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

The summaries of certain provisions of the Bonds, statutes and other documents or agreements referred to in this Official Statement do not purport to be complete, and interested parties must refer to each of them for a complete statement of their provisions. Copies are available for review by making requests to the City. The Appendices are an integral part of this Official Statement and must be read together with all other parts of this Official Statement. The audited financial statements of the City, including a summary of significant accounting policies, for the Fiscal Year ended June 30, 2016 is contained in APPENDIX B.

The execution of this Official Statement and its delivery have been authorized by the Agency and the City.

PISMO BEACH PUBLIC FINANCING AGENCY

By: /s/ Nadia K. Feeser -------------Treasurer

CITY OF PISMO BEACH

By: /s/ James R. Lewis City Manager

70

APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following summary discussion of selected provisions of the Site Lease, the Lease and the Indenture are made sub;ect to all of the provisions of such documents. This summary discussion does not purport to be a complete statement of said provisions and prospective purchasers of the Bonds are referred to the complete texts of said documents, copies of which are available upon request sent to the Trustee.

DEFINITIONS

"Act" means the prov1s10ns of Articles 1 through 4 ( commencing with Section 6500), Chapter 5, Division 7, Title 1 of the Government Code of the State of California, as in existence on the Closing Date or as thereafter amended from time to time.

"Additional Bonds" means any additional Series of Bonds authorized by a Supplemental Indenture that are issued pursuant to the Indenture.

"Additional Rental Payments" means the additional rental payable by the City under and pursuant to the Lease.

"Agency" means the Pismo Beach Public Financing Agency, a joint powers authority and public body duly organized and existing under the Agreement and the laws of the State of California.

"Agency Board" means the governing Board of the Agency.

"Agency Representative" means the Chair, Executive Director, Treasurer or Secretary of the Agency, or any other person authorized by resolution of the Board of the Agency to act on behalf of the Agency under or with respect to the Indenture.

"Agreement" means that certain Joint Exercise of Powers Agreement dated as of May 2, 2017, entered into under the Act by the City of Pismo Beach and the Pismo Beach Industrial Development Agency, together with any amendments thereof and supplements thereto.

"Annual Debt Service" means, for each Bond Year with respect to each of the Bonds, the sum of(a)the interest payable on the Outstanding Bonds in such Bond Year, and (b)the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year.

"Assignment Agreement" means the Assignment Agreement, dated as of June 1, 2017, by and between the Agency as assignor and the Trustee as assignee, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto.

"Authorized Denominations" means $5,000 or any integral multiple thereof.

A-1

"Base Rental Payments" means all payments required to be paid by the City pursuant to the Lease including any prepayment thereof pursuant to the Lease.

"Bond Counsel" means (a) The Weist Law Firm, and (b) any other attorney or firm of attorneys of nationally recognized expertise with respect to legal matters relating to obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code.

"Bond Law" means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act, as in existence on the Closing Date or as thereafter amended from time to time.

"Bond Year" means each twelve-month period extending from December 2 in one calendar year to December I in the succeeding calendar year, both dates inclusive, except that the first Bond Year shall extend from the Closing Date to December I, 2018.

"Bond Register" means the registration books for the ownership of Bonds maintained by the Trustee pursuant to the Indenture.

"Bondowner" or "Owner" means, with respect to a Bond, the registered owner of such Bond as set forth in the Bond Register.

"Bonds" means the Series 2017 Lease Revenue Bonds (Pismo Beach Municipal Pier Project), issued pursuant to terms and provisions of the Indenture, and, where the context requires, any Additional Bonds.

"Business Day" means a day other than a Saturday, Sunday or legal holiday, on which banking institutions in the State of California, or in any state in which the Office of the Trustee is located, are not closed.

"City" means the City of Pismo Beach, a municipal corporation duly organized and existing under the laws of the State of California.

"City Representative" means the City Manager or the Administrative Services Director of the City, or any other person authorized by resolution of the City Council of the City to act on behalf of the City under or with respect to the Indenture.

"Closing Date" means June 7, 2017, being the day when the Bonds, duly authenticated by the Trustee, are delivered to the Original Purchaser.

"Code" or "Tax Code" means the Internal Revenue Code of 1986, as amended. Any reference in the Indenture to a provision of the Tax Code shall include all applicable Tax Regulations promulgated with respect to such provision.

"Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate executed by the City and dated the date of original execution and delivery of the Bonds, as originally executed and as it may be amended from time to time in accordance with the term thereof.

A-2

"Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City or the Agency relating to the execution and delivery of the Lease or the execution, sale and delivery of the Bonds, including but not limited to all document preparation expenses in connection with the Indenture, the Lease, the Site Lease, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, filing and recording costs, settlement costs, printing costs, reproduction and binding costs, initial fees and charges of the Trustee (which shall include legal fees and the first annual administration fee of the Trustee), financing discounts, legal fees and charges (including fees and expenses of Bond and Disclosure Counsel), insurance fees and charges, recording and title insurance costs, financial and other professional consultant fees, costs of rating agencies for credit ratings, bond insurance premium and fees, costs of any guarantee or surety, fees for execution, transportation and safekeeping of the Bonds and charges and fees in connection with the foregoing.

"Costs of Issuance Fund" means the fund by that name created pursuant to the Indenture.

"County" means the county of San Luis Obispo, California.

"Depository" means DTC and its successors and assigns or if (a) the then Depository resigns from its functions as securities depository of the Bonds, or (b) the Agency discontinues use of the Depository pursuant to the Indenture, any other securities depository which agrees to follow the procedures requested to be followed by a securities depository in connection with the Bonds and which is selected by the Agency.

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

"DTC" means The Depository Trust Company, New York, New York, and its successors and assigns. References in the Indenture to DTC shall include any Nominee of DTC in whose name any Bond is registered.

"Event of Default" means any of the events described in the Indenture.

"Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction ( determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security - State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than

A-3

a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment.

"Federal Securities" means any direct, noncallable obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), or othernoncallable obligations for which the faith and credit of the United States of America are pledged for the payment of principal and interest.

"Fiscal Year" means the twelve-month period beginning on July 1 of any year and ending on June 30 of the next succeeding year, or any other twelve-month period by the City as its fiscal year pursuant to written notice filed with the Trustee.

"Fitch" means Fitch, Inc., its successors and assigns.

"Indenture" means the Indenture dated as of June 1, 2017, by and between the Trustee and the Agency, as originally executed or as thereafter amended.

"Independent Certified Public Accountant" means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State of California, appointed by the Agency, and who, or each of whom:

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

(2 ) does not have any substantial interest, direct or indirect, with the City or Agency; and

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

"Independent Financial Consultant" means any financial consultant or firm of such consultants appointed by the City or Agency, and who, or each of whom:

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

(2) does not have any substantial interest, direct or indirect, with the City or Agency; and

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

"Information Services" means the Electronic Municipal Market Access System (referred to as "EMMA"), a facility of the Municipal Securities Rulemaking Board, at http://emma.msrb.org; provided, however, in accordance with then current guidelines of the Securities and Exchange Commission, Information Services shall mean such other organizations providing information with respect to called Bonds as the Agency may designate in writing to the Trustee.

A-4

http://emma.msrb.org

"Interest Account" means the account by that name established and held by the Trustee pursuant to the Indenture.

"Interest Payment Date" means June 1 and December 1 of each year, commencing December 1, 2017, so long as any Bonds are Outstanding.

"Lease" means the Lease Agreement, dated as of June 1, 2017, by and between the Agency as lessor and the City as lessee, as originally executed or as thereafter amended pursuant to any duly authorized and executed amendments thereto.

"Leased Property" means, collectively, those certain parcels of real property, together with the improvements constructed or to be constructed thereon, leased by the Agency to the City pursuant to the Lease, as more fully described in Exhibit A to the Lease, as such Exhibit A may be revised and amended from time to time pursuant to the terms of the Indenture and of the Lease.

"Lease Revenue Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture.

"Maximum Annual Debt Service" means the largest of the sums obtained for any Bond Year after totaling the following for each such Bond Year:

A. The principal amount of all Outstanding Bonds maturing or required to be redeemed by mandatory sinking account redemption in such Bond Year; and

B. The interest which would be due during such Bond Year on the aggregate principal amount of Bonds which would be Outstanding in such Bond Year if the Bonds Outstanding on the date of such computation were to mature or be redeemed in accordance with the applicable maturity or mandatory sinking account redemption schedule. At the time and for the purpose of making such computation, the amount of Bonds already retired in advance of the above-mentioned schedule or schedules shall be deducted pro rata from the remaining amounts thereon.

"Moody's" means Moody's Investors Service, its successors and assigns.

"Net Proceeds" means insurance proceeds or an eminent domain award (including any proceeds of sale to a governmental entity under threat of the exercise of eminent domain powers), paid with respect to the Leased Property, to the extent remaining after payment therefrom of all expenses incurred in the collection thereof.

"Nominee" means (a) initially, Cede & Co. as nominee ofDTC, and (b) any other nominee of the Depository designated pursuant to the Indenture.

"Office" or "Trust Office" means the office of the Trustee in Costa Mesa, California or such other offices as may be specified to the Agency by the Trustee in writing or, solely for purposes of the surrender of the Bonds for payment, transfer or exchange, the corporate trust operations or agency office designated by the Trustee.

A-5

"Opinion of Counsel" means a written opinion of Bond Counsel.

"Original Purchaser" means Stifel, Nicolaus & Company, Incorporated, the original purchaser of the Bonds from the Agency.

"Outstanding" means used as of any particular time with respect to Bonds and Additional Bonds, means (subject to the provisions of the Indenture) all Bonds and Additional Bonds theretofore executed, issued and delivered by the Agency under the Indenture, except:

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

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

( c) Bonds in lieu of or in exchange for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture or any Supplemental Indenture.

"Participating Underwriter" has the meanmg ascribed thereto m the Continuing Disclosure Certificate.

"Permitted Encumbrances" means, with respect to the Leased Property, as of any particular time, (i) to the extent in effect on the Closing Date, the right, title and interest of the City to the Leased Property and the existing interests of the Agency to the Leased Property as lessee of the City, and the existing interests of the City in the Leased Property as lessee of the Agency; (ii) the Site Lease; (iii) the Lease, (iv) the Indenture and the Trustee's and the Agency's interests in the Leased Property, (v) liens for taxes and assessments not then delinquent, (vi) utility, access and other easements and rights of way, restrictions and exceptions that a City Representative certifies will not interfere with or impair the use intended to be made of the Leased Property; (vii) any additions and improvements to the Leased Property as permitted in this Lease; (viii) any sublease or use permitted by this Lease, (ix) covenants, conditions or restrictions or liens of record relating to the Leased Property and existing on the Closing Date; (x) such minor defects, irregularities, encumbrances and clouds on title as normally exist with respect to property similar in character to the Leased Property and as do not materially impair the use intended to be made of property affected thereby, and (xi) any encumbrances listed in the preliminary title report issued pursuant to the Lease.

"Permitted Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein (the Trustee is entitled to conclusively rely on a Request of the Agency directing investment in such Permitted Investment as a certification by the Agency to the Trustee that such Permitted Investment is a legal investment under the laws of the State), but only to the extent that the same are acquired at Fair Market Value:

( a) Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of

A-6

America) or obligations the timely payment of the principal of and interest on which are fully and unconditionally guaranteed by the United States of America, including instruments evidencing a direct ownership interest in securities described in this clause such as Stripped Treasury Coupons at the time of purchase rated or assessed in the highest rating category by S&P and Moody's and held by a custodian for safekeeping on behalf of holders of such securities.

(b) Bonds or notes which are exempt from federal income taxes and for the payment of which cash or obligations described in clause (a) of this definition in an amount sufficient to pay the principal of, premium, if any, and interest on when due have been irrevocably deposited with a trustee or other fiscal depositary and which at the time of purchase are rated the same rating as direct obligations of the United States of America by S&P and Moody's.

( c) Obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following: Federal Home Loan Bank System, Government National Mortgage Association, Farmer's Home Administration, Federal Home Loan Mortgage Corporation or Federal Housing Administration; provided that with respect to the funds and accounts established under the Indenture, such obligations shall at no time exceed an amount equal to ten percent (10%) of the aggregate principal amount of the Bonds Outstanding.

( d) Deposit accounts certificates of deposit or savings accounts (i) fully insured by the Federal Deposit Insurance Corporation or (ii) with banks whose short term obligations are at the time of purchase rated no lower than A-1 by S&P and P-1 by Moody's including those of the Trustee and its affiliates.

( e) Federal funds or banker's acceptances with a maximum term of one year of any bank that at the time of purchase has an unsecured, uninsured and unguaranteed obligation rating of "Prime-I" or "A3" by Moody's and "A-I" or "A" or better by S&P (including the Trustee and its affiliates).

(f) Repurchase or reverse repurchase obligations (including those of the Trustee or any of its affiliates) with a term not exceeding 30 days pursuant to a written agreement between the Trustee and either a primary dealer on the Federal Reserve reporting dealer list which falls under the jurisdiction of the SIPC or a federally chartered commercial bank whose long-term debt obligations at the time of purchase are rated A or better by S&P and Moody's, with respect to any security described in clause (I); provided that the securities which are the subject of such repurchase obligation (i) must be free and clear of all liens, (ii) in the case of a SIPC dealer, were not acquired pursuant to a repurchase or reverse repurchase agreement, (iii) must be deposited with the Trustee and maintained through weekly market valuations in an amount equal to 104% of the invested funds plus accrued interest; and further provided that the Trustee must have a valid first perfected security interest in such securities.

(g) Taxable government money market portfolios that at the time of purchase have a rating by S&P of Am-G or Am or better and rated in one of the three highest rating categories of Moody's, subject to a maximum permissible limit equal to six months of principal and interest on the Bonds including portfolios of the Trustee and its affiliates.

A-7

(h) Tax-exempt government money market portfolios that at the time of purchase have a rating by S&P of Am-G or Am or better and rated in one of the three highest rating categories of Moody's consisting of securities which are rated in the highest rating categories of S&P and Moody's subject to a maximum permissible limit equal to six months of principal and interest on the Bonds.

(i) Money market funds registered under the Investment Company Act of 1940, the shares in which are registered under the Securities Act of 1933 and that at the time of purchase have a rating by S&P of AAAm-G or AAAm and rated in one of the two highest rating categories of Moody's, including those managed or advised by the Trustee or its affiliates.

(j) The Local Agency Investment Fund of the State, created pursuant to Section 16429.1 of the California Government Code, to the extent the Trustee is authorized to register such investment in its name.

(k) Investment agreements, including guaranteed investment contracts ("GICs") forward purchase agreements and reserve fund put agreements with banks or other financial institutions rated, or guaranteed by institutions rated, or with senior unsecured debt rated, at the time of entrance into such agreement by S&P or Moody's, in one of the three highest rating categories assigned by such agencies.

(1) Any other investments which meet the criteria established by applicable published investment guidelines issued by each rating agency then rating the Bonds.

"Principal Account" means the account by that name established and held by the Trustee pursuant to the Indenture.

"Project" means the acquisition, construction, installation, renovation, furnishing and/or improvement of the Pismo Beach Municipal Pier, or as described in any Supplemental Indenture, and the acquisition, construction, improvement, rehabilitation or replacement of other facilities the City deems a priority.

"Project Costs" means all costs of designing, constructing, installing and/or acquiring the Project, including but not limited to:

( a) all costs which the Agency or the City shall be required to pay a seller or any other person under the terms of any contract or contracts for the purchase of all or a portion of the Project;

(b) all costs which the Agency or the City shall be required to pay a contractor, subcontractor or any other person for the design, construction, installation and/or acquisition of the Project;

( c) obligations of the Agency or the City incurred for services (including obligations payable to the Agency or the City for actual out-of-pocket expenses of the Agency or the City) in connection with the design, construction, installation and/or acquisition of the Project, including

A-8

reimbursement to the Agency or the City for all advances and payments made in connection with the Project prior to or after delivery of the Bonds;

( d) the actual out-of-pocket costs of the Agency or the City for test borings, surveys, estimates and preliminary investigations therefor, as well as for the performance of all other duties required by or consequent to the proper design, construction, installation and/or acquisition of the Project, including administrative expenses under the Lease and the Indenture relating to the design, construction, installation and/or acquisition of the Project;

( e) Costs oflssuance, to the extent amounts for the payment thereof are not available in the Costs oflssuance Fund; and

(f) any sums required to reimburse the Agency or the City for advances made by the Agency or the City for any of the above items, or for any other costs incurred and for work done by the Agency or the City which are properly chargeable to the Project.

"Project Fund" means the fund by that name created pursuant to the Indenture.

"Rebate Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture.

"Rebate Requirement" means, in respect of an issue of Bonds, obligations imposed under section l 48(f) the Code in respect of such issue.

"Record Date" means the close of business on the fifteenth (15th) day of the month preceding each Interest Payment Date, whether or not such fifteenth (15th

) day is a Business day.

"Redemption Fund" means the fund by that name established pursuant to the Indenture.

"Registration Books" means the records maintained by the Trustee pursuant to the Indenture for registration of the ownership and transfer of ownership of the Bonds.

"Rental Payments" means, collectively, the Base Rental Payments, any additional base rental payments made in connection with Additional Bonds and any Additional Rental Payments.

"Request of the Agency" means a request in wntmg signed by an Agency Representative or by any other officer of the Agency duly authorized by an Agency Representative for that purpose, as evidenced in writing to the Trustee.

"Request of the City" means a request in writing signed by a City Representative or by any other officer of the City duly authorized for that purpose.

"Reserve Account" means any reserve account which may secure one or more Series of Additional Bonds as provided in the Supplemental Indenture providing for the establishment thereof.

A-9

"Revenues" means ( a) all Base Rental Payments payable by the City pursuant to the Lease (including prepayments); (b) any proceeds of Bonds originally deposited with the Trustee and all moneys and accounts established under the Indenture; ( c) investment income with respect to any moneys held by the Trustee; and ( d) any insurance proceeds or condemnation awards received by or payable to the Trustee relating to the Base Rental Payments, including rental interruption msurance.

"Securities Depositories" means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax (516) 227-4039 or 4190; and, in accordance with then current guidelines of the Securities and Exchange Commission; such other addresses and/or such other securities depositories as the Agency may designate in a Request of the City or Agency delivered to the Trustee.

"Series" whenever used in the Indenture with respect to the Bonds or Additional Bonds, means all of the Bonds designated as being of the same series, authenticated and delivered in a simultaneous transaction, regardless of variations in maturity, interest rate, redemption and other provisions, and any Bonds thereafter authenticated and delivered upon transfer or exchange of or in lieu of or in substitution for (but not to refund) such Bonds as provided in the Indenture.

"S&P" means S&P Global Ratings, a Standard & Poor's Financial Services LLC business, New York, New York, or its successors.

"Site Lease" means that certain Site Lease, dated as of June 1, 2017, by and between the City and the Agency, pursuant to which the Agency leases the Leased Property from the City.

"State" means the State of California.

"Substituted Property" shall have the meaning given to such term in the Lease.

"Substitution" means the release of all or a portion of the Leased Property from the leasehold under the Lease, and the lease of substituted real property and improvements under the Lease as provided in the Lease.

"Supplemental Indenture" means any resolution, agreement or other instrument then in full force and effect which amends or supplements the Indenture, and which has been duly adopted or entered into by the City or Agency; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.

"Tax Certificate" means the tax certificate delivered by the Agency and the City at the time of the issuance and delivery of the Bonds, as the same may be amended or supplemented in accordance with its terms.

"Tax-Exempt" means, with respect to interest on any obligations of a state or local government, including interest on the Bonds, that such interest is intended to be excluded from the gross income of the holders thereof for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes

A-10

of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code.

"Tax Regulations" means temporary and permanent regulations promulgated under the Tax Code.

"Tenn Bonds" means the Bonds that are payable on or before their specified maturity dates from mandatory sinking account payments established for that purpose and calculated to retire such Bonds on or before their specified maturity dates.

"Trustee" means Wilmington Trust, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States, or any successor thereto as provided in the Indenture.

"Written Certificate of the Agency" and "Written Request of the Agency" mean, respectively, a written certificate or written request signed in the name of the Agency by an Agency Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument

"Written Certificate of the City" and "Written Request of the City" mean, respectively, a written certificate or written request signed in the name of the City by a City Representative. Any such certificate or request may, but need, not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument.

INDENTURE

The Bonds

Transfer of Bonds. Any Bond may, in accordance with its terms, be transferred, upon the Registration Books, by the person in whose name it is registered, in person or by his duly authorized attorney, upon presentation and surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer in a form approved by the Trustee, duly executed. Whenever any Bond shall be surrendered for transfer, the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transferee a new Bond or Bonds of like tenor, interest rate, series designation, maturity and aggregate principal amount in Authorized Denominations. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection with any such transfer shall be paid by the Authority, except that the Trustee shall require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer. The Trustee shall not be required to transfer, pursuant to the Indenture (a) any Bond during the period established by the Trustee for the selection of Bonds for redemption or (b) any Bond selected for redemption pursuant to the Indenture.

Transfers Outside Book-Entry System. If at any time the Depository notifies the Agency that it is unwilling or unable to continue as Depository with respect to the Bonds or if at any time the Depository shall no longer be registered or in good standing under the Securities Exchange Act or other applicable statute or

A-11

regulation and a successor Depository is not appointed by the Agency within 90 days after the Agency receives notice or becomes aware of such condition, as the case may be, the Book-Entry provisions of the Indenture will no longer be applicable and the Agency will execute and the Trustee will authenticate and deliver bonds representing the Bonds as provided in the Indenture. In addition, the Agency may determine at any time that the Bonds shall no longer be represented by global bonds and that the provisions of the BookEntry provisions of the Indenture shall no longer apply to the Bonds. In any such event the Agency shall execute and the Trustee shall authenticate and deliver bonds representing the Bonds as provided in the Indenture. Bonds executed, authenticated and delivered in exchange for global bonds pursuant to the Indenture shall be registered in such names and delivered in such Authorized Denominations as the Depository, pursuant to instructions from the Depository Participants or otherwise, shall instruct the Agency and the Trustee. The Trustee shall deliver such bonds representing the Bonds to the persons in whose names such Bonds are so registered.

If the Agency determines to replace the Depository with another qualified securities depository, the Agency shall prepare or cause to be prepared anew fully-registered global bond for each of the maturities of the Bonds, registered in the name of such successor or substitute securities depository or its nominee, or make such other arrangements as are acceptable to the Agency, the Trustee and such securities depository and not inconsistent with the terms of the Indenture.

Exchange of Bonds. Bonds may be exchanged at the Trust Office of the Trustee for the same aggregate principal amount of Bonds of the same tenor, interest rate, series designation, and maturity and of other Authorized Denominations. The cost of printing any Bonds and any services rendered or expenses incurred by the Trustee in connection with any such exchange shall be paid by the Authority, except that the Trustee shall require the payment by the Owner requesting such exchange of any tax or other govermnental charge required to be paid with respect to such exchange. The Trustee shall not be required to exchange, pursuant to the Indenture, (a) any Bond during the period established by the Trustee for the selection of Bonds for redemption or (b) any Bond selected for redemption pursuant to the Indenture.

Temporary Bonds. The Bonds may be issued initially in temporary form exchangeable for definitive Bonds when ready for delivery. The temporary Bonds may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the Authority and may contain such reference to any of the provisions of the Indenture as maybe appropriate. Every temporary Bond shall be executed by the Authority and be registered and authenticated by the Trustee upon the same conditions and in substantially the same marmer as the definitive Bonds. If the Authority issues temporary Bonds, it will execute and furnish definitive Bonds without delay, and thereupon the temporary Bonds shall be surrendered, for cancellation, in exchange therefor at the Trust Office of the Trustee, and the Trustee shall authenticate and deliver in exchange for such temporary Bonds definitive Bonds of like tenor, series designation, maturity and aggregate principal amount in Authorized Denominations. Until so exchanged, the temporary Bonds shall be entitled to the same benefits under the Indenture as definitive Bonds authenticated and delivered under the Indenture.

Registration Books. The Trustee will keep or cause to be kept at its Trust Office sufficient records for the registration and transfer of the Bonds, which shall at all times during regular business hours be open to inspection by the Authority with reasonable prior notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer, or cause to be registered or transferred, on such records, Bonds as provided in the Indenture.

A-12

Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of such Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor, series designation, maturity and aggregate principal amount in an Authorized Denomination in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it. If any Bond issued under the Indenture shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence shall be satisfactory to it and indemnity satisfactory to it shall be given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like series and tenor in lieu of and in substitution for the Bond so lost, destroyed or stolen ( or if any such Bond shall have matured or shall have been called for redemption, instead of issuing a substitute Bond the Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Authority may require payment of a reasonable fee for each new Bond issued under the Indenture and of the expenses that may be incurred by the Authority and the Trustee. Any Bond issued under the provisions of the Indenture in lieu of any Bond alleged to be lost, destroyed or stolen shall constitute an original contractual obligation on the part of the Authority whether or not the Bond alleged to be lost, destroyed or stolen shall be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of the Indenture with all other Bonds secured by the Indenture.

Additional Bonds

Conditions for the Issuance of Additional Bonds. The Agency may at any time issue one or more Series of Additional Bonds (in addition to the Bonds) payable from Revenues as provided in the Indenture on a parity with all other Bonds theretofore issued under the Indenture and corresponding Supplemental Indenture, but only subject to the following conditions, which are made conditions precedent to the issuance of such Additional Bonds:

(1) neither the Agency nor the City shall be in default under the Indenture, the Lease or the Site Lease;

(2) the issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and under and pursuant in the Indenture and shall have been provided for by a Supplemental Indenture, which shall specify the following:

(i) the purposes for which such Additional Bonds are to be issued; provided, that the proceeds of the sale of such Additional Bonds shall be applied only for one or more of the following purposes: (A) providing funds to pay costs of City facilities (including capitalized interest), (B) providing funds to refund any Bonds issued the Indenture or other obligations of the City, (C) providing funds to pay Costs oflssuance incurred in connection with the issuance of such Additional Bonds, and (D) providing funds to make any deposit to any Reserve Account;

(ii) the principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds, which shall be Authorized Denominations;

(iii) that such Additional Bonds shall be payable as to interest on the Interest Payment Dates, except that the first installment of interest may be payable on either June 1 or December 1;

A-13

(iv) the date, the maturity date or dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, that (A) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on December 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have armual mandatory sinking fund redemptions on December 1, (B) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (C) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates;

(v) the redemption premiums and terms, if any, for such Additional Bonds;

(vi) the form of such Additional Bonds;

(vii) the designation as to whether or not such Additional Bonds shall be secured by a Reserve Account; and

(viii) such other provisions that are appropriate or necessary and are not inconsistent with the provisions of the Indenture; and

(3) upon the issuance of such Additional Bonds, the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of the issuance of such Additional Bonds, plus Additional Rental Payments, in any Rental Period shall not be in excess of the annual fair rental value of the Leased Property after taking into account the use of the proceeds of such Additional Bonds ( evidence of the satisfaction of such condition shall be made by a Written Certificate of the City).

Procedure for the Issuance of Additional Bonds. Whenever the Agency and the City shall determine to authorize the issuance of any Additional Bonds, the Agency, the City and the Trustee shall enter into a Supplemental Indenture satisfying the conditions of the Indenture. Before such Additional Bonds shall be issued, the Agency and the City shall file or cause to be filed with the Trustee the following:

(1) an Opinion of Counsel setting forth (i) that counsel rendering such opinion has examined the Supplemental Indenture, the amendment to the Lease, if any, and the amendment to the Site Lease, if any, (ii) that the issuance of the Additional Bonds has been duly authorized by the Agency, (iii) that the execution and delivery of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease have been duly authorized, executed and delivered by the Agency and the City, (iv) that upon execution and delivery of such Supplemental Indenture and any such amendments to the Lease and the Site Lease, the Indenture, as amended and supplemented by such Supplemental Indenture, and, if so amended, the Lease and the Site Lease, as amended by such amendments, will be valid and binding obligations of the Agency and the City, and (v) that the execution and delivery of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease, in and of themselves, do not adversely affect the exclusion from gross income for federal income tax purposes of interest on Tax-Exempt Bonds;

(2) a Written Certificate of the Agency that the applicable requirements of the Indenture have been met;

A-14

(3) a Written Certificate of the City that the applicable requirements of the Indenture have been met, which shall include a certification as to the fair rental value of the Property, after giving effect to any amendments to the Lease and the Site Lease entered into in connection with the issuance of the Additional Bonds and taking into account the use of proceeds of such Additional Bonds;

( 4) certified copies of the resolutions of the Agency Board and the City Council of the City authorizing the execution and delivery of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease;

(5) executed counterparts or duly authenticated copies of the Supplemental Indenture and, if any, the amendments to the Lease and the Site Lease, with satisfactory evidence that any such amendments to the Lease and the Site Lease have been duly recorded in the appropriate records of the county in which the Leased Property is located;

( 6) certified copies of the policies of insurance required by the Lease or certificates thereof, which shall evidence that the amounts of the insurance required under the Lease have been increased, if applicable, to cover the amount of such Additional Bonds; and

(7) a CLTA or ALTA title insurance policy or other appropriate form of policy in the amount of the Additional Bonds of the type and with the endorsements described in the Lease.

Upon the delivery to the Trustee of the foregoing instruments and upon the Trustee's being satisfied from an examination of said instruments that all of the applicable documents required by the Indenture have been delivered, the Trustee shall authenticate such Additional Bonds, and shall deliver such Additional Bonds to, or upon the request of, the Agency.

Revenues; Flow of Funds

Pledge of Revenues; Assignment of Rights. Subject to the provisions of the Indenture, the Bonds shall be secured by a first lien on and pledge (which shall be effected in the marmer and to the extent provided in the Indenture) of all of the Revenues, including all of the moneys in the Interest Account and the Principal Account, including all amounts derived from the investment of such moneys. The Bonds shall be equally secured by a pledge, charge and lien upon the Revenues and such moneys without priority for number, date of the Bonds, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any portion thereof shall be and are secured by an exclusive pledge, charge and lien upon the Revenues and such moneys. So long as any of the Bonds are Outstanding, the Revenues and such moneys shall not be used for any other purpose; except that out of the Revenues there may be apportioned such sums, for such purposes, as are expressly permitted by the Indenture.

Pursuant to the Indenture, the Authority transfers in trust and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest (but none of the obligations) of the Authority in the Lease with respect to the Revenues, including its rights to receive the Base Rental Payments scheduled to be paid by the City under and pursuant to the Lease and any and all of the other rights of the Authority under the Lease as may be necessary to enforce payment of such Base Rental Payments when due or otherwise to protect the interest of the Owners of the Bonds, including its

A-15

leasehold title to the Leased Property leased to the City pursuant to the Lease with respect to the Base Rental Payments. The Trustee accepts such assignments. The Trustee shall be entitled to and shall receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee.

The Indenture shall be supplemented pursuant to a Supplemental Indenture to pledge revenues from additional base rental payments under the Lease for any Series of Additional Bonds.

Lease Revenue Fund; Receipt, Deposit and Application of Revenues. All Revenues shall be deposited by the Trustee in a special fund designated as the "Lease Revenue Fund," which the Trustee shall establish, maintain and hold in trust under the Indenture.

On or before each Interest Payment Date, the Trustee shall transfer from the Lease Revenue Fund and deposit into the following respective accounts ( each of which the Trustee shall establish and maintain within the Lease Revenue Fund), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

Interest Account. On or before each Interest Payment Date, the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all Outstanding Bonds and any Additional Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest becoming due and payable upon all Outstanding Bonds and any Additional Bonds on each succeeding Interest Payment Date within the then current Bond Year. All moneys in the interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds and any Additional Bonds as it shall become due and payable (including accrued interest on any Bonds and any Additional Bonds redeemed prior to maturity).

Principal Account. On or before each Interest Payment Date, the Trustee shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds and any Additional Bonds maturing or required to be redeemed through mandatory sinking account redemption on such Interest Payment Date pursuant to the Indenture or pursuant to a Supplemental Indenture, as the case may be. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Bonds and any Additional Bonds.

Redemption Account. On or before the Business Day on which Bonds are subject to redemption ( other than mandatory sinking fund redemption of term Bonds), the Authority will transfer or cause there to be transferred to the Trustee for deposit in the Redemption Account an amount required to pay the principal of and premium, if any, on the Bonds to be so redeemed on such date. The Trustee will apply amounts in the Redemption Account solely for the purpose of paying the principal of and premium, if any, on the Bonds upon the redemption thereof, other than mandatory

A-16

sinking fund redemption of term Bonds which will be made from amounts in the Principal Account, on the date set for such redemption.

Surplus. On or before June 1 and December 1 of each year the Trustee shall determine the amount, if any, remaining in the Lease Revenue Fund after making the deposits to the Interest Account and Principal Account, and the transfers of investment earnings thereon, and shall apply such amount as a credit against the next following Base Rental Payment. Notwithstanding the foregoing, if directed in a Request of the City, the Trustee shall, with respect to all or any portion of such amount, pay, or set aside an amount for the payment of, any Rebate Requirement ( as defined in the Tax Certificate) in accordance with a computation made by the City to the Trustee.

Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments pursuant to the direction of the Agency given to the Trustee two Business Days in advance of the making of such investments ( and promptly confirmed in writing, as to any such direction given orally). In the absence of any such direction from the Agency, the Trustee shall hold funds uninvested. Obligations purchased as an investment of moneys in any fund or account shall be deemed to be part of such fund or account.

On June 15 and December 15 of each year the Trustee shall transfer all investment earnings on amounts in the Principal Account and the Interest Account, to the Lease Revenue Fund. All investment earnings on amounts in the Insurance and Condemnation Fund shall be retained therein. For purposes of acquiring any investments under the Indenture, the Trustee may commingle funds held by it thereunder. The Trustee may act as principal or agent in the acquisition of any investment and may impose its customary charges therefor. The Trustee may act as manager, sponsor, advisor or depository with respect to any Permitted Investment. The Trustee shall incur no liability for losses arising from any investments made pursuant to the Indenture.

Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account, Permitted Investments credited to such fund or account shall be valued at least semiarmually on or before each Interest Payment Date at cost ( excluding any brokerage commissions and excluding any accrued interest) by the Agency.

Insurance and Condemnation Fund. The Trustee shall establish and maintain a separate fund to be known as the "Insurance and Condemnation Fund," into which shall be deposited Net Proceeds required to be deposited therein pursuant to the Lease. The Trustee shall disburse or transfer all amounts in the Insurance and Condemnation Fund, as stated in a Request of the City for the payment of the cost of the reconstruction of the Leased Property (including reimbursement to the City for any such costs paid by it).

Covenants of the Authority

Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, interest and premium (if any) to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of applicable Revenues and other assets pledged for such payment as provided in the Indenture.

A-17

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in the Indenture shall be deemed to limit the right of the Authority to issue Additional Bonds, or issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the applicable Revenues and other assets pledged or assigned under the Indenture while any of the Bonds and Additional Bonds are Outstanding, except the pledge and assignment created by the Indenture and Supplemental Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Bond Law, and reserves the right to issue other obligations for such purposes.

Power to Issue Bonds and Make Pledge and Assignment. The Agency is duly authorized pursuant to law to issue the Bonds and to enter into the Indenture and to pledge and assign the Revenues, the Lease and other assets purported to be pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Agency in accordance with their terms, and the Agency and the Trustee (subject to the provisions of the Indenture) shall at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under the Indenture against all claims and demands of all persons whomsoever.

Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries shall be made of all transactions by the Trustee relating to the proceeds of Bonds, the Revenues, the Lease and all funds and accounts established pursuant to the Indenture. Such books of record and account shall be available for inspection by the Agency and the City during regular business hours with reasonable prior notice.

Additional Obligations. The Agency covenants that no additional bonds, notes or indebtedness shall be issued or incurred that are payable out of the Revenues in whole or in part, other than Additional Bonds.

Lease. The Trustee, as assignee of the Agency's rights under the Lease pursuant to the Indenture and under the Assignment Agreement, shall receive all amounts due from the City pursuant to the Lease. The Agency will faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Lease required to be complied with, kept, observed and performed by it and, together with the Trustee, will enforce the Lease against the City in accordance with its terms. So long as any Bond remain Outstanding, the Agency will not alter, amend or modify the Lease, except pursuant to the Indenture.

A-18

Tax Covenants

(a) Special Definitions. The following terms have the following meanings with respect to any Bonds or Additional Bonds that the Agency intends interest thereon to be excludable from the gross income of the Owners thereof under the Indenture:

"Computation Date" has the meaning set forth in section 1.148-(b) of the Tax Regulations.

"Gross Proceeds" means any proceeds as defined in section 1.148-l(b) of the Tax Regulations, and any replacement proceeds as defined in section 1.148-1( c) of the Tax Regulations, of the Bonds.

"Investment" has the meaning set forth in section 1.148-l(b) of the Tax Regulations.

"Nonpurpose Investment" means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of Tax-Exempt Bonds are invested and which is not acquired to carry out the govermnental purposes of such Bonds.

"Rebate Amount" has the meaning set forth in section 1.148-l(b) of the Tax Regulations.

"Yield'' of

1) any Investment has the meaning set forth in section 1.148-5 of the Tax Regulations; and

2) the Bonds has the meaning set forth in section 1.143-4 of the Tax Regulations.

(b) Not to Cause Interest to Become Taxable. The Agency shall not use, permit the use of, or omit to use Gross Proceeds or any other amounts ( or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, would cause the Interest on any of the Bonds to become includable in the gross income as defined in the Code, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Agency receives a written opinion of Bond Counsel to the effect that failure to comply with such covenant will not adversely affect the exclusion from gross income for federal income tax purposes of the interest on any Bond, the Agency shall comply with each of the applicable specific covenants in the Indenture.

( c) Not Private Use or Private Payments. Except as would not cause any Bonds to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the Agency shall at all times prior to the last slated maturity of Bonds:

( 1) require that one or more state or local govermnental agencies exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds, and not use or permit the use of such Gross Proceeds (including all contractual arrangements with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency,

A-19

department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public;

(2) and not permit the direct or indirect imposition of any charge or other payment on or by any person or entity who is treated as using Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of general application within the City or interest earned on investments acquired with such Gross Proceeds pending application for their intended purposes.

( d) No Private Loan. Except as would not cause any Bond to become a "private activity bond" within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the Agency shall not use or permit the use of Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be "loaned" to a person or entity if: (1) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (2) capacity in or service from such property is committed to such person or entity under a takeor-pay, output or similar contract or arrangement; or (3) indirect benefits, or burdens and benefits of ownership, of such Gross Proceeds or any property acquired, constructed or improved with such Gross Proceeds are otherwise transferred in a transaction that is the economic equivalent of a loan.

(e) Not to Invest at Higher Yield. Except as would not cause the Bonds to become "arbitrage bonds" within the meaning of the Code and the Tax Regulations and rulings thereunder, the Agency shall not at any time prior to the final Stated Maturity of the Bonds directly or indirectly invest or permit the Investment of Gross Proceeds in any Investment, if as a result of such investment the Yield on Investments acquired with Gross Proceeds, whether then held or previously disposed of, materially exceeds the Yield of the Bonds. For purposes of this paragraph, Yield on Investments shall be determined in accordance with the provisions of section 1.148-5 of the Tax Regulation, which, under certain circumstances, requires Yield to be determined on less than all such Investments.

(f) Not Federally Guaranteed. Except to the extent permitted by section l 49(b) of the Code and the Tax Regulations and rulings thereunder, the Agency shall not take or omit to take, or permit, any action that would cause any Bonds to be treated as "federally guaranteed" within the meaning of the Code and the Tax Regulations and rulings thereunder.

(g) Information Report. The Agency shall timely file or cause to be filed any information required by section 149(e) of the Code with respect to the Bonds with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe.

(h) Rebate. Except to the extent otherwise provided in section l 48(f) of the Code and the Tax Regulations and rulings thereunder:

(1) The Agency shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds ( and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Outstanding Bond is retired. However, to the

A-20

extent permitted by law, the Agency may commingle Gross Proceeds of Bonds with other money of the Agency, provided that the Agency separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith.

(2) Not less frequently than each Computation Date, the Agency shall cause the City to calculate the Rebate Amount in accordance with rules set forth in section l 48(f) of the Code and the Tax Regulations and rulings thereunder, and to provide promptly to the Agency a copy of said calculation, which the Agency shall maintain with its official transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date.

(3) In order to assure the excludability of the interest on Bonds from the gross income of the owners thereof for federal income tax purposes, the Agency shall make rebate payments at the times and in the amounts as are or may be required by section l 48(f) of the Code and the Tax Regulations and rulings thereunder, which payments shall be accompanied by Form 8038-T or such other forms and information as is or may be required by Section l 48(f) of the Code and the Tax Regulations and rulings thereunder; provided, however, that the liability of the Agency to make any such payments shall be limited to amounts received by it for such purpose pursuant to the Lease.

( 4) The Agency shall cause the exercise of reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (2) and (3), and if an error is made, to discover and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under section l.148-3(h) of the Tax Regulations.

The Trustee shall not be responsible for calculating rebate amounts or for the adequacy or correctness of any rebate report or rebate calculations and shall have no independent duty to review any rebate calculations or enforce the compliance with such rebate requirements or the covenants of the Agency provided in the Indenture.

(i) Not to divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, the Agency shall not enter into any transaction that reduces the amount required to be paid to the United States pursuant to section 148(f) of the Code because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm's length and the Yield of the Bonds had been irrelevant to each party.

Further Assurances

The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture, and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in the Indenture.

A-21

The Trustee

Appointment of Trustee. Wilmington Trust, N.A., a national banking association duly organized and existing under and by virtue of the laws of the United States of America, has been appointed Trustee by the Agency for the purpose of receiving all moneys required to be deposited with the Trustee under the Indenture and to allocate, use and apply the same as provided in the Indenture. The Agency agrees that it will maintain a Trustee which has ( or which is a wholly-owned subsidiary of a corporation which has) a combined capital and surplus of at least $75,000,000, and which is subject to supervision or examination by Federal or State authority, so long as any Bonds are Outstanding. If such bank or trust company or such parent corporation publishes a report of condition at least aunually pursuant to law or to the requirements of any supervising or examining Agency above referred to, then for the purpose of the Indenture the combined capital and surplus of such bank or trust company or such parent corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.

The Trustee has been authorized under the Indenture to pay the principal of and interest and redemption premium (if any) on the Bonds when duly presented for payment at maturity, or on redemption prior to maturity, and to cancel all Bonds upon payment thereof The Trustee shall keep accurate records of all funds and accounts administered by it and of all Bonds paid and discharged.

Acceptance of Trusts. The Trustee accepts the trusts imposed upon it by the Indenture, and agrees to perform said trusts, but only upon and subject to the following express terms and conditions:

(a) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts.

(b) Whenever in the administration of the Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action under the Indenture, the Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, rely upon a Certificate of the Agency.

(c) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the Owners pursuant to the Indenture, unless such Owners shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.

( d) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order bond or other paper or document, but the Trustee, in its discretion, may make such further inquiry or Investigation into such facts or matters as it may see fit.

( e) The Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default that may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Indenture and no covenants of or against the Trustee shall be implied in the Indenture. In case an Event of Default under the Indenture or under the Lease has occurred (which has not been cured or waived), the Trustee may exercise such of the rights and powers vested in it by the Indenture

A-22

and by the Lease, and shall use the same degree of care and skill in the exercise of such rights and powers as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.

(f) The Trustee may execute any of the trusts, or powers under the Indenture and perform the duties required of it under the Indenture either directly or by or through attorneys, receivers or agents, shall not be liable for the acts or omissions of such attorneys, receivers or agents appointed with due care, and shall be entitled to advice of counsel concerning all matters of trust and its duty under the Indenture. The Trustee may conclusively rely on an opinion of counsel as full and complete authorization and protection for any action taken, suffered or omitted by under the Indenture.

(g) The Trustee shall not be responsible for any recital in the Indenture, in the Lease, or in the Bonds, or for any of the supplements thereto or instruments of further assurance, or for the sufficiency of the security for the Bonds issued under the Indenture or intended to be secured by the Indenture and makes no representation as to the validity or sufficiency of the Bonds, the Indenture or the Lease. The Trustee shall not be bound to ascertain or inquire as to the observance or performance of any covenants, conditions or agreements on the part of the Agency under the Indenture or on the part of the Agency or the City under the Lease, The Trustee shall not be responsible for the application by the Agency or the City of the proceeds of the Bonds.

(h) The Trustee may become the Owner or pledgee of Bonds secured hereby with the same rights it would have if not the Trustee; may acquire and dispose of other bonds or evidences of indebtedness of the Agency with the same rights it would have if it were not the Trustee; and may act as a depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners of Bonds, whether or not such committee shall represent the Owners of the majority in aggregate principal amount of the Bonds then Outstanding.

(i) The Trustee may rely and shall be protected in acting or refraining from acting in good faith and without negligence, upon any notice, resolution, opinion, report, direction, request, consent, certificate, order, affidavit, letter, telegram or other paper or document believed by it to be genuine and to have been signed or presented by the proper person or persons. Any action taken or omitted to be taken by the Trustee in good faith and without negligence pursuant to the Indenture or the Lease upon the request or authority or consent of any person who at the time of making such request or giving such authority or consent is the Owner of any Bond, shall be conclusive and binding upon all future Owners of the same Bond and upon Bonds issued in exchange therefor or in place thereof. The Trustee shall not be bound to recognize any person as an Owner of any Bond or to take any action at his request unless the ownership of such Bond by such person shall be reflected on the Registration Books.

U) The permissive right of the Trustee to do things enumerated in the Indenture or in the Lease shall not be construed as a duty and it shall not be answerable for other than its negligence or willful default. The immunities and exceptions from liability of the Trustee shall extend to its officers, directors, employees and agents.

(k) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default under the Indenture or under the Lease except failure by the Agency or the City to make any of the payments to the Trustee required to be made by the Agency pursuant hereto or thereto or failure by the Agency or the City to file with the Trustee any document required by the Indenture or the Lease to be so filed

A-23

subsequent to the issuance of the Bonds, unless the Trustee shall be specifically notified in writing of such default by the Agency or by the Owners of at least 25% in aggregate principal amount of the Bonds then Outstanding and all notices or other instruments required by the Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the Trust Office of the Trustee, and in the absence of such notice so delivered the Trustee may conclusively assume there is no Event of Default under the Indenture except as aforesaid.

(1) At any and all reasonable times the Trustee and its duly authorized agents, attorneys, experts, accountants and representatives, shall have the right (but not the duty) to fully inspect all books, papers and records of the Agency pertaining to the Bonds, and to make copies of any of such books, papers and records which are not privileged by statute or by law.

(m) The Trustee shall not be required to give any bond or surety in respect of the execution of the said trusts and powers or otherwise in respect of the premises hereof.

(n) Notwithstanding anything elsewhere in the Indenture with respect to the execution of any Bonds, the withdrawal of any cash, the release of any property, or any action whatsoever within the purview of the Indenture, the Trustee shall have the right, but shall not be required, to demand any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, as may be deemed desirable for the purpose of establishing the right of the Agency to the execution of any Bonds, the withdrawal of any cash or the taking of any other action by the Trustee.

( o) All moneys received by the Trustee shall, until used or applied or invested as herein provided, be held in trust for the purposes for which they were received but need not be segregated from other funds except to the extent required by law.

(p) Whether or not expressly provided therein, every provision of the Indenture and the Lease relating to the conduct or affecting the liability of the Trustee shall be subject to the provisions of the applicable provision of the Indenture.

( q) The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds.

(r) The Trustee is authorized and directed to execute the Assigrunent Agreement in its capacity as Trustee.

( s) The Trustee agrees to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee shall have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Agency or the City elects to give the Trustee e-mail or facsimile instructions ( or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee's understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon and compliance with such

A-24

instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Agency and the City agree: (i) to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties; other than in the event of the Trustee's own negligence or willful misconduct; (ii) that they are fully informed of the protections and risks associated with the various methods of transmitting instructions to the Trustee and that there may be more secure methods of transmitting instructions than the method( s) selected by the Agency or the City; and (iii) that the security procedures (if any) to be followed in connection with its transmission of instructions provide to them a commercially reasonable degree of protection in light of its particular needs and circumstances.

Fees, Charges and Expenses of Trustee. The Trustee shall be entitled to payment and reimbursement for reasonable fees for its services rendered under the Indenture and all advances (with interest on such advances at the maximum rate allowed by law), counsel fees (including expenses) and other expenses reasonably and necessarily made or incurred by the Trustee in connection with such services, and the Agency shall pay or cause the City to pay the Trustee all such amounts. Upon the occurrence of an Event of Default under the Indenture, but only upon an Event of Default, the Trustee shall have a first lien with right of payment prior to payment of any Bond upon the amounts held under the Indenture for the foregoing fees, charges and expenses incurred by it. When the Trustee incurs expenses or renders services after the occurrence of an Event of Default, such expenses and the compensation for such services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law.

Notice to Bond Owners of Default. If an Event of Default under the Indenture or under the Lease occurs with respect to any Bonds of which the Trustee has been given or is deemed to have notice, as provided in under the Indenture, then the Trustee shall, within 30 days of the receipt of such notice, give written notice thereof by first class mail to the Owner of each such Bond, unless such Event of Default shall have been cured before the giving of such notice; provided, however, that unless such Event of Default consists of the failure by the Agency to make any payment when due, the Trustee may elect not to give such notice if and so long as the Trustee in good faith determines that it is in the best interest of the Bond Owners not to give such notice.

Intervention by Trustee. In any judicial proceeding to which the Agency or the City is a party that, in the opinion of the Trustee and its counsel, has a substantial bearing on the interests of Owners of any of the Bonds, the Trustee may intervene on behalf of such Bond Owners, and subject to the Indenture, shall do so if requested in writing by the Owners of at least 25% in aggregate principal amount of such Bonds then Outstanding.

Removal of Trustee. The Trustee may be removed at any time by an instrument or concurrent instruments in writing, filed with the Trustee and signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds. The Agency may also remove the Trustee at any time upon 30 days' notice, except during the existence of an Event of Default. The Trustee may be removed at any time for any breach of the Trustee's duties set forth in the Indenture.

Resignation by Trustee. The Trustee and any successor Trustee may at any time give written notice of its intention to resign as Trustee under the Indenture, such notice to be given to the Agency and the City

A-25

by registered or certified mail. Upon receiving such notice of resignation, the Agency shall promptly appoint a successor Trustee. Any resignation or removal of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee. Upon such acceptance, the Agency shall cause notice thereof to be given by first class mail, postage prepaid, to the Bond Owners at their respective addresses set forth on the Registration Books.

Appointment of Successor Trustee. In the event of the removal or resignation of the Trustee pursuant to the Indenture, the Agency shall promptly appoint a successor Trustee. In the event the Agency shall for any reason whatsoever fail to appoint a successor Trustee within 60 days following the delivery to the Trustee of the instrument described in the Indenture, or within 60 days following the receipt of notice by the Agency pursuant to the Indenture, the Trustee may, at the expense of the Agency, apply to a court of competent jurisdiction for the appointment of a successor Trustee meeting the requirements of the Indenture. Any such successor Trustee appointed by such court shall become the successor Trustee under the Indenture notwithstanding any action by the Agency purporting to appoint a successor Trustee following the expiration of such 60-day period.

Merger or Consolidation. Any company into which the Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such company shall meet the applicable requirements set forth in the Indenture, shall be the successor to the Trustee and vested with all of the title to the trust estate and all of the trusts, powers, discretions, immunities, privileges and all other matters as was its predecessor, without the execution or filing of any paper or further act, anything in the Indenture to the contrary notwithstanding.

Indemnification; Limited Liability of Trustee. The Agency further covenants and agrees, to the extent permitted by law, to indemnify and save the Trustee and its officers, directors, agents and employees, harmless against any loss, expense and liabilities arising out of or in the exercise and performance of its powers and duties under the Indenture, including the costs and expenses of defending against any claim of liability, but excluding any and all losses, expenses and liabilities that are due to the negligent act or negligent omission of the Trustee, its officers, directors or employees. No provision in the Indenture shall require the Trustee to risk or expend its own funds or otherwise incur any financial liability under the Indenture if it shall have reasonable grounds for believing repayment of such funds or adequate indemnity against such liability or risk is not assured to it. The Trustee shall not be liable for any action taken or omitted to be taken by it in accordance with the direction of the Owners of at least 25% in aggregate principal amount of Bonds Outstanding relating to the time, method and place of conducting any proceeding or remedy available to the Trustee under the Indenture or exercising any power conferred upon the Trustee under the Indenture.

Modification and Amendment of the Indenture

Amendment. The Indenture and the rights and obligations of the Authority, the Owners of Bonds of a Series may be modified or amended at any time by a Supplemental Indenture, which shall become binding to the extent permitted by law upon adoption, without consent of any Owner, but only for any one or more of the following purposes:

(a) to issue Additional Bonds in accordance with the Indenture;

A-26

(b) to add to the covenants and agreements of the Agency in the Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or powers in the Indenture reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds;

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

( d) to maintain the exclusion of interest on the Bonds from gross income for federal income tax purposes under the Code, if applicable; or

( e) for any other purpose that does not materially adversely affect the interests of the Owners.

Except as set forth in the preceding paragraph, the Indenture and the rights and obligations of the Agency and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Agency to pay the principal, interest or redemption premiums (if any) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) modify any of the rights or obligations of the Trustee without its written consent thereto.

Effect of Supplemental Indenture. From and after the time any Supplemental Indenture becomes effective pursuant to the Indenture, the Indenture shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties thereto and all Owners of Outstanding Bonds, as the case may be, shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modification and amendment, and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes.

Prior to entering into any Supplemental Indenture pursuant to the Indenture, the Trustee shall be furnished by the Agency an opinion of nationally recognized bond counsel to the effect that such Supplemental Indenture has been adopted in accordance with the requirements of the Indenture.

Endorsement or Replacement of Bonds After Amendment. After the effective date of any action taken under the Indenture, the Agency may determine that the Bonds shall bear a notation, by endorsement in form approved by the Agency, as to such action, and in that case upon demand of the Owner of any Bond Outstanding at such effective date and presentation of such Bond for that purpose at the Trust Office of the Trustee, a suitable notation as to such action shall be made on such Bond. If the Agency shall so determine, new Bonds so modified as, in the opinion of the Agency, shall be necessary to conform to such Bond Owners' action shall be prepared and executed, and in that case upon demand of the Owner of any Bond Outstanding

A-27

at such effective date such new Bonds shall be exchanged at the Trust Office of the Trustee, without cost to each Bond Owner, for Bonds then Outstanding, upon surrender of such Outstanding Bonds.

Events of Default and Remedies of Owners

Events of Default. The following events shall be Events of Default under the Indenture:

(a) Default in the due and punctual payment of the principal of or premium on any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, or by proceedings for redemption.

(b) Default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable.

( c) Failure by the Agency to observe and perform any of the covenants, agreements or conditions on its port in the Indenture or in the Bonds contained, other than as referred to in the preceding clauses (a) and (b ), for a period of 30 days after written notice, specifying such failure and requesting that it be remedied has been given to the Agency by the Trustee, orto the Agency and the Trustee by the Owners of not less than 25% in aggregate principal amount of the Outstanding Bonds; provided, however, that if such default is such that it cannot be corrected within the applicable period, it shall not constitute an Event of Default if corrective action is instituted by the Agency within the applicable period and diligently pursued until the default is corrected, which period shall not be longer than sixty ( 60) days from the date of written notice specifying the failure.

( d) The filing by the Agency of a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the Federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property.

Remedies; No Acceleration. Upon the occurrence of an Event of Default the Trustee shall have the right:

(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Agency or any member, officer or employee thereof, in order to compel the Agency or any such member, officer or employee to perform and carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him contained in the Indenture or in the Lease;

(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Trustee; or

( c) by suit in equity upon the happening of on Event of Default to require the Agency and its members, officers and employees to account as the trustee of an express trust.

A-28

If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of a majority in aggregate principal amount of Outstanding Bonds and indemnified as provided in the Indenture, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by this Article VIII, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bond Owners.

No remedy by the terms of the Indenture conferred upon or reserved to the Trustee ( or to the Bond Owners) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or the Bond Owners under the Indenture or now or hereafter existing at law or in equity.

No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver or any such Event of Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient.

The Trustee shall have no right to declare the principal of or interest on the Bonds to be due and payable immediately.

Nothing in the Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected.

Application of Revenues and Other Funds After Default. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the Indenture shall be applied by the Trustee in the following order of priority:

First, to the payment of the fees, costs and expenses of the Trustee, including reasonable compensation to its agents, attorneys and counsel;

Second, to the payment of all amounts then due for interest on the Bonds, in respect of which, or for the benefit of which, money has been collected ( other than Bonds which have become payable prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable; and

Third, to the payment of all amounts then due for principal of the Bonds, in respect of which, or for the benefit of which, money has been collected ( other than Bonds which have become payable prior to such event of default and money for the payment of which is held by the Trustee), ratably without preference or priority of any kind, according to the amounts of principal of such Bonds due and payable.

Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Indenture, whether upon its own discretion or upon the request of the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its

A-29

discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds under the Indenture opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation under the Indenture and if the Trustee is indemnified as provided in the Indenture. Any suit, action or proceeding which any Owner of Bonds shall have the right to bring or enforce any right or remedy under the Indenture may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is appointed ( and the successive respective Owners of the Bonds issued under the Indenture by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners of the Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact.

Appointment of Receivers. Upon the occurrence of an Event of Default under the Indenture, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Band Owners under the Indenture, the Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Revenues and other amounts pledged under the Indenture, pending such proceedings, with such powers as the court making such appointment shall confer.

Non-Waiver. A waiver of any default or breach of duty or contract by the Trustee or any Bond Owners shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission of the Trustee or any Owner of any of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and every power and remedy conferred upon the Trustee or Bond Owners by the Bond Law or by this Article VIII may be enforced and exercised from time lo time and as often as shall be deemed expedient by the Trustee or the Bond Owners, as the case may be.

Rights of Bond Owners. No Owner of any Bond issued under the Indenture shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of all the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name, ( c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, and ( d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee.

Such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to enforce any right under the Indenture, except in the manner provided in the Indenture,

A-30

and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner provided in the Indenture and for the equal benefit of all Owners of the Outstanding Bonds.

The right of any Owner of any Bond to receive payment of the principal of and interest and premium (if any) on such Bond as provided in the Indenture, or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the written consent of such Owner, notwithstanding other provision of the Indenture.

Termination of Proceedings. In case the Trustee shall have proceeded to enforce any right under the Indenture by the appointment of a receiver or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the Agency, the Trustee and the Bond Owners shall be restored to their former positions and rights under the Indenture, respectively, with regard to the property subject to the Indenture, and all rights, remedies and powers of the Trustee shall continue as if no such proceedings had been taken.

Limited Liability of Agency

Notwithstanding anything in the Indenture contained, the Agency shall not be required to advance any moneys derived from any source of income other than the Revenues for the payment of the principal of or interest on the Bonds, or any premiums upon the redemption thereof, or for the performance of any covenants contained in the Indenture ( except to the extent any such covenants are expressly payable under the Indenture from the Revenues or otherwise from amounts payable under the Lease), The Agency may, however advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose and may be used by the Agency for such purpose without incurring indebtedness.

The Bonds shall be revenue bonds, payable exclusively from the Revenues and other funds as in the Indenture provided. The general fund of the Agency is not liable, and the credit of the Agency is not pledged, for the payment of the interest and premiums (if any) on or principal of the Bonds. The Bonds are not secured by a legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the Agency or any of its income or receipts, except the Revenues and such other moneys and securities as provided in the Indenture.

The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Agency except the Revenues and other funds pledged to the payment of the Bonds as provided in the Indenture. The principal of and interest on the Bonds, and any premiums upon the redemption of any thereof, shall not be a legal or equitable pledge, charge, lien or encumbrance upon any property of the Agency or upon any of its income, receipts or revenues except the Revenues and other funds ( other than amounts on deposit in the Rebate Fund) pledged to the payment thereof as provided in the Indenture.

Benefits of Indenture Limited to Parties

Nothing in the Indenture, expressed or implied, is intended to give to any person other than the Agency, the Trustee, the City and the Owners of the Bonds, any right, remedy or claim under or by reason of the Indenture. Any covenants, stipulations, promises or agreements in the Indenture contained by and on

A-31

behalf of the Agency shall be for the sole and exclusive benefit of the Trustee, the City and the Owners of the Bonds.

Defeasance; Discharge oflndenture

If the Agency shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of and interest and premiums (if any) on such Bonds, as and when the same become due and payable;

(b) by irrevocably depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts (hen on deposit in the funds and accounts established with the Trustee pursuant to the Indenture, is fully sufficient to pay such Bonds, including all principal, interest and redemption premiums (if any); or

( c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Federal Securities in such amount as an Independent Certified Public Accountant shall determine in a written report filed with the Trustee (upon which report the Trustee may conclusively rely) will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates;

and delivering an opinion of Bond Counsel acceptable in form and substance, and addressed, to the Agency and the Trustee to the effect that the Bonds are no longer Outstanding under the Indenture, and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, at the Request of the Agency, and notwithstanding that any of such Bonds shall not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other pecuniary obligations of the Agency under the Indenture with respect to all such Bonds, shall cease and terminate, except only the obligation of the Agency to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid, and all amounts due the Trustee. Any funds held by the Trustee following any payment or discharge of the Outstanding Bonds pursuant to the Indenture, which are not required for said purposes, shall after payment of amounts due the Trustee under the Indenture be paid over to the Agency for any lawful purpose.

Execution of Documents by Bond Owners

Any request, consent or other instrument required by the Indenture to be signed and executed by Bond Owners may be in any number of concurrent writings of substantially similar tenor and may be signed or executed by such Bond Owners in person or by their agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and of the Agency if made in the manner provided in the Indenture.

A-32

The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument or writing acknowledged to him the execution thereof.

The ownership of Bonds shall be proved by the Registration Books. Any request, consent or vote of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of any Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Agency in pursuance of such request, consent or vote. In lieu of obtaining any demand, request, direction, consent or waiver in writing, the Trustee may call and hold a meeting of the Bond Owners upon such notice and in accordance with such rules and obligations as the Trustee considers fair and reasonable for the purpose of obtaining any such action.

Disqualified Bonds

In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, Bonds which are owned or held by or for the account of the City or the Agency (but excluding Bonds held in any employees' retirement fund) shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, provided, however, that for the purpose of determining whether the Trustee shall be protected in relying on any such demand, request, direction, consent or waiver, only Bonds which the Trustee knows to be so owned or held shall be disregarded.

THE LEASE

Term

Pursuant to the Lease, the Authority leases to the City and the City leases from the Authority, on the terms and conditions set forth in the Lease, the Leased Property. The term of this Lease shall commence on June 7, 2017, or the date this Lease is recorded, whichever is later, and shall expire on the later of (i) the Expiration Date; (ii) the date the last Base Rental Payment is made under the provisions of the Lease; or (iii) the date of discharge of all of the Bonds and Additional Bonds pursuant to the Indenture. Notwithstanding the foregoing, the term of this Lease shall automatically be extended for a period often (10) years, if, on the Expiration Date, the Bonds and any Additional Bonds have not been fully discharged, and shall terminate on the date when the Bonds and any Additional Bonds have been fully discharged.

Rental

Subject to the provisions of the Lease, the City agrees to pay to the Authority, its successors or assigns, as rental for the use and possession of the Leased Property, the following amounts at the following times:

Base Rental Payments; Additional Base Rental Payments. The City agrees to pay to the Trustee, as assignee of the Agency, the Base Rental Payments ( denominated into Principal Components and Interest Components) in accordance with the Base Rental Payment Schedule attached to the Lease, in the respective

A-33

amounts specified therein, to be due and payable on the Interest Payment Dates immediately following each of the respective Lease Payment Dates, and to be deposited by the City with the Trustee on each of the Lease Payment Dates. Any amount held in the Lease Revenue Fund on any Lease Payment Date ( other than amounts resulting from the prepayment of the Principal Components in part but not in whole pursuant to the Lease and other than amounts required for payment of past due Principal Components or Interest Components represented by any Bonds not presented for payment) shall be credited towards the Base Rental Payment then required to be paid under the Lease; and no Base Rental Payment need be deposited with the Trustee on any Lease Payment Date if the amounts then held in the Lease Revenue Fund are at least equal to the Base Rental Payment then required to be deposited with the Trustee. The Base Rental Payments payable in any Rental Period shall be for the use of the Leased Property during such Rental Period.

The obligation of the City to pay the Base Rental Payments with respect to the Bonds shall rank pari passu with the obligation of the City to pay base rental payments with respect to any Additional Bonds. Upon and after the issuance of any Additional Bonds secured by base rental payments with respect to the Leased Property, the City shall pay the Base Rental Payments with respect to such Additional Bonds as provided in the Supplemental Indenture for such Additional Bonds, in accordance with the additional Base Rental Payment schedule which shall be attached to the Lease as an additional exhibit prior to the delivery of such Additional Bonds, as adjusted for any prepayments.

Additional Rental Payments. The City shall also pay, as "Additional Rental Payments" under the Lease, in addition to the Base Rental Payments and any base rental payments under the Lease made with respect to Additional Bonds, to the Trustee, as assignee of the Agency, as provided under the Lease, such amounts in each year as shall be required for the payment of all costs and expenses (not otherwise paid for or provided for out of the proceeds of sale of the Bonds) incurred by the Agency or the Trustee in connection with the execution, performance or enforcement of this Lease or the assignment thereof, the Indenture, or the Agency's or the Trustee's respective interests in the Leased Property, including, but not limited to, all fees, costs and expenses, all administrative costs of the Agency relating to the Leased Property (including, without limiting the generality of the foregoing, salaries and wages of employees, overhead, insurance premiums, taxes and assessments (if any), expenses, compensation and indemnification of the Trustee payable by the Agency under the Indenture), fees of auditors, accountants, attorneys or engineers, and all other reasonable and necessary administrative costs of the Agency or charges required to be paid by it to comply with the terms of the Bonds or of the Indenture.

Such Additional Rental shall be billed to the City by the Agency or the Trustee from time to time. Amounts so billed shall be paid by the City within thirty (30) days after receipt of the bill by the City.

Fair Rental Value. Payments of Base Rental Payments and Additional Rental Payments for each rental payment period shall constitute the total rental for such rental payment period, and shall be paid by the City in each rental payment period for and in consideration of the right of the use and possession of, and the continued quiet use and enjoyment of, the Leased Property during each such period for which said rental is to be paid. The City represents and covenants that the useful life of the Leased Property is not shorter than the final maturity of the Bonds. The parties to this Lease specifically acknowledge that the annual fair rental value of the Leased Property is in excess of the maximum armual Base Rental Payments. In making such determination, consideration has been given to other obligations of the parties under this Lease, the uses and purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the City and the general public.

A-34

Payment of Base Rental. Each installment of Base Rental Payments payable under the Lease shall be paid in lawful money of the United States of America to the order of the Trustee at the corporate trust office of the Trustee in Costa Mesa, California, or such other place as the Trustee shall designate. Notwithstanding any dispute between the City and the Agency, the City shall make all Base Rental Payments when due, without deduction or offset of any kind, and shall not withhold any Base Rental Payments pending the final resolution of any such dispute. In the event of a determination that the City was not liable for said Base Rental Payments or any portion thereof, said Base Rental Payments or excess of payments, as the case may be, shall, at the option of the City, be credited against subsequent Base Rental Payments due under the Lease or be refunded at the time of such determination.

Increases in Aggregate Base Rental Payments. The City covenants that it shall not permit an increase in the aggregate Base Rental Payments or permit additional base rental payments with respect to Additional Bonds without first obtaining an opinion of Bond Counsel to the effect that the incurring of such increased Base Rental Payments will not (i) impair the validity and enforceability of this Lease and (ii) in and of itself impair the exclusion of interest on the Bonds and, to the extent applicable, any Additional Bonds, from the gross income of the owners thereof for federal income tax purposes.

Covenant to Budget and Appropriate. The City covenants to take such action as may be necessary to include all Base Rental Payments due under the Lease in its annual budget and to make the necessary annual appropriations for all such Base Rental Payments, subject only to abatement as provided in the Lease. The City will furnish to the Agency annually, on or before September 1, a certificate stating that it has complied with the covenant set forth in this paragraph. The covenants on the part of the City contained in the Lease shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease agreed to be carried out and performed by the City. The obligation of the City to make Base Rental Payments or Additional Rental Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Neither the Bonds and any Additional Bonds nor the obligation of the City to make Base Rental Payments or Additional Rental Payments constitutes an indebtedness of the City, the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction.

Acquisition, Construction and Installation of the Project

Pursuant to the Lease the Agency appoints the City as its agent to carry out all phases of the design, construction, installation and acquisition of the Project. The City accepts such appointment and as such agent, assumes all duties, right, responsibilities and liabilities of the Agency regarding the design, construction, installation and acquisition of the Project. The City, as agent of the Agency, will, in all respects, supervise and provide for, or cause to be supervised and provided for, the design, construction, installation and acquisition of the Project.

In connection with the design, construction, installation and acquisition of the Project, payment of the Project Costs shall be made from the moneys deposited with the Trustee in the Project Fund, which shall be disbursed for such purposes in accordance and upon compliance with Article III of the Indenture. Other

A-35

than such moneys deposited in the Project Fund, and investment earnings thereon, the Agency shall have no obligation to provide moneys to pay any portion of the Project Costs.

The City represents and warrants that it holds funds in various segregated accounts, including the moneys deposited in the Project Fund on the Delivery Date, and investment earnings thereon, that the City expects will be sufficient to pay the Project Costs in full. The City covenants that, until the Project is completed, it will not use any portion of the amount on deposit in such segregated accounts for any purpose other than to pay Project Costs.

Maintenance, Utilities, Taxes and Assessments

During such time as the City or any assignee or sub lessee thereof is in possession of the Leased Property, all maintenance and repair, ordinary or extraordinary, of the Leased Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of (a) all utility services supplied to the Leased Property, (b) the cost of operation of the Leased Property, and ( c) the costs of maintenance of and repair to the Leased Property resulting from ordinary wear and tear or want of care on the part of the City. The City shall at the City's sole cost and expense keeps and maintain the Leased Property clean and in a safe and good condition and repair. The Agency shall have no obligation to alter, remodel, improve, repair, decorate, or paint the Leased Property or any part thereof, and the parties have affirmed that the Agency has made no representations or warranties to the City respecting the condition of the Leased Property.

The City shall comply with all statutes, ordinances, regulations, and other requirements of all governmental entities that pertain to the occupancy or use of the Leased Property. The Agency has no responsibility or obligation whatsoever to construct any improvements modification or alteration to the Leased Property.

The City waives the right to make repairs at the Agency's expense under Subsection 1 of Section 1932, Sections 1941 and 1942 of the California Civil Code, or any other such law, statute, or ordinance now or hereafter in effect.

The parties to the Lease contemplate that the Leased Property will be used for public purposes by the City and, therefore, that the Leased Property will be exempt from all taxes presently assessed and levied with aspect to real and personal property, respectively. In the event that the use, possession or acquisition by the Agency or the City of the Leased Property is found to be subject to taxation in any form, the City will pay during the term of the Lease, as the same respectively became due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Leased Property and any other property acquired by the City in substitution for, as a renewal or replacement of, or a modification, improvement or addition to the Leased Property; provided, that with respect to any governmental charges or taxes that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are accrued during such time as this Lease is in effect.

Changes to the Leased Property

The City shall have the right during the term of this Lease to acquire and construct improvements or to attach fixtures, structures or signs to the Leased Property if such improvements, fixtures, structures or signs

A-36

are necessary or beneficial for the use of the Leased Property by the City; provided, however, that no such acquisition or construction shall result in a material reduction in the value of the Leased Property, reduce the fair rental value thereof or substantially alter the nature of the Leased Property.

Upon termination of this Lease, the City may remove any fixture, structure or sign added by the City, but such removal shall be accomplished so as to leave the Leased Property, except for ordinary wear and tear and damage by casualty, in substantially the same condition as it was in before the fixture, structure or sign was attached.

Substitution and Release of Leased Property

The City shall have, so long as this Lease is in effect, the option at any time and from time to time, to substitute other real property (the "Substitute Leased Property") for any portion of the Leased Property (the "Former Leased Property") or release any identifiable real property and/or improvements currently constituting the Leased Property (in such case, Substitute Leased Property shall mean the Former Leased Property less any portion released pursuant to the Lease); provided that the City shall satisfy all of the following requirements, which are declared to be conditions precedent to such substitution and/or release:

(a) No Event of Default shall have occurred and be continuing;

(b) The City shall file with the Agency and the Trustee, and cause to be recorded in the office of the San Luis Obispo County Recorder, sufficient memorialization of amendments to this Lease and the Site Lease which replaces Exhibit A to the Lease and Exhibit A to the Site Lease with a description of such Substitute Leased Property which deletes therefrom the description of the Former Leased Property;

( c) The City shall obtain a California Land Title Association ("CLTA") or American Land Title Association (ALTA) policy of title insurance insuring the City's fee or leasehold estate in such Substitute Leased Property, the City's leasehold estate under the Lease, and the Agency's leasehold estate under the Site Lease in such Substitute Leased Property, subject only to Permitted Encumbrances, in an amount not less than the aggregate principal amount of the Outstanding Bonds; provided, however, that this requirement shall not apply to Substitute Leased Property that consists only of Former Leased Property less any released portion;

( d) The City shall certify in writing to the Agency and to the Trustee that such Substitute Property serves an essential governmental function and constitutes property which the City is permitted to lease under the laws of the State of California;

( e) The substitution of the Substitute Leased Property shall not cause the City to violate any of its covenants, representations and warranties made under the Lease;

(f) The City shall file with the Agency and the Trustee a written certificate of the City or other evidence which establishes that the armual fair rental value of the Substitute Leased Property after substitution or release will be at least equal to 100% of the maximum amount of the Base Rental Payments becoming due in the then current fiscal year or in any subsequent fiscal year, and that the useful economic life of the Substitute Leased Property shall be at least equal to the maximum remaining term of this Lease; and

A-37

(g) The City shall furnish to the Trustee an opinion of Bond Counsel addressed to the Trustee, the City and the Agency to the effect that the substitution or release is permitted under this Lease and will not in and of itself (i) impair the validity and enforceability of this Lease or (ii) impair the exclusion of interest on the Bonds, and, if applicable, any Additional Bonds, from the gross income of the owners thereof for federal income tax purposes.

Upon the satisfaction of all such conditions precedent, and upon the City delivering to the Agency and the Trustee a written certification of the City certifying that the applicable conditions set forth under the Lease have been satisfied, the Term of this Lease shall thereupon end as to the Former Leased Property and shall thereupon commence as to the Substitute Leased Property, and all references to the Former Leased Property shall apply with full force and effect to the Substitute Leased Property. The City shall not be entitled to any reduction, diminution, extension or other modification of the Base Rental Payments whatsoever as a result of such substitution or release under the Lease. The City and the Agency shall execute, deliver and cause to be recorded all documents required to properly discharge this Lease lien of record against the Former Leased Property.

Insurance

The City shall secure and maintain or cause to be secured and maintained at all times with insurers of recognized responsibility or through a program of self-insurance to the extent specifically permitted in the Lease, all coverage on the Leased Property required by the Lease.

Such insurance shall consist of:

Liability Insurance. The City shall procure ( or cause to be procured) and maintain ( or cause to be maintained), throughout the term of this Lease, reasonable and customary general liability insurance, naming as additional insured the Agency, the Trustee, and their directors, officers, agents and employees, insuring against all direct or contingent loss or liability for damages for bodily injury, death or property damage occasioned by reason of the use or operation of the Leased Property. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance carried by the City.

Workers Compensation Insurance. The City shall at all times comply with the workers' compensation insurance laws of the State of California to the extent applicable to the City.

Fire and Extended Coverage Insurance. The City shall procure ( or cause to be procured) and maintain ( or cause to be maintained), throughout the term of this Lease, insurance against loss or damage to any part of the Leased Property against all perils included within the classification of fire, lightning, and all other risks covered by an extended coverage endorsement ( excluding earthquake) to the full insurable value of the Property, subject to a $100,000 loss deductible provision. Said fire and extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke, sprinkler damage, boiler explosion and such other hazards as are normally covered by such insurance. Such insurance, shall be in an amount equal to 100% of the replacement cost of the improvements on the Leased Property. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried or required to be carried by the City, provided that coverage pursuant to the Lease shall apply exclusively to the Leased Property, and payment of insurance proceeds shall not be contingent upon the degree of damage sustained at other facilities owned or leased by the City.

A-38

Rental Interruption Insurance. The City shall procure ( or cause to be procured) and maintain ( or cause to be maintained), throughout the term of this Lease, rental interruption insurance to cover loss, total or partial, of the use of any part of the Leased Property as the result of any of the hazards covered in the insurance required by the Lease and the resulting loss of rental income to the Trustee, as assignee of the Agency, in an amount sufficient to pay the maximum remaining principal and interest portions of Base Rental due under this Lease during a period equal to the greater of (i) two times Maximum Annual Debt Service, and (ii) the period certified by the City to be reasonably required to rebuild or reconstruct the Leased Property in the event of damage or destruction to the Leased Property. The Net Proceeds of such insurance shall be paid to the Trustee for deposit in the Lease Revenue Fund and shall be credited towards the payment of Base Rental in the order in which such Base Rental Payments become due and payable. The City covenants and agrees to use its best efforts to provide sufficient construction funds and to make all required payments under the Lease, in excess of the available rental interruption insurance, if necessary, in order to ensure completion of the reconstruction, repair, restoration, modification or improvement of the Leased Property.

Title Insurance. The City shall provide, at its own expense, one or more CL TA or ALT A title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Leased Property, (b) the Agency's ground leasehold estate in the Leased Property under the Site Lease, and (c) the City's leasehold estate under the Lease in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. All Net Proceeds received under said policy or policies shall be applied as provided in the Lease. So long as any of the Bonds remain Outstanding, each policy of title insurance obtained pursuant to the Lease shall provide that all proceeds thereunder shall be payable to the Trustee for the benefit of the Owners.

Except for the insurance required Rental Interruption Insurance and Title Insurance, for which the City may not provide self-insurance, as an alternative to providing the required insurance the City may provide a self-insurance method or plan of protection (but only from a special fund of the City or other source for which the General Fund of the City is not in any fashion obligated nor to which the City is otherwise obligated to make payments), covering one or all of the insurance coverage's required to be provided by the Lease, so long as such self-insurance method or plan of protection shall afford reasonable protection to the Agency and the Trustee, in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by counties in the State other than the City.

Net Proceeds of Insurance; Form of Policies

The policy of insurance required under the Lease shall provide that all proceeds thereunder shall be payable to the Trustee pursuant to a lender's loss payable endorsement, and shall name the City, the Agency and the Trustee as insureds. The Net Proceeds of policies of insurance under the Lease shall be applied as provided in the Lease. All policies of insurance required by this Lease and any statements of self-insurance shall be in form satisfactory to the Agency. The City shall pay or cause to be paid when due the premiums for all insurance policies required by this Lease and shall promptly furnish or cause to be furnished evidence of such payments to the Agency and the Trustee. All such policies shall provide that the Agency and the Trustee shall be given thirty (30) days' notice of each expiration, and any intended cancellation thereof or reduction of the coverage provided thereby. The City shall deliver to the Trustee on or before the Closing Date and each anniversary of the Closing Date a certificate that all insurance required under this Lease is in full force and

A-39

effect. In the event that the City obtains insurance through a pooled insurance program of governmental entities, an annual statement or memorandum of coverage delivered to the Agency and the Trustee will satisfy the requirements of the Lease. The Trustee and the Agency shall not be responsible for the sufficiency of any insurance required or payment of premium and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the Trustee.

Damage, Destruction and Condemnation; Application of Net Proceeds

If prior to the termination of the term of the Lease (a) the Leased Property is destroyed (in whole or in part) or is damaged by fire of other casualty, or (b) title to, or the temporary use of, any portion of the Leased Property or the estate of the Agency or the City in the Leased Property or any portion shall be taken under the exercise of the power of eminent domain by any governmental body or by any person or firm or corporation acting under governmental authority, then the City and the Agency shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Leased Property or portion thereof, in accordance with the applicable provisions of the Lease. If Net Proceeds are insufficient to repair or replace the Leased Property or portion thereof, the City shall, to the extent permitted by law, use its best efforts to fund any deficiency from any legally available funds.

If there is an abatement of rental payments pursuant to the Lease as a result of such casualty or event, and the City elects pursuant to the Lease to apply such insurance proceeds and such other sums as are deposited by the City to the prepayment of Base Rental Payments rather than replacing or repairing the destroyed or damaged portion of the Leased Property, then this Lease shall terminate with respect to the destroyed or damaged portion of the Leased Property as of the later of the date of such election by the City or the date the amount required by the Lease is received by the Trustee.

The provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil Code, including any amendments thereto and any other law which may hereinafter be in force during the term of this Lease which authorizes the termination of this Lease upon the partial or complete destruction of the Leased Property, are waived by the City.

The City covenants and agrees, to the extent it may lawfully do so, that so long as any of the Bonds and any Additional Bonds remain outstanding and unpaid, the City will not exercise the power of condemnation with respect to the Leased Property. The City further covenants and agrees, to the extent it may lawfully do so, that if for any reason the foregoing covenant is determined to be unenforceable or if the City should fail or refuse to abide by such covenant and condemns the Leased Property, the value of the Leased Property shall not be less than the greater of (i) if Outstanding Bonds are then subject to redemption, the principal and interest due on the Outstanding Bonds through the date of their redemption, or (ii) if such Outstanding Bonds are not then subject to redemption, the amount necessary to defease such Outstanding Bonds to the first available redemption date in accordance with the Indenture.

The City shall deposit any proceeds received from insurance and condemnation awards with respect to the destruction or partial destruction of Leased Property with the Trustee for deposit into the: (a) Insurance and Condemnation Fund if the City elects to repair the Leased Property, or (b) the Redemption Fund if the City elects to redeem the Outstanding Bonds. The City shall have 45 days from the date of any such destruction or partial destruction to determine whether to repair the Leased Property or use insurance and

A-40

condemnation award proceeds received to redeem such bonds. To the extent that the City determines not to repair the Leased Property and cannot use insurance and condemnation award proceeds to redeem such bonds, the City covenants to substitute property for such Leased Property of equivalent or greater value in accordance with the provisions of the Lease. If the City determines to repair the Leased Property, disbursements by the Trustee shall only be made upon presentation of a requisition in a form substantially similar to Exhibit C of the Indenture. If the City determines to cause the redemption ofless than the full amount of the Outstanding Bonds, such redemption shall only be made to the extent the remaining fair rental value of the Leased Property is not less than the remaining Base Rental Payments supporting debt service on the Outstanding Bonds.

Default

Each of the following events constitutes an Event of Default under the Lease:

(1) Failure by the City to pay any Base Rental Payment or other payment (including Additional Rental Payments) required to be paid under the Lease at the time specified therein.

(2) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed under the Lease, other than as referred to in the preceding subsection ( 1) above, for a period of30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Agency. However, if the City notifies the Agency that in its reasonable opinion the failure stated in the notice can be corrected, but not within such 30-day period, the failure will not constitute an Event of Default if the City commences to cure the failure within such 30-day period and thereafter diligently and in good faith cures such failure in a reasonable period of time; provided, that such cure period shall not extend beyond 60 days.

(3) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assigrunent by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted.

The Agency expressly waives the right to receive any amount from the City pursuant to Section 195 l.2(a)(3) of the California Civil Code.

Whenever any Event of Default has happened and is continuing, the Agency may exercise any and all remedies available under law or granted under this Lease. Notwithstanding anything in the Lease to the contrary, there shall be no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments not then in default to be immediately due and payable. Each and every covenant of the Lease to be kept and performed by the City is expressly made a condition and upon the breach thereof the Agency may exercise any and all rights granted under the Lease; provided, that no termination of this Lease will be effected either by operation oflaw or acts of the parties, except only in the manner expressly provided. Upon the occurrence and during the continuance of any Event of Default, the Agency may exercise each and every one of the following remedies:

A-41

Enforcement of Payments Without Termination. If the Agency does not elect to terminate this Lease in the manner provided for in the Lease, the City agrees to remain liable for the payment of all Base Rental Payments and the performance of all conditions contained in the Lease, and the Agency may take whatever action at law or in equity may appear necessary or desirable, to collect each Base Rental Payment as it becomes due under the Lease. The City will reimburse the Agency for any deficiency arising out of the re-leasing of the Leased Property or portion thereof, or, if the Agency is unable to re-lease the Leased Property, then for the full amount of all Base Rental Payments to the end of the term of this Lease, but said Base Rental Payments and/or deficiency will be payable only at the same time and in the same manner as hereinabove provided for the payment of Base Rental Payments under the Lease, notwithstanding such entry or re-entry by the Agency or any suit in unlawful detainer, or otherwise, brought by the Agency for the purpose of effecting such re-entry or obtaining possession of the Leased Property or portion thereof or the exercise of any other remedy by the Agency.

The City irrevocably appoints the Agency as the agent and attorney-in-fact of the City and shall allow the Trustee to enter upon and re-lease the Leased Property upon the occurrence and continuation of an Event of Default and to remove all personal property whatsoever situated upon the Leased Property, to place such property in storage or other suitable place in the State of California for the account of and at the expense of the City, and the City agrees to save harmless the Agency from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Leased Property and the removal and storage of such property by the Agency or its duly authorized agents in accordance with the provisions contained in the Lease. The City agrees that the terms of this Lease constitute full and sufficient notice of the right of the Agency to re-lease the Leased Property in the event of such re-entry without effecting a surrender of this Lease, and further agrees that no acts of the Agency in effecting such re-leasing constitute a surrender or termination of this Lease irrespective of the term for which such re-leasing is made or the terms and conditions of such re-leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate this Lease will vest in the Agency to be effected in the sole and exclusive manner provided for in the Lease. The City agrees to surrender and quit possession of the Leased Property upon demand of the Agency for the purpose of enabling the Leased Property to be re-let under this paragraph. Any rental obtained by the Agency in excess of the unpaid Base Rental Payments will be applied as a credit against future Base Rental Payments.

Termination of Lease. If an Event of Default occurs and is continuing under the Lease, the Agency at its option may terminate this Lease and re-lease all or any portion of the Leased Property. If the Agency terminates this Lease at its option and in the manner hereinafter provided on account of default by the City ( and notwithstanding any re-entry upon the Leased Property by the Agency in any manner whatsoever or the re-leasing of the Leased Property), the City nevertheless agrees to pay to the Agency all costs, loss or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease in the case of payment of Base Rental Payments. Any surplus received by the Agency from such re-leasing will be applied as a credit against future Base Rental Payments. Neither notice to pay rent or to deliver up possession of the premises given under law nor any proceeding in unlawful detainer taken by the Agency will of itself operate to terminate this Lease, and no termination of this Lease on account of default by the City will be or become effective by operation of law, or otherwise, unless and until the Agency has given written notice to the City of the election on the part of the Agency to terminate this Lease. The City agrees that no surrender of the Leased Property, or of the remainder of the term of the Lease or any termination of the Lease will be valid in any manner or for any purpose whatsoever unless stated or accepted by the Agency by such written notice.

A-42

Proceedings at Law or In Equity. If au Event of Default occurs and continues under the Lease, the Agency may take whatever action at law or iu equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under the Lease or to enforce any other of its rights under the Lease.

Remedies under the Site Lease. If au Event of Default occurs and continues under the Lease, the Agency may exercise its rights under the Site Lease.

Prepayment and Credits

Prepayment from Net Proceeds. The City may prepay, from Net Proceeds of insurance or a condemnation award received by it pursuant to the Lease, the Principal Component of Base Rental Payments then unpaid (and corresponding Interest Component), in whole or in part on any date, pursuant to the Lease, at a prepayment price equal to the sum of the Principal Component prepaid plus accrued interest thereon to the date of prepayment. Applicable prepayments made pursuant to the Lease shall be allocated pro rat a among the Principal Components of Base Rental Payments relating to the Bonds and any Additional Bonds.

Optional Prepayment. The City may at its option prepay from any source of available moneys for redemption of Bonds on any Business Day pursuant to optional redemption provisions of the Indenture, all or any part (in au integral multiple of $5,000) of the Principal Component of Base Rental Payments then unpaid, so that the aggregate annual amounts of principal component of Base Rental which shall be payable after such prepayment date shall each be au integral multiple of $5,000, at a prepayment price equal to the sum of the principal component prepaid plus interest accrued with respect thereto to the date of prepayment, without premium.

Before making any prepayment pursuant to the Lease, the City shall give written notice to the Agency and the Trustee specifying the date on which the prepayment will be made, which date shall be not less than forty-five ( 45) days from the date such notice is given unless the Trustee agrees to a shorter period.

In the event of prepayment in full of the Principal Component of all Base Rental Payments, such that this Lease shall be terminated by its terms as provided in the Lease, all amounts then on deposit under the Indenture which are to be credited to the City's obligations to make Base Rental Payments shall be credited towards the amounts then required to be so prepaid. In the event of the prepayment of some but not all of the Principal Components of the Base Rental Payments, the City shall replace the applicable Base Rental Schedule with a revised Base Rental Payment Schedule reflecting such prepayment of the Principal Components of such Base Rental Payments.

Abatement of Rental

The obligation of the City to pay Base Rental Payments and Additional Rental Payments shall be abated during any period in which by reason of any damage, destruction, condemnation or title defect there is substantial interference with the use by the City of the Leased Property or any portion thereof. Such abatement shall be in an amount such that the resulting Base Rental Payments in any year during which such interference continues does not exceed the fair rental value of the portions of the Leased Property as to which such damage, destruction, taking or title defect does not substantially interfere with the City's use and right of possession, as evidenced by a Certificate of the City. Such abatement shall continue for the period

A-43

commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, and ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed, and the term of the Lease shall be extended as provided in the Lease. Notwithstanding the foregoing, to the extent that moneys are available for the payment of base rental payments in any of the funds and accounts established under the Indenture, such base rental payments shall not be abated but shall be payable by the City as a special obligation payable solely from such funds and accounts.

Net Lease

Subject to the provisions of the Lease relating to abatement of rental, the Lease shall be deemed and construed to be a "Triple-Net-Lease" and the City agrees that rental provided for in the Lease shall be an absolute net return to the Authority, free and clear of any expenses, taxes, fees, insurance premiums, rebate payments, Leased Property costs, reserve deposits, charges or setoffs whatsoever.

SITE LEASE

Pursuant to the Site Lease, the City leases the Leased Property to the Authority, and the Authority leases the Leased Property to the City, upon the terms and conditions in the Site Lease. Certain of the Authority's rights under the Site Lease will be assigned to the Trustee pursuant to the Assignment Agreement.

THE ASSIGNMENT AGREEMENT

Pursuant to the Assignment Agreement, the Authority assigns all of its right, title and interest in and to the Lease and the Site Lease ( other than with respect to certain specified rights of indemnification) to the Trustee, including its right to receive and collect Base Rental Payments, Additional Rental Payments and prepayments thereof, in trust for the benefit of the Owners of the Bonds.

A-44

APPENDIXB

AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR ENDING JUNE 30, 2016

B-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

Cover photograph reflects the City of Pismo Beach Pier and sunset after the rain Photo credit - Vivian Krug

Comprehensive Annual Financial Report

Fiscal Year EndedJ une 30, 2016

City Council

Mayor Mayor Pro Tempore Council Member Council Member Council Member

Executive Management Team

City Manager Administrative Services Director City Clerk Community Development Director Fire Battalion Chief Management Services Director Police Chief Public Works Director~ity Engineer Conference & Visitors Bureau

Edward Waage Erik Howell Sheila Blake Marcia Guthrie Mary Ann Reiss

James R. Lewis Nadia Feeser Erica I nde rlied J elf Winklepleck Paul Lee Debra Garcia Jake Miller Benjamin Fine Gordon J ackson

Year End Audit /Financial Statement Team

Administrative Services Director Finance Manager Accountant Accounting Technician Accounting Clerk Accounting Clerk Office Assistant 11

City of Pismo Beach, California www.pismobeach.org

Nadia Feeser Susan West-:J ones Vanessa Garris Kristin Bennet J ana E tteddgue Jacque Risenhoover Diana Federico

http://www.pismobeach.org

City of Pismo Beach


Fiscal Year Ended J une 30, 2016

Table of Contents

Introductory Section

Letter of Transmittal

List of Principal Officials

Organizational Chart

Table of Contents

G FOA Certificate of Achievement for Excellence in Financial Reporting

Financial Section

Independent Auditors' Report

Management's Discussion and Analysis

Basic Financial Statements:

Government-wide Financial Statements:

Statement of Net Position

Statement of Activities

Fund Financial Statements:

Balance Sheet- Governmental Funds

Reconciliation of the Balance Sheet of Governmental Funds to the Government-wide Statement of Net Position

Statement of Revenues, Expenditures and Changes in Fund Balance -Governmental Funds

Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance of Governmental Funds to the Government-wide Statement of Activities

Statement of Fund Net Position- Proprietary Funds

Statement of Revenues, Expenses, and Changes in Fund Net Position -Proprietary Funds

Page

i--v

vii-xiv

xv

xvi

xvii

1--3

4-14

15-16

17-18

19

20--21

22

23--24

25--26

27

City of Pismo Beach



Table of Contents

Page 2

Statement of Cash Flows - Proprietary Funds

Statement of Fiduciary Net Position - Employee Benefit Trust Fund

Statement of Changes in Fiduciary Net Position- Employee BenefitTrustFund

Notes to the Basic Financial Statements

Required Supplementary Information Section

Budgetary Comparison Schedule - General Fund

Budgetary Comparison Schedule - Housing In Lieu Special Revenue Fund

Schedule of Funding Progress for Other Post--E mployment Benefits (OPE B)

Schedule of the City's Proportionate Share of the Net Pens ion Liability And Related Ratios as of the Measurement Date

Schedule of Plan Contributions

Notes to Required Supplementary Information Section

Supplementary Information Section

Non major Governmental Funds - Overview

Combining and Individual Fund Statements and Schedules:

Combining Balance Sheet- NonmajorGovernmental Funds

Combining Statement of Revenues, Expenditures and Changes in Fund Balance - NonmajorGovernmental Funds

Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual (Budgetary Basis) - NonmajorGovernmental Funds and the Capital Projects Fund:

Gas Tax Fund

Local Transportation Streets Fund

PEG Fund

ii

Page

28--29

30

31

32-66

68-69

70

71

72

73

74-75

77-78

79-S2

83-S6

87

88

89

City of Pismo Beach



Table of Contents

Page 3

Noncapital Grants Fund

Local Business Improvement Fund (LBID)

Chapman House Estate

Public Facilities Fund

Park Development Fund

Capital Outlay Fund

Circulation Improvement Fund

Impact Fees Fund

Developer Impact Fees Fund

Underground Utility Fund

City of Pismo Beach Public Financing Authority Fund

Indio/I: I Portal Assessment District Fund

Visalia Assessment District Fund

Reassessment Districts Fund

Nonmajor Proprietary Funds - Overview

Combining Statement of Fund Net Position - Nonmajor Proprietary Funds

Combining Statement of Revenues, Expenses, and Changes in Fund Net Position -Nonmajor Proprietary Funds

Combining Statement of Cash Flows - Nonmajor Proprietary Funds

Other Schedules:

Comparative Schedule of Capital Assets By Source

Schedule of Changes in Capital Assets By Source

Schedule of Capital Assets By Function and Activity

Schedule of Changes in Capital Assets By Function and Activity

iii

Page

90

91

92

93

94

95

96

97

98

99

100

101

102

103

104

105

106

107

108

109

11 0

111

City of Pismo Beach



Table of Contents

Page 4

Statistical Section

Statistical Section - Overview

Financial Trends Information:

Schedule of Net Position by Component- Last Ten Fiscal Years

Schedule of Changes in Net Position- LastTen Fiscal Years

Schedule of Fund Balance, Governmental Funds - Last Ten Fiscal Years

Schedule of Revenues, Expenditures and Changes in Fund Balance, Governmental Funds and Debt Service Ratio- LastTen Fiscal Years

Revenue Capacity Information:

Page

113

114

116-118

119

120-121

Assessed Value and Estimated Actual Value of Taxable Property- Last Ten Fiscal Years 122

Direct and Overlapping Property Tax Rates - Last Ten Fis cal Years 123

Principal Property Tax Payers -Top Ten Payers - Last Ten Fiscal Years 124-125

Property Tax Levies and Collections - Last Ten Fis cal Years 126

Sales Tax Revenue Base Data - LastTen Fiscal Years 127

Principal Sales Tax Generators by Industry - Revenue Base Concentration Data- LastTenCalendarYears 128-129

Principal Sales Tax Payers - Top 25 - Last Ten Fiscal Years 130-132

Transient Occupancy Tax Revenue Base Data - Last Ten Fiscal Years 133

Principal Transient Occupancy Tax Payers and Other Data - Last Ten Fiscal Years 134

Principal Transient Occupancy Payers - Top Ten in Alphabetical Order- Last Ten Fiscal Years 135

Water and Sewer Rates forS ingle Family Residents -Last Ten Fiscal Years 136

Principal Water and Wastewater Payers -Revenue Base Concentration Data -Last Ten Fiscal Years 137

Principal Water Sales Purchasers - Top Ten - Last Ten Fis cal Years 1 38

iv

City of Pismo Beach


Fiscal Year EndedJ une 30, 2016 Table of Contents

Page 5

Debt Capacity Information:

Ratios of Outstanding Debt by Type - Last Ten Fiscal Years

Ratios of General Bonded Debt- LastTen Fiscal Years

Direct and Overlapping Governmental Activities Debt- Current Year

Legal Debt Margin Information - Last Ten Fiscal Years

Pledged Revenue Coverage- LastTen Fiscal Years

Demographic and Economic Information:

Demographic and Economic Statistics- LastTen Fiscal Years

Principal Employers - Top Ten - Last Eight Fiscal Years

Page

139

140

141

142

143-144

145

146-147

Full-Time Equivalent City Government Employees by Function/l'rogram - Last Ten Fiscal Years 148

Operating Information:

Operating Indicators by Function/l'rogram - Last Ten Fiscal Years

Capital Asset Sta tis tics by Function/I' rogram - Last Ten Fis cal Years

Bond Issue Continuing Disclosure Information

Series 2007A Lease Revenue Refunding Bonds

Series 2012 Wastewater Refunding Revenue Bonds

Water Enterprise Fund

V

149

150

1 51

152-1 56

157-159

THIS PAGE INTENTIONALLY LEFT BLANK

vi

Introductory Section

Administrative Services Department 760 Mattie Road Pismo Beach CA 93449 Phone: 805-773-4655 Fax: 805-773-7065

December 15, 2016

To the Honorable Mayor, Members of the City Council, and Citizens of the City of Pismo Beach

REPORT PURPOSE AND ORGANIZATION

It is our pleasure to present to you the Comprehensive Annual Financial Report (CAFR) of the City of Pismo Beach, California for the fiscal year endedJ une 30, 2016. The City follows a policy of preparing a complete set of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) after the end of each fiscal year. This report is published to fulfill that policy for the fiscal year endedJ une 30, 2016. It is the fifteenth year the City has prepared a CAFR.

Management of the City of Pismo Beach assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive frame-work of internal control that the City has established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, ratherthan absolute, assurance thatthe City's financial statements are free of material misstatements.

Audited Financial Statements

The City's financial statements have been audited by Glenn Burdette, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2016 are free of material misstatement. The independent auditor concluded, based upon the audit, that there was reasonable basis for rendering an unqualified independent auditor's report that the City of Pismo Beach's financial statements for the fiscal year endedJ une 30, 2016 are fairly presented in conformity with GAAP. The independent auditor's report is located at the front of the financial section of this report.

GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). The MD&A complements this letter of transmittal and should be read in conjunction with it. The City's MD&A immediately follows the independent auditor's report.

Report Organization

This report is organized in three sections: introductory, financial, and statistical.

1. The Introductory section includes this transmittal memorandum and general information on the City's government structure and the services provided. It includes a list of principal officials, an organizational chart, and the Government Finance Officers Association's (GFOA) Certificate of Achievement for Excellence in Financial Reporting.

vii

2. The Financial section contains the independent auditor's report on the financial statement audit, the Management Discussion & Analysis (MD&A), basic financial statements, Required Supplementary Information; and combining and individual fund presentations and supplementary information.

3. The Statistical section includes selected financial and demographic information.

PROFILE OF THE CITY OF PISMO BEACH

The City of Pismo Beach was incorporated in 1946. The City is located on the Central Coast of California about 200 miles north of Los Angeles. The City is visited annually by a substantial number of tourists seeking to enjoy the area's moderate climate, ocean views and sunsets, fine restaurants, and the relaxing atmosphere unique to coastal communities. The City's downtown core area and hotel areas are anchored by the City-owned Pier extending into the Pacific Ocean. The City is home to about 8,181 individuals, and most of the City is residential with a continuing trend of new homes being built with spectacular ocean views.

Form of Government

The City operates under a council-manager form of government. Policy making and legislative authority are vested in the City Council consisting of the elected Mayor and four other elected Council members. The Council is responsible, among other matters, for passing ordinances, adopting the City budget, appointing committees, and hiring the City Manager. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the daily operations of the City, and for appointing other employees and otherwise managing daily operations of the City. The Mayor is elected for two year terms, and the Council is elected for four year staggered terms, with two members elected every two years.

City Services

The City provides a full range of municipal services including fire and police protection, construction and maintenance of City streets, storm drains, bridges, and similar infrastructure-type assets, park maintenance, community recreation activities and public facilities. In terms of business-type activities, the City provides water, wastewater, parking, pier, and transit services through the operation of its enterprises.

Budget Process and Budgetary Control

The City's biennial budget serves as the foundation forthe City of Pismo Beach's financial planning and control system. All departments of the City submit requests for appropriations to the City Manager. The City Manager uses these requests as a starting point for developing a proposed budget. The City Manager presents a proposed budget to the City Council every two years. The Council holds public hearings on the proposed budget and then ultimately adopts a formal budget. The budget is adopted by fund, department, and object. The Council periodically reviews the City's actual financial activity in relationship to the original budget, and as necessary, amends the original budget to reflect changing conditions during the fiscal year.

viii

ECONOMIC CONDITION

Long-Term Financial Planning

The City incorporates long-term financial planning into its budget process in several ways.

• First, the City has established a set of financial policies that were reviewed by the City Council and Executive Management Team in April 2015 during the development of the two-year budget and confirmed by the Council onJ une 2, 2015. These policies establish goals forthe allocation of public resources in the manner best suited to the efficient provision of services to citizens and visitors present within the City. Some of these policies call for maintaining adequate cash reserves and providing on-going maintenance of infrastructure and buildings, which are vital to sound fiscal management. In addition, on April 7, 2015, the City Council passed Ordinance No. 0-2015--003 adopting fiscal policies for General Fund Committed Fund Balances.

• Second, the Council undertakes a strategic planning process to establish goals and priorities for the organization after taking into account public input. 5 pecifically, the Council engaged the community at a public hearing and by soliciting ideas and input through a variety of means. Additionally, the employees were able to collaborate by department to share their thoughts on what investments should be made. Based on this input, the City Council adopted six major City goals, five other important oqjectives, and 1 Oas resources permit objectives.

• Third, the City maintains a five year operating projection for the General Fund and the Water and Wastewater Enterprise Funds. The General Fund projection is updated quarterly and shared with Council annually. These prqjections allow management to see what the future could look like given a set of assumptions and is evaluated in the context of whether decisions are sustainable over the long term.

• Fourth, the City has a ten-year long,ange capital planning process that helps drive annual capital funding decisions as well as periodic bond issues for larger investments.

• Fifth, the City successfully negotiated three-year labor contracts with its two unions, Service Employees International Union (SEIU) and the Police Officers Association (POA), and its nonrepresented full-time and temporary part-time employees for FY 2016-17 through FY 2018-19. These three-year contracts lock in personnel costs and assists in long-term budgeting and planning.

• Finally, Implementation of Governmental Accounting Standards Board (GASB) 68 is included in this year's financial statements and provides additional transparency on long-term pension obligations in the annual financial report.

The general fund's budget to actual comparison, a major governmental type fund under the reporting standards, is presented as required supplementary information in a separate section of this report immediately following the notes to the financial statements. F orthe City's other governmental-type funds, a budget to actual comparison schedule is presented as optional information in the section of this report containing combining financial statements and individual fund schedules.

Economic Condition and Outlook

The City's economy is largely driven by visitors and businesses serving visitors. Some of these businesses include hotels, motels, and recreation vehicle parks, which contribute transient occupancy tax (TOD revenues to the City that make up 40% of the City's General Fund revenues. TOT revenues are equal to 10% of the rent charged by all lodging businesses for a person exercising occupancy for 30 consecutive calendar days or less. These revenues increased by $518 thousand, or 5.96%, in FY 2016

ix

compared to FY 2015. The City remains a top tourist destination, especially for California residents, and is expected to continue to draw more visitors. More airline routes to San Luis Obispo Regional Airport, three new Pismo Beach hotels, and the City's classic California pier and beach are all major attractions that increase lodging stays.

Property related tax revenues make up 2C!Yo of the City's General Fund revenues. Assessed values in the City increased by 6.47%. Single Family Residential full value sales have rebounded from the Great Recession lows during 2010-2012. The average price for a single family residential home reached $933 thousand, an increase over the $867 thousand price by 7.SC!Yo. In addition, the City experienced the largest increase of multifamily housing units permitted for construction in FY 2015-16 compared to the rest of the San Luis Obispo County. However, in response to the drought, the City enacted a three-tiered system of building restrictions during FY 2015-16. The first tier is currently in effect, which limits development on vacant parcels and places restrictions on redevelopment. The redevelopment of an existing property may be permitted if the owner can show that water consumption would be equal or less than the current property's water consumption. This will likely lead to a slowdown in new construction and redevelopment. For the short term, this will allow current supply to remain flat and demand to increase, further driving up property values in the City.

Other businesses that support visitors include a variety of restaurants, the Pismo Beach Prime Outlet Center for retail purchases of general consumer goods, and fuel service stations. Additionally, hardware and building supplies stores, grocery stores, and drug stores are supported by visitors and local residential growth in the area. All these businesses contribute sales and use tax revenues to the City, which makes up 1 We of the City's General Fund revenues. FY 2016 sales and use tax revenues included a one-time $373 thousand payment from the State to reflect the end of the State's "triple-flip" and trueup of sales tax revenues based on the timing of the receipts and distribution of those receipts to cities. For background on the "triple-flip", in March 2004, California voters approved Proposition 57, the California Economic Recovery Bond Act, which authorized bonds to close the State's budget deficit. To guarantee bond repayment, the state confiscated 0.25% of local sales tax revenues, which was backfilled with property tax revenues from county property tax revenues eachJ anuary and May. The State's "tripleflip" borrowing of local taxes ended on January 1, 2016, resulting in the one-time true-up payment. Taxable sales are expected to continue to grow 0y about 3.C!Yo per year according to the City's sales tax consultant and up to 6.C!Yo per year according to Beacon Economics projection for California State taxable sales.

The national economic forecast looks positive, with national gross domestic product prqjected to increase around 2.8C!Yo per year over the next two years according to Beacon Economics. Consumer spending has improved, incomes are rising, and unemployment is low. The California State economic forecast is positive as well, with low unemployment, and positive growth in taxable sales, home prices and sales, population, and personal income. San Luis Obispo's economic forecast reflects expansion of leisure and hospitality as a driving force, reflecting growth in restaurants and hotels, both key factors for the City of Pismo Beach.

One major impact to the County and to the City of Pismo Beach is the Pacific Gas and Electric (PG&E) Diablo Canyon Nuclear Power Plan (Diablo) closure in 2025. Based on preliminary research, the estimated cumulative impact loss during 2017 to 2025 on the City of Pismo Beach government is $867 thousand, of which $839 thousand is in the General Fund and $28 thousand is in the Lodging Business Improvement District (LBID) Fund. The ongoing impact is estimated to be a $227 thousand per year loss to the City of Pismo Beach government, of which $222 thousand is in the General Fund and $6 thousand is in the Lodging Business Improvement District (LBID) Fund. There are many variables and assumptions associated with these fiscal impacts, which are likely to change. The largest components of this loss is in the City's unitary property tax revenues and the TOT and LBID Assessment revenue loss. The City is expected to receive $767 thousand from PG&E in the form ofan Economic Development Fund to mitigate this financial loss.

X

Relevant Financial Policies

The City of Pismo Beach has adopted a comprehensive set of financial policies to provide guidance for all fiscal activities and resource allocation decisions as defined in the Adopted Budget and Purchasing Policy. In addition, the City Council approved or adopted several other fiscal policies including:

• City's Investment Policy, adopted most recently in August 2016 • Adopted an ordinance to amend the City's Municipal Code to add details on committed fund balances,

including the General Fund Reserve, the General Fund City Facility Reserve, and the Risk Management Reserve policies in April 2015

• Capital Assets Policies and Procedures, effective onJ uly 1, 2014 as part of the City's Purchasing Policy.

The following policies are particularly relevant to the City's financial performance in FY 2016.

General Fund Reserve: Establish and maintain a General Fund reserve of23% of budgeted expenditures in the General Fund. The City maintained a General Fund reserve of 23% of budgeted operating expenditures and did not use any of these reserves.

Risk Management Reserve: Establish and maintain a Risk Management Reserve to be used for unanticipated risk management costs, funded with $50 thousand per year, up to $250,000. The City maintained a reserve of $150 thousand in FY 2016 and did not use any of these reserves.

Fiscal Management: Annually consider reduction of long-term debt as a use of revenues. In FY 2014, the City Council established a $1 million Debt;Pension Reduction reserve to consider reduction of longterm debt or pension liability. The Debt;Pension Reduction Reserve was made up of one-time savings from prior year expenditures and additional unanticipated revenues. A large portion of the one-time savings came from salary and benefit savings due to vacancies. Based on a reduced payroll, the contributions to the CalPERS pension costs were less in previous years and have not reduced the pension liability balance as much as anticipated. Contributing this Reserve to reducing the CalPERS pension liability uses prior year personnel savings and pays off the personnel unfunded liability costs. On March 17, 2015, the City Council approved a $1 million payment to Ca IP E RS to reduce the City's unfunded pension liability costs. This payment reduces the City's unfunded pension costs 0y an estimated $670 thousand and reduces the annual ongoing contribution of approximately $200 thousand per year to CalPE RS starting in FY 2018-19.

Infrastructure: Contribute from the General Fund annually for the improvement of infrastructure. The City contributed to various infrastructure improvements in FY 2016, including: street paving; purchasing land for parking on Shell Beach Road; City Hall improvements; and Shell Beach tennis court improvements.

Economic Development: Achieve organized, sustainable community development for the citizens of Pismo Beach by providing a diverse economic base while preserving our scenic beauty, small town charm, and historical assets. The City contributed various funds in FY 2016 for the implementation of the Do.vntown Strategic Plan; the Price House Historical Park improvements; the Shell Beach Streetscape Phase 1 project; and parking lot improvements at Dinosaur Caves Park.

Projects Accomplished in FY 2016

Pismo Beach is an active and vibrant community, with a municipal government that is proactive and prepared to respond to changing community needs. Even with a small staff, the City has accomplished many projects in FY 2016. The following list highlights some of the most significant accomplishments in FY 2016.

xi

Infrastructure Maintenance and Beautification v' Street paving as part of the third phase of the City's Pavement Management System v' Adding Price House Historical Park as the City's newest park, including major improvements to the

park v' Shell Beach Streetscape Phase I design and planning work v' Purchasing land on Shell Beach Road for parking v' Chapman Estate Americans with Disability Act (ADA) Improvements v' Design work to replace the Bello Bridge v' Planning work towards the Regional Groundwater Sustainability Plan for a recycled water facility v' Completion of the utility box art project in Downtown area

Housing, Health, and Safety v' Risk Management focus on the Americans with Disabilities Act (ADA) including completion of update

to ADA Transition plan and ADA corrections including sidewalk and curb ramp updates v' Risk Management focus on Risk Assessment corrections including work to update the City's bluff

tops with appropriate signs and fencing v' Replaced and moved the Fire radio channel and transceiver v' Installed a backup generator at City Hall v' Adoption of the triennial Building Code update

Preservation of essential services and fiscal health v' Increased the General Fund Reserve from 22% to 23% v' Contributed $50 thousand to the Risk Management Reserve for a total balance of $150 thousand to

fund unanticipated general liability and workers' compensation costs v' Fully funded the General Fund Reserve, the General Fund City Facility Reserve, and the Risk

Management Reserve v' Implemented a new Recycled Water Development Impact Fee to support the proposed recycled water

facility v' Standardized the City's computer software programs, implemented a redundant fiber internet

solution, replaced the City's phone system, replaced the City's copiers and printers, and made significant progress on the replacement and implementation of the City's financial system

v' Updated insurance for earthquake and flood coverage of key City infrastructure to reduce risk exposure

v' Negotiations completed with all bargaining units for new three-year agreements

Economic Development v' Implementation of the Downtown Strategic Plan, incorporating downtown visioning and revitalization

efforts v' Updated the City's visitor guide v' Acceptance of the Downtown parking study v' Approval of the Chapman Estate Strategic Plan

Community Awareness and Communication v' Police Department's Commission on Accreditation for Law Enforcement Agencies, Inc. (CALEA)

Reaccreditation with Gold Standard v' Target Hazard Awareness Program-Designed new signs and implemented additional patrols for

prevention at Pismo Beach and the Bluffs;Cave Landing reducing risk to public health and safety

FY 2017 Major Initiatives

As we look to the future, we are fiscally healthy and have the largest General Fund financial reserve we have ever had, our City employee culture is positive, collaborative and employee relations are excellent, we enjoy beneficial working relationships with the private sector and our community partners, the

xii

community's economy is growing healthily, and outside investment is coming in. We enjoy the trust of the citizenry as evidenced by the half-cent sales tax being renewed by over 71% of voters, the highest percentage of any sales tax measure countywide that was considered on the 2015 ballot. Finally, the local, state, and federal economy has recovered with interest rates at historic lows, residential and commercial valuations are high, and consumer and investor confidence have improved. THE TIME IS NOW to capitalize on all of these factors and make very strategic investments in our community that will further enhance our quality of life and make us more sustainable in the future.While the time is new to make major investments, the City continues to set aside some of the savings from prior years and a portion of new revenues into reserves. The Time is Now to make major investments in areas that will impact our community for many years to come. Specifically, these investments are outlined in more detail below.

The Time Is Now to Protect Our Clean Water Supply While Making it More Sustainable

The FY 2017 budget makes significant strides towards protecting our clean water while discovering ways to make it more sustainable. Pismo Beach is being proactive to ensure clean water is available now and for the future, including:

• Investing in strategic planning efforts with neighboring communities included in the Northern Cities Management Area

• Seeking funding for and beginning the planning and design of a reclaimed water system

The Time is Now to Further Enhance Our Neighborhoods and Protect Quality of Life

The FY 2017 budget includes strategic investments into our future, including:

• Beginning implementation of the Shell Beach streetscape phase 1 to provide a more walkable community, a more attractive community and a more vibrant business environment

• Creating additional commercial and visitor serving parking opportunities in Shell Beach • Developing standards for Shell Beach residential and commercial development that will protect the

feel and character of the area • Revising the General P Ian Circulation Element to ensure efficient access throughout the community

via a variety of transportation types • Involving the public in a planning process to discuss ways that the former City Hall building on Bello

Street can be used and identifying what elements are historically significant to the community • Investing in new equipment and amenities for City parks

The Time is Now to Invest in Economic Development

The FY 2017 budget includes efforts to promote our City to our residents and visitors, including:

• Implementing a comprehensive downtown revitalization and planning process looking at land use, parking, circulation, retail uses, streetscape and public amenities aimed at transforming downtown into the cultural, social and economic center of the community

• Implementing Pier area improvements that are sensitive to parking needs • Working with new hotel developments to ensure they incorporate well into downtown and leverage

their investment to attract additional retailers and restaurants • Working with the Land Conservancy to ensure a successful Pismo Preserve opening that creates an

accessible entry for residents and visitors while being complimentary to the neighborhood

xiii

The Time is Now to Preserve and Enhance City Resources

Finally, FY 2017 budget also invests in and protects City resources, including:

• Improving opportunities for employee education and training that result in more efficient, resourceful, and entrepreneurial operations

• Continuing to enhance the environment and culture at City facilities to improve employee morale, development, and creativity

• Repairing the City's landmark pier and looking at ways to provide additional options to enhance the space

• Implementing technology to support continuous operations for emergency operations and online payment systems and implementing the City's IT Strategic P Ian for security, agenda management, and record retention

• Continuing replacement of mission critical public safety vehicles, including the replacement of the 1997 Fire Engine at Station 63, to ensure the City's fleet is in good working order and maintenance costs remain low

• Pursuing continued options to conserve water and reduce electricity use at City facilities

AWARD AND ACKNOWLEDGMENTS

Award for Excellence in Financial Reporting

The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pismo Beach for its comprehensive annual financial report (CAFR) for the fiscal year endedJ une 30, 2015. In order to receive this award, the City published an easily readable and efficiently organized CAFR. This report satisfies both U.S. generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a oneyear period only. We believe that our current CAFR continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

Acknowledgments

The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Administrative Services Department. We would like to express our appreciation to all members of the departments who assisted and contributed to the preparation of this report. Credit must also be given to the Mayor and the Members of the City Council, and the Executive Management Team for their continued support for maintaining the highest standards of professionalism in the management of the City of Pismo Beach's financial affairs.

Resoectfullv submitted,

James R. Lewis City Manager

Nadia Feeser Administrative Services Director

xiv

City Council

Mayor Mayor Pro Tempore Council Member Council Member Council Member

Executive Management Team

City Manager Administrative Services Director City Clerk Community Development Director Fire Battalion Chief Management Services Director Police Chief Public Works Directori(:ity Engineer Conference & Visitors Bureau

Edward Waage Erik Howell Sheila Blake Marcia Guthrie Mary Ann Reiss

James R. Lewis Nadia Feeser Erica I nde rlied J effW inklepleck Paul Lee Debra Garcia Jake Miller Benjamin Fine Gordon J ackson

Year End Audit /Financial Statement Team

Administrative Services Director Finance Manager Accountant Accounting Technician Accounting Clerk Accounting Clerk Office Assistant 11

Nadia Feeser Susan West-:J ones Vanessa Garris Kristin Bennet J ana E tteddgue Jacque Risenhoover Diana Federico

City of Pismo Beach Organizational Chart

xvi

Oovommcnt Finance Officers Association

Certificate of Achievement for Excellence in :Financial Reporting

Presented to

City of Pismo Beach r rfi • ..... a.L1_orn1a

For its C~hcnsive Annual Financial Report

for the Fiscal Year Ended

June 30, 2015

&ccutive Director/CEO

xvii

Financial Section


xix

GLENN BURDETTE CF:RT:FiF/ PUDLIC ACCOU\ AHTS

Independent Auditors' Report

The Honorable Mayor and Members of the City Council

City of Pismo Beach, California

Pismo Beach, California

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type

activities, each major fund, and the aggregate remaining fund information of the City of Pismo Beach,

California, (the Ctty) as of and for the year ended June 30, 2016, and the related notes lo the financial

statements, which collectively comprise the City's basic financial statements as listed in the accompanying table of contents.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and the fair presentation of these financial statements in

accordance with accounting principles generally accepted in the United States of Amerie&1; this include the

design, implementation, and maintenance of internal control relevant to the prep,w-ation and fair presentation of financial statements that are free from misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the

standards applicable to financial audits contained in Government Auditing Sta~. issued by the Comptroller

General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend on the auditor's judgment, including the assessment of

the risks of material misstatement of the financial statements, whether due to fraud er error. In making those

risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation

of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we

express no such opinion. An audit also includes evaluating the approprielenass of accounting pol.::ies used and the reasonableness of significant accounting estimates made by man~ement, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions,

t;;LENNBURD!TT!.COM

1

SAN LUIS Oll!PO 11 SO P2lm Street

San Lw:; Obi,;po, CA ~J'.l4U 1

p 805 $441441

f 8rlS 54443'.,1

PASO ROBLES 1 il? (',outh \/:np Strf'l~I, Sti' ,\

r.i~o Robles, CA 13//G

p 8JS 23? "Jgt;;·,

I 8J5 2313 9332

2222 South 8ro;1dwi~iJ. Ste. A

Sa,ta Mans, C,\ 'J:J4':i4

p SQ~; ~p? 4111 r f 80'.; 922 428G

The Honorable Mayor and Members of the City Council

City of Pismo Beach, California

Pismo Beach, California Page 2

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective

financial position of the governmental activities, the business-type activ~ies, each major fund, and the

aggregate remaining fund information of the City as of J une 30, 2016, and the respective changes in financial

position and, where applicable, cash flows thereof for the yearthen ended, in accordance with accounting

principles generally accepted in the U n~ed States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the U n~ed States of America require that the Management's

Discussion and Analysis on pages 4 through 14, the budgetary information, the Schedule of Funding Progress

for Other Post-Employment Benefits, the Schedule of Employer Contributions for Other Post-Employment

Benefits, the Schedule of City's Proportionate Share of the Net Pension Liability and Related Rations, and the

Schedule of P Ian Contributions on pages 68 through 73 be presented to supplement the basic financial

statements. Such information, although not a basic part of the financial statements, is required by the

G overnmentAccounting Standards Board, who considers it to be an essential part offinancial reporting for

placing the basic financial statements in an appropriate operational, economic, or historical context. We have

applied certain limited procedures to the required supplementary information in accordance with aud~ing

standards generally accepted in the United States of America, which consisted of inquiries of management

about the methods of preparing the information and comparing the information for consistency with

management's responses to our inquiries, the basic financial statements, and other knowledge we obtained

during our audit of the basic financial statements. We do not express an opinion or provide any assurance on

the information because the limited procedures do not provide us with sufficient evidence to express an opinion

or provide any assurance.

Other Information

Our aud~ was conducted for the purpose of forming opinions on the financial statements that collectively

comprise the City's basic financial statements. The introductory section, combining and individual fund

statements and schedules on pages 79 through 107, the other schedules on pages 108 through 111 and the

statistical section are presented for purposes of add~ional analysis and are not a required part of the basic

financial statements.

The combining and individual fund statements and schedules and the other schedules are the responsibility of

management and were derived from and relate directly to the underlying accounting and other records used to

prepare the basic financial statement Such information has been subjected to the auditing procedures applied

in the audit of the basic financial statements and certain additional procedures, including comparing and

reconciling such information directly to the underlying accounting and other records used to prepare the basic

financial statements or to the basic financial statements themselves, and other additional procedures in

accordance with auditing standards generally accepted in the United States of America. In our opinion, the

combining and individual fund statements and schedules and the other schedules are fairly stated, in all

material respects, in relation to the basic financial statements as a whole.

2

The Honorable Mayor and Members of the City Council City of Pismo Beach, California

Pismo Beach, California

Page3

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit

of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on

them.

Other Reporting Required by Go\lW/ffl!ent Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2016,

on our consideration of the City's internal control over financial reporting and on our tests of its compliance with

certain provisions of laW!I, regulations, contracts, and grant agreements and other matters. The purpose of that

report is to describe the scope of our testing of internal control over financial reporting and compliance and the

results of that testing, and not lo provide an opinion on internal control over financial reporting or on

compliance. That report is an integral part of an audit performed in accordance with Government Auditing

Standards in considering the City's internal control over financial reporting and compliance.

0/i)/K f!prEJ/m-t~ Glenn Burdette Attest Corporation San Luis Obispo, Caltfornia

December 15, 2016

3

MANAGEMENT'S DISCUSS ION AND ANALYSIS

This section of the City of Pismo Beach's comprehensive annual financial report presents a narrative overview and analysis of the City's financial activities during the fiscal yearthat ended onJ une 30, 2016. Please read it in conjunction with the City's transmittal letter (in the Introductory Section) and the audited financial statements, which follow this section.

FINANCIAL HIGHLIGHTS

The following outlines financial highlights forthe year:

• The City's total net position increased by about $10.04 million overthe course of this year's operations after conducting all City operations and programs. The assets of the City exceeded its liabilities by about $96.45 million at the end of the 2016 fiscal year. Of that amount, $28.57 million (the unrestricted net position) may be used to meet the City's ongoing obligations and operating expenses forthe next fiscal year.

• Overall City-wide revenues from all governmental and business-type activities increased by about $905,000 compared to the 2015 fiscal year. The increase in revenues was primarily in charges for services ofapproximately $240,000, Transient Occupancy Taxes at $518,000, and $270,000 in Property Tax revenues.

• Transient Occupancy Tax Revenues increased by $0.52 million in 2016 to $9.20 million.

• The City's total expense for all programs in the 2016 fiscal year decreased by about $0.79 million compared to the 2015 fiscal year.

• The General Fund reported a fund balance of $19.11 million at the end of the 2016 fiscal year; a 22.19 percent increase overthe end of the 2015 fiscal year.

• The City also ended the 2016 fiscal year with $16.09 million reported in the proprietary enterprise funds (the amount of the net position available for use both restricted and unrestricted but excluding the net investment in capital assets).

• The City's other nonmajor governmental funds ended the 2016 fiscal year with about $5.71 million available for special purposes.

• Implemented a new financial system, S pringbrook/Accela. As of the end offiscal year 2015-16, we were live with the General Ledger, Accounts Payable, Purchase Orders, and Fixed Assets.

4


OVERVIEW OF THE FINANCIAL STATEMENTS

The basic financial statements are comprised of three components: Government-wide Financial Statements, Fund Financial Statements, and Notes to the Financial Statements. This report also contains required supplementary information and a section containing combining statements and schedules for nonmajor governmental funds and proprietary funds.

Government-wide Financial Statements provide both long-term and short-term information about the City's overall financial status.

Fund Financial Statements focus on individual parts of the City government, reporting the City's operations in more detail than the government-wide statements.

- Governmental fund statements tell how general government services like public safety, general government, community services, public works, and streets were financed in the short-term as well as what remains for future spending.

- Proprietary fund statements offer short and long-term financial information about the activities the government operates like businesses, such as the City's water, wastewater, parking, pier and transit systems.

Notes to the Financial Statements explain the information in the financial statements and provide more detailed data.

Figure A-1 summarizes the major features of the City's financial statements, including the portion of the City government they cover and the types of information they contain. The remainder of this overview section of management's discussion and analysis explains the structure and contents of each of the statements.

5


Figure A-1

Major Features of City of Pismo Beach's Government-Wide and Fund Financial Statements

I Scope

Required financial statements

Accounting basis and measurement foe us

Type of assetAiability information

Type of inflow putflow information

G ove rnme nt-W ide Statements

Entire City government

Statement of net position Statement of activities

Accrual accounting and economic resources focus

All assets and liabilities, both financial and capital, and short-term and long-term

All revenues and expenses during year, regardless of when cash is received or paid

Fund Statements

Governmental Funds I Proprietary Funds

The activities of the City that Activities the City operates are not proprietary or fiduciary, similar to private businesses: such as police, fire, streets, the water, wastewater, parking, general government, and pier and transit systems community services

Balance sheet S ta te me nt of net position

Statement of revenues, Statement of revenues expenditures, and changes in expenses, and changes in net fund balance position

Statement of cash flows

Modified accrual accounting Accrual accounting and and current financial resources economic resources focus focus

Only assets expected to be All assets and liabilities, both used up and liabilities that financial and capital, and short-come due during the year or term and long-term soon thereafter; no capital assets included

Revenues for which cash is All revenues and expenses received during or soon after during year, regardless of the end of the year; when cash is received or paid expenditures when goods or services have been received and payment is due during the year or soon thereafter

6


GOVERNMENT-WIDE FINANCIAL STATEMENTS

The government-wide statements report information about the City as a whole using accounting methods similar to those used by private-5ector companies.

The two government-wide statements report the City's net position and how it has changed.

The S taternent of Net Position presents information on all the City's assets and liabilities. The Net Position - the difference between the City's assets and liabilities - is one way to measure the City's financial health, or position. Over tirne, increases or decreases in the City's net position are an indicator of whether its financial health is improving or deteriorating, respectively.

The Statement of Activities includes all of the current year's revenues and expenses regardless of when cash is received or paid. This shows how the government's net assets changed during the most recent fiscal year.

Both government-wide financial statements of the City are reported in two categories:

• Governmental activities - All of the City's basic services are included here, such as general government, police, fire, streets, public works, and community services. Property taxes, sales taxes, transient occupancy taxes, special and other taxes, user charges and fees and state, local and federal grants help to finance these activities.

• Business-Type activities -The City charges fees to customers to help coverthe costs of certain services. The City's water, wastewater, parking, pier and transit enterprises are reported here.

FUND FINANCIAL STATEMENTS

The fund financial statements provide more detailed information about the City's most significant funds -not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes.

• Some funds are required by State law, such as the State Gas Tax Fund and Transportation Development Act/ Local Transportation and Transit Funds.

• The City Council establishes other funds to control and manage money for particular purposes, such as the Capital Project Fund.

• Some funds are maintained to demonstrate that the City is properly using certain specific fees fortheir intended purpose, such as the Impact Fee Funds.

• Other funds are maintained for similar purposes but in addition demonstrate the City's ability to repay its long-term debt obligations, such as the revenue bonds.

The City has two kinds of funds:

• Governmental funds - The City's basic services are included in governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-€nd that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you in determining whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information on the subsequent page that explains the relationship (or differences) between them.

7


• Proprietary funds - The City maintains two different types of proprietary funds. Enterprise funds are used to report the same functions reported as business-type activities in the government-wide financial statements: the City's water, wastewater, parking, pier and transit operations. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City's various functions. For example, the City uses an internal service fund to account for its fleet of vehicles. Because these services predominately benefit governmental rather than business-type functions, they have been included within the governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide statements, only in more detail. The proprietary fund statements provide separate information for the City's water and wastewater operations, both of which are considered to be major funds of the City. The vehicle internal service fund is presented in a separate column alongside the totals for the City's proprietary enterprise funds.

FINANCIAL ANALYSIS OF THE CITY AS A WHOLE Net Position. The City's combined net position increased about $10.04 million between fiscal years 2015 and 2016.

Table A-1

City of Pismo Beach's Net Position

Total Governmental Business-type Percentage

(in millions of dollars) Activities Activities Total Change

2016 2015 2016 2015 2016 2015 2015-2016

Current and other assets $34.47 $28.06 $18.33 $15.84 $52.80 $43.90 20.27%

Capital assets and other noncurrent assets 45.35 44.97 31.21 32.08 76.56 77.05 -0.64%

Total assets $79.82 73.03 49.54 47.92 129.36 120.95 6.95%

Deferred Outflows 2.44 2.36 0.71 0.67 3.15 3.03 3.96%

Long-term liabilities 15.25 15.23 12.61 12.92 27.86 28.15 -1.03%

Other liabilities 3.70 3.40 1.35 1.29 5.05 4.69 7.68%

Total liabilities 18.95 18.63 13.96 14.21 32.91 32.84 0.21%

Deferred Inflows 1.25 2.66 0.18 0.35 1.43 3.01 -52.49%

Net position

Investment in capital assets 40.90 39.25 20.01 20.13 60.91 59.38 2.58%

Restricted 6.70 4.18 1.99 1.50 8.69 5.68 52.99%

Unrestricted 14.46 10.67 14.11 12.40 28.57 23.07 23.84%

Total net position $62.06 $54.10 36.11 34.03 98.17 $88.13 11.39%

Net position of the City's governmental and business-type activities increased 11.39 percent to $98.17 million. About 62 percent of the net assets of the City are represented by the City's net investment in its capital assets such as buildings, land, equipment, street systems, and facilities. The remaining 38 percent is essentially represented by cash, investments, and receivables. About 85 percent of the City's total liabilities are represented by long-term obligations including revenue bonds, state revolving fund loans in the Wastewater Fund, employee compensated absences, and self-insured portions of claims.

8


Changes in Net Position

Revenues: The City's 2016 total revenues of about $38.48 million were about $0.90 million higher than revenues in 2015, a 2.39 percent increase. (See Table A-2.) About 53 percent of the City's revenue comes from some type of taxes including property, sales, transient occupancy taxes (the hotel tax) and other taxes. The rest comes from fees charged for services; state, local and federal aid; and contributions.

Expenses: The total cost of all programs and services in 2016 was about $28.44 million and included a wide range of services such as police and fire protection, streets, public works, general administration, community services, water, wastewater and pier operations.

Table A-'2 Changes in the City of Pismo Beach's Net Position

(in millions of dollars)

Revenues

Program revenues

Charges for services

Operating grants and contributions Capital grants and contributions

General revenues

Transient occupancy taxes Property, sales and other taxes Other

Total revenues

Expenses

General government

Public safety 5 treets Public works Community services Water Wastewater Other Total expenses

Excess (deficiency) before transfers Transfers

Increase in net position

Net position, beginning of year Prior year restatement

Net position, beginning of year, as restated

Net position, end of year

Governmental Activities

2016 2015

$6.52 $5.45 0.74 l.01 0.18 0.23

9.20 8.68 10.06 9.78 0.47 0.27

27.17 25.42

6.47 8.31 6.69 5.65 l.90 3.25 2.20 l.75 l.75 l.84

0.13 0.16

19.14 20.96

8.03 4.46 (0.07) (0.70)

7.96 3.76

$54.10 63.63 (13.29)

54.10 50.34

$62.06 $54.10

9

B usiness---type Activities Total

2016 2015 2016

$10.0l $10.88 16.54 0.74

0.03 0.21

9.20 l.27 l.28 l l.33

0.47

l l.31 12.16 38.48

6.47 6.69 l.90 2.20 l.75

5.41 4.79 5.41 3.22 2.90 3.22 0.67 0.58 0.80

9.30 8.27 28.44

2.01 3.89 10.04 0.07 0.70

2.08 4.59 10.04

$34.03 31.08 88.13 ( l.64)

34.03 29.44 88.13

$36. l l $34.03 $98.17

Total Percentage

Change

2015 2015-'2016

$16.33 l.35% l.01 -28.71% 0.23 -8.70%

8.68 5.99% ll.06 2.44% 0.27 74.07%

37.58 2.39%

8.31 -22.14% 5.65 18.41% 3.25 -4 l.54% l.75 25.71% l.84 -4.89% 4.79 12.94% 2.90 l l.03% 0.74 8.11%

29.23 -2.70%

8.35 20.24%

8.35 20.24%

94.71 -6.95% (14.93) -100.00%

79.78 10.47%

$88.13 l l.39%


The sources of the City's major types of revenue and the areas where such resources are used is shown below in summary graphic form (governmental and business type activities):

Other Sources Taxes,

Charges for 2_38% Grants, 2.38"/o Services, 16.95%

Sales and Us Tax, 11.66%

property Related Taxes, 12.11%

Public Works, Uses 7.74%

All Other, 6.64%

Streets, 6.67'/o


Other Re\enues,

1.22%

Revenues from all governmental activities in the 2016 fiscal year increased by about $1.75 million compared to the 2015 fiscal year. The primary increase was from charges for services at $1.09 million. Transient occupancy taxes increased by $0.52 million from the previous year. Property, sales, and other taxes also increased by $0.28 million from 2015.

The City's primary source of revenue comes from some kind of tax. About 71 percent of all City revenues in Governmental Activities come from taxes such as property, sales, transient occupancy and other taxes.

10


Because the City of Pismo Beach is a tourist community, about 34 percent of all governmental activities revenues come from transient occupancy taxes (the local hotel tax). Local hotel tax revenues came in higher than 201 5 by 5.99 percent or $0.52 million. Sales tax revenues, including the Half-CentTransactions Sales and Use Tax revenues, came in 0.27 percent lower than 2015. Sales tax revenues excluding the Half-Cent Sales Tax revenues, came in $0.23 million higher than 2015. Half-Cent Sales Tax revenues came in 14.21 percent lower by $0.24 million compared to 2015. This decrease was primarily from a onetime adjustment for a misallocation of $267,000 received in 2015 and not in 2016.

The majority of the City's governmental-activities operating expenses are incurred to provide police protection and fire protection services with these two departments accounting for about 35 percent of the City's total 2016 governmental operating expenses. Public works costs including maintenance of buildings, parks, and other City facilities account for about 11 percent of the City's total 2016 governmental operating expenses. Another 10 percent of the City's 2016 governmental activities operating expenses were incurred to provide street improvements throughout Pismo Beach. A variety of cultural and recreation services including Planning making up 9 percent of operating expenses, and the remaining 34 percent was spent on general administration and other expenses.

When all operations were concluded, the governmental activities function generated a $7.96 million increase in net position for 2016 compared to a $3.76 million increase in 2015.

Table A-3 represents the cost of each of the City's governmental activities largest programs - administration or general government, public safety, community services, and streets.

Table A-3

Cost of City of Pismo Beach's Programs

(in millions of dollars)

General government

Public safety

Streets

Public works

Community services

All other

Total

Total Cost of Services

2016 I 2015

6.47 8.31

6.69 5.65

1.90 3.25

2.20 1.75

1.75 1.84

0.13 0.16

$ 19.14 $ 20.96

Percentage Change

2015-2016

-22.14%

18.41%

-41.54%

25.71%

-4.89%

-15.77%

-S.68%

The cost of all programs this year was $19.14 million, compared to $20.96 million in fiscal year 2015.

While users and contributors funded about $7.44 million of the costs of the City's governmental activity programs through related program revenues, the City still had to make up the short fall from general revenues such as taxes and this short fall was about $11.70 million. Major sources of program revenues were:

• Those who directly benefited from or used the programs ($6.54 million), or • Other governments and organizations that subsidized certain programs with grants and contributions

(about $0.90 million).

The City paid for the $11. 70 million "public benefit'' portion out of the $19. 74 million in general revenues such as property taxes, transient occupancy taxes, sales taxes, and with other tax revenues and investment earnings.

11


Overall, 2016 total cost of services is showing a decrease of 8.68 percent compared to 2015. Expenses decreased primarily in the Streets, General Government, and Community Services categories. Expenses increased in the Public Works and Public Safety categories.

Business-Type Activities

The City's business-type activities (primarily water and wastewater) were responsible for about $2.08 million increase in net position for 2016, compared to 2015. Revenues in total decreased in 2016 by $0.85 million. Revenues for basic water services charges decreased by 4.8 percent or $161,372 in 2016, primarily as a result of a decrease in consumption. Revenues for basic sewer services charges increased by 2.43 percent or $106,644 in 2016. Parking Kiosk revenues increased by 7.17 percent or $40,596 in 2016.

FINANCIAL ANALYSIS OF THE CITY'S FUNDS

As the City completed the year, its governmental funds reported a combined fund balance of $27.57 million, about $5.76 million higher than the last fiscal year. Revenues increased by $1.70 million, most of which were in the Housing In-Lieu Fee Fund; and expenditures decreased by $1.42 million from the previous year, most of which were primarily in General Government, Streets and Highways, and Community Services.

The City's General Fund operations generated about $5.87 million more in revenues than was spent on governmental activities. From this excess, the City transferred a total of $2.6 million out of the General Fund and into other funds. About $1.59 million was transferred out to capital projects, $438,681 of those transfers went to the debt service funds for the revenue bonds, another $407,572 was transferred to the vehicle replacement internal service fund and information technology internal service fund, and another $171,670 was transferred out to the Pier fund, and $2,200 was transferred to the Public Financing Authority (P FA) fund. At year end, the City's General Fund had a fund balance of about $19.11 million, an increase of $3.47 million from the prior year of $15.64 million. Of the $19.11 million, about $4.46 million was designated for unanticipated emergencies and $8.57 million was designated for capital projects. The increase in fund balance was the result of higher revenues in Licenses and Permits of $.32 million, transient occupancy revenues of $.52 million, and Property Tax revenues of $.27 million.

In addition, the City's non-major governmental funds ended the 2016 fiscal year with a combined fund balance of $5.71 million. Of this $5.71 million, $199,571 can be used for debt service, $2.02 million in Special Revenue Funds, and the remaining $3.48 million is set aside for impact fee and capital projects. The Debt Service Funds consist of Pismo Beach Public Financing Authority and Completed Assessment District Funds. The Special Revenue Funds consist of the State Gas Tax Fund, the Local Transportation Street Fund, the Lodging Business Improvement District Fund, the PEG Fund (Public Education G overnmentAccess), the Noncapital Grant Fund, and the Chapman Estate Fund. The Capital Project Fund types consist primarily of the Capital Projects Fund, where the City tracks all revenues and expenditures for Governmental Fund capital projects, the Park Development Fund, the Public Facilities Fund, the Circulation Improvement Fund, the Impact Fees Fund, Developer Impact Fees Fund, and Underground Utility Fund.

General Fund Budgetary Highlights Over the course of the year, the City Council revised the City budget several times. These budget amendments fall into three categories: changes made during the year for unanticipated revenues and costs; increases in appropriations to prevent budget overruns; and carry over budgets for capital projects. Even with these adjustments, actual General Fund expenditures were $9.14 million less than final budget amounts. Budget amendments that occurred in revenues during the year include an increase of $0.53 million in General Fund revenues of various categories.

General Fund revenues that came in higher than original estimates include licenses and permits by $533,535, Interest Earnings by $88,325, and Business Taxes by $14,000. The increase in developer related revenues were the direct result of the economy coming out of the recession. Revenues that came in lowerthan budget estimates were Transient Occupancy Taxes, Sales Taxes, and Property Taxes.

12


The General Fund expenditures that exceeded budget estimates were in non-departmental retiree medical. The retiree medical account came in over budget as a result of more people retiring from the City of Pismo Beach than originally estimated when preparing the budget

CAPITAL ASS ET AND DEBT ADMINISTRATION

Capital Assets

Atthe end of 2016, the City had invested $75.15 million ina broad range of capital assets, including land, vehicles, equipment, the City Pier, water and wastewater system, streets, and other capital assets. (See Table A-4.) This amount represents a net change (including additions and deductions) of about $490,000 or a 0.65 percent decrease from the previous year.

(net of depreciation, in millions of dollars)

Land and right of ways

Construction in progress

Buildings

Capacity rights

Machinery and equipment

Vehicles

Improvements

Tanks, wells, and system

Pipelines \collection system

Pier

I nfrastructure-5treets

Accumulated depreciation

Total

Table A-4

Pismo Beach's Capital Assets

Governmental Business-type Activities Activities

2016 2015 2016 2015

$12.03 $12.03 $0.38 $0.38

3.24 2.64 1.63 1.93

5.53 5.53 0.33 0.33

1.04 1.04

2.59 2.53 2.68 2.68

4.47 4.29

9.98 9.69

11.45 11.03

32.11 32.11

2.14 1.92

47.21 46.02 (41.11) (39.17) (20.55) (19.34)

$43.94 $43.56 $31.21 $32.08

This year's major capital asset changes included:

Total Percentage

Total Change

2016 2015 2015-2016

$12.41 $12.41 0.00%

4.87 4.57 6.56%

5.86 5.86 0.00%

1.04 1.04 0.00%

5.27 5.21 4.80%

4.47 4.29 -0.23%

9.98 9.69 2.99%

11.45 11.03 5.80%

32.11 32.11 0.00%

2.14 1.92 0.00%

47.21 46.02 2.59% (61.66) (58.51) 5.38%

$75.15 $75.64 -0.65%

• Implemented a new Fixed Asset Module within our new financial system, Springbrook which provides a greater accuracy for tracking assets and depreciation

• Completed and capitalized the Wadsworth Storm Drain Project totaling $1,107,041

• TelemetrySystemUpgrade Projecttotaling $1,108,599

• Completed and capitalized the Price House Historical Park Parking Lot,Waterline Project totaling $268,760

• Disposed of $215,000 in old Motor Vehicles and Equipment in the Motor Vehicle Fund and other Govt Funds

13


Additional information on capital assets of the City can be found starting on page 43 of the notes to the financial statements.

Long - Term Debt

At the end offiscal 2016, the City had $4.96 million in revenue bonds that were issued in 2012 by the Public Financing Authority to advance refund the 2004 revenue bonds, Series A. The obligation bears interest at rates of2 to 5 percent and is payable in semi-annual installments eachJ une and December through 2033. The 2012 revenue bonds are being retired from Wastewater Enterprise revenues.

At the end offiscal 2016, the City had $3.04 million in revenue bonds issued in 2007. The 2007 revenue bonds are being retired from General Fund revenues. The State Revolving Loans had outstanding balances of $6.13 million, which included $5.53 million for the Wastewater Treatment Loan, $120,156 for the Park,Cypress Interceptor Loan, and $481,810 for the Pismo Oaks Lift Station Loan. The outstanding debt for the State Revolving Loans was reduced by $545,310 during the fiscal year. The loans are being retired from Wastewater Fund revenues. Additional information on the City's long-term debt can be found starting on page 43 of the notes to the financial statements.

Under previous arrangements, the City was self-insured for the first $300,000 for each worker's compensation claim and $50,000 for each general liability claim. The City's General Fund pays all insurance related costs.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES

For the 201 7 fiscal year, the following list of items will affect the General Fund:

• General Fund Reserve will be increased over five years to 25 percent ofoperating budget expenditures.

• Maintain Risk Management Reserve of $150,000 from the General Fund.

• Maintain reserves for Building Depreciation Fund from the General Fund.

• Update the City's Service Fees based on various indices and update the cost allocation across funds based on a comprehensive fee study and Council approval.

• In 2017, all Impact Fees will be adjusted according to various indices for the designated month and area as indicated by Council Ordinance or Resolution.

• In 201 7, the City will continue to fund the Ca IP E RS Retiree B enefitTrust and is estimated to contribute $280,000.

• Finalize implementation of all other modules in Springbrook, our new financial system.

CONTACTING THE CITY'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to demonstrate the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Administrative Services Department, City of Pismo Beach, 760 Mattie Road, Pismo Beach, California, 93449, 805-773-4655.

14

City of Pismo Beach

Statement of Net Position

June 30, 2016

Governmental Business-Type Activities Activities Total

Assets Current assets:

Cash and investments Taxes receivable Accounts receivable Due from other governments Accrued interest receivable Prepayments

Total current assets

Noncurrent assets: Deposits Note and interest receivable Prepaid claims,judgements and fines Capital assets not being depreciated Capital assets being depreciated, net

Total noncurrent assets

Total assets

Deferred Outflows of Resources Unamortized loss on refunding Pension related

Total deferred outflows of resources

$ 31,873,492 2,101,402

144,080 238,123

17,887 91,815

34,466,799

130,394 1,281,699

2,644 15,266,700 28,673,710 45,355,147

79,821,946

2,439,210 2,439,210

The accompanying notes are an integral part of these financial statements.

15

$ 15,047,345

1,886,480

13,152 1,379,374

18,326,351

2,009,155 29,204,309 31,213,464

49,539,815

234,166 480,695 714,861

$ 46,920,837 2,101,402 2,030,560

238,123 31,039

1,471,189 52,793,150

130,394 1,281,699

2,644 17,275,855 57,878,019 76,568,611

129,361,761

234,166 2,919,905 3,154,071

City of Pismo Beach

Statement of Net Position, Continued

J une 30, 2016 Page 2

Liabilities Current liabilities:

Accounts payable Accrued liabilities Compensated absences Deposits Accrued interest payable Unearned revenue Bonds and loans

Total current liabilities

Noncurrent liabilities: Compensated absences Other post employment benefit liability Bonds and loans Net pension liability

Total noncurrent liabilities

Total liabilities

Deferred Inflows of Resources Pension related

Net Position Net investment in capital assets Restricted for:

Debt service Capital projects Affordable housing Community development Public safety Streets

Unrestricted

Total net position


$ 1,604,715 772,475

13,200 964,038

10,078 20,747

325,000 3,710,253

363,344 38,000

2,715,000 12,130,135 15,246,479

18,956,732

1,245,840

40,900,410

199,571 2,735,280 1,643,390

530,912 219,145

1,374,260 14,455,616

$ 62,058,584


16

Business-Type Activities Total

$ 257,435 $ 1,862,150 94,086 866,561 10,300 23,500

180,430 1,144,468 54,116 64,194

20,747 760,152 1,085,152

1,356,519 5,066,772

39,007 402,351 38,000

10,675,781 13,390,781 1,892,419 14,022,554

12,607,207 27,853,686

13,963,726 32,920,458

184,377 1,430,217

20,011,697 60,912,107

199,571 1,989,793 4,725,073

1,643,390 530,912 219,145

1,374,260 14,105,083 28,560,699

$ 36,106,573 $ 98,165,157

City of Pismo Beach

Statement of Activities


Program Revenues Operating

Charges for Grants and Capital

Grants and Functions JP rograms Expenses Services Contributions Contributions Governmental activities:

General government Public safety:

Police protection Fire protection

Streets Community services Public works Redevelopment and housing Interest on long-term debt

Total governmental activities

Business-type activities: Water Wastewater Transit Pier Parking

Total business-type activities

General revenues and transfers: Property taxes Sales taxes Special water taxes Transient occupancy taxes Other taxes Franchise taxes Unrestricted investment earnings Other revenue

Transfers

$ 6,471,325

4,441,759 2,246,401 1,896,223 1,753,938 2,202,063

5,172 129,590

19,146,471

5,411,932 3,218,792

8,915 74,525

584,809 9,298,973

Total general revenues and transfers

Change in net position

Net position, beginning of year Prioryear restatement

Net position, beginning of year, as restated

Net position, end of year

$ 1,996,898

99,422 110,111 232,322 808,849

1,910,067 1,366,649

6,524,318

4,709,473 4,633,274

10,539 15,904

644,922 10,014,112

$


17

49,353 $

186,848

428,463 55,841 14,537

735,042

179,020

179,020

26,475 5,375

31,850

Net Revenues (Expenses) and Changes in Net Position

Governmental Business-type Activities Activities Total

$ (4,425,074) $ $ (4,425,074)

(4, 155,489) (4, 155,489) (2, 136,290) (2,136,290) (1,056,418) (1,056,418)

(889,248) (889,248) (277,459) (277,459)

1,361,477 1,361,477 (129,590) (129,590)

(11,708,091) (11,708,091)

(675,984) (675,984) 1,419,857 1,419,857

1,624 1,624 (58,621) (58,621) 60,113 60,113

746,989 746,989

4,662,304 4,662,304 4,485,779 4,485,779

1,266,322 1,266,322 9,199,947 9,199,947

370,686 370,686 544,924 544,924 397,199 397,199

74,243 74,243 (71,219) 71,219

19,663,863 1,337,541 21,001,404

7,955,772 2,084,530 10,040,302

53,804,135 34,106,997 87,911,132 298,677 (84,954) 213,723

54,102,812 34,022,043 88,124,855

$ 62,058,584 $ 36,106,573 $ 98,165,157

18

City of Pismo Beach

Balance Sheet - Governmental Funds

June 30, 2016

Other Non major Total

Housing in Governmental Governmental General Lieu Funds Funds

Assets Cash and investments $19,042,046 $ 2,742,911 $ 6,427,352 $ 28,212,309 Taxes receivable 1,970,912 130,490 2,101,402 Accounts receivable 109,922 33,889 143,811 Due from other governments 238,123 238,123 Accrued interest receivable 10,999 194,873 5,502 211,374 Prepayments 91,815 91,815 Note receivable 1,086,826 1,086,826

Total assets $21,225,694 $ 4,024,610 $ 6,835,356 $ 32,085,660

Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities:

Accounts payable $ 467,494 $ $ 1,027,431 $ 1,494,925 Accrued liabilities 759,973 628 760,601 Deposits 866,863 97,175 964,038 Unearned revenue 18,861 1,886 20,747

Total liabilities 2,113,191 1,127,120 3,240,311

Deferred inflows ofresources: Unavailable revenue, note receivable 1,279,394 1,279,394

Fund balance: N ons pe nda ble 37,292 1,086,826 1,124,118 Restricted for:

Capital project funding 1,643,283 1,643,283 Streets and highways 1,374,260 1,374,260 Community development 245,771 245,771 Affordable housing 1,643,390 1,643,390 Community business development 285,141 285,141 Park development 1,091,997 1,091,997 Public safety 219,145 219,145 Debt service 199,571 199,571

Committed for: City facility reserve 500,000 500,000 General fund reserve 4,456,101 4,456,101 Capital project funding 8,570,409 15,000 26,923 8,612,332 Risk management reserve 150,000 150,000

Assigned 622,145 622,145 Unassigned 5,398,701 5,398,701

Total fund balance 19,112,503 2,745,216 5,708,236 27,565,955

Total liabilities, deferred inflows of resources and fund balance $21,225,694 $ 4,024,610 $ 6,835,356 $ 32,085,660


19

City of Pismo Beach

Reconciliation of the Balance Sheet of Governmental Funds

to the Government-wide Statement of Net Position

June 30, 2016

Total fund balance -governmental funds

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets are not current financial resources and, therefore, are not reported in the governmental funds. In the statement of net position, all assets are reported, including capital assets and accumulated depreciation. Net capital assets relating to governmental activities consisted of:

Capital assets at estimated historical cost Accumulated depreciation

$ 80,555,284 (38,346,379)

Deposits with insurance pools used in governmental activities are not current financial resources and, therefore, are not reported in the governmental funds. In the statement of net position, these deposits are reported as noncurrentassets.

Deferred outflows ofresources related to pensions reported in the Statement of Net Position

Long-term receivables used in governmental activities are not current financial resources and, therefore, are reported as deferred inflows of resources in the governmental funds. In the statement of net position, long-term receivables are reported as noncurrent assets.

Net other post employment benefit liability is not a current financial resource and, therefore, is not reported in the governmental funds. In the statement of net position, net other post employment benefit liability is reported as a noncurrent liability.

Interest on long-term debt is not recognized in the governmental funds until the period in which it matures and is paid. In the government-wide statements, it is recognized in the period that it is incurred. The liability for unmatured interest payable atyear-€nd was:

Long-term liabilities are not current liabilities and, therefore, are not reported in the governmental funds. In the statement of net position, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consisted of:

Refunding revenue bonds Compensated absences Claims

$


20

(3,040,000) (367,188)

2,644

$ 27,565,955

42,208,905

130,394

2,439,210

1,279,394

(38,000)

(10,078)

(3,404,544)

City of Pismo Beach

Reconciliation of the Balance Sheet of Governmental Funds

to the Government-wide Statement of Net Position, Continued

J une 30, 2016

Page 2

Net pension liability is not a current financial resource and, therefore, is not reported in the governmental funds. In the statement of net position, net pension liability is reported as a noncurrent liability.

Deferred inflows ofresources related to pensions reported in the S taternent of Net Position

Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost-recovery basis. Because the internal service fund is pres urned to benefit governmental activities, assets and liabilities of the internal service fund are reported with governmental activities in the statement of net position. Net position for the internal service fund was:

Total net position -governmental activities


21

$ (12,130,135)

(1,245,840)

5,263,323

$ 62,058,584

City of Pismo Beach

Statement of Revenues, Expenditures, and

Changes in Fund Balance - Governmental Funds


Other Total Housing in Governmental Governmental

General Lieu Funds Funds Revenues:

Property taxes $ 4,662,304 $ $ $ 4,662,304 Sales taxes 4,485,779 4,485,779 Transient occupancy taxes 9,199,947 9,199,947 Other taxes 912,732 912,732 Licenses and permits 1,917,806 1,917,806 Fines and forfeits 56,439 56,439 Subventions and grants 120,592 819,281 939,873 Interest and rents 376,053 8,625 35,219 419,897 Charges for services 216,928 1,366,649 1,004,912 2,588,489 Special assessments 919,798 919,798 Miscellaneous 953,945 4,805 402 959,152

Total revenues 22,902,525 1,380,079 2,779,612 27,062,216

Expenditures: Current:

General government 5,304,720 892,499 6,197,219 Public safety 7,265,142 13,015 7,278,157 Highways and streets 551,895 133,974 685,869 Community services 1,414,147 107,943 1,522,090 Public works 2,255,214 2,255,214 Housing 5,172 5,172

Capital outlay 239,566 2,079,930 2,319,496 Debt service:

Principal 310,000 310,000 Interest and fiscal charges 130,881 130,881 Total expenditures 17,030,684 5,172 3,668,242 20,704,098

Excess of revenues over (under) expenditures 5,871,841 1,374,907 (888,630) 6,358,118

Other Financing Sources (Uses): Transfers in 208,116 2,031,759 2,239,875 Transfers out (2,610,023) (232,007) (2,842,030)

Total other financing sources (uses) (2,401,907) 1,799,752 (602, 1 55)

Net change in fund balance 3,469,934 1,374,907 911,122 5,755,963

Fund balance, beginning of year 15,642,569 1,370,309 4,797,114 21,809,992

Fund balance, end of year $19,112,503 $2,745,216 $ 5,708,236 $ 27,565,955


22

City of Pismo Beach

Reconciliation of the Statement of Revenues, Expenditures,

and Changes in Fund Balance of Governmental Funds

to the Government-wide Statement of Activities


Total net change in fund balance -governmental funds

Amounts reported for governmental activities in the statement of activities are different because:

Changes in long-term receivables do not provide current financial resources and are not reported in the governmental funds.

Changes in deposits with insurance pools do not provide current financial resources and are not reported in the governmental funds.

Costs of capital assets are reported as expenditures in the governmental funds in the period when the assets are acquired. In the statement of activ~ies, costs of capital assets are allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense forthe year was:

Capitalized expenditures for capital outlay -governmental funds Depreciation expense

$ 2,324,677 (1,856,193)

Changes in the net other post employment benefit (OPEB) liability due to plan changes and changes in actuarial assumptions do not provide current financial resources and are not reported in the governmental funds.

Interest on long-term debt is recognized as an expenditure in the governmental funds when it is due. In the statement of activities, interest expense is recognized as the interest accrues, regardless of when it is due. The difference between interest expense paid and interest accrued was:

Repayments of long-term debt are recognized as expenditures in the governmental funds. In the government-wide statements, repayments of long-term liabil~ies are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were:

Compensated absences are measured by the amounts paid during the period in the governmental funds. In the statement of activities, compensated absences are measured by the amounts earned. The differences between compensated absences paid and compensated absences earned was:

Decreases in actuarially determined claim liabilities for uninsured claims do not provide current financial resources and are not reported in the governmental funds.


23

$ 5,755,963

34,178

(20,537)

468,484

46,000

1,291

310,000

16,280

(52,425)

City of Pismo Beach

Reconciliation of the Statement of Revenues, Expenditures,

and Changes in Fund Balance of Governmental Funds to the Government-wide Statement of Activities, Continued


Page 2

Pension expense recorded as an expenditure in governmental funds but recorded as a deferred outflow of resources on the statement of activities is:

Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost-recovery basis. Because the internal service fund is presumed to benefit governmental activities, internal service activities are reported as governmental in the statement of activities. The net increase in the internal service fund was:

Total change in net position -governmental activities


24

$ 1,141,578

254,960

$ 7,955,772

City of Pismo Beach

Statement of Fund Net Position - Proprietary Funds

June 30, 2016

Enterprise Funds

Other Enterprise

Water Wastewater Funds Assets

Current assets Cash and investments $ 7,047,746 $ 5,814,349 $ 2,185,250 Accounts receivable 738,139 1,137,015 l l,326 Accrued interest receivable 5,173 6,678 1,301 Prepayments 1,379,374

Total current assets 9,170,432 6,958,042 2,197,877

Noncurrent assets Capital assets

Land 129,591 214,759 33,425 Construction in progress 40,696 1,448,267 142,417 Improvements and buildings 7,914,010 Vehicles Distribution and collection systems 8,551,973 29,944,076 Parking equipment and metering systems 158,038 Pier 2,142,553 Capacity rights 1,044,264

Total capital assets 17,680,534 31,607,102 2,476,433 Less accumulated depreciation (8,240,535) (10,931,511) (1,378,559)

Capital assets, net of accumulated depreciation 9,439,999 20,675,591 1,097,874

Total noncurrent assets 9,439,999 20,675,591 1,097,874

Total assets 18,610,431 27,633,633 3,295,751

Deferred outflows of resources

Unamortized loss on refunding 234,166

Pension related 187,455 245,867 47,373

Total deferred outflow of resources 187,455 480,033 47,373


25

Governmental Activities -

Internal Service Totals Funds

$ 15,047,345 $ 3,661,183 1,886,480 269

13,152 1,386 1,379,374

18,326,351 3,662,838

377,775 1,631,380 7,914,010 45,236

4,450,581 38,496,049

158,038 2,142,553 1,044,264

51,764,069 4,495,817 (20,550,605) (2,764,312)

31,213,464 1,731,505 31,213,464 1,731,505

49,539,815 5,394,343

234,166

480,695

714,861

City of Pismo Beach

Statement of Fund Net Position - Proprietary Funds, Continued

June 30, 2016

Page 2

Enterprise Funds

Governmental Other Activities -

Enterprise Internal Service Water Wastewater Funds Totals Funds

Liabilities Current liabilities

Accounts payable $ 157,070 $ 48,954 $ 51,411 $ 257,435 $ 109,790 Accrued liabilities 40,783 40,216 13,087 94,086 11,874 Compensated absences 3,705 5,806 789 10,300 1,500 Deposits 180,430 180,430 Accrued interest payable 54,116 54,116 Current portion of bonds and loans 760,152 760,152

Total current liabilities 381,988 909,244 65,287 1,356,519 123,164

Noncurrent liabilities

Compensated absences 15,031 23,976 39,007 7,856 Loans 5,576,379 5,576,379 Bonds, net of current portion 5,099,402 5,099,402 Net pension liability 737,983 967,935 186,501 1,892,419

Total noncurrent liabilities 753,0l 4 11,667,692 186,501 12,607,207 7,856

Total liabilities l, 135,002 12,576,936 251,788 13,963,726 131,020

Deferred inflows of resources Pension related 71,901 94,305 18,171 184,377

Net Position Net investment in capital assets 9,439,999 9,473,824 1,097,874 20,011,697 1,731,505 Restricted for capital improvements 1,989,793 1,989,793 Unrestricted 8,150,984 3,978,808 1,975,291 14,105,083 3,531,818

Total net position $ 17,590,983 $ 15,442,425 $ 3,073,165 $ 36,106,573 $ 5,263,323


26

City of Pismo Beach Statement of Revenues, Expenses

and Changes in Fund Net Position - Proprietary Funds


Enterprise Funds

Governmental Other Activities -

Enterprise Internal Service Water Wastewater Funds Totals Funds

Operating revenues: Sales of water $ 3,201,546 $ $ $ 3,201,546 $ Service fees 1,402,074 4,487,103 601,077 6,490,254 994,635 Miscellaneous 2,659 104,402 49,348 156,409 41,609

Total operating revenues 4,606,279 4,591,505 650,425 9,848,209 1,036,244

Operating expenses: Salaries and benefits 751,331 910,341 276,571 1,938,243 232,308 Purchased power 141,723 234,74 l 376,464 Services and supplies 1,267,514 1,068,635 346,667 2,682,816 850,598 Customer accounting 42,063 42,054 84,117 Joint operating expenses 2,686,170 2,686,170 Depreciation and amortization 523,131 676,173 45,011 1,244,315 298,953

Total operating expenses 5,411,932 2,931,944 668,249 9,012,125 1,381,859

Operating income (loss) (805,653) 1,659,561 (17,824) 836,084 (345,615)

Nonoperating revenues (expenses) Property and special taxes 1,266,322 1,266,322 Interest and investment revenue 103,194 41,769 20,940 165,903 69,639 Interest expense (286,848) (286,848)

Total nonoperating revenues

(expenses) 1,369,516 (245,079) 20,940 l, 145,377 69,639

Income (loss) before transfers and capital contributions 563,863 1,414,482 3,116 1,981,461 (275,976)

Transfers: Transfers in 171,670 171,670 532,169 Transfers out (46,807) (52, 132) (1,512) (100,451) (1,233)

Total transfers (46,807) (52, 132) 170,158 71,219 530,936

Capital contributions: Public improvements 26,475 5,375 31,850

Total capital contributions 26,475 5,375 31,850

Change in net position 543,531 1,367,725 173,274 2,084,530 254,960

Net position, beginning of year 17,080,793 14,120,508 2,905,696 34,106,997 5,008,363 Prior year restatements (33,341) (45,808) (5,805) (84,954)

Net position, beginning of year, as restated 17,047,452 14,074,700 2,899,891 34,022,043 5,008,363

Net position, end of year $ 17,590,983 $ 15,442,425 $ 3,073,165 $ 36,106,573 $ 5,263,323


27

City of Pismo Beach

Statement of Cash Flows - Proprietary Funds


Enterprise Funds Governmental

Other Activities -

Enterprise Internal Service Water Wastewater Funds Totals Fund

Cash flows from operating activities

Receipts from customers $ 4,620,173 $ 4,488,983 $ 666,543 $ 9,775,699 $

Payments to suppliers for goods and services (3,724,047) (879,531) (334,307) (4,937,885) (773,708)

Payments to other funds for services (346,872) (458,789) (7,918) (813,579)

Payments from other funds for services 1,037,425

Payments to employees for wages and benefits (660,523) (826,221) (218,941) (1,705,685) (230,060)

Net cash provided by (used in)

operating activities (111,269) 2,324,442 105,377 2,318,550 33,657

Cash flows from noncapital financing activities

Property and special taxes 1,266,322 1,266,322

Transfers from other funds 171,670 171,670 532,169

Transfers to other funds (46,807) (52,132) ( l, 512) (100,451) (1,233)

Net cash provided by noncapital

financing activities 1,219,515 (52,132) 170,158 1,337,541 530,936

Cash flows from capital and related

financing activities

Payments on long-term debt principal (760,569) (760,569)

Interest paid on long-term debt (270,458) (270,458)

Purchases of capital assets (157,507) (54,251) (142,417) (354,175) (226,608)

Net cash used in capital and related

financing activities (157,507) (1,085,278) (142,417) (1,385,202) (226,608)

Cash flows from investing activities

I nte re st on i nve stme nts 100,426 37,963 20,237 158,626 68,493

Net cash provided by investing activities 100,426 37,963 20,237 158,626 68,493

Net change in cash and cash equivalents 1,051,165 1,224,995 153,355 2,429,515 406,478

Cash and investments, beginning of year 5,996,581 4,589,354 2,031,895 12,617,830 3,254,705

Cash and investments, end of year $ 7,047,746 $ 5,814,349 $ 2,185,250 $ 15,047,345 $ 3,661,183


28

City of Pismo Beach

Statement of Cash Flows - Proprietary Funds, Continued


Page 2

Enterprise Funds Governmental

Other Activities -Enterprise Internal Service

Water Wastewater Funds Totals Fund

Reconciliation of operating income (loss) to net cash provided by (used in) operating activities

Operating income (loss) $ (805,653) $ 1,659,561 $ (17,824) $ 836,084 $ (345,615)

Adjustments to reconcile operating income (loss) to

net cash provided by (used in) operating activities

Depreciation expense 523,131 676,173 45,0l l 1,244,315 298,953

Change in assets, deferred outflows ofresources, liabilities and deferred inflows ofresources

Accounts receivable (25,951) (102,522) 16,118 (112,355) 1,181

Prepayments 57,951 2,140 60,091

Deferred outflow ofresources -pensions (56,621) (66,118) (24,594) (147,333)

Accounts payable (3,697) 5,679 397 2,379 75,271

Accrued liabilities 12,297 1,431 1,904 15,632 1,619

Compensated absences (1,869) (4,433) (7,434) (13,736) 2,248

Deposits 39,845 39,845

Net pension liability 179,209 200,244 89,214 468,667

Deferred inflowofresources -pensions (29,911) (45,573) 445 (75,039)

Net cash provided by (used in)

operating activities $ (111,269) $ 2,324,442 $ 105,377 $ 2,318,550 $ 33,657

Noncash investing, capital or financing activities

Contributed capital assets $ 26,475 $ 5,375 $ $ $


29

City of Pismo Beach

Statements of Fiduciary Net Position

June 30, 2016

Assets Cash and cash equivalents Accounts receivable Investments at fair value:

California Employer's Retiree BenefitTrust Program pooled investments

Total assets

Liabilities Deferred revenue Due to other governmental agencies

Total liabilities

Net Posit ion Held in trust for other post employment benefits

Retired Employees Health Care

Plan

$

1,844,493

$ 1,844,493

$

$

$ 1,844,493


30

San Luis Obis po County

Tourism Fund

$ 47,421 129,585

$ 177,006

$ 1,886 175,120

$ 177,006

$

City of Pismo Beach

Statements of Changes in Fiduciary Net Position


Additions: Contributions:

Employer Investment income:

Net appreciation in fair value of investments Tota I additions

Deductions: Administration

Total deductions

Net change

Net position held in trust for other post employment benefits: Beginning of year

End of year


31

Retired Employees Health Care

Plan

$ 234,000

19,441 253,441

1,362 1,362

252,079

1,592,414

$ 1,844,493

City of Pismo Beach

Notes to the Financial Statements

June 30, 2016

Note 1: Summary ofSignificantAccounting Policies

Description of the Reporting Entity

The City of Pismo Beach (the City) is a municipal corporation governed by an elected Mayor and four City

Council rnernbers. The accompanying financial statements present the City (the Primary government) and

its component units, entities for which the government is considered financially accountable.

The City of P isrno Beach Public Financing Authority (the Authority) and the Public Facilities Corporation (the

Corporation) are legally separate corporate entities for which the City is financially accountable and they are

governed by the elected City Council. The Authority and Corporation were formed to provide a method of

financing public improvements. The City has identified the Authority and the Corporation as blended

component units in accordance with Governmental Accounting Standards Board (GAS B) Statement No. 14,

amended by GAS B Statements No. 39 and 61, and they have been included in the accompanying financial

statements. The Authority and the Corporation do not separately issue financial statements.

Government-wide and Fund Financial Statements

The government-wide financial statements (i.e. the statement of net position and the statement of changes in

net position) report information on all of the nonfiduciary activities of the City and its component units.

Governmental activities, which normally are supported by taxes and intergovernmental revenues, are

reported separately from business-type activities, which rely to a significant extent on fees and charges for

support.

The statement of activities demonstrates the degree to which the direct expenses of a given function or

segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific

function or segment Program revenues include 1) charges to customers or applicants who purchase, use,

or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants

and contributions that are restricted to meeting the operational or capital requirements of a particular function

or segment Taxes and other items not properly included among program revenues are reported instead as

general revenues.

Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or

privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including

special assessments. Internally dedicated resources are reported as general revenues rather than as

program revenues. Likewise, general revenues include all taxes.

Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds,

even though the latter are excluded from the government-wide financial statements. Major individual

governmental funds and major individual enterprise funds are reported as separate columns in the fund


32

City of Pismo Beach


June 30, 2016

Page 2

Note 1: Summary of Significant Accounting Policies (Continued)

Measurement Focus, Basis of Accounting, and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus

and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are

recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of

related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants

and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider

have been met.

As a general rule, the effect of interfund activity has been eliminated from the government-wide financial

statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the

City's water and wastewater function and other functions of the City. Elimination of these charges would

distort the direct costs and program revenues reported for the various functions concerned.

Governmental fund financial statements are reported using the current financial resources measurement

focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both

measurable and available. Revenues are considered to be available when they are collectible within the

current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the

government considers revenues to be available if they are collected within 60 days of the end of the current

fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting.

However, debt service expenditures, as well as expenditures related to compensated absences and claims

and judgments, are recorded only when payment is due.

Property taxes, sales taxes, transient occupancy taxes, licenses, and interest associated with the current

fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the

current fiscal period. Only the portion of special assessments receivable due within the current fiscal period

is considered to be susceptible to accrual as revenue of the current period. All other revenue items are

considered to be measurable and available only when cash is received by the government.

The City reports the following major governmental funds:

General Fund is the government's primary operating fund. It accounts for all financial resources of

the general government, except those required to be accounted for in another fund.

Housing in Lieu Fund is a special revenue fund used to account for affordable housing. The main

revenue source is an in lieu fee paid by developers at 5% of assessed valuation of building permits.

33

City of Pismo Beach


June 30, 2016

Page 3


Proprietary fund financial statements are reported using the economic resources measurement focus and the

accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are

recorded at the time the liabilities are incurred.

The City reports the following major proprietary funds:

Water Fund accounts forthe operations of the City's watertreatmentand distribution system.

Wastewater Fund accounts forthe operation of the City's wastewater treatment plant and collection

facilities.

Additionally, the City has established an internal service fund which is used to accountforthe City's vehicle

fleet and technology equipment and services provided to other City departments on a cost reimbursement

basis.

The City has established a fiduciary fund that is a private-purpose trust fund to account for assets held in

trust for retired employees' health care. The City has also established a second fiduciary fund to collect and

record the San Luis Obispo County tourism tax of which 98% is remitted to the County and 2% remains with

the City and is transferred to the general fund after collection.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating

revenues and expenses generally result from providing services and producing and delivering goods in

connection with the proprietary fund's principal ongoing operations. The principal operating revenues of the

City's enterprise and internal service funds are charges to customers for sales and services. Operating

expenses for the enterprise and internal service funds include the costs of sales and services, administration

costs and depreciation on capital assets. All revenues and expenses not meeting this definition are reported

as nonoperating revenues and expenses.

Assets, Liabilities, and Net Position or Fund Balance

Cash and Investments

The City is authorized by its most recent investment policy to invest in the State of California Local Agency

Investment Fund, U.S. Treasury bonds, bills, and notes, obligations issued by US Government agencies,

corporate bonds, negotiable certificates of deposit, commercial paper, and time deposits and savings and

demand accounts.

The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short term

investments with original maturities of three months or less from the date of acquisition.

34

City of Pismo Beach


June 30, 2016

Page 4


Investments forthe City are reported at fair value. The State Treasurer's Investment Pool operates in

accordance with appropriate state laws and regulations. The reported value of the pool is the same as the

fair value of the pool shares.

Fair Value Measurement

As defined in GAS B Statement No. 72, Fair Value Measurement and Application, fair value is the price that

would be received to sell an asset or paid to transfer a liability in an orderly transaction between market

participants at the measurement date. The City uses valuation techniques that are appropriate under the

circumstances and for which sufficient data are available to measure fair value. Valuation techniques

maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

GAS B Statement No. 72 establishes a hierarchy of inputs to valuation techniques used to measure fair

value. That hierarchy has three levels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - Observable inputs, other than Level 1 prices, for the asset or liability, either directly or

indirectly;

Level 3- Unobservable inputs forthe asset or liability.

For fiscal year endedJ une 30, 2016, the application of valuation techniques applied to the City's financial

statements has been consistent.

Receivables and Payables

Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the

fiscal year are referred to as either "due to;from other funds" (i.e., the current portion of interfund loans) or

"advances to;from other funds" (i.e., the non-current portion of interfund loans). Any residual balances

outstanding between the governmental activities and business-type activities are reported in the government

wide financial statements as "internal balances."

Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve

account in applicable government funds to indicate that they are not available for appropriation and are not

expendable available financial resources.

All trade and property tax receivables are not shown net of an allowance for uncollectibles.

Property taxes are levied as of March 1 on property values assessed as of the same date. State statutes

provide that the property tax rate be limited generally to 1% of market value, be levied by only the County,

and be shared by applicable jurisdictions. The County of San Luis Obispo collects the taxes and distributes

them to taxing jurisdictions on the basis of assessed valuations subject to voter-approved debt. Property

taxes are due on November 1 and March 1, and become delinquent on December 10 and April 10. The City

receives property taxes pursuant to an arrangement with the County known as the 'Teeter P Ian". U nderthe

35

City of Pismo Beach


June 30, 2016

Page 5


plan, the County assumes responsibility for the collection of delinquent taxes and pays the full allocation to

the City. The City recognizes property tax revenues in the fiscal year in which they are due to the City.

Inventories and Prepayments

The City has no significant inventories. All inventories are valued at cost using the first-in;first-out(FIFO)

method. Inventories of governmental funds are recorded as expenditures when used or consumed.

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as

prepaid items in both government-wide and fund financial statements. Prepayments in the governmental

funds are accounted for using the consumption method.

Capital Assets

Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges,

sidewalks, and similar items), are reported in the applicable governmental or business-type activities column

in the government-wide financial statements. Capital assets are defined by the government as assets with

an initial, individual cost of more than $5,000 ($50,000 for infrastructure type assets) and an estimated useful

life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if

purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of

donation. The costs of normal maintenance and repairs that do not add to the value of asset or materially

extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as

projects are constructed. Interest incurred during the construction phase of capital assets of the business

type activities is included as part of the capitalized value of the assets constructed. Property, plant, and

equipment of the City are depreciated using the straight line method over the following estimated useful lives:

Assets Buildings and improvements Public domain infrastructure System infrastructure Vehicles and equipment

Years 10 -50

50 15 -60 5 -10

Compensated Absences and Other Post-Employment Benefit Obligation

It is the government's policy to permit employees to accumulate earned but unused vacation benefits. There

is a liability for unpaid accumulated vacation since the City does have a policy to pay employees for unused

vacation when they separate from service with the City. All vacation pay is accrued when incurred in the

government-wide and proprietary fund financial statements. A liability for these amounts is reported in the

governmental funds only if they have matured and have not been paid when due, for example, as a result of

employee resignations and retirements.

Other post-€mployment benefit asset, such as that related to retiree medical benefit plans, is accrued in the

government-wide financial statements based upon actuarial and other plan information.

36

City of Pismo Beach


June 30, 2016

Page 6


Long-term Liabilities

In the government-wide financial statements, and the proprietary fund types in the fund financial statements,

long-term debt and other long-term liabilities are reported as liabilities in the applicable governmental

activities, business-type activities or proprietary fund statement of net position.

Net Pension Liability

The City recognizes a net pension liability, which represents the City's proportionate share of the excess of

the total pension liability over the fiduciary net position of the pension reflected in the actuarial reports

provided by the California Public Employees' Retirements ystem (Ca IP ERS) plans (Plans). The net pension

liability is measured as of the City's prior fiscal year-end. Changes in the net pension liability are recorded, in

the period incurred, as pension expense or as deferred inflows of resources or deferred outflows of

resources depending on the nature of the change. The changes in the net pension liability that are recorded

as deferred inflows of resources or deferred outflows of resources (that arise from changes in actuarial

assumptions or other inputs and differences between expected or actual experience) are amortized over the

weighted average remaining service life of all participants in the respective pension plan and are recorded as

a component of pension expense beginning with the period in which they are incurred.

For purposes of measuring the net pension liability and deferred outflows finflows of resources related to

pensions, and pension expense, information about the fiduciary net position of the City's CalPERS Plans and

additions to/deductions from the Plans' fiduciary net position have been determined on the same basis as

they are reported by Ca IP E RS. F orthis purpose, benefit payments (including refunds of employee

contributions) are recognized when due and payable in accordance with the benefit terms. Investments are

reported at fair value. Projected earnings on pension investments are recognized as a component of

pension expense.

Fund Balances - Governmental Funds

Fund balances for governmental funds are reported in classifications based primarily on the extent to which

the City is bound to honor constraints about the specific purposes for which amounts in those funds can be

spent. These classifications include (1) non-5pendable, (2) restricted, (3) committed, (4) assigned and

(5) unassigned amounts.

Non-5pendable fund balance includes amounts that cannot be spent because they are either (a) not

spendable in form such as inventories, prepaid items and certain long-term receivables or (b) legally

or contractually required to be maintained intact

Restricted fund balance includes amounts where constraints placed on the use of resources are

externally imposed by grantors, contributors, other governments or by laws and regulations.

37

City of Pismo Beach


June 30, 2016

Page 7


Committed fund balance includes amounts that can only be used for a specific purpose pursuant to

constraints imposed by formal action of the City's highest level of decision making authority which

includes City Resolutions or legislation. It also includes contractual obligations for which existing

amounts cannot be used for any other purpose unless the City removes or changes the specified

use by taking the same action it employed previously to commit those amounts.

Assigned amounts are fund balance amounts constrained by the City's intent to be used for a

specific purpose. Such intent should be expressed by the City Manager or Director of Administrative

Services to assign amounts to be used.

Unassigned amounts are the residual amounts reported in the general fund.

When expenditures are incurred for which both restricted and unrestricted (committed, assigned or

unassigned) amounts are available, the City considers restricted amounts to have been spent first. When

expenditures are incurred for which any class of unrestricted fund balance could be used, the City considers

committed amounts would be reduced first, followed by assigned, and then unassigned amounts.

The City maintains three reserves as part of their committed fund balance. The General Fund Reserve (G FR), City Facility Reserve (CFR) and Risk Management Reserve (RMR) are established by the City as

stabilization arrangements. The G FR policy requires that a minimum balance of 25% of the general fund

operating expenditure budget be maintained in any given year and is to be used for emergencies, economic

downturns, decreased revenues, capital acquisitions and cash flow needs and emergency opportunities as

defined by the policy. As of J une 30, 2016 the balance in the G FR was $4,456,101. The CF R policy

requires that $500,000 be set aside for improvements to city buildings and facilities particularly if funds are

not available in a given fiscal year due to emergencies, economic downturn, decreased revenues or cash

flow needs as defined by the policy. As of June 30, 2016 the balance in the CFR was $500,000. The RMR

policy requires that $50,000 be set aside each year up to $250,000 to fund general liability and worker's

compensation costs over 10% of the adopted budget for risk management costs, legal costs, judgments, or

toavoidjudgments. As ofJ une 30, 2016the balance in the RMR was $150,000.

Reconciliation of Government-wide and Fund Financial Statements

A reconciliation between total fund balance of the governmental funds and total net position of the

governmental activities as reported in the government-wide statement of net position is presented on pages

20 through 21.

A reconciliation between total net change in fund balance of the governmental funds and total change in net

position of governmental activities as reported in the government-wide statement of activities is presented on

pages 23 through 24.

38

City of Pismo Beach


June 30, 2016

Page 8


There are no differences between total net position of the proprietary funds and total net position of the

business-type activities as reported in the government-wide statement of net position.

Budgets and Budgetary Accounting

Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all

governmental funds. Appropriations lapse at fiscal year-€nd. The appropriated budget is prepared by fund,

function and department. The City Manager may make transfers of appropriations within a department.

Transfers between departments and other changes require City Council approval. The legal level of control

is the department and fund level. The Council made supplemental appropriations during the fiscal year.

Encumbrance accounting is employed in governmental funds. Encumbrances outstanding at year end are

reported as a reservation of fund balances and do not constitute expenditures or liabilities because the

comm~ments will be reappropriated and honored during the subsequent year.

Subsequent Events

Events subsequenttoJ une 30, 2016, have been evaluated through December 15, 2016, which is the date

that the financial statements were available to be issued. Management did not identify any subsequent

events that required disclosure.

Note 2: Cash and Investments

AtJ une 30, 2016, cash and investments consisted of the following:

Cash Investments

Total cash and investments

Custodial Credit Risk- Deposits

$ 4,850,744 42,070,093

$ 46,920,837

Custodial credit risk -deposits is the risk that in the event of a bank failure, the City's deposits may not be

returned to it. Deposits with financial institutions, including certificates of deposit, totaled $14,903,559 at

June 30, 2016 and were insured or collateralized with securities held by the pledging financial institution's trust department or agent in the City's name.

39

City of Pismo Beach


June 30, 2016

Page 9

Note 2: Cash and Investments (Continued)

For custodial credit risk associated with deposits, the City policy is to follow the California G overnrnent Code

which requires California financial institutions to secure the City's deposits by pledging governrnentsecurities

as collateral. The rnarketvalue of the pledged securities rnustequal 11036 of the City's deposits. California

law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes equal to 15036 of the City's deposits.

Investment Fair Value Measurements

The City categorizes its fair value rneasurernents w~hin the fair value hierarchy established by generally

accepted accounting principles. Investments classified in Level 2 of the fair value hierarchy are valued using

quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in

markets that are not active, and model-based pricing valuations for which all significantassurnptions are

observable or can be corroborated by observable market data.

The following is a summary of the fair value measurements as ofJ une 30, 2016:

Investments classified by fair value hierarchy Negotiable certificates of deposit US G overnmentAgency Obligations Corporate bonds

Total investments by fair value hierarchy

Investments not subject to fair value hierarchy State Local Agency Investment Fund

Total investments notsubjecttofairvalue hierarchy

Total investments measured at fair value

Local Agency Investment Fund

Fair Value

$ 10,052,815 6,006,986 1,533,205

$ 17,593,006

$ 24,477,087 $ 24,477,087

$ 42,070,093

Significant Other Observable Inputs

(Level 2)

$ 10,052,815 6,006,986 1,533,205

$ 17,593,006

The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California

Government Cost Section 16429 underthe oversight of the Treasurer of the State of California. LAIF

management calculates the fair value and cost of the entire LAIF pool. The City adjusts its cost basis

invested in LAIF to fair value based upon this ratio. The fair value of the City's position in the pool is the

same as the value of the pool share. The balance available for withdrawal on demand is based on

accounting records maintained by LAIF, which are recorded on an amortized cost basis. AtJ une 30, 2016

LAIF had a weighted average maturity of 167 days.

40

City of Pismo Beach


June 30, 2016

Page 1 O


Custodial Credit Risk- Investments

Custodial credit risk- investments is the risk that in the event of the failure ofa counterparty, the City will not

be able to recoverthe value of its investments that are in the possession ofan outside party. All of the City's

investments in securities are insured or registered and held by a counterparty in the City's name in

accordance with the City's policies. The City's investment policy specifies that securities are to be held by a

third party, otherthan the counterparty, in the City's name, whenever possible.

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. As a means of limiting its exposure to fair value losses arising from rising interest

rates, the City's investment policy limits the City's investment portfolio to securities having a maturity date of

five years or less at the date of purchase.

AtJ une 30, 2016, maturities were as follows for the City's investments:

Liquidity FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21

Total investments

Concentration of Credit Risk

Amount $ 25,457,800

955,312 1,049,779 3,018,692

11,588,510

$ 42,070,093

The City's policies in the Investment Management Plan provide guidelines (by type of investment vehicle that

limits either the dollar amount, the percent of the portfolio or the maturity term) for diversifying the investment

portfolio so that potential losses on individual securities will be minimized. Investments in US Government

Agency Obligations represent14% of the City's investments atJ une 30, 2016. These U.S government

sponsored enterprise agency securities are not explicitly guaranteed by the U.S. government.

41

City of Pismo Beach


June 30, 2016

Page 11


Credit Risk

Credit risk is the risk of loss due to the failure of the security issuer or backer. The City's policy is to mitigate

this risk by investing in investment grade securities and by diversifying the investment portfolio so that the

failure of any one issuer does not unduly harm the investment portfolio.

AtJ une 30, 2016, credit risk ratings were as follows for the City's investments:

State Local Agency Investment Fund (LAIF) Negotiable certificates of deposit US G ove rnme nt Agency Obligations Non-US corporate bonds US corporate bonds

Total investments

Note 3: Accounts Receivable

Rating Unrated Unrated

Aaa AAAA+

Fair Value

$ 24,477,087 10,052,815 6,006,986 1,017,680

515,525

$ 42,070,093

AtJ une 30, 2016, accounts receivable consisted of the following:

Other Non major

Housing Governmental General in Lieu Funds

Governmental activities: Taxes receivable $ 1,970,912 $ $ 130,490 Accounts receivable 109,922 33,889 Accrued interest receivable 10,999 5,502 Due from other governments 238,123

Total accounts receivable $ 2,091,833 $ $ 408,004

Other Enterprise

Water Wastewater Funds Business-type activities: Accounts receivable $ 738,139 $ 1,137,015 $ 11,326 Accrued interest receivable 5,173 6,678 1,301

Total accounts receivable $ 743,312 $1,143,693 $ 12,627

42

Total Internal Governmental Service Activities

$ $ 2,101,402 269 144,080

1,386 17,887 238,123

$ 1,655 $ 2,501,492

Total Business-Type

Activities

$ 1,886,480 13,152

$ 1,899,632

City of Pismo Beach


June 30, 2016

Page 12

Note 4: Note Receivable

In 2012, the City entered into a note receivable agreement for a loan in the amount of $1,657,235 forthe

development of affordable housing. The loan bears interest at 3% per annum. Principal and interest are due

and payable in full in 2066. The loan is secured by a deed of trust and a regulatory agreement AtJ une 30,

2016, the current principal balance and accrued interest on the note receivable was $1,279,394.

Note 5: Capital Assets

Capital assets activity for the year endedJ une 30, 2016 was as follows:

Balance Transfers/ Balance J une 30, 2015 Additions Deductions J une 30, 2016

Governmental activities: Capital assets not being depreciated:

Land $ 6,957,295 $ $ $ 6,957,295 Rights of way-street system 5,068,528 5,068,528 Construction in progress 1,681,620 1,673,317 (114,060) 3,240,877

Total capital assets not being depreciated 13,707,443 1,673,317 (114,060) 15,266,700

Capital assets being depreciated: Buildings 5,531,963 5,531,963 Machinery and equipment 2,348,265 264,115 (22,481) 2,589,899 Vehicles 4,470,982 174,806 (177,548) 4,468,240 Improvements 9,685,479 278,560 19,651 9,983,690 Infrastructure -street system 46,984,400 146,569 79,641 47,210,610

Total capital assets being depreciated 69,021,089 864,050 (100,737) 69,784,402

Accumulated depreciation: Buildings (2,648,367) (78,596) (2,726,963) Machinery and equipment (1,537,009) (150,925) 20,487 (1,667,447) Vehicles (2,640,925) (298,426) 181,306 (2,758,045) Improvements (3,730,059) (448,103) 14,768 ( 4,163,394) Infrastructure -street system (28,615,748) (1,179,095) (29,794,843)

Total accumulated depreciation (39,172,108) (2,155,145) 216,561 (41,110,692)

Total capital assets being depreciated, net 29,848,981 (1,291,095) 115,824 28,673,710 Net capital assets, governmental activities $ 43,556,424 $ 382,222 $ 1,764 $ 43,940,410

43

City of Pismo Beach


June 30, 2016

Page 13

Note 5: Capital Assets (Continued)

Balance Transfers/ Balance J une 30, 2015 Additions Deductions J une 30, 2016

Business-type activities: Capital assets not being depreciated:

Land $ 377,775 $ 377,775 Construction in progress 1,932,626 236,231 (537,477) 1,631,380

Total capital assets not being depreciated 2,310,401 236,231 (537,477) 2,009,155

Capital assets being depreciated: Buildings 333,726 333,726 Capacity rights 1,044,264 1,044,264 Tanks, wells and improvements 10,802,879 151,943 494,244 11,449,066 Equipment 2,675,224 2,675,224 Pipelines and collection system 32,110,081 32,110,081 Pier 2,142,553 2,142,553

Total capital assets being depreciated 49,108,727 151,943 494,244 49,754,914

Accumulated depreciation: Buildings (333,726) (333,726) Capacity rights (887,626) (52,213) (939,839) Tanks, wells and improvements (5,980,371) (450) 34,601 (5,946,220) Equipment (945,688) (20, 1 75) (965,863) Pipelines and collection system (9,927,916) (1,146,642) (11,074,558) Pier (1,265,564) (24,835) (1,290,399)

Total accumulated depreciation (19,340,891) (1,244,315) 34,601 (20,550,605)

Total capital assets being depreciated, net 29,767,836 (1,092,372) 528,845 29,204,309 Net capital assets, business-type activities $ 32,078,237 $ (856,141) $ (8,632) $ 31,213,464

44

City of Pismo Beach


June 30, 2016

Page 14

Note 5: Capital Assets (Continued)

Depreciation expense was charged to functions/programs as follows:

Governmental activities: General government $ 50,609 Public safety 182,226 Community services 425,262 Infrastructure -streets 1,198,622 Vehicles -internal service fund 298,426

Total depreciation, governmental activities $ 2,155,145

Business-type activities: Water $ 523,131 Wastewater 676,174 Parking 20,175 Pier 24,835

Total depreciation, business-type activities $ 1,244,315

Total interest expense for business-type activities was $286,848 for the year endedJ une 30, 2016 and the

total amount thereof that was capitalized was $26,361.

Note 6: Long-Term Debt

The City's internal service fund predominately serves the governmental funds. Accordingly, long-term

liabilities of the internal service fund are included in governmental activities in the statement of net position.

AtJ une 30, 2016, compensated absences of the internal service fund were $9,356.

For the governmental activities, claims and judgments and compensated absences are generally liquidated

by the General fund. See Note 11 for further discussion on claims liability.

45

City of Pismo Beach


June 30, 2016

Page 15

Note 6: Long-Term Debt (Continued)

Long-term debt activity forthe year endedJ une 30, 2016 was as follows:

Balance J une 30, 2015 Additions Deductions

Governmental activities: Revenue refunding bonds $ 3,350,000 $ $ (310,000) Compensated absences 390,576 23,200 (37,232) Claims 49,781 21,101 (73,526)

Total long-term debt, governmental activities $ 3,790,357 $ 44,301 $ (420,758)

Business-type activities: Compensated absences $ 63,043 $ 3,040 $ (16,776) Revenue refunding bonds 5,155,000 (195,000) Unamortized bond premium 364,661 (20,259) State revolving loans 6,676,841 (545,310)

Total long-term debt, business-type activities $ 12,259,545 $ 3,040 $ (777,345)

2007A Lease Revenue Refunding Bonds

Balance Due Within J une 30, 2016 One Year

$ 3,040,000 $ 325,000 376,544 13,200

(2,644)

$ 3,413,900 $ 338,200

$ 49,307 $ 10,300 4,960,000 205,000

344,402 6,131,531 555,152

$ 11,485,240 $ 770,452

In 2007, the Authority issued lease revenue refunding bonds (2007A bonds) in the amount of $5,185,000 to

advance refund and retire prior revenue bonds. The Authority entered into a lease arrangement with the City

wherein the City is obligated to make all debt service payments on the 2007A bonds. The transactions

between the Authority and the City have been eliminated from these financial statements. The debt is

reported within the governmental activities and related debt service payments are reported within the

General fund. The 2007A bonds are secured by a covenant of the City to make provisions in its annual

budget to provide for funding the retirement of principal and payment of interest. The bonds maturing on or

after December 1, 2018 are subject to redemption prior to maturity as specified in the bond resolution. The

2007A bonds bear interest at rates from 3.5 to 5%. Principal and interest are payable in semi-annual

installments eachJ une 1 and December 1 through 2025.

46

City of Pismo Beach


June 30, 2016

Page 16


AtJ une 30, 2016, future minimum principal and interest payments on the 2007A bonds were as follows:

Forthe Year Ending I une 30, Principal Interest Total 2017 $ 325,000 $ 120,931 $ 445,931 2018 335,000 108,906 443,906 2019 355,000 96,344 451,344 2020 365,000 82,854 447,854 2021 380,000 68,254 448,254

2022--2025 1,280,000 119,733 1,399,733

Total $ 3,040,000 $ 597,022 $ 3,637,022

State Revolving Fund Loans

The City entered into an agreement with the State Water Resources Control Board for a $10,154,284 loan

with an effective interest rate of approximately 1.8% for the purpose offinancing wastewater system

improvements.

AtJ une 30, 2016, future minimum principal and imputed interest payments on this loan payable were as

follows:

Forthe Year Ending I une 30, Principal Interest Total 2017 $ 509,561 $ 99,698 $ 609,259 2018 518,749 90,511 609,260

2019 528,102 81,158 609,260 2020 537,623 71,636 609,259 2021 547,317 61,943 609,260

2022--2026 2,888,213 158,084 3,046,297

Total $ 5,529,565 $ 563,030 $ 6,092,595

The City entered into a second agreement with the State Water Resources Control Board for a $231,904

loan with an effective interest rate of approximately 1.8% for the purpose offinancing additional

improvements.

47

City of Pismo Beach


J une 30, 2016

Page 17



follows:

For the Year Ending I une 30, Principal Interest Total 2017 $ 12,371 $ 2,275 $ 14,646 2018 12,605 2,041 14,646 2019 12,844 1,802 14,646 2020 13,087 1,559 14,646 2021 13,335 1,311 14,646

2022--2025 55,914 2,672 58,586

Total $ 120,156 $ 11,660 $ 131,816

The City also entered into third agreement with the State Water Resources Control Board for an additional

$847,763 loan with an effective interest rate of approximately 1.8% for the purpose offinancing additional

improvements.


follows:


2022--2026 188,290 21,243 209,533 2027--2029 121,323 4,400 125,723

Total $ 481,810 $ 62,979 $ 544,789

The City has pledged future wastewater system revenues, net of specified operating expenses, to repay the

State Revolving Fund Loans. Proceeds from the loans were used to complete a major upgrade to the City's

wastewater treatment plant and related facilities. The loans are payable solely from wastewater customer

net revenues and are payable through 2026. For the year endedJ une 30, 2016, principal and imputed

interest paid and total system net revenues were $665,812 and $2,335,734, respectively.

48

City of Pismo Beach


June 30, 2016 Page 18


Wastewater Refunding Revenue Bonds, Series 2012

In 2012, the Authority issued revenue refunding bonds (2012 bonds) in the amount of $5,710,000 to advance

refund the 2004 revenue bonds, series A. The Authority entered into a lease arrangement with the City

wherein the City is obligated to make all debt service payments on the 2012 bonds. The transactions

between the Authority and the City have been eliminated from these financial statements and the debt and

related debt service payments are reported within the Wastewater fund. The 2012 bonds bear interest at

rates of 2.0 to 5%. Principal and interest are payable in semi-annual installments eachJ une 30 and

December 30 through 2033.

AtJ une 30, 2016, future minimum principal and imputed interest payments on the 2012 bonds were as

follows:


2022-2026 1,405,000 545,871 1,950,871 2027-2031 1,680,000 267,110 1,947,110 2032-2034 760,000 26,017 786,017

Total $ 4,960,000 $ 1,676,713 $ 6,636,713

In the statement of net position, the 2012 bonds include the related unamortized premium which is being

amortized and charged to expense over the term of the 2012 bonds. AtJ une 30, 2016, the unamortized

premium was $344,402.

The City has also pledged future wastewater system revenues, net of specified operating expenses, to repay

the 2012 bonds. The bonds are payable solely from wastewater customer net revenues. For the year ended

June 30, 2016, principal and interest paid and total customer net revenues were $387,288 and $2,335,734,

respectively.

The advance refunding resulted in a difference $289,264 between the reacquisition price and the net

carrying value of the old debt. This loss on refunding is reported as a deferred outflow of resources in the

statement of net position and is being amortized to expense through 2033. The City completed the refunding

to reduce its total debt service payments over the next 21 years by $991,751 and to obtain an economic gain

of $800,743 (difference between the present values of the old and the new debt service payments).

49

City of Pismo Beach


June 30, 2016

Page 19

Note 7: Other Post-Employment Benefits (OPEB)

P Ian Description

The City administers the City's Retired Employees Healthcare P Ian (the P Ian), a single employer defined

benefit healthcare plan. The P Ian provides medical insurance benefits to eligible retirees and their spouses.

City resolutions and agreements assign the authority to establish and amend benefit provisions to the City.

Separate financial statements of the P Ian are not issued by the City. A separate other post-€mployment

benefits (OP EB) trust has been established by the City.

Funding Policy

The contribution requirements of P Ian members and the City are established by and may be amended by the

City. The required contribution is based on projected pay-as-you-go financing requirements, with additional

amounts to prefund benefits as determined annually by the City Council. For the year endedJ une 30, 2016,

the City contributed $162,005 for current year premiums (1 0036 of total premiums) and $234,000 to prefund

benefits and pay down a portion of the implied subsidy. Plan members receiving benefits contributed no

amounts of the total premiums.

Annual OPEB Cost and Net OP EB Obligation (Asset)

The City's annual OP EB cost (expense) is calculated based on the annual required contribution of the

employer (ARC), an amount actuarially determined in accordance with the parameters of GAS B Statement

No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal

cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years.

The following table shows components of the City's annual OPEB cost for the year, the amount actually

contributed to the P Ian, and changes in the City's net OPE B obligation (asset):

Annual required contribution (ARC) lnte rest on net OPE B obligation Adjustment to annual required contributions Annual OPE B cost Contributions made

Change in net OP EB obligation Net OPE B asset, beginning of year

Net OPE B obligation, end of year

50

$ 372,000 (1,000)

371,000 (325,000)

46,000 (8,000)

$ 38,000

City of Pismo Beach


June 30, 2016

Page 20

Note 7: Other Post-Employment Benefits (OPEB) (Continued)

The City's annual OP EB cost, the percentage of the annual OP EB cost contributed to the P Ian, and the net

OP EB obligation (asset) for the last three years were as follows:

Fiscal Year 6/30,Q0l 6 6/30,Q0l 5 6/30{,'014

Annual OPEB Cost

$ 371,000 $ 359,000 $ 213,000

Funding Status and Funding Progress

Actual Contributions $ 325,000 $ 323,000 $ 234,000

% of Annual OPEB Cost Contributed

87.6% 90.0% 109.9%

Net OPEB Obligation

(Asset) $ 38,000 $ (8,000) $ (44,000)

The funded status of the Plan as ofJ une 30, 2015, the Plan's most recent actuarial valuation, was as follows:

Actuarial accrued liability Actuarial value of plan assets Unfunded actuarial accrued liability (UML) Funded ratio Covered payroll UML as a percentage of covered payroll

$ 4,336,000 1,573,000

$ 2,763,000 36.28%

$ 5,967,000 46.30%

Actuarial valuations of an ongoing plan involve estimates of the reported amounts and assumptions about

the probability of occurrence of events far into the future. Examples include assumptions about future

employment, mortality, and the health care cost trend. Amounts determined regarding the funded status of

the plan and the annual required contributions of the employer are subject to continual revision as actual

results are compared with past expectations and new estimates are made about the future. The schedule of

funding progress, presented as required supplementary information, following the notes to the financial

statements, presents multiyear trend information about whether the actuarial value of P Ian assets is

increasing or decreasing over time relative to actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions

Projection of benefits for financial reporting purposes are based on the substantive Plan (the Plan as

understood by the employer and the Plan members) includes the types of benefits provided at the time of

each valuation and the historical pattern of sharing of benefit costs between the employer and Plan members

to that point. The actuarial methods and assumptions used include techniques that are designed to reduce

the effects of short term volatility in actuarial liabilities and the actuarial value of plan assets, cons is tent with

the long-term perspective of the calculations.

51

City of Pismo Beach


June 30, 2016

Page 21

Note 7: Other Post-Employment Benefits (OPEB) (Continued)

In theJ une 30, 2015 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial

assumptions included a 6.75% investment rate of return which is a blended rate of the expected long-term

invested returns on plan assets and on the employers own investments calculated based on the funded level

of the plan at the valuation date, a general inflation rate of 3%, and an annual health care cost trend of 7.5 to 7.8% initially, reduced to an ultimate rate of 5% after eight years. The UAAL is being amortized as a level

percentage of projected payroll over 24 years, the remaining amortization period as ofJ une 30, 2016. The

amortization period is closed.

Note 8: lnterfund Receivables, Payables and Transfers

There were no interfund receivables and payables atJ une 30, 2016. lnterfund transfers for the year ended

June 30, 2016 were as follows:

Transfers In Transfers Out Governmental Funds:

General Fund $ 208,116 $ 2,610,023 Capital Projects Fund 1,590,878 Other Governmental Funds:

State Gas Tax Fund 149,714 Noncapital Grants Fund 24,132 Impact Fee Fund 58,161 City of Pismo Beach Public Financing Authority Fund 440,881

Enterprise Funds: Water Fund 46,807 Wastewater Fund 52,132 Other Enterprise Funds:

Pier Fund 171,670 Parking Fund 1,512

Internal Service Funds 532,169 1,233

Total interfund transfers $ 2,943,714 $ 2,943,714

The primary purpose of interfund transfers is to move unrestricted fund revenues to finance various

programs that the government must account for in other funds in accordance with budgetary authorizations,

including capital outlay expenditures. lnterfund transfers were made from the General Fund to the City of Pismo Beach Public Financing Authority Fund as debt service principal and interest payments become due.

lnterfund transfers were made from various funds to the Internal Service Fund for vehicle replacement

contributions.

52

City of Pismo Beach


June 30, 2016

Page 22

Note 9: Public Employees Retirement System

General Information about the Pens ion Plans

P Ian Descriptions

The City contributes to the California Public Employees Retirements ystem (Ca IP ERS), a cost sharing

multiple-€mployer public employee defined benefit pension plan. All qualified permanent and probationary

employees are eligible to participate in the City's separate Safety (police and fire) and Miscellaneous (all

other) Employee Pension Plans. CalPERS provides retirement and disability benefits, annual cost-of-living

adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common

investment and administrative agent for participating public entities within the State of California. Benefit

provisions and all other requirements are established by the State statute and City ordinance. Ca IP E RS

issues publicly available financial reports that include the financial statements and required supplementary

information for the Ca IP E RS. Ca IP E RS issues publicly available reports that include a full description of the

pension plans regarding benefit provisions, assumptions and membership information that can be found on

the CalPERS website.

The City participates in the Safety and Miscellaneous Ca IP E RS cost sharing multiple-€mployer plans. The

Safety plans consists of Fire Tier 1; Fire Tier 2; Police Tier 1, Police Tier 2, and Police PEP RA. The

Miscellaneous plans consistofTier 1, Tier 2 and PEPRA.

Benefits Provided

Ca IP E RS provides service retirement and disability benefits, annual cost of living adjustments and death

benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of

credited service, equal to one year of full time employment. Members with five years of total service are

eligible to retire at age SO with statutorily reduced benefits. All members are eligible for non-duty disability

benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the

1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit The cost of living adjustments for each

plan are applied as specified by the Public Employees' Retirement Law.

While the City's Safety and Miscellaneous plan are not closed to new entrants, the component option of

Safety Fire Tier 1, Safety Police Tier 1, and Miscellaneous Tier 1 are closed to new entrants. Classie

members, as defined by Ca IP ERS, entering the City's plans would enter the Tier 2 plans, and New

Members, as defined by Ca IP ERS, would enterthe PE PRA plans.

53

City of Pismo Beach


June 30, 2016 Page 23

Note 9: Public Employees Retirement System (Continued)

The Plan's provisions and benefits in effectatJ une 30, 2016, are summarized as follows:

Hire date Benefit formula Benefitvesting schedule Benefit payments

Retirement age

Monthly benefits, as a% of eligible compensation Required employee contribution rates

Required employer contribution rates

Final average compensation period

Hire date Benefit formula

Benefitvesting schedule Benefit payments Retirement age




Hire date Benefit formula Benefitvesting schedule Benefit payments

Retirement age




Safety-Fire

Tier l

Prior to January l, 2013

2.0% @ 50

5 years service

monthly for life 50 -55

2.0% 9%

13.813% 3--Vear Average

Tier l Prior to

January l, 2013 3.0% @ 50

5 years service


3.0% 12%

18.524%

-3.00% Single Highest Year

Tier l

Prior to

January l, 2013 2.5% @ 55

5 years service


2.0% to 2.7% 8%

9.671% 0.00%

Single Highest Year

54

PEPRA

On or after January l, 2013

2.7% @ 57

5 years service


2.0% to 2.7% 9%

l l.500% 3-Year Average

Safety-Police

Tier 2 On or after

December 17, 2012 3.0% @ 55

5 years service


3.0% 12%

15.630%

-3.00% 3-Year Average

Miscellaneous Tier 2

On or after

December 17, 2012 2.0% @ 60

5 years service

monthly for life 50-63

1.0% to 2.0% 8%

6.710% -l.00%

3-Year Average

PEPRA On or after

January l, 2013 2.7% @ 57

5 years service


2.0% to 2.7% 12%

l l.150%

-0.50% 3--Vear Average

PEPRA

On or after

January l, 2013 2.0% @ 62

5 years service


1.0% to 2.5% 8%

6.240% -l.75%

3--Vear Average

City of Pismo Beach


June 30, 2016

Page 24


Contributions

Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution

rates for all public employers be determined on an annual basis by the actuary and shall be effective on the

July 1 following notice ofa change in the rate. Funding contributions for both Plans are determined annually

on an actuarial basis as ofJ une 30 by CalPERS. The actuarially determined rate is the estimated amount

necessary to finance the costs of benefits earned by employees during the year, with an additional amount to

finance any unfunded accrued liability. The City is required to contribute the difference between the

actuarially determined rate and the contribution rate of employees.

For the year endedJ une 30, 2016, the contributions recognized as part of pension expense for each Plan

we re as follows:

Miscellaneous Safety

Contributions -employer $ 1,715,407 $ 687,175

Pension Liabilities, Pension Expenses and Deferred Outflows~nflows of Resources Related to Pensions

As ofJ une 30, 2016, the City reported net pension liabilities for its proportionate shares of the net pension

liability of each P Ian as follows:

P Ian's Proportionate Share of the Net Pension Liability $

Miscellaneous

6,684,633 $

Safety Total

7,337,921 $ 14,022,554

The City's net position liability for each P Ian is measured as the proportionate share of the net pension

liability. The net pension liability of each of the Plans is measured as ofJ une 30, 2015, and the total pension

liability for each P Ian used to calculate the net pension liability was determined by an actuarial valuation as of

June 30, 2014 rolled forward toJ une 30, 2015 using standard update procedures. The City's proportion of

the net pension liability was based on a projection of the City's long-term share of contributions to the

pension plans relative to the projected contributions of all participating employers, actuarially determined.

The City's proportionate share of the net pension liability for each P Ian as of J une 30, 2014 and 2015 was as

follows:

P roportiona te share Percentage share at6/30/2014 Percentage share at 6/30/2015 Change -lncrease;(Decrease)

Miscellaneous 0.25233% 0.24366%

-0.00867%

55

Safety 0.18584% 0.17809%

-0.00775%

City of Pismo Beach


June 30, 2016

Page 25


For the year endedJ une 30, 2016, the City recognized pension expense of $1,141,578. AtJ une 30, 2016,

the City reported deferred outflows of resources and deferred inflows of resources related to pensions from

the following sources:

All Plans Deferred Outflows Deferred Inflows

of Resources of Resources Pens ion contributions subsequent to measurement date $ 1,787,700 $ Differences between actual and expected experience 45,852 (90,399) Changes in assumptions (849,583) Change in employer's proportion and differences between

the employer's contributions and the employer's proportionate share of contributions 187,855 (62,043)

Net differences between projected and actual earnings on pension plan investments (428,192)

Adjustment due to difference in proportions 898,498

Total $ 2,919,905 $ (1,430,217)

Pens ion contributions subsequent to the measurement dates of $1,787,700 are reported as deferred

outflows of resources and will be recognized as a reduction of the net pension liability in the year ended

June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources

related to pensions will be recognized in pension expense as follows:

All Plans Measurement Period

Ended June 30 2016 2017 2018 2019

Total

$

$

Amount

56

(246,187) (262,390) (326,087) 536,652

(298,012)

City of Pismo Beach


June 30, 2016

Page 26


Actuarial Assumptions

The total pension liabilities in the J une 30, 2014 actuarial valuations were determined using the following

actuarial assumptions:

Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Salary Increases Post Retirement Benefit Increase Mortality

All Plans June 30, 2014 June 30, 2015

Entry-Age Normal Cost Method

7.65% 2.75%

Varies by Entry Age and Service (1) (2) (3)

(1) Depending on age, service, and type of employment (2) Contract COLA up to 2.75% until Purchasing Power Protection

Allowance Floor on Purchasing Power applies, 2.75% thereafter (3) Derived using CalPERS' Membership Data for all Funds

The mortality table used was developed based on Ca IP ERS' specific data. The table includes 20 years of

mortality improvements using Society of Actuaries Scale BB. All other actuarial assumptions used in the

June 30, 2014 valuation were based on the results of an actuarial experience study for the period from 1997

to 2011, including updates to salary increase, mortality and retirement rates. More information on this table

and assumptions can be found in the Experience Study report on Ca IP ERS 'website under Forms and

Publications.

Change in Assumptions

According to Paragraph 68 of GAS B 68, the long-term expected rate of return should be determined net of

pension plan investment expense but without reduction for pension plan administrative expense. The

discount rate of 7.50% used for theJ une 30, 2014 measurement date was net of administrative

expenses. The discount rate of 7.65% used for theJ une 30, 2015 measurement date is without reduction of

pension plan administrative expense.

Discount Rate

The discount rate used to measure the total pension liability was 7.65% for each Plan. To determine

whether the municipal bond rate should be used in the calculation of a discount rate for each plan, Ca IP ERS

stress tested plans that would mostly likely result in a discount rate that would be different from the

actuarially assumed discount rate. Based on the testing, none of the tested plans ran out of assets.

Therefore, the current 7.65% discount rate is adequate and the use of the municipal bond rate calculation is

57

City of Pismo Beach


June 30, 2016

Page 27


not necessary. The long term expected discount rate of 7.65% will be applied to all plans in the Public

Employees Retirement Fund (PER F). The stress test results are presented in a detailed report that can be

obtained from the CalPE RS website.

The long-term expected rate of return on pension plan investments was determined using a building-block

method in which best-€stimate ranges of expected future real rates of return (expected returns, net of

pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate ofreturn, Ca IP E RS took into account both short-term and long

term market return expectations as well as the expected pension fund cash flows. Using historical returns of

all the funds' asset classes, expected compound returns were calculated over the short-term (first 10 years)

and the long-term (11-60years) using a building-block approach. Using the expected nominal returns for

both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate

of return was set by calculating the single equivalent expected return that arrived at the same present value

of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected

rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the

nearest one quarter of one percent.

The table below reflects the long-term expected real rate of return by asset class. The rate of return was

calculated using the capital market assumptions applied to determine the discount rate and asset allocation.

These rates of return are net of administrative expenses.

Asset Class Global Equity Global Fixed Income Inflation Sensitive Private Equity Real Estate Liquidity Other

Total

New Strategic Allocation

51.00% 19.00% 6.00%

10.00% 10.00% 2.00% 2.00%

100.0(Y}6

(a) An expected inflation of 2.5% used forthis period. (b) An expected inflation of 3.0% used for this period.

58

All Plans

Real Return Years 1 -10 (a)

5.25% 0.99% 0.45% 6.83% 4.50% 4.50%

-0.55%

Real Return Years 11 + (b)

5.71% 2.43% 3.36% 6.95% 5.13% 5.09%

-1.05%

City of Pismo Beach


June 30, 2016

Page 28


Sensitivity of the Net Pension Liability to Changes in the Discount Rate

The following presents the City's proportionate share of the net pension liability for each P Ian, calculated

using the discount rate for each P Ian, as well as what the City's proportionate share of the net pension

liability would be if it were calculated using a discount rate that is one percentage point lower or one

percentage point higher than the current rate:

Miscellaneous Safety 1% Decrease 6.65% 6.65% Net Pension Liability $ 11,210,596 $ 11,765,208

Current Discount Rate 7.65% 7.65% Net Pension Liability $ 6,684,633 $ 7,337,921

1% Increase 8.65% 8.65% Net Pension Liability $ 2,947,925 $ 3,707,628

Pension Plan Fiduciary Net Position

Detailed information about each pension plan's fiduciary net position is available in the separately issued

CalPERS financial reports.

Payable to the Pension Plan

AtJ une 30, 2016, the City reported a payable of $0 for the outstanding amount of contributions to the

pension plan for the year endedJ une 30, 2016.

Note 1 O: Jointly Governed Organizations and Operating Agreements

Jointly governed organizations are legal entities or other organizations that result from a contractual

arrangement and that are owned, operated, or governed by two or more participants as a separate and

specific activity subject to joint control in which the participants retain an ongoing financial interest or ongoing

financial responsibility.

The City is a participant in the following organizations:

South County Area Transit and San Luis Obispo Regional Transit Authority

The City is a member of South County Area Transit and San Luis Obispo Regional Transit Authority, which

were formed to provide fixed route and regional transit services within the member cities and the County.

The City's obligation to these entities is limited to the assignment of a portion of its Local Transportation Fund

allocations to the joint powers agencies.

59

City of Pismo Beach


June 30, 2016

Page 29

Note 1 0: Jointly Governed Organizations and Operating Agreements (Continued)

San Luis Obispo Council of Governments

The San Luis Obispo Council of Governments (SLOCOG) was formed in 1968through a joint powers

agreement among the incorporated cities and the County of San Luis Obispo. It acts as the regional

transportation planning agency for the county and is the metropolitan planning organization and the

congestion management agency for the region. The City's obligation to this entity is limited to the

assignment of a portion of its Local Transportation Fund allocations to the agency.

The City has the following water treatment and supply agreements:

Water Treatment and Facilities Agreement

The City has an agreement with the San Luis Obispo County Flood Control and Water Conservation District

(the District) wherein the District and the Central CoastWater Authority (the Water Authority) constructed

and operate a joint water treatment facility and water conveyance system. The Water Authority financed the

facility and system by selling revenue bonds, and in 1997, issued $198 million in refunding revenue bonds.

In 2006, the Water Authority issued refunding bonds to take advantage of lower market interest rates. The

agreement is a take-or-pay obligation, and the City is obligated to pay amounts specified in the agreement

whether or not water is treated or delivered. The amounts paid by the City are pledged by the Water

Authority for repayment of the Water Authority's debt obligations. The City recorded these payments as

operating expenses of$67,789and $1,271,001 to the District and Water Authority, respectively, in its Water

Fund.

Water Supply Agreement

The City has entered into a water supply agreement with the District for the purpose of obtaining additional

water for municipal purposes. The City is obligated to make payments even if the City fails or refuses to

accept water deliveries. The District's source for such additional water supplies is the California State Water

Project (SW P). The SW P has constructed facilities to extend the California Aqueduct to the Central Coast

and to the facilities owned by the Water Authority. The City has recorded as long-term prepayments in its

Water Fund payments made under this agreement while the SW P expansion was under construction and

prior to its ability to convey water under the arrangement These prepayments are being amortized to

expense as operating expenses overthe term of the agreement.

60

City of Pismo Beach


June 30, 2016

Page 30

Note 1 O: Jointly Governed Organizations and Operating Agreements (Continued)

Lopez Dam Agreement

The City has entered into a Lopez Dam agreement with the District related to the Lopez Dam storage

reservoir, water treatment plant, main conduits, and related facilities built for the primary purpose of providing

a municipal water supply to cities in the County. This agreement is also a take-or-pay arrangement and the

City is obligated to make payments regardless of water deliveries. In 2000, voters in Zone 3 of the District,

authorized the District to issue $13.2 million in general obligation bonds to provide funds to construct seismic

improvements to the Lopez Dam and facilities. The District is to receive such tax revenues under the voter

approved arrangement and is to also receive payments from the City and other participating governments in

amounts sufficient to pay debt service on the bonds and related operating and capital costs. The City

recorded these payments of $1,347,379 as expenses in its Water Fund.

Note 11: Risk Management

Self-Insurance

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets;

errors and omissions; and natural disasters for which the City carries insurance. The City, due to the costs of available coverage, participated as a member in the Central Coast Cities Self-Insurance Fund (CCCS IF)

throughJ une 30, 2003 for general liability insurance and throughJ une 30, 2004 for workers compensation

insurance. Thereafter, the City joined the CaliforniaJ oint Powers Insurance Authority (CaliforniaJ PIA). The

CaliforniaJ PIA provides general liability insurance to the City with a $50 million per occurrence and $50

million per year aggregate limit and workers compensation insurance with statutory benefits and $10 million

employer's liability coverage. The risk of loss is transferred to the California J PIA. The City is subject to

retrospective premium adjustments under the arrangement. Claims liabilities in the governmental funds are

generally liquidated by the General Fund.

The City is responsible for payment of its respective claims that were outstanding with the CCCS IF at the

time the City elected to insure with the CaliforniaJ PIA. The uninsured risk for these claims, referred to as

tail-end claims, retained by the City was $300,000 per incident for workers compensation claims, $50,000

per incident for general liability claims, and $5,000 per property damage claim. The CCCS IF periodically

obtains actuarial studies and valuations of the tail-end claim liabilities, and the City reports such estimated

amounts payable as claim liabilities in the statement of net position.

Liabilities of the City are reported in the statement of net position forthe governmental activities when it is

probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities

include an amount for claims that have been incurred but not reported (1B NRs). The result of the process to

estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation,

61

City of Pismo Beach


June 30, 2016

Page 31

Note 11: Risk Management (Continued)

changes in legal doctrines, and damage awards. Accordingly, claims are reevaluated periodically to

considerthe effects of inflation, recent claim settlement trends (including frequency and amount of pay-outs),

and other economic and social factors.

The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related

to specific claims and other claim adjustment expenses regardless of whether allocated to specific claims.

Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability

estimate. Settlements have not exceeded coverage for each of the past three fiscal years.

Self-Insurance activity as of and for the year endedJ une 30, 2016 is summarized as follows:

Interest earnings Claims expense

Estimated liability for reported claims and settlement expenses Assets on deposit

Estimated unpaid claims assetatJ une 30, 2016

$ 564 $ (21,101)

$ (127,750) 130,394

$ 2,644

Changes in the balances of claims liabilities during the past two fiscal years were as follows:

Estimated unpaid claims liabilities atJ une 30, 2014 Claim payments and related expenditures reimbursement Change in estimated claims liability for year endedJ une 30, 2015 Interest earnings Deposits Estimated unpaid claims liabilities atJ une 30, 201 5 Claim payments and related expenditures reimbursement Change in estimated claims liability for year endedJ une 30, 2016 Interest earnings

Estimated unpaid claims asset atJ une 30, 2016

Note 12: Commitments and Contingencies

Litigation

$ (199,209) (25,619) 13,109

450 161,488

$

(49,781) (21,101) 72,962

564

2,644

The City is involved in litigation incurred in the normal course of conducting City business. Although the

outcome of these lawsuits is not presently determinable, in the opinion of the City's counsel the resolution of

these matters will not have a material adverse effect on the financial condition of the City.

62

City of Pismo Beach


June 30, 2016

Page 32

Note 12: Commitments and Contingencies (Continued)

Grants and Allocations

Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor

agencies, principally the federal and state government. Any disallowed claims, including amounts already

collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be

disallowed by the grantor cannot be determined at this time, although the City expects such amounts, if any,

to be immaterial.

Construction and Other Significant Commitments

Construction and other significant commitments as of J une 30, 2016, including encumbrances outstanding at

year-€nd, were as follows:

General fund Special revenue funds Capital project funds Enterprise funds Internal service funds

Total

$ 469,626 299,374

2,794,056 1,329,428

345,224

$ 5,237,708

Long term construction contracts are billed and paid on a percentage of completion basis by construction

phase.

Note 13: New Accounting Pronouncements

In February 2015, GAS B issued Statement No. 72, Fair Value Measurement and Application, which

addresses accounting and financial reporting issues related to fair value measurements. This Statement

also provides guidance for applying fair value to certain investments and disclosures related to all fair value

measurements. The provisions ofS tatement No. 72 are effective for fiscal years beginning after June 15,

2015. Implementation of this statement resulted in additional fair value measurement disclosures.See

Note 2 to Financial Statements for further discussion.

63

City of Pismo Beach


June 30, 2016

Page 33

Note 13: New Accounting Pronouncements (Continued)

lnJ une 2015, GAS B issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related

Assets That Are Not within the Scope of GAS B Statement 68, and Amendments to Certain Provisions of

GAS B Statements 67 and 68. The requirements of this Statement extend the approach to accounting and

financial reporting established in Statement 68 to all pensions, with modifications as necessary to reflect that

for accounting and financial reporting purposes, any assets accumulated for pensions that are provided

through pension plans that are not administered through trusts that meet the criteria specified in Statement

68 should not be considered pension plan assets. The provisions of Statement No. 73 are effective for fiscal

years beginning after June 15, 2015. Implementation of this statement did not have a material impact on the

City's financial statements.

lnJ une 2015, GAS B issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other

Than Pens ion Plans, which establishes financial reporting standards for state and local governmental OP EB

plans-defined benefit OP EB plans and defined contribution OPEB plans-that are administered through

trusts or equivalent arrangements. The provisions of Statement No. 74 are effective for fiscal years

beginning after June 15, 2016. Management has not yet determined the impact of this Statement on its


Additionally, inJ une 2015, GAS B issued Statement No. 75, Accounting and Financial Reporting for

Postemployment Benefit Plans Other Than Pensions. Statement No. 75 establishes new accounting and

financial reporting requirements for governments whose employees are provided with OPE B, as well as for

certain nonemployer governments that have a legal obligation to provide financial support for OPE B provided

to the employees ofother entities. The provisions of Statement No. 75 are effective for fiscal years

beginning after June 15, 2017. Management has not yet determined the impact of this Statement on its


lnJ une 2015, GAS B issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles

for State and Local Governments. The objective of this Statement is to identify-in the context of the current

governmental financial reporting environment-the hierarchy of generally accepted accounting principles.

The "GAAP hierarchy" consists of the sources ofaccounting principles used to prepare financial statements

of state and local governmental entities in conformity with GAAP and the framework for selecting those

principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and

addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment

for a transaction or other event is not specified within a source of authoritative GAAP. The provisions of

Statement No. 76 are effective for fiscal years beginning after June 15, 2015. Implementation of this

statement did not have a material impact on the City's financial statements.

64

City of Pismo Beach


June 30, 2016

Page 34


In August 2015, GAS B issued Statement No. 77, Tax Abatement Disclosures. Statement No. 77 requires

disclosure of tax abatement information about (1) a reporting government's own tax abatement agreements

and (2) those that are entered into by other governments and that reduce the reporting government's tax

revenues. The provisions of Statement No. 77 are effective for fiscal years beginning after December 15,

2015. Management has not yet determined the impact of this Statement on its financial statements.

In December 2015, GAS B issued Statement No. 78, Pensions Provided through Certain Multiple-Employer

Defined Benefit Pension Plans. Statement No. 78 addresses a practice issue regarding the scope and

applicability ofS tatement No. 68 for pensions provided through certain multiple-employer defined benefit

pension plans and to state or local governmental employers whose employees are provided with such

pensions. The provisions of Statement No. 78 are effective for fiscal years beginning after December 1 5,

201 5. Management has not yet determined the impact of this Statement on its financial statements.

In December 2015, GAS B issued Statement No. 79, Certain External Investment Pools and Pool

Participants.Statement No. 79 addresses accounting and financial reporting for certain external investment

pools and pool participants. The provisions ofS tatement No. 79 are effective for reporting periods beginning

afterJ une 15, 2016. Management has notyetdeterminedthe impact of this Statement on its financial

statements.

lnJ anuary 2016, GAS B issued Statement No. 80, Blending Requirements for Certain Component Units - an

amendment of GAS B Statement No. 14. Statement No. 80 amends the blending requirements established in

paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. The provisions of

Statement No. 80 are effective for fiscal years beginning after December 15, 2015. Management has not yet

determined the impact of this Statement on its financial statements.

In March 2016, GAS B issued Statement No. 81, Irrevocable S plit-lnterestAgreements. Statement No. 81

requires that a government that receives resources pursuant to an irrevocable split-interest agreement

recognize assets, liabilities, and deferred inflows ofresources at the inception of the agreement The

Statement also provides additional recognition and measurement guidance for situations in which a

government is a beneficiary of the agreement. The provisions of Statement No. 81 are effective for fiscal

years beginning after December 15, 2016. Management has not yet determined the impact of this Statement

on its financial statements.

In March 2016, GAS B issued Statement No. 82, Pension Issues-an amendment of GAS B Statements No.

67, No. 68, and No. 73. Statement No. 82 addresses issues regarding (1) the presentation of payroll-related

measures in required supplementary information, (2) the selection of assumptions and the treatment of

deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the

classification of payments made by employers to satisfy employee (plan member) contribution requirements.

65

City of Pismo Beach


June 30, 2016

Page 35


The provisions ofS tatement No. 82 are effective for fiscal years beginning after June 15, 2016.

Management has not yet determined the impact of this Statement on its financial statements.

In November 2016, GAS B issued Statement No. 83, Capital Asset Retirement Obligations. Statement No.

83 provides financial statement users with information about asset retirement obligations that were not

addressed in GAS B standards by establishing uniform accounting and financial reporting requirements for

these obligations. The provisions of Statement No. 83 are effective for reporting periods beginning after

June 15, 2018. Management has not yet determined the impact of this Statement on its financial statements.

Note 14: Restatement of Beginning Net Position

During 2016, a prior year restatement was recorded to properly restate deferred inflows ofresources related

to pensions that had been amortized during the year endedJ une 30, 2015 rather than amortized during the

measurement period endingJ une 30, 2015. The effect was to increase deferred inflows of resources related

to pensions and decrease beginning net position by $656,520 for Governmental Activities and $84,954 for

Business-Type Activities for the year endedJ une 30, 2016.

In addition, the City identified certain capital assets that had been previously recorded as contributions but

should have been capitalized and depreciated as part of Governmental Activities. The effect, in the year

endedJ une 30, 2015, was to understate capital assets and understate net position. This resulted in a prior

year restatement to increase net position and increase capital assets in the current year by $955,197.

66

Required Supplementary Information Section


City of Pismo Beach

Budgetary Comparison Schedule - General Fund

Budgetary Bas is


Budgeted Amounts Actual Original Final Amounts

Fund balance -beginning of year $ 15,642,569 $ 15,642,569 $ 15,642,569 Resources (inflows):

P rope rty taxes 4,496,068 4,713,388 4,662,304 Sales taxes 4,503,053 4,503,053 4,485,779 Transient occupancy taxes 8,749,331 8,949,331 9,199,947 Other taxes 812,963 812,963 912,732 License and permits 1,384,271 1,384,271 1,917,806 Fines and forfeits 75,000 75,000 56,439 Interest and rents 256,794 256,794 376,054 Intergovernmental 198,180 198,573 120,592 Charges for services 160,392 160,392 216,926 Miscellaneous 804,100 825,600 953,946 Transfers in 264,400 353,780 208,116

Amounts available for charges to appropriations 37,347,121 37,875,714 38,753,210

Charges to appropriations: General Government:

City Council 285,311 285,586 273,758 Administration 451,030 424,312 408,501 City Clerk 285,180 300,820 283,873 Human Resources 306,626 325,656 319,943 Legal 222,300 293,876 261,543 Conference and Visitors Bureau 579,710 577,200 573,586 Finance 789,178 805,811 751,995 Nondepartmental -other 1,891,355 1,819,665 1,400,485 Nondepartmental -capital outlay 541,360 541,360 239,566 Nondepartmental - retiree medical 370,300 387,300 396,005 Facilities maintenance 905,413 912,634 635,031

See notes to required supplementary information.

68

Variance with Final Budget

Positive (Negative)

$

(51,084) (17,274) 250,616

99,769 533,535 (18,561) 119,260 (77,981) 56,534

128,346 (145,664)

877,496

11,828 15,811 16,947 5,713

32,333 3,614

53,816 419,180 301,794

(8,705) 277,603

City of Pismo Beach

Budgetary Comparison Schedule - General Fund, Continued

Budgetary Bas is


Page 2

Variance with Final Budget

Budgeted Amounts Actual Positive Original Final Amounts (Negative)

Public Safety: Police $ 5,326,893 $ 5,232,386 $ 4,948,543 $ 283,843 Fire 2,367,109 2,062,489 2,053,538 8,951 Weed Abatement 14,500 21,095 20,920 175 Lifeguards 274,662 264,866 242,141 22,725

Public Works: Park maintenance 1,042,153 1,051,036 949,979 101,057

Community Services: Building 744,992 750,002 726,483 23,519 Planning 1,157,348 1,090,068 809,245 280,823 Recreation 433,403 526,448 464,168 62,280 Engineering 694,724 726,229 719,486 6,743

Streets: Maintenance and construction 657,660 602,820 551,895 50,925

Transfers out 9,705,264 9,782,050 2,610,023 7,172,027

Total charges to appropriations 29,046,471 28,783,709 19,640,707 9,143,002

Fund balance -end of year $ 8,300,650 $ 9,092,005 $ 19,112,503 $ 10,020,498


69

City of Pismo Beach

Schedule of Revenues, Expenditures and

Changes in Fund Balance - Budget and Actual

Housing In Lieu Fund


Budgeted Amounts Original Final Actual

Revenues: Charges for services $ 20,000 $ 20,000 $1,366,649 Interest 1,600 1,600 8,625 Miscellaneous 4,805

Total revenues 21,600 21,600 1,380,079

Expenditures: Housing 5,172 5,172 5,172

Total expenditures 5,172 5,172 5,172

Excess(deficiency) ofrevenues over (under) expenditures 16,428 16,428 1,374,907

Other financing sources (uses): Transfers out (15,000) (15,000)

Total other financing sources (uses) (15,000) (15,000)

Net change in fund balance 1,428 1,428 1,374,907

Fund balance -beginning of year 1,370,309 1,370,309 1,370,309

Fund balance -end of year $1,371,737 $1,371,737 $2,745,216


70

Variance with Final Budget Positive (Negative)

$ 1,346,649 7,025 4,805

1,358,479

1,358,479

15,000

15,000

1,373,479

$ 1,373,479

Actuarial Actuarial Value

Valuation Date of Assets 6/30,Q0l 5 $1,573,000 6/30,Q0l 3 $1,153,000 6/30,Q0l 1 $ 837,000

City of Pismo Beach

Schedule of Funding Progress for

Other Post-Employment Benefits (OPEB)

June 30, 2016

Actuarial Accrued Unfunded Funded

Liability (AAL) AAL (UAAL) Ratio $ 4,336,000 $ 2,763,000 36.28% $ 2,670,000 $ 1,517,000 43.18% $ 2,243,000 $ 1,406,000 37.32%


71

UAAL as a% Covered of Covered Payroll Payroll

$5,967,000 46.3(Y,)6 $6,153,000 24.65% $6,529,000 21.53%

City of Pismo Beach

Schedule of the City's Proportionate Share of the Net Pension Liability

And Related Ratios as of the Measurement Date

June30,2016*

Miscellaneous Safety

Fiscal Year 6;30;207 6 6;30;207 5 6;30;207 6

Measurement Date 6;30;207 5 6;30;207 4 6;30;207 5

Employer's Proportion of the Net Pension Liability 0.24366% 0.25233% 0.17809%

Employer's Proportionate Share of the Net Pension Liability $ 6,684,633 $ 6,236,327 $ 7,337,927

Employer's Covered-£ mployee Payroll $ 4,536,674 $ 4,300,887 $ 2,737,977

Employer's Proportionate Share of the Net Pension Liability

as a Percentage of its Covered-Employee Payroll 747.35% 745.00% 343.22%

Plan's Fiduciary Net Position as a Percentage of the

Plan's Total Pension Liability 79.89% 87.75% 77.27%

* Fiscal year 2015 was the first year of implementation. Information is required only for measurement

periods for which GAS B 68 is applicable.


72

6;30;207 5

6;30;207 4

0. 78584%

$ 6,977,092

$ 2,787,088

319.62%

78.83%

Fiscal Year

Actuarially determined contribution $

Contributions in relation to the

actuarially determined contributions Contribution deficiency (excess) $

Covered-employee payroll $

Contributions as a percentage

of covered-employee payroll

City of Pismo Beach

Schedule of Plan Contributions

J u ne 30, 2016 *

Miscellaneous 6;30/4Wl6 6;30(,Wl 5 6;30/4Wl4

811,650 $ 715,407 $ 830,445

(811,650) (1,715,407) (830,445) $ ( l , 000, 000) $

4,440,847 $ 4,536,614 $ 4,300,887

18.28% 37.81% 19.31%

Safety 6;30/4Wl6 6;30(,Wl 5

$ 976,050 $ 687,175 $

(976,050) (687, 175) $ $ $

$ 1,994,072 $ 2,137,977 $

48.95% 32.14%

* Fiscal year 2015 was the first year of implementation. Information is required only for measurement periods for which GAS B 68 is applicable. Contributions paid as ofJ une 30, 2016 are deferred toJ une 30,

2017.


73

6;30/2014 733,719

(733,719)

2,181,088

33.64%

City of Pismo Beach

Notes to Required Supplementary Information

June 30, 2016

Note 1: Budgetary Comparison Schedule - General Fund

Explanations of differences between budgetary inflows and outflows and revenues and expenditures under

the modified accrual basis of accounting in accordance with generally accepted accounting principles are as

follows:

S ourcesfinflows of resources: Actual "amounts available for charges to appropriations" from budgetary comparison schedule:

Differences -budgetary basis to GMP: Fund balance at the beginning of the year is a budgetary resource but is not a current year revenue for financial reporting purposes.

Transfers in from other funds are inflows of budgetary resources but are not revenues for financial reporting purposes.

Total General Fund revenues as reported in the statement of revenues, expenditures and changes in fund balance -governmental funds

Uses/outflows of resources: Actual "total charges to appropriations" from the budgetary comparison schedule

Differences -budgetary basis to GMP: Transfers to other funds are outflows of budgetary resources but are not expenditures for financial reporting purposes

Total General Fund expenditures as reported in the statement of revenues, expenditures and changes in fund balance -governmental funds

Note 2: Excess of Expenditures Over Appropriations

In the General Fund, expenditures exceeded appropriations as follows:

General Government: Nondepartmental-retiree medical

Expenditures did not exceed appropriations in the Housing In Lieu Fund.

74

$ 38,753,210

(15,642,569)

(208,116)

$ 22,902,525

$ 19,640,707

(2,610,023)

$ 17,030,684

Variance with Final Budget (Negative)

$ (8,705)

City of Pismo Beach

Notes to Required Supplementary Information

J une 30, 2016

Page 2

Note 3: Schedule of the City's Proportionate Share of the Net Pension Liability

The Plan's proportionate share of aggregate contributions may not match the actual contributions made by

the employer during the measurement period. The P Ian's proportionate share of aggregate contributions is

based on the Plan's proportion offiduciary net position as well as any additional side fund (or unfunded

liability) contributions made by the employer during the measurement period.

Note 4: Schedule of Plan Contributions

Change in Benefit Terms. The figures above do not include any liability impact that may have resulted from

plan changes which occurred after J une 30, 2014 as they have minimal cost impact

Change in Assumptions. The discount rate was changed from 7.5% (net of administrative expense in 2014)

to 7.65% as oftheJ une 30, 2015 measurement date to correct the adjustment which previously reduced the

discount rate for administrative expense.

75

Supplementary Information Section


City of Pismo Beach

Non major Governmental Funds -Overview

June 30, 2016

The City maintains the following nonmajor governmental funds:

Special Revenue Funds

State Gas Tax Fund is used to account for revenues allocated by the State of California and restricted as to

use for only street and highway purposes.

Local Transportation Streets Fund is used to account for revenues allocated under the Transportation

Development Act and restricted in use for street related purposes.

Public Education Grant (PEG) Fund is used to account for fees collected from cable television operators in

the City limits that are set aside forGovernmentcable access.

Noncapital Grants Fund is used to account for specific grant revenues allocated to the City for operational

programs and activities.

Local Business Improvement Fund is used to account for monies raised to promote City lodging businesses.

Chapman House Estate Fund is used to account for the fees collected and maintenance costs for the

Chapman Estate.

Capital Projects Funds

Public Facilities Fund is used to account for resources restricted for the financing of improvements to public

facilities.

Park Development Fund is used to account for the financing of major improvements to City parks and related

facilities.

Circulation Improvement Fund is used to account for impact fees to be used for major improvements to the

City's street and highway infrastructures.

Capital Projects Fund is used to accumulate resources for use in financing major capital improvement

projects.

Impact Fees Fund is used to account for impact fees restricted for use in making major capital improvements

to different types of City facilities.

Developer Impact Fees Fund is used to account for impact fees to be used for specific development related

capital projects.

Underground Utility Fund is used to account for fees collected from developers for the purpose of converting

overhead utilities to underground utilities.

77

City of Pismo Beach

Non major Governmental Funds -Overview, Continued

June 30, 2016

Page 2

Debt Service Funds

City of Pismo Beach Public Financing Authority Fund is used to accountforthe accumulation of monies for

payment of principal and interest on the 2007A Lease Revenue Refunding Bonds.

Indio,£ I Portal Assessment District, Visalia Assessment District, and Reassessment Districts Funds are used

to account for special assessments levied and collected for payment of principal and interest on assessment bonds.

78

City of Pismo Beach

Combining Balance Sheet - Non major Governmental Funds

June 30, 2016

Special Revenue Funds

Local Public State Gas Transportation Education

Tax Streets Grant

Assets Cash and investments $ 452,673 $ 814,789 $ 73,307 Taxes receivable Accounts receivable 1,686 2,879 Due from other governments Accrued interest receivable 620 923 86

Total assets $ 453,293 $ 817,398 $ 76,272

Liabilities and Fund Balances Liabilities:

Accounts payable $ $ $ 1,827 Accrued liabilities Deposits Deferred revenue

Total liabilities 1,827

Fund balance: Restricted for:

Future capital project funding Streets and highways 453,293 817,398 Community development 74,445 Community business promotion Park development Public safety Debt service

Committed for capital projects Assigned for:

Capital projects Future contingencies

Total fund balance 453,293 817,398 74,445

Total liabilities and fund balance $ 453,293 $ 817,398 $ 76,272

79

Special Revenue Funds Capital Projects Funds

Local Chapman Noncapital Business House Public Park Circulation Capital

Grants Improvement Estate Facilities Development Improvement Projects

$ 189,606 $ 448,940 $ 172,394 $ 820 $ 1,485,787 $ 103,447 $ 747,385 130,490

29,324 238,123

215 499 207 1,159 122

$ 219,145 $ 579,929 $ 172,601 $ 821 $ 1,486,946 $ 103,569 $ 985,508

$ $ 292,274 $ 1,275 $ 6,761 $ $ 725,294 628

155 1,886

294,788 1,275 6,916 725,294

103,569 171,326

285,141 1,091,997

219,145

26,923

361,110 260,214 821

219,145 285,141 171,326 821 1,480,030 103,569 260,214

$ 219,145 $ 579,929 $ 172,601 $ 821 $ 1,486,946 $ 103,569 $ 985,508

Continued

80

City of Pismo Beach

Combining Balance Sheet - Non major Governmental Funds, Continued

J une 30, 2016

Page 2

Capital Projects Funds

Developer Underground Impact Fees Impact Fees Utility

Assets Cash and investments $1,567,305 $ 156,141 $ 15,420 Taxes receivable Accounts receivable Due from other governments Accrued interest receivable 1,248 183 6

Total assets $1,568,553 $ 156,324 $ 15,426

Liabilities and Fund Balances Liabilities:

Accounts payable $ $ $ Accrued liabilities Deposits 97,020 Deferred revenue

Total liabilities 97,020

Fund balance: Restricted for:

Future capital project funding 1,568,553 59,304 15,426 Streets and highways Community development Community business promotion Park development Public safety Debt service

Committed for capital projects Assigned for:

Capital projects Future contingencies

Total fund balance 1,568,553 59,304 15,426

Total liabilities and fund balance $1,568,553 $ 156,324 $ 15,426

81

Debt Service Funds City of Pismo Indio/ Total Beach Public EI Portal Visalia Non major

Financing Assessment Assessment Reassessment Governmental Authority District District Districts Funds

$ $ 540 $ 94,422 $ 104,376 $ 6,427,352 130,490 33,889

238,123 110 123 5,502

$ $ 540 $ 94,532 $ 104,499 $ 6,835,356

$ $ $ $ $ 1,027,431 628

97,175 1,886

1,127,120

1,643,283 1,374,260

245,771 285,141

1,091,997 219,145

540 94,532 104,499 199,571 26,923

621,324 821

540 94,532 104,499 5,708,236

$ $ 540 $ 94,532 $ 104,499 $ 6,835,356

82

City of Pismo Beach

Combining Statement of Revenues, Expenditures and Changes in Fund Balance - Non major Governmental Funds


Revenues: Subventions and grants Charges for services Special assessments Miscellaneous Interest

Total revenues


General government Public safety Highways and streets Community services

Capital outlay Debt service:

Principal Interest and fiscal charges Total expenditures

Excess (deficiency) of revenues over (under) expenditures

Other financing sources (uses): Transfers in Transfers out

Total other financing sources (uses)

Net change in fund balance

Fund balance, beginning of year

Fund balance, end of year

Special Revenue

Local Public State Gas Transportation Education

Tax Streets Grant

$ 179,020 $

3,017 182,037

182,037

(149,714)

(149,714)

32,323

420,970

$ 453,293 $

83

180,325 $

4,402 184,727

1,442

1,442

183,285

183,285

634,113

2,879

422 3,301

3,528

3,528

(227)

(227)

74,672

817,398 =$===74=,4=4=5=

Noncapital

$

Grants

159,635

982 160,617

13,015

13,015

147,602

(24,132)

(24,132)

123,470

95,675

Special Revenue

Local Business

Improvement

$

919,798

2,397 922,195

892,499

892,499

29,696

29,696

255,445


$ 1,200

402 713

2,315

97,966

97,966

(95,651)

(95,651)

266,977

Public Facilities

$

5 5

5 -----

5

816

Capital Projects

Park Development

$ 576,808

9,177 585,985

5,516 346,655

352,171

233,814

233,814

1,246,216

Circulation Improvement

$

594 594

594

594

102,975

$ 219,145 $ 285,141 $ 171,326 ==$ ===82=1= $ 1,480,030 $ 103,569

Continued

84

City of Pismo Beach

Combining Statement of Revenues, Expenditures and

Changes in Fund Balance - Non major Governmental Funds, Continued


Page 2

Capital Projects Capital Projects

Capital Developer Underground Projects Impact Fees Impact Fees Utility

Revenues: Subventions and grants $ 282,422 $ $ $ 15,000 Charges for services 426,904 Special assessments Miscellaneous Interest 71 11,374 897 23

Total revenues 282,493 438,278 897 15,023


General government Public safety Highways and streets 132,532 Community services 933

Capital outlay 1,733,275 Debt service:

Principal Interest and fiscal charges Total expenditures 1,865,807 933

Excess (deficiency) ofrevenues over (under) expenditures (1,583,314) 437,345 897 15,023

Other financing sources (uses): Transfers in 1,590,878 Transfers out (58,161)

Total other financing sources (uses) 1,590,878 (58,161)

Net change in fund balance 7,564 379,184 897 15,023

Fund balance, beginning of year 252,650 1,189,369 58,407 403

Fund balance, end of year $ 260,214 $ 1,568,553 $ 59,304 $ 15,426

85

City of Pismo Beach Public

Financing Authority

$

310,000 130,881 440,881

(440,881)

440,881

440,881

$

Debt Service Indio/

EI Portal Visalia Assessment Assessment Reassessment

District District Districts

$ $ $

4 542 599 4 542 599

4 542 599

4 542 599

536 93,990 103,900

$ 540 $ 94,532 $ 104,499

86

Total Non major

Governmental Funds

$ 819,281 1,004,912

919,798 402

35,219 2,779,612

892,499 13,015

133,974 107,943

2,079,930

310,000 130,881

3,668,242

(888,630)

2,031,759 (232,007)

1,799,752

911,122

4,797,114

$ 5,708,236

City of Pismo Beach



Gas Tax Fund


Variance Budgeted Amounts with Final Budget

Original Final Actual Positive (Negative) Revenues:

Intergovernmental $ 193,934 $ 193,934 $ 179,020 $ (14,914) Interest 3,017 3,017

Total revenues 193,934 193,934 182,037 (11,897)

Excess (deficiency) of revenues over (under) expenditures 193,934 193,934 182,037 (11,897)

Other financing sources (uses): Transfers out (606,724) (606,724) (149,714) 457,010

Total other financing sources (uses) (606,724) (606,724) (149,714) 457,010

Net change in fund balance (412,790) (412,790) 32,323 445,113

Fund balance -beginning of year 420,970 420,970 420,970

Fund balance -end of year $ 8,180 $ 8,180 $ 453,293 $ 445,113

87

City of Pismo Beach



Local Transportation Streets Fund




Intergovernmental $ 205,044 $ 205,044 $ 180,325 $ (24,719) Miscellaneous 2,500 2,500 (2,500) Interest 4,402 4,402

Total revenues 207,544 207,544 184,727 (22,817)

Expenditures: Highways and streets 6,443 6,443 1,442 5,001

Total expenditures 6,443 6,443 1,442 5,001

Excess(deficiency) of revenues over (under) expenditures 201,101 201,101 183,285 (17,816)

Other financing sources (uses): Transfers out (801,143) (801,143) 801,143

Total other financing sources (uses) (801,143) (801,143) 801,143




88

City of Pismo Beach



Public Education Grant Fund



Revenues: Subventions and grants $ $ $ 2,879 Interest 422

Total revenues 3,301

Expenditures: Community development 3,500 3,500 3,528


Excess(deficiency) ofrevenues over (under) expenditures (3,500) (3,500) (227)

Net change in fund balance (3,500) (3,500) (227)


Fund balance -end of year $ 71, 1 72 $ 71,172 $ 74,445

89


$ 2,879 422

3,301

(28) (28)

3,273

3,273

$ 3,273

City of Pismo Beach



Noncapital Grants Fund




Subventions and grants $ 100,000 $ 115,693 $ 159,635 $ 43,942 Interest 982 982

Total revenues 100,000 115,693 160,617 44,924

Expenditures: Public safety 15,693 15,693 13,015 2,678


Excess(deficiency) ofrevenues over (under) expenditures 84,307 100,000 147,602 47,602

Other financing sources (uses): Transfers out (194,120) (194,120) (24,132) 169,988

Total other financing sources (uses) (194,120) (194,120) (24,132) 169,988



Fund balance -end of year $ (14,138) $ 1,555 $ 219,145 $ 217,590

90

City of Pismo Beach



Local Business Improvement Fund



Original Final Actual Positive (Negative) Revenues: Charges for services:

Special assessments $ 874,933 $ 875,259 $ 919,798 $ 44,539 Interest 2,397 2,397

Total revenues 874,933 875,259 922,195 46,936

Expenditures: Community promotion 959,138 959,018 892,499 66,519


Excess (deficiency) ofrevenues over (under) expenditures (84,205) (83,759) 29,696 113,455




91

City of Pismo Beach






Revenues: Charges for services:

Charges for services $ 1,200 $ 1,200 $ 1,200 Interest 713 Miscellaneous 402

Total revenues 1,200 1,200 2,315

Expenditures: Professional services 118,787 118,787 97,966 Capital Outlay 17,770 17,770


Excess (deficiency) of revenues over (under) expenditures (135,357) (135,357) (95,651)

Net change in fund balance (135,357) (135,357) (95,651)


Fund balance -end of year $ 131,620 $ 131,620 $ 171,326

92


$ 713 402

1 , 11 5

20,821 17,770 38,591

39,706

39,706

$ 39,706

City of Pismo Beach



Public Facilities Fund



Revenues: Interest $ $ $ 5

Total revenues 5

Excess(deficiency) ofrevenues over (under) expenditures 5

Net change in fund balance 5

Fund balance -beginning of year 816 816 816

Fund balance -end of year $ 816 $ 816 $ 821

93


$ 5 5

5

5

$ 5

City of Pismo Beach

Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual

Park Development Fund


Variance Budgeted Amounts

Original Final with Final Budget

---'A--'-'-ct""u""a'-1- Positive (Negative) Revenues:

Charges for services Interest

Total revenues

Expenditures: Community development Capital outlay

Total expenditures

Excess (deficiency) of revenues over (under) expenditures

Other financing sources (uses): Transfers out



Fund balance -beginning of year

Fund balance -end of year

$

$

30,000 $

30,000

335,203 350,000 685,203

(655,203)

(55,000)

(55,000)

(710,203)

1,246,216

30,000 $ 576,808 $ 9,177

30,000 585,985

335,203 350,000 685,203

(655,203)

(55,000)

(55,000)

(710,203)

1,246,216

5,516 346,655 352,171

233,814

233,814

1,246,216

546,808 9,177

555,985

329,687 3,345

333,032

889,017

55,000

55,000

944,017

536,013 $ 536,013 $ 1,480,030 =$====944==='=01=7=

94

City of Pismo Beach



Capital Outlay Fund




Intergovernmental $ 2,546,700 $ 282,422 $ (2,264,278) Miscellaneous 71 71

Total revenues 2,546,700 282,493 (2,264,207)

Expenditures: Highways and streets 1,648,662 1,648,662 132,532 1,516,130 Capital outlay 9,749,891 9,844,177 1,733,275 8,110,902

Total expenditures 11,398,553 11,492,839 1,865,807 9,627,032

Excess(deficiency) of revenues over (under) expenditures (11,398,553) (8,946,139) (1,583,314) 7,362,825

Other financing sources (uses): Transfers in 8,659,278 8,695,874 1,590,878 (7,104,996)

Total other financing sources (uses) 8,659,278 8,695,874 1,590,878 (7,104,996)

Net change in fund balance (2,739,275) (250,265) 7,564 257,829


Fund balance -end of year $ (2,486,625) $ 2,385 $ 260,214 $ 257,829

95

City of Pismo Beach



Circulation Improvement Fund




Total revenues 594

Excess (deficiency) ofrevenues over (under) expenditures 594



Net change in fund balance (75,000) (75,000) 594



96


$ 594 594

594

75,000

75,000

75,594

$ 75,594

City of Pismo Beach

Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual

Impact Fees Fund


Revenues: Charges for services Interest

Total revenues

Expenditures: Community Development

Total expenditures

Excess (deficiency) ofrevenues over (under) expenditures



$

Budgeted Amounts Original Final

3,000 3,000

933 933

2,067

(405,762)

(405,762)

(403,695)

1,189,369

$ 3,000 3,000

933 933

2,067

(405,762)

(405,762)

(403,695)

1,189,369

Actual

$ 426,904 11,374

438,278

933 933

437,345

(58,161)

(58,161)

379,184

1,189,369


$ 426,904 8,374

435,278

435,278

347,601

347,601

782,879 Net change in fund balance


Fund balance -end of year $ 785,674 $ 785,674 $ 1,568,553 $ 782,879 =======

97

City of Pismo Beach



Developer Impact Fees Fund




Total revenues 897





98


$ 897 897

897

897

$ 897

City of Pismo Beach



Underground Utility Fund



Revenues: Subventions and grants $ $ $ 15,000 Interest 23

Total revenues 15,023

Excess (deficiency) ofrevenues over (under) expenditures 15,023

Net change in fund balance 15,023


Fund balance -end of year $ 403 $ 403 $ 15,426

99


$ 15,000 23

15,023

15,023

15,023

$ 15,023

City of Pismo Beach



City of Pismo Beach Public Financing Authority Fund


Revenues: Loan interest Loan proceeds

Total revenues

Expenditures: Debt service:

Principal Interest and fees Total expenditures

Excess (deficiency) ofrevenues over (under) expenditures

Other financing sources (uses): Transfers in




Fund balance -end of year

$

$

Budgeted Amounts Original Final

128,681 $ 128,681 $ 310,000 438,681

310,000 128,681 438,681

100

$

310,000 438,681

310,000 128,681 438,681

$

Actual

310,000 130,881 440,881

(440,881)

440,881

440,881


$

$

(128,681) (310,000) (438,681)

(2,200) (2,200)

(440,881)

440,881

440,881

City of Pismo Beach



lndio;E I Portal Assessment District Fund




Total revenues 4






Fund balance -end of year $ 536 $ 536 $ 540

101


$ 4 4

4

4

$ 4

City of Pismo Beach



Visalia Assessment District Fund




Total revenues 542

Excess (deficiency) of revenues over (under) expenditures 542






102


$ 542 542

542

85,000

85,000

85,542

$ 85,542

City of Pismo Beach



Reassessment Districts Fund




Total revenues 599

Excess (deficiency) of revenues over (under) expenditures 599






103


$ 599 599

599

91,829

91,829

92,428

$ 92,428

City of Pismo Beach

Non major Proprietary Funds - Overview

June 30, 2016

The City maintains the following nonmajor proprietary funds:

Transit Fund is used to account for financial operations of the City's subsidized transit system.

Pier Fund is used to account for operations and maintenance of the City's pier located on the ocean front in

downtown Pismo Beach.

Parking Fund is used to account for parking revenues, downtown parking pay stations and metering

equipment, and related maintenance and operations.

104

City of Pismo Beach

Combining Statement of Fund Net Position - Non major Proprietary Funds

June 30, 2016

Enterprise Total

Non major Enterprise

Trans it Pier Parking Funds

Assets Current assets:

Cash and investments $ 8,992 $ 36,102 $ 2,140,156 $2,185,250 Accounts receivable 1,104 10,222 11,326 Accrued interest receivable 9 1,292 1,301

Total current assets 9,001 37,206 2,151,670 2,197,877

Capital assets: Land 33,425 33,425 Construction in progress 142,417 142,417 Equipment 158,038 158,038 Pier 2,142,553 2,142,553

Total capital assets 2,318,395 158,038 2,476,433 Less accumulated depreciation (1,290,400) (88,159) (1,378,559)

Net capital assets 1,027,995 69,879 1,097,874

Total assets 9,001 1,065,201 2,221,549 3,295,751

Deferred Outflows of Resources Deferred pensions 47,373 47,373

Liabilities Current liabilities:

Accounts payable 2,064 40,812 8,535 51,411 Accrued liabilities 13,087 13,087 Compensated absences 789 789

Total current liabilities 2,064 40,812 22,411 65,287

Noncurrent liabilities: Net pension liability 186,501 186,501

Total liabilities 2,064 40,812 208,912 251,788

Deferred inflows of resources Deferred pensions 18,171 18, 1 71

Net Posit ion Net investment in capital assets 1,027,995 69,879 1,097,874 Unrestricted 6,937 (3,606) 1,971,960 1,975,291

Total net position $ 6,937 $ 1,024,389 $ 2,041,839 $ 3,073,165

105

City of Pismo Beach

Combining Statement of Revenues, Expenses and

Changes in Fund Net Position - Nonmajor Proprietary Funds


Enterprise Total


Transit Pier Parking Funds Operating revenues:

Parking fees $ $ $ 601,077 $ 601,077 Other operating revenues 10,515 15,904 22,929 49,348

Total operating revenues 10,515 15,904 624,006 650,425

Operating expenses: Salaries and benefits 276,571 276,571 Maintenance and operations 8,915 49,690 288,062 346,667 Depreciation and amortization 24,835 20,176 45,011

Total operating expenses 8,915 74,525 584,809 668,249

Operating income (loss) 1,600 (58,621) 39,197 (17,824)

Nonoperating revenues (expenses): Interest and investment revenue 24 20,916 20,940

Total nonoperating revenues (expenses) 24 20,916 20,940

Net income (loss) before transfers 1,624 (58,621) 60,113 3,116

Transfers: Transfers in 171,670 171,670 Transfers out (1,512) (1,512)

Total transfers 171,670 (1,512) 170, 1 58

Change in net position 1,624 113,049 58,601 173,274

Net position -beginning of year 5,313 911,340 1,989,043 2,905,696 Prior year restatement (5,805) (5,805)

Net position, beginning of year as restated 5,313 911,340 1,983,238 2,899,891

Net position -end of year $ 6,937 $ 1,024,389 $ 2,041,839 $ 3,073,165

106

City of Pismo Beach

Combining Statement of Cash Flows - Nonmajor Proprietary Funds


Enterprise Total


Trans it Pier Parking Funds Cash flows from operating activities:

Receipts from customers $ 10,515 $ 15,727 $ 640,301 $ 666,543 Payments to suppliers for goods and services (10,609) (20,842) (310,774) (342,225) Payments to employees for wages and benefits (218,941) (218,941)

Net cash provided by (used in) operating activities (94) (5,115) 110,586 105,377

Cash flows from noncapital financing activities: Transfers from other funds 171,670 171,670 Transfers to other funds (1,512) (1,512)

Net cash provided by (used in) noncapital financing 171,670 (1,512) 170,158

Cash flows from capital financing activities: Purchases of capital assets (142,417) (142,417)

Net cash used in capital financing activities (142,417) (142,417)

Cash flows from investing activities: Interest on investments, net 20 20,217 20,237

Net cash provided by (used in) investing activities 20 20,217 20,237

Net change in cash and cash equivalents (74) 24,138 129,291 153,355

Cash and cash equivalents -beginning of year 9,066 11,964 2,010,865 2,031,895

Cash and cash equivalents -end of year $ 8,992 $ 36,102 $2,140,156 $2,185,250

Reconciliation of operating income (loss) to net cash provided by (used in) operating activities:

Operating income (loss) $ 1,600 $ (58,621) $ 39,197 $ (17,824) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense 24,835 20,176 45,011 Change in assets, deferred outflows ofresources,

liabilities and deferred inflows of resources: Receivables (177) 16,295 16,118 Prepayments 2,140 2,140 Deferred outflows of resources -pensions (24,594) (24,594) Accounts payable (1,694) 28,848 (26,757) 397 Accrued liabilities 1,904 1,904 Compensated absences (7,434) (7,434) Pension liability 89,214 89,214 Deferred inflows of resources -pensions 445 445

Net cash provided by (used in) operating activities $ (94) $ (5,115) $ 110,586 $ 105,377

107

City of Pismo Beach

Comparative Schedule of Capital Assets

By Source

June 30, 2016

Capital assets used in government-wide activities: Land $ Buildings I rnprove rne nts Equipment Vehicles -internal service Infrastructure -street system:

Right of way P avernent sys tern Medians Curbs and gutters Sidewalks Traffic signals Street lights Highway 101 interchange Bridges

Infrastructure -beach stairways Construction in progress

Total capital assets used in government-wide activities $

Investment in capital assets from: General fund $ Contributions from developers Special revenue funds Internal service fund Capital projects fund

Total investment in capital assets used in government-wide activities $

108

2016 2015

6,957,295 $ 6,957,295 5,531,963 5,531,963 9,983,690 9,685,479 2,785,107 2,543,472 4,273,032 4,275,775

5,068,528 5,068,528 41,794,194 41,567,984

73,232 73,232 521,095 521,095 313,961 313,961 229,723 229,723

1,212,168 1,212,168 2,726,214 2,726,214

26,829 26,829 313,194 313,194

3,240,877 1,681,620

85,051,102 $ 82,728,532

2,227,080 $ 2,042,216 7,422,736 7,348,370 3,624,354 3,624,354 4,495,816 4,446,755

67,281,116 65,266,837

85,051,102 $ 82,728,532

Government-wide capital assets J une 30, 201 5

Add: Expenditures from:

Capital projects Internal service

Deduct: R etired;transfe rred

Government-wide capital assets J une 30, 2016

City of Pismo Beach

Schedule of Changes in Capital Assets

By Source June 30, 2016

Right of Way and Land I nfras tructu re Buildings

$ 12,025,823 $ 46,984,400 $ 5,531,963

226,210

$ 12,025,823 $ 47,210,610 $ 5,531,963

109

Equipment, Vehicles,

Improvements, and CIP Total Cost

$ 18,186,346 $ 82,728,532

2,410,449 2,636,659

(314,089) (314,089)

$ 20,282,706 $ 85,051,102

Function and Activity General government:

General operations Public safety Parks and recreation Street system and CIP Community development Beach stairway Open space

Total capital assets

City of Pismo Beach

Schedule of Capital Assets

By Function and Activity

June 30, 2016

Right of Way and Land lnfras tructure Buildings

$ 319,942 $ $1,747,590 5,566 2,844,973

4,376,379 939,400 5,068,529 42,727,919

4,482,691 2,255,407

$ 12,025,823 $ 47,210,610 $ 5,531,963

110

Equipment, Vehicles,

Improvements, and CIP Total Cost

$ 1,780,024 $ 3,847,556 2,587,249 5,437,788 7,219,381 12,535,160 8,661,832 56,458,280

34,220 34,220 4,482,691 2,255,407

$ 20,282,706 $85,051,102

Function and Activity General government:

General operations Public safety Parks and recreation Streets and C IP Community development Beach stairway Open space

Total capital assets

City of Pismo Beach

Schedule of Changes in Capital Assets

By Function and Activity

June 30, 2016

Balance Transfers/ J une 30, 2015 Additions Deductions

$ 3,692,145 $ 160,435 $ (5,024) 5,422,081 218,007 (202,300)

12,238,587 304,821 (8,248) 54,637,621 1,819,884 775

34,220 4,482,691 2,255,407

$ 82,728,532 $ 2,537,367 $ (214,797)

l l l

Balance J une 30, 2016

$ 3,847,556 5,437,788

12,535,160 56,458,280

34,220 4,482,691 2,255,407

$ 85,051,102

Statistical Section


City of Pismo Beach

Statistical Section -Overview

June 30, 2016

This part of the City of Pismo Beach's comprehensive annual financial report presents detailed information

as a context for understanding what the information in the financial statements, note disclosures, and

required supplementary information says about the city's overall financial health.

Financial Trends - Schedules 1-4

These schedules contain trend information to help understand how the City's financial performance and well

being have changed overtime.

Revenue Capacity - Schedules 5-8F

These schedules contain information to help assess the City's most significant local revenue source, the

revenues realized from the local transient occupancy tax. The City has also elected to provide revenue

capacity information about property tax revenues, sales tax revenues, water enterprise revenues, and

service fees of its wastewater enterprise.

Debt Capacity - Schedules 9-13

These schedules present information to help assess the affordability of the City's current levels of

outstanding debt and the city's ability to issue additional debt in the future.

Demographic and Economic Information - Schedules 14-16

These schedules offer demographic and economic indicators to help understand the environment within

which the City's financial activities take place.

Operating Information - Schedules 1 7-18

These schedules contain service and infrastructure data to help understand how the information in the City's

financial report relates to services the City provides and the activities it performs.

Bond Issue Continuing Disclosure - Schedules 19-21

These schedules contain continuing disclosure information for bond issuance.

113

2007 2008 Governmental activities Net investment in capital assets $ 31,385,546 $ 34,470,555 $ Restricted 10,340,434 8,989,440 Unrestricted 10,323,815 ll, 113,495

Total governmental activities net position $ 52,049,795 $ 54,573,490 $

Busi ness--type activities Net investment in capital assets $ 14,936,177 $ 14,395,737 $

Restricted 780,233 867,618 Unrestricted 5,275,531 6,512,589

Total business-type activities net position $ 20,991,941 $ 21,775,944 $

Primary government (City wide totals)

Net investment in capital assets $ 46,321,723 $ 48,866,292 $ Restricted ll, 120,667 9,857,058 Unrestricted 15,599,346 17,626,084

Total primary government net position $ 73,041,736 $ 76,349,434 $

Note

Schedule 1

City of Pismo Beach

Net Position by Component

Last Ten Fiscal Years

(Accrual Basis of Accounting)

For the Fiscal Year Ended June 30 2009 2010 2011 2012

40,830,144 $ 44,259,898 $ 42,143,882 $ 41,532,098 7,506,507 5,552,350 5,502,365 4,580,838

10,862,199 9,844,952 12,818,923 14,033,568

59,198,850 $ 59,657,200 $ 60,465,170 $ 60,146,504

14,913,641 $ 14,846,635 $ 14,555,227 $ 14,168,786 964,062 996,529 1,006,954 1,046,950

9,239,666 9,635,848 10,172,270 11,754,782

25,117,369 $ 25,479,012 $ 25,734,451 $ 26,970,518

55,743,785 $ 59,106,533 $ 56,699,109 $ 55,700,884 8,470,569 6,548,879 6,509,319 5,627,788

20,101,865 19,480,800 22,991,193 25,788,350

84,316,219 $ 85,136,212 $ 86,199,621 $ 87,117,022

FY 2015 balances were adjusted for a prior year restatement recorded in FY 2016.

114

2013 2014 2015 2016

$ 41,657,581 $ 40,197,149 $ 39,251,227 $ 40,900,410 3,157,166 4,861,886 4,184,820 6,702,558

15,577,727 18,566,914 10,069,411 14,455,616

$ 60,392,474 $ 63,625,949 $ 53,505,458 $ 62,058,584

$ 18,715,142 $ 18,963,130 $ 20,129,677 $ 20,011,697 979,157 482,957 1,501,066 1,989,793

9,608,168 11,634,062 12,561,208 14,105,083

$ 29,302,467 $ 31,080,149 $ 34,191,951 $ 36,106,573

$ 60,372,723 $ 59,160,279 $ 59,380,904 $ 60,912,107 4,136,323 5,344,843 5,685,886 8,692,351

25,185,895 30,200,976 22,630,619 28,560,699

$ 89,694,941 $ 94,706,098 $ 87,697,409 $ 98,165,157

Schedule 2 City of Pismo Beach

Changes in Net Position Last Ten Fiscal Years

(Accrual Basis of Accounting)

For The Fiscal Year EndedJ une 30

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Expenses

Governmental activities

General government $ 2,856,244 $ 3,379,303 $ 3,880,596 $ 4,572,394 $ 4,599,550 $ 5,510,343 $ 6,053,693 $ 5,860,017 $ 8,310,400 $ 6,478,517

Police 4,412,843 4,533,502 5,184,560 4,370,052 5,015,781 5,220,437 5,276,282 4,949,673 3,556,827 4,415,960

Fire 1,568,265 1,621,824 1,665,396 1,749,148 1,674,882 1,697,174 1,743,101 2,020,895 2,094,768 2,300,397

Public works 785,851 878,172 1,408,778 756,867 1,059,384 860,974 1,863,593 1,870,369 1,752,177 2,191,332

Streets 2,191,893 2,679,287 1,543,671 1,965,141 2,505,562 2,649,438 3,063,624 2,668,703 3,254,806 1,894,967

Community Services 2,408,546 2,479,015 3,655,274 2,773,862 2,628,374 2,929,01 l 1,802,310 1,983,046 1,848,006 1,730,536

Redevelopment and Housing 99,146 195,906 694,471 992,959 413,839 97,790 1,000 500 4,700 5,172

Interest on long-term debt 332,231 344,477 249,067 198,015 186,256 175,533 161,092 151,162 140,806 129,590

Total governmental activities expenses 14,655,019 16,111,486 18,281,813 17,378,438 18,083,628 19,140,700 19,964,695 19,504,365 20,962,490 19,146,471

Business-type activities

Water 3,363,195 3,485,116 3,408,747 4,465,850 4,722,232 4,346,199 4,293,748 4,438,880 4,790,817 5,411,932

Wastewater 3,041,583 2,823,572 2,713,322 2,940,176 3,161,602 3,022,147 2,991,561 3,332,885 2,892,629 3,218,792

Pier 82,661 93,591 198,006 107,074 287,367 111,824 91,199 80,406 206,484 74,525

Parking 229,037 265,889 299,100 284,659 364,146 326,696 370,458 584,809

Transit 1,848 2,297 2,274 6,077 6,532 8,740 8,755 10,762 8,615 8,915

Total business-type activities expenses 6,489,287 6,404,576 6,551,386 7,785,066 8,476,833 7,773,569 7,749,409 8,189,629 8,269,003 9,298,973

Total City government expenses $ 21,144,306 $ 22,516,062 $ 24,833,199 $ 25,163,504 $ 26,560,461 $ 26,914,269 $ 27,714,104 $ 27,693,994 $ 29,231,493 $ 28,445,444

Continued

115

Schedule 2 City of Pis mo Beach Changes in Net Position, Continued Last Ten Fiscal Years (Accrual Basis of Accounting) Page 2


2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Program Revenues



General government $ 285,598 $ 363,937 $ 349,405 $ 1,020,708 $ 1,301,669 $ 1,462,725 $ 1,561,512 $ 1,762,469 $ 1,951,778 $ 1,996,898

Police protection 254,371 198,014 193,897 126,702 167,006 115,155 119,945 134,343 114,191 99,422

Fire protection 55,216 10,024 60,672 25,136 10,886 10,576 28,251 48,104 137,922 110,111

Public works 859,602 1,511,764 1,598,614 1,924,604

Streets 444,420 404,988 414,064 146,656 22,992 144,198 11,151 33,950 182,728 232,322

Community Services 1,286,228 1,271,359 1,579,236 1,049,444 650,435 l, 135,056 232,068 838,828 747,979 808,849

Redevelopment and Housing 253,407 264,851 156,920 91,804 5,098 86,264 5,507 66,410 711,956 1,366,649

Operating grants and contributions 756,024 1,041,554 640,334 475,389 446,036 692,373 758,435 653,736 1,014,648 720,505

Capital grants and contributions 1,447,217 858,709 5,306,814 676,094 1,683,554 1,333,881 245,533 303,229 231,893 179,020

Total governmental activities program revenues 4,782,481 4,413,436 8,701,342 3,611,933 4,287,676 4,980,228 3,822,004 5,352,833 6,691,709 7,438,380

Bus ines s--type activities


Water $ 2,748,466 $ 3,064,099 $ 3,375,620 $ 3,101,850 $ 3,391,156 $ 3,711,537 $ 3,459,033 $ 3,920,594 $ 3,817,994 $ 4,709,473

Wastewater 2,911,775 3,012,292 3,186,444 3,110,960 3,323,502 3,537,357 3,572,531 3,848,743 5,065,797 4,633,274

Pier 20,037 16,845 13,918 17,654 15,113 13,361 14,024 14,105 14,925 15,904

Parking 649,184 693,461 521,227 567,892 515,675 551,567 566,370 644,922

Transit 977 960 3 (3) 6,505 8,103 18,016 10,539

Operating grants and contributions 12,000 7,238 1,602

Capital grants and contributions 5,980 163,964 l, 167,565 31,700 31,850

Total business-type activities prcgrams revenues 5,699,235 6,265,398 8,394,333 6,923,928 7,250,995 7,861,847 7,567,768 8,343,112 9,483,102 10,045,962

Total City government program revenues $ 10,481,716 $ 10,678,834 $ 17,095,675 $ 10,535,861 $ 11,538,671 $ 12,842,075 $ 11,389,772 $ 13,695,945 $ 16,174,811 $ 17,484,342

Continued

116



2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Net Revenues (Expenses)

Governmental activities $ (9,872,538) $ ( l l ,698,050) $ (9,580,471) $ (13,766,505) $ (13,795,952) $ (14,160,472) $ (16,142,691) $ (14,151,532) $ (14,270,781) $ (11,708,091)

Business-type activities (790,052) (139,178) 1,842,947 (861,138) (1,225,838) 88,278 (181,641) 153,483 1,214,099 746,989

Total City government $ (10,662,590) $ (11,837,228) $ (7,737,524) $ (14,627,643) $ (15,021,790) $ (14,072,194) $ (16,324,332) $ (13,998,049) $ (13,056,682) $ (10,961,102)

General Revenues and Other Changes in Net Position


Taxes Property taxes $ 3,449,754 $ 3,660,083 $ 3,910,044 $ 3,846,298 $ 3,803,530 $ 3,763,419 $ 4,015,999 $ 4,193,186 $ 4,392,370 $ 4,662,304

Incremental property taxes 626,984 648,468 760,156 334,095 346,178 172,829

Sales taxes 2,375,881 2,402,092 2,813,264 3,136,677 3,379,575 3,511,091 3,905,814 4,104,284 4,497,958 4,485,779

Transient occupancy taxes 5,912,443 6,175,013 5,906,838 5,779,601 6,269,608 6,931,197 7,279,501 7,988,237 8,682,119 9,199,947

Other taxes 733,950 751,763 759,922 710,977 707,450 778,402 848,095 863,698 890,811 915,610

Unrestricted grants and contributions 51,793

Investment earnings 302,603 321,612 341,644 394,594 272,846 233,627 137,101 142,180 205,281 397,199

Miscellaneous 36,559 25,049 32,205 44,214 64,428 74,243

Transfers 34,772 226, l 55 (311,086) (9,592) (219,479) 143,770 26,409 93,422 (696,140) (71,219)

Extraordinary item -RDA (1,692,529)

Total governmental activities 13,488,180 14,221,745 14,205,831 14,224,855 14,603,922 13,841,806 16,212,919 17,385,007 18,036,827 19,663,863


Special Water Taxes l, 125,162 l, 149,336 l, 187,392 1,213,189 1,261,798 1,291,559 1,543,588 1,717,621 2,672,840 1,266,322

Transfers (34,772) (226,155) 311,086 9,592 219,479 (143,770) (26,409) (93,422) 696,140 71,219

Total business-type activities 1,090,390 923,181 1,498,478 1,222,781 1,481,277 l, 147,789 1,517,179 1,624,199 3,368,980 1,337,541

Total City government $ 14,578,570 $ 15,144,926 $ 15,704,309 $ 15,447,636 $ 16,085,199 $ 14,989,595 $ 17,730,098 $ 19,009,206 $ 21,405,807 $ 21,001,404

Continued

117


2007 2008 2009

Change in net position



$ 3,615,642 $ 2,523,695 $ 4,625,360 $

300,338 784,003 3,341,425

Total City government $ 3,915,980 $ 3,307,698 $ 7,966,785 $

Note FY 2015 balances were adjusted for a prior year restatement recorded in FY 2016.


2010 2011 2012

458,350 $

361,643

807,970 $ (318,666) $

255,439 1,236,067

2013 2014 2015 2016

70,228 $ 3,233,475 $ 3,766,046 $ 7,955,772

1,335,538 1,777,682 4,583,079 2,084,530

819,993 $ 1,063,409 $ 917,401 $ 1,405,766 $ 5,011,157 $ 8,349,125 $ 10,040,302

118

Schedule 3

City of Pismo Beach

Fund Balance, Governmental Funds


For the Fiscal Year Ended June 30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

General fund Reserved $ 412,243 $ 327,779 $ 830,542 $ 1,171,483 $ $ $ $ $ $ Unreserved 6,897,149 7,856,880 8,058,030 8,345,169 Nonspendable 768,088 462,005 965,312 88,805 37,096 37,292 Restricted

Committed 190,575 141,756 204,139 9,592,749 8,258,692 13,676,510 Assigned 7,265,958 7,665,163 6,103,064 Unassigned 714,379 2,141,222 3,361,546 4,825,898 7,346,781 5,398,701

Total general fund 7,309,392 8,184,659 8,888,572 9,516,652 8,939,000 10,410,146 10,634,061 14,507,452 15,642,569 19,112,503

All other governmental funds Reserved l, 185,985 1,121,665 606,929 606,763 Unreserved reported in

Special revenue funds 4,696,475 5,292,650 4,423,051 1,640,880 Capital projects funds 5,114,969 2,991,373 3,051,831 3,752,951 Debt service funds 354,902 101,390 105,231 117,314 Nonspendable 1,657,235 1,697,235 1,121,826 1,086,826 1,086,826 Restricted 5,502,365 2,856,132 3,135,353 4,201,623 4,184,820 6,702,558 Committed 126,295 288,953 895,777 41,923 Assigned 368,032 276,240 236,068 622,145 Unassigned (1,639,658) (1,635,422) (426,563)

Total all other governmental

funds 11,352,331 9,507,078 8,187,042 6,117,908 5,996,692 3,149,949 3,433,234 5,185,839 6,167,423 8,453,452

Total all governmental funds $ 18,661,723 $ 17,691,737 $ 17,075,614 $ 15,634,560 $ 14,935,692 $ 13,560,095 $ 14,067,295 $ 19,693,291 $ 21,809,992 $ 27,565,955

Notes

Fund balance reporting changes in FY 2011, per GAS B 54.

FY 2012-2014 were adjusted in FY 2015 for an error in reporting nonspendable fund balance.

119


Revenues, Expenditures and Changes in Fund Balance, Governmental Funds and Debt Service Ratio Last Ten Fiscal Years

(In Rounded Thousands of Dollars) (Modified Accrual Bas is of Accounting)

For The Fiscal Year EndedJ une 30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Revenues: Taxes $ 13,099 $ 13,637 $14,150 $ 13,456 $ 14,506 $15,157 $ 16,369 $ 17,136 $ 18,463 $ 19,261 Licenses and permits 972 950 1,231 872 477 886 814 1,355 1,594 1,918 Fines and forfeits 139 149 137 100 97 82 64 67 68 56 Charges for services 1,083 1,029 904 951 873 1,147 320 1,168 1,887 2,588 Special assessments 35 16 411 624 686 728 799 868 920 Intergovernmental 2,054 1,138 1,487 1,247 2,190 1,984 1,129 927 1,188 940 Investment earnings & rent 850 826 724 447 332 269 261 289 393 420 Other revenues 29 669 64 41 12 110 616 1,414 894 959

Total revenues 18,261 18,414 18,697 17,525 19, 111 20,321 20,301 23,155 25,355 27,062

Expenditures: General government 3,114 3,392 3,624 4,635 4,801 4,860 5,926 5,488 7,795 6,197 Public safety 5,898 6,074 6,317 6,445 6,574 6,792 6,856 6,823 6,693 7,278 Parks Planning and Public Works 3,524 4,077 4,950 4,772 4,187 5,659 3,791 4,160 5,824 4,468

Recreation Capital outlay 1,754 5,197 1,941 2,369 3,258 3,115 2,508 436 1,370 2,320 Debt service: Payment to escrow agent 26 Costs of issuance 212 Principal 225 130 260 280 250 270 275 290 300 310 Interest 243 340 259 200 187 176 162 152 142 131

Total expenditures 14,996 19,210 17,351 18,701 19,257 20,872 19,518 17,349 22,124 20,704

Continued

120

Schedule 4 City of Pis mo Beach Revenues, Expenditures and Changes in Fund Balance, Governmental Funds and Debt Service Ratio, Continued Last Ten Fiscal Years (In Rounded Thousands of Dollars) (Modified Accrual Basis of Accounting) Page 2

For The Fiscal Year EndedJ une 30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Excess ofrevenues over(under) expenditures 3,265 (796) 1,346 (1,176) (146) (551) 783 5,806 3,231 6,358

Other Financing S ources(Uses): Proceeds from borrowing 5,185 130 Payments to escrow agent (4,045) Early redemption of bonds 1,438 Transfers in 2,592 4,962 1,769 2,862 2,689 2,686 2,825 825 3,430 2,240 Transfers out (2,956) (5,265) (2,292) (3,127) (3,242) (2,819) (3,101) (1,099) (4,544) (2,842)

Total other financing sources(uses) 776 (173) 915 (265) (553) (133) (276) (274) (1,114) (602)

Extraordinary item: Dissolution of RDA (692)

Net change in fund balance $ 4,041 $ (969) $ 2,261 $ (1,441) $ (699) $ (1,376) $ 507 $ 5,532 $ 2,117 $ 5,756

Debt service as a percentage of noncapital expenditures 3.73% 3.47% 3.49% 3.03% 2.81% 2.58% 2.64% 2.68% 2.18% 2.46%

121

Fiscal Year

2006--2007

2007--2008

2008--2009

2009--2010

2010--2011

2011--2012

2012--2013

201 3--2014

2014--2015

201 5--2016

Schedule 5

City of Pismo Beach

Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years

(In Thousands of Dollars)

Assessed Taxable Values Estimated Real Personal Total Direct Actual

Property Property Totals Tax Rate Taxable Value

2,009,954 38,802 2,048,756 1.00% 5,080,316

2,219,577 41,672 2,261,249 1.00% 5,608,474

2,381,414 37,444 2,418,858 1.00% 6,007,026

2,400,005 37,086 2,437,091 1.00% 6,052,993

2,389,311 37,245 2,426,556 1.00% 6,026,485

2,364,711 36,417 2,401,128 1.00% 5,963,802

2,374,635 36,736 2,411,371 1.00% 5,989,068

2,454,598 39,670 2,494,268 1 .0CY,l6 6,193,166

2,561,760 38,802 2,600,562 1 .0CY,l6 6,459,831

2,729,930 38,748 2,768,678 1 .0CY,l6 6,880,179

Assessed Value as a Percentage of Actual Value

40.33%

40.32%

40.27%

40.26%

40.26%

40.26%

40.26%

40.27%

40.26%

40.24%

Source: S LO County Assessors Office, and HDL Reports. Amounts for Fiscal years 2006 through 2007 adjusted to data from HDL reports in Fiscal year 2008.

122

Fiscal Year

2006--2007

2007--2008

2008--2009

2009--2010

201 0--2011

2011--2012

2012--2013

201 3--2014

2014--2015

201 5--2016

Note:

Schedule 6

City of Pismo Beach

Direct and Overlapping Property Tax Rates Last Ten Fiscal Years

(Rates per $100 of Assessed Value)

Direct Rate Overlapping Rates General

Basic Obligation School 5 pecial Rate Debt Rate Total Districts Districts

l .00'/o 0.00'/o 1.00% 0.0193% 0.0124%

l .00'/o 0.00'/o 1.00% 0.0285% 0.0119%

l .00'/o 0.00'/o 1.00% 0.0285% 0.0119%

l .00'/o 0.00'/o 1.00% 0.0285% 0.0119%

l .00'/o 0.00'/o 1.00% 0.0291% 0.0126%

l .00'/o 0.00'/o 1.00% 0.0298% 0.0127'/o

l .00'/o 0.00'/o 1.00% 0.0395% 0.0139%

l .00'/o 0.00'/o 1.00% 0.0399% 0.0139%

l .00'/o 0.00'/o 1.00% 0.0409% 0.0139%

l .00'/o 0.00'/o 1.00% 0.0409% 0.0327'/o

The direct property tax rates can only be changed with specific voter approval.

5 ource: HDL Reports.

123

Total

1.031 7'/o

1.0404%

1.0404%

1.0404%

1.041 7'/o

1.0425%

1.0534%

1.0538%

1.0548%

1.0736%


Principal Property Tax Payers - Top Ten Last Ten Fiscal Years

(Dollar Amounts in Thousands)

2016 2015 Percentage of Percentage of

Taxable Total City Taxable Total City Assessed Taxable Assessed Taxable

Tax a er Value Rank Assessed Value Tax a er Value Rank Assessed Value Martin Resorts, Inc. $ 34,772 -1- 1.26% Martin Resorts, Inc. $ 34,109 -1- 1.31% Prime Outlets of Pismo Beach 29,576 2 1.07% Prime Outlets of Pismo Beach 29,050 2 1.12% Pismo Beach Mobilehome Park 27,500 3 0.99% Pismo Beach Mobilehome Park 25,854 3 0.99¼ Core Pismo, LLC 24,238 4 0.88% Core Pismo, LLC 23,723 4 0.91% Spalding G. Wathen, Inc. 19,893 5 0.72% Spalding G. Wathen, Inc. 20,329 5 0.78% Castleblack Pismo Beach 17,300 6 0.62% Heron Crest Development 15,719 6 0.60¼ Heron Crest Development 16,033 7 0.58% Cliffs Resort, LLC 15,011 7 0.58% Cliffs Resort, LLC 15,291 8 0.55% Pismo Coast Plaza, LLC 14,929 8 0.57% Pismo Coast Plaza, LLC 15,227 9 0.55% Henry F. Myers Trust 13,197 9 0.51% Henry F. Myers Trust 13,679 10 0.49% Castleblack Pismo Beach 11,819 10 0.45%

Total $ 213,509 7.71% Total $ 203,740 7.83%



Tax a er Value Rank Assessed Value Tax a er Value Rank Assessed Value Martin Resorts, Inc. $ 33,959 l 1.36% Martin Resorts, Inc. $ 33,311 l 1.38% Prime Outlets of Pismo Beach 28,919 2 1.16% Prime Outlets of Pismo Beach 27,485 2 1.14% Pismo Beach Mobilehome Park 24,645 3 0.99% Spalding G. Wathen 23,600 3 0.98% Core Pismo, LLC 23,620 4 0.95% Pismo Beach Mobilehome Park 22,778 4 0.94% Spalding G. Wathen, Inc. 21,058 5 0.84% Core Pismo, LLC 19,335 5 0.80¼ Heron Crest Development 15,648 6 0.63% Heron Crest Development 15,341 6 0.64% Cliffs Resort, LLC 14,948 7 0.60% Cliffs Resort, LLC 14,675 7 0.61% Pismo Coast Plaza, LLC 14,862 8 0.60% Pismo Coast Plaza LLC 13,532 8 0.56% K Partners Pismo Beach LP 11,773 9 0.47% Kingfisher Canyon Development 12,068 9 0.50¼ Pismo Development Group, LLC 10,610 10 0.43% K Partners Pismo Beach LP 11,798 10 0.49¼

Total $ 200,042 8.02% Total $ 193,923 8.04%



Tax a er Value Rank Assessed Value Tax a er Value Rank Assessed Value Martin Resorts, Inc. $ 32,676 l 1.36% Martin Resorts, Inc. $ 33,751 l 1.39¼ Prime Outlets of Pismo Beach 27,068 2 1.13% Prime Outlets of Pismo Beach 26,867 2 1.11% Spalding G. Wathen 23,888 3 0.99% Pismo Beach Mobilehome Park 24,243 3 1.00¼ Pismo Beach Mobilehome Park 22,827 4 0.95% Spalding G. Wathen 23,710 4 0.98% Core Pismo, LLC 19,335 5 0.81% Core Pismo, LLC 22,575 5 0.93% Heron Crest Development 15,041 6 0.63% Heron Crest Development 14,928 6 0.62% Cliffs Resort, LLC 14,406 7 0.60% Cliffs Resort, LLC 14,306 7 0.59¼ Pismo Coast Plaza LLC 13,335 8 0.56% Pismo Coast Plaza LLC 13,262 8 0.55% Kingfisher Canyon Development 12,108 9 0.50% Kingfisher Canyon Development 12,197 9 0.50¼ K Partners Pismo Beach LP 11,524 10 0.48% K Partners Pismo Beach LP 11,343 10 0.47%

Total $ 192,208 8.00% Total $ 197,182 8.13%

Continued

124

Schedule 7 City of Pis mo Beach Principal Property Tax Payers - Top Ten, Continued Last Ten Fiscal Years (Dollar Amounts in Thousands) Page 2



Tax a er Value Rank Assessed Value Tax a er Value Rank Assessed Value Martin Resorts, Inc. $ 33,829 -1- 1.39% Martin Resorts, Inc. $ 33,184 -1- 1.37% Prime Outlets of Pismo Beach 26,930 2 1.11% Prime Outlets of Pismo Beach 25,203 2 1.04% Pismo Beach Mobilehome Park 23,904 3 0.98% Spalding G. Wathen 23,300 3 0.96% Spalding G. Wathen 23,766 4 0.98% Core Pismo, LLC 22,290 4 0.92% Core Pismo, LLC 22,716 5 0.93% Pismo Beach Mobilehome Park 22,026 5 0.91% Heron Crest Development 14,964 6 0.61% Heron Crest Development 15,141 6 0.63% Cliffs Resort, LLC 14,338 7 0.59% Cliffs Resort, LLC 14,176 7 0.59¼ Pismo Coast Plaza LLC 13,285 8 0.55% Pismo Coast Plaza LLC 13,093 8 0.54% MP Pismo Investments LLC 11,628 9 0.48% 175 Pomeroy, LLC 12,000 9 0.50¼ K Partners Pismo Beach LP 11,366 10 0.47% Pismo Hotel Properties 11,173 10 0.46%

Total $ 196,726 8.07% Total $ 191,586 7.92%



Tax a er Value Rank Assessed Value Tax a er Value Rank Assessed Value Second Horizon Group $ 24,531 l 1.08% Prime Outlets of Pismo Beach $ 24,052 l 1.17% Pismo Coast Plaza 12,905 2 0.57% Pismo Coast Plaza LLC 12,720 2 0.62% P acplaza Properties LP 7,807 3 0.35% P acplaza Properties LP 7,654 3 0.37% Pismo Medical Campus 6,386 4 0.28% Pismo Medical Campus LLC 6,261 4 0.31% Pismo Hotel Properties 6,367 5 0.28% Martin Resorts, Inc. 30,692 5 1.50¼ 921 Oak Park Investors 4,714 6 0.21% 921 Oak Park Investors 4,622 6 0.23% Nicholas J. & Kathleen Tompkins 4,110 7 0.18% NicholasJ. & Kathleen Tompkins 4,029 7 0.20¼ Osh Properties LLC 3,953 8 0.17% Osh Properties LLC 3,876 8 0.19¼ Coastal Surgical Specialists 3,336 9 0.15% Five Cities Company Brand LLC 3,279 9 0.16% Spalding G. Wathen 22,843 10 1.01% Coastal Surgical Specialists 2,826 10 0.14%

Total $ 96,952 4.29% Total $ 100,01 l 4.88%

125

Fiscal Year

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-201 3

2013-2014

2014-2015

2015-2016

Note:

Schedule 8

City of Pismo Beach

Property Tax Levies and Collections Last Ten Fiscal Years

Collected Within The Fiscal Year of The Levy

Taxes Levied Percentage ForThe of

Fiscal Year Amount Levy

3,449,754 3,449,754 100.0(Y,)6

3,660,083 3,660,083 100.0(Y,)6

3,910,044 3,910,044 100.0(Y,)6

3,494,959 3,494,959 100.0(Y,)6

3,803,530 3,803,530 100.0(Y,)6

3,763,419 3,763,419 100.0(Y,)6

4,015,999 4,015,999 100.0(Y,)6

4,193,186 4,193,186 100.0(Y,)6

4,392,370 4,392,370 100.0(Y,)6

4,662,304 4,662,304 100.0(Y,)6

Property taxes are levied and collected pursuant to an arrangement commonly referred to as the Teeter P Ian. Under the Teeter Plan, the County allocates and remits to the City the full amount of each years tax levy, and the County then retains any delinquencies as collected by the County. Amount for 2010 is less the Prop lA Loan in the amount of $351,339.

Source: Cityof PismoBeachTaxCollection records and San Luis Obispo County Assessor records.

126

Fiscal Year

2006--2007

2007--2008

2008--2009

2009--2010

2010--2011

2011--2012

2012--2013

2013--2014

2014-2015

2015-2016

Note:

Schedule 8 A

City of Pismo Beach

Sales Tax Revenue Base Data


Revenue Base Total City-Wide Retail City City

Retail Sales Sales Direct Transaction Subject to Tax Tax Rate Tax Rate Tax Rate

217,126,100 7.25% 1.00% 0.00%

194,413,600 7.25% 1.00% 0.00%

206,556,700 8.25% 1.00% 0.50%

190,984,200 8.25% 1.00% 0.50%

192,386,300 8.25% 1.00% 0.50%

214,465,200 7.25% 1.00% 0.50%

248,116,800 7.50% 1.00% 0.50%

268,253,800 7.50% 1.00% 0.50%

275,456,400 7.50% 1.00% 0.50%

284,997,500 7.50% 1.00% 0.50%

Revenue Recognized By the City

2,375,881

2,402,092

2,813,264

3,136,677

3,379,575

3,511,091

3,905,814

4,104,284

4,497,958

4,485,779

The City's direct retail sales tax rate is established pursuant to the City's Municipal Code. Any increase in the City's direct tax rate requires voter approval. Transaction Tax approved by voters inJ une 2008, effective October 1, 2008.

Source: Revenue Base Information provided by HDL Major Categories Report Revenue information provided by City of Pismo Beach records.

127

Schedule 8 B City of Pismo Beach

Principal Sales Tax Generators by Industry- Revenue Base Concentration Data

Last Ten Calendar Years (Dollar Amounts in Thousands)


Retail Total City Retail Total City

Sales Retail Sales Retail Industry Generated Rank Sales Dollars Industry Generated Rank Sales Dollars Restaurants $ 72,750 l 25.71% Apparel Stores $ 71,978 l 26.63% Apparel Stores 71,817 2 25.38% Restaurants 69,669 2 25.78% All Other Outlets 49,201 3 17.39% All Other Outlets 43,395 3 16.05%

Other Retail Stores 48,925 4 17.29% Other Retail Stores 43,576 4 16.12% S etvice Stations 30,285 5 10.70% Service Stations 33,236 5 12.30% Food Stores 9,968 6 3.52% Food Stores 8,441 6 3.12%

Total $ 282,946 100.00% Total $ 270,295 100.00%



Sales Retail Sales Retail Industry Generated Rank Sales Dollars Industry Generated Rank Sales Doi lars Apparel Stores $ 71,206 l 27.16% Apparel Stores $ 67,849 l 27.81%

Restaurants 64,935 2 24.77% Restaurants 62,097 2 25.45% All Other Outlets 42,265 3 16.12% All Other Outlets 37,449 3 15.35% Other Retail Stores 41,472 4 15.82% Service Stations 36,562 4 14.99% Service Stations 35,189 5 13.42% Other Retail Stores 35,322 5 14.48% Food Stores 7,079 6 2.70% Food Stores 4,702 6 l.93%

Total $ 262,146 100.00% Total $ 243,981 100.00%


Retail Total City Retail Total City Sales Retail Sales Retail

Industry Generated Rank Sales Dollars Industry Generated Rank Sales Dollars

Apparel Stores $ 61,565 l 26.28% Apparel Stores $ 55,754 l 26.10% Restaurants 57,679 2 24.62% Restaurants 54,620 2 25.57% All Other Outlets 37,975 3 16.21% Other Retail Stores 33,954 3 15.89% Other Retail Stores 35,564 4 15.18% All Other Outlets 33,419 4 15.64% Service Stations 35,324 5 15.08% S etvice Stations 29,592 5 13.85%

Food Stores 6,141 6 2.62% Food Stores 6,290 6 2.94%

Total $ 234,248 100.00% Total $ 213,629 100.00%

Continued

128

Schedule 8 B

City of Pis mo Beach

Principal Sales Tax Generators by Industry - Revenue Base Concentration Data, Continued

Last Ten Calendar Years

(Dollar Amounts in Thousands)

Page 2



Sales Retail Sales Retail Industry Generated Rank Sales Dollars Industry Generated Rank Sales Dollars Apparel Stores $ 53,872 l 25.60% Restaurants $ 53,925 l 23.26%

Restaurants 52,780 2 25.08% Apparel Stores 49,684 2 21.43% Other Retail Stores 36,424 3 17.31% Other Retail Stores 47,795 3 20.61% All Other Outlets 34,497 4 16.39% All Other Outlets 40,151 4 17.32%

Service Stations 26,254 5 12.47% Service Stations 33,186 5 14.31% Food Stores 6,642 6 3.16% Food Stores 7,115 6 3.07%

0.00%

Total $ 210,469 100.00% Total $ 231,856 100.00%



Sales Retail Sales Retail

Industry Generated Rank Sales Dollars Industry Generated Rank Sales Dollars Restaurants $ 56,464 l 24.36% Restaurants $ 55,300 l 24.51% Apparel Stores 48,512 2 20.93% Other Retail Stores 47,451 2 21.03%

Other Retail Stores 45,519 3 19.63% Apparel Stores 45,492 3 20.16% All Other Outlets 41,877 4 18.06% All Other Outlets 41,631 4 18.45% Service Stations 32,0l l 5 13.81% Service Stations 28,205 5 12.50%

Food Stores 7,452 6 3.21% Food Stores 7,555 6 3.35%

Total $ 231,835 100.00% Total $ 225,634 100.00%

Source HDL Reports. Changed years from fiscal to calendar in FY 2011 report.

Amounts reflect changes in reporting by HDL to reflect fewer differentiated Categories.

129

2016 Arco Brads Restaurant California Fresh Calvin Klein

Cliffs at Shell Beach Coach Cool Cat Cafe Cracked Crab CVS Pharmacy

Dolphin Bay Hotel & Lido Rest. Mclintocks Five Cities Chevron G iuseppes Cucina

Miller 76 Nike Retail Orchard Supply Hardware Oshkosh B Gosh Ralph Lauren

Rite Aid Ross Shell Sky River RV splash Cafe Spyglass Shell Ventana Grill

Schedule 8B-1

City of Pismo Beach

Principal Sales Tax Payers - Top 25


(In Alphabetical Order)

Fiscal Year EndedJ une 30 2015 2014

Arco Brads Restaurant California Fresh Calvin Klein

Cliffs at Shell Beach Coach Cool Cat Cafe Cracked Crab CVS Pharmacy

Dolphin Bay Hotel & Lido Rest. Mclintocks Five Cities Chevron Giuseppes Cucina

Miller 76 Nike Retail Orchard Supply Hardware Oshkosh B Gosh Ralph Lauren

Rite Aid Ross Shell Sky River RV splash Cafe Spyglass Shell Ventana Grill

Arco Brads Restaurant California Fresh Calvin Klein

Cliffs at Shell Beach Coach Cracked Crab CVS Pharmacy Dolphin Bay Hotel & Lido Rest.

McLintocks Five Cities Chevron Giuseppes Cucina Miller 76

Nike Retail Orchard Supply Hardware #1 Orchard Supply Hardware #2 Oshkosh B Gosh Ralph Lauren

Ross Shell Sky River RV splash Cafe

Spyglass Shell Vans Ventana Grill

130

7 Eleven Arco

2013

Bass Outlet Brads Restaurant

Calvin Klein Cliffs at Shell Beach Coach Cracked Crab CVS Pharmacy

Dolphin Bay Hotel & Lido Rest. Five Cities Chevron Giuseppes Cucina McLintocks

Miller 76 Nike Retail Orchard Supply Hardware Oshkosh B Gosh Panchos SurfShop

Ralph Lauren Ross Shell Sky River RV

splash Cafe Spyglass Shell Ventana Grill

Continued

Schedule 8 B-1





Page 2

Fiscal Year EndedJ une 30

7 Eleven

Arco

Bass Outlet

2012

Brads Restaurant

Cliffs at Shell Beach Coach Cracked Crab CVS Pharmacy

Five Cities Chevron G iuseppes Cucina

Mclintocks Miller 76 Nike Retail

Orchard Supply Hardware

Oshkosh B Gosh P anchos S utf Shop

Pierside Restaurant

Polo Ralph Lauren Ross Scolaris

Shell Sky River RV splash Cafe

Spyglass Shell Ventana Grill

201 l 2010 7 Eleven

Arco Bass Outlet Brads Restaurant

Cliffs at Shell Beach Cracked Crab CVS Pharmacy Five Cities Chevron

Giuseppes Cucina Mc Donalds

Mclintocks Miller 76

Nike Retail


Oshkosh B Gosh Pacific Coast RV Panchos SurfShop

Polo Ralph Lauren

Rite Aid

Ross Scolaris Shell

splash Cafe Spyglass Shell Ventana Grill

7 Eleven

Arco

Bass Outlet Brads Restaurant

Calvin Klein Cliffs at Shell Beach Cracked Crab CVS Pharmacy

Five Cities Chevron Giuseppes Cucina McLintocks Miller 76 Nike Retail

Orchard Supply Hardware Oshkosh B Gosh Pacific SunwearOutlet P anchos S utf Shop

Pismo RV Outlet Polo Ralph Lauren Rite Aid Ross Scolaris

splash Cafe Spyglass Shell Valley Convenience Stores

131

7 Eleven Arco Bass Outlet

2009

Brads Restaurant

Cliffs at Shell Beach Cracked Crab Dolphin Bay Hotel & Lido Rest. Five Cities Chevron

Giuseppes Cucina Jones New York McLintocks Miller 76 Orchard Supply Hardware

Oshkosh B Gosh Pacific S unvvear Outlet Panchos Surf Shop Pismo RV Outlet

Polo Ralph Lauren Rite Aid Ross Scolaris Shelter Cove Lodge

splash Cafe Spyglass Shell Valley Convenience Stores

Continued

Schedule 8 B-1





Page 3

Fiscal Year Ended June 30 2008 2007

7 Eleven

Arco

Brads Restaurant

Cliffs at Shell Beach

Cracked Crab

Five Cities Chevron

Giuseppes Cucina

Longs Drug

F Mclintocks Miller's Unocal


Oshkosh B Gash

Pacific S unwear Outlet Pancho's SurfShop

Pierside Seafood

Polo Ralph Lauren

Ross Scolari's

Shelter Cove Lodge

splash Cafe

Spyglass Shell

Trailer Hitch RV Center

Valley Convenience Stores

Van Heusen Direct

Yanagi Sushi & Grill

7 Eleven

Arco Brad's Restaurant

Central Coast Oil Cliffs At Shell Beach Five Cities Chevron Giuseppe's Cucina

Longs Drug

F Mclintocks Miller's Unocal


Oshkosh B Gosh

Pacific S unvvear Outlet Pancho's S utf Shop

P ierside Sea food

Polo Ralph Lauren

Ross Scolari's

Shell Beach Motel

splash Cafe

Trailer Hitch RV Center

Valley Convenience Stores

Van Heusen Direct

Westinghouse Electric

Yanagi Sushi & Grill

Note: Principal Sales Taxpayers provided by HDL.

132

Schedule 8 C

City of Pismo Beach

Transient Occupancy Tax Revenue Base Data Last Ten Fiscal Years

Revenue Base City Revenue Fiscal Room Revenues Direct Recognized Year Subject to Tax Tax Rate By the City

2006-2007 59,124,431 1 0.0CY,l6 5,912,443

2007-2008 61,750,130 1 0.0CY,l6 6,175,013

2008-2009 59,068,380 1 0.0CY,l6 5,906,838

2009-2010 57,795,945 1 0.0CY,l6 5,779,594

2010-2011 62,696,071 1 0.0CY,l6 6,269,607

2011-2012 69,311,970 1 0.0CY,l6 6,931,197

2012-201 3 72,795,011 1 0.0CY,l6 7,279,501

2013-2014 79,882,370 1 0.0CY,l6 7,988,237

2014-2015 86,821,190 1 0.0CY,l6 8,682,119

2015-2016 91,999,470 1 0.0CY,l6 9,199,947

Note: The transient occupancy tax can only be changed by approval of the voters, and the rate was increased in 1992.

Source: Revenue information provided by City of Pismo Beach records.

133

Schedule 8 D

City of Pismo Beach

Principal Transient Occupancy Tax Payers and Other Data Last Ten Fiscal Years

Transient Occupancy Tax Revenues In Dollars

Concentration By Hotel Size City-Wide Average Based on Number of Rooms

Fiscal Occupancy Daily Room Number Hotels Number Hotels Year Rate Rates 50 or More Rooms Under 50 Rooms

2005-2007 No Data No Data $ 4,678,552 $ 645,499 16 14

2007-2008 No Data No Data $ 5,234,272 $ 392,052 18 14

2008-2009 No Data No Data $ 4,681,899 $ 643,383 16 16

2009-2010 No Data No Data $ 4,864,506 $ 340,365 17 14

2010-2011 No Data No Data $ 5,286,868 $ 375,674 17 15

2011-2012 No Data No Data $ 5,867,792 $ 417,423 17 15

2012-2013 No Data No Data $ 6,165,294 $ 411,261 17 15

2013-2014 No Data No Data $ 6,754,657 $ 418,059 17 12

2014-2015 69.1% $ 142 $ 7,260,482 $ 558,564 17 14

2015-2016 68.2% $ 152 $ 7,711,023 $ 591,172 17 13

Transient Occupancy Tax Revenues In Dollars

Concentration By Size RV ParkNacation Rentals Based on Number of Units

Number Units Number Units 50 or More Under 50

2007-2008 No Data No Data $ 493,617 $ 55,072 4 9

2008-2009 No Data No Data $ 524,140 $ 165,081 5 11

2009-2010 No Data No Data $ 407,793 $ 166,931 4 12

2010-2011 No Data No Data $ 419,010 $ 188,055 4 15

2011-2012 No Data No Data $ 434,233 $ 211,749 4 15

2012-2013 No Data No Data $ 446,792 $ 256,154 4 15

2013-2014 No Data No Data $ 570,224 $ 245,297 5 17

2014-2015 69.1% $ 142 $ 759,673 $ 103,400 7 14

2015-2016 68.2% $ 152 $ 511,432 $ 386,320 4 22

Note Data prior to FY 2015 not available for City-Wide Occupancy Rate and Average Daily Room Rates. Occupancy Rate and Average Daily Room Rates are combined for hotels, RV Park, and Vacation Rentals. Data for Motels;Hotels separated from RV ParkNacation Rentals in 2007 and 2008.

134

2016 Cliffs ofS hell Beach Cottage Inn Dolphin Bay Hotel Island Hospitality Kon Tiki Motel Pismo Coast Village Pismo Lighthouse Suites Sandcastle Inn Seacrest Motel S horecliff Inn

2012 Cliffs ofS hell Beach Cottage Inn Dolphin Bay Hotel Hilton Garden Inn Kon Tiki Motel Pismo Coast Village Pismo Lighthouse Suites Sandcastle Inn Seacrest Motel S horecliff Inn

Schedule 8 D-1

City of Pismo Beach

Principal Transient Occupancy Tax Payers - Top Ten




Cliffs ofS hell Beach Cliffs of Shell Beach Dolphin Bay Hotel Cottage Inn Island Hospitality Dolphin Bay Hotel Kon Tiki Motel Hilton Garden Inn Oxford S uites Kon Tiki Motel Pismo Coast Village Pismo Coast Village Pismo Lighthouse Suites Pismo Lighthouse Suites Sandcastle Inn Sandcastle Inn Seacrest Motel Seacrest Motel S horecliff Inn S horecliff Inn


Cliffs ofS hell Beach Cliffs ofS hell Beach Cottage Inn Cottage Inn Dolphin Bay Hotel Dolphin Bay Hotel Kon Tiki Motel Kon Tiki Motel Oxford Suites Resort Oxford Suites Resort Pismo Coast Village Pismo Coast Village Pismo Lighthouse Suites Pismo Lighthouse Suites Sandcastle Inn Sandcastle Inn Seacrest Motel Seacrest Motel S horecliff Inn S horecliff Inn


Cliffs ofS hell Beach Cottage Inn Kon Tiki Motel Oxford Suites Resort Pismo Coast Village Pismo Lighthouse Suites Sandcastle Inn Seacrest Motel S eaventure Motel S horecliff Inn

Cliffs ofS hell Beach Cottage Inn Kon Tiki Motel Oxford Suites Resort Pismo Coast Village Pismo Lighthouse Suites Sandcastle Inn Seacrest Motel S eaventure Motel S horecliff Inn

2013 Cliffs ofS hell Beach Cottage Inn Dolphin Bay Hotel Hilton Garden Inn Kon Tiki Mote I Pismo Coast Village Pismo Lighthouse Suites Sandcastie Inn Seacrest Motel S horecliff Inn

2009 Cliffs ofS hell Beach Cottage Inn Dolphin Bay Hotel Kon Tiki Mote I Oxford Suites Resort Pismo Coast Village Pismo Lighthouse Suites Sandcastie Inn S eaventure Motel S horecliff Inn

Source: Principal Transient Occupancy Tax Payers provided by City of Pismo Beach records.

135

Schedule 8 E

City of Pismo Beach

Water and Sewer Rates for Single Family Residents


Water Sewer Monthly Rate Monthly Rate

Fiscal Base Perl000 Base Per 1000 Year Rate Gallons Rate Gallons*

2006--2007 12.29 1.45 28.48

2007--2008 13.37 1.64 29.54

2008--2009 14.60 1.94 31.74

2009--2010 15.26 2.11 36.72

2010--2011 15.95 2.30 39.49

2011--2012 16.29 2.35 40.32

2012--2013 16.29 2.35 40.32

2013--2014 12.17 2.49 36.88

2014--2015 12.72 2.60 38.92

2015--2016 13.29 2.72 41.07

Source: City of Pismo Beach Financial System Rate Records *Sewer rate is based on Fixed Rate only. In 2013-2014, rates changed per rate study completed in August 201 3.

136

Schedule 8 F

City of Pismo Beach Principal Water and Wastewater Payers - Revenue Base Concentration Data


Water Revenue Concentration Data Class of Customer

Single Non-Family Residential Construction Ci Irrigation

Fiscal Year Revenue in Dollars and Number of Customers Totals

2006-2007 $ 700,337 $ 646,592 $ 11,874 $ $ $ 1,358,803 3,656 712 37 4,405

2007-2008 $ 823,615 $ 632,329 $ 12,099 $ 26,338 $ 90,631 $ 1,585,012 3,676 645 38 71 122 4,552

2008-2009 $ 919,105 $ 602,872 $ 11,012 $ 55,832 $ 197,665 $ 1,786,486 3,689 626 30 71 124 4,540

2009-;>0lO $ 927,856 $ 612,810 $ 9,635 $ 49,126 $ 173,885 $ 1,773,312 3,696 639 24 72 127 4,558

2010-2011 $ 948,979 $ 668,959 $ 4,722 $ 53,741 $ 198,223 $ 1,874,624 3,702 642 18 82 125 4,569

2011-2012 $ 1,065,941 $ 729,416 $ 4,989 $ 59,911 $ 213,392 $ 2,073,649 3,706 647 27 81 123 4,584

2012-2013 $ 1,055,078 $ 767,291 $ 13,103 $ 75,576 $ 217,164 $ 2,128,212 3,719 646 26 80 125 4,596

2013-2014 $ 1,062,275 $ 888,085 $ 12,402 $ 100,766 $ 306,762 $ 2,370,290 3,733 641 27 83 130 4,614

2014-2015 $ 1,090,870 $ 914,283 $ 14,231 $ 106,819 $ 283,457 $ 2,409,660 3,772 641 91 82 132 4,718

2015-2016 $ 938,624 $ 864,692 $ 19,798 $ 81,589 $ 212,697 $ 2,117,400 3,900 640 35 80 132 4,787

Wastewater Revenue Concentration Data Class of Customer

Other Residential Residential Hotel ;Motel Commercial Other

Fiscal Year Revenue in Dollars and Number of Customers Totals

2006-2007 $ 858,962 $ 235,162 $ 390,110 $ 552,668 $ 128,591 $ 2,165,493 3,646 291 39 246 11 4,233

2007-2008 $ 956,004 $ 252,967 $ 418,120 $ 538,780 $ 136,430 $ 2,302,301 3,667 300 38 244 26 4,275

2008-2009 $ 1,075,481 $ 279,018 $ 401,835 $ 538,316 $ 154,115 $ 2,448,765 3,681 325 38 246 35 4,325

2009-2010 $ 1,166,657 $ 286,706 $ 383,347 $ 540,874 $ 128,250 $ 2,505,834 3,692 326 38 263 32 4,351

2010-2011 $ 1,269,866 $ 299,033 $ 400,072 $ 551,518 $ 130,805 $ 2,651,294 3,695 322 38 263 33 4,351

2011-2012 $ 1,369,613 $ 313,537 $ 421,547 $ 566,462 $ 130,161 $ 2,801,320 3,699 323 38 271 33 4,364

2012-2013 $ 1,397,950 $ 319,937 $ 434,845 $ 578,342 $ 158,153 $ 2,889,227 3,712 326 37 268 34 4,377

2013-2014 $ 1,261,612 $ 297,433 $ 497,113 $ 591,462 $ 192,830 $ 2,840,450 3,728 325 37 269 35 4,394

2014-2015 $ 1,230,586 $ 295,567 $ 534,754 $ 619,649 $ 183,333 $ 2,863,889 3,767 325 37 270 48 4,447

2015-2016 $ 1,327,511 $ 311,572 $ 524,691 $ 596,869 $ 184,362 $ 2,945,005 3,895 324 37 270 36 4,562

137

2016 Cliffs Shell Beach Dolphin Bay Hotel, Inc. Motel 6 Inc. Oxford Suites Resort Pismo Coast Village, Inc. Pismo Lighthouse Suites Pismo Mobile Hm Pk Quality Inn Seacrest Resort S horecliff Lodge

2012 Cliffs Shell Beach Hacienda Del Pisrm Kon Tiki Motel 6 Inc. Oxford Suites Resort Pismo Mobile Hm Pk Pismo Lighthouse Suites Quality Inn -Pismo Beach Seacrest Resort S horecliff Lodge

Schedule 8 F-1

City of Pismo Beach

Principal Water Sale Purchasers - Top Ten



Fiscal Years EndedJ une 30 2015 2014

Cliffs Shell Beach Dolphin Bay Hotel, Inc. Kon Tiki Motel 6 Inc. Oxford Suites Resort Pismo Coast Village, Inc. Pismo Lighthouse Suites Pismo Mobile Hm Pk Seacrest Resort S horecliff Lodge

City of Pismo Beach Cliffs Shell Beach Dolphin Bay Hotel, Inc. Hilton Carden Inn Motel 6 Inc. Pismo Coast Village, Inc. Pismo Lighthouse Suites Pismo Mobile Hm Pk S horecliff Lodge Toucan I HOA

Fiscal Years EndedJ une 30 201 l 2010

Cliffs of Shell Beach-l-lotel Motel 6 Inc. Oxford Suites Resort Pismo Mobile Hm Pk Pismo Lighthouse Suites Rose Carden Inn Seacrest Motel Shell Beach School-LMUSD S horecliff Lodge Sunset Palisades HOA

Cliffs of Shell Beach-l-lotel Cliffs of Shell Beach-Restaurant Judkins Middle School-LMUS D Motel 6 Inc. Oxford Suites Resort Pismo Mobile Hm Pk Pismo Lighthouse Suites Rose Carden Inn Seacrest Motel S horecliff Lodge

Fiscal Years Ended June 30

2008 2007

Cliffs of Shell Beach

Hacienda Del Pisrm

Judkins Middle School-LMUS D

Motel 6 Inc.

Oxford Suites Resort

Pismo Lighthouse Suites

Pismo Mobile Hm Pk

Shell Beach School-LMUSD

S horecliff Lodge

Sunset Palisades HOA

BaycliffHomeowner's Assc

Cliffs of Shell Beach

Hacienda Del Pismo

Kon Tiki

Motel 6

Oxford Suites

Pismo Lighthouse Suites

Pismo Mobile Hm Pk

Seacrest Motel

S horecliff Lodge

138

2013 City of Pismo Beach Cliffs Shell Beach Hilton Carden Inn Judkins Middle School-LMUSD Motel 6 Inc. Oxford Suites Resort Pismo Lighthouse Suites Pismo Mobile Hm Pk Seacrest Resort S horecliff Lodge

2009 BaycliffHomeowner's Assc Cliffs of Shell Beach Judkins Middle School-LMUSD Motel 6 Inc. Oxford Suites Resort Pismo Dunes Travel Pismo Lighthouse Suites Pismo Mobile Hm Pk Shell Beach School-LMUS D S horecliff Lodge

Governmental Activities General Lease Special Tax

Fiscal Obligation Revenue Assessment Allocation Year Bonds Bonds Bonds Bonds

2006-2007 5,185 85 1,515

2007-2008 5,160 60 1,465

2008-2009 4,985 30

2009-2010 4,735

2010-2011 4,485

2011-2012 4,215

2012-2013 3,940

2013-2014 3,650

2014-2015 3,350

2015-2016 3,040

Schedule 9

City of Pismo Beach

Ratios of Outstanding Debt by Type Last Ten Fiscal Years

(Dollars in Thousands except for Per Capita)

Business-Type Activities Capital Capital Lease Unamortized State of Lease Lease Revenue Bond California and

Obligations Obligations Bonds Premium Other Loans

7,145 9,945

100 6,985 9,744

57 6,825 9,752

12 6,655 9,263

6,480 8,765

5,710 8,255

5,535 7,739

5,345 385 7,212

5,155 365 6,677

4,960 344 6,132

139

City Debt as Total FromCAFR Total Percentage of City Debt Per Capita City Personal Pee Personal Debt Income Capita Population Income

23,875 9.06% 2,794 8,545 30,835

23,514 8.86% 2,733 8,603 30,835

21,649 8.11% 2,500 8,660 30,835

20,665 7.7(1}6 2,374 8,704 30,835

19,730 5.45% 2,577 7,655 47,262

18,180 4.79?6 2,369 7,675 49,459

17,214 5.02?6 2,231 7,717 44,456

16,592 5.26% 2,153 7,705 40,940

15,547 5.10?6 2,022 7,688 39,672

14,476 4.94% 1,769 8,181 35,852

General Fiscal Obligation Year Bonds

2006--2007

2007--2008

2008--2009

2009--2010

201 0--2011

2011--2012

2012--2013

201 3--2014

2014--2015

201 5--2016

Note:

Schedule 1 O

City of Pismo Beach

Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years

General Bonded Debt Outstanding Percentage of Lease Tax Actual Taxable

Revenue Allocation Value of Bonds Bonds Total Property

5,185,000 l ,515,000 6,700,000 0.34%

5,160,000 1,465,000 6,625,000 0.30'/o

4,985,000 4,985,000 0.21%

4,735,000 4,735,000 0.19%

4,485,000 4,485,000 0.18%

4,215,000 4,215,000 0.18%

3,940,000 3,940,000 0.16%

3,650,000 3,650,000 0.15%

3,350,000 3,350,000 0.13%

3,040,000 3,040,000 0.11%

Per Capita

784.08

770.08

575.64

544.00

585.89

549.19

510.56

473.72

435.74

3 71.59

Debt service on the lease revenue bonds and tax allocation bonds is financed by the use of general governmental financial resources available in the general fund and special revenue funds of the City. Assessed Taxable Value of Real Property provided by Cal Muni and HDL. Tax Allocation Bonds retired early in Fiscal Year 2009.

140

Schedule 11

City of Pismo Beach

Direct and Overlapping Governmental Activities Debt

June 30, 2016

Governmental Unit

OVERLAPPING DEBT REPAID WITH PROPERTY TAXES

San Luis Obispo County Certificates of Participation San Luis Obispo County Pension Obligations San Luis Obispo Community College District Certificates of Participation Lucia Mar Unified School District Certificates of Participation

TOTAL OVERLAPPING DEBT REPAID WITH PROPERTY TAXES

OVERLAPPING TAX AND ASSESSMENT DEBT

San Luis Obispo County Flood Control and Water Conservation District, Zone No. 3 San Luis Obispo Community College District San Luis Coastal Unified School District Lucia Mar Unified School District

TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT

CITY DIRECT DEBT -GOVERNMENTAL ONLY City of Pismo Beach General Fund Obligations

TOTAL DIRECT DEBT

TOTAL OVERLAPPING DEBT

TOTAL DIRECT AND OVERLAPPING DEBT

141

Debt Outstanding

$ 27,005,005 100,489,398

7,630,000 7,730,000

8,760,000 75,000,000 50,000,000 26,310,417

3,040,000

Estimated Percentage Applicable

6.088% 6.088% 6.063%

17.884%

32.216% 6.063% 3.561%

17.884%

100.0aYo

Estimated Share of

Overlapping Debt

$ 1,644,065 6,117,795

462,607 1,382,433

$ 9,606,900

2,822,122 4,547,250 1,780,500 4,705,355

$ 13,855,227

$ 3,040,000

$ 3,040,000

$ 23,462,127

$ 26,502,127

Fiscal Year

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

Schedule 12

City of Pismo Beach

Legal Debt Margin Information Last Ten Fiscal Years

Debt Limit

76,827,129

84,765,446

90,707,179

91,390,902

90,995,113

90,038,272

90,426,01 l

93,534,313

97,520,366

103,825,445

Total Debt Applicable

To Limit

Total Debt Applicable To Limit as Percentage

of Debt Limit

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

Legal Debt Margin Calculation for Fiscal Year 2016

Note

Assessed value

Conversion Percentage (25%)

Adjusted Assessed Valuation

Debt Limit Percentage ( 15%)

Debt Limit

Less debt applicable to limit General obligation bonds

Total debt applicable to limit

Legal debt margin

Total debt applicable to the limit as a percentag

$

$

2,768,678,531

25%

692,169,633

15%

103,825,445

103,825,445

0%

The Government Code of the State of California provides for a legal debt limit of l 5% of gross assessed valuation. Hcmever, this provision was enacted when assessed valuation was based upon 15% of market value. Effective with the 1981--82 fiscal year, each parcel is ncm assessed at l 00¼ of market value (as of the most recent change in ownership for that parcel.) The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the State. Debt Limit Calculation determined by Property Assessed Value multiplied by 25%, which is the conversion percentage dating back to the time thatthe legal debt margin was enacted by the State of California. The adjusted value is then multiplied by l 5% which is the Legal Debt Limit of Gross Valuation provided by the State of California.

Source: California Municipal Statistics

142

Special Fiscal Assessment Year Collections

2006-2007 34,762 2007-2008 15,938 2008-2009 2009-2010 2010-201 l 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Wastewater Service

Revenues 2006-2007 2,595,967 2007-2008 2,784,458 2008-2009 2,966,726 2009-2010 3,037,459 2010-201 l 3,224,548 2011-2012 3,518,213 2012-2013 3,571,850 2013-2014 3,841,522 2014-2015 2015-2016

Note:

Schedule 13

City of Pismo Beach

Pledged Revenue Coverage


Special Assessment Bonds Capital Debt Service Impact Fees

Capital Impact Fees

Principal 25,000 25,000 30,000

Interest 6,523 4,866 3,030

2004 Revenue Bonds Less Net

Operating Available Expenses Revenue

2,249,798 346,169 1,677,462 l, 106,996 1,620,054 1,346,672 1,853,902 l, 183,557 1,909,617 1,314,931 1,912,039 1,606,174 1,909,756 1,662,094 2,370,387 1,471,135

Coverage l.10 0.53

Debt Service

Principal Interest 155,000 297,305 160,000 293,472 160,000 291,005 170,000 285,535 175,000 282,330 175,000 262,174

Wastewater revenues include service fees only. Data for wastewater shown in fiscal 2005 and thereafter when proceeds of State of California SRF loan firstwere drawn down. Operating expenses exclude depreciation and amortization.

State of California Wastewater Construction Loan-WWTP Wastewater Capital Less Net Debt Service

Service Impact Operating Available Revenues Fees Expenses Revenue Principal Interest

2006-2007 2,595,967 2,249,798 346,169 426,178 183,081 2007-2008 2,784,458 1,677,462 l, 106,996 433,862 175,398 2008-2009 2,966,726 1,620,054 1,346,672 461,684 167,575 2009-2010 3,037,459 1,853,902 l, 183,557 449,648 159,612 2010-201 l 3,224,548 1,909,617 1,314,931 457,755 151,505 2011-2012 3,518,213 1,912,039 1,606,174 466,008 143,251 2012-2013 3,571,850 1,909,756 1,662,094 474,410 134,849 2013-2014 3,841,522 2,370,387 1,471,135 482,964 126,295 2014-2015 5,039,175 1,895,224 3,143,951 491,672 117,588 2015-2016 4,591,505 2,255,771 2,335,734 500,537 108,723

Coverage 0.77 2.44 2.99 2.60 2.88 3.67

Coverage 0.57 l.82 2.14 l.94 2.16 2.64 2.73 2.41 5.16 3.83

Continued

143

Schedule 13


Pledged Revenue Coverage, Continued Last Ten Fiscal Years

Page 2

State of California Wastewater Construction Loan--Park~ypress Project Wastewater Capital Less Net Debt Service

Service Impact Operating Available Revenues Fees Expenses Revenue Principal Interest

2006-2007 2,595,967 2,249,798 346,169 10,009 4,638 2007-2008 2,784,458 1,677,462 l, 106,996 10,209 4,438 2008-2009 2,966,726 1,620,054 1,346,672 10,413 4,234 2009-2010 3,037,459 1,853,902 l, 183,557 10,621 4,025 2010-201 l 3,224,548 1,909,617 1,314,931 10,834 3,814 2011-2012 3,518,213 1,912,039 1,606,174 12,433 2,214 2012-2013 3,571,850 1,909,756 1,662,094 l l,271 3,375 2013-2014 3,841,522 2,370,387 1,471,135 l l,694 2,952 2014-2015 5,039,175 1,895,224 3,143,951 l l,916 2,731 2015-2016 4,591,505 2,255,771 2,335,734 12, 14 l 2,505

State of California Wastewater Construction Loan-Pismo Oaks Lift Station Project Wastewater Capital Less Net

Service Impact Operating Available Revenues Fees Expenses Revenue

2007-2008 2,784,458 1,677,462 l, 106,996 2008-2009 2,966,726 1,620,054 1,346,672 2009-2010 3,037,459 1,853,902 l, 183,557 2010-201 l 3,224,548 1,909,617 1,314,931 2011-2012 3,518,213 1,912,039 1,606,174 2012-2013 3,571,850 1,909,756 1,662,094 2013-2014 3,841,522 2,370,387 1,471,135 2014-2015 5,039,175 1,895,224 3,143,951 2015-2016 4,591,505 2,255,771 2,335,734

Note: For all State of CA S RF Loans, Wastewater revenues include service fees only. Operating expenses exclude depreciation and amortization.

2012 Revenue Bonds Wastewater Capital Less Net

Service Impact Operating Available Revenues Fees Expenses Revenue

2011-2012 3,518,213 1,912,039 1,606,174 2012-2013 3,571,850 1,909,756 1,662,094 2013-2014 3,841,522 2,370,387 1,471,135 2014-2015 5,039,175 1,895,224 3,143,951 2015-2016 4,591,505 2,255,771 2,335,734

Note: Wastewater revenues include service fees only. Operating expenses exclude depreciation and amortization. No Debt Service paid in FY l l-12 as 2004 Bonds were refunded by this issue.

144

Debt Service

Principal Interest

29,319 12,588 29,948 l l,959 30,950 10,957 31,020 10,887 31,486 10,421 32,054 9,853 32,631 9,275

Debt Service

Principal Interest

175,000 211,089 190,000 202,813 190,000 198,063 195,000 192,288

Coverage 23.63 75.58 91.94 80.81 89.77

109.66 113.48 l 00.45 214.65 159.48

Coverage

28.24 31.38 38.33 39.66 35.10 75.02 55.74

Coverage

4.30 3.75 8.10 6.03

Fiscal Year

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

Source:

Schedule 14

City of Pismo Beach

Demographic and Economic Statistics


Per Capita Personal Personal

Population Income Income

8,642 351,150,386 40,633

8,582 369,197,640 43,020

8,580 373,847,760 43,572

8,677 363,071,711 41,843

8,704 403,656,704 46,376

7,675 379,597,825 49,459

7,717 343,066,952 44,456

7,705 315,442,700 40,940

7,688 304,998,336 39,672

8,181 293,305,212 35,852

California Labor Market Info. Data Library as of Nov of each year. Per Capita Personal Income based on Census Data. FY 2006 to FY 2011 Adjusted to reflect updated information.

145

Unemployment Rate

4.0(Y,)6

4.4CY,l6

5. 9(Y,)6

9.2CY,l6

1 0.4(Y,)6

9. 5CY,l6

6.2CY,l6

5. 3(Y,)6

4. 5CY,l6

3. 7CY,l6

Schedule 15

City of Pismo Beach Principal Employers - Top Ten

Last Eight Fiscal Years

Fiscal Year EndedJ une 30, 2016 Fiscal Year EndedJ une 30, 2015 Percentage

Number of Total City Number Employer Employees Rank Employment Employer Employees Rank

The Cliff's of Shell Beach 235 5.88% Martin Resorts 260 Dolphin Bay Resort 178 2 4.45% The Cliffs of Shell Beach 243 2 Martin Resorts 135 3 3.38% Dolphin Bay Resort 191 3 Keller-Williams 110 4 2.75% Keller-Williams 106 4 City of Pismo Beach 89 5 2.23% City of Pismo Beach 89 5 Sea Venture 85 6 2.13% Sea Venture 85 6 U.S. Postal Service 82 7 2.05% Brad's Restaurant 79 7 Brad's Restaurant 70 8 1.75% U.S. Postal Service 75 8 McClintock's 65 9 1.63% McClintock's 71 9 Pismo Coast Village 65 10 1.63% Steamer's 62 10

Total 1,114 27.85% Total 1,261


Number of Total City Number Emeloyer Emeloyees Rank Emeloyment Emeloyer Emeloyees Rank

The Cliff's of Shell Beach 220 4.40% The Cliff's of Shell Beach 222 Dolphin Bay Resort 197 2 3.94% Dolphin Bay Resort 195 2 U.S. Postal Service 105 3 2.10% U.S. Postal Service 102 3 Keller-Williams 98 4 1.96% Keller-Williams 92 4 Brad's Restaurant 85 5 1.70% City of Pismo Beach 86 5 City of Pismo Beach 85 6 1.70% Brad's Restaurant 75 6 Sea Venture 73 7 1.46% Sea Venture 70 7 McClintock's 66 8 1.32% McClintock's 68 8 Steamer's 53 9 1.06% Steamer's 62 9 Share Cliff Ledge 50 10 1.00% Share Cliff Ledge 49 10

Total 1,032 20.64% Total 1,021


Number of Total City Number Emeloyer Emeloyees Rank Emeloyment Emeloyer Emeloyees Rank

The Cliff's of Shell Beach 213 4.44% The Cliff's of Shell Beach 160 Dolphin Bay Resort 180 2 3.75% Dolphin Bay Resort 110 2 Keller-Williams 90 3 1.88% Keller-Williams 110 3 City of Pismo Beach 85 4 1.77% City of Pismo Beach 88 4 U.S. Postal Service 82 5 1.71% U.S. Postal Service 78 5 McClintock's 70 6 1.46% McClintock's 76 6 Steamer's 68 7 1.42% Brad's Restaurant 65 7 Sea Venture 67 8 1.40% Sea Venture 64 8 Brad's Restaurant 60 9 1.25% Steamer's 60 9 Share Cliff Ledge 49 10 1.02% Share Cliff Ledge 45 10

Total 964 20.08% Total 856

146

Percentage of Total City Employment

6.50% 6.08% 4.78% 2.65% 2.23% 2.13% 1.98% 1.88% 1.78% 1.55%

31.53%

Percentage of Total City Emeloyment

4.53% 3.98% 2.08% 1.88% 1.76% 1.53% 1.43% 1.39% 1.27% 1.00%

20.84%

Percentage of Total City Emeloyment

3.48% 2.39% 2.39% 1.91% 1.70% 1.65% 1.41% 1.39% 1.30% 0.98%

18.61%

Continued

Schedule 15

City of Pis mo Beach Principal Employers - Top Ten, Continued

Last Eight Fiscal Years

Page 2

Fiscal Year EndedJ une 30, 2010 Percentage

Number of Total City Em12loyer Em12loyees Rank Employment

The Cliff's of Shell Beach 160 3.52% McClintock's 125 2 2.75% Keller-Williams 107 3 2.36% Steamer's 100 4 2.20% Brad's Restaurant 00 5 1.98% City of Pismo Beach 00 6 1.98% Share Cliff Ledge 85 7 1.87% Sea Venture 80 8 1.76% U.S. Postal Service 75 9 1.65% Pelican Point Restaurant 75 10 1.65%

Total 987 21.74%

Fiscal Year EndedJ une 30, 2008 Percentage

Number of Total City Employer Employees Rank Employment

The Cliff's of Shell Beach 204 4.43% Martin Resorts 183 2 3.98% City of Pismo Beach 128 3 2.78% Keller-Williams 102 4 2.22% U.S. Postal Service 100 5 2.17% McClintock's 84 6 1.83% Sea Venture 77 7 1.67% Brad's Restaurant 57 8 1.24% Steamer's 57 9 1.24% United Staffing Associates 54 10 1.17%

Total 1,046 22.74%

Note


Number Em12loyer Em12loyees Rank

The Cliff's of Shell Beach 158 City of Pismo Beach 131 2 Keller-Williams 121 3 Martin Resorts 106 4 Dolphin Bay Resort 105 5 McClintock's 83 6 U.S. Postal Service 80 7 Brad's Restaurant 57 8 Sea Venture 56 9 Steamer's 52 10

Total 949


Number Employer Employees Rank

Martin Resorts 203 The Cliffs 200 2 City of Pismo Beach 125 3 Keller-Williams 110 4 McClintock's 92 5 United Staffing Associates 88 6 Sea Venture 86 7 Brad's Restaurant 75 8 U.S. Postal Service 75 9 Steamer's 64 10

Total l, 118

Source City of Pismo Beach provided information by contacting employers for all years except 2010. HDL provided the information for 2010. Employment information from State of Ca website.

147


3.43% 2.85% 2.63% 2.30% 2.28% 1.80% 1.74% 1.24% 1.22% 1.13%

20.63%


4.41% 4.35% 2.72% 2.39% 2.00% 1.91% 1.87% 1.63% 1.63% 1.39%

24.30%

Schedule 16

City of Pismo Beach Full-Time Equivalent City Government Employees by Function;Program


Full-Time Equivalent Employees as of June 30, 2007 2008 2009 2010 2011 2012 2013 2014

Function/Program General government Administration 4 4 4 4 4 4 4 4 Human Resources City Council 5 5 5 5 5 5 5 5 City Attorney -Contract

CVB 2 2 2 2 2 2 2 2 Administrative Services 7 5.9 5.9 5.9 5.9 5.9 5.9 5.9 Information Technology

Public safety Police 34.00 34.00 34.00 34.00 34.00 33.00 33.00 34.00 Parking

Community Development Planning 4.60 4.60 4.60 4.60 4.60 4.60 4.60 4.60 Building 4.10 4.10 4.10 4.10 4.10 4.20 4.20 4.10 Recreation l.70 l.20 l.20 l.20 l.20 l.20 l.20 l.20 RDA 0.10 0.10 0.10 0.10 0.10 Parking l.00 l.00 l.00 l.00 l.00 l.00 l.10

Public Works/Engineering Engineering 4.95 3.70 3.70 3.70 3.70 3.70 3.70 3.60 Streets and Govt B ldgs 7.23 4.78 4.78 4.78 4.78 4.78 4.78 3.03 Park Maintenance/Fae. 7.52 7.52 7.52 7.52 7.52 7.52 7.52 7.32

Water Treatment and distribution 4.63 6.25 6.00 6.00 6.00 5.00 5.00 5.00 Billing 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.50

Wastewater Collection and treatment 8.58 7.78 8.05 8.05 8.05 8.05 8.05 8.10 Billing 0.33 0.33 0.33 0.33 0.33 0.33 0.33 0.50

Motor Vehicle Operations I Motor Vehicle Operations 2.05 l.05 l.05 l.05 l.05 l.05 l.05 l.05

Totals 100.46 95.98 96.00 96.00 96.00 94.00 94.00 94.00

Source City of Pismo Beach payroll records.

148

2015 2016

4 4

5 5

2 2 5.9 6

34.00 35.00 l.00

4.60 4.60 4.10 4.10 l.20 l.20

l.10

3.60 3.60 3.03 3.03 7.32 7.32

5.00 5.00 0.50 0.50

8.10 8.10 0.50 0.50

l.05 1.05 I

94.00 95.00

Function/Program Police

Physical arrest

Traffic violations

Fire

Emergency responses

Fires extinguished

Building

Building permits issued

Other permits issued

Public works

I Miles streets resurfaced

Parks and Recreation

Number of facility rentals

Number of class admissions

Water

Number new connections

Daily average water

production in MG D

Daily average water

consumption in MG D

Wastewater Number new connections

Daily average treatment in millions gallons(MG D)

Note

Schedule 17

City of Pismo Beach

Operating Indicators by Function;Program


For The Fiscal Year EndedJ une 30 2007 2008 2009 2010 2011 2012

963 978 1,081 953 998 875 1,371 1,451 2,129 2,398 2,490 2,199

1,161 1,202 1,343 890 1,081 1,022 37 38 20 22 19 22

222 298 214 210 177 213 500 609 460 552 471 455

3.15 2.62 38.00 4.10 6.03

125 148 1,179 302 187 255 1,983 2,100 1,681 1,540 3,000 1,500

15 40 39 15 59 20 l.98 2.04 l.91 l.76 l.71 l.78

l.79 l.80 l.73 l.55 1.48 l.59

9 30 39 18 4 6 l.21 l.21 l.21 l.13 l.08 l.14

Park and Recreation information unavailable prior to fiscal year 2006.

Water and Wastewater connections data not able to locate prior to 2006.

Source: City of Pismo Beach Depattments

149

2013 2014 2015 2016

974 1,001 1,328 1,238 1,612 2,590 2,044 1,382

1,084 1,175 1,265 1,528 25 16 21 26

246 209 290 205 436 478 956 551

6.08

274 216 240 258 2,000 2,000 3,000 3,500

21 5 20 221 l.84 l.91 l.64 1.47

l.63 l.72 l.52 l.27

7 33 53 109 l.07 l.07 l.01 0.95

Function/Program Police

Stations

Patrol units

Fire

Stations

Engines

Public works

Miles of streets

Streetlights

Traffic signals

Parks and recreation

Community centers

Parks

Park acreage

Water Miles of mains

Number connections

Maximum plant capacity

in millions gallons

Wastewater

Miles of sewers

Number connections

Maximum plant capacity

in millions gallons

Note

Schedule 18

City of Pismo Beach Capital Asset Statistics by Function;Program


For The Fiscal Year Ended June 30 2007 2008 2009 2010 2011 2012

6 6 6 6 6 6

2 2 2 2 2 2 2 2 2 2 3 3

37 37 37 38 38 46 757 757 757 757 757 828

3 3 3 3 3 3

2 2 2 2 2 2 18 18 18 18 18 18

205 205 205 205 205 205

53 53 54 54 54 55 4,458 4,713 4,698 4,684 4,757 4,777

2.16 2.16 2.16 2.16 2.16 2.16

39 39 40 40 40 40 4,191 4,233 4,336 4,354 4,363 4,366

l.90 l.90 l.90 l.90 l.90 l.90

Source City of Pismo Beach Depattments.

150

2013 2014 2015 2016

6 6 6 6

2 2 2 2 3 3 3 3

46 46 46 46 828 828 828 842

3 3 3 3

2 2 2 2 18 18 18 18

205 205 205 205

55 56 56 56 4,777 4,819 4,839 5,060

2.16 2.16 2.16 2.16

40 40 40 40 4,367 4,400 4,453 4,562

l.90 l.90 l.90 l.90


Continuing Disclosure Annual Report Information for Fiscal Year 2015-16

$5,185,000 PIS MOB EACH PUBLIC FINANCING AUTHORITY

(SAN LUIS OB IS PO COUNTY, CALIFORNIA) SERIES 2007A LEASE REVENUE REFUNDING BONDS

(CITY HALL REFUNDING PROJECT)

Content of Annual Reports

(i) Audited financial statements of the City: This exhibit is attached to the City's audited financial statements.

(ii) Operating data, including the following information with respect to the City's preceding Fiscal Year (to the extent not included in the audited financial statements described in paragraph (a) above):

(a) Outstanding indebtedness and lease obligations; Please see information in the audited financial statements.

(b) General fund budget and actual results; Please see information in the audited financial statements.

(c) Assessed valuations; and Please see information in the audited financial statements.

(d) Largest local secured taxpayers. Please see information in the audited financial statements.

Reporting of Significant Events

There were no significant events that occurred during the Fiscal Year ended June 30, 2016. According to the Continuing Disclosure Certificate, significant events include:

1. principal and interest payment delinquencies. 2. non-payment related defaults. 3. modifications to rights ofBondholders. 4. optional, contingent or unscheduled bond calls. 5. defeasances. 6. rating changes. 7. adverse tax opinions or events affecting the tax-€xempt status of the Bonds. 8. unscheduled draws on the debt service reserves reflecting financial difficulties. 9. unscheduled draws on the credit enhancements reflecting financial difficulties. 1 0. substitution of the credit or liquidity providers or their failure to perform. 11. release, substitution or sale of property securing repayment of the Bonds.

151


Continuing Disclosure Annual Report Information for Fiscal Year 2015-16

$5,710,000 PISMO BEACH PUBLIC FINANCING AUTHORITY

(City of Pismo Beach, California) SERIES 2012WASTEWATER REFUNDING REVENUE BONDS

(Wastewater Project of 2004)

Content of Annual Reports

(i) Audited financial statements of the City:

This exhibit is attached to the City's audited financial statements.

(ii) information with respect to the City's wastewater enterprise (the 'Wastewater Enterprise") showing:

(a) Annual wastewater service structure and pricing, together with adopted rates in a format comparable to Table 6 of the Official Statement forthe prior Fis cal Year:

BI-MONTHLY FIXED RATES

BASED ON WATER METER SIZE

Meter Size (In Inches) 2016

5/8" $24.18 3,"I" $34.08 1" $53.88

1 ½" $103.37 2" $162.78 3" $301 .40 4" $499.40 6" $1,192.44

B 1-MONTHL Y RESIDENTIAL FIXED CONSUMPTION CHARGEslll

Customer Classification

S ingle Family Multifamily Mobile Home

2016

$57.95 $39.08 $34.97

[l] Apartments, Multifamily and Mobile Home are charged by the dwelling unit

152

Schedule 20 City of Pismo Beach Continuing Disclosure Annual Report Information for Fiscal Year 2015-16 $5,710,000 PIS MOB EACH PUBLIC FINANCING AUTHORITY (City of Pismo Beach, California) SERIES 2012WASTEWATER REFUNDING REVENUE BONDS (Wastewater Project of 2004) Page 2

Bl-MONTHLY VARIABLE CONSUMPTION CHARGEsl21

Customer Classification

Commercial Dual Residential/Restaurant Dual Residential,Commercial Grocery Hotel Hotel w/ Rest. School w,Cafeteria School Shopping Center Shopping Centerw/Restaurant Trailer/RV Service Station R estaura nt,ll akery Municipal

2016

$5.89 $8.96 $5.68

$11.87 $5.49 $9.00 $5.88 $4.26 $6.04 $9.07 $3.97 $5.42

$12.22 $5.89

[2] Charge based on water consumption (dollars per hundred cubic feet of water billed for each two-month billing period).

153


(a) Largest ten users of the Wastewater Enterprise, based on annual billings forthe prior fiscal year (largest customer based on water consumption):

Ten Largest Wastewater Customers by Revenue

FY 2015-16 Customer Name Sewer Revenues % ofTotal

1 Pismo Beach Mobile Home Park $ 56,188.15 1.37% 2 Cliffs Shell Beach $ 58,684.80 1.43% 3 Pismo Coast Village $ 46,855.85 1.14% 4 Oxford Suites Hotel $ 42,422.23 1.03% 5 S horecliff Lodge $ 35,178.40 0.86% 6 Quality Inn $ 35,551.96 0.86% 7 Motel 6 $ 34,933.59 0.85% 8 Dolphin Bay $ 34,671.30 0.84% 9 Sea crest Resort $ 32,873.60 0.80%

10 Pismo Lighthouse Suites $ 32,978.82 0.80% Total $ 410,338.70 9.98%

Other Customers $ 3,702,997.30 90.02%

Total Revenues $ 4, 113,336.00 100.00%

(b) Any additional indebtedness incurred during the prior Fis cal Year which is payable from revenues of the Wastewater Enterprise on a parity with the Bonds:

Please see information in the audited financial statements.

154


(c) Debt Service Coverage Projections forthe Series 2012 Wastewater Refunding Revenue Bonds:

Historical Operating Results and Debt Service Coverage

Gross Revenues

Charges for Services

Miscellaneous

Interest and Investment Revenue

Total Gross Revenues

Operating Expensesl3I

Salaries and Benefits

Purchased Power

Customer Accounting

Services and Supplies

Total Operating Expenses

Net Revenues

Total Debt Service

2004 State Loan-WWTP

2006 State Loan-P ark,Cypress

2008 State Loan-Pismo Oaks

2012 Wastewater Refunding Bonds

Total Debt Service

Debt Service Coverage

Audited

FY 2015-16

$4,487,103

$ 104,402

$ 41,769

$4,633,274

$ 910,341

$ 234,741

$ 42,054

$1,068,635

$2,255,771

$2,377,503

$ 609,259

$ 14,646

$ 41,907

$ 387,288 $1,053,100

2.26

[3] Excludes depreciation, amortization, loss on capital assets, and debt service expenses.

155


Reporting of Significant Events

There were no significant events that occurred during the Fiscal Year endedJ une 30, 2016. According to the Continuing Disclosure Certificate, significant events include:

(i) Principal and interest payment delinquencies; (ii) Non-payment related defaults, if material; (iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of

taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security;

(vii) Modifications to rights of security holders, if material; (viii) Optional, contingent or unscheduled bond calls, if material; (ix) Defeasances; (x) Release, substitution, or sale of property securing repayment of the Bonds, if material; (xi) Rating changes; (xii) Bankruptcy, insolvency, receivership or similar event of the City; (xiii) The consummation of a merger, consolidation, or acquisition involving the City orthe sale ofall or

substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

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

156

Schedule 21

City of Pismo Beach

Continuing Disclosure for Water Enterprise Fund For Fiscal Year 2015-2016

Table 1: Ten Largest Customers of Water Enterprise

Customer Name 1 Pismo Beach Mobile Home Park 2 Cliffs Shell Beach 3 PismoCoastVillage 4 Oxford Suites Hotel 5 S horecliff Lodge 6 Quality Inn 7 Motel 6 8 Dolphin Bay 9 Seacrest Resort

10 Pismo Lighthouse Suites Total

Other C us tome rs

Total Revenues

Consumption Water Revenues 10,542 $ 42,114.73 10,360 $ 36,403.86 9,907 $ 39,914.88 7,115 $ 26,742.51 6,172 $ 21,742.29 6,090 $ 22,207.89 5,972 $ 21,825.66 5,771 $ 22,041.20 5,603 $ 20,569.24 5,407 $ 20,972.64

72,939 $ 274,534.90

$

$

2,927,011.10

3,201,546.00

% ofTotal 1.32% 1.14% 1.25% 0.84% 0.68% 0.69% 0.68% 0.69% 0.64% 0.66% 8.58%

91.42%

100.0(Y,)6

Table 2: Changes in the Service Area and Customer Base for Water Enterprise;Statement

of Connections and Sales Revenues for Water Enterprise

Customer Base & Water Sales Revenue

Customer Base

Residential

Apartments

Commercial~ndustrial

Other

Total All Customers

Water Sales Revenue

157

Number of Customers

3,772

321

378

247

4,718

$3,201,546

Schedule 21


Continuing Disclosure for Water Enterprise Fund, Continued

For Fiscal Year 2015-2016

Page 2

Table 3: Rates and Charges for Water Deliveries for Fiscal Year Most Recently Concluded

Water Service Rates

Minimum Monthly Service Charge: $13.60

Additional Charge per 100 Cubic Feet of Water Used: $2.72 0-1 O; $3.36 11-20; $3.97 21-35; $5.43 Over 35

Water Set-up Fee per Account: $60.00

48 Hour Door Hanger Fee: $35.00

Re-connection Fees: During Business Hours: $80.00

After Hours: $184

Table 4: In addition to the above information, please provide the following:

Additional Information

Numberforactualwaterdeliveries: 1,644Acre Feet

Impact Fees,Utility Tax:

Type: Water Tax

Type: Impact Fees

Revenue Received: $1,266,322

Revenue Received: $1,291,436

158

Schedule 21


Continuing Disclosure for Water Enterprise Fund, Continued

For Fiscal Year 2015-2016

Page 3

FISCAL YEAR 2016 WATER ENTERPRISE FUND OPERATING RESULTS

The following table is a summary of operating results of the water system of the City for FY 2015/16. These results

have been derived from the City's financial statements but exclude certain non-<:ash items and include certain other

adjustments. The table has not been audited by the City's auditor.

REVENUES Water Service Charge State Water Impact Fee Interest Assessments Other Reveues TOTAL REVENUES:

OPERATING EXPENSES Administration and General *LopezContractPayments 1

Operations & Maintenance Utilities TOTAL OPERATING EXPENSES:

NET REVENUES

State Water Payments Total Contract Payments

Coverage Ratio:

Available for Capital improvements and other purposes

I une 30, 2016 $3,201,546

1,291,436 103,194

1,266,322 113 297

$5,975,795

793,394 1,214,635 1,267,514

141 723 3,417,266

2,558,529

1,471,535 1 471 535

1.74

$1,086,994

1 The Lopez obligation was previously reported as parity debt in the 1996 Revenue Bond official statement The City has determined that this is not a debt obligation but is instead a contract obligation. Therefore, the amount is presented as an operating expense.

159

glennburcletteocom

TT CERTIFIED PUBLIC ACCOUNTANTS

SAN LUIS OBISPO

1150 Palm Street San Luis Dbispo 0 CA 93401

p 805 5441441

f 805 544 4351

PASO ROBLES 102 South Vine Street. Ste, A

Paso Robles" CA 93445

p 805 23? 3995

f 805 239 9332

SANTA MARIA

2222 South Broadway, Ste, A

Santa t,faria, CA 93454

p 805 922 4010

f 805 922 4285

APPENDIXC

FORM OF THE CONTINUING DISCLOSURE CERTIFICATE

Upon issuance of the Bonds, the City proposes to enter into a Continuing Disclosure Certificate in substantially the following form:

This Continuing Disclosure Certificate (the "Disclosure Certificate"), dated as of June 1, 2017, is executed and delivered by the City of Pismo Beach (the "City") and Urban Futures, Inc., as dissemination agent (the "Disclosure Dissemination Agent"), for the benefit of the Beneficial Owner (hereinafter defined) of the $7,685,000 Pismo Beach Public Financing Agency, Series 2017 Lease Revenue Bonds (Pismo Beach Municipal Pier Project) (the "Bonds") in order to provide certain continuing disclosure with respect to the Bonds in accordance with Rule 15c2-12 of the United States Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (the "Rule").

The City and the Disclosure Dissemination Agent covenant and agree as follows:

SECTION 1. Definitions. In addition to the definitions set forth above and in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Annual Financial Information" means annual financial information as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(a) of this Disclosure Certificate.

"Annual Report" means an Annual Report described in and consistent with Section 3 of this Disclosure Certificate.

"Annual Filing Date" means the date, set forth in Section 2(a) and Section 2(f), by which the Annual Report is to be filed with the MSRB.

"Audited Financial Statements" means the financial statements (if any) of the City for the prior fiscal year, certified by an independent auditor as prepared in accordance with generally accepted accounting principles or otherwise, as such term is used in paragraph (b)(5)(i) of the Rule and specified in Section 3(b) of this Disclosure Certificate.

"Beneficial Owner" means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

"Bonds" means the $7,685,000 Pismo Beach Public Financing Agency, Series 2017 Lease Revenue Bonds (Pismo Beach Municipal Pier Project) issued pursuant to the Indenture.

"Certification" means a written certification of compliance signed by the Disclosure Representative stating that the Annual Report, Audited Financial Statements, Notice Event notice, or Failure to File Event notice delivered to the Disclosure Dissemination Agent is the Annual

C-1

Report, Audited Financial Statements, Notice Event notice, or Failure to File Event notice, required to be submitted to the MSRB under this Disclosure Certificate. A Certification shall accompany each such document submitted to the Disclosure Dissemination Agent by the City and include the full name of the Bonds and the 9-digit CUSIP numbers for all Bonds to which the document applies.

"City" means the City of Pismo Beach, California.

"Disclosure Representative" means the Administrative Services Director of the City or his or her designee, or such other person as the City shall designate in writing to the Disclosure Dissemination Agent from time to time as the person responsible for providing Information to the Disclosure Dissemination Agent.

"Disclosure Dissemination Agent" means Urban Futures, Inc., acting in its capacity as Disclosure Dissemination Agent hereunder, or any successor Disclosure Dissemination Agent designated in writing by the City.

"Failure to File Event" means the City's failure to file an Annual Report on or before the Annual Filing Date.

"Force Majeure Event" means: (i) acts of God, war, or terrorist action; (ii) failure or shutdown of the Electronic Municipal Market Access system maintained by the MSRB; or (iii) to the extent beyond the Disclosure Dissemination Agent's reasonable control, interruptions in telecommunications or utilities services, failure, malfunction or error of any telecommunications, computer or other electrical, mechanical or technological application, service or system, computer virus, interruptions in Internet service or telephone service (including due to a virus, electrical delivery problem or similar occurrence) that affect Internet users generally, or in the local area in which the Disclosure Dissemination Agent or the MSRB is located, or acts of any government, regulatory or any other competent authority the effect of which is to prohibit the Disclosure Dissemination Agent from performance of its obligations under this Disclosure Certificate.

"Indenture" means the Indenture of Trust, dated as of June 1, 2017 (the "Indenture"), by and between the City and Wilmington Trust, N.A., as trustee thereunder.

"Information" means, collectively, the Annual Reports, the Audited Financial Statements (if any), the Notice Event notices, and the Failure to File Event notices.

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

"MSRB" means the Municipal Securities Rulemaking Board established pursuant to Section l 5B(b )(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Marketplace Access (EMMA) website of the MSRB, currently located at http:/iemma.msrb.org.

C-2

http://emma._msrb._ors

"Notice Event" means any of the events enumerated in paragraph (b)(5)(i)(C) of the Rule and listed in Section 4(a) of this Disclosure Certificate.

"Obligated Person" means any person, including the City, who is either generally or through an enterprise, fund, or account of such person committed by contract or other arrangement to support payment of all, or part of the obligations on the Bonds ( other than providers of municipal bond insurance, letters of credit, or other liquidity facilities). With respect to the Bonds, only the City constitutes the Obligated Person.

"Official Statement" means the final official statement executed by the City in connection with the issuance of the Bonds.

"Participating Underwriter" means Stifel, Nicolaus & Company, Incorporated, the original underwriter of the Bonds required to comply with the Rule in connection with the offering of the Bonds.

"Rule" means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State" means the State of California.

"Trustee" means Wilmington Trust, N.A., as trustee under the Indenture, or any successor Trustee designated in writing by the City.

SECTION 2. Provision of Annual Reports and Other Disclosures.

( a) The City shall provide, annually, an electronic copy of the Annual Report and Certification to the Disclosure Dissemination Agent not later than nine months after the end of the City's Fiscal Year (currently March 31 based on the City's Fiscal Year end of June 30), commencing with the Annual Report for the Fiscal Year ended June 30, 2017. Such date and each anniversary thereof is the Annual Filing Date. Promptly upon receipt of an electronic copy of the Annual Report and the Certification, the Disclosure Dissemination Agent shall provide such Annual Report to the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 3 of this Disclosure Certificate.

(b) If on the fifteenth (15th) day prior to the Annual Filing Date, the Disclosure Dissemination Agent has not received a copy of the Annual Report and Certification, the Disclosure Dissemination Agent shall contact the Disclosure Representative by telephone and in writing (which may be by e-mail) to remind the City of its undertaking to provide the Annual Report pursuant to Section 2(a). Upon such reminder, the Disclosure Representative shall either (i) provide the Disclosure Dissemination Agent with an electronic copy of the Annual Report and the Certification no later than two (2) business days prior to the Annual Filing Date, or (ii) instruct the Disclosure Dissemination Agent in writing that the City will not be able to file the Annual Report within the time required under this Disclosure Certificate, state the date by which the Annual Report for such year will be provided and instruct the Disclosure Dissemination Agent that

C-3

a Failure to File Event has occurred and to immediately send a notice to the MSRB in substantially the form attached as Exhibit A.

( c) If the Disclosure Dissemination Agent has not received an Annual Report and Certification by 6:00 p.m. Eastern time on the Annual Filing Date ( or, if such Annual Filing Date falls on a Saturday, Sunday or holiday, then the first business day thereafter) for the Annual Report, a Failure to File Event shall have occurred and the City irrevocably directs the Disclosure Dissemination Agent to immediately send a notice to the MSRB in substantially the form attached as Exhibit A without reference to the anticipated filing date for the Annual Report.

( d) If Audited Financial Statements of the City are prepared but not available prior to the Annual Filing Date, the City shall, when the Audited Financial Statements are available, provide in a timely manner an electronic copy to the Disclosure Dissemination Agent, accompanied by a Certification for filing with the MSRB.

( e) The Disclosure Dissemination Agent shall:

(i) verify the filing specifications of the MSRB each year prior to the Annual Filing Date;

(ii) upon receipt, promptly file each Annual Report received under Sections 2(a) and 2(b) with the MSRB;

(iii) upon receipt, promptly file each Audited Financial Statement received under Section 2(d) with the MSRB;

(iv) upon receipt, promptly file the text of each Notice Event received under Sections 4( a) and 4(b )(ii) with the MSRB, identifying the Notice Event as instructed by the City pursuant to Section 4(a) or 4(b )(ii) (being any of the categories set forth below) when filing pursuant to Section 4( c) of this Disclosure Certificate:

1. "Principal and interest payment delinquencies;"

2. "Non-Payment related defaults, if material;"

3. "Unscheduled draws on debt service reserves reflecting financial difficulties;"

4. "Unscheduled draws on credit enhancements reflecting financial difficulties;"

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

6. "Adverse tax opinions, IRS notices or events affecting the tax status of the security;"

7. "Modifications to rights of securities holders, if material;"

C-4

8. "Bond calls, if material;"

9. "Defeasances;"

10. "Release, substitution, or sale of property securing repayment of the securities, if material;''

11. "Rating changes;"

12. "Tender offers;"

13. "Bankruptcy, insolvency, receivership or similar event of the obligated person;"

14. "Merger, consolidation, or acquisition of the obligated person, if material;" and

15. "Appointment of a successor or additional trustee, or the change of name of a trustee, if material;"

(v) upon receipt ( or irrevocable direction pursuant to Section 2( c) of this Disclosure Certificate, as applicable), promptly file a completed copy of Exhibit A to this Disclosure Certificate with the MSRB, identifying the filing as "Failure to provide annual financial information as required" when filing pursuant to Section 2(b)(ii) or Section 2(c) of this Disclosure Certificate;

(f) The City may adjust the Annual Filing Date upon change of its fiscal year by providing written notice of such change and the new Annual Filing Date to the Disclosure Dissemination Agent and the MSRB, provided that the period between the existing Annual Filing Date and new Annual Filing Date shall not exceed one year.

(g) Any Information received by the Disclosure Dissemination Agent before 6:00 p.m. Eastern time on any business day that it is required to file with the MSRB pursuant to the terms of this Disclosure Certificate and that is accompanied by a Certification and all other information required by the terms of this Disclosure Certificate will be filed by the Disclosure Dissemination Agent with the MSRB no later than 11 :59 p.m. Eastern time on the same business day; provided, however, the Disclosure Dissemination Agent shall have no liability for any delay in filing with the MSRB if such delay is caused by a Force Majeure Event provided that the Disclosure Dissemination Agent uses reasonable efforts to make any such filing as soon as possible.

SECTION 3. Content of Annual Reports.

( a) Each Annual Report shall contain Annual Financial Information cons1stmg of updated information comparable to the information in the following tables as they appear in Official Statement:

1. Table 3 entitled "General Fund Budgets Compared to Audited Results;"

C-5

2. Table 4 entitled "Key General Fund Revenue Sources and Changes from Prior Year,"

3. Table 5 entitled "Summary of General Fund Revenues and Changes from Prior Year,"

4. Table 6 entitled "Assessed Valuations of All Taxable Property;"

5. Table 7 entitled "Top 10 Largest 2016-17 Local Secured Taxpayers,"

(b) Audited Financial Statements prepared in accordance with generally accepted accounting principles ("GAAP") as described in the Official Statement will also be included in the Annual Report. If audited financial statements are not available, then, unaudited financial statements, prepared in accordance with GAAP as described in the Official Statement will be included in the Annual Report. Audited Financial Statements (if any) will be provided pursuant to Section 2( d).

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the City is an Obligated Person, which have been previously filed with the Securities and Exchange Commission or available to the public on the MSRB Internet website. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The City will clearly identify each such document so incorporated by reference.

Any Annual Financial Information containing modified operating data or financial information is required to explain, in narrative form, the reasons for the modification and the impact of the change in the type of operating data or financial information being provided.

SECTION 4. Reporting of Notice Events.

( a) The occurrence of any of the following events with respect to the Bonds constitutes a Notice Event:

1. Principal and interest payment delinquencies;

2. Non-payment related defaults, if material;

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

4. Unscheduled draws on credit enhancements reflecting financial difficulties;

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

6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations oftaxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds;

C-6

7. Modifications to rights of Bond holders, if material;

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

9. Defeasances;

10. Release, substitution, or sale of property securing repayment of the Bonds, if material;

I I. Rating changes;

12. Bankruptcy, insolvency, receivership or similar event of the Obligated Person (Note to subsection (a)(l 2) ofthis Section 4: For the purposes of the event described in this subsection ( a)(l2) of Section 4, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an Obligated Person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Obligated Person, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Obligated Person);

13. The consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the Obligated Person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

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

The City shall, in a timely manner not in excess of ten business days after its occurrence, notify the Disclosure Dissemination Agent in writing of the occurrence of a Notice Event. Such notice shall instruct the Disclosure Dissemination Agent to report the occurrence pursuant to subsection ( c) and shall be accompanied by a Certification. Such notice or Certification shall identify the Notice Event that has occurred (which shall be any of the categories set forth in Section 2( e )(iv) of this Disclosure Certificate), include the text of the disclosure that the City desires to make, contain the written authorization of the City for the Disclosure Dissemination Agent to disseminate such information, and identify the date the City desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth business day after the occurrence of the Notice Event).

(b) The Disclosure Dissemination Agent is under no obligation to notify the City or the Disclosure Representative of an event that may constitute a Notice Event. In the event the Disclosure Dissemination Agent so notifies the Disclosure Representative, the Disclosure

C-7

Representative will within two business days of receipt of such notice (but in any event in a timely manner not later than the tenth business day after the occurrence of the Notice Event, if the City determines that a Notice Event has occurred), instruct the Disclosure Dissemination Agent that (i) a Notice Event has not occurred and no filing is to be made or (ii) a Notice Event has occurred and the Disclosure Dissemination Agent is to report the occurrence pursuant to subsection ( c) of this Section 4, together with a Certification. Such Certification shall identify the Notice Event that has occurred (which shall be any of the categories set forth in Section 2(e)(iv) of this Disclosure Certificate), include the text of the disclosure that the City desires to make, contain the written authorization of the City for the Disclosure Dissemination Agent to disseminate such information, and identify the date the City desires for the Disclosure Dissemination Agent to disseminate the information (provided that such date is not later than the tenth business day after the occurrence of the Notice Event).

( c) If the Disclosure Dissemination Agent has been instructed by the City as prescribed in subsection (a) or (b)(ii) of this Section 4 to report the occurrence of a Notice Event, the Disclosure Dissemination Agent shall promptly file a notice of such occurrence with the MSRB in accordance with Section 2(e)(iv) hereof.

SECTION 5. CUSIP Numbers. Whenever providing information to the Disclosure Dissemination Agent, including but not limited to Annual Reports, documents incorporated by reference to the Annual Reports, Audited Financial Statements, Notice Event notices, and Failure to File Event notices, the City shall indicate the full name of the Bonds and the 9-digit CUSIP numbers for the Bonds as to which the provided information relates.

SECTION 6. Additional Disclosure Obligations. The City acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule l0b-5 promulgated under the Securities Exchange Act of 1934, may apply to the City, and that the failure of the Disclosure Dissemination Agent to so advise the City shall not constitute a breach by the Disclosure Dissemination Agent of any of its duties and responsibilities under this Disclosure Certificate. The City acknowledges and understands that the duties of the Disclosure Dissemination Agent relate exclusively to execution of the mechanical tasks of disseminating information as described in this Disclosure Certificate.

SECTION 7. Voluntary Filings. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information through the Disclosure Dissemination Agent using the means of dissemination set forth in this Disclosure Certificate or including any other information in any Annual Report, Audited Financial Statements, Notice Event notice, or Failure to File Event notice, in addition to that required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report, Audited Financial Statements, Notice Event notice, or Failure to File Event notice in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report, Audited Financial Statements, Notice Event notice, or Failure to File Event notice.

SECTION 8. Termination of Reporting Obligation. The obligations of the City and the Disclosure Dissemination Agent under this Disclosure Certificate shall terminate with respect to the Bonds upon the legal defeasance, prior redemption or payment in full of all of the Bonds, when

C-8

the City is no longer an Obligated Person with respect to such Bonds, or upon delivery by the Disclosure Representative to the Disclosure Dissemination Agent of an opinion of nationally recognized bond counsel to the effect that continuing disclosure is no longer required with respect to such Bonds.

SECTION 9. Disclosure Dissemination Agent. The City has appointed Urban Futures, Inc. as the initial Disclosure Dissemination Agent under this Disclosure Certificate. The City may, upon thirty days written notice to the Disclosure Dissemination Agent, replace or appoint a successor Disclosure Dissemination Agent. Upon termination of the Disclosure Dissemination Agent, whether by notice of the City or the Disclosure Dissemination Agent, the City agrees to appoint a successor Disclosure Dissemination Agent or, alternately, agrees to assume all responsibilities of Disclosure Dissemination Agent under this Disclosure Certificate for the benefit of the Beneficial Owners of the Bonds. Notwithstanding any replacement or appointment of a successor, the City shall remain liable, until payment in full, for any and all sums owed and payable to the Disclosure Dissemination Agent. The Disclosure Dissemination Agent may resign at any time by providing thirty days' prior written notice to the City.

SECTION 10. Remedies in Event of Default. In the event of a failure of the City or the Disclosure Dissemination Agent to comply with any provision of this Disclosure Certificate, the Beneficial Owners' rights to enforce the provisions of this Disclosure Certificate shall be limited solely to a right, by action in mandamus or for specific performance, to compel performance of the parties' obligation under this Disclosure Certificate. Any failure by a party to perform in accordance with this Disclosure Certificate shall not constitute a default on the Bonds or under any other document relating to the Bonds, and all rights and remedies shall be limited to those expressly stated herein.

SECTION 11. Duties, Immunities and Liabilities of Disclosure Dissemination Agent.

( a) Article VII of the Indenture is hereby made applicable to this Disclosure Certificate as if this Disclosure Certificate were (solely for this purpose) contained in the Indenture. The Disclosure Dissemination Agent shall be entitled to the protections and limitations from liability afforded to the Trustee thereunder. The Disclosure Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement and the City agrees to indemnify and save the Disclosure Dissemination Agent, the Trustee, their officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of the disclosure of information pursuant to this Disclosure Certificate or arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Disclosure Dissemination Agent's negligence or willful misconduct. The Disclosure Dissemination Agent's obligation to deliver the information at the times and with the contents described herein shall be limited to the extent the City has provided such information to the Disclosure Dissemination Agent as required by this Disclosure Certificate. The Disclosure Dissemination Agent shall have no duty with respect to the content of any disclosures or notice made pursuant to the terms hereof. The Disclosure Dissemination Agent shall have no duty or obligation to review or verify any Information or any other information, disclosures or notices provided to it by the City and shall not be deemed to be acting in any fiduciary capacity for the

C-9

City, the Beneficial Owners of the Bonds or any other party. The Disclosure Dissemination Agent shall have no responsibility for the City's failure to report to the Disclosure Dissemination Agent a Notice Event or a duty to determine the materiality thereof. The Disclosure Dissemination Agent shall have no duty to determine, or liability for failing to determine, whether the City has complied with this Disclosure Certificate. The Disclosure Dissemination Agent may conclusively rely upon certifications of the City at all times.

The obligations of the City under this Section shall survive resignation or removal of the Disclosure Dissemination Agent and defeasance, redemption or payment of the Bonds.

(b) The Disclosure Dissemination Agent may, from time to time, consult with legal counsel ( either in- house or external) of its own choosing in the event of any disagreement or controversy, or question or doubt as to the construction of any of the provisions hereof or its respective duties hereunder, and shall not incur any liability and shall be fully protected in acting in good faith upon the advice of such legal counsel. The reasonable fees and expenses of such counsel shall be payable by the City.

( c) All documents, reports, notices, statements, information and other materials provided to the MSRB under this Disclosure Certificate shall be provided in an electronic format and accompanied by identifying information as prescribed by the MSRB.

SECTION 12. Amendment; Waiver. Notwithstanding any other prov1S1on of this Disclosure Certificate, the City and the Disclosure Dissemination Agent may amend this Disclosure Certificate and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the City and the Disclosure Dissemination Agent to the effect that such amendment or waiver does not materially impair the interests of Beneficial Owners of the Bonds and would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule; provided neither the City nor the Disclosure Dissemination Agent shall be obligated to agree to any amendment modifying their respective duties or obligations without their consent thereto.

Notwithstanding the preceding paragraph, the Disclosure Dissemination Agent shall have the right to adopt amendments to this Disclosure Certificate necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission from time to time by giving not less than 20 days prior written notice of the intent to do so together with a copy of the proposed amendment to the City. No such amendment shall become effective until counsel to the City of nationally recognized standing in the field of law relating to municipal bonds determines in writing that such amendments are necessary to comply with modifications to and interpretations of the provisions of the Rule as announced by the Securities and Exchange Commission, or if the City shall, within 10 days following the giving of such notice, send a notice to the Disclosure Dissemination Agent in writing that it objects to such amendment.

C-10

SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Trustee of the Bonds, the Disclosure Dissemination Agent, the participating underwriters ( as defined in the Rule), and the Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

SECTION 14. Governing Law. This Disclosure Certificate shall be governed by the laws of the State of California ( other than with respect to conflicts of laws).

SECTION 15. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

The Disclosure Dissemination Agent and the City have caused this Disclosure Certificate to be executed, on the date first written above, by their respective officers duly authorized.

CITY OF PISMO BEACH, As Obligated Person

By:------------N adia K. Feeser, Administrative Services Director

URBAN FUTURES, INC., As Disclosure Dissemination Agent

By:-------------Authorized Signatory

C-11

EXHIBIT A

NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer:

Obligated Person:

Name of Issue:

Date of Issuance:

Pismo Beach Public Financing Agency

City of Pismo Beach

$7,685,000 Pismo Beach Public Financing Agency Series 2017 Lease Revenue Bonds (Pismo Beach Municipal Pier Project)

June 7, 2017

NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate between the City and the Disclosure Dissemination Agent named therein. The City has notified the Disclosure Dissemination Agent that it anticipates that the Annual Report will be filed by

Dated: ------

URBAN FUTURES, INC, as Disclosure Dissemination Agent on behalf of the City

C-12

APPENDIXD

GENERAL INFORMATION REGARDING THE CITY OF PISMO BEACH AND SURROUNDING AREA

Disclaimer

The following information, unless otherwise cited, was directly transcribed from material provided by the City of Pismo Beach (the "City'), the County of San Luis Obispo (the "County'), and the area Chamber of Commerce. The following information is not incorporated herein, but rather is intended to merely provide the reader with a better understanding of certain socioeconomic and demographic characteristics of the City, the County and surrounding area. The information set forth in this Appendix "D" has not been researched for accuracy or veracity, and therefore it must not be relied upon when making an investment decision. The Bonds are not a debt of the City, the County or the State of California (the "State') or any of the State's Political Subdivisions; and neither the City, the County, the State nor any of the State's Political Subdivisions are liable therefore.

Introduction

The City of Pismo Beach is located on the Central Coast of California along the ocean in San Luis Obispo County. The City is bordered by the Pacific Ocean, Arroyo Grande, Grover Beach, Avila Beach, and County rural land. The City sits astride Highway 101 approximately eight miles south of the City of San Luis Obispo and about 200 miles north of Los Angeles. The City is a popular resort community, visited annually by a substantial number of tourists seeking to enjoy the area's moderate climate, ocean views and sunsets, fine restaurants, and the relaxing atmosphere unique to coastal communities. The City's downtown core area and hotel areas are anchored by the City-owned Pier extending into the Pacific Ocean.

Population

The following sets forth the City, the County and the State population estimates as of January 1 for the years 2011 through 2017:

CITY AND COUNTY AND STATE Estimated Population

(Calendar Years 2011 through 2017)

Year City of San Luis Obispo State of (January 1) Pismo Beach County California

2011 7,687 270,057 37,536,835

2012 7,743 271,348 37,881,357 2013 7,895 273,417 38,238,492 2014 7,967 275,762 38,572,211 2015 8,016 276,862 38,915,880 2016 8,177 278,480 39,189,035 2017 8,247 280,101 39,523,613

Source: California State Department of Finance, Demographic Research Unit (estimates as of Jamwry 1).

D-1

Employment and Industry

The below table summarizes the civilian labor force, civilian employment and civilian unemployment figures over the period from 2011 through 2016 in the City, the County and the State.

CITY AND COUNTY AND STATE Civilian Labor Force, Employment and Unemployment Rate<'l


Cit County State

Labor Unemployment Labor Unemployment Unemployment Year Force Em11loyed Rate Force Rate

2011 3,900 3,600 7.8% 134,400 9.6% 2012 4,000 3,700 6.7% 137,400 8.2% 2013 4,000 3,800 5.5% 138,300 6.8% 2014 4,100 3,900 4.5% 140,500 5.6% 2015 4,100 3,900 3.8% 139,600 4.7% 2016 4,100 4,000 3.4% 140,400 4.3%

(1) Data is based on annual averages, unless otherwise specified, and is not seasonally adjusted. Source: Labor Division of the California State Employment Development Department.

Rate

11.8% 10.4% 8.9% 7.5% 6.2% 5.4%

The City is included in the San Luis Obispo Paso Robles Arroyo Grande Metropolitan Statistical Area. The distribution of employment in the San Luis Obispo Paso Robles Arroyo Grande Metropolitan Statistical Area is presented in the following table for the calendar years 2012 through 2016. These figures are countywide statistics and may not necessarily accurately reflect employment trends in the City.

SAN LUIS OBISPO PASO ROBLES ARROYO GRANDE METROPOLITAN STATISTICAL AREA

Industry Employment & Labor Force<1J


Ty(!e of Em11loyment 2012 2013 2014 2015 2016

Agriculture 5,100 4,500 4,700 5,000 4,900 Mining, Logging, and Construction 5,500 6,100 6,400 6,700 7,200 Manufacturing 6,400 6,500 6,800 7,000 6,900 Wholesale Trade 2,600 2,600 2,800 2,800 2,900 Retail Trade 13,700 13,800 13,800 13,900 14,100 Transportation, Warehousing, Utilities 3,800 4,000 4,000 4,000 4,100 Information 1,200 1,400 1,400 1,500 1,400 Financial Activities 4,100 4,100 4,100 4,200 4,100 Professional and Business Services 9,000 9,300 9,400 10,100 10,300 Educational and Health Services 13,000 14,000 14,500 14,600 15,000 Leisure and Hospitality 15,700 16,200 16,800 17,600 18,500 Other Services 4,700 4,800 5,300 5,700 5,800 Government 20,700 21,500 22,900 23,600 23,900 Total, All Industries 105,600 108,800 112,900 116,700 119,100

(1) Data is based on annual averages, unless otherwise specified. Source: Labor Division of the California State Employment Development Department.

D-2

Commercial Activity

Total taxable sales during the calendar year 2015 in the City were reported to be $250,549,000, a 3.2% increase over the total taxable sales of $242,879,000 reported during the calendar year 2014. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the City is presented in the following table. Annual figures are not yet available for 2016 or beyond.

CITY OF PISMO BEACH Taxable TransactionsC•J (dollars in thousands)

Retail Stores Total All Outlets

Number of Taxable Number Taxable Permits Transactions of Permits Transactions

2011 342 $198,257 431 $209,086 2012 344 208,274 433 220,084 2013 371 223,279 451 235,986 2014 384 228,814 464 242,879 2015 382 236,818 514 250,549

(1) Detail may not compute to total due to rounding. Source: "Taxable Sales in California," California State Board of Equalization.

Total taxable sales during the calendar year 2015 in the County were reported to be $4,943,469,000, a 6.2% decrease from the total taxable sales of $5,251,315,000 reported during the calendar year 2014. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the County is presented in the following table. Annual figures are not yet available for 2016 or beyond.

COUNTY OF SAN LUIS OBISPO Taxable TransactionsC•J (dollars in thousands)

Retail Stores Total All Outlets

Number of Taxable Permits Transactions

2011 6,254 $2,824,215 2012 6,386 3,024,601 2013 6,712 3,223,226 2014 6,987 3,376,646 2015 (2) 3,474,574

(1) Detail may not compute to total due to rounding. (2) Information not yet available.

Number of Permits

9,447 9,569 9,889 10,186

(2)

Source: "Taxable Sales in California," California State Board of Equalization.

D-3

Taxable Transactions

$4,017,989 5,025,804 5,017,789 5,251,315 4,943,469

The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions within the County is presented in the following table. Total taxable sales during the calendar year 2015 in the County were reported to be $5,943,469,000, a 13.2% increase from the total taxable sales reported during the calendar year 2014 of $5,251,315,000. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the County is presented in the following table. Annual figures are not yet available for 2016 or beyond.

COUNTY OF SAN LUIS OBISPO Taxable Retail SalesC•J

Valuation of Taxable Transactions (dollars in thousands)

2011 2012 2013 2014 2015 Retail and Food Services

Motor Vehicle and Parts Dealers $371,418 $416,833 $481,169 $533,406 $588,253 Home Furnish and Appliance Stores 67,780 69,138 76,722 84,058 158,500 Electronics and Appliance Stores 69,444 71,828 70,284 72,881 66,317 Bldg. Mat'!. & Garden Equip/Supplies 269,507 284,736 319,237 336,714 366,798 Food and Beverage Stores 227,027 236,298 250,858 263,941 271,426 Health and Personal Care Stores 80,860 81,645 83,873 86,937 34,603 Gasoline Stations 485,425 515,544 503,082 494,191 445,989 Clothing and Accessories Stores 189,254 211,278 228,525 231,326 241,557, Sporting Goods, Book, and Music Stores 100,338 101,901 109,977 110,167 100,245 General Merchandise Stores 341,192 359,874 363,170 368,187 332,263 Miscellaneous Store Retailers 143,781 151,069 155,572 161,103 146,594 Nonstore Retailers 15,365 24,694 50,469 58,004 52,780

Food Services and Drinking Places 462,823 499,765 530,289 575,732 624,743

Total Retail and Food Services $2,824,215 $3,024,601 $3,223,226 $3,376,646 $3,474,574

All Other Outlets 1,193,774 2,001,203 1,794,563 1,874,669 1,468,895

Total All Outlets $4,017,989 $5,025,804 $5,017,789 $5,251,315 $4,943,469

Permits - All Outlets 9,447 9,569 9,889 10,186 11,234

Cl) Detail may not compute to total due to rounding. Source: ''Taxable Sales in California," California State Board of Equalization.

[Remainder of page intentionally left blank]

D-4

Major Employers

The following table lists the largest manufacturing and non-manufacturing employers within the County.

Employer Name AMI Sierra Vista Radiology Arroyo Grande Community Hosp Atascadero State Hospital Cal Poly State San Luis Obispo California Mid-State Fair Child Abuse & Neglect Child County Office of Education Cuesta College Department of Social Svc Diablo Canyon Nuclear Power Ernie Ball Inc French Hospital Medical Ctr Glenair Inc Medi-Cal Eligibility Info Mental Marketing Morro Bay Art Assn Gallery Pacific Gas & Electric Co Paramount Pictures Studio San Luis Obispo County EMS San Luis Obispo County Social San Luis Obispo Sheriff's Dept Sierra Vista Regional Med Ctr Social Services Dept TrustRcm Twin Cities Community Hospital

SAN LUIS OBISPO COUNTY Major Employers

(Listed Alphabetically)

Location San Luis Obispo Arroyo Grande Atascadero San Luis Obispo Paso Robles San Luis Obispo San Luis Obispo Paso Robles San Luis Obispo Not Available San Luis Obispo San Luis Obispo Paso Robles San Luis Obispo Templeton Morro Bay San Luis Obispo Cambria San Luis Obispo San Luis Obispo San Luis Obispo San Luis Obispo San Luis Obispo San Luis Obispo Templeton

lndnstry Physicians & Surgeons Hospitals Hospitals Schools-Universities & Colleges Academic Concert Venues Business Management Consultants Schools Schools-Universities & Colleges Academic Govermnent Offices-US Power Plants Musical Instruments-Manufacturers Hospitals Communications Consultants Government Offices-County Advertising-Agencies & Counselors Art Galleries & Dealers Electric Companies Motion Picture Producers & Studios Government Offices-County Government Offices-County Sheriff Hospitals Government Offices-County Billing Service Hospitals

* Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (AL]v[IS) Employer Database, 2017 2nd Edition. The information for individual employers displayed in the Major Employers list is collected and distributed by the infogroup, a private firm that maintains a database on businesses that is used by state employment agencies, including the Employment Development Department, under contract with the US Employment and Training Administration.

D-5


APPENDIXE

FORM OF OPINION OF BOND COUNSEL

[Closing Date]

Pismo Beach Public Financing Agency 760 Mattie Road Pismo Beach, CA 93449

OPINION:

Ladies and Gentlemen:

$7,685,000 Pismo Beach Public Financing Agency (San Luis Obispo County, California) Series 2017 Lease Revenue Bonds (Pismo Beach Municipal Pier Project)

We have acted as bond counsel to the Pismo Beach Public Financing Agency (the "Agency") in connection with the issuance by the Agency of$7,685,000 aggregate principal amount of Pismo Beach Public Financing Agency, Series 2017 Lease Revenue Bonds (the "Bonds"), issued pursuant to Article 4 of Chapter 5 of Division 7 of Title 1 of the California Government Code and an Indenture, dated as of June 1, 2017 (the "Indenture"), between the Agency and Wilmington Trust, N.A., as trustee (the "Trustee"), and pursuant to an authorizing Resolution of the Agency adopted May 16, 2017. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture.

The Bonds are payable from Revenues, as defined in the Indenture, consisting primarily of Base Rental Payments to be made by the City of Pismo Beach (the "City") pursuant to a Lease Agreement, dated as of June 1, 2017 (the "Lease"), by and between the Agency and the City. The City has leased real property and improvements thereon to the Agency pursuant to a Site and Facilities Lease, dated as of June 1, 2017 (the "Site Lease"), by and between the City and the Agency. Certain rights of the Agency under the Lease are assigned to the Trustee under an Assignment Agreement, dated as of June 1, 2017 (the "Assignment Agreement"), by and between the Agency and the Trustee.

In such connection, we have reviewed the Lease, the Site Lease, the Assignment Agreement, the Indenture; the Tax Certificate of the Agency, dated the date hereof (the "Tax Certificate"); opinions of counsel to the Agency, the City and the Trustee; certificates of the Agency, the City, the Trustee and others; and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

Certain agreements, requirements and procedures contained or referred to in the Indenture, the Site Lease, the Lease, the Assignment Agreement, the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves.

E-1

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. We disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Agency and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Site Lease, the Lease, the Assignment Agreement, the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes.

We call attention to the fact that the rights and obligations under the Bonds, the Site Lease, the Lease, the Assignment Agreement, the Indenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against joint powers authorities and cities in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice oflaw, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Site Lease, the Lease, the Assignment Agreement or the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute the valid and binding limited obligations of the Agency.

2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Agency. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held by the Trustee in any fund or account established pursuant to the Indenture, except for the Rebate Fund, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture.

3. The Lease has been duly and validly authorized, executed and delivered by the Agency and the City and constitutes the legally valid and binding obligations of the Agency and the City, enforceable against the Agency and the City in accordance with its terms.

E-2

4. The Site Lease has been duly and validly authorized, executed and delivered by the Agency and the City and constitutes the legally valid and binding obligations of the Agency and the City, enforceable against the Agency and the City in accordance with its terms.

5. The Assignment Agreement has been duly and validly authorized, executed and delivered by the Agency and constitutes the legally valid and binding obligations of the Agency, enforceable against the Agency in accordance with its terms.

6. The Bonds are not a lien or charge upon the funds or property of the Agency except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing powers of the City, the State of California or of any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds.

7. The Internal Revenue Code of 1986 (the "Code"), imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issue of the Bonds. The Agency has covenanted in the Indenture to maintain the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes.

In our opinion, under existing law, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and interest on the Bonds is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings when calculating corporate alternative minimum taxable income. Interest on the Bonds is not excluded from gross income for federal income tax purposes. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds.

Except as stated in the preceding paragraph, we express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other bond counsel.

Faithfully yours,

THE WEIST LAW FIRM

E-3


APPENDIXF

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company ('DTC'), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

Neither the issuer of the Bonds (the "Issuer') nor the trustee, fiscal agent or paying agent appointed with respect to the Bonds (the "Agent') take any responsibility for the information contained in this Appendix.

No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, 1f any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC.

1. The Depository Trust Company ("DTC"), New York, New York, acts as securities depository for the Bonds. The Bonds were issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate was issued for each maturity of each series of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

2. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and

F-1

non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The information contained on this Internet site is not incorporated herein by reference.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in tum to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

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

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

6. Redemption notices will be sent to DTC. Ifless than all of the Securities within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

F-2

http://www.dtcc.com

http://www.dtc.org

8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from Issuer or Agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not ofDTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. ( or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

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

10. The Agency may decide to discontinue use of the system of book-entry-only transfers through DTC ( or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

11. The information in this Appendix F concerning DTC and DTC's book-entry system has been obtained from sources that Issuer believes to be reliable, but neither the City, the Agency nor the Underwriter takes no responsibility for the accuracy thereof.

F-3


Date post:	11-Jul-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times