TEHACHAPIREDEVELOPMENTAGENCY TEHACHAPI …cdiacdocs.sto.ca.gov/2005-0013.pdf · 2017. 9. 6. · Law Corporation, San Francisco, California, Bond Counsel, and subject to certain other

NEW ISSUE BANK QUALIFIED

Standard & Poor's "AA" Radian Insured

Underlying Rating: BBB-;) (See "RATINGS" herein)

In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes, such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings, and the Bonds are "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "MISCELLANEOUS - Tax Matters" herein.

Dated: Date of Delivery

$8,780,000 TEHACHAPIREDEVELOPMENTAGENCY TEHACHAPI REDEVELOPMENT PROJECT

2005 TAX ALLOCATION BONDS Due: December l, as shown below

The captioned notes (the "Bonds"), are being issued by the Tehachapi Redevelopment Agency (the "AgencY') pursuant to an Indenture of Trust, dated as of December l, 2005 (the "Indenture"). Proceeds of the Bonds will be used to (i) refund the Agency's $1,555,000 2004 Subordinate Tax Allocation Notes; (ii) refund the Agency's $2,500,000 2002 Tax Allocation Notes; (iii) fund, including from the future release of moneys from a special escrow fund established from Bond proceeds, redevelopment activities of benefit to the Agency's the Agency's Tehachapi Redevelopment Project (the "Project Area"); (iv) fund a reserve fund for the Bonds; (v) provide capitalized interest on the Bonds; and (vO pay the costs of issuing the Bonds. The Bonds will be sold to the Tehachapi Public Financing Authority and then concurrently resold to the Underwriter.

The Bonds will be delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ("DTC"), and will be available to ultimate purchasers ("Beneficial Owners") in the denomination of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC. Beneficial Owners will not be entitled to receive delivery of bonds representing their ownership interest in the Bonds. Interest on the Bonds I.MIi be payable on June l and December l of each year, commencing on June l, 2006. The payment of principal of, premium if any, and semiannual interest on the Bonds will be made by The Bank of New York Trust Company, N.A., Los Angeles, California, as trustee, to DTC for subsequent disbursement to DTC participants, so long as DTC or its nominee remains the registered owner of the Bonds.

The Bonds are subject to redemption prior to their maturity as described herein.

The Bonds are special obligations of the Agency and payable from and secured by a pledge of Tax Revenues (as defined herein) to be derived from the Project Area and from amounts on deposit in certain funds and accounts established pursuant to the Indenture. No funds or properties of the Agency, other than the Tax Revenues and certain amounts held under the Indenture, are pledged to secure the Bonds. The receipt of Tax Revenues is subject to certain risks and limitations. See "RISK FACTORS" and "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS' herein.

Payment of principal of and interest on the Bonds will be insured in accordance with the terms of a financial guaranty insurance policy to be issued simultaneously with the delivery of the Bonds by RADIAN ASS ET ASSURANCE INC.

RADIAN THE BONDS ARE NOT A DEBT, LIABILITY OR OBLIGATION OF THE CITY OF TEHACHAPI, THE STATE OF CALIFORNIA, OR ANY OF ITS

POLITICAL SUBDIVISIONS OTHER THAN THE AGENCY, AND NEITHER THE CITY, THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS, OTHER THAN THE AGENCY, IS LIABLE THEREFOR. THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS ARE PAYABLE SOLELY FROM TAX REVENUES FROM THE PROJECT AREA AND AMOUNTS IN CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE INDENTURE. NEITHER THE AGENCY, THE CITY NOR ANY PERSONS EXECUTING THE BONDS ARE LIABLE PERSONALLY ON THE BONDS BY REASON OF THEIR ISSUANCE.

MATURITY SCHEDULE

Maturity Principal Interest Price or Maturity Principal Interest Price or ~ Amount Rate Yield ~ Amount Rate Yield

2006 $125,000 3.250% 3.400% 2014 $145,000 4.050% 4.200% 2007 110,000 3.400 3.550 2015 150,000 4.150 4.300 2008 115,000 3.600 3.600 2016 155,000 4.250 4.400 2009 120,000 3.700 3.700 2017 165,000 4.350 4.500 2010 125,000 3.800 3.800 2018 170,000 4.400 4.550 2011 130,000 3.900 3.900 2019 175,000 4.500 4.650 2012 135,000 4.000 4.000 2020 185,000 4.600 4.750 2013 140,000 4.100 4.100 2021 195,000 4.600 4.800

$385,000 4.1 50% E scrowTerm Bonds due December l, 2015, Yield 4.300% $360,000 4.600% Escrow Term Bonds due December l, 2020, Yield 4.750% $445,000 4.700% Escrow Term Bonds due December l, 2025, Yield 4.850%

$1,265,000 4.800% Escrow Term Bonds due December l, 2035, Yield: 5.000% $880,000 4.700% Term Bonds due December l, 2025, Yield: 4.850%

$3,105,000 5.250% Term Bonds due December l, 2035, Yield: 4.800%

This cover page contains certain information for quick reference only. It is not intended to be a summary of all factors relating to an investment in the Bonds. Investors should review the entire Official Statement before making any investment decision.

The Bonds will be offered when, as and if issued and accepted by the Underwriter, subject to approval as to legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, and subject to certain other conditions.Jones Hall is also serving as Disclosure Counsel. It is anticipated that the Bonds, in book entry form, will be available for delivery in New York, New York, on or about December 21, 2005.

DE !NVFSTMUVT llANKING

Dated: December 13, 2005

TEHACHAPI REDEVELOPMENT AGENCY

AGENCY/CITY COUNCIL MEMBERS Mariana Teel, Agency Chair/Mayor

Ed Grimes, Agency Vice-Chair/Mayor Pro Tempore Deborah Hand, Agency Member/ Councilmember Philip A. Smith, Agency Member/Councilmember Linda Vernon, Agency Member/Councilmember

AGENCY AND CITY STAFF Jason Caudle, Executive Director/City Manager

Hannah Chung, Agency Finance Director/City Finance Director Thomas F. Schroeter, Agency Counsel

Pat Gassaway, Agency Treasurer/City Treasurer Jeanette M. Haubrich-Kelley, Agency Secretary/City Clerk

SPECIAL SERVICES

Financial Advisor Urban Futures Incorporated

Orange, California

Trustee The Bank of New York Trust Company, N.A.

Los Angeles, California

Bond Counsel/Disclosure Counsel Jones Hall, A Professional Law Corporation

San Francisco, California

GENERAL INFORMA 11ON ABOUT THIS OFFICIAL STATEMENT

Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Agency in any press release and in any oral statement made with the approval of an authorized officer of the Agency or any other entity described or referenced herein, the words or phrases "will likely result," "are expected to", "will continue", "is anticipated", "estimate", "project," "forecast", "expect", "intend" and similar expressions identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.

Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Agency or the Underwriter. 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.

involvement of Underwriter. 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 as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions.

Insurer's Disclaimer. OTHER THAN WITH RESPECT TO INFORMATION CONCERNING RADIAN ASSET ASSURANCE INC. CONTAINED UNDER THE CAPTION "FINANCIAL GUARANTY INSURANCE" HEREIN AND IN APPENDIX "G" HERETO, NONE OF THE INFORMATION IN THIS OFFICIAL STATEMENT HAS BEEN SUPPLIED OR VERIFIED BY RADIAN ASSET ASSURANCE INC., AND RADIAN ASSET ASSURANCE INC. MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO: (i) THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION; (ii) THE VALIDITY OF THE BONDS; OR (iii) THE TAX STATUS OF THE INTEREST ON THE BONDS.

The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exception from the registration requirements contained in such act. The Bonds have not been registered or qualified under the securities laws of any state.

TABLE OF CONTENTS Page

INTRODUCTION ........................................................................................................................................................................................................ 1 FINANCING PLAN ...................................................................................................................................................................................................... 3

Use of Proceeds .................................................................................................................................................................................................. 3 Estimated Sources and Uses of Funds ............................................................................................................................................................ .4

THE BONDS ................................................................................................................................................................................................................ 5 Description ........................................................................................................................................................................................................... 5 Redemption .......................................................................................................................................................................................................... 5

SECURITY FOR THE BONDS ............................................................................................................................................................................... 10 Tax Allocation Financing ................................................................................................................................................................................... 10 Allocation of Taxes ............................................................................................................................................................................................ 10 Tax Revenues ................................................................................................................................................................................................... 11 Reserve Account ............................................................................................................................................................................................... 12 Special Escrow Fund ........................................................................................................................................................................................ 13 Parity Debt ......................................................................................................................................................................................................... 14

FINANCIAL GUARANTY INSURANCE ................................................................................................................................................................. 16 THE REDEVELOPMENT AGENCY OF THE CITY OF TEHACHAPI ............................................................................................................... 19

Authority and Perscnnel .................................................................................................................................................................................... 19 Agency Administration ...................................................................................................................................................................................... 19 Budgetary Pdicies ............................................................................................................................................................................................ 20

THE PROJECT AREA .............................................................................................................................................................................................. 20 General ............................................................................................................................................................................................................... 20 The Redevelopment Project Plan ..................................................................................................................................................................... 21 Redevelopment Plan Limitations ..................................................................................................................................................................... 21 statutory Pass-Throughs .................................................................................................................................................................................. 22 Allocation of Taxes ............................................................................................................................................................................................ 22 Low and Mcderate lnccme Hoosing ................................................................................................................................................................. 23 Historic Assessed Value and Tax Revenues .................................................................................................................................................. 23 Major Taxable Property Owners ..................................................................................................................................................................... 24 Appeals of Assessed Values ............................................................................................................................................................................ 24 Projected Tax Revenues .................................................................................................................................................................................. 25 Estimated Debt Service Coverage .................................................................................................................................................................. 26

RISK FACTORS ........................................................................................................................................................................................................ 27 Reduction in Taxable Value .............................................................................................................................................................................. Z1 Reducticn in lnflaticnary Rate .......................................................................................................................................................................... Z1 Levy and Cdlection ........................................................................................................................................................................................... 28 Bankruptcy Risks .............................................................................................................................................................................................. 28 state Budget Deficit and ERAF Shift ................................................................................................................................................................ 28 Seismic Factors and Risk of Floods ............................................................................................................................................................... 29 Hazardoos Substances ..................................................................................................................................................................................... 30 No Secondary Market ....................................................................................................................................................................................... 30 Loss of Tax Exemption ...................................................................................................................................................................................... 30

LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS .......................................................................................... 30 Property Tax Limitations - Article XIIIA ........................................................................................................................................................... 30 Challenges to Article XIIIA ................................................................................................................................................................................ 31 Implementing Legislation .................................................................................................................................................................................. 31 Prq:ierty Tax Collection Procedures ............................................................................................................................................................... 31 Unitary Property ................................................................................................................................................................................................ 33 Proposition 218 .................................................................................................................................................................................................. 33 Future Initiatives ................................................................................................................................................................................................ 33

RATINGS ................................................................................................................................................................................................................... 33 MISCELLANEOUS .................................................................................................................................................................................................... 34

The Authcrity ..................................................................................................................................................................................................... 34 Litigation ............................................................................................................................................................................................................. 34 Bank Qualified ................................................................................................................................................................................................... 34 Tax Matters ....................................................................................................................................................................................................... 34 Underwriting ...................................................................................................................................................................................................... 35 Continuing Disclosure ...................................................................................................................................................................................... 36 Executicn ............................................................................................................................................................................................................ 37

APPENDIXAAPPENDIX BAPPENDIXCAPPENDIX DAPPENDIXEAPPENDIX F -APPENDIXG-

City of Tehachapi General Information Audited Financial statements of the Agency for Fiscal Year Ended June 30, 2004 Summary of Certain Provisions of the Indenture Form of Bond Counsel Opinion Form of Continuing Disclosure Certificate Book Entry Only System Specimen Financial Guaranty Insurance Policy

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[THIS PAGE INTENTIONALLY LEFT BLANK]

OFFICIAL STATEMENT

$8,780,000 TEHACHAPI REDEVELOPMENT AGENCY

Tehachapi Redevelopment Project 2005 Tax Allocation Bonds

This Official Statement, including the cover page and appendices hereto, is provided to furnish information in connection with the sale by the Tehachapi Redevelopment Agency (the "Agency") of its Tehachapi Redevelopment Project, 2005 Tax Allocation Bonds, (the "Bonds").

INTRODUCTION

This Introduction contains a brief summary of certain information contained in this Official Statement. It is not intended to be complete and is qualified by the more detailed information contained elsewhere in this Official Statement. Definitions of certain terms used in this Official Statement are set forth in "APPENDIX C - Summary of Certain Provisions of the Indenture".

Legal Authority. The Agency is a redevelopment agency existing under the Community Redevelopment Law of the State of California (the "State"), constituting Part 1 of Division 24 (commencing with Section 33000) of the California Health and Safety Code, as amended (the "Redevelopment Law"). The Bonds are being issued under the Redevelopment Law. The Bonds will be issued pursuant to and will be secured by the terms of an Indenture of Trust (the "Indenture"), dated as of December 1, 2005, by and between the Agency and The Bank of New York Trust Company, N.A., Los Angeles, California, as trustee (the "Trustee"). The Bonds are being issued for sale to the Tehachapi Public Financing Authority (the "Authority") pursuant to the Mark-Roos Local Bond Pooling Act of 1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6584) of the California Government Code (the "JPA Law"). The Bonds purchased by the Authority will be resold concurrently to the Underwriter.

Financing Purpose. A portion of the proceeds of the Bonds will be used to refund the outstanding amount of the Agency's $1,555,000 2004 Subordinate Tax Allocation Notes currently outstanding in the aggregate principal amount of $1,555,000 and to refund the outstanding amount of the Agency's $2,500,000 2002 Tax Allocation Notes currently outstanding in the aggregate principal amount of $2,500,000 (collectively, the "Prior Notes"), which were issued

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to provide funds to the Agency to finance redevelopment activities of benefit to the Agency's Tehachapi Redevelopment Project (the "Project Area"). A portion of the net proceeds of the Bonds will also be used to fund certain redevelopment activities of benefit to the Project Area, including from amounts which will be deposited into a special escrow fund for future release, as described herein. Proceeds of the Bonds will also be used to establish a Reserve Fund, provide capitalized interest through December 1, 2008 on the Special Escrow Bonds, and to pay costs of issuance for the Bonds.

Tax Allocation Financing. The Bonds are payable from and secured by Tax Revenues (as defined herein). The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project area. The taxable valuation of a redevelopment project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as indicated above.

The Bonds are secured by a pledge of Tax Revenues. "Tax Revenues" generally include the taxes (including all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) eligible for allocation to the Agency pursuant to the Redevelopment Law in connection with the Project Area. Tax Revenues are more fully described under the caption "SECURITY FOR THE BONDS -Tax Revenues".

Any future decrease in the taxable valuation in the Project Area or in the applicable tax rates could reduce the Tax Revenues allocated to the Agency and, correspondingly, could have an adverse impact on the ability of the Agency to pay debt service on the Bonds. See "RISK FACTORS" herein.

The Project Area. The City Council of the City of Tehachapi adopted the Redevelopment Plan with respect to the Project Area on December 6, 1999, pursuant to its Ordinance No. 99-11-653. See "THE PROJECT AREA - The Redevelopment Plan". The Project Area contains approximately 1961 acres and includes residential, commercial, industrial and public land uses. The assessed value of the Project Area in the Base Year was $140,284,981, compared to its 2005-06 assessed value of $208,132,441. The Project Area is the only project area of the Agency.

See "THE PROJECT AREA" for additional information on land use and property ownership within the Project Area.

The City and the Agency. The City of Tehachapi, California (the "City"), is located in the southern portion of Kern County (the "County"). The City was incorporated in 1909, and operates as a general law city. It maintains a council-manager form of government, with the mayor and council members elected at-large for four-year terms. For certain information regarding the City, see "APPENDIX A- City of Tehachapi General Information." The Agency was activated on February 1, 1999 by Ordinance No. 99-01-644 of the City Council, at which time the City Council declared itself to be the governing board of the Agency.

Other information. Following in this Official Statement are brief descriptions of the Bonds, the Agency, the City, Tax Revenues, the Project Area, security for the Bonds, risk

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factors and limitations on Tax Revenues and certain other information relevant to the issuance of the Bonds. All references herein to the Indenture are qualified in their entirety by reference to the Indenture and all references to the Bonds are further qualified by reference to the definitive Bonds and to the terms thereof which are contained in the Indenture. All capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Indenture.

FINANCING PLAN

Use of Proceeds

The Bonds are being issued to (i) refund the Agency's $1,555,000 2004 Subordinate Tax Allocation Notes (the "2004 Notes") currently outstanding in the aggregate principal amount of $1,555,000, and to refund the Agency's $2,500,000 2002 Tax Allocation Notes (the "2002 Notes" and with the 2004 Notes, the "Prior Notes") currently outstanding in the aggregate principal amount of $2,500,000, and (ii) provide funds to the Agency to finance additional redevelopment activities of benefit to the Project Area. A portion of the proceeds which are potentially available for the Agency's use to finance redevelopment activities will be placed in a Special Escrow Fund (as described herein) and subject to future release according to the conditions set forth in the Indenture. See "SECURITY FOR THE BONDS - Special Escrow Fund" herein. Proceeds of the Bonds will also be used to fund capitalized interest for the Bonds, to provide money to meet the reserve fund requirement for the Bonds and to pay the cost of issuance of the Bonds. The Prior Notes were issued to provide funds to the Agency to finance redevelopment activities of benefit to the Project Area.

Refunding of Prior Notes. In 2004, the Agency issued the 2004 Notes, secured by a pledge of Tax Revenues subordinate to the pledge for payment of the 2002 Notes. In anticipation that Tax Revenues would not be sufficient to pay the principal and interest due on the 2004 Notes and the 2002 Notes on June 1, 2007, the Agency, pursuant to the 2004 Indenture and the 2002 Indenture, covenanted to issue refunding bonds in a timely manner and in amounts sufficient to pay such principal and interest.

On the date of issuance of the Bonds, a portion of the proceeds will be transferred to The Bank of New York Trust Company, N. A., as the Escrow Agent for the Prior Notes (the "Escrow Agent") for deposit into an Escrow Fund established under an Escrow Deposit and Trust Agreement dated as of December 1, 2005 by and between the Agency and the Escrow Agent, which amount, together with other available moneys, will be invested in Federal Securities and irrevocably pledged for the payment of the principal of and interest on the Prior Notes on December 22, 2005.

The amounts held and invested by the Escrow Agent for the Prior Notes in the Escrow Fund are pledged solely to the payment of amounts due and payable by the Agency under the Prior Notes. Neither the funds deposited in the Escrow Fund for the Prior Notes nor the interest on the invested funds will be available for the payment of debt service on the Bonds.

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New Money for Redevelopment Projects. A portion of the proceeds of the Bonds will also be used to provide funds to the Agency to finance redevelopment activities (the "Projects") of benefit to the Project Area, which are expected to include:

• Phase II of Downtown Improvement Project, including street improvements, decorative crosswalks, bulb-out curbs at intersections, trees, lights, and benches in the core downtown area;

• Rehabilitation assistance for the reuse of the Railroad Depot; • Economic Development activities for various projects; and • Low- and Moderate-Income Housing programs, including a First-Time Homebuyer

Program.

Estimated Sources and Uses of Funds

The anticipated sources and uses of funds relating to the Bonds, 2002 Notes and 2004 Notes are as follows:

Sources: Par Amount of Bonds Plus: Reoffering Premium Less: Original Issue Discount Less: Underwriter's Discount Plus: Available from 2002 Notes Plus: Available from 2004 Notes

Total Sources:

Uses: Deposit to Escrow Fund Deposit to Project Fund (1)

Deposit to Costs of Issuance Fund (2)

Deposit to Reserve Account (3)

Deposit to Capitalized Interest Account (4)

Total Uses:

$8,780,000.00 76,222.85

(57,985.05) (118,530.00) 117,500.00 54,425.00

$8,851,632.80

$4,085,303.96 3,470,610.11

396,207.80 574,590.00 324,920.93

$8,851,632.80

(1) To be transferred to the Agency for deposit into the Redevelopment Fund. The Agency contemplates depositing 20% of the net proceeds of the Bonds into its Low and Moderate Income Housing Fund. See "THE PROJECT AREA -Low and Moderate Income Housing."

(2) Includes Trustee fees, Bond Counsel and Disclosure Counsel fees and costs, printing costs, Financial Advisor fees and costs and other related costs.

(3) See "THE BONDS - Reserve Account" herein. (4) Represents capitalized interest through December 1, 2008.

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THE BONDS

Description

The Bonds will be dated as of December 1, 2005 and will be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Bond shall have more than one maturity date. The Bonds shall mature on December 1 in each of the years and in the respective principal amounts, and shall bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months).

Interest on the Bonds will be payable semiannually on June 1 and December 1 of each year, commencing June 1, 2006 (each an "Interest Payment Date"), and will be calculated on the basis of a 360-day year composed of twelve 30-day months. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest shall be paid on each Interest Payment Date to the persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below.

Interest on the Bonds shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date; provided, however, that at the written request of the Owner of Bonds in an aggregate principal amount of at least $1,000,000, which written request is on file with the Trustee prior to any Record Date, interest on such Bonds shall be paid on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account of a financial institution within the United States of America as shall be specified in such written request. Any such written request shall remain in effect until rescinded in writing by such Owner. The principal of and premium (if any) on the Bonds shall be payable in lawful money of the United States of America by check of the Trustee upon presentation and surrender thereof at the Office of the Trustee.

While the Bonds are held in the book-entry only system of OTC, all such payments will be made to Cede & Co., as the registered owner of the Bonds. See "APPENDIX F - Book Entry Only System".

Redemption

Optional Redemption. The Bonds maturing on or after December 1, 2017 shall be subject to redemption in whole, or in part among maturities on such basis as shall be designated in a Request of the Agency filed with the Trustee, and in any case by lot within a maturity, on any date on or after June 1, 2016, at the option of the Agency from any available source of funds, at a redemption price equal to one hundred percent (100%) of the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date.

Mandatory Sinking Account Redemption. The Escrow Term Bonds maturing on December 1, 2015, shall also be subject to redemption in whole, or in part by lot, on December 1

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in each of the years as set forth in the following table, from Sinking Account payments made by the Agency, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that if some but not all of such Bonds have been redeemed pursuant to optional redemption, the total amount of all future Sinking Account payments with respect to such Bonds shall be reduced by the aggregate principal amount of such Bonds so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Agency (written notice of which determination shall be given by the Agency to the Trustee).

Escrow Term Bonds of 2015

Sinking Account Redemption Date

(December 1)

2009 2010 2011 2012 2013 2014 2015 (maturity)

Principal Amount To Be Redeemed

$50,000 50,000 55,000 55,000 55,000 60,000 60,000

The Escrow Term Bonds maturing on December 1, 2020, shall also be subject to redemption in whole, or in part by lot, on December 1 in each of the years as set forth in the following table, from Sinking Account payments made by the Agency, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that if some but not all of such Bonds have been redeemed pursuant to optional redemption, the total amount of all future Sinking Account payments with respect to such Bonds shall be reduced by the aggregate principal amount of such Bonds so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Agency (written notice of which determination shall be given by the Agency to the Trustee).



(December 1)

2016 2017 2018 2019 2020 (maturity)


$65,000 70,000 70,000 75,000 80,000

The Escrow Term Bonds maturing on December 1, 2025, shall also be subject to redemption in whole, or in part by lot, on December 1 in each of the years as set forth in the following table, from Sinking Account payments made by the Agency, at a redemption price equal

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to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that if some but not all of such Bonds have been redeemed pursuant to optional redemption, the total amount of all future Sinking Account payments with respect to such Bonds shall be reduced by the aggregate principal amount of such Bonds so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Agency (written notice of which determination shall be given by the Agency to the Trustee).



(December 1)

2021 2022 2023 2024 2025 (maturity)


$80,000 85,000 90,000 95,000 95,000

The Escrow Term Bonds maturing on December 1, 2035, shall also be subject to redemption in whole, or in part by lot, on December 1 in each of the years as set forth in the following table, from Sinking Account payments made by the Agency, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that if some but not all of such Bonds have been redeemed pursuant to optional redemption, the total amount of all future Sinking Account payments with respect to such Bonds shall be reduced by the aggregate principal amount of such Bonds so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Agency (written notice of which determination shall be given by the Agency to the Trustee).



(December 1)

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 (maturity)

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$100,000 105,000 110,000 115,000 125,000 130,000 135,000 140,000 150,000 155,000

The Term Bonds maturing on December 1, 2025, shall also be subject to redemption in whole, or in part by lot, on December 1 in each of the years as set forth in the following table, from Sinking Account payments made by the Agency, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that if some but not all of such Bonds have been redeemed pursuant to optional redemption, the total amount of all future Sinking Account payments with respect to such Bonds shall be reduced by the aggregate principal amount of such Bonds so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Agency (written notice of which determination shall be given by the Agency to the Trustee).


(December 1)

2022 2023 2024 2025 (maturity)

Term Bonds of 2025


$205,000 215,000 225,000 235,000

The Term Bonds maturing on December 1, 2035, shall also be subject to redemption in whole, or in part by lot, on December 1 in each of the years as set forth in the following table, from Sinking Account payments made by the Agency, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that if some but not all of such Bonds have been redeemed pursuant to optional redemption, the total amount of all future Sinking Account payments with respect to such Bonds shall be reduced by the aggregate principal amount of such Bonds so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Agency (written notice of which determination shall be given by the Agency to the Trustee).


(December 1)

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 (maturity)

Term Bonds of 2035

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$245,000 255,000 270,000 285,000 300,000 315,000 330,000 350,000 370,000 385,000

In lieu of redemption of the Bonds pursuant to mandatory redemption, amounts on deposit in the Special Fund (to the extent not required to be transferred by the Trustee for other purposes) may also be used and withdrawn at the direction of the Agency at any time for the purchase of such Bonds at public or private sale as and when and at such prices (including brokerage and other charges and including accrued interest) as the Agency may in its discretion determine. The par amount of any of such Bonds so purchased by the Agency in any twelvemonth period ending on June 1 in any year shall be credited towards and shall reduce the par amount of such Bonds required to be redeemed on the next succeeding December 1.

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

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

Selection of Bonds for Redemption. Whenever any Bonds or portions thereof are to be selected for redemption by lot, the Trustee shall make such selection, in such manner as the Trustee shall deem appropriate, and shall notify the Agency thereof to the extent Bonds are no longer held in book-entry form. In the event of redemption by lot of Bonds, the Trustee shall assign to each Bond then Outstanding a distinctive number for each $5,000 of the principal amount of each such Bond. The Bonds to be redeemed shall be the Bonds to which were assigned numbers so selected, but only so much of the principal amount of each such Bond of a denomination of more than $5,000 shall be redeemed as shall equal $5,000 for each number assigned to it and so selected.

Transfer and Exchange. Any Bond may, in accordance with its terms, be transferred, upon the registration books of the Trustee, upon surrender of such Bond to the Trustee at its corporate trust office for cancellation, accompanied by delivery of a written instrument of transfer in a form acceptable to the Trustee, duly executed. Whenever any Bond or Bonds shall be surrendered for registration of transfer, the Agency shall execute and the Trustee shall authenticate and deliver a new Bond or Bonds, of like series, interest rate, maturity and principal amount of authorized denomination.

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The Trustee may refuse to transfer, either (a) any Bonds during the period fifteen (15) days prior to the date established by the Trustee for the selection of Bonds for redemption, or (b) any Bonds selected by the Trustee for redemption.

Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the redemption price of and interest on the Bonds so called for redemption shall have been duly deposited with the Trustee, such Bonds so called shall cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price and accrued interest to the redemption date, and no interest shall accrue thereon from and after the redemption date specified in such notice.

Manner of Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds of a maturity, the Trustee shall select the Bonds of such maturity to be redeemed by lot in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed.

SECURITY FOR THE BONDS

The Bonds, including all other Parity Debt (described herein), shall be secured by a pledge of, security interest in and lien on all of the Tax Revenues and all of the moneys on deposit in the Special Fund. In addition, the Bonds, including any Parity Debt, shall, subject to the Indenture, be secured by a first and exclusive pledge of, security interest in and lien upon all of the moneys in the Debt Service Fund, the Interest Account, the Principal Account, the Sinking Account, the Reserve Account and the Redemption Account. Such pledge, security interest in and lien shall be for the equal security of the Outstanding Bonds without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. Except for the Tax Revenues and such moneys, no funds of the Agency are pledged to, or otherwise liable for, the payment of principal of or interest or redemption premium (if any) on the Bonds.

Tax Allocation Financing

The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated.

Allocation of Taxes

As provided in the Redevelopment Plan, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law (commencing with Section 33670 of the California Health and Safety Code) and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the Project Area each year by or for the benefit of the State of California and any city, county, city and county, district or other public corporation (herein collectively referred

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to as "taxing agencies") for each fiscal year beginning after the effective date of the ordinance approving the Redevelopment Plan (December 6, 1999), are divided as follows:

1. To other taxing agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of the taxing agencies upon the total sum of the assessed value of the taxable property in the Project Area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to December 6, 1999 (being the effective date of the ordinance referred to above) (the "Base Year Amount") shall be allocated to and when collected shall be paid into the funds of the respective taxing agencies in the same manner as taxes by or for the taxing agencies on all other property are paid; and

2. To the Agency: Except for taxes which are attributable to a tax rate levied by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which shall be allocated to and when collected shall be paid to the respective taxing agency, and except for statutory pass-through payments, that portion of the levied taxes each year in excess of the Base Year Amount shall be paid into a special fund of the Agency to pay the principal of and interest on bonds, loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by the Agency to finance or refinance, in whole or in part, the Project Area.

When all bonds, loans, advances, and indebtedness, if any, and interest thereon, have been paid, all moneys thereafter received from taxes upon the taxable property in the Project Area shall be paid into the funds of the respective taxing agencies as taxes on all other property are paid. See, "Tax Revenues," below.

Tax Revenues

General. The Bonds are equally secured by a pledge of, security interest in, and lien on all of the Tax Revenues, and a pledge of all of the moneys in the Special Fund and the Debt Service Fund, and the Accounts therein, created pursuant to the Indenture. See "APPENDIX C -Summary of Certain Provisions of the Indenture".

As defined in the Indenture (see "APPENDIX C - Summary of Certain Provisions of the Indenture"), "Tax Revenues" generally is defined to include all taxes annually allocated to the Agency with respect to the Project Area following the Closing Date, pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plan, including all other payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations; provided, however, that Tax Revenues shall not include (a) all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to Section 33334.3 of the Redevelopment Law, except to the extent permitted under the Redevelopment Law to be applied to the payment of the principal of and interest and premium (if any) on the Bonds or any Parity Bonds, (b) amounts payable to the Agency by the State of California pursuant to Section 16112.7 of the California Government Code, and (c) amounts payable by the Agency under the Tax Sharing Agreements or pursuant to Sections 33607.5 and 33607.7 of the Redevelopment Law, to the extent not subordinated to the payment of principal of and interest on the Bonds. See "THE PROJECT AREA- Statutory Pass-Throughs.

The Redevelopment Law requires redevelopment agencies to annually set aside not less than 20% of all tax increment revenues into a Low and Moderate Income Housing Fund to be

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expended for authorized low and moderate income housing. Amounts on deposit in the Low and Moderate Income Housing Fund may also be applied to pay debt service on bonds, loans or advances of redevelopment agencies to provide financing for such low and moderate income housing purposes. The Agency deposited 20% of the net proceeds of the 2002 Notes and 2004 Notes into the Low and Moderate Income Housing Fund and contemplates depositing 20% of the net proceeds of the Bonds into the Low and Moderate Income Housing Fund, therefore, 20 percent of the debt service on the Bonds can be paid from moneys otherwise required to be deposited in the Low and Moderate Income Housing Fund. See "THE PROJECT AREA -Low and Moderate Income Housing."

The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provisions of additional sources of income to taxing agencies having the effect of reducing the property tax rate, could reduce the amount of Tax Revenues that would otherwise be available to pay debt service on the Bonds and, consequently, the principal of, and interest on, the Bonds. Likewise, broadened property tax exemptions could have a similar effect. See "RISK FACTORS" and "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS" herein.

THE BONDS ARE NOT A DEBT OF THE STA TE OF CALIFORNIA, THE CITY OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE STATE, THE CITY NOR ANY OF ITS POLITICAL SUBDIVISIONS (OTHER THAN THE AGENCY) IS LIABLE THEREON. THE AGENCY HAS NO TAXING POWER. THE BONDS ARE REVENUE BONDS, PAYABLE EXCLUSIVELY FROM THE TAX REVENUES AND OTHER FUNDS AS PROVIDED IN THE INDENTURE. THE OBLIGATIONS OF THE AGENCY UNDER THE BONDS ARE PAYABLE SOLELY FROM TAX REVENUES ALLOCATED TO THE AGENCY FROM THE PROJECT AREA.

Reserve Account

A Reserve Fund (the "Reserve Account") for the Bonds will be established under the Indenture, to be held by the Trustee. Upon delivery of the Bonds, the amount on deposit in the Reserve Account will be established by depositing certain proceeds of the Bonds in the amount of the "Reserve Requirement" for the Bonds, which is, as of the date of any calculation, the lesser of (a) Maximum Annual Debt Service on all Outstanding Bonds, or (b) the maximum amount permitted to be deposited in the Reserve Account under the Tax Code, as certified to the Trustee by the Agency. The Agency is required to maintain an amount of money or other security equal to the Reserve Requirement in the Reserve Fund at all times that the Bonds are outstanding. All amounts deposited in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of making transfers to the Special Fund in the event of any deficiency at any time in the Special Fund of the amount then required for payment of the principal of, and interest on, the Bonds.

In the event that the Trustee has actual knowledge that the amount on deposit in the Reserve Account at any time becomes less than the Reserve Requirement, the Trustee shall promptly notify the Agency of such fact. Promptly upon receipt of any such notice, the Agency shall transfer to the Trustee an amount of available Tax Revenues sufficient to maintain the Reserve Requirement on deposit in the Reserve Account. Amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of making transfers pursuant to the Indenture, including to the Interest Account, the Principal Account and the Sinking Account, in such order of priority, on any date which the principal of or interest on the Bonds becomes due and payable hereunder, in the event of any deficiency at any time in any of the applicable accounts. In the event there shall be insufficient amounts in the Reserve Account to make all of the transfers required, then such transfers shall be made pro rata based on the then respective outstanding principal amounts of the Bonds and any other Parity Debt. So long as no Event of

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Default shall have occurred and be continuing, any amount in the Reserve Account in excess of the Reserve Requirement on the Business Day preceding each Interest Payment Date shall be withdrawn from the Reserve Account by the Trustee and deposited in the Interest Account.

The Agency shall, with the prior written consent of the Insurer, have the right at any time to direct the Trustee to release funds from the Reserve Account, in whole or in part, by tendering to the Trustee: (i) a Qualified Reserve Account Credit Instrument, and (ii) an opinion of Bond Counsel stating that neither the release of such Funds nor the acceptance of such Qualified Reserve Account Credit Instrument will cause interest on the Bonds to become includable in gross income for purposes of federal income taxation. Upon tender of such ~ems to the Trustee, and upon delivery by the Agency to the Trustee of written calculation of the amount permitted to be released from the Reserve Account (upon which calculation the Trustee may conclusively rely), the Trustee shall transfer such funds from the Reserve Account to the Agency to be applied in accordance with the Redevelopment Law to provide financing for the Redevelopment Project. The Trustee shall comply with all documentation relating to a Qualified Reserve Account Credit Instrument as shall reasonably be required to maintain such Qualified Reserve Account Credit Instrument in full force and effect and as shall reasonably be required to receive payments thereunder in the event and to the extent required to make any payment when and as required under this subsection (d). Upon the expiration of any Qualified Reserve Account Credit Instrument, the Agency shall be obligated either (i) to replace such Qualified Reserve Account Credit Instrument with a new Qualified Reserve Account Credit Instrument, or (ii) to deposit or cause to be deposited with the Trustee an amount of funds equal to the Reserve Requirement, to be derived from the first available Tax Revenues.

The Reserve Account may be maintained in the form of one or more separate subaccounts which are established at the direction of the Agency for the purpose of holding the proceeds of separate issues of the Bonds in conformity with applicable provisions of the Tax Code.

Special Escrow Fund

There is hereby established under the Indenture a separate fund to be known as the "2005 Special Escrow Fund", which shall be held in trust by the Trustee. The amount in the Special Escrow Fund shall be applied as follows:

(a) On any date at least twenty (20) days prior to each Escrow Release Date, except at least sixty (60) days prior to December 1, 2008 (being the final Escrow Release Date), or such later date as shall be acceptable to the Trustee, the Agency may deliver to the Trustee a Tax Revenue Certificate accompanied by a Report of an Independent Financial Consultant which identify (i) the applicable Escrow Release Date, (ii) the amount of Tax Revenues received or estimated to be received by the Agency in the then current Bond Year, (iii) the amount proposed to be released from the Special Escrow Fund, (iv) Maximum Annual Debt Service resulting from such release and (v) the New Reserve Requirement (which means, as of any calculation date, the amount of the Reserve Requirement which would result if all amounts then on deposit in the Special Escrow Fund (other than any amounts to be released from the Special Escrow Fund on the applicable Escrow Release Date pursuant to the Indenture) were withdrawn therefrom and applied to redeem Bonds pursuant to the Indenture on such Escrow Release Date) resulting from such release. Such Tax Revenue Certificate and Report shall certify that the amount of Tax Revenues identified in such Tax Revenue Certificate shall be at least equal to one hundred twenty-five percent (125%) of the Maximum Annual Debt Service identified pursuant to clause (iv). For purposes of such calculation, Tax Revenues shall be calculated in the same manner as required by the Indenture for the issuance of Parity

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Bonds. Upon the receipt of such Tax Revenue Certificate, the Trustee shall promptly notify the provider of any investment agreement or guaranteed investment contract relating to the Special Escrow Fund of the amount to be released on the applicable Escrow Release Date. On the applicable Escrow Release Date following receipt of such Tax Revenue Certificate and Report, the Trustee shall withdraw from the Special Escrow Fund the amount identified in such Tax Revenue Certificate and Report and (subject to the provisions described in subsection (b) below) transfer such amount as follows:

(i) to the Reserve Account, in an amount required to cause the balance therein to equal the New Reserve Requirement; and

(ii) the remaining balance to the Agency for deposit into the Redevelopment Fund.

(b) Any moneys remaining in the Special Escrow Fund on October 15, 2008 with respect to which December 1, 2008 has not been established as the Escrow Release Date (being the final Escrow Release Date) shall, pursuant to the Indenture, be transferred by the Trustee to the Redemption Account on December 1, 2008 to be applied as determined by the Agency on such date to the redemption of the 2005 Escrowed Term Bonds maturing on December 1, 2015, December 1, 2020, December 1, 2025 and December 1, 2035.

(c) The Trustee shall establish the 2005 Escrowed Term Bonds Subaccount within the Interest Account and shall deposit therein the amount required by the Indenture. Amounts on deposit in the 2005 Escrowed Term Bonds Subaccount shall be used by the Trustee to pay interest payable on each Interest Payment Date with respect to the 2005 Escrowed Term Bonds, provided that any moneys remaining in the 2005 Escrowed Term Bonds Subaccount on December 2, 2008, shall be transferred to the Interest Account and the 2005 Escrowed Term Bonds Subaccount shall be closed. Investment earnings on amounts in the 2005 Escrowed Term Bonds Subaccount shall be transferred at least two (2) Business Days prior to each Interest Payment Date to the Interest Account.

Parity Debt

In addition to the Bonds, the Agency may issue or incur any other bonds, notes, loans, advances or other indebtedness issued or incurred by the Agency on a parity with the Bonds ("Parity Debt") in such principal amount as shall be determined by the Agency, pursuant to a Supplemental Indenture adopted or entered into by the Agency. The Agency may not issue any Parity Debt bearing interest at a variable rate. The Agency may issue or incur such Parity Debt subject to the following specific conditions precedent:

(a) The Agency shall be in compliance with all covenants set forth in the Indenture and all Supplemental Indentures.

(b) The Tax Revenues based upon the assessed valuation of taxable property in the Project Area as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date of the Agency's adoption of the Supplemental Indenture providing for the issuance of such Parity Debt, plus at the option of the Agency the Additional Revenues, shall be in an amount equal to at least 125 percent of the Maximum Annual Debt Service for the Bond Year ending on the on the December 1 next following the date of the

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issuance of such Parity Debt, as evidenced by a report of an Independent Fiscal Consultant ("Consultant's Report").

For the purposes of this paragraph (b) "Additional Revenues" means, as of the date of calculation, the amount of Tax Revenues which, as shown in a Consultant's Report, are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to (i) construction which has been completed but which is not then reflected on the tax rolls, (ii) construction currently in progress but not yet completed, or (iii) transfer of ownership or any other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition, the term "increases in the assessed valuation" means the amount by which the assessed valuation of taxable property in the Project Area in the future is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made.

(c) The Supplemental Indenture providing for the issuance of such Parity Debt shall provide that interest thereon shall not be payable on any dates other than June 1 and December 1, and principal thereof shall be payable on December 1 in any year in which principal is payable.

( d) The Supplemental Indenture providing for the issuance of such Parity Debt shall provide for the deposit into the Reserve Account of an amount required to cause the balance therein to equal the full amount of the Reserve Requirement (which may be maintained in whole or in part in the form of a Qualified Reserve Account Credit Instrument as provided herein).

(e) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations.

(f) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in the foregoing subsections have been satisfied.

In addition, the Agency shall provide the Insurer with any disclosure document prepared in connection with the issuance of such Parity Debt.

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FINANCIAL GUARANTY INSURANCE POLICY

Description of Financial Guaranty Insurance Policy

A financial guaranty insurance policy (the "Policy") will be issued by Radian Asset Assurance Inc. (the "Insurer") simultaneously with the issuance and delivery of the Bonds. The Policy is noncancelable during its term and provides for the prompt payment of principal of and interest on the Bonds to the extent that The Bank of New York Trust Company, N.A., as Trustee (the "Trustee"), has not received sufficient funds from the Agency (the "Issuer") for payment of the Bonds on the "due date." The Insurer is obligated to make the required payment on the later of the due date or the first business day after which the Insurer has received notice from The Bank of New York, as Insurance Trustee (the "Insurance Trustee"), that the Issuer has failed to pay amounts due on the Bonds. Under the Policy, the "due date" of the Bonds, when referring to the payment of principal, means the stated maturity date thereof or the date on which payment of principal is due by reason of mandatory sinking fund payments and does not mean any earlier date on which payment is due by reason of any call for redemption, acceleration, or other advancement of maturity, other than in the discretion of the Insurer. With respect to interest on the Bonds, the "due date" means the stated date for payment of interest. The Policy guarantees reimbursement of any recovery of any such payment from a Holder or the Trustee pursuant to a final judgment by any court of competent jurisdiction holding that such payment constituted a voidable preference within the meaning of any applicable bankruptcy law.

For specific information on the coverage provided, reference should be made to the Policy that has been reproduced in specimen form in Appendix G hereto. The Policy does not insure against nonpayment of principal or interest on the Bonds due to the insolvency, misconduct or negligence of the Trustee. The Policy does not insure the payment of any redemption premium. In accordance with applicable law, in the event the insurer becomes insolvent, any claims arising under this policy are excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 15.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code.

Radian Asset Assurance Inc.

Radian Asset Assurance Inc. (the "Insurer") is a financial guaranty insurance company, regulated by the Insurance Department of the State of New York and licensed to do business in all 50 states, the District of Columbia and the United States Virgin Islands. The Insurer was formerly known as "Asset Guaranty Insurance Company". The Insurer changed its corporate name to Radian Asset Assurance Inc. The Insurer has received approval to use its new corporate name in all jurisdictions where it is licensed to do business. As of September 30, 2005, the Insurer had total shareholders' equity of approximately $1,563,349,000 and total assets of approximately $2,517,297,000. On October 17, 2005, the board of directors of the Insurer authorized the payment of a dividend to its shareholders of $100,000,000 in the aggregate, which was paid in two installments in November 2005 and reduced shareholders' equity and total assets of the Insurer by such amount.

The financial information relating to the Insurer presented in this Official Statement was prepared internally by the Insurer, based on accounting principles generally accepted in the United States of America ("GAAP"), and has not been audited by independent auditors. The address of the Insurer's administrative office is 335 Madison Avenue, New York, New York 10017, and its telephone number is 212-983-5859.

The Insurer has filed the information in the next five paragraphs with entities designated as Nationally Recognized Municipal Securities Information Repositories ("NRMSIRs") pursuant to

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Rule 15c2-12 of the Securities Exchange Act of 1934:

(i) The Insurer's consolidated financial statements as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004 prepared in accordance with accounting principles generally accepted in the United States of America, together with the accompanying report of the Insurer's independent registered public accounting firm, which expresses an unqualified opinion and includes an explanatory paragraph concerning the merger of Radian Reinsurance Inc. ("Radian Re") with and into the Insurer.

(ii) The Insurer's quarterly unaudited consolidated balance sheet as of March 31, 2005 and unaudited consolidated statement of operations for the three month period then ended, prepared in accordance with accounting principles generally accepted in the United States of America.

(iii) The Insurer's quarterly unaudited consolidated balance sheet as of June 30, 2005 and unaudited consolidated statement of operations for the six-month period then ended, prepared in accordance with accounting principles generally accepted in the United States of America.

(iv) The Insurer's quarterly unaudited consolidated balance sheet as of September 30, 2005 and unaudited consolidated statement of operations for the nine-month period then ended, prepared in accordance with accounting principles generally accepted in the United States of America.

(v) A table presenting selected unaudited balance sheet and income sheet data of the Insurer as of December 31, 2001 (with respect to non-balance sheet information only), 2002 and 2003 and March 31, 2004 on a proforma combined basis as if Radian Re were merged with the Insurer as of the dates indicated, in accordance with accounting principles generally accepted in the United States of America. Though unaudited, the information so filed was derived from the respective audited financial statements of the Insurer and Radian Re as of December 31, 2003 and 2002, and for each for the three years in the period ended December 31, 2003, together with the respective accompanying reports of the Insurer's independent registered public accounting firm.

Additional information regarding the Insurer can be found in the following documents filed by Radian Group with the Securities and Exchange Commission: (a) Annual Report on Form 10-K for the year ended December 31, 2004 and Quarterly Report on Form 10-Q for the periods ended March 31, 2005, June 30, 2005 and September 30, 2005 under the headings: (i) "Safe Harbor Statement under the Private Securities (ii) in the 10-K only, Item 1. Business: "Financial Guaranty Business," "Risk in Force - Financial Guaranty Business," "Customers - Financial Guaranty Business," "Sales and Marketing - Financial Guaranty Business," "Competition - Financial Guaranty Business," "Risk Management - Financial Guaranty" "Ratings" (but only insofar as ~

relates to the Insurer or Radian Re), "Defaults and Claims" (but only insofar as it relates to the financial guaranty business) and "Regulation - Direct Regulation" (but only insofar as it relates to the financial guaranty business); (iii) in the 10 -K only, "Item 6 - Selected Financial Data," "Selected Ratios - Financial Guaranty" and "Other Data - Financial Guaranty," and (iv) Item 7 Managements' Discussion and Analysis of Financial Condition and Results of Operations "Financial Guaranty Results of Operations" and "Liquidity and Capital Resources" (but only to the extent it relates to the Insurer or Radian Re), and "Critical Accounting Policies;" and (b) the Reports of Form 8-K dated January 20, 2005, February 14, 2005 (as amended March 30, 2005), March 9, 2005, March 17, 2005, April 21, 2005, April 25, 2005, May 27, 2005, June 3, 2005, June 7, 2005, June 21, 2005, June 29, 2005, July 15, 2005, July 21, 2005, July 25, 2005, August 19, 2005, September 29, 2005 and October 20, 2005.

A complete copy of the audited consolidated financial statements and additional information of the Insurer as of December 31, 2004 and 2003, and for each for the three years in

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the period ended December 31, 2004, together with the accompanying report of the Insurer's independent registered public accounting firm, is available from the Insurer upon written request. Prior year amounts included in such audited consolidated financial statements have been restated to reflect the combined balances and results of operations of the Insurer and Radian Re.

The Insurer is a wholly owned indirect subsidiary of Radian Group Inc. ("Radian"), a publicly owned corporation with its shares listed on the New York Stock Exchange (symbol "RDN"). Radian is a leading credit enhancement provider to the global financial and capital markets, headquartered in Philadelphia. Radian's subsidiaries provide products and services through three business lines: financial guaranty, mortgage insurance and financial services. None of Radian, Radian's other subsidiaries or any of Radian's investors is obligated to pay the debts of or claims against the Insurer. Effective April 30, 2005, Radian's Chief Executive Officer, Frank P. Filipps retired and effective May 5, 2005, Sanford A. Ibrahim became Radian's new Chief Executive Officer and a member of its board of directors. Mr. Ibrahim is a 27-year veteran of the banking and mortgage industries and most recently was the President and Chief Executive Officer of GreenPoint Mortgage Funding, Inc., a residential mortgage lender. In July 2005, the Insurer named Stephen D. Cooke President of the Insurer. Mr. Cooke brings over 20 years of experience in the financial guaranty business and will, together with a senior management task force, focus on improving returns in the financial guaranty business. In July 2005, Radian and the Insurer also named Suzanne Hammett Executive Vice President and Chief Risk Officer. Ms. Hammett has nearly 30 years of experience in senior credit positions at global financial institutions and will focus on further developing Radian's credit culture.

Effective June 1, 2004, the financial guaranty reinsurance affiliate of the Insurer, Radian Re was merged with and into the Insurer. As a result of the merger, the financial guaranty reinsurance business conducted by Radian Re and the direct financial guaranty business conducted by the Insurer is now conducted by the Insurer. As a result of the merger, Radian has greater assets, liabilities and shareholder's equity than it previously had on a stand-alone basis.

One of the Insurer's customers with a right to recapture business previously ceded to the Insurer in connection with the merger of Radian Re into the Insurer and the resulting downgrade of Radian Re from "Aa2" to "Aa3" in May 2004 has agreed, without cost to or concessions by the Insurer, to waive its recapture rights. On November 8, 2004, the remaining primary insurer customer with recapture rights in connection with the May 2004 downgrade by Moody's notified the Insurer of its intent to recapture, at an unspecified date in the near future, approximately $6.4 billion of par in force ceded to the Insurer, including $50.6 million of written premiums as of December 31, 2004, $3.9 million of which would be recorded as an immediate reduction of earned premiums at the time of the recapture, which represents the difference between statutory unearned premiums and GAAP unearned premiums. This return of unearned premiums would also require an increase in policy acquisition costs of $0.9 million. The amount of future lost premiums due to this recapture will be approximately $129.7 million, which is made up of the unearned premium balance and the present value of future installment premiums. Based on a projected recapture date of March 31, 2005, the total approximate reduction in pre-tax income for 2005 including the immediate impact would be $12.3 million. Despite the recapture, the primary insurer customer also informally advised the Insurer that, going forward, the customer intends to continue its reinsurance relationship with the Insurer on the same terms as prior to the recapture. The customer also has the right to recapture an additional $5.2 billion of par in force ceded to the an immediate reduction of earned premiums. By letter dated March 8, 2005, this primary insurer customer agreed to waive those recapture rights without cost to or concessions by the Insurer. There are no remaining recapture rights with respect to the May 2004 Moody's downgrade.

The Insurer has a financial strength rating of "AA" (outlook: negative) from Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), an insurance financial strength rating of "Aa3" (outlook: stable) from Moody's Investors Service, Inc.

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("Moody's") and a claims paying ability rating of "AA" (outlook: negative) by Fitch Ratings Services ("Fitch"). On April 27, 2005, Fitch affirmed the 'AA' insurer financial strength rating of the Insurer, but revised its rating outlook for the Insurer from "stable" to "negative." None of the Insurer's customers have the right to recapture business in connection with such ratings action. The ratings from the applicable rating agency reflect only the views of S&P, Moody's and Fitch, respectively, do not constitute a recommendation to buy, sell or hold securities and are subject to revision or withdrawal at any time by such rating agencies.

Neither the Insurer nor any of its affiliates makes any representation regarding the Bonds or the advisability of purchasing the Bonds and makes no representation regarding this Official Statement other than as to the information supplied by the Insurer and presented under the heading "FINANCIAL GUARANTY INSURANCE" and as set forth in Appendix G of this Official Statement. The Insurer's role is limited to providing the coverage set forth in the Policy.

THE TEHACHAPI REDEVELOPMENT AGENCY

Authority and Personnel

The Agency was established pursuant to the Redevelopment Law and was activated by the City Council on February 1, 1999, at which time the City Council declared itself to be the governing board of the Agency. The Agency is charged with the authority and responsibility of redeveloping and upgrading blighted areas of the City. The Agency is a separate public body and exercises governmental functions in planning and carrying out redevelopment projects. The Agency can build public improvements, facilitate the development of on and off-site improvements for private development projects, acquire and re-sell property, and provide services of special benefit to the Project Area.

Members of the Agency and their terms of office are shown below:

Member Mariana Teel

Ed Grimes Philip A Smith Deborah Hand Linda Vernon

Agency Administration

Occupation Registered Nurse

Retired Xerox Technician Business Owner

Real Estate Agent

Term Expires November 2006 November 2008 November 2006 November 2008 November 2006

Jason D Caudle is the City Manager of the City and the Executive Director of the Agency. As such, Mr. Caudle is responsible for the management of all operations of the City and the Agency. Mr. Caudle also holds an adjunct faculty position at Bakersfield College and teaches Political Science. Mr. Caudle holds a Bachelor of Arts degree in Political Science and a Masters Degree in Public Administration from the California State University at Bakersfield, California. Mr. Caudle has been serving as City Manager for five years. Prior to that time, he served as Field Representative for a member of the Board of Supervisors of Kern County California.

Hannah Chung is the Finance Director of the City and the Agency. As such, she is responsible for all aspects of financial and accounting operations of the City and the Agency. Ms Chung holds a Bachelor of Science degree from the California State Polytechnic University, Pomona, California, with a major in Computer Information Systems. Ms Chung joined the City in September, 1999. Prior to that she held various business accounting positions.

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Agency each year adopts an administrative budget. A portion of salaries and benefits of certain City staff members are budgeted and paid for by the Agency. The Agency funds administrative costs out of available revenues. Such reimbursement is subordinate to any outstanding bonded indebtedness of the Agency.

The Redevelopment Law requires redevelopment agencies to have an independent financial audit conducted each year. The financial audit is also required to include an opinion of the Agency's compliance with laws, regulations and administrative requirements governing activities of the Agency. The firm of Mayer Hoffman McCann P.C., Certified Public Accountants, Bakersfield, California, audited the Agency's financial statement for the Agency for the fiscal year ended June 30, 2004. The firm's examination was made in accordance with generally accepted auditing standards. The Agency follows fund accounting principles reflecting the modified accrual basis of accounting in which revenue is recognized when earned or otherwise becomes available, and expenditures are recognized when incurred. The firm reported after their examination that they noted no instances of noncompliance for the fiscal year ended June 30, 2003. The Agency's audited financial statements are public documents and are included in this Official Statement without the prior approval of the auditors. Accordingly, the auditors have not performed any post-audit of the financial condition of the agency. See "APP EN DIX B - Audited Financial Statements of the Agency for Fiscal Year Ended June 30, 2003".

Budgetary Policies

The Agency each year approves a budget submitted by the Executive Director prior to the beginning of the new fiscal year. Public hearings are conducted prior to its adoption. Supplemental appropriations, where required during the period, are also approved by the Agency. In most cases, expenditures may not exceed appropriations at the function level. At fiscal year-end, all operating budget appropriations lapse.

THE PROJECT AREA

General

The Project Area consists of approximately 1961 acres covering approximately 44.4% of the land within the City's boundaries. Land use within the Project Area consists primarily of commercial, residential, industrial and public uses. The percentage of land use (by Fiscal Year 2005-06 assessed valuations) is commercial 49.3%, residential 37. 7% industrial 11.1 % and other uses 1.9%.

Major Development Activities in the Project Area. All properties in the Project Area are subject to the Agency's approved development standards and guidelines. The Redevelopment Plan requires that new construction comply with all applicable State statutes and local laws in effect, including City zoning ordinances and City codes for building, electrical, heating, ventilating and plumbing. The Redevelopment Plan further provides that no new improvement shall be substantially modified, altered, repaired or rehabilitated, except in accordance with development standards and/or architectural, landscape and site plans submitted to and approved by the Agency.

The most significant new developments occurring in the Project Area are set forth below and consist of an estimated addition of approximately $8.2 million of assessed valuation in the Project Area in Fiscal Year 2006-07.

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The new developments and their estimated contribution to total assessed valuation, in the respective tax roll year listed, are shown below.

Development Holiday Inn Express Amber Oaks Square Various Commercial Various Single Family Homes Total

Project Status/ Expected Completion

Under Construction Under Construction Under Construction Under Construction

FY 2006-07 $2,573,657

770,325 2,773,761 2 060 193

$ 8,177,936

A 139,000 sq. ft. Home Depot is planned for construction in 2006, in the Project Area. The building plan for Home Depot has been approved by the City Planning Commission, but the estimated future valuation has not been included in the projected Tax Revenues.

The Redevelopment Project Plan

The City Council of the City adopted the Redevelopment Plan with respect to the Project Area on December 6, 1999, pursuant to its Ordinance No. 99-11-653. The Redevelopment Plan is designed to enable the Agency to, among other things, eliminate blighting influences; encourage existing owners, businesses and tenants within the Project Area to participate in redevelopment activities; to sustain the existing residential, commercial and industrial base of the community; to provide required public improvements so as to encourage new construction by private enterprise; to mitigate development limitations which have and will continue to result in the lack of optimum utilization of the Project Area; and provide construction and employment opportunities in the development of these facilities.

Redevelopment Plan Limitations

In 1993, the California Legislature enacted AB 1290. Among the changes to the Redevelopment Law accomplished by AB 1290 was a provision which limits the period of time for incurring and repaying loans, advances and indebtedness which are payable from tax increment revenues. In general, a redevelopment plan for a redevelopment project created after January 1, 1994, (such as the Project Area) may terminate not more than 30 years following the date of original adoption, and loans, advances, indebtedness may not be incurred later than 20 years following the date of original adoption and indebtedness may be repaid during a period extending not more than 15 years following the date of termination of the redevelopment plan.

1. Establishing loans, advances and indebtedness: The Agency may not establish loans, advances or indebtedness after December 6, 2019 (except for refinancing, refunding or restructuring of existing indebtedness where the indebtedness is not increased and the time for repayment is not extended, and certain housing obligations).

2. Termination of the Redevelopment Plan. The Redevelopment Plan for the Project Area terminates on December 6, 2029.

3. Payment of indebtedness and receipt of property taxes: The Agency may not pay indebtedness or receive property taxes with respect to the Project Area after December 6, 2044.

In addition, the total bonded indebtedness outstanding with respect to the Project Area at any one time may not exceed $25,000,000.

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The Agency has covenanted in the Indenture to comply with all requirements of law to insure the allocation and payment to it of the Tax Revenues, including without limitation, the timely filing of any necessary statements of indebtedness with appropriate officials of the County.

Statutory Pass-Throughs

AB 1290 eliminated the statutory authority to negotiate tax sharing agreements with taxing entities adversely affected by the creation of a redevelopment project and, instead, provided a formula for mandatory tax sharing applicable to any redevelopment project adopted after January 1, 1994 (such as the Project Area).

The AB 1290 formula is set forth in Section 33607.7 of the Redevelopment Law and, to the extent incorporated therein, in Section 33607.5 of the Redevelopment Law, and is referred to herein as the "Statutory Pass-Throughs".

Generally speaking, under the Statutory Pass-Throughs the Agency is to pay to the affected taxing entities percentages of tax increment generated in the Project Area as follows:

1. Throughout the term of the Project Area's eligibility to receive tax increment, 25% of post Housing Set-Aside revenues; plus,

2. For the eleventh year of the receipt of tax increment and thereafter, 21 % of revenues in excess of tenth year revenue; plus,

3. For the thirty-first year of receipt of tax increment and thereafter, 14% of revenues in excess of thirtieth year revenues.

As indicated, amounts specified as payable to taxing agencies under the AB 1290 formula contained in the Statutory Pass-Throughs are to be computed after deducting the Housing Set-Aside amounts.

Recipients of Statutory Pass-Throughs of tax increment allocated to the Project Area include the County of Kern, the Tehachapi Unified School District and the Kern County Joint Community College District.

Allocation of Taxes

Secured taxes are due in two equal installments. Installments of taxes levied upon secured property become delinquent on December 10 and April 10. Taxes on unsecured property are due March 1 and become delinquent August 31.

The County Auditor-Controller is responsible for the aggregation of the taxable values assigned by the Assessor as of the January 1 lien date for property within the boundaries of the Project Area. This results in the reported total current year Project Area taxable value and becomes the basis of determining tax increment revenues due to the Agency. Although adjustments to taxable values for property within the Project Area may occur throughout the fiscal year to reflect escaped assessments, roll corrections, etc., such adjustments are not assumed on the tax increment projection. The County disburses tax increment revenue to all redevelopment agencies monthly upon receipt.

Kern County has implemented the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), which allows each entity levying property taxes in the County to draw on the amount of property taxes levied rather than the

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amount actually collected. Therefore, the Agency's tax increment revenues reflect actual levies rather than the total amount of taxes collected.

Low and Moderate Income Housing

The Redevelopment Law requires redevelopment agencies to annually set aside not less than 20 percent of all tax increment revenues into a Low and Moderate Income Housing Fund to be expended for authorized low and moderate income housing. Amounts on deposit in the Low and Moderate Income Housing Fund may also be applied to pay debt service on bonds, loans or advances of redevelopment agencies to provide financing for such low and moderate income housing purposes. The Agency will deposit 20 percent of the net proceeds of the Bonds into the Low and Moderate Income Housing Fund and, therefore, 20 percent of the debt service on the Bonds will be paid from moneys otherwise required to be deposited in the Low and Moderate Income Housing Fund. See Table 3 under "Projected Tax Revenues". Historic Assessed Value and Tax Revenues

The Project Area consists of 25 Tax Rate Areas. A Tax Rate Area consists of a geographic area where the taxes on all property are levied by the same taxing entities at the same rate. However, for purposes of its projections, the Financial Advisor has used the Article Xlll(a)secured tax rate for the Project Area of $1.00 per $100 of secured assessed value. See "Table 4 - Projected Debt Service Coverage".

Fiscal Year 2001-02 was the first fiscal year for which tax increment revenues were allocated to the Agency with respect to the Project Area. Total tax increment revenue receipts in the Project Area estimated to be received during fiscal year 2005-06 is $532,817. This total does not include tax revenues from supplemental assessments, homeowner's exemptions, public utilities and prior year's collections. Estimated Tax Revenues have been reduced by the expected County administration fee (1.5%) for collection of property taxes with respect to the Project Area. Because the County has adopted the Teeter Plan, the Agency's tax revenues will reflect actual levies rather than the total amount collected.

Set forth in the following table is a summary of Project Area base year and subsequent fiscal year assessed values, gross tax increment revenues and Tax Revenues that are estimated to be available to pay debt service on the Bonds.

Secured Valuation Unsecured Valuation Total Valuation

TABLE 1 TEHACHAPIREDEVELOPMENTAGENCY

Tehachapi Redevelopment Project Historical Assessed Valuations and Tax Revenues

2001-02 111 2002-03 2003-04 131

$137,234,699 $141,412,948 $150,781,379 6 068 907 12913397 13 954 302

143,303,606 154,326,345 164,735,681 Less: Base Year Valuation (130 842 370] (140 284 981] (140 284 981] Incremental Valuation 12,461,236 14,041,364 24,450,700 Gross Tax Increment 133,977 140,414 244,507 Revenue Less: Pass Through Pmts (26 795] (30 189] (52 569] Tax Revenues $107,182 $110,225 $191,938

2004-05 121

$166,797,722 15 475 766

182,273,488 (140 284 981]

41,988,507 419,885

(90 275] $329,610

(1) FY 2001-02 was the first year that tax increment revenues were allocated to the Project Area, pursuant to Health & Safety Code Section 33674. Because no tax increment was allocated to the Project Area for FY 2000-01, there was no Project Area assessed valuation total determined by the Kern County Assessor's

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Office for that fiscal year. Also, for FY 2001-02, the base year valuation used by the County to determine tax increment did not include $9,442,611 in unsecured assessed valuation.

(2) Tax Revenues are based on actual incremental valuation amount as per County records. Source: Urban Futures Incorporated.

Major Taxable Property Owners

The following table lists the ten largest taxable property owners within the Project Area. Based on Fiscal Year 2005-06 locally assessed secured taxable valuations, the top ten taxable property owners in the Project Area represent approximately 22% of the total Project Area secured taxable value of $192,129,504.

Property Owner

Ernster XI 11 LLC Albertsons Inc Yoo Chuck & Hyon K Charles Gibbs lnvs LLC Pr Ennis 1 LLC Integrated Lubricants Inc Tehachapi Towne Center LLC Rubin Mel & Beverly Tehachapi Investors LLC Save Mart Supermarkets

TABLE2 TEHACHAPIREDEVELOPMENTAGENCY

Tehachapi Redevelopment Project Ten Largest Taxable Property Owners

Fiscal Year 2005-06

2005-06 Land Use

Commercial -Lg Store, Department Commercial - Supermarket Commercial - Motel Commercial -Lg Store Com, Vacant Land,C-2 Zone Industrial - Heavy Commercial - Small Shopping Center Residential - Apartments Commercial Commercial - Supermarket

Total

Assessed Value

$ 6,500,000 5,974,080 5,292,040 4,947,000 4,179,977 3,623,089 3,556,840 3,387,967 2,361,300 2 250 643

$42,072,936

(1) Fiscal Year 2005-06 Total Secured Assessed Valuation = $192,129,504. Source: Urban Futures Incorporated.

Appeals of Assessed Values

Percent of Total

3.38% 3.11 2.75 2.57 2.18 1.89 1.85 1.76 1.23 1.17

21.90%

Pursuant to California law, property owners may apply for a reduction of their property tax assessment by filing a written application with the appropriate county board of equalization or assessment appeals board.

After the applicant and the assessor have presented their arguments, the appeals board makes a final decision on the proper assessed value. The appeals board may rule in the assessor's favor, in the applicant's favor, or the appeals board may set their own opinion of the proper assessed value, which may be more or less than either the assessor's opinion or the applicant's opinion.

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

Appeals for reduction in the "base year" value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The base

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year is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date.

Appeals may also be filed under Section 51 of the Revenue and Taxation Code (based on "Proposition 8"), which requires that for each lien date the value of real property shall be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Significant reductions have taken place in some counties due to declining real estate values. Reductions made under this code section may be initiated by the County Assessor or requested by the property owner. After a roll reduction is granted under this section, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and it may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. See "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS" below.

As noted, reductions based on Section 51 of the Revenue and Taxation Code do not establish new base year values, and the property may be reassessed by the Assessor as of the following lien date up to the lower of the then-current full cash value or the factored base year value under Article XIIIA of the California Constitution. The State Board of Equalization has approved this reassessment formula and such formula has been used by county assessors statewide. However, an Orange County Superior Court recently held that such reassessment formula violates the inflationary rate increase limitation of Article XIIIA. The Court held that once the assessed value of a property is reduced pursuant to the authorization contained in Section 51, any subsequent increase in assessed value may not exceed the inflationary rate limfation (not to exceed 2%) of Article XIIIA. This holding of the Superior Court may be appealed, and the case may be reconstituted as a class action. Regardless, the Agency is unable to predict the outcome of this litigation or to determine what impact, if any, this case may ultimately have on the Agency's Tax Revenues.

There are currently no assessment appeals pending by a major taxpayer for property in the Project Area.

Projected Tax Revenues

The tax increment revenue projections for the Project Area, as prepared by Urban Futures Incorporated, the Agency's Financial Advisor, are described below. The projections commence with the reported values for Fiscal Year 2004-05, as determined by the County. For purposes of the projections shown on Table 3, the Project Area tax increment revenues have been projected based upon assumed real property (land and improvements) and personal property taxable value increases resulting from identified new developments discussed above and the annual growth factors as set forth in the footnotes to Table 3. The Financial Advisor has assumed an annual 3% growth in real property taxable values. The assumed annual growth factor is combined with $14,275,393 additional value in Fiscal Year 2005-06 for new construction and resale activity.

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Fiscal Year

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Assessed Valuation (1l 208,132,441 228,651,807 235,511,361 242,576,702 249,854,003 257,349,623

TABLE 3 TEHACHAPI REDEVELOPMENT AGENCY

Tehachapi Redevelopment Project Tax Increment Revenue Projection

Incremental Assessed

Valuation (2l 67,874,724 88,394,090 95,253,644

102,318,985 109,596,286 117,091,906

Gross Tax lncrement(3l

678,747 883,941 952,536

1,023,190 1,095,963 1,170,919

Pass-ThrouQh Amount (4f

145,931 190,047 204,795 219,986 235,632 251,748

Projected Tax Revenu es(5l

532,817 693,894 747,741 803,204 860,331 919,171

(1) FY 2005-06 assessed valuatia, is final amamt provided by Kern County Auditor-Controller. Future assessed valuation growth is based on a 3% annual growth factcr, with $8,177,936 and $6,097,457 added in FY 2006-07, for building projects under construction and resale transactions, respectively.

(2) Incremental assessed valuatia, for a given year is current valuation for such year, less base year assessed valuation in the amamt of$140,257,717.

(3) Gross tax increment is incremental assessed valuatia, multiplied by the tax rate of 1.00%. (4) Pass through amounts pursuant to the terms of AB 1290 formulas, and include County administrative fees estimated at 1.5% of

tax revenues. (5) Projected Tax Revenues are Column (3) amounts, less Column (4) amounts. Pledged Tax Revenues include the 20%

Housing Set-Aside amounts. Source: Urban Futures Incorporated

Estimated Debt Service Coverage

The following table shows the coverage on that portion of the debt service consisting of interest on the Bonds, based on estimated Tax Revenues from the Project Area.

TABLE 4 TEHACHAPI REDEVELOPMENT AGENCY

Tehachapi Redevelopment Project Projected Debt Service Coverage on the Bonds

Bond Years 2005-06 through 2009-2010

Debt Fiscal Year Projected Service on Projected

Ending June 30 Tax Revenues the Bonds* Coverage 2006 $532,817 $184,260 2.89 2007 693,894 537,554 1.29 2008 747,741 518,653 1.44 2009 803,204 519,713 1.55 2010 860,331 569,385 1.51

*Includes Special Escrow Bonds Debt Service and does not assume payment from the Capitalized Interest Fund.

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RISK FACTORS

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

To estimate the revenues available to pay debt service on the Bonds, the Agency has made certain assumptions with regard to the assessed valuation in the Project Area, future tax rates and percentage of taxes collected. The Agency believes these assumptions to be reasonable, but to the extent that the assessed valuation, the tax rates or the percentage of taxes collected are less than the Agency's assumptions, the Tax Revenues available to pay debt service on the Bonds will, in all likelihood, be less than those projected.

Reduction in Taxable Value

Tax Revenues allocated to the Agency are determined by the amount of incremental taxable value in the Project Area allocable to the Project Area and the current rate or rates at which property in the Project Area is taxed. The reduction of taxable values of property caused by economic factors beyond the Agency's control, such as a relocation out of the Project Area by one or more major property owners, or the transfer, pursuant to California Revenue and Taxation Code Section 68, of a lower assessed valuation to property within the Project Area by a person displaced by eminent domain or similar proceedings, or the discovery of hazardous substances on a property within the Project Area (see "Hazardous Substances," below) or the complete or partial destruction of such property caused by, among other eventualities, an earthquake (see "Seismic Factors and Risk of Floods," below) or other natural or manmade disaster, could cause a reduction in the Tax Revenues securing the Bonds. Property owners may also appeal to the County Assessor for a reduction of their assessed valuations or the County Assessor could order a blanket reduction in assessed valuations based on then current economic conditions. Such a reduction of assessed valuations and the resulting decline in Tax Revenues or the resulting property tax refunds could have an adverse effect on the Agency's ability to make timely payments of principal of and interest on the Bonds. See "THE PROJECT AREA - Appeals of Assessed Values."

Reduction in Inflationary Rate

As described in greater detail below, Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the 2% limitation five times: for 1993194, 1 %; for 1995196, 1.19%; for 1996197, 1.11 %; 2001/02, 1.853% and for 2004105, 1.0186%. The Agency is unable to predict if any adjustments to the full cash value base of real property within the Project Area, whether an increase or a reduction, will be realized in the future.

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Levy and Collection

The Agency does not have any independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Revenues, and accordingly, could have an adverse impact on the ability of the Agency to repay the Bonds.

Bankruptcy Risks

The enforceability of the rights and remedies of the owners of the Bonds and the obligations of the Agency may become subject to the following: 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; usual equitable principles which 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 federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing 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, limitation, or modification of their rights.

State Budget Deficit and ERAF Shift

In connection with its approval of the budget for the 1992-93, 1993-94 and 1994-95 fiscal years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each agency's tax increment, net of amounts due to other taxing agencies, to school districts for such fiscal years for deposit in the Education Revenue Augmentation Fund ("ERAF"). The amount required to be paid by a redevelopment agency under such legislation was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas.

Faced with a projected State budget gap for Fiscal Year 2002-03, the State Legislature adopted as urgency legislation AB 1768, which required redevelopment agencies to pay into ERAF in Fiscal Year 2002-03 an aggregate amount of $75 million. AB 1768 became effective on September 30, 2002 and required the payment into ERAF in Fiscal Year 2002-03 only. AB 1768 provided that one-half of the Agency's ERAF obligation is calculated based on the gross tax increment received by the Agency and the other one-half of the Agency's ERAF obligation is calculated based on net tax increment revenues (after any pass-through payments to other taxing entities). The Agency made the required payment into ERAF.

Faced with a continuing State budget gap, the State Legislature in 2003 adopted SB 1045 which again required redevelopment agencies to make ERAF transfers in Fiscal Year 2003/04, based on a statewide aggregate transfer by redevelopment agencies of $135 million. SB 1045 required the Agency to transfer approximately $5.213 million to ERAF in fiscal year 2003/04 and to make this transfer payment by May 10, 2004. The Agency timely made the required ERAF payment.

The Governor's budget for fiscal year 2004-05 as implemented by SB 1096 (Chapter 211, Stats. 2005) again included a transfer by redevelopment agencies to the applicable ERAFs. However, the aggregate amount of ERAF transfers by redevelopment agencies has increased

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from $135 million (in Fiscal Year 2003-04) to $250 million in each of the Fiscal Years 2004/05 and 2005-06. The ERAF contribution for the Project Area in fiscal year 2004-05 was $16,636. The Agency paid its fiscal year 2004/05 ERAF payment in a timely manner and expects to pay its fiscal year 2005-06 ERAF payment with available funds.

The Agency cannot predict whether the State Legislature will, in future fiscal years, adopt legislation requiring other shifts of redevelopment tax increment revenues to the State and/or to schools, whether by the ERAF mechanism or by other arrangement. Should such legislation be enacted, Tax Revenues available for payment of the Bonds may, in the future, be substantially reduced and the Agency's ability to pay debt service on the Bonds may be impaired.

Seismic Factors and Risk of Floods

The City, like most regions in the State of California, is located in an area of seismic activity and, therefore, could be subject to potentially destructive earthquakes. The following information concerning seismic risks and flood related risks is excerpted from the Safety Element of the City's General Plan. The Safety Element was adopted by the City Council on October 18, 1999.

Seismic Risks. The City of Tehachapi is located between the Garlock Fault on the southeast and White Wolf Fault to the northwest. The City is situated in an area that can experience shaking due to a seismic event. There are no mapped surface or subsurface faults within the City of Tehachapi; therefore, seismic shaking from movement along one of the active or potentially active faults is the most significant risk for the Project Area.

The Garlock Fault is 6 miles southeast of the City. The San Andreas Fault zone is 63 miles south of the City. The activity of the San Andreas Fault has been recorded during historic events, including the 1906 (magnitude 8.0) event in San Francisco and the 1857 (magnitude 7.9) event between Cholame and San Bernardino where at least 250 miles of surface rupture occurred. This seismic event is the most significant historic earthquake in Southern California history. The White Wolf Fault zone is 15 miles northwest of the City. The 1952 Arvin-Tehachapi earthquake with magnitudes up to 7.7 occurred on this fault and resulted in displacement of up to four feet.

Flooding Induced by Seismic Activity. Mountains to the south drain toward Tehachapi and vary in slope from 10 percent to 45 percent. The City of Tehachapi is located within the 100-year flood hazard zone, evident by recorded floods of 1890, 1932, 1938 and 1945, which caused extensive property damage and loss of life. It is not unreasonable to assume that even greater loss of life and property damage, due to increasing urbanization since 1945, would occur if floods of this magnitude, either by long duration storms or a seismic event, are repeated. The runoff water from the mountains lying two and one-half miles south of the City is diverted into several flood-control facilities, including drainage channels (Highline Road), reservoirs and area facilities for conveying, retarding (Antelope Dam and Blackburn Dam), storing and recharging rain water. These flood-control facilities are considered adequate under existing conditions to handle a 100-year frequency flood. Failure of these facilities could cause considerable loss of property and possibly life.

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

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Hazardous Substances

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

No Secondary Market

There can be no guarantee that there will be a secondary market for the Bonds, or, if a secondary market exists, that such Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon the then prevailing circumstances. Such prices could be substantially different from the original purchase price. Furthermore, the Agency has not made, and does not contemplate making, any application to a rating agency for a rating on the Bonds.

Loss of Tax Exemption

As discussed under the caption "MISCELLANEOUS- Tax Matters" herein, interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the Agency in violation of its covenants contained in the Indenture. Should such an event of taxability occur, the Bonds are not subject to special redemption or any increase in interest rate and may remain outstanding until maturity.

LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS

Property Tax Limitations - Article XIIIA

California voters, on June 6, 1978, approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash value of property 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". The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors. The amendment further limits the amount of any ad valorem tax on real property to 1 % of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. In addition, an amendment to Article XIII was adopted in August 1986 by initiative which exempts any bonded indebtedness approved by two-thirds of the votes cast by voters for the acquisition or improvement of real property from the 1 percent limitation.

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In the general election held November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amend Article XIIIA. Proposition 58 amends Article XIIIA to provide that the terms "purchased" and "change of ownership," for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children.

Proposition 60 amends Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence's assessed value to the new residence. Pursuant to Proposition 60, the Legislature has enacted legislation permitting counties to implement the provisions of Proposition 60.

Challenges to Article XIIIA

There have been many challenges to Article XIIIA of the California Constitution. Recently, 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. The Agency cannot predict whether there will be any future challenges to California's present system of property tax assessment and cannot evaluate the ultimate effect on the Agency's receipt of tax increment revenues should a future decision hold unconstitutional the method of assessing property.

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

The apportionment of property taxes in fiscal years after 1978179 has been revised pursuant to Statutes of 1979, Chapter 282 which provides relief funds from State moneys beginning in fiscal year 1978179 and is designed to provide a permanent system for sharing State taxes and budget surplus funds with local agencies. Under Chapter 282, cities and counties receive about one-third more of the remaining property tax revenues collected under Proposition 13 instead of direct State aid. School districts receive a correspondingly reduced amount of property taxes, but receive compensation directly from the State and are given additional relief.

Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs except for certain utility property assessed by the State Board of Equalization which is allocated by a different method discussed herein.

Property Tax Collection Procedures

Classifications. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured". Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the County becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the

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taxes. Every tax which becomes a lien on secured property has priority over all other liens on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against unsecured property, but may become a lien on certain other property owned by the taxpayer.

Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured property taxes in the absence of timely payment by the taxpayer: (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 the personal property, improvements or possessory interests belonging or assessed to the assessee.

The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes which are delinquent.

Penalties. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption and a $15 Redemption Fee. If taxes are unpaid for a period of five years or more, the property is recorded in a "Power to Sell" status and is subject to sale by the county tax collector. A 10% penalty also applies to the delinquent taxes on property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date.

Delinquencies. The valuation of property is determined as of January 1 each year and equal installments of taxes levied upon secured property become delinquent on the following February 10 and April 10. Taxes on unsecured property are due January 1. Unsecured taxes enrolled by July 31, if unpaid, are delinquent August 31 at 5:00 p.m. and are subject to penalty; unsecured taxes added to roll after July 31, if unpaid, are delinquent on the last day of the month succeeding the month of enrollment.

Supplemental Assessments. A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. The statute may provide increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within a Project Area, Tax Revenues may increase.

Tax Collection Fees. SB 2557 (Chapter 466, Statutes of 1990) authorizes county auditors to determine property tax administration costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation specifically includes redevelopment agencies among the entities which are subject to a property tax administration charge. Such costs are not included in the Tax Revenues which are pledged to repay the Bonds.

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Unitary Property

AB 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with the fiscal year 1988/89, assessed value derived from State-assessed unitary property (consisting mostly of operational property owned by utility companies and herein defined as "Unitary Property") is to be allocated county-wide as follows: (i) each tax rate area will receive the same amount from each assessed utility received in the previous fiscal year unless the applicable county-wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro-rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro-rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State-assessed property has been changed to January 1. Railroad property will continue to be assessed and revenues allocated to all tax rate areas where the railroad property is sited. The projections of tax increment revenue in the Project Area shown in Table 2 assume that the utility tax revenue will remain constant in future years.

Proposition 218

On November 5, 1996, California voters approved Proposition 218-Voter Approval for Local Government Taxes-Limitation on Fees, Assessments, and Charges-Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Tax Revenues securing the Bonds are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which were limited by Proposition 218.

Future Initiatives

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

RATINGS

Standard & Poor's Rating Services ("S&P") has assigned its municipal bond rating of "AA" to the Bonds with the understanding that, upon delivery of the Bonds, payment of the principal of and interest on the Bonds will be insured by the Insurer. S&P has also assigned the Bonds an underlying rating of BBB-". Any explanation of the significance of such ratings may only be obtained from S&P. The Agency furnished to the rating agency certain information and material concerning the Bonds and itself and the Insurer obtained certain information on the finances of the State of California. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions made by the rating agencies themselves. There is no assurance that the ratings mentioned above will remain in effect for any given period of time or that they might not be lowered or withdrawn entirely by rating agency, if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of any rating might have an adverse effect on the market price or marketability of the Bonds.

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MISCELLANEOUS

The Authority

The Tehachapi Public Financing Authority was created by a Joint Exercise of Powers Agreement, dated as of May 20, 2002, between the City and the Agency. The Agreement was entered into pursuant to the provisions of Articles 1, 2 and 4, Chapter 5, Division 7, Title 1 of the California Government Code. The Authority was created for the primary purpose of assisting the financing or refinancing public capital improvements of the City and the Agency. Under the JPA Law, the Authority 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.

Litigation

There is no litigation pending or, to the Agency's knowledge, threatened in any way to restrain or enjoin the issuance, execution or delivery of the Bonds, to contest the validity of the Bonds, the Indenture or any proceedings of the Agency with respect thereto. In the opinion of the Agency and its counsel, there are no lawsuits or claims pending against the Agency which will materially affect the Agency's finances so as to impair the ability to pay principal of and interest on the Bonds when due.

Bank Qualified

The Code generally prohibits the deduction of interest on indebtedness incurred or continued to purchase or carry tax-exempt obligations, such as the Bonds. Banks and financial institutions, however, are permitted an 80% deduction for their interest expense allocable to "qualified tax-exempt obligations" of small governmental units (a) that together with their subordinate entities or entities issuing on their behalf and entities on whose behalf they issue do not reasonably expect to issue in the aggregate more than $10,000,000 of tax-exempt obligations (not including private activity bonds other than qualified 501 (c)(3) bonds in a calendar year), and (b) that designate such obligations as "qualified tax-exempt obligations". By resolution, the Agency has (a) represented that it expects that it and all of the above-described entities will not issue in the aggregate more than $10,000,000 of tax-exempt obligations during calendar year 2005, and (b) designated the Bonds as "qualified tax-exempt obligations".

Tax Matters

The Internal Revenue Code of 1986, as amended (the "Code") establishes certain requirements which must be met subsequent to the issuance of the Bonds for the interest on the Bonds to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such requirements could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. These requirements include, but are not limited to, restrictions on the use of bond proceeds and provisions which prescribe yield and other limits within which the proceeds of the Bonds are to be invested and require that certain investment earnings must be rebated on a periodic basis to the United States of America. Failure to comply with such requirements could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. Pursuant to the Fiscal Agent Agreement, the City has covenanted to comply with the requirements of the Code and to cause the payment to the United States Treasury of any and all amounts required to be rebated under the Code with respect to the outstanding Bonds.

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In the opinion of Jones Hall, a Professional Law Corporation, San Francisco, California, Bond Counsel, subject to the qualifications set forth below, under existing law and assuming compliance by the City with the aforementioned covenants, interest on the Bonds is excluded from gross income for purposes of federal income taxation. Bond Counsel is further of the opinion that interest on the Bonds is not a specific preference item for purposes of the alternative minimum tax provisions of the Code. However, interest on the Bonds received by corporations will be included in certain earnings for purposes of federal alternative ninimum taxable income of such corporations.

Although Bond Counsel has rendered an opinion that the interest on the Bonds is excluded from gross income for purposes of federal income taxation, the accrual or receipt of interest on the Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend on the recipient's particular tax status or other items of income or deduction and Bond Counsel expresses no opinion regarding any such consequences. Additionally, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring after the date of delivery of the Bonds may affect the tax status 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 of federal income taxes and State of California personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which each 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 of California personal income taxes. De minimis original issue discount and original issue premium is disregarded. Owners of Bonds with original issue discount or original issue premium, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to federal income tax and State of California personal income tax consequences of owning such Bonds.

Bond Counsel is further of the opinion that under existing law, interest on the Bonds is exempt from personal income taxation imposed by the State of California.

Underwriting

The Bonds are being purchased for reoffering by Kinsell, Newcomb & De Dies, Inc. (the "Underwriter"). The Underwriter has entered into an agreement with the Authority to purchase the Bonds at a price of $8,679,707.80 (representing the principal amount of the Bonds, plus a reoffering premium of $76,222.85 and less an Underwriter's discount of $118,530.00), plus accrued interest, if any. The obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in the Contract of Purchase among the Agency, the Authority and the Underwriter providing for the purchase of the Bonds. The agreement pursuant to which the Underwriter will purchase the Bonds provides that the Underwriter will purchase all of the Bonds if any of the Bonds are purchased.

The Underwriter intends to reoffer the Bonds to the public initially at the yield set forth on the cover page of this Official Statement, which yield may subsequently change without any requirement of prior notice. The Underwriter reserves the right to join with dealers and other underwriters in reoffering the Bonds to the public. The Underwriter may reoffer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers may reallow any such discounts on sales to other dealers.

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Continuing Disclosure

The Agency has covenanted for the benefit of holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the Agency by not later than nine (9) months following the end of the Agency's fiscal year (which currently would be by March 31 each year based upon the June 30 end of the Agency's fiscal year), commencing March 31, 2006, with the report for the Fiscal Year (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed by the Agency with each Nationally Recognized Municipal Securities Information Repository, and with the appropriate State information depository, if any. The notices of material events will be filed by the Agency with the Municipal Securities Rulernaking Board (and with the appropriate State information depository, if any). The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in "APPENDIX E -Form of Continuing Disclosure Certificate." These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). The Agency has had no instance in the previous five years in which it failed to comply in all material respects with any previous continuing disclosure obligation under the Rule.

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Execution

All summaries of the Indenture, applicable legislation, agreements and other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Agency for further information in connection therewith.

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


By: ---~/~s/_J~a~s~o~n~C~a~u~d~l~e ____ _ Executive Director

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APPENDIX A

CITY OF TEHACHAPI GENERAL INFORMA 110N

General

The City of Tehachapi (the "City") is located in Kern County (the "County") in the mountains between the San Joaquin Valley and the Mojave Desert. Located southeast of Bakersfield between Bakersfield and Barstow along Highway 58 near Edwards Air Force Base, the City is approximately 6.9 square miles in size.

Municipal Government

The City was incorporated on August 13, 1909, under the general laws of the State of California. The City operates under the Council/City Manager form of government. The City provides the following services: public safety (police and fire), community services, public works, general administrative services and capital improvements.

Population

Population estimates for the City, the County and the State for the last five years are shown in the following table.

Employment

1999 2000 2001 2002 2003 2004 2005

CITY OF TEHACHAPI Population Estimates

City of Tehachapi

11,700 11,400 11,125 11,050 11,400 11,783 11,907

County of Kern

647,000 660,000 661,653 688,900 702,900 732,401 753,070

State of California

33,140,000 33,753,000 33,984,980 35,000,000 35,591,000 36,271,091 36,810,358

Source: State Oeparlment of Finance estimates (as of January 1)

The unemployment rate in Kern County was 9.8 percent in October 2004, down from a revised 10.3 percent in September 2003. This compares with an unadjusted unemployment rate of 6.4 percent for California and 5.6 percent for the nation during the same period.

The following table summarizes the civilian labor force, employment and unemployment in the County for the 2000 through 2004. These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the City.

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KERNCOUNlY Civilian Labor Force, Employment and Unemployment

(Annual Averages)

2000 2001 2002 2003 2004 Civilian Labor Force (11 287,100 292,000 299,100 314,800 318,600

Employment 254,700 260,900 264,000 282,400 287,400

Unemployment 32,400 31,100 35,100 32,400 31,200

Unemployment Rate 11.3% 10.6% 11.7% 10.3% 9.8%

Wage and Salary Em~loyment: (2)

Agriculture 48,300 41,800 40,200 41,900 39,300

Natural Resources, Mining and Construction 8,200 8,600 7,800 8,000 8,200

Construction 11,600 13,000 13,600 13,600 15,200

Manufacturing 10,800 11,100 10,800 12,600 12,700

Wholesale Trade 5,700 5,900 6,100 6,200 6,400

Retail Trade 23,200 24,200 24,600 24,800 25,800

Transportation, Warehousing and Utilities 8,400 8,300 8,300 8,700 8,800

Information 2,500 2,500 2,500 2,500 2,600

Finance and Insurance 4,900 4,900 5,100 5,400 5,500

Real Estate and Rental and Leasing 2,700 2,800 2,900 2,900 3,100

Professional and Business Services 22,200 23,000 23,500 21,700 21,400

Educational and Health Services 19,200 20,200 19,800 21,300 21,700

Leisure and Hospitality 16,500 17,200 17,400 18,000 18,700

Other Services 6,700 6,800 6,800 6,900 6,800

Federal Government 9,700 9,400 9,500 9,800 9,500

State Government 6,900 7,000 7,100 7,300 7,200

Local Government 35 100 37 200 38 500 37 500 37 300

Total, All Industries 242,400 244,000 244,400 249,000 250,000

(1) Labcrfcrce data is by place of residence; includes self-employed individuals, unpaid family workers, hoosehold domestic workers, and workers on strike.

(2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, hoosehold domestic workers, and workers on strike.

Source: State of California Employment Development Department.

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Largest Employers

The following tables list the largest employers within the County.

Employer

Bakersfield Memorial Hospital California State University, Bakersfield Edwards AFB Frito-Lay Inc Manufacturing Kern County Government Kern County Schools Kern Medical Center San Joaquin Community Hospital State Farm Insurance Sun World International Inc William Bolthouse Farms Inc T & R Banhgi Ag Giumarra Vineyards Corp Grimm\f\.-ay Farms Nalbandian Sales Inc Paramount Farms US Naval Air Weapons Station Jackson & Perkins Operations

COUNlY OF KERN Largest Employers

Location

Bakersfield Bakersfield

Edwards Bakersfield Bakersfield Bakersfield Bakersfield Bakersfield Bakersfield Bakersfield Bakersfield

Delano Edison Lamont Lamont

Lost Hills Ridgecrest

Wasco

Type of Industry

Hospitals Colleges & Universities Public Administration (Government) Groceries & Related Products Government Public Schools Hospitals Hospitals Insurance Agents, Brokers, & Service Groceries & Related Products General Farms, Primarily Crop Personnel Supply Services Beverages Groceries & Related Products General Farms, Primarily Crop General Farms, Primarily Crop Government Misc. Nondurable Goods

Source: State of California Employment Development Department.

Commercial Activity

During the first three quarters of calendar year 2004, total taxable transactions in the City were reported to be $70,446,000, or 10.2% greater than total taxable transactions of $63,936,000 that were reported in the City during the first three quarters of calendar year 2003. A summary of historic taxable sales within the City during the past five years is shown in the following table. Annual figures for 2004 are not yet available.

CllY OF TEHACHAPI Taxable Transactions (dollars in thousands)

Retail Sales Total Taxable Total Sales Year Retail Sales Permits Transactions Permits

1999 57,390 122 66,415 247 2000 63,236 132 74,403 264 2001 65,489 134 74,834 241 2002 68,672 138 77,980 252 2003 78,102 141 88,162 260 2004* 59,491 158 70,446 286

'Reported as of third quarter of 2004. Source: California State Board of Equalization, Taxable Sales in California Publication.

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Median Effective Buying Income

Effective buying income ("EBI") is designated by Sales and Marketing Management "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income."

The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2000 through 2004.

Year 2000

2001

2002

2003

2004

Effective Buying Income As of January 1, 2000 through 2004

Total Effective Median Household Buying Income Effective Buying

Area (000's Omitted) Income Kern County $ 9,130,892 $33,856 California 652,190,282 44,464 United States 5,230,824,904 39,129

Kern County $ 7,981,251 $31,223 California 650,521,407 43,532 United States 5,303,481,498 38,365




Source: Sales & Marketing Management Survey of Buying Power.

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Construction Activity

Building activity for the past five years in the County is shown in the following table.

KERNCOUNlY Total Building Permit Valuations

(valuations in thousands)

2000 2001 2002 2003 2004 Permit Valuation New Single-family $357,258.8 $445,558.0 $597,932.7 $776,322.7 $ 951,317.0 New Multi-family 12,946.3 10,042.3 17,899.2 31,538.9 48,845.6 Res. Alterations/Additions 29 184.4 24 696.8 27 937.4 34 534.1 42 235.4

Total Residential 399,389.4 480,297.0 643,769.4 842,395.6 1,043,398.0

New Commercial 42,787.1 108,095.9 110,025.7 70,952.4 59,074.8 New Industrial 11,695.5 18,250.8 17,139.7 80,107.5 20,207.4 New other 49,217.9 143,837.1 114,426.1 88,969.7 80,352.7 Com. Alterations/Additions 51 574.6 57 627.4 59 487.8 64 611.7 92 343.7

Total Nonresidential 155,275.2 327,811.1 301,079.4 304,641.4 251,978.6

New Dwelling Units

Single Family 2,856 3,467 4,549 5,529 6,653 Multiple Family 204 ____1M 332 583 802

TOTAL 3,060 3,631 4,881 6,112 7,455

Source: Construction Industry Research Board, Building Permit Summary

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APPENDIXB

AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR FISCAL YEAR ENDED JUNE 30, 2004

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CITY OF TEHACHAPI

ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED JUNE 30, 2004

City of Tehachapi Annual Financial Report

For the Fiscal Year Ended June 30, 2004

TABLE OF CONTENTS

INTRODUCTORY SECTION

FINANCIAL SECTION Independent Auditor's Report ................................................................................................ 1

Management Discussion and Analysis .................................................................................. 3 Basic Financial Statements:

Statement of Net Assets ................................................................................................. 11 Statement of Activities .................................................................................................... 12

Fund Financial Statements: Balance Sheet - Governmental Funds ......................................................................... 13 Reconciliation of the Balance Sheet of Governmental Funds

to the Statement of Net Assets................................................................................. 15 Statement of Revenues, Expenditures, and Changes in

Fund Balances - Governmental Funds.................................................................... 16 Reconciliation of the Statement of Revenues, Expenditures and

Changes in Fund Balances of Governmental Funds to the Statement of Activities............................................................................................... 18

Statement of Net Assets - Proprietary Funds ............................................................... 19 Statement of Revenues, Expenses, and Changes in Fund Net

Assets - Proprietary Funds .......................................................................................... 21 Statement of Cash Flows - Proprietary Funds .............................................................. 23 Statement of Fiduciary Assets and Liabilities- Fiduciary funds .................................. 24

Notes to the Basic Financial Statements ...........................................................................25 Required Supplementary Information:

Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual - General Fund .................................................. 55

Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual - Gas Tax Fund .................................................. 56

Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual - Valley Antelope Run Culvert ......................... 57

Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual - RDA Fund ....................................................... 58

Supplementary Information: Combining and Individual Fund Statements and Schedules:

Combining Balance Sheet- Nonmajor Governmental Funds .............................. 59 Combining Statement of Revenues, Expenditures and Changes in

Fund Balances - Nonmajor Governmental Funds .............................................. 60 Combining Balance Sheet- Nonmajor Special Revenue Funds ......................... 61 Combining Statement of Revenues, Expenditures and Changes in

Fund Balances - Nonmajor Special Revenue Funds ......................................... 64 Combining Balance Sheet - Nonmajor Capital Project Funds .............................. 67 Combining Statement of Revenues, Expenditures and Changes in

Fund Balances - Nonmajor Capital Projects Funds ........................................... 69 Combining Statement of Net Assets -Nonmajor Proprietary Funds .................... 72 Combining Statement of Revenues, Expenditures and Changes in

Fund Balances - Nonmajor Proprietary Funds ................................................... 73 Combining Statement of Fiduciary Assets

And Liabilities:-Fiduciary Funds ............................................................................ 7 4

Mayer Hoffman Mccann P .C. 5060 California Avenue, Suite 800 Bakersfield, CA 93309 Phone: (661) 325-7500 Fax: (661) 325-7004

INDEPENDENT AUDITORS' REPORT

To the City Council City of Tehachapi, California

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 Tehachapi, California, as of and for the year ended June 30, 2004, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Tehachapi's management. Our responsibility is to express an opinion 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 Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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 activities, each major fund, and the aggregate remaining fund information of the City of Tehachapi, as of June 30, 2004, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Governmental Auditing Standards, we have also issued our report dated September 2, 2004, on our consideration of The City of Tehachapi's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. The purpose of this report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and does not provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governmental Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

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The Management's Discussion and Analysis and budgetary comparison information and other required supplementary information on pages 49 through 52 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Tehachapi basic financial statements. The combining nonmajor fund financial statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining nonmajor fund financial statements have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

~~~~,~-C Bakersfield, California September 2, 2004

2

MANAGEMENT'S DISCUSSION AND ANALYSIS

The management of the City of Tehachapi ("City'') provides a narrative overview and analysis of the City's financial activities for the fiscal year ended June 30, 2004. We encourage readers to consider the information presented here in conjunction with the financial statements and notes to the financial statements included with this report.

Financial Highlights

• The City's net assets increased 18% to $12,919,875 as a result of this year's operations. • Total City's revenues, including program and general revenues, were $8,454,078, an

increase of $782,558 from the prior year. • Net assets in governmental funds increased $243,901, and net assets in business

activities increased $1,695,824. • Governmental revenue decreased to $3,686,671 . • Governmental expense decreased to $3,450,978. • Revenues from business-type activities increased to $4,767,407. • General fund revenue decreased by $14,009. • General fund balance as of June 30, 2004 is $1,972,853, an increase of $275,895 from

the prior year.

Overview of Financial Statements

This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of:

1. The Basic Financial Statements, which include the government-wide financial statements 2. Fund Financial Statements 3. Notes to the financial statements 4. Required supplementary information 5. Supplementary information

The Government-wide Financial Statements

The focus of government-wide financial statements is on the overall financial position and activities of the government as a whole. These financial statements are constructed around the concept of a primary government. The primary government is then broke down into two different activities, governmental activities and business-type activities.

The governmental activities include general government, public safety, public works, general administration and Redevelopment Agency (RDA). Although the RDA is a separate agency, because they function as part of the City and because the City Council also serves as the RDA governing board, RDA is included in governmental activities column. The services under governmental activities are supported by taxes and specific program revenue.

The business-type activities include refuse, water, sewer, transit and airport fund. Unlike governmental services, these services are supported by charges paid by users based on the amount of the service they use.

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The basic financial statements are comprised of the following:

• Statement of Net Assets

The Statement of New Assets is prepared using accounting principles that are similar to commercial enterprises. The purpose of the statement of net assets is to attempt to report all of its assets held and liabilities owed by the City. The difference between the City's total assets and total liabilities is labeled a net assets and this difference is similar to the total owners' equity presented by a commercial enterprise. Although the purpose of the City is not to accumulate net assets, in general, increases or decreases of net assets may serve as an indicator of the financial position of the City.

• Statement of Activities

The purpose of the statement of activities is to present the revenues and expenses of the City. Again, the items presented on the statement of activities are measured in a manner similar to the approach used by a commercial enterprise in that revenues are recognized when earned and expenses are recognized when incurred. The difference between revenue and expense is called net income in commercial enterprise where as it is called change in net assets in the City's financial report.

Fund Financial Statements

Unlike governmental-wide financial statements, the focus of fund financial statements is directed to specific activities of the City rather than the City as a whole. All of the City's funds are divided into two category: governmental funds and proprietary funds.

Fund financial statements provide detailed information about each of the City's most significant funds, called major funds. The concept of major fund, and the determination of which are major funds, was established by GASB 34 and replaces the concept of combining like funds and presenting them in total. Instead, each major fund is presented individually, while all non-major funds are summarized and presented in a single column.

Governmental Funds

Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on nearterm inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-terrr financing decisions.

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The City of Tehachapi maintains 22 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the General fund, gas tax fund, capital project fund and redevelopment agency fund, which are considered to be major funds. Data from the other 18 governmental funds are combined into a single, aggregated presentation.

Proprietary Funds

The only type of Proprietary funds the City of Tehachapi maintains are enterprise funds. The refuse, water, sewer, transit and airport funds are presented as business-type activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The City considers refuse, water, sewer and airport funds to be major funds and transit fund is categorized as non-major proprietary funds.

Notes to the Financial Statements

The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

Required supplementary Information

In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. The required supplementary information includes budgetary comparison schedules for the major governmental funds.

Overview of the City's Financial Position and Operations

The City's overall financial position and operations for the past two years are summarized as follows based on the information included in the government-wide financial statements. Net assets may serve over time as an indictor of government's financial position. For the City of Tehachapi, assets exceed liabilities by $12,919,875 at June 30, 2004.

The largest portion of the City's net assets (53%) are unrestricted resources that are to be used to meet the government's ongoing obligations (although portions of these unrestricted net assets may by law or contract be only used for specified purposes and may not necessarily be used for any general government purpose) to residents and creditors.

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Governmental Activities Business-Ttee Activities Total 2004 2003 2004 2003 2004 2003

Current and Other Assets 6,307,590 6,225,688 3,111,964 3,294,004 9,419,554 9,519,692 Capital Assets 7,680,407 6,216,228 11,379,342 9,449,922 19,059,749 15,666,150

Total Assets 13,987,997 12,441,916 14,491,306 12,743,926 28,479,303 25,185,842

Current Liabilities 500,571 672,720 1,105,444 626,263 1,606,015 1,298,983 Long-term Liabilities 5,533,143 4,058,814 8,420,270 8,847,895 13,953,413 12,906,709

Total Liabilities 6,033,714 4,731,534 9,525,714 9,474,158 15,559,428 14,205,692

Investments in Capital, 2,211,592 2,210,379 2,959,072 602,027 5,170,664 2,812,406 net of related debt

Restricted 1,560,944 1,419,222 759,482 757,696 2,320,426 2,176,918 Unrestricted 4,181,747 4,080,781 1,247,038 1,910,045 5,428,785 5,990,826

Total Net Assets 7,954,283 7,710,382 4,965,592 3,269,768 12,919,875 10,980,150

The additional portion (28%} of the City's net assets reflects its capital assets (e.g., land, buildings, machinery, and equipment} less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to residents; accordingly, these assets are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resouroes needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

The City started capturing its capital assets in governmental funds in fiscal year 2002/2003. In accordance with GASB 34, the City was not required to retroactively capture the capital assets like other bigger cities because the City fell under implementation phase Iii due to the size of its revenue in fiscal year 1999/2000.

The remaining balance ($1,560,944} of net assets is subject to external restrictions on how they maybe used.

At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities.

Governmental Activities

Governmental activities increased the City's net assets by $243,901, there by accounting for 13% of the total growth in the City's net assets. Although there was major decrease in governmental revenue due to decrease in capital grants and contribution, sales tax (9%) and property tax (11%} were increased. The detailed information on statement of activities are as shown on the following:

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Statement of Activities

Governmental Business Type Total Activities Activities

2004 2003 2004 2003 2004 2003 Revenue

Program Revenues: Charges for Services 3,438,712 2,971,991 3,438,712 2,971,991 Operating contribution & Gran! 606,012 549,422 33,633 215,393 639,645 764,815 Capital Grants & Contribution 59,471 793,988 1,132,046 1,191,517 793,988

General Revenues: Property taxes 747,747 673,099 747,747 673,099 Sales Taxes 1,063,399 971,147 1,063,399 971,147 Other Taxes 1,032,243 1,087,461 1,032,243 1,087,461 License and permits 9,725 21,338 9,725 21,338 Miscellaneous 153,426 162,833 56,223 61,615 209,649 224,448 Interest 69,649 114,318 51,792 48,915 121,441 163,233 Transfers (55,001} (36,667) 55,001 36,667

3,686,671 4,336,939 4,767,407 3,334,581 8,454,078 7,671,520

Expenses Primary Government

General Government 721,352 537,664 721,352 537,664 Administration 370,934 356,235 370,934 356,235 Public Works 769,549 926,718 769,549 926,718 Planning 136,251 251,82g 136,251 251,829 Fire Department 326,806 248,891 326,806 248,891 Sheriff 813,276 841,444 813,276 841,444 Council 37,447 62,166 37,447 62,166 City Clerk 74,730 51,490 74,730 51,490 Treasurer 4,357 4,620 4,357 4,620 Interest 196,276 174,246 196,276 174,246

Business-type Activities Refuse 513,544 544,166 513,544 544,166 Water 1,008,439 833,849 1,008,439 833,849 Sewer 1,214,379 1,139,755 1,214,379 1,139,755 Transit 99,181 111,011 99,181 111,011 Airport 216,559 358,542 216,559 358,542

Total Expense 3,450,978 3,455,303 3,052,102 2,987,323 6,503,080 6,442,626

Change in Net Assets 235,693 881,636 1,715,305 347,258 1,950,998 1,228,894 Net Assets at beginning of yr 7,710,382 6,828,746 3,269,768 2,922,510 10,980,150 9,751,256 Prior Period Adj 8,208 (19,481) (11,273) Net Assets at end of year 7,954,283 7,710,382 4,965,592 3,269,768 12,919,875 10,980,150

7

Business Type Activities

The City operates five business type activities. These are refuse, water, sewer, transit and airport funds. These business type activities increased the City's net assets by $1,695,824 there by accounting for 87% of growth in the City's net assets.

FINANCIAL ANALYSIS OF INDIVIDUAL FUNDS

As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Please note that unlike the Government-Wide financial statements displayed previously, the fund statements are not reflected on a full accrual basis.

Governmental Funds

As of June 30, 2004, the City's governmental funds reported combined ending fund balances of $5,777,362. This number shows approximately 4% fund balance increase from the prior year. This fund balance is available for spending at the government's ongoing obligations to citizens and creditors although 66% of the total governmental fund balance is dedicated for specific purposes such as street and road maintenance, Redevelopment Agency and various capital projects.

The general fund is the chief operating fund of the City. At the end of the current fiscal year unreserved fund balance of the general fund was $1,816,082. As a discretionary fund, the general fund is mainly used to pay for City's safety service such as contracted Sheriff service and City fire as well as the City's cost of general operation.

Gas tax fund is solely dedicated for street and road maintenance. The main sources of the gas tax fund are from the allocated gasoline tax and TOA (Transportation Development Act) Article 8. At the end of the current fiscal year, the fund balance was $197,805 and it decreased by $164,497 from the prior year. The decrease was mainly caused by the cost of the capital projects that were carried over from the prior year.

The Redevelopment fund has a total fund balance of $1,828,448, most of which is reserved for capital projects within the designated project area and debt services. The net increase in fund balance during the current year in the RDA was $1,147,415 primarily due to issuance of 2004 Notes.

Proprietary Funds.

Total net assets of the refuse, water, sewer and airport funds at the end of the year are $282,620, $2,311,193, $1,051,571 and 1,403,365 respectively. All four major funds showed increase of net assets. The net asset increases are $53,542, $482,273, $57,830 and $1,167,503 respectively. The main reason for net asset increase in refuse, water and sewer funds is the number of connection increases as a result of growth of the community whereas airport fund increases were due to receipt of FAA grant for the airport improvement.

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GENERAL FUND BUDGETARY HIGHLIGHTS

A detailed budgetary comparison schedule for the year ended June 30, 2004 is presented as required supplementary information following the notes to the financial statements. The final budget amounts are different from those presented in the 2003 - 2008 original five-year budget documents. It is due to changes that occurred between when the original budget was prepared and year-end final budget approvals.

Revenues

Expenditures

Other Sauces (Uses)

Net changes in fund balances

Fund Balance Beginning (Adjusted)

Fund Balance - Ending

Original Budget

2,602,675

2,562,749

(13,000

26,926

1,696,943

1,723,869

Final Budoet

2,472,833

2,605,056

5,131

(127,092)

1,696,958

1,569,866

Variance with Final Budget -

Positive Actual (Negative\

2,789,177 316,344

2,518,398 86,658

5,131 0

275,910 403,002

1,696,943 (15)

1,972,853 402,987

Overall, the actual ending fund balance is $402,987 more than what was budgeted in the final budget. The major contributions to this positive variance are mainly from increase in revenue such as sales tax ($156,713), transient lodging tax ($70,423) and business license and franchise fees ($68,862). The positive expenditure variances are from various departments and expenditures. As a result of current year's operation, the fund balance of general fund was increased by $275,910.

CAPITAL & DEBT ADMINISTRATION

Capital Assets

Non-Depreciable Assets: Land

Total non-depreciable assets


614,419

614,419

Depreciable Assets (net of accumulated depreciation) Buildings 608,307 Improvements other than building 4,418,632 Machinery and equipment 1,309,591 Construction in progress 729,458

Total depreciable assets-net

Total Capital Assets

7,065,988

7,680,407

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Business-type Activities Totals

1,959,692 2,574,111

1,959,692 2,574,111

4,549,060 5,157,367 2,899,740 7,318,372

362,569 1,672,160 1,608,281 2,337,739

9,419,650 16,485,638

11,379,342 19,059,749

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The City of Tehachapi's investment in capital assets for its governmental and business type activities as of June 30, 2004, amounts to $19,059,749 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, machinery and equipment, roads, sidewalks, airport runways, water and sewer systems.

Additional information on the City of Tehachapi's capital assets can be found in Note 4.

Long-Term Debt

Governmental Business-type Activities Activities Totals

Bonds 3,964,566 7,970,611 11,935,177 Loans 123,112 123,112 Capital Leases 1,504,249 326,547 1,830,796 Compensated absences 64,328 64,328

Total Long-Term Liabilities 5,533,143 8,420,270 13,953,413

The City of Tehachapi's total debt was increased by $1,046,704 during the current fiscal year. The increase was due to the issuance of 2004 Notes by Redevelopment Agency.

State statutes limit the amount of general obligation debt a governmental entity may issue to 15 percent of its total assessed valuation.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGET

Although solid growth is expected in California's economy, if the national economy falters due to rising consumer debt, a growing trade imbalance and bloated housing market, the state's positive growth could change.

Christopher Thornberg, senior economist and co-author of the quarterly UCLA Anderson Forecast, forecasts that the state wiil see a 5.2 percent growth (a slight dip from 5.6 percent in ·2004) in personal income and a 4.8 percent rise in taxable sales in 2005. However, he still sees signs that the state's budget problems coupled with a high level debt being carried by U.S. consumers. The City will give up approximately $180,000 of property tax to help the state budget deficit in the next two years. However, newly passed Proposition 1A will prohibit the state from taking the local government revenue in the future.

Although many economists have warned of a real estate bubble bursting in California, the real estate market in Tehachapi is still experiencing tremendous growth. Coupled with the housing market growth, many new commercial businesses are in the midst of being located within the City limit. Upon this growth, the City is expecting increase in various taxes such as sales, property, business and transient lodging taxes as well as various connection fees for enterprise funds. Starting fiscal year 2004/2005, the City will take over the issuance of building permits function from the County of Kern and it will create additional revenue for the City.

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BASIC FINANCIAL STATEMENTS

CITY OF TEHACHAPI STATEMENT OF NET ASSETS

JUNE 30, 2004

Primary Government

Governmental Business-Type Activities Activities Totals

ASSETS Cash and short-term investments $ 5,490,930 $ 1,901,826 $ 7,392,756 Receivables (net of allowance) 144,732 510,960 655,692 Due from trust and agency funds 115,922 115,922 Internal balances 153,903 (153,903) Prepaids 24,347 24,347 Deferred Charges 83,341 618,081 701,422 Capital assets (net of accumulated depreciation):

Land 614,419 1,959,692 2,574,111 Buildings 608,307 4,549,060 5,157,367 Improvements other than building 4,418,632 2,899,740 7,318,372 Machinery and equipment 1,309,591 362,569 1,672,160 Construction in progress 729,458 1,608,281 2,337,739

Advance to trust and agency funds 294,415 294,415 Other assets 235,000 235,000

Total assets 13,987,997 14,491,306 28,479,303

LIABILITIES Accounts payable and accrued liabilities 446,887 254,179 701,066 Accrued interest payable 53,684 53,684 Liabilities payable from restricted assets 67,497 67,497 Deferred revenue 783,768 783,768 Noncurrent liabilties:

Due within one year 182,337 530,521 712,858 Due in more than one year 5,350,806 7,889,749 13,240,555

Total liabilities 6,033,714 9,525,714 15,559,428

NET ASSETS

Invested in capital assets, net of related debt 2,211,592 2,959,072 5,170,664 Restricted for:

Highways and streets 235,842 235,842 Public Safety 79,524 79,524 Debt Service 137,923 759,482 897,405 Other purposes 1,107,655 1,107,655

Unrestricted 4,181,747 1,247,038 5,428,785

Total net assets $ 7,954,283 $ 4,965,592 $ 12,919,875

The notes to the financial statements are an integral part of this statement

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CITY OF TEHACHAPI ' STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2004 •

Pro9ram Revenues Operating Capital Prima!)'. Government

Charges for Contributions Grants and Governmental Business-type

Expens~_ Services and Grants Contributions Activities Activil;t Total

Functions/Programs Primary Government

Governmental activities: General government $ 721,352 $ $ $ $ (721,352) $ s (721,352)

Administration 370,934 (370,934) (370,934)

Public works 769,549 506,012 19,016 (244,521) (244,521)

Planning 136,251 40,455 (95,796) (95,796)

Fire department 326,806 (326,806) (326,806)

Sheriff 813,276 100,000 (713,276) (713,276)

Council 37,447 (37,447) (37,447)

City clerk 74,730 (74,730) (74,730)

Treasurer 4,357 (4,357) (4,357)

Interest 196,276 (196,276) (196,276)

Total governmental activities 3,450,978 606,012 59,471 (2,785,495) (2,785,495)

Business-type activities: Refuse 513,544 557,579 44,035 44,035

Water 1,008,439 1,401,911 393,472 393,472

Sewer 1,214,379 1,284,618 70,239 70,239

Transit 99,181 33,633 (65,548) (65,548)

Airport 216,559 194,604 1,132,046 1,110,091 1,110,091

Total business-type activities 3052102 3,438,712 33,633 1,132,046 1,552,289 1,552,289

Total primary government s 6 503 080 i 3 438,712 $ 639 645 i 1191 517 i (2 785 495) $ 1 552 289 i (1 233,206)

General revenues: Property taxes 747,747 747,747

Sales taxes 1,063,399 1,063,399

other taxes 1,032,243 1,032,243

Licenses and permits 9,725 9,725

Miscellaneous 153,426 56,223 209,649

Interest 69,649 51,792 121,441

Transfers (55,001) 55,001

Tolal general revenues and transfers 3,021 188 163 016 --3,184,204

Change in net assets 235,693 1,715,305 1,950,998

Net assets beginning of year- unadjusted 7,710,382 3,269,768 10,980,150

Prior period adjustments 8,208 (19,481) (11,273)

Net assets beginning of year - adjusted 7,718,590 3,250,287 10,968,877

Net assets at end of year ~ 7,954,283 i 4,965,592 $ 12 919,875


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ASSETS Cash and short-term investments Receivables (net of allowance} Due from other funds Prepaids Advance to other funds

Total assets

CITY OF TEHACHAPI BALANCE SHEET

GOVERNMENTAL FUNDS JUNE 30, 2004

General

$ 1,379,305 121,514 604,018

24,347 132,423

$ 2,261,607

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 288,754 Due to other funds

Total liabilities 288,754

Fund balances: Designated for future projects Reserved 156,771 Unreserved 1,816,082

Total fund balance 1,972,853

Total liabilities and fund balances $ 2,261,607

Valley

Antelope

Gas Tax Run Culvert

$ 229,479 $

$ 229,479 $

31,674 578

31,674 578

197,805 (578)

197,805 (578)

$ 229,479 $


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CITY OF TEHACHAPI BALANCE SHEET

GOVERNMENTAL FUNDS (CONTINUED) JUNE 30, 2004

Other

RDA Governmental Totals

Fund Funds 2004

ASSETS Cash and short-term investments $ 1,810,210 $ 2,071,936 $ 5,490,930 Receivables (net of allowance) 21,621 1,597 144,732 Due from other funds 604,018

Prepaids 24,347 Advance to other funds 161,992 294,415

Total assets $ 1,831,831 $ 2,235,525 $ 6,558,442

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 3,383 123,076 446,887 Due to other funds 333,615 334,193

Total liabilities 3,383 456,691 781,080

Fund balances: Designated for future projects 188,863 188,863 Reserved 30,000 161,992 348,763 Unreserved 1,798,448 1,427,979 5,239,736

Total fund balance 1,828,448 1,778,834 5,777,362

Total liabilities and fund balances $ 1,831,831 $ 2,235,525 $ 6,558,442


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CITY OF TEHACHAPI RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS

TO THE STATEMENT OF NET ASSETS JUNE 30, 2004

Fund balances of governmental funds $ 5,777,362

Amounts reported for governmental activities in the statement of

net assets are different because:

Capital assets, net of depreciation, have not been included

as financial resources in governmental fund activity. 7,680,407

Long term debt and compensated absences from the General Long Term

Debt Account Group that have not been included in the governmental

fund activity:

Tax obligation bonds payable (3,964,566)

Capital leases payable (1,504,249)

Compensated Absences (64,328)

Accrued interest payable is not reported in the governmental funds. (53,684)

Unamortized issuance costs/discounts on revenue

bonds payable has not been reported in the governmental funds. 83,341

Net assets of governmental activities $ 7,954,283


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CITY OF TEHACHAPI STATEMENT OF REVENUES, EXPENDITURES, AND .

CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS


General REVENUES Grants $ 10,000 $ Property taxes 549,303 Sales taxes 1,063,399 Other taxes 966,215 Licenses and permits 9,725 other sources of funds Interest 37,109 Miscellaneous 153,426

Total revenues 2,789,177

EXPENDITURES General government 494,114 Administration 137,789 Public works 502,992 Planning 124,056 Fire department 332,522 Sheriff 801,255 Council 37,447 City clerk 83,866 Treasurer 4,357

Total expenditures 2,518,398

Excess {deficiency) of revenues over (under) expenditures 270,779

OTHER FINANCING SOURCES(USES) Proceeds of debt Transfers in 10,631 Transfers out (5,500) Interest expense

Total other financing sources (uses) 5,131

Net change in fund balances 275,910

Fund balances - beginning 1,696,958 Prior Period Adjustment (15) Total adjusted fund balance - beginning 1,696,943

Fund balances - ending $ 1,972,853 $

Gas Tax

201,611

4,489

206,100

525,644

525,644

(319,544)

119,005 311,633

(283,813)

146,825

(172,719)

362,302 8,222

370,524

197,805

Valley Antelope

Run Culvert

$

621,363

621,363

(621,363)

(237,317)

(237,317)

(858,680)

858,102

858,102

$ (578)


16

CITY OF TEHACHAPI STATEMENT OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2004

Other RDA Governmental Totals Fund Funds 2004

REVENUES Grants $ $ 24,015 $ 34,015 Property taxes 264,115 813,418 Sales taxes 1,063,399 Other taxes 1,167,826 Licenses and permits 9,725 Other sources of funds 430,212 430,212 Interest 16,921 11,132 69,651 Miscellaneous 153,426

Total revenues 281,036 465,359 3,741,672

EXPENDITURES General government 494,114 Administration 484,946 622,735 Public works 249,810 1,278,446 Planning 558,761 1,304,180 Fire department 332,522 Sheriff 53,074 854,329 Council 37,447 City clerk 83,866 Treasurer 4,357

Total expenditures 484,946 861,645 5,011,996

Excess (deficiency) of revenues over (under) expenditures (203,910) (396,286) (1,270,324)

OTHER FINANCING SOURCES(USES) Proceeds of debt 1,555,000 1,674,005 Transfers in 605,552 927,816 Transfers out (67,731) (388,456) (982,817) Interest expense (135,944) (135,944)

Total other financing sources (uses) 1,351,325 217,096 1,483,060

Net change in fund balances 1,147,415 (179,190) 212,736

Fund balances - beginning 681,033 1,958,024 5,556,419 Prior Period Adjustment 8,207 Total adjusted fund balance - beginning 681,033 1,958,024 5,564,626

Fund balances - ending $ 1,828,448 $ 1,778,834 $ 5,777,362


17

• CITY OF TEHACHAPI

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF

GOVERNMENT FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2004

Net changes in fund balances - total governmental funds

Governmental funds report capital outlay as expenditures. However, in

the statement of activities, the cost of those assets is allocated over their

estimated useful lives as depreciation expense. This is the amount by which

capital outlay exceeded depreciation in the current period.

Proceeds from the issuance of bonds and/or debt is reported as other financing sources

in governmental funds. The issuance of bonds and/or debt increases liabilities in the

statements of net assets, but does not result in an increase in the

statement of activities.

Repayment of principal on debt is an expenditure in the governmental funds,

but the repayment reduces long-term liabilities in the statement of net assets.

Accrued interest payable is not reported in the governmental funds.

The statement of net assets includes unamortized issuance costs on long term debt.

To record the net change in compensated absences in the

statement of activities.

Change in net assets of governmental activities

$ 212,736

1,464,179

(1,674,005)

178,104

(6,649)

72,691

(11,363)

$ 235,693


18

•

ASSETS Current assets: Cash and short-term investments Receivables (net of allowance) Due from other funds

Total current assets

Noncurrent assets: Deferred charges Other assets

Capital assets: Land Construction in progress Buildings Machinery and equipment


PROPRIETARY FUNDS JUNE 30, 2004

Refuse Fund

$ 118,155

118,155

235,000

Improvements other than building Less accumulated depreciation Total capital assets (net of

accumulated depreciation) Total noncurrent assets 235,000

Total assets 353,155

LIABILITIES Current liabilities: Accounts payable 32 Due to other funds 70,503 Customer deposits payable Capital lease payable - current Notes and bonds payable - current

Total current liabilities 70,535

Deferred revenue

Noncurrent liabilities: Capital leases Notes and bonds payable

Total noncurrent liabilities

Total liabilities 70,535

NET ASSETS Invested in capital assets, net of related debt Restricted for debt service Unrestricted 282,620

Total net assets $ 282,620

Water Fund

$ 1,431,024 $ 191,776 145,768

1,768,568

245,224

1,288,535 344,000 774,582 381,435

2,276,472 (1,912,368)

3,152,656 3,397,880 5,166,448

59,852

49,526 28,837

173,945 312,160

100,226

134,789 2,308,080

2,442,869

2,855,255

507,005 297,281

1,506,907

$ 2,311,193 $


19

Sewer Fund

462,201 184,431

646,632

372,857

613,614 1,263,076 7,751,136

207,902 442,335

(3,653,138)

6,624,925 6,997,782 7,644,414

174,703 141,489

9,471 11,199

310,489 647,351

615,673

151,722 5,178,097

5,329,819

6,592,843

973,418 462,201

(384,048)

1,051,571


PROPRIETARY FUNDS (CONTINUED) JUNE 30, 2004

Non-Major Airport Proprietary Total Fund Funds Current Year

ASSETS Current assets: Cash and short-term investments $ 8,600 $ $ 1,901,825 Receivables (net of allowance) 3,650 12,948 510,960 Due from other funds 145,768

Total current assets 12,250 12,948 2,558,553

Noncurrent assets: Deferred charges 618,081 Other assets 235,000

Capital assets: Land 57,543 1,959,692 Construction in progress 1,206 1,608,282 Buildings 1,025,504 9,551,222 Machinery and equipment 168,169 757,506 Improvements other than building 1,515,692 4,234,499

Less accumulated depreciation (1,166,353) (6,731,859) Total capital assets (net of

accumulated depreciation) 1,601,761 11,379,342 Total noncurrent assets 1,601,761 12,232,423 Total assets 1,614,011 12,948 14,790,976

LIABILITIES Current liabilities: Accounts payable 4,486 15,106 254,179 Due to other funds 74,548 13,130 299,670 Customer deposits payable 8,500 67,497 Capital lease payable - current 40,036 Notes and bonds payable - current 6,051 490,485

Total current liabilities 93,585 28,236 1,151,867

Deferred revenue 67,869 783,768

Noncurrent liabilities: Cap ital leases 286,511 Notes and bonds payable 117,061 7,603,238

Total noncurrent liabilities 117,061 7,889,749

Total liabilities 210,646 96,105 9,825,384

NET ASSETS Invested in capital assets, net of related debt 1,478,649 2,959,072 Restricted for debt service 759,482 Unrestricted (75,284) (83,157) 1,247,038

Total net assets $ 1,403,365 $ (83,157) $ 4,965,592


20

•

CITY OF TEHACHAPI STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS


Refuse Water Sewer Fund Fund Fund

Operating revenues: Charges for services $ 557,579 $ 1,401,911 $ 1,284,618 Miscellaneous 9,507 23,904 21,854

Total operating revenues 567,086 1,425,815 1,306,472

Operating expenses: Personnel services 30,352 320,606 257,533 Maintenance and operations 483,192 388,632 254,283 Depreciation 124,353 358,526

Total operating expenses 513,544 833,591 870,342

Operating income (loss) 53,542 592,224 436,130

Nonoperating revenues (expenses): Intergovernmental Interest income 24,372 27,196 Interest expense (174,848) (344,037)

Total nonoperating revenues (expenses) (150,476) (316,841)

Income (loss) before operating transfers 53,542 441,748 119,289

Transfers in Transfers out (12,730)

Change in net assets 53,542 441,748 106,559

Net assets - beginning 229,078 1,828,920 993,741 Prior period adjustment 40,525 (48,729) Adjusted net assets - beginning 229,078 1,869,445 945,012

Net assets - ending $ 282,620 $ 2,311,193 $ 1,051,571


21

CITY OF TEHACHAPI STATEMENT OF REVENUES, EXPENSES

AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS (CONTINUED) FOR THE YEAR ENDED JUNE 30, 2004

Non-Major Airport Proprietary Fund Funds Totals

Operating revenues: Charges for services $ 194,604 $ $ 3,438,712 Miscellaneous 958 56,223

Total operating revenues 195,562 3,494,935

Operating expenses: Personnel services 83,749 9,525 701,765 Maintenance and operations 106,509 89,656 1,322,272

. Depreciation 19,801 502,680

Total operating expenses 210,059 99,181 2,526,717

Operating income (loss) (14,497) (99,181) 968,218

Nonoperating revenues (expenses): Intergovernmental 1,132,046 33,633 1,165,679 Interest income 224 51,792 Interest expense (6,500) (525,385)

Total nonoperating revenues (expenses) 1,125,546 33,857 692,086

Income (loss) before operating transfers 1,111,049 (65,324) 1,660,304

Transfers in 67,731 67,731 Transfers out (12,730)

Change in net assets 1,178,780 (65,324) 1,715,305

Net assets - beginning 235,862 (17,833) 3,269,768 Prior period adjustment (11,277) (19,481) Adjusted net assets - beginning 224,585 (17,833) 3,250,287

Net assets - ending $ 1,403,365 $ (83,157) $ 4,965,592


22

CITY OF TEHACHAPI STATEMENT OF CASH FLOWS

PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2004

CASH FLOWS FROM OPERATING ACTIVITIES Total operating revenues Personnel services Maintenance and operations

Net cash provided by operating activities

CASH FLOWS FROM NONCAPITAL AND RELATED FINANCING ACTIVITIES Operating transfers in Intergovernmental revenue

Net cash provided by noncapital and related financing activities

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of fixed assets Interest expense (net of discount amortization) Payments on capital lease obligations Payments on long-term debt Loss on sale of fixed assets

Net cash used in capital and related financing activities

CASH FLOWS PROVIDED BY INVESTING ACTIVITIES Interest received

Net cash provided by investing activities

Net Decrease in Cash

Cash, beginning of year

Cash, end of year

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income Adjustment to reconcile operating income to net cash provided by operating activities: Depreciation (Increase) decrease in:

Receivables Due from other funds

Increase (decrease) in: Accounts payable Due to other funds Deposits payable Deferred revenues

Net cash provided by operating activities

Entererise

$ 3,913,144 (701,765)

(1,290,423) 1,920,956

55,001 1,165,679 1,220,680

(2,317,053) (677,245)

(31,005) (475,583)

(3,500,886)

51,792 51,792

(307,458)

2,209,283

$ 1,901,825

$ 968,218

502,680

(69,919) (141,489)

(28,428) 201,766

9,236 478,892

$ 1,920,956


23

CITY OF TEHACHAPI STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES

FIDUCIARY FUNDS JUNE 30, 2004

ASSETS Cash and short-term investments Receivables (net of allowance) Due from other funds Advances to other funds Due from bond holders Other assets

Total assets

LIABILITIES Accounts payable Deposits

Due to other funds Due to bond holders Advances from other funds

Total liabilities


24

Total Trust and Agency Funds

$ 1,499,583 2,219 7,412

294,415 169,103 292,801

2,265,533

$ 548,867 25,687

123,335 978,814 588,830

$ 2,265,533

CITY OF TEHACHAPI NOTES TO BASIC FINANCIAL STATEMENTS

JUNE 30, 2004

(1) Summary of significant accounting policies

A. Reporting entity

The City of Tehachapi was incorporated August 13, 1909 under the general laws of the State of California. The City operates under a Council/City Manager form of government and provides the following services: public safety (police and fire); community services; public works; general administrative services; and capital improvements.

As required by accounting principles generally accepted in the United States of America, these financial statements present the government and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government's operations and so data from these units are combined with data of the primary government.

The following is a brief review of the component units included in the accompanying general-purpose financial statements of the City.

Tehachapi Redevelopment Agency - The Tehachapi Redevelopment Agency was established pursuant to the State of California Health and Safety Code, Section 33000. The Agency is responsible for rehabilitation and economic revitalization of certain areas within the City.

Tehachapi City Financing Corporation (TCFC) - The Tehachapi City Financing Corporation was formed on September 26, 1990, as a Nonprofit Public Benefit Corporation to render financial assistance to the City by issuing debt instruments.

Detailed financial statements are available for the Tehachapi Redevelopment Agency from the City's Finance Department. The TCFC does not issue separate financial statements.

B. Government-wide and fund financial statements

The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all the non-fiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. 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 are 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.

25

CITY OF TEHACHAPI NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2004

(CONTINUED)

(1) Summary of significant accounting policies (Continued)

B. Government-wide and fund financial statements (Continued)

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded form the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

C. 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 and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when 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 revenues as soon as all eligibility requirements imposed by the provider have been met.

Governmental and 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 City 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, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. 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 City.

The City reports the following major governmental funds:

The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

The gas tax fund and RDA Fund are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes (not including major capital projects).

The Valley Antelope Run Culvert Fund is used to account for revenues, expenditures, and transfers lo be used for the acquisition of major capital facilities.

26


JUNE 30, 2004

(CONTINUED)


C. Measurement focus, basis of accounting, and financial statement presentation (Continued)

The City reports the following major proprietary funds:

The refuse, sewer utility, water utility, and airport funds are used to account for those operations that are financed and operated in a manner similar to a private business enterprise where the intent of the City Council is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges.

Additionally, the City reports the following fund types:

The agency funds are used to account for funds that are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The City accounts for transactions of its special assessment districts and community facilities districts as agency funds.

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent privatesector guidance.

As a general rule the effect of interfund activity has been eliminated from the governmentwide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City's water and sewer function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned.

Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, 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.

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

27


JUNE 30, 2004

(CONTINUED)


C. Measurement focus, basis of accounting, and financial statement presentation (Continued)

When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed.

D. Assets, liabilities, and net assets or equity

1. Deposits and investments

The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition.

In accordance with Sections 16249.1, 53601 and 53635 of the California Government Code, and as further restricted by the City's adopted investment policy. the City may invest in the following types of investments: • US Treasury Bills, Notes and Bonds. • Local Agency Investment Fund administered by the California State Treasurer • Obligations issued by agencies or instrumentality of the US Government. • Negotiable Certificates of Deposit issued by federally or state chartered banks or

associations. • Money Market Mutual Funds investing in the securities and obligations authorized by

CGC Section 53601.

Investments held by bond trustees and/or fiscal agents are invested in accordance with separate trust agreements.

For all investments at June 30, 2004, amortized cost approximates fair market value.

The City follows the practice of pooling cash and investments of all funds except for funds held in separate bank accounts under the provision of bond indentures.

Interest income earned on pooled cash and investments is allocated quarterly to the various funds based on the average of the beginning and ending cash balances. Interest income from cash and investments of funds excluded from pooled cash is credited directly to the related fund.

2. Receivable and payables

Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of the interfund loans) or "advances to/from other funds" (i.e., the non-current portion of the interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances."

28


JUNE 30, 2004

(CONTINUED)


D. Assets, liabilities, and net assets or equity (Continued)

Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources.

All trade and property taxes receivables are shown net of allowance for uncollectibles.

Property Taxes attach as an enforceable lien on property as of March 1. Taxes are levied on July 1 and are payable in two installments on December 10 and April 10. The County bills and collects the property taxes and remits them to the City in installments during the year. City property tax revenues are recognized when levied to the extent that they result in current receivables in accordance with Interpretation 3 of the National Council on Governmental Accounting, Revenue Recognition - Property Taxes.

The County is permitted by State Law (Proposition 13) to levy taxes at 1 % of full market value ( at time of purchase) and can increase the property tax rate no more than 2% per year. The City receives a share of this basic levy.

3. Prepaid items

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.

4. 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 columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $1,000 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 the asset or materiality 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 businesstype activities is included as part of the capitalized value of the assets constructed. The total interest expense incurred by the City during the current fiscal year was $525,385. Of this amount, $0 was included as part of the cost of capital assets under construction.

29


JUNE 30, 2004

(CONTINUED)



Property, plant, and equipment of the City, as well as the component units, is depreciated using the straight line method over the following estimated useful lives:

Assets Buildings Machinery and equipment Structure and other improvements

Years 30

5- 30 10-40

Capital lease obligations of the Proprietary Funds are accounted for in the year of inception as a liability of the fund. The related asset is recorded as an asset of the fund.

5. Compensated absences

It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. There is no liability for unpaid accumulated sick leave since the City does not have a policy to pay any amounts when employees separate from service with the City. All vacation pay is accrued when incurred in the government-wide, proprietary, and fiduciary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements.

6. Long-term obligations

In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

30


JUNE 30, 2004

(CONTINUED)



7. Fund equity

In the fund financial statements, governmental funds reported reservations of fund balance for amounts that are not available for appropriation or are legally restricted for outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change.

Reservations of retained earnings are limited to outside third-party restrictions. The proprietary fund's contributed capital represents equity acquired through capital grants and capital contributions from developers, customers or other funds.

(2) Reconciliation of government-wide and fund financial statements

A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net assets

The governmental fund balance sheet includes reconciliation between fund balance - total governmental funds and net assets - governmental activities as reported in the governmentwide statement of net assets. "Total fund balances" of the governmental funds of $5,777,362 differs from "net assets" of governmental activities of $7,954,283, reported in the statement of net assets. The details of this $2,176,921 difference are as follows:

Fund balances for governmental activities

Capital related items When capital assets (land, buildings, equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the statement of net assets includes those capital assets among the assets of the City as a whole:

Construction in progress Cost of capital assets

Accumulated depreciation

31

Increases

729,458 8,844,753

9,574,211

Decreases

(1,893,804) (1,893,804)

Balance $ 5,777,362


JUNE 30, 2004

(CONTINUED)

(2) Reconciliation of government-wide and fund financial statements (Continued)

A. Explanation of certain differences between the governmental fund balance sheet and the government-wide statement of net assets (Continued)

Long-term liabilities

Long-term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities, both current and long term are reported in the statement of net assets. Balances at June 30, 2004 were:

Accrued Interest

Compensated absences Bonds payable

Capital leases payable

Interest is not accrued in the fund financial statements. Issuance costs/discounts Unamortized issuance costs and discounts are capitalized and amortized in the statement of net assets Reclassifications and eliminations lnterfund balances must generally be eliminated in the governmental statements, except for residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once in the function in which they are allocated.

Net change

Net assets of governmental activities

32

Increases

83,341

334,193

9,991,745

Decreases

$

(64,328) . (3,964,566) (1,504,249) {5,533,143)

(53,684)

(334,193)

(7,814,824)

Balance

2,176,921

$ 7,954,283

' CITY OF TEHACHAPI

NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2004

(CONTINUED)

(2) Reconciliation of government-wide and fund financial statements {Continued)

B. Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities.

The governmental fund statement of revenues, expenses, and changes in fund balances includes a reconciliation between net changes in fund balances - total governmental funds and changes in net assets of governmental activities as reported in the government-wide financial statement of activities. The "net changes in fund balances" for governmental funds of $212,736 differs from the "changes in net assets" for the governmental activities of $235,693 reported in the statement of activities. Details of this $22,957 difference are as follows:

Net changes in fund balances for governmental activities

Capital related items

When capital assets (land, buildings, equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. As a result, fund balance increases by the amount of financial resources expended, whereas net assets decrease by the amounts of depreciation expense charged for the year.

Long-term liabilities

Capital outlay Depreciation expense

Proceeds from the issuance of debt is reported as other financing sources in governmental funds. The issuance of bonds increases liabilities in the statement of net assets and does not result in an increase in net assets in the statement of activities.

33

Increases

1,891,441

1,891,441

Decreases Balance

$ 212,736

(427,262) (427,262)

(1,674,005)


JUNE 30, 2004

(CONTINUED)

(2) Reconciliation of government-wide and fund financial statements (Continued)

B. Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities. (Continued)

Repayment of bond principal and other long term liabilities is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. For the City as a whole, however, the principal payments reduce the liabilities in the statement of net assets and do not result in an expense in the statement of activities.

Principal payments made

Accrued interest

Interest is not accrued in the fund financial statements.

Issuance costs/discount

Issuance costs/discounts expensed in the governmental funds have been capitalized and amortized in the statement of activities

Compensated absences

Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds.

Net change in compensated absences

Reclassifications and eliminations

lnterfund balances must generally be eliminated in the governmental statements, except for residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once - in the function in which they are allocated.

Net change

Net change in net assets for governmental activities

34

Increases Decreases Balance

178,104

(6,649)

72,691

(11,363)

927,816 (927,816)

2,985,998 (2,963,041) 22,957

$ 235,693


JUNE 30, 2004

(CONTINUED)

(3) Stewardship, compliance, and accountability

A. Budgetary information

Each year the City Council adopts a budget that provides for the general operations of the City. Budgets are prepared on the modified accrual basis of accounting.

The City Manager may transfer budgeted amounts up to $10,000 within funds and budgets amounts relating to personnel between funds up to $10,000. The City Council must authorize all other revisions to the budget.

Each year the City Manager submits a proposed budget to the City Council during early June. The City Council held weekly budget hearings starting in May.

Formal budgetary integration is employed as a management control device during the year for the General, Special Revenue, Capital Projects, and certain Debt Service Funds.

Budgets for the General, Special Revenue, Capital Projects, and certain Debt Service Funds are adopted on a basis consistent with accounting principles generally accepted in the United States of America, except for capital leases. Purchases of equipment under capital leases are not budgeted in the year of acquisition as capital outlays, but are budgeted as lease expenditures as the payments are made. Budgeted amounts are as originally adopted or amended.

B. Excess of expenditures over appropriations

Excess of expenditures over appropriations in individual funds are as follows:

Funds Special Revenue Fund:

Traffic Signals Community Development Grant Tree Grant Lighting District Supplemental Law Enforcement

Capital Projects Funds: Valley-Antelope Run Culvert Valley Blvd. Extension

35

Excess Expenditures

$ 3,000 233 285

5,241 81,256

363 1,641


JUNE 30, 2004

(CONTINUED)

(3) Stewardship, compliance, and accountability (Continued)

C. Deficit fund equity

The following funds had deficit balances at June 30, 2004:

Special Revenue Funds: Community Development Grant East Tehachapi Bike Trails Tree Grant Lighting District

Capital Projects Funds: Railroad Depot Valley-Antelope Run Culvert Valley Blvd. Extension Tehachapi Streetscape

$ (233) (36,047)

(285) (5,241)

(178,478) (578)

(1,641) (4,495)

The City expects to abate these deficits by operating transfers from the general fund and future revenue.

(4) Detailed notes on all funds

A. Deposits and investments

At year-end, the carrying amount of the City's deposits was$ 524,793 and the bank balance was $ 548,102 . Of the bank balance, all was covered by federal depository insurance or by collateral held by the financial institution.

All cash and certificates of deposit are entirely insured or collateralized. The California Government Code requires California banks and savings and loan associations to secure a City's deposit by pledging government securities as collateral, with the collateral held by a single institution collateral pool in which the City has a perfected security interest in accordance with California Government Code Section 53655. The fair value of pledged securities must equal at least 110% of a city's deposits. California law also allows financial institutions to secure city deposits by pledging first trust deed mortgage notes having a value of 150% of a city's total deposits.

The City may waive collateral requirements for deposits which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC) or Federal Savings and Loan Insurance Corporation (FSLIC).

Investments are categorized into these three categories of credit risk: (1) Insured or registered or for which the securities are held by the City or its agent in the

City's name. (2) Uninsured and unregistered investments for which the securities are held by the dealer

bank's trust department or agent in the City's name. (3) Uninsured and unregistered investments for which the securities are held by the broker

dealer, or by the dealer bank.

36


JUNE 30, 2004

(CONTINUED)

(4) Detailed notes on all funds (Continued)

A. Deposits and investments (Continued)

At year-end, the investment balances were as follows:

U.S. Government Commercial paper

Local Agency Investment

Total investments

B. Restricted Cash

$

$

Category 2

$

$

3 Reported Amount

Fair Value

$ 399,821 $ 399,821 1,089,885 1,089,885

$ 1,489.706 1,489,706

6,877,835

$8,367,541

Included in cash and investments are restricted cash assets of $ 1,489,706 held by the various bond trustees and fiscal agents, and $ 46,377 , $9,471, and $ 8,500 of customer deposits in the Water Utility, Sewer Utility, and Airport Funds, respectively.

C. Receivables

Receivables as of year end for the City's individual major and non-major, internal service, and fiduciary funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows:

Nonmajor General RDA and Other

Fund Fund Funds Total

Taxes $ 101,116 $ 15,297 $ 2,219 $ 118,632 Others 20,398 6,324 1,596 28,318 Accounts 518,550 518,550

Gross Receivables 121,514 21,621 522,365 665,500 Less: allowance for

uncollectibles (7,589) (7,589)

Net total receivables $ 121,514 $ 21,621 $ 514,776 $ 657,911

37


JUNE 30, 2004

(CONTINUED)


D. Capital assets

Capital asset activity for the year ended June 30, 2004 was as follows:

Primary Government: Beginning Balance Increases Decreases

Governmental activities: Capital assets not being depreciated: Land $ 485,727 $ 140,217 $ (11,525) Construction in progress 2,232,072 537,293 (2,039,907) Total capital assets, not being depreciated 2,717,799 677,510 {2,051,432)

Capital assets, being depreciated: Buildings 1,347,920 48,304 (53,928) Machinery and equipment 2,132,358 109,664 Improvements other than building 1,484,693 3,161,323

· Total capital assets being depreciated 4,964,971 3,319,291 (53,928)

Less accumulated depreciation for: Buildings (687,564) (46,425) Machinery and equipment (715,426) (217,005) Improvements other than building (63,552) (163,832) Total accumulated depreciation (1,466,542) (427,262)

Total capital assets, being depreciated, net 3,498,429 2,892,029 (53,928)

Governmental activities capital assets, net $ 6,216,228 $ 3,569,539 $(2,105,360)

38

Ending Balance

$ 614,419 729,458

1,343,877

1,342,296 2,242,022 4,646,016 8,230,334

(733,989) (932,431) (227,384)

(1,893,804)

6,336,530

$ 7,680,407

(4)


JUNE 30, 2004

(CONTINUED)

Detailed notes on all funds (Continued)

D. Capital assets (Continued)

Business-type Activities:

Beginning Ending Balance Increases Decreases Balance

Business-type activities: Capital assets not being depreciated: Land $ 1,959,692 $ $ $ 1,959,692 Construction in progress 493,313 1,119,094 (4,126) 1,608,281 Total capital assets, not being depreciated 2,453,005 1,119,094 {4,126) 3,567,973

Capital assets, being depreciated: Buildings 9,551,221 9,551,221 Machinery and equipment 644,258 113,248 757,506 Improvements other than building 3,019,338 1,215,160 4,234,498 Total capital assets being depreciated 13,214,817 1,328,408 14,543,225

Less accumulated depreciation for: Buildings (4,658,550) (343,611) (5,002,161) Machinery and equipment {344,687) (50,250) (394,937) Improvements other than building (1,214,663) (120,095) (1,334,758) Total accumulated depreciation (6,217,900) (513,956) (6,731,856)

Total capital assets, being depreciated, net 6,996,917 814,452 7,811,369

Business-type activities capital assets, net $ 9,449,922 $ 1,933,546 $ (4,126) $11,379,342

Depreciation was charged to functions/programs of the primary government as follows:

Governmental activities: General government

Total depreciation expense - governmental activities

Business-type activities Water Sewer Airport

Total depreciation expense - business-type activities

39

$ 427,262

$ 427,262

$ 124,353 358,526

19,801 $ 502,680


JUNE 30, 2004

(CONTINUED)


D. Capital assets (Continued)

Construction commitments

The City has active construction projects as of June 30, 2004. At year-end the City's commitments with contractors are as follows:

Proiect Tehachapi Blvd Sidewalk II Downtown Sidewalk Dennison Reconstruction Railroad Depot Tehachapi Street Scape Downtown Masterplan Implementation

Total

E. lnterfund receivables, payables, and transfers

Spent-to-Date $ 24,131

5,337 20,632

283,273 1,794

297,164 $ 632,330

Remaining Commitment

$ 35,919 52,163

539,368 47,227

248,206 622,836

$ 1,545,720

The composition of interfund balances as of June 30, 2004 is as follows:

Due to/from other funds:

General Fund Special Revenue:

Supplemental Law Enforcement Community Development Grant Tree Grant East Tehachapi Bike Trails Goodrick Road Assessment Lighting District

Capital Projects: Railroad Depot Tehachapi Streetscape Valley Blvd. Extension Valley & Antelope Run Culvert

Enterprise Funds: Refuse Fund Airport Fund Transit Fund Water Utility Sewer Utility

Trust and Agency Funds: Capital Hills 89-1 Summit 89-2 Curry Highline 90-1 Mountain Meadows 90-1

40

Receivable Fund Payable Fund $ 604,01s _s"-· ____ _

$

145,767

145,767

7,412 7,412

$ 757,197 $

109,424 233 145

33,168 1,597 5,241

149,808

177,671 4,495 1,641

578 184,385

70,503 74,548 13,130

141,489 299,670

45,954 69,969

7,412

123,335 757,197


JUNE 30, 2004

(CONTINUED)


E. lnterfund receivables, payables, and transfers (Continued)

Advances to/from consist of the following at June 30, 2004.

Receivable Fund

General Fund $

Capital Projects: Tucker RoadNalley Blvd Exchange

Trust and Agency Funds: Capital Hills 89-1 Summit 89-2 Curry Highline 90-1 Mountain Meadows 90-1 Special Districts Revolving Fund

$

Operating Transfers consist of the following at June 30, 2004: General Fund:

Transfer to Capital Equipment Replacement

Special Revenue Funds: Gas Tax

Transfer to Community Development Grant Transfer to Surface Transportation Program

Streets and Roads Transfer to Gas Tax

Tree Grant Transfer to Gas Tax

Capital Projects Funds: Valley Blvd. Extension

Transfer to Tucker RoadNalley Blvd. Valley Antelolpe Run Culvert

Transfer to Tucker RoadNalley Blvd. Emission Reduction Project

Transfer to General Fund

RDA Fund: Transfer to Airport

Enterprise Funds: Sewer Utility

Transfer to Capital Equipment Replacement

41

132,423

161,992

294,415 294,415 588,830

Pa~able Fund

$

$

$

$

85,764 98,233 61,567 48,851

294,415 588,830 588,830

5,500

173,813 110,000

299,757

11,876 595,446

66,192

237,317

10,631 314,140

67,731

12,730

995,547


JUNE 30, 2004

(CONTINUED)


F. Other Assets

Other assets at June 30, 2004 consist of the following:

Proprietary Fund

Foreclosure receivables $ Investment on recycling 235,000

$ 235,000

Foreclosure Receivables

Trust and Agency Fund

$ 292,801

$ 292,801

Total $ 292,801

235,000 $ 527,801

The City has provided infrastructure improvements to various property owners in exchange for special taxes on those properties. Non-payment of these taxes has occurred on selected properties and the City has taken steps toward foreclosure. Funds have been expended during the foreclosure process that are expected to be received at completion of the foreclosure action. Due to the uncertainty as to the date upon which the City will receive reimbursement for the funds expended, those receivables have been reclassified as Other Assets within the Fiduciary Funds.

Joint venture in recycling project

During the year ended June 30, 1991, the City invested $235,000 in a joint venture recycling plant with Benz Sanitation, a local sanitation company. The investment does not result in title to the plant. The City does, however, have a profit-sharing interest of 5% of the gross profits and is held free from responsibility for any debts and obligations of the recycling project.

Deferred revenue

On October 7, 2003, the City entered into a Forward Bond Purchase Contract in which it sold its 1994 Refunding Revenue Bonds to an underwriter based on current interest rates. Pursuant to the agreement, the debt service of the bonds would remain the same as before the purchase contract and the City would not have to incur any additional cash debt service requirements. As a result of this purchase agreement, the City earned $282,000 net of discounts and issuance costs of $215,673. The deferred revenue will be amortized over the remaining life of the bonds of 15 years.

G. Leases

The City, at various occasions, enters into lease agreements that qualify as capital leases for accounting purposes and, therefore, have been recorded at the present value of their future minimum lease payments as of the inception date.

42


JUNE 30, 2004

(CONTINUED)


G. Leases (Continued)

The assets acquired through capital leases are as follows:

Asset: Goodrick Drive

Machinery and equipment Less: Accumulated depreciation

Total


955,571

1,028,973 (374,298)

1,610,246

Business Activities

195,719

176,921 (46,743) 325,898

The future minimum lease obligations and the net present value of these minimum lease payments as of June 30, 2004, were as follows:

Year Ending June 30,

2005 2006 2007 2008 2009

2010-2014 2015-2019 2020-2024 2025-2029 2030-2034

Less amount representing interest Present value of net minimum lease payments

H. Long term debt

Changes in General Long-Term Liabilities


$249,955 221,124 192,283 100,893 100,814 331,395 252,116 249,341 246,087 145,864

2,089,872 (585,623)

$1,504,249

Long-term liability activity for the year ended June 30, 2004, was as follows:

Jull'. 1, 2003 Additions Deletions Governmental activities: Bonds payable $ 2,500,000 $ 1,555,000 $ Less deferred amounts:

For issuance discounts (57,500) (59,136) 26,202 Total bonds payable 2,442,500 1,495,864 26,202

Capital leases 1,563,349 119,006 178,106 Compensated absences 52,965 11,363

Governmental activity Long-term liabilities $ 4,058,814 $ 1,626,233 $ 204,308

43

Business Activities

$51,987 52,032 49,573 35,285 21,753 52,124 51,637 51,072 50,404 29,876

445,743 (119,196) $326,547

June 30, 2004

$ 4,055,000

(90,434) 3,964,566 1,504,249

64,328

$ 5,533,143



(CONTINUED)


H. Long term debt (Continued)

Changes in General Long-Term Liabilities (Continued)

JUI):'. 1, 2003 Additions Deletions June 30, 2004 Business-type activities: 1994 Refunding Revenue Bond $ 3,115,000 $ $ 75,000 $ 3,040,000 1993 State Revolving Loan 1,813,406 141,586 1,671,820 1998 Sewer and Water COP 275,100 3,400 271,700 2000 Sewer and Water COP 3,435,000 250,000 3,185,000 Less deferred amounts:

For issuance discounts (150,548) (59,400) (12,039) (197,909) Total bonds payable 8,487,958 (59,400) 457,947 7,970,611

Department of Transportation Loan 128,708 5,596 123,112

Capital leases 231,229 126,323 31,005 326,547 Business-type activity

Long-term liabilities $ 8,847,895 $ 66,923 $ 494,548 $ 8,420,270


In June 2002, the Tehachapi Redevelopment Agency issued $2,500,000 of Tax Allocation Notes. Proceeds of the notes will be used to fund redevelopment activities of benefit to the Agency's Tehachapi Redevelopment Project. The notes will mature on June 1, 2007 and the interest rate is 4.7%. Interest is payable semiannually on June 1 and December 1 of each year commencing December 1, 2002. The notes are subject to redemption at the option of the agency on or after June 1, 2005. The notes will be repaid exclusively from the tax revenues to be levied from the project.

The annual debt service requirements to maturity of the 2002 Tax Allocation Notes are as follows:

Year Ending June 30, Princieal Interest

2005 117,500 2006 117,500 2007 2,500,000 117,500

Total $ 2,500,000 $ 352,500

44

•


JUNE 30, 2004

(CONTINUED)

(4) Detailed notes on all funds {Continued)

H. Long term debt {Continued)

In January 2004, the Tehachapi Redevelopment Agency issued $1,555,000 of Tax Allocation Notes. Proceeds of the notes will be used to fund redevelopment activities of benefit to the Agency's Tehachapi Redevelopment Project. The notes will mature on June 1, 2007 and the interest rate is 3.5%. Interest is payable semiannually on June 1 and December 1 of each year commencing June 1, 2004. The notes are subject to redemption at the option of the agency on or after June 1, 2005. The notes will be repaid exclusively from the tax revenues to be levied from the project.

The annual debt service requirements to maturity of the 2004 Tax Allocation Notes are as follows:


2005 54,425 2006 54,425 2007 1,555,000 54,425 Total $ 1,555,000 $ 163,275

Business Activities

The City issued Certificates of Participation, Refunding Revenue Bonds, and obtained a revolving loan from the State of California to finance the construction of sewer and water improvements. These obligations are reported in the enterprise funds as they are expected to be repaid from enterprise revenues. Amounts outstanding at June 30, 2004 are as follows:

Description Interest Rates Amounts

1994 Refunding Revenue Bond 6.69% (average) $ 3,040,000 1993 State Revolving Loan 3.00% 1,671,820 1998 Sewer and Water COP 4.50% 271,700 2000 Sewer and Water COP 5.51 % (average) 3,185,000 Department of Transportation Loan Fuel Tank 5.05% 123,112

8,291,632 Less: Unamortized discount (197,909)

$ 8,093,723

45



(CONTINUED)



The annual debt service requirements to maturity for the 1994 Refunding Revenue Bond and 2000 Sewer and Water COP are as follows:

Year Ending June 30, Principal Interest

2005 $ 335,000 $ 368,788 2006 325,000 351,840 2007 230,000 337,043 2008 245,000 323,855 2009 260,000 309,689 2010-2014 1,550,000 1,296,809 2015-2019 2,140,000 753,913 2020-2024 1,140,000 78,300 Total $ 6,225,000 $ 3,820,236

State Revolving Loan

During fiscal year of 1994-1995, the City obtained financing from the State of California for the construction of sewer facilities. The State established a line of credit upon which the City received $2,882,112 in eleven disbursements from January 1993 to January 1994. The interest rate is 3.0% and repayment is scheduled in annual installments over 20 years commencing November 1, 1994.

The annual debt service requirements are as follows: Year Ending

June 30, Princieal Interest 2005 $ 145,834 $ 50,154 2006 150,209 45,779 2007 154,715 41,273 2008 159,356 36,632 2009 164,138 31,850 2010-2014 897,569 82,371

Total $ 1,671,821 $ 288,059

In July 1998, the City obtained loans from the USDA Rural Development Department, totaling $289,900. The Sewer Fund received $103,000 and the Water Fund received $186,900. The City used these funds to finance the sale of COP's totaling $289,900; $103,000 for the Sewer Fund and $186,900 for the Water Fund, on July 15, 1998 with an interest rate of 4.5%. The revenue from the sale of the COP's was used to finance the building of a new sewer line to connect to the recently annexed Ashe tract.

46


JUNE 30, 2004

(CONTINUED)



The annual debt service requirements to maturity for the 1998 Sewer and Water COP's are as follows:


2005 $ 3,600 $ 12,226 2006 3,700 12,065 2007 3,900 11,899 2008 4,000 11,722 2009 4,200 11,543 2010-2014 24,100 54,697 2015-2019 29,800 48,786 2020-2024 37,200 41,441 2025-2029 46,700 32,238 2030-2034 58,000 20,781 2035-2039 56,500 6,498 Total $ 271,700 $ 263,896

In October 1998, the City obtained financing from the Department of Transportation Aeronautics Program for the purchase of a fuel tank for the airport. The cost of the fuel tank was $139,900. The interest rate is 5.0% and repayment is scheduled in annual installments over 17 years commencing January 1, 2002.

The annual debt service requirements to maturity are as follows:

Year Ending June 30,

2005 2006 2007 2008 2009

2010-2014 2015-2019

Deferred Charges

Princieal $ 6,051

6,535 7,019 7,503 7,987

47,199 40,818

$ 123,112

Interest $ 6,217

5,911 5,581 5,227 4,848

17,702 4,847

$ 50,333

On December 21, 1994, the City issued $3.675 million in Refunding Revenue Bonds at variable interest rates to partially current refund $2.455 million of 1990 Sewer and Water COP's and to purchase sewer improvements from the General Fund. The General Fund used the sales proceeds to retire the 1992 Certificates of Participation (a general longterm debt obligation of the City). The current refunding was undertaken to implement the

47


JUNE 30, 2004

(CONTINUED)



purchase of the sewer improvements from the General Fund. The reacquisition price exceeded the net carrying amount of the old debt by $149,494. This amount is being amortized over the new debt life, which is shorter than the life of the refunded debt.

Also, on April 1, 2000, the City issued $3.990 million in Installment Sale COP's at variable interest rates to current refund the outstanding balance of the 1990 Sewer and Water COP's and to pay off their water rights loan from Sierra National Bank. The reacquisition price exceeded the net carrying amount of the old debt by $323,218. This amount is being amortized over the new debt life, which is shorter than the life of the refunded debt.

Special Assessment Districts and Community Facilities Districts

The City issued limited obligation bonds to finance the construction of infrastructure improvements within the City through the use of Special Assessment Districts and Community Facilities Districts. The repayment of the bonds are payable from special assessments and special taxes levied each year, or from foreclosure proceeds. The bonds do not constitute indebtedness of the City, and the City is in no way obligated for their repayment and is only acting on behalf of bondholders in collecting the assessments/taxes, forwarding the collections to the bondholders and initiating foreclosure proceedings, if necessary. Accordingly, these special assessment and special tax bonds payable have been excluded from the accompanying primary government financial statements.

Limited obligation assessment district and community facilities district bonds outstanding amounted to $3,245,000 at June 30, 2004.

Due to delinquent annual levies amounting to $4,230,722, limited obligation bonds amounting to $ 5,455,000 (principal only) are in default at June 30, 2004.

The City is currently involved in litigation relating to these delinquent assessments (see Note 5) and is in the process of foreclosing on property on behalf of the bondholders. Some foreclosure proceedings have been delayed by court actions (bankruptcy appeals, etc.) and it is unknown when the properties will be liquidated to satisfy the bondholders. It is also not known if the proceeds from the property will be adequate to satisfy the delinquent assessments. In addition, the City has rendered legal fees on behalf of bondholders for such foreclosure actions. Such advances amounted to $294,415 at June 30, 2004.

48


JUNE 30, 2004

(CONTINUED)

(5) Other information

A. Risk management

The City participates with other public entities in a joint venture under a joint powers agreement which establishes the Central San Joaquin Valley Risk Management Authority (CSJVRMA). The relationship between the City and CSJVRMA is such that CSJVRMA is not a component unit of the City for financial reporting purposes.

The City is covered for the first $1,000,000 of each general liability claim and $350,000 of each workers' compensation claim through the CSJVRMA. The City has the right to receive dividends or the obligation to pay assessments based on a formula which, among other expenses, charges the City's account for liability and workers' compensation losses under $10,000. The City's share of estimated claims payable at June 30, 2004 amounted to $0. The CSJVRMA participates in an excess pool which provides general liability coverage from $1,000,000 to $15,000,000 and purchases excess reinsurance to $10,000,000. The CSJVRMA participates in an excess pool which provides workers' compensation coverage from $350,000 to $1,000,000 and purchases excess reinsurance above the $1,000,000 to the statutory limit.

The CSJVRMA is a consortium of fifty-five (55) cities in San Joaquin Valley, California. It was established under the provisions of California Government Code Section 6500 et seq. The CSJVRMA is governed by a Board of Directors, which meets 3 times per year, consisting of one member appointed by each member city. The day-to-day business is handled by a management group employed by the CSJVRMA. The financial position and results of operations for the Authority, as of June 30, 2003 (the most recent information available), are presented below:

Total Assets

Total Liabilities Total Retained Earnings Total Liabilities and Retained Earnings

Total Revenues for Year Total Expenses for Year Net Loss for Year

(In Thousands) $ 53,349

$

$

41,030 12,319 53,349 17,997 19,903 (1,906)

At the termination of the joint powers agreement and after all claims have been settled, any excess or deficit will be divided among the cities in accordance with its governing documents.

49


JUNE 30, 2004

(5) Other information (Continued)

B. Contingent liabilities

(CONTINUED)

The City is a defendant in various lawsuits. 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.

Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the City expects such amounts, if any, to be immaterial.

C. City employee retirement plan

Plan Description

The City of Tehachapi's (the City) defined benefit pension plan (the Miscellaneous Plan) provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. The Miscellaneous Plan of the City is part of the Public Agency portion of the California Public Employees Retirement System (CalPERS), an agent multiple-employer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements are established by Stale statutes within the Public Employees' Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local ordinance 21252.01. CalPERS issues a separate comprehensive annual financial report. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814.

Funding Policy

Active plan members in the Miscellaneous Plan are required to contribute 7% of their annual covered salary. The City is required lo contribute the actuarially determined remaining amounts necessary lo fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal 2003-04 was 0%. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by CalPERS.

50


JUNE 30, 2004

(CONTINUED)


C. City employee retirement plan (Continued)

Annual Pension Cost

For fiscal year 2003-04, the City's annual pension cost was $0 and the City actually contributed $0. The required contribution for fiscal year 2003-04 was determined as part of the June 30, 2002 actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included (a) 8.25% investment rate of return (net of administrative expenses); (b) projected salary increases that vary by age, duration of seNice, and type of employment ranging from 3.75% to 14.20% for miscellaneous members, and (c) 3.75% payroll growth. Both (a) and {b) include an inflation component of 3.5%. The actuarial value of the Miscellaneous Plan's assets was determined using a technique that smoothes the effect of short-term volatility in the market value of investments over a three-year period. The Miscellaneous Plan's unfounded actuarial accrued liability (or excess assets) is being amortized as a level percentage of projected payroll over a closed 20-year period. The remaining amortization period at June 30, 2002 was thirty years.

Three-Year Trend Information for the Miscellaneous Plan

Fiscal Year Ending

6/30/2002 6/30/2003 6/30/2004

Annual Pension Percentage of Cost (APC} APC Contributed

100.00% 100.00% 100.00%

Required Supplementary Information - Funded Status of Miscellaneous Plan

Entry Age Normal Actuarial Unfunded/ Annual

Valuation Accrued Value of (Overfunded) Funded Covered Date Liabilitl Assets Liabili!J'. Ratio Payroll

06/30/00 $ 2,129,899 $ 2,969,016 $ (839,117} 139.40% $ 840,668 06/30/01 $ 2,313.373 $ 3,041,704 $ (728,331) 131.50% $ 816,576 06/30/02 $ 2,507,357 $ 2,918,579 $ (411,222) 116.40% $ 977,916

51

Net Pension Obligation

UMLasa % of

Palroll (99.815%} (89.193%} (42.051%)


JUNE 30, 2004

(CONTINUED)



The City of Tehachapi's (the City) defined benefit pension plan (the Safety Plan) provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The Safety Plan of the City is part of the Public Agency portion of the California Public Employees Retirement System (Cal PERS), an agent multipleemployer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees' Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local ordinance 21252.01. Cal PERS issues a separate comprehensive annual financial report. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, California 95814.

Funding Policy

Active plan members in the Safety Plan are required to contribute 7% of their annual covered salary. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal 2003-04 was $38,383 for retired firefighters and police. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by CalPERS.

Annual Pension Cost

For fiscal year 2003-04, the City's annual pension cost was $38,383 and the City actually contributed $0. The required contribution for fiscal year 2003-2004 was determined as part of the June 30, 2002 actuarial valuation using the entry age nonmal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included (a) 8.25% investment rate of return (net of administrative expenses); (b) projected salary increases that vary by age, duration of service and type of employment ranging from 4.27% to 11.59% for safety members, and (c) 3.75% to payroll growth. Both (a) and (b) include an inflation component of 3.5%. The actuarial value of the Safety Plan's assets was detenmined using a technique that smoothes the effect of short-term volatility in the market value of investments over a three-year period. The Safety Plan's unfounded actuarial accrued liability ( or excess assets) is being amortized as a level percentage of projected payroll over a closed 20-year period. The remaining amortization period at June 30, 2002 was seven years.

52


JUNE 30, 2004

(CONTINUED)



Three-Year Trend Information for the Safety Plan

Fiscal Year Ending Annual Pension June 30, Cost (APC)

2002 $ 84,901 2003 $ 80,666 2004 $ 38,383

Percentage of APC Contributed

0.00% 0.00% 0.00%

Net Pension Obli9ation

$ 84,901 $ 80,666 $ 38,383

The net pension obligation of $38,383 was paid at the beginning of fiscal year 2004-2005.

Required Supplementary Information - Funded Status of Safety Plan

Entry Age Normal Actuarial Unfunded/ Annual UAALas a

Valuation Accrued Value of (Overfunded) Funded Covered % of Date Liability Assets Liability Ratio Payroll Paxroll

6/30/2000 $ 1.375, 135 $ 965.907 $ 409,228 70.20% $ N/A 6/30/2001 $ 1,394,971 $ 913,463 $ 481,508 65.50% $ 45,864 1049.90% 6/30/2002 $ 1,489,195 $ 849,122 $ 640,073 57.00% $ 48,216 1327.50%

D. Deferred compensation plan

The City offers all its regular full-time employees a deferred compensation plan created in accordance with Internal Revenue Code (IRC) Section 457. The plan permits participating employees to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency.

The plan was started in September 1998. On that date, assets of the plan were placed in trust for the exclusive benefit of participants and their beneficiaries. The requirements of that IRC Section prescribes that the City does not own the amounts deferred by employees, including the related income on those amounts. Accordingly, the assets and the liability for the compensation deferred by plan participants, including earnings on plan assets, are not reported on the City's financial statements for the year ended June 30, 2004.

53


JUNE 30, 2004


E. Reserved fund balances

(CONTINUED)

Fund balances that are not available for appropriation at June 30, 2004 are reserved for the following purposes:

Reserved Prepaids Advances to other funds Designated for future projects

$

General Fund

24,348 132,423

156,771 $

F. Changes in beginning fund balances

Government Funds:

Fund Balance, June 30, 2003 as previously stated

Reclass expenses to proper account

Fund Balance, June 30, 2003 as restated

Proprietary Funds:

Fund Balance, June 30, 2003 as previously stated

Reclass expenses to proper account

Fund Balance, June 30, 2003 as restated

Subsequent event:

Special Revenue

Fund

30,000 30,000 $

Water Fund

$ 1,828,920

40,525

$ 1,869,445

Capital Projects

Fund Total

24,348 161,992 294,415 188,863 218,863

350,855 =$====5=3=7,=62=6=

General Fund Gas Tax

$ 1,696,958 $ 362,302

(15) 8,222

$ 1,696,943 $ 370,524

Sewer Airport Fund Fund

$ 993,741 $ 235,862

(48,729) (11,277)

$ 945,012 $ 224,585

On November 1, 2004, the City issued 2004 Water and Sewer Revenue Refunding Bonds in the amount of $3,770,000. These 2004 bonds were issued for the purpose of prepaying and defeasing the outstanding 1994 Water and Sewer Revenue Refunding Bonds with an aggregate principal amounts of $2,980,000 and to pay the costs of issuance of the Bonds. The bonds were issued with an interest rate ranging from 2% to 4.125% over the life of the bonds, with a debt service requirement of $5,436,606 to be paid over the next 15 years.

54

REQUIRED SUPPLEMENTARY INFORMATION

CITY OF TEHACHPI STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND


Final Budget Actual

REVENUES Grants $ $ 10,000 Taxes 2,286,734 2,578,917 Licenses and permits 11,655 9,725 Interest 40,000 37,109 Miscellaneous 134,444 153,426

Total revenues 2,472,833 2,789,177

EXPENDITURES General government 542,271 494,114 Administration 149,306 137,789 Public works 518,392 502,992 Planning 144,190 124,056 Fire department 287,895 332,522 Sheriff 816,512 801,255 Council 38,627 37,447 City clerk 101,458 83,866 Treasurer 6,405 4,357

Total expenditures 2,605,056 2,518,398

Excess (deficiency) of revenues over (under) expenditures (132,223) 270,779

OTHER FINANCING SOURCES(USES) Transfers in 10,631 10,631 Transfers out (5,500) (5,500)

Total other financing sources 5,131 5,131

Net change in fund balances (127,092) 275,910

Fund balances - beginning 1,696,958 1,696,958 Prior period adjustment (15)

Fund balances - ending 1,569,866 $ 1,972,853

55

Variance with Final Budget -

Positive (Negative)

$ 10,000 292,183

(1,930) (2,891) 18,982

316,344

48,157 11,517 15,400 20,134

(44,627) 15,257

1,180 17,592 2,048

86,658

403,002

403,002

(15)

$ 402,987

• CITY OF TEHACHPI

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL

GAS TAX FUND FOR THE YEAR ENDED JUNE 30, 2004

Bud9et Actual REVENUES Taxes $ 199,000 $ 201,611 Interest 4,000 4,489

Total revenues 203,000 206,100

EXPENDITURES Public works 625,154 525,644

Total expenditures 625,154 525,644

Excess (deficiency) of revenues over (under)expenditures (422,154) (319,544)

OTHER FINANCING SOURCES {USES) Proceeds of debt 62,193 119,005 Transfers in 311,633 311,633 Transfers out (283,813) (283,813)

Total other financing sources (uses) 90,013 146,825

Change in fund balances (332,141) (172,719)

Fund balance - beginning 362,302 362,302 Prior Period Adjustment 8,222

Fund balance - ending $ 30,161 $ 197,805

56

Variance Favorable

(Unfavorable)

$ 2,611 489

3,100

99,510

99,510

102,610

56,812

56,812

159,422

$ 167,644


CHANGES IN FUND BALANCES - BUDGET AND ACTUAL VALLEY ANTELOPE RUN CULVERT


Budget Actual REVENUES Grants $ $

Total revenues

EXPENDITURES Public works Planning 621,000 621,363


Excess (deficiency) of revenues over (under)expenditures (621,000) (621,363)

OTHER FINANCING SOURCES (USES) Transfers out (237,317) (237,317)

Total other financing sources (uses) (237,317) (237,317)

Change in fund balances (858,317) (858,680)

Fund balance - beginning 858,102 858,102

Fund balance - ending $ (215) $ (578)

57

Variance Favorable

(Unfavorable)

$

(363)

(363)

(363)

(363)

$ (363)


CHANGES IN FUND BALANCES - BUDGET AND ACTUAL RDA FUND


Budget Actual

REVENUES

Taxes $ 210,299 $ 264,115

Interest 8,700 16,921

Total revenues 218,999 281,036

EXPENDITURES

Administration 520,859 484,946


Excess (deficiency) of

revenues over (under)expenditures (301,860) (203,910)

OTHER FINANCING SOURCES (USES)

Proceeds of debt 1,555,000 1,555,000

Interest Expense (117,500) (135,944)

Transfers out (67,731) (67,731)

Total other financing

sources (uses) 1,369,769 1,351,325

Excess (deficiency) of revenues over expenditures and other

Change in fund balances $ 1,067,909 1,147,415

Fund balance - beginning 681,033 681,033

Fund balance - ending $ 1,748,942 $ 1,828,448

58

Variance

Favorable

(Unfavorable)

$ 53,816

8,221

62,037

35,913

35,913

26,124

(18,444)

(18,444)

$ 79,506

$ 79,506

SUPPLEMENTARY INFORMATION

CITY OF TEHACHAPI COMBINING BALANCE SHEET

NONMAJOR GOVERNMENTAL FUNDS

JUNE 30, 2004

Special Capital Total Revenue Projects Nonmajor

ASSETS Cash and short-term investments $ 331,138 $ 1,740,798 $ 2,071,936 Receivables (net of allowance) 1,597 1,597 Advance to other funds 161,992 161,992

Total assets 332,735 1,902,790 2,235,525

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities 16,407 106,669 123,076 Due to other funds 149,808 183,807 333,615


Fund Balances: Reserved fund balance Unreserved fund balance 166,520 1,612,314 1,778,834

Total fund balance 166,520 1,612,314 1,778,834

Total liabilities and fund balance $ 332,735 $ 1,902,790 $ 2,235,525

59

CITY OF TEHACHAPI COMBINING STATEMENT OF REVENUES, EXPENDITURES,

AND CHANGES IN FUND BALANCES NONMAJOR

GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2004

Special Capital Total

Revenue Projects Nonmajor

REVENUES Grants $ 5,000 $ 19,015 $ 24,015 Other sources of funds 430,212 430,212 Interest 3,718 7,414 11,132

Total revenues 438,930 26,429 465,359

EXPENDITURES Public works 249,810 249,810 Planning 47,782 510,979 558,761 Sheriff 53,074 53,074

Total expenditures 350,666 510,979 861,645


revenues over (under) expenditures 88,264 (484,550) (396,286)

OTHER FINANCING SOURCES (USES) Transfers in 283,813 321,739 605,552 Transfers out (311,633) (76,823) (388,456)


sources (uses) (27,820) 244,916 217,096

Net change in fund balances 60,444 {239,634) (179,190)

Fund balances - beginning 106,076 1,851,948 1,958,024

Fund balances - ending $ 166,520 $ 1,612,314 $ 1,778,834

60


NONMAJOR SPECIAL REVENUE FUNDS JUNE 30, 2004

Cleep, Supplemental Surface Law

Traffic Law Transportation Enforcement Signals Enforcement Program Equipment

ASSETS Cash and short-term investments $ 36,440 $ 191,255 $ 83,656 $ 7,399 Receivables (net of allowance)

Total assets $ 36,440 $ 191,255 $ 83,656 $ 7,399

LIABILITIES AND FUND BALANCE Liabilities Accounts payable and accrued liabilities $ $ 9,706 $ 3,682 $ Due to other funds 109,424

Total liabilities 119,130 3,682

Fund balance Unreserved 36,440 72,125 79,974 7,399

Total fund balance 36,440 72,125 79,974 7,399

Total liabilities and Fund balance $ 36,440 $ 191,255 $ 83,656 $ 7,399

61


NONMAJOR SPECIAL REVENUE FUNDS (CONTINUED) JUNE 30, 2004

Oil Beverage Recycling TDA3 Container Tree

Grant Bike Safety Recycling Grant

ASSETS Cash and short-term investments $ 8,173 $ $ 4,215 $ Receivables (net of allowance)

Total assets $ 8,173 $ $ 4,215 $

LIABILITIES AND FUND BALANCE Liabilities Accounts payable and accrued liabilities $ $ 2,879 $ $ 140

Due to other funds 33,168 145

Total liabilities 36,047 285

Fund balance Unreserved 8,173 (36,047) 4,215 (285)

Total fund balance 8,173 (36,047) 4,215 (285)

Total liabilities and Fund balance $ 8,173 $ $ 4,215 $

62


NONMAJOR SPECIAL REVENUE FUNDS (CONTINUED) JUNE 30, 2004

Goodrick Community Road Lighting Development Total

Assessment District Grant Nonmajor

ASSETS Cash and short-term investments $ $ $ $ 331,138 Receivables (net of allowance) 1,597 1,597

Total assets $ 1,597 $ $ $ 332,735

LIABILITIES AND FUND BALANCE Liabilities Accounts payable and accrued liabilities $ $ $ $ 16,407 Due to other funds 1,597 5,241 233 149,808

Total liabilities 1,597 5,241 233 166,215

Fund balance Unreserved (5,241) (233) 166,520

Total fund balance (5,241) (233) 166,520

Total liabilities and Fund balance $ 1,597 $ $ $ 332,735

63

• CITY OF TEHACHAPI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS

FOR YEAR ENDED JUNE 30, 2004

Supplemental Streets Traffic Law

and Roads Signals Enforcement REVENUES Grants $ $ $ Other sources of funds 299,757 30,455 100,000 Interest 3,147

Total revenues 299,757 30,455 103,147

EXPENDITURES Administration Public works 156,257 Planning 3,000 Sheriff


Excess ( deficiency) of revenues over (under) expenditures 299,757 27,455 (53,110)

OTHER FINANCING SOURCES (USES) Transfers in Transfers out (299,757)

Total other financing sources (uses) (299,757)

Net change in fund balances 27,455 (53,110)

Fund balances beginning 8,985 125,235

Fund balances - ending $ $ 36,440 $ 72,125

64

Surface Transportation

Program

$

20,632

20,632

(20,632)

110,000

110,000

89,368

(9,394)

$ 79,974


COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

NONMAJOR SPECIAL REVENUE FUNDS (CONTINUED) FOR YEAR ENDED JUNE 30, 2004

Cleep, Law Oil Beverage Enforcement Recycling TDA3 Container Eguiement Grant Bike Safet~ Rec~cling

REVENUES Grants $ $ $ $ 5,000 Other sources of funds Interest 358 122 91

Total revenues 358 122 5,091

EXPENDITURES Administration Public works 8,463 Planning 16,748 Sheriff 53,074

Total expenditures 53,074 16,748 8,463

Excess (deficiency} of revenues over (under) expenditures (52,716} 122 (16,748) (3,372)

OTHER FINANCING SOURCES (USES } Transfers in Transfers out

Total other financing sources (uses}

Net change in fund balances (52,716) 122 (16,748) (3,372)

Fund balances beginning 60,115 8,051 (19,299) 7,587

Fund balances - ending $ 7,399 $ 8,173 $ (36,047) $ 4,215

65

• CITY OF TEHACHAPI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES NONMAJOR SPECIAL REVENUE FUNDS (CONTINUED)


Community Tree Lighting Development Grant District Grant

REVENUES Grants $ $ $ Other sources of funds Interest

Total revenues

EXPENDITURES Administration Public works 85,090 Planning 285 5,241 1,876 Sheriff

Total expenditures 285 5,241 86,966

Excess (deficiency) of revenues over (under) expenditures (285) (5,241) (86,966)

OTHER FINANCING SOURCES (USES ) Transfers in 173,813 Transfers out (11,876)

Total other financing sources (uses) (11,876) 173,813

Net change in fund balances (12,161) (5,241) 86,847

Fund balances beginning 11,876 (87,080)

Fund balances - ending $ (285) $ (5,241) $ (233)

66

Total Nonmajor

$ 5,000 430,212

3,718

438,930

249,810 47,782 53,074

350,666

88,264

283,813 (311,633)

(27,820)

60,444

106,076

$ 166,520

• CITY OF TEHACHAPI COMBINING BALANCE SHEET

NONMAJOR CAPITAL PROJECTS FUNDS JUNE 30, 2004

Tucker Road/ Capital Valley Valley Blvd. Railroad Equipment Blvd. Exchange Depot Replacement Extension

ASSETS Cash and short-term investments $ 745,355 $ $ 64,230 $ Advance to other funds 161,992

Total assets $ 907,347 $ $ 64,230 $

LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ $ 806 $ $ Due to other funds 177,671 1,641

Total liabilities 178,477 1,641

Fund balance Reserved fund balance Unreserved fund balance 907,347 (178,477} 64,230 (1,641)

Total fund balance 907,347 (178,477) 64,230 (1,641}

Total liabilities and Fund balance $ 907,347 $ $ 64,230 $

67


NONMAJOR CAPITAL PROJECTS FUNDS (CONTINUED) JUNE 30, 2004

Downtown Tehachapi BeeKay Master Total

Streetscape Theater Plan Nonmajor

ASSETS Cash and short-term investments $ $ 239,524 $ 691,689 $ 1,740,798 Advance to other funds 161,992

Total assets $ $ 239,524 $ 691,689 $ 1,902,790

LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ $ $ 105,863 $ 106,669 Due to other funds 4,495 183,807


Fund balance Reserved fund balance Unreserved fund balance (4,495) 239,524 585,826 1,612,314

Total fund balance (4,495) 239,524 585,826 1,612,314

Total llabllitles and Fund balance $ $ 239,524 $ 691,689 $ 1,902,790

68

CITY OF TEHACHPI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS


Tucker Road/

Valley Blvd. Railroad

Exchan11e Deeot

REVENUES

Grants $ $

Interest 7,414

Total revenues 7,414

EXPENDITURES

Planning 196,101


revenues over (under) expenditures 7,414 (196,101)

OTHER FINANCING SOURCES (USES) Transfers in 303,509

Transfers out


sources (uses) 303,509

Net change in fund balance 310,923 (196,101)

Fund balances - beginning 596,424 17,624

Prior period adjustment

Total adjusted fund balance - beginning 596,424 17,624

Fund balances - ending $ 907,347 $ (178,477)

69

Capital

Equipment

Reelacement

$

18,230

18,230

18,230

46,000

46,000

$ 64,230

CITY OF TEHACHPI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS (CONTINUED)


Valley

Blvd. Tehachapi

Extension Streetscaee

REVENUES

Grants $ 19,015 $

Interest

Total revenues 19,015

EXPENDITURES

Planning 3,696


revenues over (under) expenditures 15,319

OTHER FINANCING SOURCES (USES) Transfers in

Transfers out (66,192)


sources (uses) (66,192)

Net change in fund balance (50,873)

Fund balances - beginning 49,232 (4,495)


Total adjusted fund balance - beginning 49,232 {4,495)

Fund balances - ending $ (1,641) $ (4,495)

70

BeeKay

Theater

$

239,524

239,524

$ 239,524

' CITY OF TEHACHPI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES NONMAJOR CAPITAL PROJECTS FUNDS (CONTINUED)


Emission

Reduction Downtown

Project Master Plan

REVENUES

Grants $ $

Interest

Total revenues

EXPENDITURES

Planning 311,182


revenues over (under) expenditures (311,182)

OTHER FINANCING SOURCES (USES) Transfers in

Transfers out (10,631)


sources (uses) (10,631)

Net change in fund balance (10,631) (311,182)

Fund balances - beginning 10,631 897,008


Total adjusted fund balance - beginning 10,631 897,008

Fund balances - ending $ $ 585,826

71

Total

Nonmajor

$ 19,015

7.414

26,429

510,979

(484,550)

321,739

(76,823)

244,916

(239,634)

1,851,948

1,851,948

$ 1,612,314

ASSETS Current assets

CITY OF TEHACHPI COMBINING STATEMENT OF NET ASSETS

NONMAJOR PROPRIETARY FUNDS JUNE 30, 2004

Receivables (net of allowance) Total current assets

Total assets

LIABILITIES Current liabilities Accounts payable Due to other funds Total current liabilities

Deferred revenue

Total liabilities

NET ASSETS Restricted Unrestricted

Total net assets

72

Transit

$ 12,948 12,948

12,948

15,106 13,130 28,236

67,869

96,105

(83,157)

$ (83,157)

CITY OF TEHACHPI COMBINING STATEMENT OF REVENUES, EXPENSES AND

CHANGES IN FUND NET ASSETS NONMAJOR PROPRIETARY FUNDS


OPERATING REVENUES Charges for services

Miscellaneous

Total operating revenues

OPERATING EXPENSES Personnel services Maintenance and operations

Total operating expenses

Operating income {loss)

NONOPERATING REVENUES {EXPENSES) Intergovernmental Interest

Total nonoperaling revenues (expenses)

Income {loss) before operating transfers

Change in net assets

Net assets - beginning

Net assets - ending

73

Transit

$

9,525 89,656

99,181

(99,181)

33,633 224

33,857

{65,324)

(65,324)

(17,833)

$ (83,157)

CITY OF TEHACHPI COMBINING STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES

FIDUCIARY FUNDS JUNE 30, 2004

East Tehachapi

Capital Tucker Blvd. Summit Hills 89-1 Road 87-1 Project 89-3 89-2

ASSETS Cash and short-term investments $ 1,072,772 $ 153,774 $ 64,543 $ Receivables (net of allowance) 1,433 Due from other funds Advances to other funds Due from bond holders 50,504 Other assets 55,058 25,436 118,035

Total assets $ 1,129,263 $ 153,774 $ 89,979 $ 168,539

LIABILITIES Accounts payable $ 548,518 $ $ $ 337 Deposits 529 Due to other funds 45,954 69,969 Due to bond holders 448,498 153,774 89,979 Advances from other funds 85,764 98,233

Total liabilities $ 1,129,263 $ 153,774 $ 89,979 $ 168,539

74

.,.. ) "-I CITY OF TEHACHPI COMBINING STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES

FIDUCIARY FUNDS (Continued) JUNE 30, 2004

Curry Mountain Special Highline Meadows Districts

90-1 90-1 Revolving Fund

ASSETS Cash and short-term investments $ (65,026) $ 273,520 $ Receivables (net of allowance) 786 Due from other funds 7,413 Advances to other funds 294,415 Due from bond holders 118,599 Other assets 15,405 78,867

Total assets $ 68,978 $ 360,586 $ 294,415

LIABILITIES Accounts payable $ $ 14 $ Deposits 25,158 Due to other funds 7,412 Due to bond holders 286,563 Advances from other funds 61,566 48,851 294,415

Total liabilities $ 68,978 $ 360,586 $ 294,415

75

Total Trust and Agency Funds

$ 1,499,583 2,219 7,413

294,415 169,103 292,801

$ 2,265,534

$ 548,869 25,687

123,335 978,814 588,829

$ 2,265,534

APPENDIXC

SUMMARY OF CERTAIN PROVISIONS OF lHE INDENTURE

Certain provisions of the Indenture are summarized below. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the Indenture.

Definitions

"Agency" means the Redevelopment Agency of the City of Tehachapi, a public body corporate and politic duly organized and existing under the Redevelopment Law, and sometimes known or designated as "Redevelopment Agency of the City of Tehachapi".

"Annual Debt Service" means, for any Bond Year, the sum of (a) the interest payable on the Outstanding Bonds and all other Parity Debt, in such Bond Year, and (b) the principal amount of the Outstanding Bonds and all Parity Debt, scheduled to be paid in such Bond Year upon the maturity or mandatory Sinking Account redemption thereof.

"Bond Counsel" means (a) Jones Hall, A Professional Law Corporation, or (b) any other attorney or firm of attorneys appointed by or acceptable to the Agency of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code.

"Bond Year" means any twelve-month period beginning on December 2 in any year and extending to the next succeeding December 1, both dates inclusive; except that the first Bond Year shall begin on the Closing Date and end on December 1, 2006.

"Bonds" means, collectively, the 2005 Bonds and any Parity Debt.

"Business Day" means a day of the year (other than a Saturday or Sunday) on which banks in the State are not required or permitted to be closed, and on which the New York Stock Exchange is open.

"Capitalized Interest Subaccount" means the subaccount by that name established and held by the Trustee pursuant to Section 4.03(a).

"Certificate of the Agency" means a certificate in writing signed by the Chairman, Executive Director, Treasurer or Secretary of the Agency, or any other officer of the Agency duly authorized by the Agency for that purpose.

"Qity" means the City of Tehachapi, a municipal corporation organized and existing under the laws of the State.

"Closing Date" means the date on which the 2005 Bonds are delivered by the Agency to the Original Purchaser.

"Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate executed buy the Agency dated as of the Closing Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

Appendix C Page 1

"Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the Agency relating to the authorization, issuance, sale and delivery of the 2005 Bonds, including but not limited to: printing expenses; rating agency fees; filing and recording fees; initial fees, expenses and charges of the Trustee and its counsel, including the Trustee's first annual administrative fee; fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals; fees and charges for preparation, execution and safekeeping of the 2005 Bonds; and any other cost, charge or fee in connection with the original issuance of the 2005 Bonds.

"Costs of Issuance Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.03.

"County" means the County of Kern, a county duly organized and existing under the Constitution and laws of the State.

"Debt Service Fund" means the fund by that name established and held by the Trustee pursuant to Section 4.03.

"Depository" means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to Section 2.04.

"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.

"Event of Default" means any of the events described in Section 8.01.

"Fair Market Value" means, with respect to any investment, 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 Tax 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 Tax 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 Tax 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 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 general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and CATS and TGRS), or obligations the payment of principal of and interest on which are unconditionally guaranteed by the United States of America.

"Fiscal Year" means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other twelve-month

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period selected and designated by the Agency as its official fiscal year period pursuant to a Certificate of the Agency filed with the Trustee.

"Indenture" means this Indenture of Trust by and between the Agency and the Trustee, as amended or supplemented from time to time pursuant to any Supplemental Indenture entered into pursuant to the provisions hereof.

"Independent 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, appointed by or acceptable to the Agency, and who, or each of whom: (a) is in fact independent and not under domination of the Agency; (b) does not have any substantial interest, direct or indirect, with the Agency; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

"Independent Fiscal Consultant" means any consultant or firm of such consultants appointed by or acceptable to the Agency and who, or each of whom: (a) is judged by the Agency to have experience in matters relating to the financing of redevelopment projects; (b) is in fact independent and not under domination of the Agency; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

"Information Services" means Financial Information, lnc.'s "Daily Called Bond Service", 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Mergent'FIS, Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attn: Called Bond Dept.; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the Agency may designate in a Written Request of the Agency delivered to the Trustee.

"Insurance Policy" means the Financial Guaranty Insurance Policy issued by the Insurer insuring the payment when due of the principal of an interest on the Bonds as provided herein.

"Insurer" means Radian Asset Assurance Inc., as issuer of the Insurance Policy.

"Interest Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(a).

"Interest Payment Date" means June 1, 2006, and each June 1 and December 1 thereafter so long as any of the Bonds remain unpaid.

"Maximum Annual Debt Service" means, as of the date of calculation, the largest aggregate amount of Annual Debt Service on all Outstanding Bonds, including the 2005 Bonds and all other Parity Debt, for the current or any future Bond Year. For purposes of such calculation, there shall be excluded a pro rata portion of each installment of principal of any Parity Debt, together with the interest to accrue thereon, in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from which amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year (as evidenced in the written records of the County).

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

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"2002 Notes" means the Redevelopment Agency of the City of Tehachapi Tehachapi Redevelopment Project 2002 Tax Allocation Notes, issued by the Agency in the aggregate principal amount of $2,500,000 pursuant to the 2002 Indenture.

"2002 Indenture" means the Indenture of Trust dated as of April 1, 2002, by and between the Agency and BNY Western Trust Company, as trustee, as amended and supplemented from time to time.

"2004 Notes" means the Redevelopment Agency of the City of Tehachapi Tehachapi Redevelopment Project 2004 Subordinate Tax Allocation Notes, issued by the Agency in the aggregate principal amount of $1,555,000 pursuant to the 2004 Indenture.

"2004 Indenture" means the Indenture of Trust dated as of January 1, 2004, by and between the Agency and BNY Western Trust Company, as trustee, as amended and supplemented from time to time.

"New Reserve Requirement" means, as of any calculation date, the amount of the Reserve Requirement which would result if all amounts then on deposit in the Special Escrow Fund (other than any amounts to be released from the Special Escrow Fund on the applicable Escrow Release Date) were withdrawn therefrom and applied to redeem Bonds on such Escrow Release Date.

"Office" means, with respect to the Trustee, the corporate trust office of the Trustee at 700 S. Flower Street, Suite 500, Los Angeles, California 90017, or at such other or additional offices as may be specified by the Trustee in writing to the Agency, provided that for the purposes of maintenance of the Registration Books and presentation of Bonds for transfer, exchange or payment such term shall mean the office of the Trustee at which it conducts its corporate agency business.

"Original Purchaser" means Kinsell, Newcomb & DeDios, Inc. as original purchaser of the 2005 Bonds.

"Outstanding", when used as of any particular time with reference to Bonds, means (subject to the provisions of Section 9.05) all Bonds except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds paid or deemed to have been paid within the meaning of Section 9.03; and (c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Agency pursuant hereto.

"Owner" means, with respect to any Bond, the person in whose name the ownership of such Bond shall be registered on the Registration Books.

"Parity Debt" means any other bonds, notes, loans, advances or other indebtedness issued or incurred by the Agency on a parity with the 2005 Bonds pursuant to Section 3.05.

"Permitted Investments" means:

(i) Certificates or interest-bearing notes or obligations of the United States, or those for which the full faith and credit of the United States are pledged for the payment of principal and interest.

(ii) Investments in any of the following obligations provided such obligations are backed by the full faith and credit of the United States (i) direct obligations or fully

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guaranteed certificates of beneficial interests of the Export-Import Bank of the United States, (ii) debentures of the Federal Housing Administration, (iii) guaranteed mortgage backed bonds of the Government National Mortgage Association, (iv) certificates of beneficial interest of the Farmers Home Administration, (v) obligations of the Federal Financing Bank or (vi) project notes and local authority bonds of the Department of Housing and Urban Development.

(iii) Investments in (i) senior obligations of the Federal Home Loan Bank System, (ii) participation certificates or senior debt obligations of the Federal Home Loan Mortgage Corporation, (iii) mortgage-backed securities and senior debt obligations (excluding stripped mortgage securities that are valued greater than par on the portion of unpaid principal) of the Federal National Mortgage Association or (iv) senior debt obligations of the Student Loan Marketing Association.

(iv) Repurchase agreements with primary dealers and/or banks rated, at all times, AA and AA2 or better by Standard & Poor's Corporation and Moody's Investors Service, Inc., respectively, collateralized with the obligations described in (i) or (ii) above, held by a third party custodian, at the levels set forth below.

(v) S.E.C. registered money market mutual funds conforming to Rule 2a-7 of the Investment Company Act of 1940 that invest primarily in direct obligations issued by the U.S. Treasury and repurchase agreements backed by those obligations, including funds for which the Trustee or an affiliate of the Trustee acts as an advisor, and rated in the highest category by Standard & Poor's Corporation and Moody's Investors Service, Inc.

(vi) Certificates of deposit of any bank (including the Trustee), trust company or savings and loan association whose short term obligations are rated, at all times, A-1 or better by Standard & Poor's Corporation and P-1 by Moody's Investors Service, Inc. provided that such certificates of deposit are fully secured by the obligations described in (i) or (ii) above, at the levels set forth below, the Trustee has a perfected first security interest in the obligations securing the certificates and the Trustee holds (or shall have the option to appoint a bank, trust company or savings and loan association as its agent to hold) the obligations securing the certificates.

(vii) Certificates of deposit of any bank (including the Trustee), trust company or savings and loan association which certificates are fully insured by the Federal Deposit Insurance Corporation.

(viii) Commercial paper rated, at all times, P-1 or better by Moody's Investors Service, Inc. and A-1 + by Standard & Poor's Corporation.

(ix) Obligations of, or obligations fully guaranteed by, any state of the United States of America or any political subdivision thereof which obligations, at all times, are rated by Standard & Poor's Corporation and Moody's Investors Service, Inc. in the highest rating categories (without regard to any refinement or graduation of rating category by numerical modifier or otherwise) and without regard to credit enhancement assigned by such rating agencies to obligations of that nature.

(x) The Local Agency Investment Fund ("LA1 F") of the State of California, created pursuant to Section 16429.1 of the California Government Code.

(xi) Any other investment approved by the Insurer.

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"Plan Limitations" means the limitations contained or incorporated in the Redevelopment Plan on (a) the aggregate principal amount of indebtedness payable from Tax Revenues which may be outstanding at any time and (b) the aggregate amount of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plan.

"Principal Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(b).

"Project Area" means the project area described in the Redevelopment Plan.

"Qualified Reserve Account Credit Instrument" means an irrevocable standby or directpay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee pursuant to Section 4.03(d), provided that all of the following requirements are met by the Agency at the time of delivery thereof to the Trustee: (a) the longterm credit rating of such bank or insurance company is Aa or better from Moody's and AA or better from S&P; (b) such letter of credit or surety bond has a term of at least twelve (12) months; (c) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to Section 4.03(d); and (d) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the Interest Account, the Principal Account for the Sinking Account or the purpose of making payments required pursuant to Section 4.03.

"Record Date" means, with respect to any Interest Payment Date, the close of business on the fifteenth (15th) calendar day of the month preceding such Interest Payment Date, whether or not such fifteenth (15th) calendar day is a Business Day.

"Redemption Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(e).

"Redevelopment Fund" means the fund by that name established and held by the Agency pursuant to Section 3.04.

"Redevelopment Law" means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code of the State, and the acts amendatory thereof and supplemental thereto.

"Redevelopment Plan" means the Redevelopment Plan for the Tehachapi Redevelopment Project of the Agency, approved by Ordinance No. 99-11-653, enacted by the City Council of the City on December 6, 1999, together with any amendments thereof heretofore or hereafter duly authorized pursuant to the Redevelopment Law.

"Redevelopment Project" means the undertaking of the Agency to redevelop the Project Area in accordance with the Redevelopment Plan.

"Registration Books" means the records maintained by the Trustee pursuant to Section 2.08 for the registration and transfer of ownership of the 2005 Bonds.

"Request of the Agency" means a request in writing signed by the Chairman, Executive Director, Treasurer or Secretary of the Agency, or any other officer of the Agency duly authorized by the Agency for that purpose.

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"Reserve Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(d) of the 2005 Bonds Indenture and continued pursuant to Section 4.03 (d) of this Indenture.

"Reserve Requirement" means, as of the date of any calculation, the lesser of (a) Maximum Annual Debt Service on all Outstanding Bonds, or (b) the maximum amount permitted to be deposited in the Reserve Account under the Tax Code, as certified to the Trustee by the Agency.

"S&P" means Standard & Poor's Ratings Services, A Division of the McGraw-Hill Companies, Inc., its successors and assigns.

"Securities Depositories" means The Depository Trust Company, 55 Water Street, 50th

Floor, New York, N.Y. 10041-0099 Attn: Call Notification Department, Fax (212) 855-7232 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 Written Request of the Agency delivered to the Trustee.

"Sinking Account" means the account by that name established and held by the Trustee pursuant to Section 4.03(c).

"Special Escrow Fund" means the fund by that name established and held hereunder by the Trustee.

"Special Fund" means the account by that name established and held by the Trustee.

"State" means the State of California.

"Subordinate Debt" means any bonds, notes, loans, advances or other indebtedness issued or incurred by the Agency, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues; or (b) secured by a pledge of or lien upon the Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Bonds.

"Supplemental Indenture" means any indenture, agreement or other instrument which amends, supplements or modifies this Indenture and which has been duly entered into by and between the Agency and the Trustee; but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder.

"2005 Bonds" means the Redevelopment Agency of the City of Tehachapi Tehachapi Redevelopment Project 2005 Tax Allocation Bonds issued by the Agency in the aggregate principal amount of $8,780,000.

"2005 Escrowed Term Bonds" means the Term Bonds maturing December 1, 2015, December 1, 2020, December 1, 2025, and December 1, 2035, the proceeds of which are deposited in the Special Escrow Fund.

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

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"Tax Revenues" means all taxes annually allocated to the Agency with respect to the Project Area following the Closing Date, pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plan, including all other payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations; provided, however, that Tax Revenues shall not include (a) all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to Section 33334.3 of the Redevelopment Law, except to the extent permitted under the Redevelopment Law to be applied to the payment of the principal of and interest and premium (if any) on the Bonds or any Parity Bonds, (b) amounts payable to the Agency by the State of California pursuant to Section 16112.7 of the California Government Code, and (c) amounts payable by the Agency under the Tax Sharing Agreements or pursuant to Sections 33607.5 and 33607.7 of the Redevelopment Law, to the extent not subordinated to the payment of principal of and interest on the Bonds.

"Term Bonds" means, collectively, (a) the 2005 Bonds maturing on December 1, 2025 and on December 1, 2035, and (b) any maturity of Parity Debt which is subject to mandatory Sinking Account redemption pursuant to the Supplemental Indenture authorizing the issuance thereof.

"Trustee" means The Bank of New York Trust Company, N.A., as Trustee hereunder, or any successor thereto appointed as Trustee hereunder in accordance with the provisions of Article VI.

"Written Request of the Agency" or "Written Certificate of the Agency" means a request or certificate, in writing signed by the Chair, Vice-Chair, Executive Director, Secretary, Assistant Secretary, Treasurer or General Counsel of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose and so identified in a Written Certificate of the Agency.

Special Escrow Fund

There is hereby established a separate fund to be known as the "2005 Special Escrow Fund", which shall be held in trust by the Trustee. The amount in the Special Escrow Fund shall be applied as follows:

(a) On any date at least twenty (20) days prior to each Escrow Release Date, except at least sixty (60) days prior to December 1, 2008 (being the final Escrow Release Date), or such later date as shall be acceptable to the Trustee, the Agency may deliver to the Trustee a Tax Revenue Certificate accompanied by a Report of an Independent Financial Consultant which identify (i) the applicable Escrow Release Date, (ii) the amount of Tax Revenues received or estimated to be received by the Agency in the then current Bond Year, (iii) the amount proposed to be released from the Special Escrow Fund, (iv) Maximum Annual Debt Service resulting from such release and (v) the New Reserve Requirement resulting from such release. Such Tax Revenue Certificate and Report shall certify that the amount of Tax Revenues, based on the most current tax rolls as certified by the County of Kern, identified in such Tax Revenue Certificate shall be at least equal to one hundred twenty-five percent (125%) of the Maximum Annual Debt Service identified pursuant to clause (iv). For purposes of such calculation, Tax Revenues shall be calculated in the same manner as required in the Indenture for the issuance of Parity Bonds. Upon the receipt of such Tax Revenue Certificate, the Trustee shall promptly notify the provider of any investment agreement or guaranteed investment contract relating to the Special Escrow Fund of the amount to be released on the applicable Escrow Release Date. On the applicable Escrow Release Date following receipt of such

Appendix C Page 8

Tax Revenue Certificate and Report, the Trustee shall withdraw from the Special Escrow Fund the amount identified in such Tax Revenue Certificate and Report and (subject to the provisions described in subsection (b) below) transfer such amount as follows:

(i) to the Reserve Account, in an amount required to cause the balance therein to equal the New Reserve Requirement; and

(ii) the remaining balance to the Agency for deposit into the Redevelopment Fund.

(b) Any moneys remaining in the Special Escrow Fund on October 15, 2008, with respect to which December 1, 2008 has not been established as the Escrow Release Date (being the final Escrow Release Date) shall, pursuant to the lndenure, be transferred by the Trustee to the Redemption Account on December 1, 2008 to be applied on such date to the redemption of the 2005 Escrowed Term Bonds maturing on December 1, 2015, December 1, 2020, December 1, 2025 and December 1, 2035. The Trustee shall give timely notice of such redemption pursuant to the Indenture.

(c) The Trustee shall establish the 2005 Escrowed Term Bonds Subaccount within the Interest Account and shall deposit therein the amount required by the Indenture. Amounts on deposit in the 2005 Escrowed Term Bonds Subaccount shall be used by the Trustee to pay interest payable on each Interest Payment Date with respect to the 2002 Escrowed Term Bonds, provided that any moneys remaining in the 2005 Escrowed Term Bonds Subaccount on December 2, 2008, shall be transferred to the Interest Account and the 2005 Escrowed Term Bonds Subaccount shall be closed. Investment earnings on amounts in the 2005 Escrowed Term Bonds Subaccount shall be transferred at least two (2) Business Days prior to each Interest Payment Date to the Interest Account.

Costs of Issuance Fund

The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Request of the Agency stating (a) the person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior Request of the Agency; in each case together with a statement or invoice for each amount requested thereunder. On the earlier of (i) March 1, 2006, or (ii) the date of receipt by the Trustee of a Request of the Agency therefor, all amounts (if any) remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Agency for deposit in the Redevelopment Fund.

Redevelopment Fund

The moneys in the Redevelopment Fund shall be maintained separate and apart from other moneys of the Agency, and shall be used in the manner provided by the Redevelopment Project, including payment of any remaining unpaid Costs of Issuance. The Agency covenants in the Indenture that no funds on deposit in the Redevelopment Fund shall be applied for any purpose not authorized by the Redevelopment Law.

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Low and Moderate Income Housing Account

Moneys in the Low and Moderate Income Housing Account shall be used solely in the manner provided by the Redevelopment Law solely for the purpose of aiding in financing low and moderate income housing within or of benefit to the Project Area and the Agency warrants that no funds in the Low and Moderate Income Housing Account shall be applied for any purpose not authorized by the Redevelopment Law.

Issuance of Parity Debt

In addition to the 2005 Bonds, the Agency may issue or incur Parity Debt in such principal amount as shall be determined by the Agency, pursuant to a Supplemental Indenture adopted or entered into by the Agency. The Agency may not issue any Parity Debt bearing interest at a variable rate. The Agency may issue or incur such Parity Debt subject to the following specific conditions precedent:

(a) The Agency shall be in compliance with all covenants set forth in this Indenture and all Supplemental Indentures.

(b) The Tax Revenues based upon the assessed valuation of taxable property in the Project Area as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date of the Agency's adoption of the Supplemental Indenture providing for the issuance of such Parity Debt, plus at the option of the Agency the Additional Revenues, shall be in an amount equal to at least 125 percent of the Maximum Annual Debt Service for the Bond Year ending on the on the December 1 next following the date of the issuance of such Parity Debt, as evidenced by a report of an Independent Fiscal Consultant ("Consultant's Report").

For the purposes of this paragraph (b) "Additional Revenues" means, as of the date of calculation, the amount of Tax Revenues which, as shown in a Consultant's Report, are estimated to be receivable by the Agency within the Fiscal year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to (i) construction which has been completed but which is not then reflected on the tax rolls, (ii) construction currently in progress but not yet completed, or (iii) transfer of ownership or any other interest in real property which has been recorded but which is not then reflected on the tax rolls. For purposes of this definition, the term "increases in the assessed valuation" means the amount by which the assessed valuation of taxable property in the Project Area in the future is estimated to increase above the assessed valuation of taxable property in the Project Area (as reported by an appropriate official of the County) as of the date on which such calculation is made.

(c) The Supplemental Indenture providing for the issuance of such Parity Debt shall provide that interest thereon shall not be payable on any dates other than June 1 and December 1, and principal thereof shall be payable on December 1 in any year in which principal is payable.

( d) The Supplemental Indenture providing for the issuance of such Parity Debt shall provide for the deposit into the Reserve Account of an amount required to cause the balance therein to equal the full amount of the Reserve Requirement (which may be maintained in whole or in part in the form of a Qualified Reserve Account Credit Instrument as provided herein).

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(e) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Plan Limitations.

(f) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in the foregoing subsections (a), (b), (c), (d) and (e) of this Section 3.05 have been satisfied.

In addition, the Agency shall provide the Insurer with any disclosure document prepared in connection with the issuance of such Parity Debt.

Issuance of Subordinate Debt

The Agency may from time to time issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency, provided that the issuance of such Subordinate Debt shall not cause the Agency to exceed any applicable Plan Limitations.

Security of Bonds; Equal Security

The Bonds, the Bonds and any other Parity Debt shall be secured by a first pledge of, security interest in and lien on all of the Tax Revenues and all of the moneys on deposit in the Special Fund. In addition, the Bonds shall be secured by a first and exclusive pledge of, security interest in and lien upon all of the moneys in the Debt Service Fund, the Interest Account, the Principal Account, the Sinking Account, Reserve Account and the Redemption Account. Such pledge, security interest in and lien shall be for the equal security of the Outstanding Bonds without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. Except for the Tax Revenues and such moneys, no funds of the Agency are pledged to, or otherwise liable for, the payment of principal of or interest or redemption premium (if any) on the Bonds.

In consideration of the acceptance of the Bonds by those who shall hold the same from time to time, the Indenture shall be deemed to be and shall constitute a contract between the Agency and the Owners from time to time of the Bonds, and the covenants and agreements set forth in the Indenture to be performed on behalf of the Agency shall be for the equal and proportionate benefit, security and protection of all Owners of the Bonds without preference, priority or distinction as to security or otherwise of any of the Bonds over any of the others by reason of the number or date thereof or the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as expressly provided therein.

Deposit of Amounts by Trustee

Moneys in the Special Fund shall be transferred by the Trustee in the following amounts, at the following times, and in the following respective special accounts, which are established in the Debt Service Fund, or contained, as applicable, , and in the following order of priority:

(a) Interest Account. On or before the third Business Day preceding each date on which interest on the Bonds becomes due and payable, the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit in the Interest Account an amount which, when added to the amount then on deposit in the Interest Account, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such date. 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 as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture).

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(b) Principal Account. On or before the third Business Day preceding each date on which principal of the Bonds becomes due and payable at maturity, the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit in the Principal Account an amount which, when added to the amount then on deposit in the Principal Account, will be equal to the amount of principal coming due and payable on such date on the Outstanding Bonds. 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 upon the maturity thereof.

(c) Sinking Account. On or before the third Business Day preceding each date on which any Outstanding Term Bonds become subject to mandatory Sinking Account redemption, the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit in the Sinking Account an amount which, when added to the amount then contained in the Sinking Account, will be equal to the aggregate principal amount of the Term Bonds required subject to mandatory Sinking Account redemption on such date. All moneys on deposit in the Sinking Account shall be used and withdrawn by the Trustee for the sole purpose of paying the principal of the Term Bonds as it shall become due and payable upon the mandatory Sinking Account redemption thereof.

( d) Reserve Account. In the event that the Trustee has actual knowledge that the amount on deposit in the Reserve Account at any time becomes less than the Reserve Requirement, the Trustee is required to promptly notify the Agency of such fact. Promptly upon receipt of any such notice, the Agency will transfer to the Trustee an amount of available Tax Revenues sufficient to maintain the Reserve Requirement on deposit in the Reserve Account. Amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of making transfers to the Interest Account, the Principal Account and the Sinking Account, in such order of priority, on any date which the principal of or interest on the Bonds becomes due and payable, in the event of any deficiency at any time in any of such accounts, or at any time for the retirement of all the Bonds then Outstanding. So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Account in excess of the Reserve Requirement on the Business Day preceding each Interest Payment Date shall be withdrawn from the Reserve Account by the Trustee and deposited in the Interest Account.

The Agency, with the prior written consent of the Insurer, has the right at any time to direct the Trustee to release funds from the Reserve Account, in whole or in part, by tendering to the Trustee: (i) a Qualified Reserve Account Credit Instrument, and (ii) an opinion of Bond Counsel stating that neither the release of such Funds nor the acceptance of such Qualified Reserve Account Credit Instrument will cause interest on the Bonds to become includable in gross income for purposes of federal income taxation. Upon the expiration of any Qualified Reserve Account Credit Instrument, the Agency shall be obligated either (i) to replace such Qualified Reserve Account Credit Instrument with a new Qualified Reserve Account Credit Instrument, or (ii) to deposit or cause to be deposited with the Trustee an amount of funds equal to the Reserve Requirement, to be derived from the first available Tax Revenues.

(e) Redemption Account. On or before the Business Day preceding any date on which Bonds are subject to redemption, other than mandatory Sinking Account redemption of Term Bonds, the Agency shall withdraw from the Special Fund and transfer 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. All moneys in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of and premium, if any, on the Bonds upon the redemption thereof, on the date set for such redemption, other than mandatory Sinking Account redemption of Term Bonds.

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Covenants of the Agency

Punctual Payment. The Agency shall punctually pay or cause to be paid the principal, premium (if any) and interest to become due in respect of all the Bonds in strict conformity with the terms of the Bonds and of the Indenture. The Agency shall faithfully observe and perform all of the conditions, covenants and requirements of the Indenture and all Supplemental Indentures. Nothing contained in the Indenture shall prevent the Agency from making advances of its own moneys howsoever derived to any of the uses or purposes referred to in the Indenture.

Limitation on Additional Indebtedness; Against Encumbrances. The Agency covenants that, so long as the Bonds are Outstanding, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, for which all or any part of the Tax Revenues are pledged as security for payment, excepting only the Bonds, any Parity Debt and any Subordinate Debt. The Agency will not otherwise encumber, pledge or place any charge or lien upon any of the Tax Revenues or other amounts pledged to the Bonds superior to the pledge and lien created in the Indenture for the benefit of the Bonds.

Limitation on Additional Indebtedness. The Agency covenants that so long as any of the Bonds remain Outstanding, the Agency will not issue any bonds, notes or other obligations which are otherwise secured on a basis which is senior to the pledge and lien which secures the Bonds. The Agency covenants that it shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, which is in any case payable from all or any part of the Tax Revenues, excepting only the Bonds, any Parity Debt, any Subordinate Debt and any obligations entered into pursuant to the terms of the Indenture. No Parity Debt or Subordinate Debt shall bear a variable rate of interest, either directly or through a derivative contract, without the prior express written consent of the Insurer.

Extension of Payment. The Agency will 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 Outstanding Bonds and of all claims for interest thereon which shall not have been so extended. Nothing in this paragraph shall be deemed to lim~ the right of the Agency to 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.

Payment of Claims. The Agency shall pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof, or upon any funds held by the Trustee pursuant to the Indenture, or which might impair the security of the Bonds. Nothing contained in the Indenture shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims.

Books and Accounts; Financial Statements. The Agency shall keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project, the Tax Revenues and the Special Fund. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Owners of not less than ten percent in aggregate principal amount of the Bonds then Outstanding, or their representatives authorized in writing.

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The Agency will cause to be prepared and delivered to the Trustee annually, within 180 days after the close of each Fiscal Year so long as any of the Bonds are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues, all disbursements from the Special Fund and the financial condition of the Redevelopment Project, including the balances in all funds and accounts relating to the Redevelopment Project, as of the end of such Fiscal Year. In accordance with the Indenture, the Trustee shall not be responsible for reviewing such financial statements. The Agency shall furnish a copy of such statements to any Owner upon reasonable request and at the expense of such Owner.

Protection of Security and Rights of Owners. The Agency will preserve and protect the security of the Bonds and the rights of the Owners. From and after the date of issuance of any Bonds, such Bonds shall be incontestable by the Agency.

Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area, when the same shall become due. Nothing in the Indenture shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof.

Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of the Indenture) so that such disposition shall, when taken together with other such dispositions, aggregate more than ten percent of the land area in the Project Area unless such disposition is permitted as hereinafter provided in the Indenture. If the Agency proposes to participate in such a disposition, it shall thereupon appoint an Independent Fiscal Consultant to report on the effect of said proposed disposition. If the report of the Independent Fiscal Consultant concludes that the security of the Bonds or the rights of the Owners will not be materially adversely impaired by said proposed disposition, the Agency may thereafter make such disposition. If such report concludes that such security will be materially adversely impaired by the proposed disposition, the Agency shall not approve the proposed disposition.

Maintenance of Tax Revenues. The Agency shall comply with all requirements of the Law to insure the allocation and payment to it of the Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County and the State. The Agency shall not enter into any amendment of the Tax Sharing Agreements, or any other agreement with the County or any other governmental unit pursuant to the Law, or shall not undertake proceedings for amendment of the Redevelopment Plan if such amendment shall result in payments to one or more taxing entities pursuant to Sections 33607.5 and 33607.7 of the Law, which would have the effect of reducing the amount of Tax Revenues unless the Agency shall first obtain the report of an Independent Fiscal Consultant stating that the Tax Revenues remaining after the entering into of such agreement, estimated to be received in each of the succeeding Bond Years, are at least equal to 125% of Maximum Annual Debt Service on the Bonds. Notwithstanding the foregoing, however, the provisions of this paragraph shall not apply to any amendment of the Tax Sharing Agreements, or any other agreement with the County or with any other governmental or private entity, or to payments pursuant to Sections 33607.5 and 33607.7 of the Law, which by its terms is subordinate to the pledge of and lien on the Tax Revenues for the benefit of the Bond Owners or which does not obligate the Agency to pay any Tax Revenues except to the extent such Tax Revenues are released from the pledge

Appendix C Page 14

thereof and lien thereon in accordance with the Indenture. The Trustee shall have no duty to monitor the compliance of the Agency with this paragraph.

No Arbitrage. The Agency shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the Closing Date would have caused the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Tax Code.

Private Activity Bond Limitation and Small Issuer Exemption from Bank Nondeductibility Restriction. In the Indenture, the Agency designates the Bonds for purposes of paragraph (3) of Section 265(b) of the Tax Code and covenants that (i) the Bonds do not constitute private activity bonds as defined in Section 141 of the Tax Code, and (ii) not more than $10,000,000 aggregate principal amount of obligations the interest on which is excludable (under Section 103(a) of the Tax Code) from gross income for federal income taxes (excluding, however, private activity bonds, as defined in Section 141 of the Tax Code, other than qualified 501 (c)(3) bonds as defined in Section 145 of the Tax Code), including the Bonds, have been or shall be issued by or on behalf of the Agency, including all subordinate entities of the Agency, during the calendar year 2005.

Federal Guarantee Prohibition. The Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Tax Code.

Rebate Requirement. The Agency shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds.

Maintenance of Tax-Exemption. The Agency shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds.

Continuing Disclosure. The Agency covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Indenture, failure of the Agency to comply with the Continuing Disclosure Certificate shall not be an Event of Default under the Indenture. However, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Agency to comply with its obligations under to the Indenture.

Deposit and Investment of Moneys in Funds

Moneys in the Special Fund, the Debt Service Fund, the Interest Account, the Principal Account, the Sinking Account, the Reserve Account, the Special Escrow Fund, the Redemption Account and the Costs of Issuance Fund shall be invested by the Trustee in Permitted Investments specified in the Request of the Agency (which Request shall be deemed to include a certification that the specified investment is a Permitted Investment) delivered to the Trustee at least two (2) Business Days in advance of the making of such investments In the absence of any such direction from the Agency, the Trustee shall invest any such moneys solely in Permitted Investments described in clause (g) of the definition thereof. Moneys in the Redevelopment Fund shall be invested by the Agency in any obligations in which the Agency is legally authorized to invest funds within its control.

Appendix C Page 15

Obligations purchased as an investment of moneys in any fund or account shall be deemed to be part of such fund or account. Whenever in the Indenture any moneys are required to be transferred by the Agency to the Trustee, such transfer may be accomplished by transferring a like amount of Permitted Investments. All interest or gain derived from the investment of amounts in any of the funds or accounts held by the Trustee under the Indenture shall be retained in the respective fund or account from which such investment was made, provided that all interest or gain from the investment of amounts in the Reserve Account shall be deposited by the Trustee in the Interest Account to the extent not required to cause the balance in the Reserve Account to equal the Reserve Requirement. No Permitted Investment of moneys in the Reserve Account shall have a maturity in excess of five years following the date of its acquisition. For purposes of acquiring any investments, the Trustee may commingle funds held by it under the Indenture upon receipt by the Trustee of the Request of the Agency. The Trustee may act as principal or agent in the acquisition or disposition of any investment, may utilize the investment departments of its affiliates to complete each transaction and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made pursuant to the Indenture. The Agency acknowledges that to the extent that regulations of the Comptroller of the Currency or other applicable regulatory agency grant the Agency the right to receive brokerage confirmations of security transactions as they occur, the Agency specifically waives receipt of such confirmations to the extent permitted by law. The Trustee shall furnish to the Agency periodic statements which include detail of all investment transactions made by the Trustee.

Amendment Without Consent of Owners

The Indenture and the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, with notice to the Insurer, but without the consent of any Owners, to the extent permitted by law and only for any one or more of the following purposes-

(a) to add to the covenants and agreements of the Agency contained in the Indenture, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved in the Indenture to or conferred upon the Agency provided such addition, limit, or surrender shall not materially adversely effect the interest of the Owners as determined by the Agency and certified to the Trustee; or

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

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

( d) to amend any provision of the Indenture to assure the exclusion from gross income of interest on the Bonds for federal income tax purposes, in the opinion of Bond Counsel filed with the Agency and the Trustee; or

Appendix C Page 16

(e) to comply with the requirements of the provider of a Qualified Reserve Account Credit Instrument.

Amendment With Consent of Owners

Except as set forth in the preceding paragraph, the Indenture and the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the Insurer and the written consents of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are delivered to 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 premium (if any) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee.

Effect of Supplemental Indenture

From and after the time any Supplemental Indenture becomes effective, the Indenture shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties under the Indenture or thereto and all Owners, 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.

Events of Default and Acceleration of Maturities

Each of the following events shall constitute an Event of Default under the Indenture:

(a) Failure to pay any installment of the principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise.

(b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable.

(c) Failure by the Agency to observe and perform any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such failure shall have continued for a period of thirty days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Agency by the Trustee or the Insurer; provided, however, if in the reasonable opinion of the Agency the failure stated in the notice can be corrected, but not within such thirty day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such thirty day period and the Agency shall thereafter diligently and in good faith cure such failure in a reasonable period of time.

(d) The Agency shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute.

if an Event of Default has occurred and is continuing, the Trustee may, and if requested in writing by the Owners of a majority in aggregate principal amount of the Bonds then

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Outstanding the Trustee shall, (a) declare the principal of the Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in the Indenture or in the Bonds to the contrary notwithstanding, and (b) upon receipt of indemnity satisfactory to it from any liability or expense, including payment of the fees and expenses of its counsel and agents, exercise any other remedies available to the Trustee and the Owners in law or at equity.

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

This provision, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all principal on the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal and interest (to the extent permitted by law) at the weighted average interest rate then borne by the Outstanding Bonds, and the fees and expenses of the Trustee, including any fees and expenses of its attorneys, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Agency and to the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Application of Funds Upon Acceleration

All of the Tax Revenues and all sums in the funds and accounts established and held by the Trustee under the Indenture upon the date of the declaration of acceleration as provided in the Indenture, and all sums thereafter received by the Trustee under the Indenture, shall be applied by the Trustee as follows and in the following order:

(a) To the payment of any fees, costs and expenses incurred by the Trustee to protect the interests of the Owners of the Bonds; payment of the fees, costs and expenses of the Trustee (including fees and expenses of its counsel, including any allocated costs of internal counsel) incurred in and about the performance of its powers and duties under the Indenture and the payment of all fees, costs and expenses owing to the Trustee pursuant to the Indenture, together with interest on all such amounts advanced by the Trustee at the maximum rate permitted by law;

Appendix C Page 18

(b) To the payment of the whole amount then owing and unpaid upon the Bonds for interest and principal with interest on such overdue amounts at the respective rates of interest borne by the Outstanding Bonds, and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such interest, principal and interest on overdue amounts without preference or priority among such interest, principal and interest on overdue amounts ratably to the aggregate of such interest, principal and interest on overdue amounts.

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 a majority in principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its 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 principal amount of the Outstanding Bonds opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation accompanied, if requested by the Trustee, by indemnity or confirmation of indemnity as described in the Indenture.

Limitation on Owner's Right to Sue

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 thereinbefore 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 sixty 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 the Indenture, in every case, to be conditions precedent to the exercise by any Owner of any remedy under the Indenture; it being understood and intended that no one or more Owners 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, 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 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 premium, if any, and interest on such Bond as provided in the Indenture, shall not be impaired or affected without the written consent of such Owner, notwithstanding the foregoing provisions of the Indenture or any other provision of the Indenture.

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Remedies Not Exclusive

No remedy in the Indenture conferred upon or reserved to the Trustee or Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given in the Indenture or now or hereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Law or any other law.

Rights of Insurer

Anything in the Indenture to the contrary notwithstanding, upon the occurrence and continuation of an Event of Default, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted thereunder to the Bond Owners, or to the Trustee for the benefit of the Bond Owners, including but not limited to the right to approve all waivers of any Events of Default. The rights granted to the Insurer under the Indenture shall be deemed terminated and shall not be exercisable by the Insurer during any period during which the Insurer shall be in default under the Insurance Policy.

Discharge of Indenture

If the Agency shall pay and discharge the entire indebtedness on all Bonds or any portion thereof in any one or more of the following ways:

(i) by paying or causing to be paid the principal of and interest on such Bonds, as and when the same become due and payable;

(ii) by irrevocably depositing with the Trustee or another fiduciary, in trust, at or before maturity, an amount of cash which, together with the available amounts then on deposit in the funds and accounts established pursuant to the Indenture, in the opinion or report of an Independent Accountant is fully sufficient to pay such Bonds, including all principal, interest and redemption premium, if any;

(iii) by irrevocably depositing with the Trustee or another fiduciary, in trust, non-callable Federal Securities in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in any of the funds and accounts established pursuant to the Indenture, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premium, if any) at or before maturity; or

(iv) by purchasing such Bonds prior to maturity and tendering such Bonds to the Trustee for cancellation;

and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been duly given or provision satisfactory to the Trustee shall have been made for the giving of such notice, then, at the election of the Agency, and notwithstanding that any such Bonds shall not have been surrendered for payment, the pledge of the Tax Revenues and other funds provided for in the Indenture and all other obligations of the Trustee and the Agency under the Indenture with respect to such Bonds shall cease and terminate, except only (A) the obligations of the Agency regarding tax and rebate requirements of the Indenture, (B) the obligation of the Trustee to transfer and exchange Bonds under the Indenture, (C) the obligation of the Agency to pay or cause to be paid to the Owners of such Bonds, from the amounts so deposited with the Trustee, all sums due thereon, and (d) the obligations of the Agency to compensate and indemnify the Trustee pursuant to the Indenture. Notice of such election shall

Appendix C Page 20

be filed with the Trustee. In the event the Agency shall, pursuant to the foregoing provisions, pay and discharge any portion or all of the Bonds then Outstanding, the Trustee shall be authorized to take such actions and execute and deliver to the Agency all such instruments as may be necessary or desirable to evidence such discharge, including without limitation, selection by lot of Bonds of any maturity of the Bonds that the Agency has determined to pay and discharge in part. Any funds thereafter held by the Trustee, which are not required for said purpose, shall be paid over to the Agency.

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APPENDIXD

PROPOSED FORM OF OPINION OF BOND COUNSEL

[Letterhead of Jones Hall]

December 21, 2005

Redevelopment Agency of the City Tehachapi 115 South Robinson Street Tehachapi, California 93561

Re: $8,780,000 Redevelopment Agency of the City of Tehachapi Tehachapi Redevelopment Project 2005 Tax Allocation Bonds

Members of the Agency:

We have acted as bond counsel in connection with the issuance by the Redevelopment Agency of the City of Tehachapi (the "Agency") of $8,780,000 Redevelopment Agency of the City of Tehachapi Tehachapi Redevelopment Project 2005 Tax Allocation Bonds (the "Bonds"), pursuant to the Community Redevelopment Law of the State of California, constituting Part 1 of Division 24 of the California Health and Safety Code (the "Law"), and an Indenture of Trust, dated as of December 1, 2005, between the Agency and The Bank of New York Trust Company, N.A., as trustee (the "Indenture"). We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion.

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

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

1. The Agency is duly created and validly existing as a public body, corporate and politic, with the power to enter into the Indenture, perform the agreements on its part contained therein and issue the Bonds.

2. The Indenture has been duly approved by the Agency and constitutes a valid and binding obligation of the Agency enforceable in accordance with its terms.

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Redevelopment Agency of the City of Tehachapi December 21, 2005 Page 2

3. Pursuant to the Law, the Indenture creates a valid lien on the funds pledged by the Indenture for the security of the Bonds on a parity with other bonds (if any) issued or to be issued under the Indenture, subject to no other prior lien granted under the Law.

4. The Bonds have been duly authorized, executed and delivered by the Agency and are valid and binding special obligations of the Agency, payable solely from the sources provided therefor in the Indenture.

5. The interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative ninimum tax imposed on individuals and corporations; it should be noted, 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 Bonds are "qualified tax-exempt obligations" within the meaning of section 265(b)(3) of the Internal Revenue Code of 1986 (the "Code"), and, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction is allowed for eighty percent (80%) of that portion of such financial institutions' interest expense allocable to interest payable on the Bonds. The opinions set forth in the preceding sentences are subject to the condition that the Agency comply with all requirements of the Code that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The Agency has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

6. Interest on the Bonds is exempt from personal income taxation imposed by the State of California.

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

Respectfully submitted,

A Professional Law Corporation

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APPENDIXE

FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the Tehachapi Redevelopment Agency (the "Agency") in connection with the issuance by the Agency of its $8,780,000 Tehachapi Redevelopment Agency Tehachapi Redevelopment Project, 2005 Tax Allocation Bonds (the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust, dated as of December 1, 2005 (the "Indenture"), between the Agency and The Bank of New York Trust Company, N.A. (the "Trustee"). The Agency hereby covenants and agrees as follows:

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

Section 2. Definitions. In addition to the definitions set forth 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 Reporf' shall mean any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Bond Insurer'' shall have the meaning given such term in the Indenture.

"Dissemination Agenf' shall mean The Bank of New York Trust Company, N.A., or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Agency a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule, as they may be designated from time to time pursuant to the Rule. Any filing under this Disclosure Certificate with a National Repository may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http://www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004.

"Official Statemenf' shall mean the Official Statement relating to the Bonds.

"Participating Underwriter'' shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Repository' shall mean each National Repository and each State Repository.

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

"State Repository' shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

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http://www.disclosureusa.org

Section 3. Provision of Annual Reports.

(a) The Agency shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the Agency's fiscal year (which currently would be March 31 based upon the Agency's current June 30 fiscal year), commencing with the report for the 2004-05 Fiscal Year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the Agency's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c).

(b) If the Agency is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Agency shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached as Exhibit A.

(c) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and

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

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

(a) Audited Financial Statements of the Agency prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If such audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Unless otherwise provided in the audited financial statements filed on or prior to the annual filing deadline for the Annual Reports provided for in Section 3 above, financial information and operating data with respect to the Agency for the preceding fiscal year, substantially similar to that provided in the corresponding tables and charts in the Official Statement for the Bonds, as follows:

(i) summary of Agency indebtedness payable from tax increment generated in the Tehachapi Redevelopment Project, including the amount outstanding as of June 30 of the most recent fiscal year;

(ii) information about pending and successful appeals of assessed values in the Tehachapi Redevelopment Project exceeding, in the aggregate, 5% of assessed value in the Tehachapi Redevelopment Project;

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(iii) summary of assessed values in and tax increment revenues allocated to the Tehachapi Redevelopment Project in similar form as shown in the Official Statement; and

(v) debt service coverage for the most recent fiscal year in similar form as shown in the Official Statement.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so included by reference.

(c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the Agency shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

(1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (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 or events affecting the tax-exempt status of the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes.

(b) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, the Agency shall as soon as possible determine if such event would be material under applicable Federal securities law.

(c) If the Agency determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Agency shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under

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this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Indenture.

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

Section 7. Dissemination Agent. The Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and the Agency may discharge any such Agent, or such Agent may resign, in either case upon 5 days' prior written notice, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be The Bank of New York Trust Company, N.A.

Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Agency may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

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

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

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

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Agency to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c).

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in

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any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Agency shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Certificate, the Trustee may (and, at the request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, accompanied by indemnification satisfactory to it, shall), or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Agency to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the Agency or the Dissemination Agent to comply with this Disclosure Certificate shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Agency agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

The Agency shall pay compensation to the Dissemination Agent for its services as agreed by the Agency and the Dissemination Agent from time to time, and its reasonable out-of-pocket expenses, which fees and expenses shall be in addition to its fees and expenses payable to it as Trustee, if applicable. The Dissemination Agent shall have no duty to review any information provided to ~ hereunder and shall not be deemed to be acting in a fiduciary capacity. All information provided to the Dissemination Agent shall be in form suitable for filing.

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Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Agency, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Date: December 21, 2005


Acceptance of Dissemination Agent:

AGREED AND ACCEPTED:

THE BANK OF NEWYORKTRUSTCOMPANY, NA, as Dissemination Agent

By: Title: ---------------

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By:

EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Tehachapi Redevelopment Agency

Name of Bond Issue: Tehachapi Redevelopment Agency, Tehachapi Redevelopment Project 2005 Tax Allocation Bonds

Date of Issuance: December 21, 2005

NOTICE IS HEREBY GIVEN that the Redevelopment Agency of the City of Tehachapi (the "Agency") has not provided an Annual Report with respect to the above-named Bonds as required by that certain Indenture of Trust, dated as of December 1, 2005 between the Agency and The Bank of New York Trust Company, N.A., as trustee. The Agency anticipates that the Annual Report will be filed by _____ _

Dated: ------


By ______________ _

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APPENDIXF

BOOK ENTRY ONLY SYSTEM

Book-Entry Only System

The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully registered notes registered in the name of Cede & Co. (DTC's partnership nominee). One fully registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC 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 securities that its participants (Participants) deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are 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 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive notes representing their ownership interests in Bonds, except in the event that use of the bookentry system for the Bonds is discontinued.

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

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

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

Neither DTC nor Cede & Co. will consent or vote with respect to Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal and interest payments on the Bonds will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Trustee, or the Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Agency or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.

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

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

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

In the event that the book-entry only system for the Bonds, or a portion of the Bonds, is discontinued, Bond certificates in fully registered form will be delivered to, and registered in the names of, the DTC Participants or such other persons as such DTC Participants may specify (which may be the Indirect DTC Participants or Beneficial Owners), in authorized denominations. The ownership of the Bonds so delivered (and any Bonds thereafter delivered upon a transfer or exchange) shall be registered in registration books to be kept by the Trustee at its corporate trust office, and the Agency and the Trustee shall be entitled to treat the registered owners of such Bonds, as their names appear in such registration books as of the appropriate dates, as the owners thereof for all purposes described herein and in the Indenture.

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APPENDIX G

SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

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FINANCIAL GUARANTY INSURANCE POLICY

Obligor:

Bonds:

Bond Trustee:

Insurance Trustee:

Policy Number:

Premium:

Radian Asset Assurance Inc. ("Insurer"), a corporation organized under the laws of the State of New York, in consideration of the payment of the premium and subject to the terms of this Policy, hereby unconditionally and irrevocably guarantees the payment of the Obligation (hereinafter defined) to the Insurance Trustee for the benefit of the Holders (hereinafter defined) from time to time of the Bonds. This Policy does not insure against any risk other than nonpayment of the Obligation by or on behalf of the Obligoror any other obligor to the Bond Trustee. Nonpayment includes recovery from a Holder of Bonds or the Bond Trustee of any portion of the Obligation pursuant to a final judgment by any court of competent jurisdiction holding that such payment constituted a voidable preference within the meaning of any applicable bankruptcy law.

Upon receipt by the Insurer of telephonic or telegraphic notice, such notice subsequently confirmed to the Insurer in writing by registered or certified mail, from the Insurance Trustee that the Obligor (or other obligor responsible for payment of the Obligation) has failed to provide the Bond Trustee with sufficient funds for payment of the Obligation on the Due Date (hereinafter defined), the Insurer shall, not later than such Due Date or the first business day after receipt of such notice, whichever is later, pay to the Insurance Trustee for the benefit of the Holders of the Bonds an amount which shall be sufficient to pay the Obligation, but only upon receipt by the Insurer, in a form reasonably satisfactory to it, of (a) evidence of the Holder's right to receive such payment and (b) evidence, including any appropriate instruments of assignment, that all the Holder's rights with respect to such payment shall thereupon vest in the Insurer. "Due Date" means, when referring to the principal of the Obligation, the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund prepayment and does not refer to any earlier date on which payment is due by reason of any other call for redemption, acceleration or other advancement of maturity unless the Insurer shall elect, in its sole discretion, to pay such principal due upon such redemption, acceleration or other advancement of maturity together with any accrued interest to the date of redemption, acceleration or other advancement of maturity. Tendering of payment, to the Bond Trustee, of such principal due upon such redemption, acceleration or other advancement of maturity, together with any accrued interest to the date of such redemption, acceleration or other advancement of maturity, shall satisfy the Insurer's obligations under this Policy, in full. When referring to interest on the Obligation, "Due Date" means the stated date for payment of interest.

Form FMSl-0101-CA (rev. 11/03) Page 1 of 2

The Insurer shall, to the extent of any payment made by it pursuant to this Policy, be deemed to have acquired and become the Holder of the Bonds or portions thereof or interest thereon paid from such payment and shall be fully subrogated to all rights to payment thereof.

As used herein, the term "Holder" or "Holders" means the registered owners of the Bonds as indicated in the registration books maintained by the Bond Trustee for such purpose at the time of nonpayment of the Obligation. The terms "Holder" or "Holders" shall not include the Obligor or any person or entity whose direct or indirect obligation constitutes the underlying security for the Obligation. As used herein, the term "Bond Trustee" means the Bond Trustee above named and any successor trustee duly appointed. As used herein, the term "Insurance Trustee" means the Insurance Trustee above named and any successor insurance trustee duly appointed. As used herein, the term "Obligation" means the payment of principal and interest regularly scheduled to be paid on the Bonds, which shall have become due for payment but shall be unpaid on the Due Date, but does not include any premium payable with respect to the Bonds, nor any redemption (except mandatory sinking fund redemption), acceleration or other advancement of maturity.

This Policy is non-cancel able for any reason. Premiums paid on this Policy are not refundable for any reason including without limitation the payment prior to maturity of the Bonds.

IN WITNESS WHEREOF, the Insurer has caused this Policy to be issued to the Insurance Trustee for the benefit of the Holders from time to time of the Bonds and to be executed and delivered by its duly authorized officer to become effective and binding upon the Insurer by virtue of the execution and delivery thereof on this __ day of ___ , 20_

RADIAN ASSET ASSURANCE INC.

By Name: Title

[ANALYST] [TITLE]

In the event the insurer becomes insolvent, any claims arising under this policy are excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 15.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code.

This policy is not covered by the Property/Casualty Insurance Security Fund established by Article 76 of the New York Insurance Law.

Form FMSl-0101-CA (rev. 11/03) Page 2 of 2

Documents

TEHACHAPIREDEVELOPMENTAGENCY TEHACHAPI …cdiacdocs.sto.ca.gov/2005-0013.pdf · 2017. 9. 6. · Law Corporation, San Francisco, California, Bond Counsel, and subject to certain other