Citigroup - CA.gov

NEW ISSUE - FULL BOOK-ENTRY RATINGS: (See “Ratings”)

$145,220,000STOCKTON PUBLIC FINANCING AUTHORITY

WATER REVENUE REFUNDING BONDS,SERIES 2018A(Green Bonds)

Dated: Date of Delivery Due: October 1, as shown on inside front coverThis cover page contains information for general reference only. It is not a complete summary of the 2018 Bonds. Investors should read the entire Official

Statement to obtain information essential to the making of an informed investment decision. See “CERTAIN BONDOWNERS’ RISKS” for a discussion of certain factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the 2018 Bonds.

This Stockton Public Financing Authority (the “Authority”) is issuing $145,220,000 principal amount of Stockton Public Financing Authority Water Revenue Refunding Bonds, Series 2018A (the “2018 Bonds”) to provide funds which, together with certain other available funds, will be used to: (i) refund all of the $4,030,000 outstanding obligations of the City of Stockton (the “City”) under the California Statewide Communities Development Authority Water and Wastewater Revenue Bonds (Pooled Financing Program), Series 2002A (the “Refunded 2002 Bonds”), all of the $19,055,000 outstanding principal amount of Stockton Public Financing Authority 2005 Water Revenue Bonds, Series A (Water System Capital Improvement Projects) (the “Refunded 2005 Bonds”), and all of the $146,725,000 outstanding principal amount of Stockton Public Financing Authority Water Revenue Bonds, Taxable Build America Bonds, Series 2009B (Delta Water Supply Project) (the “Refunded 2009B Bonds”); (ii) purchase a municipal bond insurance policy and a debt service reserve fund surety policy as security for the 2018 Bonds; and (iii) pay certain costs associated with the issuance of the 2018 Bonds. See “Plan of Finance” and “Estimated Sources and Uses of Funds.” The 2018 Bonds are issued under and pursuant to Chapter 5 of Division 7 of Title 1 of the California Government Code, as amended (the “Act”) and other applicable laws of the State of California, a resolution adopted by the Authority on October 16, 2018 and in accordance with the provisions of a 2018 Indenture dated as of November 1, 2018 (the “2018 Indenture”) by and between the Authority and Wells Fargo Bank, National Association, as trustee (the “Trustee”).

The 2018 Bonds are limited obligations of the Authority payable solely from installment payments (the “2018 Installment Payments”) to be made by the City under a 2018 Installment Purchase Contract, dated as of November 1, 2018 (the “2018 Installment Purchase Contract”), by and between the Authority and the City and certain amounts held under the 2018 Indenture. As security for the payment of the 2018 Installment Payments, the City has pledged revenues derived from the operation of the Water System remaining after the payment of operation and maintenance costs and the payment or setting aside of all payments, transfers and other deposits (including debt service and the replenishment of debt service reserves) with respect to the $53,410,000 outstanding principal amount of Stockton Public Financing Authority Water Revenue Bonds, Series 2010A (Delta Water Supply Project) (the “Available Revenues”). See “Security and Sources of Payment for the 2018 Bonds” and “-Senior Obligations.”

The City may issue or incur additional obligations payable from Available Revenues on a parity with the 2018 Installment Payments and Parity Obligations (each as defined herein). See “Security and Sources of Payment for the 2018 BoNDS-Issuance of Parity Obligations.” The City may also issue or incur additional obligations payable from the Available Revenues on a basis subordinate to the 2018 Installment Payments and other Parity Obligations.

The 2018 Bonds will mature on the dates shown on the inside front cover page and bear interest at the fixed rates set forth on the inside cover page. Interest on the 2018 Bonds will be payable on each April 1 and October 1, commencing April 1, 2019. The 2018 Bonds are subject to optional redemption prior to their respective maturities. See “The 2018 BONDS-Redemption Provisions.”

The 2018 Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. When delivered, the 2018 Bonds will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository for the 2018 Bonds. So long as Cede & Co. is the registered owner of the 2018 Bonds, payment of principal of and premium, if any, and interest on the 2018 Bonds will be made to Cede & Co. Purchasers will not receive 2018 Bonds representing their interest in the 2018 Bonds. Individual purchases of the 2018 Bonds will be made in book-entry form only. See Appendix E-“DTC and the Book-Entry Only System.”

The scheduled payment of principal of and interest on the 2018 Bonds maturing on October 1, 2020 through October 1, 2037, inclusive (collectively, the “Insured 2018 Bonds”) when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Insured 2018 Bonds by Build America Mutual Assurance Company. See “Bond Insurance” and Appendix G-“Specimen Municipal Bond Insurance Policy.”

THE 2018 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM 2018 INSTALLMENT PAYMENTS MADE BY THE CITY AND CERTAIN MONEYS HELD UNDER THE 2018 INDENTURE. THE 2018 BONDS ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA (THE “STATE”) OR ANY POLITICAL SUBDIVISION THEREOF, AND SHALL BE PAYABLE SOLELY FROM THE REVENUES PLEDGED THEREFOR PURSUANT TO THE 2018 INDENTURE. THE OBLIGATION OF THE CITY TO MAKE 2018 INSTALLMENT PAYMENTS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM AVAILABLE REVENUES OF THE WATER SYSTEM AS PROVIDED IN THE 2018 INSTALLMENT PURCHASE CONTRACT. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (INCLUDING THE AUTHORITY) IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL AND PREMIUM, IF ANY, OF, OR INTEREST ON THE 2018 BONDS. THE AUTHORITY HAS NO TAXING POWER. THE ISSUANCE OF THE 2018 BONDS SHALL NOT DIRECTLY OR INDIRECTLY OBLIGATE THE AUTHORITY, THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR PLEDGE ANY FORM OF TAXATION WHATSOEVER OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE 2018 BONDS. THE 2018 BONDS AND THE 2018 INSTALLMENT PAYMENTS ARE NOT PAYABLE FROM THE GENERAL FUND OF THE CITY

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the 2018 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the 2018 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the 2018 Bonds. See “TAXMATTERS. ”

The 2018 Bonds are offered when, as and if issued by the Authority and received by the Underwriters, subject to the approval as to their validity by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, and certain other conditions. Del Rio Advisors, LLC, Modesto, California is serving as municipal advisor to the Authority and the City in connection with the issuance of the 2018 Bonds. Certain legal matters will be passed on for the Authority and the City by the City Attorney and by Schiff Hardin LLP, San Francisco, California, Disclosure Counsel to the City, and for the Underwriters by Stradling Yocca Carlson & Rauth, Sacramento, California, Underwriters ’ Counsel. It is anticipated that the 2018 Bonds will be available for delivery in book-entry only form through the facilities of DTC on or about November 20, 2018.

CitigroupDated: November 6, 2018.

j RBC Capital Markets


WATER REVENUE REFUNDING BONDS, SERIES 2018A (Green Bonds)

Maturity (October 1)

PrincipalAmount

InterestRate Yield Price CUSIP NoU

2019 $4,835,000 5.000% 2.110% 102.458 861398BJ32020(1) 5,090,000 5.000 2.240 105.008 861398BK02021(1) 5,365,000 5.000 2.340 107.324 861398BL82022(1) 5,645,000 5.000 2.470 109.266 861398BM62023(1) 5,650,000 5.000 2.580 110.992 861398BN42024(1) 5,950,000 5.000 2.720 112.277 861398BP92025(1) 6,265,000 5.000 2.820 113.514 861398BQ72026(1) 6,600,000 5.000 2.960 114.215 861398BR52027(1) 6,955,000 5.000 3.090 114.707 861398BS32028(1) 7,325,000 5.000 3.210 115.027 861398BT12029(1) 7,700,000 5.000 3.330 113.938 (2) 861398BU82030(1) 8,115,000 5.000 3.440 112.951(2) 861398BV62031(1) 8,545,000 5.000 3.490 112.505(2) 861398BW42032(1) 9,005,000 5.000 3.510 112.328(2) 861398BX22033(1) 9,485,000 5.000 3.550 111.973(2) 861398BY02034(1) 9,985,000 5.000 3.600 111.533(2) 861398BZ72035(1) 8,875,000 5.000 3.650 111.094(2) 861398CA12036(1) 11,635,000 5.000 3.700 110.657(2) 861398CB92037(1) 12,195,000 4.000 4.110 98.561 861398CC7

(1) Insured by Build America Mutual Assurance Company.<2> Priced to first optional redemption date of October 1, 2028 at par.t CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on

behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CGS. This data is not intended to create a database and does not serve in any way as a substitute for CGS database. The CUSIP® numbers are provided for convenience of reference only. None of the Authority, the City, the Underwriter, their agents, or counsel is responsible for the selection or uses of the CUSIP® numbers, and no representation is made as to their correctness on the applicable 2018 Bonds or as included herein. The CUSIP® numbers of specific maturities is subject to change following the issuance of the 2018 Bonds as a result of various actions, including, but not limited to, a refunding in whole or in part or as the result of the procurement of a secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2018 Bonds.

STOCKTON PUBLIC FINANCING AUTHORITY CHAIR AND BOARD OF DIRECTORS

ANDCITY COUNCIL

CITY OF STOCKTON

CHAIR AND BOARD OF DIRECTORS AND MAYOR AND CITY COUNCIL

Michael Tubbs Elbert H. Holman, Jr. Susan Lofhtus Daniel Wright Susan Lenz Christine Fugazi Jesus Andrade

Chair and MayorMember and Vice Mayor, District 1 Member and Counci I member District 3 Member and Counci I member, District 2 Member and Counci I member, District 4 Member and Counci I member, District 5 Member and Counci I member, District 6

CITY STAFF

Kurt O. Wilson, City Manager John Luebberke, City Attorney

Matt Paulin, Chief Financial Officer John Abrew, Director of Municipal Utilities

C. Mel Lytle, PhD., Deputy City Manager and Acting Deputy Director of Water Resources Minnie Moreno, Municipal Utilities Finance Officer

Kevin Beltz, Program Manager 11 -Debt and Treasury Christian Clegg, I nterimCity Clerk

SPECIAL SERVICES

Orrick, Herrington & Sutcliffe LLPBond Counsel

Del Rio Advisors, LLC Modesto, CaliforniaMunicipal Advisor

Schiff Hardin LLP San Francisco, California

Disclosure Counsel

HDR Engineering Inc.Bellevue, Washington

Rate Consultant

Wells Fargo Bank, National Association San Francisco, California

Trustee and E scrow Agent for the Refunded 2005 Bonds and Refunded 2009B Bonds

MUFG Union Bank, N.A.San Francisco, California

Escrow Agent for the Refunded 2002 Bonds

No dealer, broker, salesperson or other person has been authorized by the Authority, the City, or the Underwriters to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing.

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 2018 Bonds by any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2018 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The information set forth herein has been obtained from sources which are believed to be reliable, but such information is neither guaranteed as to accuracy or completeness, nor shall it be construed as a representation of such by the Authority, the City, or the Underwriters. The information and expressions of opinion stated herein are subject to change without notice; and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or in the condition of the Water System, since the date hereof.

The summaries and references to the 2018 Indenture, the 2018 Installment Purchase Contract, the Act and to other statutes and documents referred to herein do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each such statute and document. This Official Statement including any amendment or supplement hereto is intended to be deposited with one or more information repositories.

The Underwriters have provided the following sentence for inclusion in this Official Statement: the Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

In connection with the offering of the 2018 Bonds, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the 2018 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the 2018 Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriters.

The 2018 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption from the registration requirements contained in such act. The 2018 Bonds have not been registered or qualified under the securities laws of any state.

The City maintains a website. Unless specifically indicated otherwise, the information presented on that website is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the 2018 Bonds.

Any statement involving any forecast or matter of opinion or estimates, whether or not expressly stated, is intended solely as such and not as a representation of fact. Certain statements included or incorporated by reference in this Official Statement constitute “forward looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 2 IE of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended (the “Securities Act”). Such forward-looking statements are generally identified by use of the words “plan,” “project,” “expect,” “estimate,” “budget” or other similar words. Such forward looking statements refer to the achievement of certain results or other expectations or performance which involve known and unknown risks, uncertainties and other factors. These risks, uncertainties and other factors may cause actual results, performance or achievements to be materially different from any projected results, performance or achievements described or implied by such forward looking statements. The City does not plan to issue updates or revisions to such forward looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based, occur, or if actual results, performance or achievements are materially different from any results, performance or achievements described or implied by such forward looking statements.

Build America Mutual Assurance Company (“BAM”) makes no representation regarding the 2018 Bonds or the advisability of investing in the 2018 Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “Bond Insurance” and Appendix G-“Specimen Municipal Bond Insurance Policy.”

TABLE OF CONTENTS

Page

INTRODUCTION............................................... 1General; Purpose................................... 1Security for the 2018 Bonds.................1Bond Insurance.................................... 22018 Reserve Account..........................3Outstanding Senior Obligations........... 3Continuing Disclosure..........................3Bondowners Risks................................3Certain Information Related to

this Official Statement................... 4PLAN OF FINANCE..........................................4

Green Bonds Designation.................... 4Refunded Bonds....................................5Verification...........................................7

ESTIMATED SOURCES AND USES OFFUNDS................................................. 8

THE 2018 BONDS.............................................. 8General..................................................8Redemption Provisions.........................9

SECURITY AND SOURCES OF PAYMENTFOR THE 2018 BONDS.................... 10Pledge of Available Revenues............10Senior Obligations..............................12Springing Pledge of Net System

Revenues Upon Payment ofSenior Obligations........................12

Rate Covenant..................................... 12Rate Stabilization Fund.......................13Deposit of Revenues...........................132018 Reserve Account........................14Issuance of Parity Obligations............15Default Under the 2018 Indenture

and Remedies............................... 16BOND INSURANCE........................................ 17

Bond Insurance Policy........................17Build America Mutual Assurance

Company...................................... 17BAM GreenStar Bonds.......................18

DEBT SERVICE SCHEDULE.........................20CERTAIN BONDOWNERS’ RISKS...............21

General................................................21Rate Covenant is Not a Guarantee

of Sufficient Net Revenues.......... 21System Expenses.................................21Limited Recourse on Default............. 21Initiatives; Changes in Law............... 22

Page

Statutory and Regulatory Impact........22Drought...............................................22Climate Change..................................23Risk of Earthquake and Other

Natural Disasters..........................23Risk Management and Insurance........25Limitations on Remedies....................25Loss of Tax Exemption on the

2018 Bonds..................................26Risk of Tax Audit...............................26Secondary Market...............................26Risks Associated with Bond

Insurance......................................26CONSTITUTIONAL AND STATUTORY

LIMITATIONS ON TAXES ANDAPPROPRIATIONS.......................... 27Article XIII A of the California

Constitution..................................27Article XIII C and Article XIII D

of the California Constitution......28Proposition 26.....................................30Future Initiatives.................................31

THE AUTHORITY........................................... 31THE CITY......................................................... 31THE WATER SYSTEM................................... 31

Overview............................................ 31Service Area....................................... 32Facilities.............................................34Drought and Conservation

Measures......................................34Water Supply......................................35Water Treatment and Regulatory

Matters.........................................38Capital Improvement Program...........40Water System Users............................40Outstanding Obligations.....................42Organization and Management...........43Employee Benefits..............................46

WATER SYSTEM FINANCES....................... 51Rate Setting, Billing and

Collection Procedures..................51Reserve Policy....................................53Rates, Fees and Charges.....................53Comparable Rates and Fees................57Historical Debt Service Coverage.....58Projected Debt Service Coverage......59

TAX MATTERS............................................... 61l

TABLE OF CONTENTS (continued)

Page

LEGAL MATTERS..........................................62LITIGATION....................................................63

The Authority......................................63The City..............................................63

CONTINUING DISCLOSURE........................64FINANCIAL STATEMENTS...........................65

Page

RATINGS......................................................... 65UNDERWRITING............................................ 66MUNICIPAL ADVISOR.................................. 67VERIFICATION OF MATHEMATICAL

COMPUTATIONS............................. 67MISCELLANEOUS.......................................... 68

List of Maps and Tables

Regional Location Map................................................................................................................................ iiiWater System Map...................................................................................................................................... 33Water System Organization Chart.............................................................................................................. 44

Table 1A - Refunded 2002 Bonds............................................................................................................5Table IB - Refunded 2005 Bonds............................................................................................................6Table 1C - Refunded 2009 Bonds............................................................................................................7Table 2 - Estimated Sources and Uses of Funds....................................................................................8Table 3 - Debt Service Schedule......................................................................................................... 20Table 4 - Historical Water Production and Purchases........................................................................ 38Table 5 A - Customer Base by Type of Account and Number of Connections....................................... 40Table 5B - Water Sold by Customer Class............................................................................................ 40Table 6 - Ten Largest Accounts by Annual Consumption.................................................................. 41Table 7 - Ten Largest Accounts by Revenue...................................................................................... 42Table 8 - Outstanding Obligations.......................................................................................................42Table 9 - Schedule of Rates and Charges and Effective Dates............................................................54Table 10 - Historical Connection Fee Revenues................................................................................... 55Table 11 - Uncollectible Charges for Services..................................................................................... 56Table 12 - Current Monthly User Fee Comparison Residential Service.............................................. 57Table 13 - Current Water Connection Fees Comparison.......................................................................57Table 14 - Historical Revenues, Expenses and Debt Service Coverage.............................................. 58Table 15 - Projected Pro Forma and Debt Service Coverage Calculation.............................................60

List of Appendices

APPENDIX A GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATIONRELATING TO THE CITY OF STOCKTON............................................................A-l

APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY OF STOCKTONFOR THE YEAR ENDED JUNE 30, 2017.................................................................B-l

APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGALDOCUMENTS............................................................................................................ C-l

APPENDIX D PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE.................D-1APPENDIX E DTC AND THE BOOK-ENTRY ONLY SYSTEM....................................................E-1APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL.........................................F-lAPPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY...................................... G-1

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OFFICIAL STATEMENT


WATER REVENUE REFUNDING BONDS, SERIES 2018A (Green Bonds)

INTRODUCTION

This Introduction is only a brief description of, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page through the appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the 2018 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms as set forth in the 2018 Indenture or the 2018 Installment Purchase Contract. See Appendix C-“ Summary of Certain Provisions of the Principal Legal Documents- Definitions of Certain Terms.”

General; Purpose

This Official Statement, which includes the cover page through the Appendices hereto (the “Official Statement”), provides certain information concerning the issuance by the Stockton Public Financing Authority (the “Authority”) of $145,220,000 principal amount of Stockton Public Financing Authority Water Revenue Refunding Bonds, Series 2018A (the “2018 Bonds”).

The 2018 Bonds are being issued by the Authority under and pursuant to Chapter 5 of Division 7 of Title 1 of the California Government Code, as amended (the “Act”) and other applicable laws of the State of California, a resolution adopted by the Authority on October 16, 2018 and in accordance with the provisions of a 2018 Indenture, dated as of November 1, 2018 (the “2018 Indenture”), by and between the Authority and Wells Fargo Bank, National Association, as trustee (the “Trustee”).

The 2018 Bonds are being issued by the Authority to provide funds which, together with certain other available funds, will be used to: (i) refund all of the $4,030,000 outstanding obligations of the City of Stockton (the “City”) under the California Statewide Communities Development Authority Water and Wastewater Revenue Bonds (Pooled Financing Program), Series 2002A (the “Refunded 2002 Bonds”), all of the $19,055,000 outstanding principal amount of Stockton Public Financing Authority 2005 Water Revenue Bonds, Series A (Water System Capital Improvement Projects) (the “Refunded 2005 Bonds”), and all of the $146,725,000 outstanding principal amount of Stockton Public Financing Authority Water Revenue Bonds, Taxable Build America Bonds, Series 2009B (Delta Water Supply Project) (the “Refunded 2009B Bonds,” and together with the Refunded 2002 Bonds and the Refunded 2005 Bonds, the “Refunded Bonds”); (ii) purchase a municipal bond insurance policy and a debt service reserve fund surety policy as security for the 2018 Bonds; and (iii) pay certain costs associated with the issuance of the 2018 Bonds. See “Plan of Finance” and “Estimated Sources and Uses of Funds.”

Security for the 2018 Bonds

The City emerged from bankruptcy on February 25, 2015 when the City’s plan of adjustment became effective. Throughout its bankruptcy case, the City maintained that revenues of the Water System qualified as “special revenues” under the United States Bankruptcy Code, and no creditor or party

in interest argued otherwise. As a result, all revenues attributable to the Water System were available solely for Water System operations. At no point were revenues of the Water System diverted to fund general fund operations; nor did the general fund borrow funds from the Water System.

The 2018 Bonds are limited obligations of the Authority payable solely from installment payments (the “2018 Installment Payments”) to be made by the City under a 2018 Installment Purchase Contract, dated as of November 1, 2018 (the “2018 Installment Purchase Contract”), by and between the Authority and the City and certain amounts held under the 2018 Indenture. As security for the payment of the 2018 Installment Payments, the City has pledged “Available Revenues” derived from the operation of the Water System after payment of Operations and Maintenance Costs (defined herein) and payment or setting aside of all payments, transfers and other deposits (including debt service and the replenishment of debt service reserves) with respect to the Senior Obligations (defined herein). See “Security and Sources of Payment for the 2018 Bonds.”

The City may issue or incur additional obligations payable from Available Revenues on a parity with the 2018 Installment Payments and other Parity Obligations (as defined herein). See “Security and Sources of Payment for the 2018 BONDS-Issuance of Parity Obligations.” The City may also issue or incur additional obligations payable from the Available Revenues on a basis subordinate to the 2018 Installment Payments and other Parity Obligations.

THE 2018 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM 2018 INSTALLMENT PAYMENTS MADE BY THE CITY AND CERTAIN MONEYS HELD UNDER THE 2018 INDENTURE. THE 2018 BONDS ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA (THE “STATE”) OR ANY POLITICAL SUBDIVISION THEREOF, AND SHALL BE PAYABLE SOLELY FROM THE REVENUES PLEDGED THEREFOR PURSUANT TO THE 2018 INDENTURE. THE OBLIGATION OF THE CITY TO MAKE 2018 INSTALLMENT PAYMENTS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM AVAILABLE REVENUES OF THE WATER SYSTEM AS PROVIDED IN THE 2018 INSTALLMENT PURCHASE CONTRACT. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (INCLUDING THE AUTHORITY) IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL AND PREMIUM, IF ANY, OF, OR INTEREST ON THE 2018 BONDS. THE AUTHORITY HAS NO TAXING POWER. THE ISSUANCE OF THE 2018 BONDS SHALL NOT DIRECTLY OR INDIRECTLY OBLIGATE THE AUTHORITY, THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR PLEDGE ANY FORM OF TAXATION WHATSOEVER OR TO MAKE ANY APPROPRIATION FOR PAYMENT OF THE 2018 BONDS. THE 2018 BONDS AND THE 2018 INSTALLMENT PAYMENTS ARE NOT PAYABLE FROM THE GENERAL FUND OF THE CITY.

Bond Insurance

Concurrently with the issuance of the 2018 Bonds, Build America Mutual Assurance Company (the “Bond Insurer”) will issue its Municipal Bond Insurance Policy (the “Policy”) for the 2018 Bonds maturing on October 1 of the years 2020 through 2037, inclusive (collectively, the “Insured 2018 Bonds”). The Policy guarantees the scheduled payment of principal of and interest on the Insured 2018 Bonds when due as set forth in the form of the Policy included as Appendix G to this Official Statement. See “Bond Insurance” and Appendix G-“Specimen Municipal Bond Insurance Policy.”

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2018 Reserve Account

Pursuant to the 2018 Indenture, a 2018 Reserve Account in the amount of the 2018 Reserve Requirement (defined herein) is established as security for the 2018 Bonds. Concurrently with the issuance of the 2018 Bonds, the Bond Insurer will issue a debt service reserve fund policy in the amount of the 2018 Reserve Requirement (the “Reserve Policy”) for deposit in the 2018 Reserve Account. See “Security and Sources of Payment for the 2018 Bonds-201 8 Reserve Account”

Outstanding Senior Obligations

The pledge of Available Revenues securing the 2018 Installment Payments is subordinate to the pledge of Net System Revenues securing the payment or setting aside of all payments, transfers and other deposits (including debt service and replenishment of debt service reserves) with respect to the obligations of the City with respect to the $53,410,000 outstanding principal amount of Stockton Public Financing Authority Water Revenue Bonds, Series 2010A (Delta Water Supply Project) (the “Senior Obligations”) that will remain outstanding following the issuance of the 2018 Bonds and the refunding of Refunded Bonds. Upon the payment and/or defeasance of the Senior Obligations, the lien on Net System Revenues created by such Senior Obligations will be terminated and discharged and all Net System Revenues will become irrevocably pledged to the payment of the 2018 Installment Payments and Parity Obligations without any further act of the City. See also, Appendix C-“Summary of Certain Provisions of the Principal Legal Documents-2018 Installment Purchase Contract—Pledge of Net System Revenues; Springing Pledge of Revenues; City Revenue Fund.” See “Security and Sources of Payment for the 2018 BONDS-Senior Obligations.”

Continuing Disclosure

The Authority has determined that no financial or operating data concerning the Authority is material to an evaluation of the offering of the 2018 Bonds or to any decision to purchase, hold or sell the 2018 Bonds, and the Authority will not provide any such information.

The City has undertaken all responsibilities of the Authority for any continuing disclosure to Holders of the 2018 Bonds.

The City will covenant for the benefit of Holders of the 2018 Bonds and beneficial owners to provide certain financial information and operating data relating to the City and the Water System by not later than March 31 after the end of the City’s Fiscal Year (the “Annual Report”), commencing with the report due March 31, 2019, and to provide notices of the occurrence of certain specified events. The Annual Report and notices of events will be filed by means of the Electronic Municipal Market Access (“EMMA”) site maintained by the Municipal Securities Rulemaking Board (the “MSRB”). The specific nature of the information to be contained in the Annual Report or the notices of events is set forth in Appendix D-“Proposed Form of Continuing Disclosure Certificate.” These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2-12(b)(5). See “Continuing Disclosure” for the status of the City’s compliance with its outstanding continuing disclosure undertakings, including continuing disclosure undertakings relating to the Water System.

Bondowners Risks

An investment in the 2018 Bonds involves risk. See “Certain Bondowners’ Risks” for a discussion of important investment considerations and other risk factors associated with the purchase of the 2018 Bonds. Any one or more of the risks discussed, and others, could lead to a decrease in the market value of the 2018 Bonds or the ability of the City to make 2018 Installment Payments. Potential

3

purchasers of the 2018 Bonds are advised to review the entire Official Statement carefully and to conduct such due diligence and other review as they deem necessary and appropriate under the circumstances.

Certain Information Related to this Official Statement

Brief descriptions of the 2018 Bonds, the security for the 2018 Bonds, the Water System, the Authority and the City are included in this Official Statement together with summaries of certain provisions of the 2018 Bonds, the 2018 Indenture, the 2018 Installment Purchase Contract and certain other documents. Such descriptions do not purport to be comprehensive or definitive. Certain general demographic and economic information relating to the City is contained in Appendix A-“General, Economic and Demographic Information Relating to the City of Stockton.”

All references herein to the 2018 Indenture, the 2018 Installment Purchase Contract, and other documents are qualified in their entirety by reference to such documents, and references herein to the 2018 Bonds are qualified in their entirety by reference to the form thereof included in the 2018 Indenture, copies of which are available prior to the issuance of the 2018 Bonds at the office of the Chief Financial Officer, City of Stockton, 425 North El Dorado Street, Stockton, California 95202; telephone: 209-937-8908 and thereafter at the office of the Trustee, Wells Fargo Bank, National Association, 333 Market Street, 18th Floor, San Francisco, California 94105; telephone: 415-371-3353.

PLAN OF FINANCE

The proceeds of the 2018 Bonds will be used by the Authority to: (i) refund the Refunded Bonds; (ii) purchase the Policy and the Reserve Policy as security for the 2018 Bonds; and (iii) pay certain costs associated with the issuance of the 2018 Bonds. See also “Estimated Sources and Uses of Funds.”

Green Bonds Designation

The 2018 Bonds are being designated by the Authority as “Green Bonds.” The purpose of designating the 2018 Bonds as “Green Bonds” is to allow investors to invest directly in bonds which finance such environmentally beneficial projects (“Green Projects”). For purposes of such designation, the Authority considers the projects financed with the proceeds of the Refunded Bonds to be Green Projects. The owners of the 2018 Bonds do not assume any specific project risk or economic benefit related to the projects as a result of the Green Bonds designation.

The proceeds from the 2018 Bonds will be used to refund the Refunded Bonds. The proceeds of the Refunded Bonds were used finance Green Projects consisting of various capital improvements to the City’s Water System, all of which have been constructed and completed. No additional reporting on or monitoring of the status of the Green Projects is anticipated.

The term “Green Bonds” is neither defined in nor related to the 2018 Indenture or the 2018 Installment Purchase Contract. The use of the term in this Official Statement is solely for identification purposes and is not intended to provide or imply that any owner of any 2018 Bond is entitled to any security other than as provided in the 2018 Indenture.

The repayment obligation of the Authority with respect to the 2018 Bonds is not conditioned on the satisfaction of any certification relating to the status of the 2018 Bonds as Green Bonds. See “Security and Sources of Payment for the 2018 Bonds.”

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Refunded Bonds

Refunded 2002 Bonds. The Refunded 2002 Bonds were issued pursuant to an Indenture, dated as of May 1, 2002 (the “2002 Indenture”) by and between by the California Statewide Communities Development Authority and MUFG Union Bank, formerly Union Bank of California, as trustee (the “2002 Trustee”). The Refunded 2002 Bonds were issued to, among other things, refinance certain improvements to the Water System.

A portion of the proceeds of the 2018 Bonds will be deposited with the 2002 Trustee which, together with certain moneys on deposit under the 2002 Trust Agreement, will be sufficient and will be used to redeem all of the Refunded 2002 Bonds on or about December 20, 2018, at a price equal to 100% of the principal amount redeemed, plus accrued and unpaid interest through the date of redemption.

The Refunded 2002 Bonds consist of the following:

Table 1ARefunded 2002 Bonds

$4,030,000California Statewide Communities Development Authority

Water and Wastewater Revenue Bonds (Pooled Financing Program)Series 2002A

OutstandingMaturity Date Principal Interest

(October 1) Amount Rate CUSIP NoJ2022 $4,030,000 5.125% 13078AFL6

t CUSIP numbers are provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP service. The CUSIP number is provided for convenience of reference only. None of the Authority, the City or the Underwriters assume any responsibility for the accuracy of such numbers.

Upon the deposit of cash and/or securities into an escrow fund (the “2002 Escrow Fund”) established pursuant to an Escrow Agreement, dated as of November 1, 2018 (the “2002 Escrow Agreement”) by and between the Authority and the 2002 Trustee, the Refunded 2002 Bonds will no longer be deemed outstanding under the 2002 Indenture.

Refunded 2005 Bonds. The Refunded 2005 Bonds were issued pursuant to an Indenture, dated as of November 1, 2005 (the “2005 Indenture”) by and among the Authority and Wells Fargo Bank, National Association, as trustee (the “2005 Trustee”). The Refunded 2005 Bonds were issued to finance certain improvements to the Water System.

A portion of the proceeds of the 2018 Bonds will be deposited with the 2005 Trustee which, together with certain moneys on deposit under the 2005 Indenture, will be sufficient and will be used to redeem all of the Refunded 2005 Bonds on or about December 20, 2018, at a price equal to 100% of the principal amount redeemed, plus accrued and unpaid interest through the date of redemption.

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The Refunded 2005 Bonds consist of the following:

Table IBRefunded 2005 Bonds

$19,055,000Stockton Public Financing Authority 2005 Water Revenue Bonds, Series A

(Water System Capital Improvement Projects)

Maturity Date (October 1)

OutstandingPrincipalAmount

InterestRate CUSIP No.t

2019 $130,000 4.250% 861398AC92020 130,000 4.375 861398AD72021 140,000 4.375 861398AE52022 140,000 4.375 861398AF22023 1,060,000 4.375 861398AG02024 1,105,000 4.375 861398AH82025 1,155,000 4.500 861398AJ42026 1,205,000 4.500 861398AK12031 7,005,000 5.000 861398AL92032 1,625,000 4.750 861398AM72035 5,360,000 4.750 861398AN5


Upon the deposit of cash and/or securities into an escrow fund (the “2005 Escrow Fund”) established pursuant to an Escrow Agreement, dated as of November 1, 2018 (the “2005 Escrow Agreement”) by and between the Authority and the 2005 Trustee, the Refunded 2005 Bonds will no longer be deemed outstanding under the 2005 Indenture.

Refunded 2009B Bonds. The Refunded 2009B Bonds were issued pursuant to a 2009 Indenture, dated as of August 1, 2009 (the “2009 Indenture”) by and among the Authority and Wells Fargo Bank, National Association, as trustee (the “2009 Trustee”). The Refunded 2009B Bonds were issued to finance certain improvements to the Water System.

A portion of the proceeds of the 2018 Bonds will be deposited with the 2009 Trustee which, together with certain moneys on deposit under the 2009 Indenture, will be sufficient and will be used to pay the principal of and interest on the Refunded 2009B Bonds when due to October 1, 2019 and redeem the Refunded 2009B Bonds maturing after October 1, 2019 on October 1, 2019 at a price equal to 100% of the principal amount redeemed.

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The Refunded 2009B Bonds consist of the following:

Table 1CRefunded 2009 Bonds

$146,725,000Stockton Public Financing Authority

Water Revenue Bonds Taxable Build America Bonds, Series 2009B

(Delta Water Supply Project)

Maturity Date (October 1)

OutstandingPrincipalAmount

InterestRate CUSIP No.t

2019 $4,165,000 6.590% 86138AW72024 24,005,000 7.290 86138AX32038 118,555,000 7.942 86138AY1


Upon the deposit of cash and/or securities into an escrow fund (the “2009 Escrow Fund”) established pursuant to an Escrow Agreement, dated as of November 1, 2018 (the “2009 Escrow Agreement” and, collectively with the 2002 Escrow Agreement and the 2005 Escrow Agreement, the “Escrow Agreements”) by and between the Authority and the 2009 Trustee, the Refunded 2009B Bonds will no longer be deemed outstanding under the 2009 Indenture.

Verification

The amounts deposited with the 2002 Trustee, the 2005 Trustee and the 2009 Trustee, as applicable, pursuant to the respective Escrow Agreement will be held by the 2002 Trustee, the 2005 Trustee and the 2009 Trustee, as applicable, and held in cash and/or invested in securities that are irrevocably pledged solely to the payment of the principal and interest on the applicable Refunded Bonds. Grant Thornton LLP will deliver a report confirming that the cash and/or principal of and interest on such securities, when received, will be sufficient to pay with respect to the 2009B Bonds, the principal of and interest on the 2009B Bonds on October 1, 2019, and the redemption price of the applicable Refunded Bonds on the respective redemption date. See “Verification of Mathematical Computations.”

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ESTIMATED SOURCES AND USES OF FUNDS

The proceeds to be received from the sale of the 2018 Bonds, together with other available funds, are estimated to be applied as set forth in the following table:

Table 2Estimated Sources and Uses of Funds

Refunding of Refunding of Refunding ofRefunded Refunded Refunded

2002 Bonds 2005 Bonds 2009B Bonds TotalSources of Funds:Par Amount of 2018 Bonds $3,835,000.00 $14,890,000.00 $126,495,000.00 $145,220,000.00Funds held under the 2002 Indenture 28,112.05 - - 28,112.05Funds held under the 2005 Indenture - 2,582,699.19 - 2,582,699.19Funds held under the 2009 Indenture - - 16,304,263.40 16,304,263.40Net Original Issue Premium 236.256.40 1.899.914.65 13.052.695.75 15.188.866.80

Total Estimated Sources $4,099,368.45 $19,372,613.84 $155,851,959.15 $179,323,941.44

Uses of Funds:Deposit to Escrow Fund(1) $4,067,934.36 $19,218,998.43 $154,620,188.49 $177,907,121.28Costs of Issuance(2) 31.434.09 153.615.41 1.231.770.66 1.416.820.16

Total Estimated Uses of Funds $4,099,368.45 $19,372,613.84 $155,851,959.15 $179,323,941.44

(1) See “Plan of Finance.”(2) Includes fees of Bond Counsel, Disclosure Counsel, the Municipal Advisor, the Verification Agent, the 2002 Trustee, the

2005 Trustee, the 2009 Trustee, and the Trustee, the Underwriters’ discount, premiums for the Policy and the Reserve Policy, fees relating to the credit ratings, printing, and other miscellaneous costs associated with the issuance of the 2018 Bonds. For the details of the Underwriters’ discount, see “Underwriting.”

THE 2018 BONDS

The following is a summary of certain provisions of the 2018 Bonds. Reference is made to the 20181 ndenture for the complete provisions thereof, and the discussion herein is qualified in its entirety by such reference. See Appendix C-“Summary of Certain Provisions of the Principal Legal Documents-The 2018 Indenture.”

General

The 2018 Bonds will be dated their date of original delivery, will be issued in fully registered form, in denominations of $5,000 and any integral multiple thereof and will mature on the dates and in the principal amounts and bear interest at the rates as set forth on the inside cover of this Official Statement.

Interest on the 2018 Bonds will be calculated on the basis of a 360-day year comprised of twelve, 30-day calendar months, payable semiannually on April 1 and October 1 of each year, commencing April 1, 2019 (each, an “Interest Payment Date”).

The 2018 Bonds when issued, will be in fully-registered form, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC acts as securities depository for the 2018 Bonds. Individual purchases and sales of the 2018 Bonds may be made in book-entry form only. Purchasers will not receive certificates representing their interest in the 2018

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Bonds purchased. References herein to the Bondholders or Owners shall mean DTC and shall not mean the beneficial owners of the 2018 Bonds. So long as DTC, or its nominee, is the registered owner of all of the 2018 Bonds, all payments on the 2018 Bonds are made directly to DTC. Principal of and interest on the 2018 Bonds are payable by wire transfer by the Trustee to DTC, which is expected, in turn, to remit such amounts to the DTC Direct Participants for subsequent disbursement to DTC Indirect Participants (each as defined in Appendix E) and beneficial owners. See Appendix E-“DTC and the Book-Entry Only System.”

Payment of interest on the 2018 Bonds due on any Interest Payment Date on or before the maturity or prior redemption thereof will be made only to the person whose name appears in the bond registration books kept by the Trustee as of the close of business on the 15th day of the month immediately preceding an Interest Payment Date (the “Record Date”), whether or not such Record Date is a Business Day, by check mailed on such Interest Payment Date by first class mail to such registered owner at the address as it appears in such books; provided, that upon the written request of any Holder of $1,000,000 or more in aggregate principal amount of 2018 Bonds received by the Trustee prior to the applicable Record Date, interest will be paid on each Interest Payment Date by wire transfer of immediately available funds to an account maintained in any bank or trust company in the United States of America that is a member of the Federal Reserve System designated in writing by such Holder.

Redemption Provisions

Optional Redemption. The 2018 Bonds maturing on or after October 1, 2029, are subject to optional redemption by the Authority prior to their respective stated maturity dates, upon notice, on any date on or after October 1, 2028, as a whole or in part from such maturities as are designated by the Authority at a redemption price equal to 100% of the principal amount of the 2018 Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium.

Notice of Redemption. Notice of redemption is required to be mailed by the Trustee by first class mail, not less than 20 nor more than 60 days prior to the redemption date, to the respective Holders of the 2018 Bonds designated for redemption at their addresses appearing on the registration books kept by the Trustee. Each notice of redemption is required to state the date of such notice, the 2018 Bonds to be redeemed, the date of the 2018 Bonds, the redemption date, the redemption price, the place of redemption (including the name and address of the Principal Corporate Trust Office of the Trustee), the CUSIP number (if any) of the maturity or maturities, and, if less than all of the 2018 Bonds of any one maturity are to be redeemed, the distinctive numbers of the 2018 Bonds of such maturity to be redeemed and, in the case of 2018 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice is also required to state that, subject to the rescission of such redemption as provided in the 2018 Indenture, on such redemption date there will become due and payable on each of the 2018 Bonds to be redeemed the redemption price thereof and, in the case of 2018 Bonds to be redeemed in part only, the specified portion of the principal amount thereof to be redeemed, and that from and after such redemption date interest on such 2018 Bonds shall cease to accrue, and each such notice shall require that such 2018 Bonds be then surrendered at the Principal Corporate Trust Office of the Trustee specified in the redemption notice for payment of the redemption price thereof.

Neither failure to receive any such notice nor any defect contained therein will invalidate any of the proceedings taken in connection with any such redemption.

Selection of 2018 Bonds to be Redeemed. If less than all Outstanding 2018 Bonds maturing by their terms on any one date are to be redeemed at any one time, the Trustee is required to select the 2018 Bonds to be redeemed on such date randomly in any manner that the Trustee deems fair and appropriate,

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and for purposes of such selection 2018 Bonds are deemed to be composed of $5,000 multiples and any such multiple may be separately redeemed.

Effect of Redemption. If notice of redemption is given pursuant to the 2018 Indenture, and moneys for payment of the redemption price of the 2018 Bonds called for redemption is held by the Trustee, then, subject to the rescission of such election to redeem as provided in the 2018 Indenture, on the redemption date designated in such notice the 2018 Bonds so called for redemption shall become due and payable, and from and after the date so designated interest on such 2018 Bonds shall cease to accrue, and the Holders of such 2018 Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof.

Rescission of Notice of Redemption. Any notice of redemption may be rescinded by Written Request of the Authority given to the Trustee not later than five days prior to the date fixed for redemption. Upon receipt of such Written Request of the Authority, the Trustee is required to promptly mail notice of such rescission in the same manner and to the same parties that were mailed the original notice of redemption.

Conditional Notice of Optional Redemption. Any notice of optional redemption may be conditional on the receipt by the Trustee of sufficient money to pay the full redemption price of the 2018 Bonds to redeemed.

SECURITY AND SOURCES OF PAYMENT FOR THE 2018 BONDS

Pledge of Available Revenues

The 2018 Bonds are limited obligations of the Authority issued under and pursuant to the 2018 Indenture, payable solely from the 2018 Installment Payments to be made by the City under the 2018 Installment Purchase Contract and certain amounts held under the 2018 Indenture. The obligation of the City to make 2018 Installment Payments constitutes a special obligation of the City payable solely from a pledge of the “Available Revenues.”

The pledge of Available Revenues is subordinate to the pledge of Net System Revenues securing payments with respect to the Senior Obligations. See “-Senior Obligations.” The City may issue or incur additional obligations payable from Available Revenues on a parity with the 2018 Installment Payments and other Parity Obligations. See “-Issuance of Parity Obligations.”

“Available Revenues” means all Net System Revenues remaining on the first Business Day of each month after the payment or setting aside of all payments, transfers and other deposits with respect to the Senior Obligations required to be made in such month pursuant to the terms of the Senior Obligations; provided, that if the Senior Obligations are deemed to be paid and no longer outstanding pursuant to their terms, “Available Revenues” will mean “Net System Revenues.”

“Net System Revenues” means, for any period, the System Revenues during such period less the Operation and Maintenance Costs during such period.

“Operation and Maintenance Costs” means the reasonable and necessary costs paid or incurred by the City for maintaining and operating the Water System, determined in accordance with Generally Accepted Accounting Principles, including all costs of water or capacity purchased or otherwise acquired for the Water System whether or not such water or capacity is delivered or capable of being delivered or otherwise made available to or received by or for the account of the Water System and all costs of treating

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water for the Water System and all expenses necessary to maintain and preserve the Water System in good repair and working order and including all administrative and management costs of the City that are charged directly or apportioned to the operation of the Water System, such as salaries and wages of employees, overhead, taxes (if any) and insurance premiums (including payments required to be paid into any self-insurance funds), and including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the 2018 Installment Purchase Contract, the Senior Obligations or of any Parity Obligations, but excluding in all cases (i) depreciation, replacement and obsolescence charges or reserves therefor, (ii) amortization of intangibles, (iii) costs of capital additions, replacements, betterments, extensions or improvements to the Water System which under Generally Accepted Accounting Principles are chargeable to a capital account, and (iv) charges for the payment of principal and interest on any debt service on account of any Senior Obligation, Prior Obligation, or obligation subordinate to the Parity Obligations.

“Parity Obligations” means the 2018 Installment Payments, any other obligation (including, but not limited to, any installment payment obligation) payable on a parity with the 2018 Installment Payments from Available Revenues (defined herein) or Net System Revenues, as the case may be, as provided in the 2018 Installment Purchase Contract and the regularly scheduled payments under any Payment Agreement which have been designated by the City as a “Parity Obligation” in a Payment Agreement.

“Payment Agreement” means a written agreement for the purpose of managing or reducing the City’s exposure to fluctuations in interest rates or for any other interest rate, investment, asset or liability managing purposes, entered into either on a current or forward basis by the City as authorized under any applicable laws of the State in connection with, or incidental to, the entering into of any Parity Obligation, that provides for an exchange of payments based on interest rates, ceilings or floors on such payments, options on such payments or any combination thereof, or any similar device.

“Senior Obligations” means the 2010 Installment Purchase Contract.

“System Revenues,” means all gross income and revenue received or receivable by the City from the ownership or operation of the Water System, determined in accordance with Generally Accepted Accounting Principles, including all fees, rates, charges and amounts paid under any contracts received by or owed to the City in connection with the operation of the Water System and all proceeds of insurance relating to the Water System and all other income and revenue howsoever derived by the City from the ownership or operation of the Water System.

THE 2018 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM 2018 INSTALLMENT PAYMENTS MADE BY THE CITY AND CERTAIN MONEYS HELD UNDER THE 2018 INDENTURE. THE 2018 BONDS ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF, AND SHALL BE PAYABLE SOLELY FROM THE REVENUES PLEDGED THEREFOR PURSUANT TO THE 2018 INDENTURE. THE OBLIGATION OF THE CITY TO MAKE 2018 INSTALLMENT PAYMENTS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM AVAILABLE REVENUES OF THE WATER SYSTEM AS PROVIDED IN THE 2018 INSTALLMENT PURCHASE CONTRACT. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (INCLUDING THE AUTHORITY) IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL AND PREMIUM, IF ANY, OF, OR INTEREST ON THE 2018 BONDS. THE AUTHORITY HAS NO TAXING POWER. THE ISSUANCE OF THE 2018 BONDS SHALL NOT DIRECTLY OR INDIRECTLY OBLIGATE THE AUTHORITY, THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF TO LEVY OR PLEDGE ANY FORM OF TAXATION WHATSOEVER OR TO MAKE ANY APPROPRIATION FOR PAYMENT

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OF THE 2018 BONDS. THE 2018 BONDS AND THE 2018 INSTALLMENT PAYMENTS ARE NOT PAYABLE FROM THE GENERAL FUND OF THE CITY.

Senior Obligations

The pledge of Available Revenues to secure the 2018 Installment Payments to pay the 2018 Bonds is subordinate to the pledge of Net System Revenues securing the payment or setting aside of all payments, transfers and other deposits (including debt service and replenishment of debt service reserves) with respect to the Senior Obligations. See “Plan of Finance” and, also see “Debt Service Schedule” for a presentation of annual debt service requirements for the Senior Obligations.

The documents securing the Senior Obligations set forth various events of default thereunder, including failure to pay interest or principal when due or default in the performance of certain covenants. The occurrence of an event of default relating to a Senior Obligation permits the trustee for or other holder of such obligations to declare all principal of and interest on such obligations to be immediately due and payable. In such event, sufficient Available Revenues may not be available to the Trustee to pay debt service with respect to the 2018 Bonds in a timely manner. In addition, in the case of an event of default with respect to the Senior Obligations, the trustee for Senior Obligations may take other actions which adversely impact the City’s ability to pay 2018 Installment Payments securing the 2018 Bonds.

Springing Pledge of Net System Revenues Upon Payment of Senior Obligations

Upon the payment and/or defeasance of the Senior Obligations and upon the termination and discharge of the lien on Net System Revenues created by such Senior Obligations, all Net System Revenues will become irrevocably pledged to the payment of the 2018 Installment Payments and Parity Obligations without any further act of the City. See also Appendix C-“Summary of Certain Provisions of the Principal Legal Documents-2018 Installment Purchase Contract—Pledge of Net System Revenues; Springing Pledge of Revenues; City Revenue Fund.”

Rate Covenant

In the 2018 Installment Purchase Contract, the City covenants to fix, prescribe and collect rates, fees and charges for Water Service during each Fiscal Year which are estimated to yield Available Revenues for such Fiscal Year equal to at least the Coverage Requirement for such Fiscal Year. The City may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates, fees and charges then in effect unless the Available Revenues from such reduced rates, fees and charges are estimated to be sufficient to meet the requirements of such covenant.

“Adjusted Available Revenues” means, for any Fiscal Year or other period of calculation, the Available Revenues for such Fiscal Year or other period of calculation less, to the extent included in the calculation of Net System Revenues for such Fiscal Year or other period of calculation, all amounts referred to in clause (G) of the definition of Parity Debt Service in the 2018 Installment Purchase Contract received or expected to be received by the City or fiduciary, on behalf of the City, in such Fiscal Year or other period of calculation; provided, that if the Senior Obligations are deemed to be paid and no longer outstanding pursuant to their terms, “Adjusted Available Revenues” will mean “Adjusted Net System Revenues.”

“Coverage Requirement” means, for any Fiscal Year or any other period, an amount of Adjusted Available Revenues equal to at least 115% of Parity Debt Service for such Fiscal Year or such other period, as applicable.

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“Parity Debt Service” generally means with respect to any Parity Obligation for any period of calculation, those portions of the payments of interest on and principal and redemption premiums, if any, required to be made during such period under such Parity Obligations, less any such interest that is to be paid from proceeds of such Parity Obligations, less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds and capitalized interest funds established for such Parity Obligations, as described in Appendix C-“Summary of Certain Provisions of the Principal Legal Documents-Definitions of Certain Terms.”

Rate Stabilization Fund

The City previously established a fund (the “Rate Stabilization Fund”) into which the City may, from time to time, deposit from current System Revenues such amounts as the City determines and the amount of available current System Revenues will be reduced by the amount so transferred. The City may also deposit amounts in the Rate Stabilization Fund from any other lawfully available source other than current System Revenues and the amount of available current System Revenues will not be reduced by the amounts so transferred. Amounts may be transferred from the Rate Stabilization Fund and deposited in the City Revenue Fund, and any amounts so transferred within 270 days after the end of a Fiscal Year will be deemed System Revenues for such Fiscal Year when so transferred. The City may also apply moneys on deposit in the Rate Stabilization fund for any lawful purpose. All interest or other earnings upon amounts in the Rate Stabilization Fund may be withdrawn therefrom and accounted for as System Revenues or used for any lawful purpose.

At June 30, 2018 there was approximately $2.78 million on deposit in the Rate StabilizationFund.

Deposit of Revenues

Pursuant to the 2018 Indenture, the Authority agrees and covenants that all Revenue when and as received will be forthwith transferred by the Authority to the Trustee for deposit in the 2018 Installment Payment Fund.

All money in the 2018 Installment Payment Fund is required to be set aside by the Trustee in the following special accounts in the following order of priority:

Interest Account,Redemption Account,2018 Reserve Account.

All money in each of such accounts will be held in trust by the Trustee and applied, used, and withdrawn only for the purposes authorized in the 2018 Indenture.

Interest Account. On April 1 and October 1 of each year, beginning on April 1, 2019, the Trustee is required to set aside from the 2018 Installment Payment Fund and deposit in the Interest Account an amount of money which is equal to the amount of interest becoming due and payable on all Outstanding 2018 Bonds on such April 1 or October 1, as the case may be; provided, that no such deposit need be made in the Interest Account if the amount contained therein is at least equal to the aggregate amount of interest becoming due and payable on all Outstanding 2018 Bonds on such Interest Payment Date. All money in the Interest Account is required to be used and withdrawn by the Trustee solely for the purpose of paying the interest on the 2018 Bonds as it becomes due and payable (including accrued interest on any 2018 Bonds purchased or redeemed prior to maturity).

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Redemption Account. On October 1 of each year, beginning on October 1, 2019, the Trustee is required to set aside from the 2018 Installment Payment Fund and deposit in the Principal Subaccount of the Redemption Account an amount of money equal to the principal amount of all Outstanding Serial 2018 Bonds maturing on such October 1; provided, that no such deposit need be made in the Principal Subaccount on October 1 of any year if the amount contained in the Principal Subaccount therein is at least equal to the aggregate amount of the principal of all Outstanding Serial 2018 Bonds maturing by their terms on such October 1. All money in the Principal Subaccount in the Redemption Account is required to be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Serial 2018 Bonds as they shall become due and payable, whether at maturity or on prior redemption. See also, Appendix C-“Summary of Certain Provisions of the Principal Legal Documents-The 2018 INDENTURE-Establishment and Maintenance of Accounts for Use of Money in the 2018 Installment Payment Fund-Redemption Account.”

2018 Reserve Account. If moneys on deposit in the 2018 Reserve Account are less than the 2018 Reserve Requirement, after making the deposits required to be made to the Interest Account and Redemption Account, the Trustee is required to deposit available Revenues in the 2018 Reserve Account until the balance in the 2018 Reserve Account equals the 2018 Reserve Requirement.

2018 Reserve Account

The 2018 Indenture establishes a 2018 Reserve Account to be held by the Trustee, and requires that the 2018 Reserve Account be maintained in the amount of the “2018 Reserve Requirement” which is defined to mean, as of any date of determination, the least of: (i) 10% of the amount of the 2018 Bonds (as defined in Section 1.148-2(f)(l) of the Treasury Regulations), or (b) the maximum annual 2018 Installment Payments payable under the 2018 Installment Purchase Contract in the then current or any future one-year period ending on October 1, or (c) 125% of the average annual 2018 Installment Payments payable under the 2018 Installment Purchase Contract in the then current and all future one- year periods ending on October 1, all as computed by the City under the Code and specified in writing to the Trustee; provided, that such requirement (or any portion thereof) may be provided by one or more financial instruments (including, but not limited to, one or more policies of financial guaranty insurance, one or more surety bonds or one or more letters of credit) issued by a municipal bond insurer, bank or other financial institution or organization with ratings at the time of issuance of such financial instrument in one of the two highest rating categories (without regard to numerical modifier or plus or minus sign) from at least one nationally recognized rating agency.

Upon the issuance of the 2018 Bonds the 2018 Reserve Requirement will be $12,438,900. The Reserve Policy in the amount of the 2018 Reserve Requirement will be issued by the Bond Insurer and deposited into the 2018 Reserve Account.

All money in the 2018 Reserve Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on and principal of or redemption premiums, if any, on the 2018 Bonds if no other money is available in the 2018 Installment Payment Fund for this purpose; provided, that if at any time the Trustee determines that an amount in excess of the 2018 Reserve Requirement is on deposit in the 2018 Reserve Account (due to the valuation of the 2018 Reserve Account, the redemption or defeasance of 2018 Bonds or otherwise), the Trustee will withdraw any such excess and transfer it to the 2018 Installment Payment Fund or as otherwise directed in a Written Request of the Authority for any lawful purpose.

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Issuance of Parity Obligations

The City may at any time and from time to time issue or create any Parity Obligations, in addition to the 2018 Installment Payments, which may be incurred without compliance with the requirements described in the 2018 Installment Purchase Contract, provided:

(i) None of the following has occurred and is continuing: (A) an Event of Default under the terms of the 2018 Installment Purchase Contract, and any other installment purchase contract, indenture, trust agreement or other document that provides for the issuance of Parity Obligations (each an “Issuing Document”) or (B) an Event of Default or Termination Event (as defined in any Payment Agreement) under any Payment Agreement; and

(ii) The City obtains or provides a certificate or certificates, prepared by the City or at the City’s option by a Consultant, showing that either:

(A) the Adjusted Available Revenues for either the most recent Fiscal Year for which audited financial statements are available or any 12 consecutive calendar month period during the 18 consecutive calendar month period ending immediately prior to the incurring of such additional Parity Obligations were at least sufficient to satisfy the Coverage Requirement for each of the next five full Fiscal Years following the incurring of such additional Parity Obligations or each of the next three full Fiscal Years following the incurring of such additional Parity Obligations during which no interest is capitalized, whichever is later, including the Parity Debt Service during such Fiscal Years on such additional Parity Obligations; and for the purpose of providing such certificate or certificates, the City or the City’s Consultant, as applicable, may adjust the Adjusted Available Revenues for such Fiscal Year or 12 calendar month period, as the case may be, to reflect:

(1) an allowance for Net System Revenues that would have been derived from each new connection to the Water System that was made prior to the incurrence of such additional Parity Obligations but which was not in existence, during all or any part of such Fiscal Year or 12 calendar month period under consideration, in an amount equal to the estimated additional System Net Revenues that would have been derived from each such connection if it had been made prior to the beginning of such Fiscal Year or 12 calendar month period, and

(2) an allowance for Net System Revenues that would have been derived from any increase in the rates, fees and charges fixed and prescribed for Water Service which became effective prior to the incurrence of such additional Parity Obligations but which was not in effect, during all or any part of such Fiscal Year or 12 calendar month period, in an amount equal to the estimated additional Net System Revenues that would have been derived from such increase in rates, fees and charges if it had been in effect prior to the beginning of such Fiscal Year or 12 calendar month period; or

(B) the estimated Adjusted Available Revenues for each of the five full Fiscal Years next following the earlier of (i) the end of the period during which interest on such additional Parity Obligations is to be capitalized or, if no interest is capitalized, the Fiscal Year in which such additional Parity Obligations are incurred, or (ii) the date on which substantially all Water Projects financed with such additional Parity Obligations plus all Water Projects financed with all existing Parity Obligations are expected to commence operations, will be at least sufficient to satisfy the Coverage Requirement for such period; and for the purpose of providing such

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certificate or certificates, the City or the City’s Consultant, as applicable, may adjust theforegoing estimated Adjusted Available Revenues to reflect:

(1) an allowance for Net System Revenues that are estimated to be derived from any increase in the rates, fees and charges for Water Service which have been adopted by the City and which will be in effect during all or any portion of the period for which such estimates are provided; and

(2) an allowance for Net System Revenues that are estimated to be derived from new customers of the Water System anticipated to be served by any additions or improvements to or extensions of the Water System reasonably expected to become available during such five year period in an amount equal to the additional Net System Revenues that are estimated to be derived from such customers.

For purposes of clause (B) above, with respect to the Operation and Maintenance Costs, the City or the City’s Consultant, as applicable, is required to use such assumptions (which are required to be set forth in such certificate or certificates) as such believes to be reasonable, taking into account: (i) historical Operation and Maintenance Costs, (ii) Operation and Maintenance Costs associated with the additions or improvements to or extensions of the Water System to be financed with the proceeds of such additional Parity Obligations and any other new additions or improvements to or extensions of the Water System during such five year period and (iii) such other factors, including inflation and changing operations or policies of the City, as the City or the City’s Consultant, as applicable, believes to be appropriate.

The certificate or certificates described above in paragraph (ii) are not required if the Parity Obligations being issued are for the purpose of refunding (x) then outstanding Parity Obligations, if at the time of the issuance of such refunding Parity Obligations a certificate of the City is delivered showing that Parity Debt Service in each Fiscal Year on all Parity Obligations outstanding after the issuance of the refunding Parity Obligations will not exceed 110% of Parity Debt Service in each corresponding Fiscal Year on all Parity Obligations outstanding prior to the issuance of such refunding Parity Obligations; or (y) then outstanding Balloon Obligations or Variable Interest Rate Obligations, but only to the extent that the principal amount of such Balloon Obligations or Variable Interest Rate Obligations has been put, tendered to or otherwise purchased by a standby purchase or other liquidity facility relating to such Balloon Obligations or Variable Interest Rate Obligations, as applicable.

In addition to the covenants described above, so long as the Parity Obligations remain outstanding, the City is also required to satisfy certain covenants relating to the Parity Obligations in order to issue or incur additional Parity Obligations.

Default Under the 2018 Indenture and Remedies

For a description of the events of default and remedies under the 2018 Indenture, see Appendix C—“Summary of Certain Provisions of the Principal Legal Documents-The 2018 Indenture- Events of Default and Acceleration of Maturities.”

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BOND INSURANCE

Bond Insurance Policy

Concurrently with the issuance of the Insured 2018 Bonds, Build America Mutual Assurance Company (“BAM”) will issue its Municipal Bond Insurance Policy for the Insured 2018 Bonds (the “Policy”). The Policy guarantees the scheduled payment of principal of and interest on the Insured 2018 Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement.

The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law.

Build America Mutual Assurance Company

BAM is a New York domiciled mutual insurance corporation and is licensed to conduct financial guaranty insurance business in all fifty states of the United States and the District of Columbia. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM.

The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com.

BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law.

BAM’s financial strength is rated “AA/Stable” by S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC (“S&P”). An explanation of the significance of the rating and current reports may be obtained from S&P at www.standardandpoors.com. The rating of BAM should be evaluated independently. The rating reflects the S&P’s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Insured 2018 Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Insured 2018 Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Insured 2018 Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Insured 2018 Bonds, nor does it guarantee that the rating on the Insured 2018 Bonds will not be revised or withdrawn.

Capitalization of BAM. BAM’s total admitted assets, total liabilities, and total capital and surplus, as of June 30, 2018 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $519.5 million, $99.3 million and $420.2 million, respectively.

BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions.

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http://www.buildamerica.com

http://www.standardandpoors.com

BAM’s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM’s website at www.buildamerica.com, is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published.

BAM makes no representation regarding the Insured 2018 Bonds or the advisability of investing in the Insured 2018 Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading “Bond Insurance.”

BAM GreenStar Bonds

The Insured 2018 Bonds have been designated BAM GreenStar Bonds because the use of proceeds provided by the Issuer and described elsewhere in this Official Statement aligns with one of the Green Bond Principals (GBPs) developed by the International Capital Markets Association (ICMA). The GBPs were developed by the ICMA with the goal of establishing universally accepted guidelines for the issuance of green bonds, and one of the key requirements addresses the use of proceeds. BAM has been identified by the ICMA as an observer organization that is active in the field of green and/or social or sustainability finance and is Climate Bond Initiative approved verifier. The Credit Profile prepared by BAM for the Insured 2018 Bonds will identify which of the following GBP categories applies to the Insured 2018 Bonds:

• renewable energy

• energy efficiency

• pollution prevention and control

• environmentally sustainable management of living natural resources and land use

• terrestrial and aquatic biodiversity

• clean transportation

• climate change adaptation

• sustainable water and wastewater management

• green buildings.

Each of the GBPs correlates to one of the following UN Sustainable Development Goals which will also be included in the Credit Profile for the Insured 2018 Bonds:

• clean water and sanitation

• affordable and clean energy

• sustainable cities and communities

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http://www.buildamerica.com

• industry innovation and infrastructure

• responsible consumption and production

• climate action

• life below water

• life on land

For projects under construction, the bond obligor has agreed to furnish annual information to BAM on the status of the project until completion, which will be reflected in the BAM Credit Profile for the Insured 2018 Bonds.

The BAM GreenStar designation is based upon information obtained from the Issuer and its representatives, which sources BAM believes to be reliable, at the time of the issuance of the Insured 2018 Bonds. BAM does not charge a fee in connection with the designation, does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. The designation is provided on an “AS IS” basis. BAM makes no representation or warranty, express or implied, including, but not limited to, the accuracy, results, timeliness, completeness, merchantability or fitness for any particular purpose with respect to the designation. A complete description of BAM GreenStar, and its limitations and terms of use, are available on BAM’s website https://buildamerica.com/greenstar and https://buildamerica.com/terms-of-use and incorporated herein by reference. The BAM GreenStar designation is determined solely by BAM; it has not been reviewed or approved by the issuer of or the underwriter for the Insured 2018 Bonds, and the issuer and underwriter assume no responsibility for such designation.

Additional I nformation Available from BAM

Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM’s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM’s website at buildamerica.com/creditinsights/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.)

Credit Profiles. Prior to the pricing of bonds that BAM has been selected to insure, BAM may prepare a pre-sale Credit Profile for those bonds. These pre-sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes bonds insured by BAM, any pre-sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre-sale and final Credit Profiles are easily accessible on BAM's website at buildamerica.com/obligor/. BAM will produce a Credit Profile for all bonds insured by BAM, whether or not a pre-sale Credit Profile has been prepared for such bonds. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.)

Disclaimers. The Credit Profiles and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Credit Profiles and the Credit Insights videos are

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https://buildamerica.com/greenstar

https://buildamerica.com/terms-of-use

statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Credit Profiles and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the underwriter for the Insured 2018 Bonds, and the issuer and underwriter assume no responsibility for their content.

BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Insured 2018 Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Insured 2018 Bonds, whether at the initial offering or otherwise.

DEBT SERVICE SCHEDULE

The Fiscal Year debt service requirements for the Senior Obligations, and the 2018 Bonds are set forth below.

Table 3Debt Service Schedule

Series 2018 BondsFiscalYear(June30)

SeniorObligations

Debt Service^ Principal Interest TotalTotal Debt

Service2019 $3,441,537.50 - $2,597,820.97 $2,597,820.97 $6,039,358.472020 3,441,037.50 $4,835,000.00 7,018,175.00 11,853,175.00 15,294,212.502021 3,445,237.50 5,090,000.00 6,770,050.00 11,860,050.00 15,305,287.502022 3,439,237.50 5,365,000.00 6,508,675.00 11,873,675.00 15,312,912.502023 3,443,037.50 5,645,000.00 6,233,425.00 11,878,425.00 15,321,462.502024 3,441,537.50 5,650,000.00 5,951,050.00 11,601,050.00 15,042,587.502025 3,438,987.50 5,950,000.00 5,661,050.00 11,611,050.00 15,050,037.502026 3,440,237.50 6,265,000.00 5,355,675.00 11,620,675.00 15,060,912.502027 3,440,987.50 6,600,000.00 5,034,050.00 11,634,050.00 15,075,037.502028 3,441,237.50 6,955,000.00 4,695,175.00 11,650,175.00 15,091,412.502029 3,440,987.50 7,325,000.00 4,338,175.00 11,663,175.00 15,104,162.502030 3,443,846.88 7,700,000.00 3,962,550.00 11,662,550.00 15,106,396.882031 3,444,606.26 8,115,000.00 3,567,175.00 11,682,175.00 15,126,781.262032 3,444,446.88 8,545,000.00 3,150,675.00 11,695,675.00 15,140,121.882033 3,443,368.75 9,005,000.00 2,711,925.00 11,716,925.00 15,160,293.752034 3,446,218.75 9,485,000.00 2,249,675.00 11,734,675.00 15,180,893.752035 3,442,996.88 9,985,000.00 1,762,925.00 11,747,925.00 15,190,921.882036 5,624,796.88 8,875,000.00 1,291,425.00 10,166,425.00 15,791,221.882037 3,440,781.25 11,635,000.00 778,675.00 12,413,675.00 15,854,456.252038 3,439,531.25 12,195,000.00 243,900.00 12,438,900.00 15,878,431.252039 16,989,218.75 - - - 16,989,218.752040 17,015,625.00 - - - 17,015,625.002041 17,015,625.00 - - - 17,015,625.00

$122,045,125.03 $145,220,000.00 $79,882,245.97 $225,102,245.97 $347,147,371.00

f Represents debt service on the Senior Obligations. See “Security and Sources of Payment for the 2018 BoNDS-Senior Obligations.”

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CERTAIN BONDOWNERS’ RISKS

This section provides a general overview of certain risk factors which should be considered, in addition to the other matters set forth in this Official Statement, in evaluating an investment in the 2018 Bonds. This section is not meant to be a comprehensive or definitive discussion of the risks associated with an investment in the 2018 Bonds, and the order in which this information is presented does not necessarily reflect the relative importance of various risks. Potential investors in the 2018 Bonds are advised to consider the following factors, among others, and to review this entire Official Statement to obtain information essential to the making of an inferrred investment decision. Any one or mare of the risk factors discussed below, arrong others, could lead to a decrease in the market value and/or in the marketabi I ity of the 2018 Bonds or the abi I ity of the City to make 2018 I nstal I ment Payments. There can be no assurance that other risk factors not discussed herein will not become material in the future.

General

The 2018 Installment Payments are payable solely from Available Revenues. If for any of the reasons described below, or for any other reason, the City does not collect sufficient System Revenues to pay Operation and Maintenance Costs and Senior Obligations, the City will not be obligated to utilize any other of its funds, other than amounts available in the 2018 Reserve Account and certain other amounts on deposit in the funds and accounts established under the 2018 Indenture to pay debt service on the 2018 Bonds. See also “Security and Sources of Payment for the 2018 Bonds-201 8 Reserve Account.”

Rate Covenant is Not a Guarantee of Sufficient Net Revenues

The ability of the City to pay the 2018 Installment Payments depends on the ability of the City to generate Available Revenues in the levels required by the 2018 Installment Purchase Contract. Although the City has covenanted in the 2018 Installment Purchase Contract to impose rates, fees and charges as more particularly described herein under “Security and Sources of Payment for the 2018 Bonds- Rate Covenant,” and expects that sufficient System Revenues will be generated through the imposition and collection of such rates, fees and charges and other System Revenues described herein, there is no assurance that such imposition of such rates, fees and charges or other System Revenues will result in the generation of Available Revenues in the amounts required by the 2018 Installment Purchase Contract. The City’s covenant does not constitute a guarantee that sufficient Available Revenues will be available to pay the 2018 Installment Payments.

System Expenses

There can be no assurance that the City’s projected Operation and Maintenance Costs will be consistent with the descriptions in this Official Statement. Increases in expenses including, but not limited to, personnel costs, regulatory compliance costs and changes in technology, could require an increase in rates and charges in order to comply with the rate covenant.

Limited Recourse on Default

If the City defaults on its obligation to pay the 2018 Installment Payments or other Parity Obligations, the Trustee has the right to accelerate the total unpaid principal amount of the 2018 Installment Payments outstanding and interest accrued thereon and the Parity Obligations may also be accelerated. However, in the event of a default and such acceleration there can be no assurance that the City will have sufficient funds to pay the accelerated debt service from Available Revenues.

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Initiatives; Changes in Law

In recent years several initiative measures have been proposed or adopted which affect the ability of local governments to increase taxes and rates. Article XIII A, Article XIII B, Article XIII C, Article XIII D, and Proposition 218, were adopted as measures that qualified for the ballot through California’s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability of the State, the City or local districts to increase revenues or to increase appropriations which may affect the City’s revenues or its ability to expend its revenues. There is no assurance that the electorate or the State Legislature will not at some future time approve additional limitations which could affect the ability of the City to implement rate increases which could reduce Available Revenues and adversely affect the security for the 2018 Bonds.

Statutory and Regulatory Impact

Laws and regulations governing transmission, treatment and delivery of water are enacted and promulgated by government agencies on the federal, State and local levels. Compliance with these laws and regulations may be costly, and, as more stringent standards are developed, these costs will likely increase. In addition, claims against the City for violations of regulations with respect to its facilities and services could be significant. Such claims are payable from Revenues or from other legally available sources.

Although the City covenants in the 2018 Installment Purchase Contract to fix, prescribe and collect rates and charges for the water service during each Fiscal Year sufficient to yield the debt service coverage required by the 2018 Installment Purchase Contract, no assurance can be given that the cost of compliance with such laws and regulations will not materially adversely affect the ability of the City to generate Available Revenues in the amounts required by the 2018 Installment Purchase Contract and to pay debt service on the 2018 Bonds. Certain potential increasing regulatory standards could materially increase the cost to the City of providing water services.

Drought

Background. During a five-year period ending in 2016, the State of California experienced “exceptional drought conditions” (the most severe drought classification) according to the U.S. Drought Monitor. In addition, eight of the last 10 years had below average runoff, which resulted in chronic and significant shortages to municipal, industrial, agricultural, and wildlife refuge supplies, and historically low groundwater levels. As a result of those drought conditions, the Governor and the State Water Board issued Executive Orders, drought emergency regulations, and conservation standards to reduce potable urban water use.

State Requirements. On April 20, 2015, a State appeals court ruled in Capistrano Taxpayers Association, Inc. v. City of San J uan Capistrano235 Cal.App.4th 1493 (4th Dist. 2015), that local water agencies cannot charge higher tiered rates to customers simply to encourage conservation. Instead, the court held that water agencies can only charge rates that reflect the proportional cost of service attributable to a given parcel. The court held that tiered rates that increase progressively in relation to usage can be consistent with Proposition 218 if the tiers correspond to the actual cost of providing water service at a given level of usage, and that Proposition 218 requires that water rates and other government fees be linked to the costs of providing the service and not to other factors such as a desire to encourage conservation. See also, “Constitutional and Statutory Limitations on Taxes and APPROPRIATIONS-Article XIII C and Article XIII D of the California Constitution.”

In April 2017, following unprecedented water conservation and record amounts of precipitation, the Governor lifted the drought emergency Executive Orders and rescinded the emergency proclamations

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for all counties in the State except Fresno, Kings, Tulare, and Tuolumne where emergency drinking water projects continue to help address diminished groundwater supplies. State drought emergency regulations requiring urban water suppliers to stress-test water supplies, and to adopt and adhere to certain mandatory conservation measures were repealed. However, the Executive Order requiring permanent monthly water use reporting and banning wasteful water use practices, such as hosing of sidewalks, driveways, and other hardscapes, and strengthening local drought resilience plans remains in effect.

Although the recent State drought emergency regulations were repealed, in any year there is a risk of renewed drought conditions. If drought emergency regulations are reinstated, the City could be required to impose water use restrictions on customers of the Water System due to drought-related orders or regulations imposed by the State in the future.

City Response. During the drought, the City adopted conservation measures consistent with the executive orders of the Governor. For a description of the City’s drought response see “The Water SYSTEM-Drought and Conservation Measures.”

The City does not believe that compliance with the SWRCB regulations will have a material adverse effect on the Available Revenues pledged to pay the principal of and interest on the 2018 Bonds when due.

Climate Change

The adoption by the State of the California Global Warming Solutions Act of 2006 (AB 32) and subsequent companion bills demonstrate the commitment by the State to take action and reduce greenhouse gases (“GHG”) to 1990 levels by 2020 and 80% below 1990 levels by 2050. The State Attorney General’s Office, in accordance with SB 375, now requires that local governments examine local policies and large-scale planning efforts to determine how to reduce greenhouse gas emissions.

Climate change concerns are leading to new laws and regulations at the federal, State and local levels. Research suggests that the State will experience hotter and drier conditions, reductions in winter snow and increases in winter rains, sea level rise, significant changes to the water cycle, increased occurrences of extreme and unpredictable weather events, and increased catastrophic wildfires and severity of flood events. The compound impacts of which will affect economic systems throughout the State, including within the City. The City is unable to predict the impact that such laws and regulations, if adopted, and the effects of climate change will have on the Available Revenues, however, the effects could be material.

Risk of Earthquake and Other Natural Disasters

E arthquake. There are several active geological faults in the State that have potential to cause serious earthquakes that could result in damage within the City to the Water System, buildings, roads, bridges, and other property. The City is located in a zone 3 seismic area. Seismic zones aid in identifying and characterizing certain geological conditions and the risk of seismic damage at a particular location, and are used in establishing building codes to minimize seismic damage. The five seismic zones are: zone 0 (no measurable damage), zone 1 (minor damage), zone 2 (moderate damage), zone 3 (major damage) and zone 4 (major damage and greater proximity than zone 3 to certain major fault systems). While the City is not located in any existing special study zone delineated by the State Division of Mines and Geology as an area of known active faults, it is possible that new geological faults could be discovered in the area and that an earthquake occurring on such faults could result in damage of varying degrees of seriousness to property and infrastructure in the City, including the Water System.

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In the event of a severe seismic event in or around the City, there could be substantial damage to the Water System facilities resulting in a reduction of Available Revenues. Such reduction of Net System Revenues could have a material adverse effect on the City’s ability to make timely payments of 2018 Installment Payments with respect to the 2018 Bonds.

Risk of F looding. In accordance with the National Flood Insurance Reform Act (the “NFIRA”) requiring, among other things, that the Federal Emergency Management Agency (“FEMA”) assess its flood hazard map inventory at least once every five years. In 1995, FEMA informed the City that updated flood insurance rate maps would be prepared. In the absence of the construction of flood improvements, FEMA indicated that all of metropolitan Stockton and the surrounding County areas would be located within the boundaries of a 100-year floodplain. A 100-year floodplain is an area expected to be inundated during a flood event of the magnitude for which there is a 1% (or 1-in-100) probability of occurrence in any year.

In response, the City, the County, and the San Joaquin County Flood Control and Water Conservation District formed the San Joaquin Area Flood Control Agency (“SJAFCA”), a Joint Powers Authority created in May 1995. SJAFCA officials convinced representatives of FEMA to delay issuing the maps until SJAFCA constructed a $70 million Flood Protection Restoration Project (the “FPRP”) which also took into account full-buildout within the areas in accordance with then-existing general plans. The FPRP was completed in 1998 and consisted of flood wall and levee improvements along 40 miles of existing channel levees, 12 miles of levees, widening of the then-existing floodway, modifications to 24 bridges and the addition of two major detention basins. Updated flood insurance rate maps (“FIRMs”) were issued on April 2, 2002, permitting development within all of metropolitan Stockton and surrounding areas without further restriction due to potential flood risk.

In the aftermath of Hurricane Katrina in August 2005, FEMA implemented a Flood Map Modernization program to update existing FIRMs, policies, regulations and procedures. In particular, FEMA has placed a high priority on reviewing, identifying and accrediting levees and levee systems nationwide to verify whether such levees and levee systems provide flood protection. To assure that levees shown on modernized FIRMs still provide that level of protection, FEMA requires that each levee in the country have a maintenance and operation plan.

FEMA completed inspection of the levees in the County and final FIRMs became effective on October 16, 2009, placing approximately 5,000 parcels in a 100-year floodplain. Efforts are presently underway to develop a project to remove these parcels from the 100-year floodplain.

In October 2007, the Governor signed into law Senate Bill 5 (“SB 5”) requiring urban areas in the Central Valley to reach a 200-year level of protection by 2025. SB 5 and a subsequent cleanup bill, Senate Bill 1278, require local city and county planning agencies in the Central Valley including Stockton, to amend their General Plans by July 2, 2015 and to subsequently amend their zoning ordinances by July 2, 2016 to include specific information and requirements for new development, located within a flood hazard zone, to have 200-year flood protection. On June 15, 2015, the City Council adopted a resolution amending the City’s General Plan to comply with SB 5. The amendments included, among other things, modifications to existing and adoption of new goals, policies, and measures to strengthen the relationship between land use planning decisions and consideration of potential floodplain hazards, siting of new development, and retrofitting of existing development. The effect of complying with SB 5 on new development within the City has been insignificant. In 2005 voters approved State propositions IE and 84 making available $5 billion for flood management. After the passage of propositions IE and 84 the State Department of Water Resources has spent millions of dollars to evaluate levees and support existing and future projects to reach a 200-year level of flood protection for urban communities in the County including the City.

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The City makes no representation that the construction of the FPRP will guaranty that FEMA will accredit the levee improvements completed in 1998 or any of the other levees within the City or that FEMA will not issue revised FIRMs in the future that place all or some of the City within the boundaries of a 100-year floodplain.

Risk Management and Insurance

The City employs a full-time Risk Manager, as well as claims and loss control professionals, for the prevention and mitigation of property, liability, and employee claims for injury or damage. The City has maintained a program of self-insurance for many years. The City participates in two public entity insurance risk pools: the California Joint Powers Risk Management Authority (“CJPRMA”) and the California State Association of Counties-Excess Insurance Authority (CSAC-EIA) for various risk pooling and financing. For Fiscal Year 2018-19, excess pooled coverage for the self-insured general liability program is provided through the CJPRMA with an excess policy limit of $40,000,000 subject to a self-insured retention (SIR) of $1,000,000; auto damage coverage is provided through Alliant Insurance Company and has a policy deductible of $25,000 per claim; and property coverage is provided through an insured program with CJPRMA with a deductible of $100,000 per occurrence (excluding earthquake damage to any of its facilities). For Fiscal Year 2018-19, excess pooled coverage for the self-insured workers’ compensation program is provided through CSAC-EIA with statutory limits subject to a $500,000 SIR.

Limitations on Remedies

The ability of the City to comply with its covenants under the 2018 Installment Purchase Contract and to generate Available Revenues sufficient to pay principal of and interest with respect to the 2018 Bonds may be adversely affected by actions and events outside of the control of the City and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay assessments, fees and charges. See “-Proposition 218.” Furthermore, the remedies available to the owners of the 2018 Bonds upon the occurrence of an event of default under the 2018 Installment Purchase Contract are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain.

In addition, enforcement of remedies may be limited by equity principles; 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 and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the 2018 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations, or modification of their rights. Remedies may be limited since the Water Delta Project serves an essential public purpose.

In addition to the limitations on remedies contained in the 2018 Installment Purchase Contract, the rights and obligations under the 2018 Installment Purchase Contract may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against cities in the State. The opinion delivered by Bond Counsel, in connection with the issuance of the 2018 Bonds, is subject to such limitations. See Appendix F-“Proposed Form of Opinion of Bond Counsel.” In the event the City fails to comply with its covenants under the 2018 Installment Purchase Contract or the Authority fails to pay principal of and interest on the 2018 Bonds, there can be no assurance of the availability of remedies adequate to protect the interest of the holders of the 2018 Bonds.

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Loss of Tax Exemption on the 2018 Bonds

In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the 2018 Bonds, the City and the Authority have covenanted in the 2018 Installment Purchase Contract to comply with the applicable requirements of the Internal Revenue Code of 1986, as amended. The interest on the 2018 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of such 2018 Bonds as a result of acts or omissions of the City or the Authority in violation of this or other covenants in the 2018 Installment Purchase Contract applicable to the 2018 Bonds. The 2018 Bonds are not subject to redemption or any increase in interest rates should an event of taxability occur and will remain outstanding until maturity or prior redemption in accordance with the provisions contained in the 2018 Installment Purchase Contract. See “Tax Matters.”

Risk of Tax Audit

In December 1999, as a part of a larger reorganization of the Internal Revenue Service (the “IRS”), the IRS commenced operation of its Tax Exempt and Government Entities Division (the “TE/GE Division”), as the successor to its Employee Plans and Exempt Organizations division. The new TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. Public statements by IRS officials indicate that the number of tax-exempt bond examinations (which would include the issuance of securities such as the 2018 Bonds) is expected to increase significantly under the new TE/GE Division. There is no assurance that if an IRS examination of the 2018 Bonds was undertaken that it would not adversely affect the market value of the 2018 Bonds. See “Tax Matters.”

Secondary Market

There can be no guarantee that there will be a secondary market for the 2018 Bonds or, if a secondary market exists, that the 2018 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 are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.

Risks Associated with Bond Insurance

In the event of default of the payment of principal or interest with respect to the Insured 2018 Bonds when all or some becomes due, any owner of the Insured 2018 Bonds shall have a claim under the Policy for such payments. See “Bond Insurance” and Appendix G-“Specimen Municipal Bond Insurance Policy.” However, in the event of any acceleration of the due date of such principal by reason of optional redemption or acceleration resulting from default or otherwise, the payments are to be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. The Policy does not insure against redemption premium, if any. The payment of principal and interest in connection with optional prepayment of the Insured 2018 Bonds by the Authority which is recovered by the Authority from the bond owner as a voidable preference under applicable bankruptcy law is covered by the insurance policy, however, such payments will be made by the Bond Insurer at such time and in such amounts as would have been due absence such prepayment by the Authority unless the Bond Insurer chooses to pay such amounts at an earlier date.

Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the Bond Insurer without appropriate consent. The Bond Insurer may

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direct and must consent to any remedies and the consent of the Bond Insurer may be required in connection with amendments to any applicable bond documents.

In the event the Bond Insurer is unable to make payment of principal and interest as such payments become due under the Policy, the Insured 2018 Bonds are payable solely from the moneys received pursuant to the applicable bond documents. In the event the Bond Insurer becomes obligated to make payments with respect to the Insured 2018 Bonds, no assurance is given that such event will not adversely affect the market price of the Insured 2018 Bonds or the marketability (liquidity) for the Insured 2018 Bonds.

The long-term insured rating on the Insured 2018 Bonds is dependent in part on the financial strength of the Bond Insurer and its claim paying ability. The financial strength and claims paying ability of the Bond Insurer are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Bond Insurer and of the ratings on the Insured 2018 Bonds insured by the Bond Insurer will not be subject to downgrade and such event could adversely affect the market price of the Insured 2018 Bonds or the marketability (liquidity) for the Insured 2018 Bonds. See “Ratings.”

The obligations of the Bond Insurer are contractual obligations and in an event of default by the Bond Insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies.

Neither the Authority nor the Underwriter have made independent investigation into the claims paying ability of the Bond Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Authority to pay principal and interest on the Insured 2018 Bonds and the claims paying ability of the Bond Insurer, particularly over the life of the investment. See “Bond Insurance” for further information provided by the Bond Insurer and Appendix G-“Specimen Municipal Bond Insurance Policy” for the Policy, which includes further instructions for obtaining current financial information concerning the Bond Insurer.

CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS

The activities of the City and the Water System, including, without limitation, the establishment of rates for water service and the issuance of bonds, are subject to a number of limitations under State law. Certain of such limitations are summarized below. Additionally, such limitations may be revised, enhanced, expanded, or otherwise altered as provided under State law, including in certain instances by legislation adopted by State, regional or local authorities, including the State Legislature or the City Council, or by the voters of the State or the City themselves through the power of initiative or referendum, by voting in favor of amendments to the City Charter, or in any other lawful manner.

Article XIIIA of the California Constitution

Section 1(a) of Article XIII A of the State Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by counties and apportioned according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the voters prior to July 1, 1978 or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition. Section 2 of Article XIII A defines “full cash value” to mean “the County assessor’s

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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 to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the State Legislature to implement Article XIII A provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above.

The voters of the State subsequently approved various measures which further amended Article XIII A. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the full cash value of other real property between parents and children, do not constitute a “purchase” or “change of ownership” triggering reassessment under Article XIII A. This amendment could serve to reduce the property tax revenues of the City. Other amendments permitted the State Legislature to allow persons over 55 or “severely disabled homeowners” who sell their residence and buy or build another of equal or lesser value within two years in the same city, to transfer the old residence’s assessed value to the new residence.

In the November 1990 election, the voters approved an amendment of Article XIII A to permit the State Legislature to exclude from the definition of “new construction” seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990.

Article XIIIA has also been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, provided that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster. County assessors may “recapture” the reduced assessed valuation of such property up to its pre-decline value, depending on the county assessor’s measurement of the value subsequently restored to such property.

Under State law, any fee that exceeds the reasonable cost of providing the service for which the fee is charged may be considered a “special tax” that must be authorized by a two thirds vote of the electorate. Accordingly, if a portion of the City’s water user rates or capacity charges were determined by a court to exceed the reasonable cost of providing service, the City might not be permitted to continue to collect that portion unless it were authorized to do so by a two thirds majority of the votes cast in an election to authorize the collection of that portion of the rates or fees. If the City were unable to obtain such a two thirds majority vote and were unable to reduce costs, such failure could adversely affect the City’s ability to pay the debt service on the 2018 Bonds. However, the reasonable cost of providing water services has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. In addition, State courts have determined that fees such as capacity charges will not be special taxes if they approximate the reasonable cost of constructing the water system improvements contemplated by the local agency imposing the fee.

The United States Supreme Court has upheld Article XIIIA against a challenge alleging violation of equal protection under the Fourteenth Amendment to the United States Constitution.

Article XIII C and Article XIIID of the California Constitution

General. On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIII C and XIIID to the California

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Constitution, creating additional requirements for the imposition by most local governments of “general taxes,” “special taxes,” “assessments,” “fees,” and “charges.” Articles XIII C and XIII D became effective, pursuant to their terms, as of November 6, 1996, although compliance with some of the provisions was deferred until July 1, 1997, and certain of the provisions purport to apply to any tax imposed for general governmental purposes (i.e., “general taxes”) imposed, extended or increased on or after January 1, 1995 and prior to November 6, 1996.

ArticleXIII C. Article XIII C extends the people’s initiative power to reduce or repeal previously authorized local taxes, assessments, fees and charges. This extension of the initiative power is not limited by the terms of Article XIII C to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other authority could result in retroactive reduction in any existing taxes, assessments, fees or charges.

Article XIII C extends the people’s initiative power to reduce or repeal previously authorized local taxes, assessments, fees and charges. This extension of the initiative power is not limited by the terms of Article XIII C to fees, taxes, assessment fees and charges imposed after November 6, 1996 and absent other authority could result in retroactive reduction in any existing taxes, assessments, fees or charges. In Bighorn (described below), the Court concluded that under Article XIII C local voters by initiative may reduce a public agency’s water rates and delivery charges. The Court noted, however, that it was not holding that the authorized initiative power is free of all limitations, stating that it was not determining whether the electorate’s initiative power is subject to the public agency’s statutory obligation to set water service charges at a level that will “pay the operating expenses of the agency, ... provide for repairs and depreciation of works, provide a reasonable surplus for improvements, extensions, and enlargements, pay the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due.”

Article XIII D. Article XIIID established procedural requirements for the imposition of assessments, defined to mean any levy or charge upon real property for a special benefit conferred upon real property, including standby charges. The procedural requirements include the conducting of a public hearing and an election, by mailed ballot, with notice to the record owner of each parcel subject to the assessment. If a majority of the ballots returned oppose the assessment, it may not be imposed.

Article XIII D conditions the imposition or increase of any “fee” or “charge” upon there being no written majority protest after a required public hearing and, for fees and charges other than for sewer, water, refuse collection services or storm water, voter approval. Article XIII D defines “fee” or “charge” to mean levies (other than ad valorem or special taxes or assessments) imposed by a local government upon a parcel or upon a person as an incident of the ownership or tenancy of real property, including a user fee or charge for a “property-related service.” One of the requirements of Article XIII D is that before a property related fee or charge may be imposed or increased, a public hearing upon the proposed fee or charge must be held and mailed notice sent to the record owner of each identified parcel of land upon which the fee or charge is proposed for imposition. In the public hearing, if written protests of the proposed fee or charge are presented by a majority of the owners of affected identified parcel(s), an agency may not impose the fee or charge.

In Richrrond v. Shasta Community Services District, 32 Cal. 4th 409 (2004), and Bighorn Desert View Water Agency v. Verjil, 39 Cal. 4th 206 (2006), the California Supreme Court clarified uncertainty surrounding the applicability of Section 6 of Article XIIID to service fees and charges. In Richmond, the Shasta Community Services District charged a water connection fee, which included a capacity charge for capital improvements to the water system and a fire suppression charge. The Court held that both the capacity charge and the fire suppression charge were not subject to Article XIII D because a water connection fee is not a property related fee or charge because it results from the property owner’s

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voluntary decision to apply for the connection. In both Richmond and Bighorn, however, the Court stated that a fee for ongoing water service through an existing connection is imposed “as an incident of property ownership” within the meaning of Article XIII D, rejecting, in Bighorn, the water agency’s argument that consumption based water charges are not imposed “as an incident of property ownership” but as a result of the voluntary decisions of customers as to how much water to use.

The City provides public notice of proposed water rate increases in accordance with the requirements of Article XIII D through means that include, among others, mailings to residential and commercial customers of public hearings on rate increases, followed by public hearings. The City also develops and adopts retail utility user rates and fees in accordance with the requirements of Article XIII D(6)(b) that limit property related fees and charges.

The courts have not fully interpreted the provisions of Proposition 218. The City is unable to predict how courts will further interpret Article XIII C and Article XIII D, and what, if any, further implementing legislation will be enacted. Under the Bighorn case, City voters could adopt an initiative measure that reduces or repeals the City’s water rates and charges, though it is not clear whether (and courts have not decided whether) any such reduction or repeal by initiative would be enforceable in a situation in which such rates and charges are pledged to the repayment of bonded indebtedness. There can be no assurance that the courts will not further interpret, or the voters will not amend, Article XIII C and Article XIII D to limit the ability of the City to impose, levy, charge and collect increased fees and charges for the Water System, or to call into question water rate increases previously adopted by the City. No assurance may be given that Articles XIII C and XIII D will not have a material adverse impact on Revenues of the Water System.

The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues.

Proposition 26

Proposition 26, which amended Article XIII A and XIII C of the California Constitution, was approved by the electorate at the November 2, 2010 election. Proposition 26 imposes a two thirds voter approval requirement for the imposition of fees and charges by the State. It also imposes a majority voter approval requirement on local governments with respect to fees and charges for general purposes, and a two thirds voter approval requirement with respect to fees and charges for special purposes. According to its supporters, Proposition 26 was designed to prevent the circumvention of tax limitations imposed by the voters pursuant to Proposition 13, approved in 1978, Proposition 218, and other measures through the use of non tax fees and charges.

Proposition 26 expressly excludes from its scope “a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable cost to the governmental entity of providing the service or product to the payor” and “assessments and property related fees imposed in accordance with the provisions of Article XIII D.” The California Supreme Court has held that a fee for ongoing water service through an existing connection is imposed “as an incident of property ownership” within the meaning of Article XIII D. See “-Article XIII C and Article XIII D of the California Constitution.”

The City can give no assurance that the courts will not further interpret, or the voters will not amend, the California Constitution to limit the ability of local agencies to impose, levy, charge, and collect increased fees and charges for water service.

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Future Initiatives

Article XIII A, Article XIII B, Article XIII C, Article XIII D, and Proposition 26 were adopted as measures that qualified for the ballot through California’s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability of the State, the County or local districts to increase revenues or to increase appropriations which may affect the County’s revenues or its ability to expend its revenues.

THE AUTHORITY

The Authority was created by a Joint Exercise of Powers Agreement, dated June 18, 1990 (the “JPA Agreement”), between the City and the former Redevelopment Agency of the City of Stockton. The JPA Agreement was entered into pursuant to the Joint Exercise of Powers Act, Chapter 5 of Division 7 of Title 1 of the Government Code of the State. The Authority was created for the purpose of facilitating the financing or refinancing public improvement facilities within the City.

THE CITY

The City is a municipal corporation and charter city incorporated in 1850. The City is the county seat of San Joaquin County and is located in California San Joaquin Valley, 78 miles east of the San Francisco Bay Area, 345 miles north of Los Angeles and 45 miles south of Sacramento. San Joaquin County is bounded by Sacramento County on the north, Stanislaus County on the south, Contra Costa County and Alameda County on the west and Amador County, Calaveras County and Stanislaus County on the east.

Certain economic and demographic information with respect to the City is contained in Appendix A-“General Economic and Demographic Information Concerning the City of Stockton.” This information concerning the City is presented as general background information only. The 2018 Bonds are secured solely by the 2018 Installment Payments and funds and accounts established under the 2018 Indenture, and not by the general fund of the City. See “Security and Sources of Payment for the 2018 Bonds.”

THE WATER SYSTEM

Overview

The City of Stockton Water Utility (the “Water Utility”) is one of three utilities managed, operated, and maintained by the City of Stockton Municipal Utilities Department (the “Stockton MUD”). The two other utilities are wastewater and stormwater. The Water Utility is comprised of the Delta Water Project, a regional water distribution system that was placed into service during Fiscal Year 2011-12, a distribution system, various well sites and reservoirs located throughout the City, and a treatment plant. See “-Facilities.”

The City operates two independent water systems within the City. One serving an area in the northern area of the City (the “North Water System”) and the other serving the southern area of the City comprised of the Metropolitan Airport and County Hospital/Jail complex area (the “South Water System”).

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The City’s Water Enterprise (the “Water System”) commenced service in the northern area of the City in 1954 with 18 customers. Since 1969, the Water System has been operated as an enterprise relying solely on revenues and fees generated from the sale of water and services. The Water System receives no support from the City’s General Fund or other revenues. During Fiscal Year 2017-18, the Water System served 50,825 active customer connections.

During Fiscal Year 2017-18, the Water System supplied water, based on volume, to approximately 53% of the homes and businesses located within the Stockton Metropolitan Area. The California Water Services Company (“Cal Water”), a private water company, provided water to approximately 44%, and San Joaquin County served the remaining approximately 3% of residents and businesses in the Stockton Metropolitan Area.

Service Area

Water service to the incorporated areas of the City is primarily provided by either the Water System or Cal Water. The County and the Stockton East Water District (the “SEWD”) also provide water service to some smaller areas within the Stockton Metropolitan Area.

In addition to providing water service to the North Water System, the City has provided water service to the South Water System since 1984. In 1989, the City took over the operation and maintenance of the County’s South Water System serving the airport and the hospital/jail complex in South Stockton and also agreed to supply water to the Fincoln Village and Colonial Heights Maintenance Districts under a long-term service agreement with the Districts that expire in 2035.

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Facilities

The Water System facilities consist of: (i) a distribution system of approximately 590 miles of water pipelines, 48,000 water meters, and 7,000 fire hydrants; (ii) eight ground-level enclosed storage tanks with capacities ranging from 3.0 to 4.0 million gallons; (iii) the Delta Water Project, which draws water from the Sacramento-San Joaquin River Delta (the “Delta”) and the Mokelumne River via Woodbridge Irrigation District facilities to provide additional water through the City’s existing distribution system, an Intake and Pump Station Facility located along the San Joaquin River; approximately 18 miles of underground pipelines; a 30 million gallon per day (mgd) water treatment plant; (iv) an onsite laboratory; and (v) 30 groundwater wells.

Power Supply. Power for the Water System is supplied by Pacific Gas & Electric and three natural gas powered pumps. The Water System also operates seven diesel-powered and six propane/natural gas-powered back-up generators located throughout the City.

Water Quality Testing. In accordance with United States Environmental Protection Agency (the “EPA”) and State Water Resources Control Board (the “SWRCB”) requirements, the Water System conducts or commissions, extensive tests and studies on the quality of water supplied to its customers to ensure that tap water is safe to drink. These requirements, which limit the amount of certain contaminants, include testing for the presence of more than 30 inorganic, biological, radioactive, volatile organic and synthetic organic constituents.

Onsite Laboratory. The laboratory is an operating Division of the Stockton MUD and is located at the Delta Water Treatment Plant on 11373 North Lower Sacramento Road in Lodi, California. The laboratory performs drinking and source water microbiology testing to comply with the City’s Water Division’s System No. 3910012 Water Supply Permit No. 01-10-15P-001. The scope of work performed by the laboratory includes numerous sampling programs, analyses for treatment plant process control, and the State Title 22 disinfection monitoring requirements for public water supply systems. The laboratory also performs the majority of the microbiological analyses required by the EPA pursuant to the Revised Total Coliform Rule, Odor, and Taste Testing under the Safe Drinking Water Act. Analyses that cannot be performed in-house are contracted to certified commercial laboratories.

Drought and Conservation Measures

On May 5, 2015, the SWRCB adopted regulations that require water purveyors to reduce water use as a result of extreme drought conditions across the State. The City was given a target reduction of 25% from the baseline use that was calculated in the 2010 UWMP as 195 gallons per capita, per day (“GPCD”). For 2015, the City target was for a reduction in water use to 172 GPCD, and the actual 2015 GPCD was 130. The 2016 Water Rate Study (defined herein) that established rates and charges through July 1, 2020, included a drought surcharge to take into account consumption reductions as a result of conservation efforts. See “Water System FiNANCES-Rate Setting, Billing, and Collection Procedures- Water Rate Study.” During the drought emergency, the City had lowered its consumption by 33%.

In April 2017, the Governor lifted the drought emergency Executive Orders. In response, the City suspended the collection of the Drought Surcharge on June 5, 2018 in connection with the adoption of the Fiscal Year 2018-19 budget. As of July 1, 2018, water use has increased by 12% to 145 GPCD. See also “CertainBondowners’ RiSKS-Drought-State Requirements.”

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Water Supply

Overview. All urban water suppliers in the State are required to prepare an Urban Water Management Plan (a “UWMP”) to provide information about an urban water supplier’s water supplies, water supply reliability, water conservation, water shortage contingencies, and recycled water usage. The UWMP is required to be updated at least once every five years on or before December 31, in years ending in five and zero. As defined in Section 10617 of the State Water Code, an “urban water supplier” is a supplier, either publicly or privately owned, that provides water to more than 3,000 customers or supplies more than 3,000 acre-feet of water annually on a wholesale or retail basis or both. As an urban water supplier, the current UWMP (the “2015 UWMP”) for the Stockton MUD was adopted by City Council on July 12, 2016.

Conservation Measures. The City encourages customers to assist in assuring an adequate water supply by using water efficiently. The City is also a signatory to the California Urban Water Conservation Council’s Memorandum of Understanding whereby the City has committed to implement best management practices to conserve water in urban areas. The City continues to develop and implement water saving programs through public outreach and school education programs, water use surveys, distribution of water conservation publications and water saving devices, incentives and rebates, and landscape conservation programs. The City’s current water conservation ordinance identifies a number of seasonal and year-round prohibited water wasting activities, including but not limited to irrigation activities between May and October.

In accordance with the Water Conservation Ordinance adopted by the City Council in 1988 and the Water Shortage Emergency Ordinance adopted by the City Council in 1991 into the Stockton Municipal Code, and the 2015 UWMP, in the event of a water shortage emergency, the City developed a five stage rationing plan, which range from voluntary (Stage 1, setting a 10% reduction goal) to mandatory (Stage 5, setting a 50% or greater reduction goal) rationing, depending on the causes, severity, and anticipated duration of the water supply shortage. The City was last in a mandatory reduction stage from 1990 through 1992. The Water System is currently operating under a Stage 1 (voluntary) water shortage emergency and customers have been requested to adjust either interior or outdoor water use, in order to meet the voluntary 10% water reduction goal.

In order to mitigate the financial impacts of a water shortage, the City established a practice of maintaining a contingency reserve as part of its Water Fund. The goal is to maintain a fund reserve equivalent to six months of minimum operating expenses, using a three-year trend to project the actual amount. This contingency reserve will be used to stabilize rates during periods of water shortage or disasters affecting the water supply. Using this method, the City does not anticipate needing to increase rates as much or as often during a prolonged or severe shortage.

Effective August 8, 2017, the City Council adopted Ordinance 2017-08-22-1403, that approved year-round water conservation measures to comply with State-mandated conservation requirements. These measures include prohibitions on wasteful uses, outdoor watering within 48 hours of a measurable rainfall, watering between 11:00 am through 6:00 p.m., washing down of driveway, patios, sidewalks, buildings and other hard services, among others.

On May 31, 2018, the Governor of the State of California signed Senate Bill 606 (2018) (“SB 606”) and Assembly Bill 1668 (2018) (“AB 1668” and, together with SB 606, the “Water Efficiency Legislation”) into law, requiring the establishment of Statewide water efficiency standards. The Water Efficiency Legislation requires that urban water suppliers create urban water use objectives, submit annual reports to DWR on such objectives and actual water use, and establish water shortage contingency plans. The Water Efficiency Legislation also provides incentive to increase potable water reuse. The

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City has implemented the new standards and provide the reporting as required to comply with the Water Efficiency Legislation.

SB No. 7. On November 10, 2009, the Governor signed into law Senate Bill No. 7 (“SB 7”) which SB 7 requires, among other things, that the State achieve a 20% reduction in urban per capita water use by December 31, 2020, by reducing per capita water use by at least 10% over baseline use, on or before December 31, 2015. SB 7 also requires each urban retail water supplier (including the City) to develop urban water use targets and an interim water use target in accordance with specified requirements. The City contracted with West Yost Associates to determine interim and final per capita water use targets, identify the appropriate base year, evaluate and recommend an appropriate method for developing the urban water use targets and assist with the public hearing process required to adopt the baseline method to be used. As part of the City Council’s adoption of the 2015 UWMP in July 2011, the City identified 195 GPCD as the City’s baseline water use, and adopted Method 3 (95% of State Hydrologic Region Target) for determining both the 2015 interim and 2020 compliance water use targets of 180 and 165 GPCD, respectively.

Water Sources. The Water System has four current major supply sources: (i) water pumped from the San Joaquin River (Delta) under the City’s Water Right Permit and treated as part of the Delta Water Project; (ii) water purchased from the Woodbridge Irrigation District pursuant to the terms of an agreement; (iii) water produced by the Water System’s own wells; and (iv) treated surface water which is purchased through a long-term contract from SEWD. A five-year summary of water supplies by source production and consumption is set forth in Table 4-“Historical Water Production and Consumption.”

Delta Water Project. On March 8, 2006, the City of Stockton received its first Water Rights Permit (Permit No. 21176) from the State Water Resources Control Board (“SWRCB”) to divert up to 33,600 acre-feet per year from the Delta. In compliance with Water Code Section 1485, the City is authorized to divert from the Delta an amount less than or equal to the amount of properly treated effluent discharge from the regional wastewater control facility to the Delta, based on a 15-day running average. The Delta Water Project consists of a 30 million gallon per day, ozone and pressure membrane treatment facility (the “Delta Water Treatment Plant”), 12 miles of raw water pipeline, and six miles of treated water pipeline. The surface water treated at the Delta Water Treatment Plant meets all requirements set by the State and Federal government, and is distributed to Water System customers.

The Delta Water Project was undertaken by the City to replace declining and less reliable surface water supplies, protect groundwater resources, and to generally provide for the current and future planned water needs within the Stockton Metropolitan Area and was placed into service in May 2012.

The City added the Delta Water Project to its Water System to provide a supplemental source of surface water to the existing SEWD supply. The City’s previous allocation of the SEWD supply accounted for approximately 56% of the SEWD plant output. Due to the operation of the Delta Water Project, the City Council approved a Supply and Cost Allocation Agreement to reduce the amount of treated surface water purchased from the SEWD by the City from approximately 27,000 acre-feet to 17,500 acre-feet per year, which accounts for approximately 37.6% of the SEWD plant output. See also “Litigation—The City-SEWD Litigation.”

Completion of the Delta Water Project resulted in a reduction in groundwater pumping by more than two-thirds and an 82% reduction in purchases of treated surface water from SEWD. See “-SEWD Purchased Water.”

WID Agreement Water. On January 22, 2008, the City and the Woodbridge Irrigation District (the “Irrigation District”) entered into an Agreement for Purchase of Water from the Woodbridge

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Irrigation District by the City of Stockton (the “WID Agreement”) for a term of 40 years with one 40-year option to extend. Subsequently, on May 13, 2010, the Irrigation District and City entered into an Amendment to extend the commencement date of payments by the City to the Irrigation District. Pursuant to the WID Agreement and Amendment, the Irrigation District is required to make available to the City 6,500 acre-feet per annum of surplus Mokelumne River water and the City is required to pay to the Irrigation District $200 per acre-foot, increased annually by an amount not to exceed 3% per year, commencing January 1, 2011 (or $1.3 million per annum), irrespective of whether the City takes the water available under the WID Agreement, and to construct certain capital improvements to measure and take delivery of the water. The water purchased pursuant to the WID Agreement and Amendment is available to the City from March 1 through July 31 of each year to supplement water sources when pumping from the Delta is restricted. This water is treated at the City’s Water Treatment Plant, meets all requirements set by the State and Federal government, and is distributed to City water customers. The City’s payments under the WID Agreement are treated as Operation and Maintenance Costs of the Water System.

Groundwater. The groundwater basin underlying San Joaquin County is part of the contiguous Central Valley aquifer system, which supplies groundwater to agricultural, domestic, and industrial water users from Redding to Bakersfield. Groundwater is managed by the City for long term sustainability and use through conjunctive use with the surface water supplies described below. Conjunctive use implies that groundwater will be preserved as the last source of supply that is used if surface water supplies are insufficient to meet demands. The City has undertaken careful planning and study to insure that groundwater extraction yields, on average, do not pose any risk of salinity intrusion or undue risk to private domestic or agricultural wells within the Service Area. In wet years, when surface water is more plentiful, the groundwater basin is allowed to recover through in-lieu recharge (i.e., allowing natural recharge to occur from streams and rivers) and not pumping, and in the dry years, groundwater is extracted to meet the shortfall of surface water supplies.

Historically, groundwater pumping in the area in Eastern San Joaquin County has exceeded the rate of recharge, lowering the groundwater level. In 1980, the DWR published a bulletin that identifies the Eastern San Joaquin Basin as one of the 11 basins in the State in “a critical condition of overdraft.” Although the overdraft situation has improved primarily in the urban area due to less groundwater being pumped in recent years, the overdraft of the groundwater supply has caused a deterioration of the water quality in some areas due to the intrusion of poor quality water from the California Delta, primarily in areas south and west of the City. While the Eastern San Joaquin Basin is not an adjudicated groundwater basin, the regional use of the Eastern San Joaquin Basin is guided by the Eastern San Joaquin Groundwater Basin Groundwater Management Plan prepared in 2004 through the Eastern San Joaquin Groundwater Basin Authority. In addition, the City’s 2035 General Plan contains a policy that states that the City shall work in concert with other water purveyors in the region to achieve the target yield of 0.6 acre-feet per year of the drinking water aquifer, and limits the long-term average groundwater withdrawals to this target yield.

SEWD Purchased Water. Until 1977, groundwater was the sole source of domestic water for the Stockton Metropolitan area, when a surface water supply was established when the SEWD, a special district water wholesaler, began operating a treatment plant. The SEWD plant currently treats up to 55,000 acre-feet per year of Calaveras River and Stanislaus River water. Following treatment, the water is distributed among the City, Cal Water, and two County Maintenance Districts (collectively, the “Urban Contractors”).

The quality of the surface water delivered to the City from SEWD meets all requirements set by the State and federal government. From April 1, 2017 to March 31, 2018, the SEWD water treatment plant delivered 4,640 acre-feet of water, (equal to approximately 16% of total water consumption) all of

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which was delivered to the City. Pursuant to the SEWD contract, water is allocated annually pro rata based on the total amount of water produced by each Urban Contractor from all sources during the prior year.

North Water System. The North Water System utilizes both surface and groundwater as sources of supply. Surface water for the North Water System is purchased from the SEWD and provided by the Delta Water Project. Treated water is stored in three sites providing temporary water storage for up to 19 million gallons. In recent years, approximately 72% of the North Water System water has been purchased from SEWD. Groundwater for the North Water System is obtained from 23 City wells that provide approximately 11.1 mgd.

South Water System. The South Water System uses both surface water purchased from the SEWD and groundwater as sources of supply. Approximately 93% of the water for the South Water System is purchased from SEWD. The seven wells in the South Water System provide approximately 14.4 mgd. The City completed the South Stockton Aqueduct in November 2005 to convey surface water directly to the South Water System from SEWD through an underground pipeline thereby reducing reliance on groundwater sources to meet demand.

Total City water production, extractions, and purchases for the last five years (April through March) are set forth below:

Table 4City of Stockton Water System

Historical Water Production and Purchases (in million gallons)

(April through March)(1)

City Water Production SEWD PurchasesPeriod

(April - March)(1)

Delta Water Treatment

Plant(2)GroundwaterProduction

Total City Production

NorthWaterSystem

South Water System

Total SEWD Purchases(3) Total

2013-14 3,917 1,147 5,064 106 4,291 4,397 9,4612014-15 2,986 1,986 4,972 63 3,233 3,296 8,2682015-16 4,094 1,706 5,800 16 1,380 1,396 7,1962016-17 5,473 764 6,237 0 1,076 1,076 7,3132017-18 5,919 756 6,675 0 1,299 1,299 7,974

(1) This period was selected to correspond to the fiscal year of SEWD, and therefor this data is not directly comparable to other data presented in this Official Statement.

(2) Delta Water Treatment Plant commenced operation in May 2012. Includes WID and Delta water.(3) See also, “LiTiGATiON-The City-SEWD Litigation” for a summary of the complaint filed by SEWD against the City and

other contracting entities regarding reallocation of SEWD water deliveries.Source: City of Stockton, Municipal Utilities Department.

Water Treatment and Regulatory Matters

Public drinking water supplies in the State, including the Water System, are subject to increasingly stringent State and federal water quality standards. The City’s drinking water is sampled and tested on an ongoing basis from all parts of the Water System to ensure that it meets or surpasses all primary (health related) and secondary (aesthetic) regulatory standards established by the EPA and the SWRCB.

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State Requirements. The City is responsible for complying with all State requirements, including: operational requirements; design and construction standards for dams and reservoirs, distribution systems and pipelines; requirements for control of Cryptosporidium and other microbial contaminants, and other water safety issues; and training and other requirements for water treatment and distribution operators. Failure to meet these standards may subject the City to civil or criminal sanctions. SWRCB is the regulatory agency responsible for ensuring the water systems meet the federal regulations outlined above, as well as additional or stricter State regulations.

In accordance with California Code of Regulations, Title 22, SWRCB requires water providers to conduct periodic source water assessment (an “SWA”) to protect the quality of future water supplies. The SWA describes the source of the drinking water, the type of polluting activities that may threaten source water quality and evaluates the vulnerability of the water to those threats.

Federal Requirements. The Water System is subject to regulations imposed by the federal Safe Drinking Water Act, as amended (the “Act”), which is administered by the EPA. In 1986, the United States Congress passed amendments to the Act, wherein 83 potential contaminants of potable water were to be regulated by no later than 1989, with 25 new contaminants to be added, prioritized and regulated every three years thereafter. In 1996, the Act was amended again, reducing the number to five new regulated contaminants every five years. The 1996 amendments also require that each regulation to be reviewed every six years to determine if a revision is warranted. In addition to setting maximum levels for contaminants, the Act also allows regulations to require water treatment plants to meet defined “Treatment Techniques.”

Treatment Process. The City routinely monitors the Water System for the presence of drinking water contaminants, at the 30 mgd ozone and pressure membrane filtration treatment plant constructed as part of the Delta Water Project. See “-Water Supply-Water Sources-Delta Water Project.”,

Testing results from April 18, 2012 to January 17, 2013, indicated that the Water System exceeded the standard or maximum contaminant level for Total Trihalomethane, four organic chemicals which form when disinfectants react with natural organic matter in the water (“TTHM”). The maximum level for TTHM is 80 parts per billion, which is the equivalent of a teaspoon of water in an Olympic-sized swimming pool which was determined by the Locational Running Annual Average (“LRAA”) of samples collected at each sampling location, quarterly, over 12 months. The LRAA level of TTHM collected at four of 19 sample locations ranged from 82 parts per billion to 96 parts per billion. In 2016, the City completed construction of a system to prevent the formation of disinfection by-products in the Delta Water Project and SEWD supply to the North Water System through the use of chloramines. The City’s capital improvement planning efforts included an additional $4.3 million in funding to complete the North Water System chloramine conversion which was completed in January 2016. In addition, the City is working with SEWD to modify its treatment process to reduce the potential for disinfection by-products and using its own groundwater sources (free of organic matter) during times when the source waters are high in organic content.

Permits and Other Regulations. The City operates under a SWRCB Water Supply Permit No. 390012 for its water distribution system. The permit does not have an expiration date, and the permit is revised, modified or re-issued as necessary. The City is in compliance with the permit.

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Capital Improvement Program

The City maintains a five-year capital plan (the “CIP”) for the budgeting and planning of public projects throughout the City. The adoption of the City wide CIP is governed by the City Charter. The CIP is updated annually by the City Council based upon available funding sources, anticipated capital needs and project priority.

The most recent CIP for 2018-2023 includes approximately $24.4 million in Water System projects, excluding projects for which funds have already been appropriated but have not been expended. The total cash needs of the Water System for projects for which funds have not yet been appropriated and for projects for which funds have been appropriated but have not been expended are approximately $32.3 million. The City expects to fund the Water System projects included in the CIP for 2018-2023 with System Revenues available after the payment of Operation and Maintenance Costs, the Senior Obligations, and the 2018 Installment Payments.

Water System Users

Customer Class. During Fiscal Year 2017-18, the Water System served active connections comprised primarily of residential customers. Table 5A summarizes the customer base by the number of connections for the last five Fiscal Years.

Table 5ACity of Stockton Water System

Customer Class by Type of Account and Number of Connections(Fiscal Years)

UnauditedCustomer Class 2013-14 2014-15 2015-16 2016-17 2017-18

Single Family Residential 42,076 41,400 42,294 42,401 42,383Multiple Family Residential 4,392 5,115 6,107 6,101 6,088Commercial/Industrial 2,548 2,447 2,350 2,339 2,204Other 913 194 21 21 150

Total 49,929 49,156 50,772 50,861 50,825

Source: City of Stockton, Utility Billing.

Table 5B summarizes the water sold by customer class for the last five Fiscal Years.

Table 5BCity of Stockton Water System

Water Sold by Customer Class in ccf^(Fiscal Years)

Customer Class 2013-14 2014-15 2015-16 2016-17 2017-18(2)Residential 9,303,185 8,220,045 7,088,802 7,289,614 8,231,972Institutional 651,307 608,940 442,461 573,873 632,738Commercial/Industrial 1,596,477 1,598,432 1,429,848 1,512,098 1,640,471Irrigation 1.531.137 1.344.966 861.094 1.110.614 1.310.062

Total 13,082,106 11,772,383 9,822,205 10,486,199 11,815,243

(1) One cubic foot (cf) is equal to 7.481 gallons.(2) Unaudited.Source: City of Stockton, Utility Billing.

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Largest Users by F low. The table below shows the 10 largest users of the Water System based on consumption for Fiscal Year 2017-18.


Ten Largest Accounts by Annual Consumption Fiscal Year 2017-18

(in ccf)(1)

Fiscal Year 2017-18Number of Consumption^

Name Accounts Type of Business Amount PercentRunway Drive, LP 2 Bottled Water Manufacturer 278,148 2.35%Lodi Unified School District 38 Public School 226,186 1.91San Joaquin County Hospital 13 Medical 111,353 0.94San Joaquin County Sheriff 8 Law Enforcement 83,622 0.71Aramark - MC 568 3 Commercial/Industrial Laundry 78,903 0.67Stockton Unified School District 14 Public School 71,073 0.60Cintas Corp Site #922 3 Commercial/Industrial Laundry 44,928 0.38NCYCC and CHCF 2 Youth Correctional Facility 36,460 0.31Sunpointe Homeowners 1 Home Owners Association 32,930 0.28Shadow Lake Mobile Home Park 1 Mobile Home Park 26,217 0.22

Subtotal 85 989,820 8.38All Others 50,740 Various 10,825,423 91.62

Total 50,825 11,815,243 100.00%

(1) One ccf is equal to 748 gallons.(2) Unaudited.Source: City of Stockton, Utility Billing.

(Remainder of this Page Intentionally Left Blank)

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Largest Users by Revenue. The table below shows the 10 largest users (unaudited) of the Water System based on revenue for Fiscal Year 2017-18.


Ten Largest Accounts by Revenue Fiscal Year 2017-18

Fiscal Year 2017-18Number of Revenue0}

Name Accounts Type of Business Amount(2) PercentRunway Drive LP 2 Bottled Water Manufacturer $668,336 1.35%Stockton Pavilions LP 1 Apartment Complex 231,055 0.47Aramark - MC 568 3 Commercial/Industrial Laundry 179,414 0.36San Joaquin County Hospital 13 Medical Facility 175,036 0.35San Joaquin County Sheriff 8 Government/Law Enforcement 163,448 0.33Sunpointe Homeowners 1 Home Owners Association 147,480 0.30Oakwood Apartments LLC 16 Apartment Complex 142,182 0.29The Palms at Morada Apt Assoc 3 Apartment Complex 121,775 0.25Downey, Brad 1 Mobile Home Park 114,450 0.23Lodi Unified School District 38 School District 113,869 0.23

Subtotal 86 2,057,044 4.16All Others 50,739 Various 47,340,206 95.84

Total 50,825 $49,397,250 100.00%

(1) Unaudited.(2) Column may not total due to rounding.Source: City of Stockton, Utility Billing.

Outstanding Obligations

The table below summarizes the outstanding Obligations payable from Net System Revenues, as of October 1, 2018.


Outstanding Obligations (As of October 1,2018)

FinalTotal Amount Maturity Date

Obligation Outstanding (October 1)Senior Obligations:

Refunded 2002 Bonds(1) $4,030,000 2022Refunded 2005 Bonds(1) 19,055,000 2035Senior Obligations(2) 53,410,000 2040

Subtotal Senior Obligations 76,495,000Subordinate Obligations:

Refunded 2009B Bonds(1) 146,725,000 2038Subtotal Subordinate Obligations 146,725,000

Total $223,220,000

(1) These bonds will be refunded with a portion of the proceeds of the 2018 Bonds. See “Plan of Finance.”(2) Consists of the 2010 Bonds. See “Security and Sources of Payment for the 2018 BoNDS-Senior Obligations.” Source: City of Stockton.

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Organization and Management

Organizition. The Water System is operated under the management and control of the City Council. Day-to-day management is provided by John Abrew, the Director of Stockton MUD and C. Mel Lytle, PhD., Acting Deputy Director of Water Resources, under the general supervision of the City Manager.

As part of the Stockton MUD, the Water System, with 192 budgeted full-time equivalent employees, 44 in Water Utility, 145 in Wastewater Utility, and three in Stormwater Utility as of June 30, 2018, is managed by the Acting Director. The organization of the Water System is presented in the organizational chart on the following page. The Water System also receives services from other departments within Stockton MUD, including engineering, administration, construction, development and environmental control.

The Water System reports to the City Manager and receives guidance from the Water Advisory Group, the City Council Water Committee, the City Council, and the Mayor.

Water Advisory Group. A Water Advisory Group (the “WAG”) was established by Resolution No. 09-0279 adopted by the City Council on August 11, 2009 to foster citizen input and transparency in the operations of Stockton MUD. The WAG reports directly to the Council Water Committee (described below) on current and future issues impacting the Water, Wastewater and Stormwater Utilities of the City, including review of Stockton MUD monthly operations and maintenance reports. The Water Advisory Group is comprised of seven members who reside within one of the three service areas of the City’s three Utilities who serve four-year terms for a maximum of two terms. The Mayor and each Council member nominate one candidate with all nominees ratified by the full City Council.

The Director of Stockton MUD serves ex-officio as Secretary of the Water Advisory Group.

Council Water Committee. The Council Water Committee is one of the nine standing committees of the City Council. This Committee is comprised of three members of the City Council and one alternate appointed by the Mayor and ratified by the full City Council. The Council Water Committee is responsible for all issues related to water, including, but not limited to, water flow availability, projects, regulations, conservation reclamation, and recommendations made by the WAG.

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Water System Organizational Chart

Management. The Water System operates within the legal parameters of the City Charter, the Municipal Code and in accordance with the laws of the State. The Water System is regulated at the State level by the California SWRCB. At the federal level the Water System is regulated by the Environmental Protection Agency. See also “-Water Treatment and Regulatory Matters.”

The Water Utility receives administrative and overhead support services from the City and is charged for these services through an interdepartmental cost allocation system.

Brief resumes of the management of the Water System are set forth below:

Jon Abrew. Director of Municipal Utilities. Mr. Abrew originally joined the City in 2013 as the Deputy Director of Public Works. He was promoted to Director of Municipal Utilities in 2016. As the Director of Municipal Utilities, he is responsible for water treatment & distribution, wastewater treatment, wastewater collections, storm water collections, maintenance & operations, finance, and administrative functions. Mr. Abrew has 20 years of experience which includes serving local municipalities in capacities as City Engineer and City Manager as well as experience in the private sector serving both in the engineering consulting and private development industries. Mr. Abrew received his undergraduate degree from the University of California, Davis, a master’s degree in Civil Engineering from San Jose State University and a master’s degree in Business Administration from California State University, Stanislaus. Mr. Abrew is also a licensed Professional Civil Engineer in the State and has participated in both the American Society of Civil Engineers and the American Public Works Association.

C. Mel Lytle, Ph.D., Deputy City Manager and Acting Deputy Director of Water Resources.Dr. Lytle was assigned Acting Deputy Director of Water Resources duties in July 2018. Dr. Lytle is responsible for planning, organizing, coordinating and directing the activities of the department's drinking water utility which includes water resources planning and operations. Since March 2017, he also serves as a Deputy City Manager. Dr. Lytle is the former Director of Municipal Utilities and served in this capacity between 2012 and 2017. Prior work experience includes serving as the Water Resources Coordinator for San Joaquin County for 10 years and as a Senior Scientist for David Evans and Associates, Inc. Dr. Lytle holds a Bachelor’s of Science and Master’s degrees in Agronomy and a Ph.D. in Botany from Brigham Young University and is a Post-Doctoral Fellow of University of California, Berkeley.

Minnie Moreno, Municipal Utilities Finance Officer. Mrs. Moreno joined the City in April 2016 as the Municipal Utilities Finance Officer. As the Municipal Utilities Finance Officer, she is primarily responsible for all budget and financial transactions within the Municipal Utilities Department totaling $137 million in expenditures. Prior to joining the City, Ms. Moreno was the Finance Director, Assistant Finance Director, Accountant, Senior Account Clerk respectively for the City of Patterson for a total of 11 years. Prior to this, she worked for two years at the City of Modesto. She also worked two years for Stockman, Fitzgerald, and Johnson CPA’s auditing non-profit corporations and school districts. She has over 26 years of progressively responsible customer service, administrative support, and professional experience with a variety of public and private sector employers. Ms. Moreno holds a Bachelor of Science Degree in Business Administration with a concentration in Accounting from California State University Stanislaus, and she is a member of the California Society of Municipal Finance Officers (CSMFO) and the Government Finance Officers Association (GFOA). Ms. Moreno is also a Notary Public in the State of California.

As of the date of this Official Statement there are two vacant Water System management positions; the Assistant Director of Municipal Utilities for Operations and the Assistant Director of Municipal Utilities for Design-Build. The City is conducting interviews to fill the Assistant Director of Municipal Utilities for Operations, and the Assistant Director of Municipal Utilities for Design-Build

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positions. While the two Assistant Director positions are vacant, the duties and responsibilities associated with each position are being performed by an outside consultant.

The City is conducting a national search for a permanent Deputy Director of Water Resources.

Employee Benefits

The City contributes to two pension plans on behalf of Water System employees: The Miscellaneous Plan of the City of Stockton (the “Miscellaneous Plan”), an agent multiple -employer defined benefit plan administered by the California Employees’ Retirement System (“CalPERS”) and the City of Stockton Retirement Enhancement Plan (the “REP”) administered by Public Agency Retirement Services (“PARS”), a multiple-employer agency trust that acts as a common investment and administrative agent for participating public entities in the State.

General. Substantially all full-time City employees, including employees of the Water System, are eligible to participate in retirement benefit plans through a contract with the CalPERS. CalPERS provides retirement, disability, and death benefits to plan members and beneficiaries. CalPERS benefits are payable monthly for life in an amount equal to a certain percent of the employees highest annual salary. Benefit provisions and all other requirements are established by contract with CalPERS, State statue, and City ordinance. CalPERS acts as a common investment and administrative agent for participating public entities within the State. CalPERS is a contributory plan deriving funds from employee contributions as well as from employer contributions and earnings from investments.

The REP is a closed retirement plan that provides retirement benefits for Stockton MUD employees for the period when they worked for OMI-Thames Water Stockton, Inc. to cover retirement benefits between 2003 and 2008. See “-PARS Retirement Enhancement Plan.”

California Public Employees’ Retirement System The following information concerning the California Public Employees’ Retirement System is excerpted from publicly available sources, which the City believes to be accurate. CalPERS is not obligated in any manner for payment of debt service on the 2018 Bonds and the assets of CalPERS are not available for such payment. CalPERS should be contacted directly at California Public Employees’ Retirement System* Lincoln Plaza Complex, 400 Q Street, Sacramento, California 95814, Telephone: 888-225 7377 for other information, including information relating to its financial position and investments.

Set forth below is information with respect to the Miscellaneous Plan for the entire City. Cal PE RS does not prepare nor are separate reports available for the Water System. The City can only allocate costs of the Miscellaneous Plan to the Water System to the extent such costs are allocable to employees of the Water System.

The Miscellaneous Plan is available to full-time employees not enrolled in the Safety Plan. Part- time employees must meet specific criteria for participation. City employees are eligible for service or normal retirement at age 55 or older with a minimum of five years CalPERS service. The contribution requirements of the plan members and the City are established by CalPERS and may be amended.

As of June 30, 2018, there were a total of 904 full-time equivalent City employees participating in the Miscellaneous Plan of which 44 (or approximately 4.87%) were employed by the Water System.

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Benefits Provided. CalPERS provides service retirement and disability benefits, the annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. The provisions and benefits for the Miscellaneous Plan in effect at June 30, 2016, are summarized as follows:

Miscellaneous Plan

Hire Date Prior to January 1, 2014Benefit Vesting Schedule 5 years serviceBenefit Formula Tier I: 2% @ 55 years of age

Tier II: 2% @ 60 years of ageBenefit Payments monthly for lifeRequired Employee Contribution Rates 7.00%Required Employer Contribution Rates 20.090%

After January E 20145 years service 2% @ 62 years

monthly for life6.25%

20.090%

Source: Audited Financial Statments of the City of Stockton for the Year Ended June 30, 2017.

Employees Covered. At June 30, 2017 the following Miscellaneous Plan employees were covered under benefit terms:

Inactive employees or beneficiaries currently receiving benefits 1,398Inactive employees entitled to but not yet receiving benefits 528Active employees 938

Total 2,864

Contributions. The City establishes rates based on an actuarially determined rate recommended by an independent actuary. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by the employee during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the year ended June 30, 2018, the total Miscellaneous Plan employer contribution rate was 25.084% of wages and for Fiscal Year 2018-19, the employer contribution rate is estimated to be 26.652% using a discount rate of 7.375%. See “-Discount Rate.”

Net Pension Liability. The City’s net pension liability was measured as of June 30, 2015, using an annual actuarial valuation as of June 30, 2014, rolled forward to June 30, 2015, using standard update procedures.

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Actuarial Assumptions. The total pension liability on June 30, 2014, the actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Miscellaneous Plan

Valuation Date Measurement Date Actuarial Cost Method Entry-Age Normal Cost Method

6/30/20156/30/2016

Actuarial Assumptions: Discount Rate Inflation Payroll Growth Projected Salary Increase Investment Rate of Return Mortality

7.65% 2.75% 3.00%

Varies(1) 7.50%(2)

see note(3)

(1) Depending on age, service and type of employment(2) Net of pension plan investment expenses, including inflation(3) The mortality table used was developed based on CalPERS specific data. The table includes 20 years of mortality

improvements using Society of Actuaries BB. For more details on this table, refer to the 2014 experience study report.Source: Audited Financial Statments of the City of Stockton for the Year Ended June 30, 2017.

The actuarial assumptions used on June 30, 2014, valuation were based on the results of an actuarial experience study for the period from 1997 to 2011. The actuarial experience study can be obtained by contacting CalPERS.

Discount Rate. The discount rate used to measure the total pension liability was 7.65%. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that the City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the employee rate. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of currently active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.

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The target allocation and best estimates of real arithmetic rates of return for each major asset class are summarized in the following table:

Miscellaneous Plan

Asset ClassNew Strategic

AllocationReal Return Years

l-10falReal Return Years

ll+(b)Global Equity 51.9% 5.25% 5.75%Global Fixed Income 20.3 0.99 2.43Inflation Sensitive 6.0 0.45 3.36Private Equity 9.0 6.83 6.95Real Estate 10.8 4.50 5.13Infrastructure and Forestland 0.5 4.50 5.09Liquidity 1.5 (0.55) (1.05)

Total 100.0%


On December 21, 2016, the CalPERS Board of Adminisration lowered the discount rate from 7.50% to 7.00% using a three year phase-in beginning with the June 30, 2016 actuarial valuations. The discount rate will be 7.25% for the 2017 valuation and 7.00% for the 2018 valuation.

Changes in the Net Pension Liability. As of June 30, 2016, after employer contributions of $13,879,482, employee contributions of $3,971,482, and investment income of $2,491,249, the Net Pension Liability for the Miscellaneous Plan increased to $162,194,089 from $133,763,663 as of June 30, 2015. Details in the changes in Net Pension Liability are presented in Note 11 of the City’s Fiscal Year 2016-17 Comprehensive Annual Financial Report. See Appendix B-“Audited Financial Statements of the City of Stockton for the Year Ended June 30,2017.”

Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following table presents the Net Pension Liability of the City for the Miscellaneous Plan, calculated using the discount rate of 7.65%, as well as what the Net Pension Liability of the City would be it were calculated using a discount rate that is one-percentage point lower (6.75%) or one-percentage point higher (8.75%) than the current rate.

Miscellaneous Plan

1% Decrease Current Discount 1% IncreaseRate = 6,65% Rate = 7,65% Rate = 8,65%

Net pension liability $247,563,708 $162,194,089 $91,400,450


Miscellaneous Plan Fiduciary Net Position. Detailed information about the fiduciary net position for the Miscellaneous Plan is available from CalPERS in the separately issued CalPERS financial report.

Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions.Information on the deferred outflows of resources and deferred inflows of resources related to pensions for the Miscellaneous Plan is presented in Note 11 of the City’s Fiscal Year 2016-17 Comprehensive Annual Financial Report. See Appendix B-“Audited Financial Statements of the City of Stockton for the Year Ended June 30,2017.”

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PARS Retirement E nhancement Plan. In 2003, the City awarded a 20-year Service Contract for Wastewater, Water, and Stormwater Utilities Capital Improvements and Asset Management to OMI/Thames Water Stockton (“Service Contract”). Shortly after entering into the agreement the City was served with a complaint alleging that the City violated the California Environmental Quality Act (“CEQA”) by awarding the Service Contract to OMI/Thames Water Stockton (“OMI-Thames”) to manage and operate the City’s utilities without conducting an environmental review assessing the risks of a public-private partnership. The litigation was settled in 2007 and, in 2008, the City resumed operation and maintenance of the Water System, the Wastewater System and the Stormwater System from OMI/Thames and terminated the Service Contract.

Plan Description. The City entered into an agreement with PARS to contribute to a supplemental plan for employees joining or re-joining City service after having been employed between 2003 and 2008 by OMI-Thames. OMI-Thames employees did not earn CalPERS service credit during the period of time OMI-Thames operated the City utilities. Upon retirement, the REP benefits will supplement any CalPERS retirement for which those particular employees are eligible. Eligibility for REP, other than employment with OMI-Thames between 2003 and 2008, is defined as concurrent retirement with CalPERS and the City upon attaining age 55 and a minimum of five years of full-time continuous service with the City, with at least one year of continuous City service after March 1, 2008.

As of June 30, 2018, a total of 84 employees were covered by the REP, consisting of 38 inactive employees or beneficiaries currently receiving benefits and 46 active employees.

Contributions. The City establishes rates based on an actuarially determined rate recommended by an independent actuary. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by the employee during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.

Net Pension Liability. The City’s net pension liability was measured as of June 30, 2017, using an annual actuarial valuation as of June 30, 2015, rolled forward to June 30, 2017, using standard update procedures.

Actuarial Assumptions. The total pension liability on June 30, 2016, the actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Enhancement PlanValuation Date 6/30/2016Measurement Date 6/30/2017Actuarial Cost Method Entry-Age Normal Cost MethodActuarial Assumptions:Discount Rate 7.00%Inflation 2.75%Payroll Growth N/AProjected Salary Increase 3/5% - 9.9%(1)Investment Rate of Return 7.00%Mortality (2)

(1) Depending on years of service.(2) Pre-retirement: CalPERS Miscellaneous Non-Industrial Rates. Post-Retirement: CalPERS 1997-2011 Healthy Retiree Table

(sex-distinct) projected using Scale AA and base year of 2008.Source: Audited Financial Statments of the City of Stockton for the Year Ended June 30, 2017.

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Discount Rate. The discount rate used to measure the total pension liability was 7.00%. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that the City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the employee rate. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of currently active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Additional information with respect to the REP, including changes in net pension lability, target investment allocation, sensitivity of the net pension liability, changes in the discount rate and deferred outflows of resources and deferred inflows of resources related to pension can be found in Note 11 to the Audited Financial Statements of the City at www.stocktongov.com.

Health Insurance Premiums. The City also provides health benefits to certain employees and their dependents for medical, dental and vision care. For Fiscal Years 2015-16, 2016-17 and 2017-18, the City paid premiums in the amount of $565,499, $504,367, and $562,725, respectively for Water Utility employees. For Fiscal Year 2018-19, the amount paid for premiums for Water Utility employees is budgeted to be $615,888. The City pays the a portion of the premium for health benefits for a small group of Stockton MUD employees who were reinstated to City employment on March 1, 2008, when Stockton MUD operations were transferred back to the City. The remainder is paid for by the employee and varies by the number of dependent coverage. Each employee and dependent is covered by a life insurance policy and the employee also is covered by a long-term disability policy.

Post E mployment Health Care Benefits. The City does not provide post-employment health care benefits to its retirees, and does not have any liability listed in its financials to account for such a benefit.

WATER SYSTEM FINANCES

Rate Setting, Billing and Collection Procedures

Rate Setting. In accordance with California law, the City Council may, from time to time and at its discretion, fix, alter, change, amend or revise any user fees, connection charges and all other fees related to the Water Utility. No other governmental authority, board, body or commission has jurisdiction over or is required to approve the Water System rates established by the City Council.

Water Rate Study. The City contracted with HDR Engineering, Inc. (“HDR”) to complete a comprehensive Water Rate Cost of Service Study (the “2016 Water Rate Study”). In accordance with the California state law, requiring that billing for water service be based on water consumption, the Water Enterprise used the results of the 2016 Water Rate Study to establish equitable rate schedules for both consumption-based and flat-rate water usage. The 2016 Water Rate Study included review of a 10-year CIP to ensure adequate future revenue to construct and maintain the Water System infrastructure. The 2016 Water Rate Study can be viewed online at www.stocktongov.com/files/WaterRateStudy2016.pdf or a copy can be obtained by contacting the City Clerk, City of Stockton, 425 North El Dorado Street, Stockton, California 95202.

On June 28, 2016, the City Council approved a resolution (“Resolution No. 2016-06-28-1601”), authorizing annual water rate increases based upon a consumption-based, fixed rate model, that became effective commencing August 1, 2016 and on each July 1 thereafter, from July 1, 2017 through July 1, 2020 as recommended in the 2016 Water Rate Study. The rates are comprised of a fixed monthly rate

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http://www.stocktongov.com

http://www.stocktongov.com/files/WaterRateStudy2016.pdf

charge determined by meter size, a variable metered charge based upon each Unit of water (748 gallons) used per month, and a drought surcharge (the “Drought Surcharge”) per Unit when water conservation stages are in effect. In Resolution No. 2016-06-28-1601, the City Council also declared that effective August 1, 2016, a Stage 1 Drought Surcharge would be implemented and remain in effect until the City Council determines or otherwise declares the Stage 1 water shortage is over or that the Drought Surcharge is no longer necessary. See “The Water SYSTEM-Water Supply-Conservation Measures.”

The adopted rates grouped customers into four classes of service (single family, multi-family, non-residential, and irrigation) that reflect the varying consumption patterns and Water System requirements of each class of service.

Billing. Bills for City utility services are issued monthly by the City. Within the Service Area, customers are billed for all applicable utility services (water, wastewater, storm water, and garbage collection) on a unified bill issued by the City. Cal Water also issues a unified bill to customers within its service area for its water services while the City bills for the other applicable City utility services (i.e. wastewater, storm water, garden refuse and garbage).

Collection. Utility bills are due 18 days from the date of billing and become delinquent 25 days thereafter. If such bills remain unpaid on the 26th day after billing a 10% penalty is assessed, and an additional 1% penalty is assessed for each additional month that charges remain unpaid. Delinquent notices for past due accounts are mailed approximately 10 days after an account becomes past due. If the account remains unpaid, a final termination notice is mailed to the service address approximately five days prior to water service being terminated. If water service is terminated due to unpaid delinquent charges, water service is not be restored or provided until all delinquent charges and associated service charges and fees, deposits and reconnection charges have been paid in full, or an amortization agreement has been authorized by the City or its authorized agent for billing and collection pursuant to Sections 779 or 10010 of the State Public Utilities Code or other applicable statute or regulation. When a property owner is the account holder, the City can also record a lien against the property and collect the delinquent charges through payment of the annual property tax bill.

On September 28, 2018, the Governor signed into law SB 998 (Discontinuation of Residential Water Service; Urban and Community Water Systems). This law will be effective on February 1, 2020 for urban water systems (defined as a public water system supplying more than 200 service connections such as the City) and will require, among other things, that the City: (i) have a written policy on discontinuation of water service for nonpayment available in prescribed languages; (ii) prohibit discontinuation of water service until delinquent for at least 60 days; (iii) prohibit residential water service from being discontinued under specified circumstances; (iv) waive interest on delinquent bills and limit the reconnection fee for low income customers; (v) require good faith efforts to provide written notice to residential occupants of individually metered accounts where the owner/operator/manager is the customer of record that water service will be terminated.

While the City has not yet completed a full analysis of the effect of complying with this law, the City does not believe that the effect on the Available Revenues that secure repayment of the 2018 Bonds will be material.

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Reserve Policy

In 2006, to ensure sound fiscal management, preserve the discretion of the City Council in its resource allocation decisions, and to minimize the impact to citizens of potentially significant rate increases, the City established a reserve policy for all of its utilities, including the Water System. The target reserve seeks to: (i) build a six-month reserve of the annual operating budget of the Water System using a three-year trend to project the actual amount; (ii) transfer all revenue exceeding expenses, after the payment of debt service and on-going capital project costs of the Water System, into the reserve account until the target is met; and (iii) establish a rate stabilization account and transfer all remaining revenue exceeding expenses on an “as needed” basis; such as when an upcoming project is expected to significantly increase rates. The rate stabilization accounts will help distribute any rate increase over a period of time in lieu of a one-time increase. The balance in the Rate Stabilization Fund established for the Water System as of June 30, 2018 was approximately $2.78 million. See also “Security and Sources of Payment for the 2018 BONDS-Rate Stabilization Fund.”

Rates, Fees and Charges

The Water System receives moneys from two primary sources: (i) monthly water service charges and connection fees; and (ii) interest income.

Water Service Charges. Customers of the Water System are billed monthly water service charges based on a fixed monthly service charge based on meter size and a consumption charge based on water usage.

Historic and Current Rates. Pursuant to Resolution No. 2016-06-28-160, the first increase in water rates of 18.5% took effect on August 1, 2016, with subsequent increases of 11.0% for Fiscal Year 2017-18, and 3.0% annually for Fiscal Years 2018-19 through 2020-21. The adopted rates are comprised of: (i) a fixed charge based upon meter size, (ii) a consumption based charge based upon a two block tiered rate for single family residences and a seasonal rate structure (winter/summer) for all other customer classes; and (iii) the Drought Surcharge triggered by various levels of reductions in consumption, to fairly reflect the costs of providing service and fairly appropriate costs to customers. The Drought Surcharge is designed to ensure that the City collects sufficient revenues when consumption declines due to voluntary or mandatory conservation resulting from drought conditions, or other water shortage emergencies. The Drought Surcharge is based on reductions in blocks of 10%, commencing at a 10% reduction up to a 50% reduction in consumption. Collection of the Drought Surcharge was suspended on June 5, 2018. See “The Water SYSTEM-Drought and Conservation Measures-Drought Surcharge.” Table 9 sets forth the approved Water System rates for Fiscal Years 2017-18 through 2020-21.

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Table 9City of StocktonWater System

Schedule of Rates and Charges and Effective Dates

Rates and Effective Dates for Monthly Fixed Meter Service Charge ($/Meter Size)

Effective Date July 1Effective Date: 2017 2018 2019 2020Meter Size (in inches)1” and less $31.00 $31.95 $32.90 $33.901-1/2” 62.00 63.90 65.80 67.802” 99.20 102.24 105.28 108.483” 186.00 191.70 197.40 203.404” 310.00 319.50 329.00 339.006” 620.00 639.00 658.00 678.008” 992.00 1,022.40 1,052.80 1,084.8010” 1,426.00 1,469.70 1,513.40 1,559.4012” 2,092.50 2,156.63 2,220.75 2,288.25

Rates and Effective Dates for Monthly Consumption Charge (S/CCF)Customer ClassSingle FamilyTier 1: 0-15 CCF $2.23 $2.31 $2.39 $2.47Tier 2: 15+CCF 2.66 2.76 2.86 2.95Multi-FamilyWinter (Oct - Apr) $1.90 $1.97 $2.04 $2.11Summer (May - Sep) 2.07 2.14 2.22 2.30Non ResidentialWinter (Oct - Apr) $1.90 $1.97 $2.04 $2.11Summer (May - Sep) 2.21 2.29 2.38 2.46IrrigationWinter (Oct - Apr) $1.99 $2.06 $2.13 $2.20Summer (May - Sep) 2.53 2.62 2.70 2.79

Rates and Effective Dates for Drought Surcharges1^ (S/CCF)Customer Class, Drought Stage, andReduction Level 2017 2018 2019 2020Single FamilyStage 1 (10%) $0.27 $0.28 $0.29 $0.30Stage 2 (20%) 0.60 0.62 0.64 0.66Stage 3 (30%) 1.03 1.07 1.11 1.15Stage 4 (40%) 1.60 1.66 1.72 1.78Stage 5 (50%) 2.40 2.49 2.58 2.66Multi-FamilyStage 1 (10%) $0.22 $0.23 $0.24 $0.25Stage 2 (20%) 0.50 0.52 0.54 0.56Stage 3 (30%) 0.86 0.89 0.92 0.95Stage 4 (40%) 1.33 1.38 1.43 1.48Stage 5 (50%) 2.00 2.07 2.15 2.23

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Rates and Effective Dates for Drought Surcharges1^ (S/CCF)(Continued)

Non ResidentialStage 1 (10%) $0.23 $0.24 $0.25 $0.26Stage 2 (20%) 0.52 0.54 0.56 0.58Stage 3 (30%) 0.90 0.93 0.97 1.00Stage 4 (40%) 1.40 1.45 1.50 1.55Stage 5 (50%) 2.10 2.18 2.26 2.34IrrigationStage 1 (10%) $0.26 $0.27 $0.28 $0.29Stage 2 (20%) 0.59 0.61 0.63 0.65Stage 3 (30%) 1.02 1.06 1.10 1.14Stage 4 (40%) 1.58 1.65 1.70 1.76Stage 5 (50%) 2.38 2.47 2.56 2.65

t Collection of the Drought Surcharge was suspended on June 5, 2018. See “The Water SYSTEM-Drought and Conservation Measures-Drought Surcharge.”

Source: City of Stockton, Municipal Utilities Department.

Connection Fees. One-time charges (“Connection Fees”) are levied by the City to recover costs incurred by the Water System for providing capacity in the Water System required by new users. The collection of such fees is therefore subject to the pace of development in the Service Area.

Connection Fees have been in effect in the City since Fiscal Year 1974-75. On July 6, 1988, the City Council adopted an ordinance creating and establishing the authority for imposing and charging public facilities fees (“Public Facilities Fees”). On October 12, 1988, the City Council adopted a resolution establishing and imposing Public Facilities Fees, including Connection Fees, to be paid at the time of issuance of a building permit for development and are used to finance the acquisition, construction and improvement of public facilities needed as a result of new development.

As of July 1, 2018, when combined with the City’s existing Water System connection charge in the amount of $2,217.84, the New Melones Surface Water Supply Fee collected on behalf of SEWD in the amount of $4,587.00 and the Delta Water Supply Project Surface Water Supply Fee (the “Delta Surface Water Supply Fee”) of $5,223.03 (see “-Service Charges”), the cost of connecting a new single family residence for water service is $12,027.87.

The historical connection fee revenues received by the City are set forth in the table below.


Historical Connection Fee Revenues (Fiscal Year Ended June 30)

($ in thousands)

Unaudited2013-14 2014-15 2015-16 2016-17 2017-18

RevenuesDelta Surface Water Supply Fee

Total

$17,957184.011

$201,968

$466,174613.461

$1,079,635

$413,471884.865

$1,298,336

$434,380915.185

$1,349,565

$755,0832.249.674

$3,004,757

Source: City of Stockton, Municipal Utilities Department.

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I nterest I ncome. The Water Utility receives additional income from interest income earned on funds available for use in operations and for application to capital facilities projects.

Backflow Device Testing Charges. The City imposes a $71.25 fee for testing backflow prevention devices (that protect potable water from backflow of bacterial contamination into the Water System).

Private Fire Hydrant and Protection Services. Certain customers of the Water System (generally, large industrial businesses or condominium complexes) are required by the State fire code to maintain private fires hydrants specifically for the benefit of such customer. These fire hydrants are located on private property, not in the public right-of-way. Customers are charged for this service based upon the number and size of the hydrant.

Delinquencies. Set forth in the table below is a summary of the amounts billed for charges for services and estimated to be uncollectible for the last five Fiscal Years. The amount estimated as uncollectible is determined at the end of each Fiscal Year and does not take into account any amounts that may be collected after the end of that Fiscal Year.


Uncollectible Charges for Services(Fiscal Years)

($ in 000s)

2013-14 2014-15 2015-16 2016-17 2017-18(1)

Total BilledAmount Uncollectible(2) Uncollectible %

$37,085 $34,323 $32,542 $41,517 $49,397$321 $184 $257 $224 $207

0.87% 0.54% 0.79% 0.54% 0.42%

(1) Unaudited.(2) Represents the amount at the end of the Fiscal Year that the City estimates will be uncollectible. Source: City of Stockton, Utility Billing.


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Comparable Rates and Fees

Comparative Monthly Water Service Charges. The City’s standard residential charges are set forth in Table 12 below with a comparison to other comparable, neighboring cities.


Current Monthly User Fee Comparison Residential Service (As of July 1, 2018)

City Monthly User Fees(1)

Cal Water (Stockton) $94.66Brentwood 93.72Lathrop 82.59Stockton^ 80.43Modesto 57.87Lodi 44.47Tracy 40.80Manteca 37.75

(1) Assumes 3A” meter and 20 CCF (14,960 gallons) of usage.(2) Current as of July 1, 2018.Source: City of Stockton, Municipal Utilities Department.

Comparative Connection Fees. The current Connection Fees and a comparison of the City’s Connection Fees to those of other Central Valley and Northern California cities are set forth in Table 13. City Connection Fees are included as part of the City’s Water System Net Revenues which are used, in part, to pay the 2018 Installment Payments.


Current Water Connection Fees Comparison (As of July 1, 2018)

City Water Connection Fee(s)

Pleasanton0}Stockton(2)BrentwoodLathrop(1)MantecaModesto

$29,370.0012,027.8711,691.395,580.004,603.003,310.00

(1) The connection fee varies depending upon to the location of the property.(2) Includes water connection fee, New Melones Surface Water Supply fee and Delta Surface Water Supply Fee. The water

connection fee alone is $2,217.84. Current as of July 1, 2018.Source: City of Stockton, Municipal Utilities Department.

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Historical Debt Service Coverage

Table 14 sets forth historical revenues, expenses (based upon audited financial information) and debt service coverage for Fiscal Year 2013-14 through Fiscal Year 2016-17 and unaudited information for Fiscal Year 2017-18.


Historical Revenues, Expenses and Debt Service Coverage (Fiscal Years Ended June 30)

Unaudited2013-14 2014-15 2015-16 2016-17 2017-18

Revenues:Service Charges/User Fees $37,084,796 $34,322,998 $32,542,168 $41,516,569 $49,397,250Connection Fees 201,963 1,079,635 1,298,336 1,349,565 3,410,813Interest Earnings® 933,856 677,482 1,175,374 (14,989) 163,308Miscellaneous Revenues 769,935 736,246 734,641 791,562 1,148,326Rate Stabilization Fund Deposit - 5,600,000 2,155,539 2,100,000 -

Total Revenues 38,990,055 42,516,361 37,906,058 41,542,707 54,119,697Expenses® 19,762,317 22,830,378 23,311,842 18,301,743 22,817,025Net System Revenues 19,228,238 19,585,983 14,594,215 23,240,743 31,302,672Senior Obligation Debt Service:

Federal Drought Relief Act Loan 95,342 95,342 95,342 86,812® —

Refunded 2002 Bonds® 1,112,038 1,115,188 328,460® 290,223® 1,110,063Refunded 2005 Bonds® 1,150,313 1,150,313 1,150,313 1,150,313 1,180,866®Water Revenue Bonds, Series 2010A

(in Variable and Fixed Rate mode)® 1,982,924 3,489,638 3,319,838(7) 3,314,438® 3,441,838Total Senior Obligations Debt Service 4,181,946 5,850,841 4,893,953 4,841,786 5,732,767Available Revenues 15,046,292 13,735,502 9,700,263 18,398,957 25,569,905Parity Obligations Debt Service:

Water Revenue Bonds, Series 2009A 3,809,350 3,805,450 282,750® _(7) -

Refunded 2009B Bonds® 11,928,589 11,928,589 11,928,589 11,928,589 15,646,813Less: Federal Interest Subsidy for

Refunded 2009B Bonds® (3,864,991) (3,924,373) (3,776,328) (3,889,251) (3,855,019)Refunded 2009B Bonds Net Debt Service 8,063,598 8,004,216 8,152,261 8,039,338 11,791,794

Total Parity Obligations Debt Service $11,872,948 $11,809,666 $8,435,011 $8,039,338 $11,791,794Total Debt Service (All Obligations) $16,054,894 $17,660,147 $13,328,964 $12,881,124 $17,524,561Senior Debt Service Coverage 4.60 3.35 2.98 4.80 5.46Parity Debt Service Coverage® 1.27 1.16 1.15 2.29 2.17Debt Service Coverage (All Obligations) 1.20 1.11 1.09 1.80 1.79

(1) Includes interest earnings on the bond reserve funds for the Senior and Parity Obligations.(2) Excludes depreciation, capital, expenditures, debt service.(3) See “Plan of FiNANCE-Refunded Bonds.”(4) Includes letter of credit and remarketing fees of $667,018 and less capitalized interest of $158,671 in Fiscal Year 2013-14.

These bonds were converted to fixed rate in November 2013.(5) The Series 2009B Bonds were issued as Build America Bonds and received a 35% federal interest subsidy, which subsidy

was reduced due to federal sequestration in years 2014-2017.(6) Parity Debt Service Coverage is calculated net of reserve fund earnings applied to debt service.(7) The debt service shown is net of the October 1, 2015 and October 1, 2016 payments that were defeased.(8) This obligation was repaid during Fiscal Year 2016-17.(9) Excludes non-scheduled prepayment of $4.9 million principal amount of bonds from unused project funds.Sources: City of Stockton for revenues and expenses based upon the audited financial statements and unaudited data for Fiscal

Year 2017-18, and Del Rio Advisors, LLC, for debt service coverage information.

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The audited financial statements for the Water System for the Fiscal Year ended June 30, 2017 are attached as Appendix B-“Audited Financial Statements of the City Of Stockton for the Year Ended June 30,2017.”

Projected Debt Service Coverage

Revenues, expenses and debt service coverage for Fiscal Years 2018-19 (budgeted) through 2020-21 (projected) are set forth in Table 15 on the following page based on certain assumptions as described in the footnotes. The following table assumes no optional redemption of the 2018 Bonds or prepayment of the Senior Obligations. The following projections are based on the current circumstances of the City and currently available information and are believed to be reasonable. The projections may be affected by various factors and there can be no assurance that they will be achieved and any variation from projected operating results may be material.


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Table 15City of Stockton Water Utility Fund

Projected Pro Forma and Debt Service Coverage Calculation ($ in thousands)

System RevenuesCharges for Services(1)Connection Charges(2)Interest Income(2)Other RevenuesRate Stabilization Fund Deposit

Total System Revenues

Operations and MaintenanceGeneral Operations(3)General and Administrative(3)Purchased Water(4)

Total Operating Expenses

Net System Revenues(5)

Senior Obligations Debt ServiceRefunded 2002 Bonds(6)Refunded 2005 Bonds(6)Series 2010 (Remarketed 2013)

Senior Obligations Net Debt Service

Senior Obligations Debt Service Coverage

Available Revenues(7)

Parity Obligations Debt ServiceRefunded 2009B Bonds(8)Series 2018A

Total Parity Obligations Net Debt Service

Parity Obligations Debt Service Coverage

Debt Service Coverage (All Obligations)Net System Revenues Available for

Capital and Other

(Budgeted)2018-19

(Projected)2019-20

(Projected)2020-21

$48,557,2182,127,700

413,4531,056,358

$50,013,9352,127,700

413,4531,066,922

$51,514,3532,127,700

413,4531,077,591

52,154,729 53,622,009 55,133,096

13,210,7973,627,1109,000,000

13,686,3863,757,6869,585,000

14,179,0963,892,963

10,208,02525,837,907 27,029,072 28,280,083

26,316,822 26,592,937 26,853,013

1,113,2201,033,9193,441,538 3,441,038 3,445,2385,588,677 3,441,038 3,445,238

4.71x 7.73x 7.79x

20,728,146 23,151,900 23,407,776

11,508,9122,597,821 11,853,175 11,860,050

$14,106,733 $11,853,175 $11,860,050

1.47x 1.95x 1.97x

1.34x 1.74x 1.75x

$6,621,413 $11,298,725 $11,547,726

(Projected)2021-22

(Projected)2022-23

(Projected)2023-24

$51,514,3532,127,700

413,4531,088,367

$51,514,3532,127,700

413,4531,099,250

$51,514,3532,127,700

413,4531,110,243

55,143,872 55,154,756 55,165,748

14,689,5434,033,109

10,871,547

15,218,3674,178,301

11,578,197

15,766,2284,328,720

12,330,78029,594,199 30,974,865 32,425,728

25,549,673 24,179,891 22,740,021

3,439,238 3,443,038 3,441,5383,439,238 3,443,038 3,441,538

7.43x 7.02x 6.61x

22,110,436 20,736,853 19,298,483

11,873,675 11,878,425 11,601,050

$11,873,675 $11,878,425 $11,601,050

1.86x 1.75x 1.66x

1.67x 1.58x 1.51x

$10,236,761 $8,858,428 $7,697,433

(1) Reflects adopted rate increases of 3.00% for Fiscal Years 2019-20 and 2020-21 and held constant thereafter.(2) Held constant for pro forma period based on budgeted Fiscal Year 2018-19 estimates.(3) Escalated at 3.6% each Fiscal Year for the pro forma period.(4) Escalated at 6.5% each Fiscal Year for the pro forma period.(5) Equals Total System Revenues less Total Operating Expenses.(6) Reflects amounts paid prior to issuance of 2018 Bonds and refunding of the Refunded Bonds. See “Plan of Finance-

Refunded Bonds.”(7) Represents the amounts available to pay Parity Obligations Debt Service after the payment of Senior Obligations Debt

Service.(8) Represents debt service on the 2009B Bonds, net of the 35% Build America Bond subsidy. See “Plan of Finance-

Refunded Bonds.”Sources: City of Stockton for revenues and expenses and Del Rio Advisors, LLC, for debt service coverage information.

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TAX MATTERS

In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the 2018 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the 2018 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix F hereto.

To the extent the issue price of any maturity of the 2018 Bonds is less than the amount to be paid at maturity of such 2018 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such 2018 Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the 2018 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the 2018 Bonds is the first price at which a substantial amount of such maturity of the 2018 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the 2018 Bonds accrues daily over the term to maturity of such 2018 Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such 2018 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such 2018 Bonds. Beneficial Owners of the 2018 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of 2018 Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such 2018 Bonds in the original offering to the public at the first price at which a substantial amount of such 2018 Bonds is sold to the public.

2018 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the 2018 Bonds. The Authority and the City have made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the 2018 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the 2018 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the 2018 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the 2018 Bonds may adversely affect the value of, or the tax status of interest on, the 2018

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Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

Although Bond Counsel is of the opinion that interest on the 2018 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the 2018 Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2018 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the 2018 Bonds. Prospective purchasers of the 2018 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the 2018 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority or the City, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority and the City have covenanted, however, to comply with the requirements of the Code.

Bond Counsel’s engagement with respect to the 2018 Bonds ends with the issuance of the 2018 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority, the City or the Beneficial Owners regarding the tax-exempt status of the 2018 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority, the City and their appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority or the City legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the 2018 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the 2018 Bonds, and may cause the Authority, the City or the Beneficial Owners to incur significant expense.

LEGAL MATTERS

The validity of the 2018 Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix F to this Official Statement. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Certain legal matters will be passed upon for the Authority and the City by the City Attorney and by Schiff Hardin LLP, San Francisco, California, Disclosure Counsel, and for the Underwriters by Stradling Yocca Carlson & Rauth, Sacramento, California, Underwriters’ Counsel. Payment of the fees of Bond

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Counsel, Disclosure Counsel and Underwriter’s Counsel are contingent upon the issuance and delivery of the 2018 Bonds.

LITIGATION

At the time of delivery of the 2018 Bonds, the City Attorney as counsel to the Authority and the City Attorney will deliver opinions to the initial underwriter of the 2018 Bonds that there is no action, suit, litigation, inquiry or investigation before or by any court, governmental agency, public board or body served, or to the best knowledge of the Authority or the City threatened, against the Authority or the City in any material respect affecting the existence of the Authority or the City or the titles of their officers to their respective offices or seeking to prohibit, restrain or enjoin the sale or delivery of the 2018 Bonds, the execution and delivery of the 2018 Indenture, the 2018 Installment Purchase Agreement or the payment of 2018 Installment Payments or challenging, directly or indirectly, the proceedings of the Authority and the City with respect to the 2018 Bonds.

The Authority

No litigation is pending with service of process having been accomplished or, to the knowledge of the Authority, threatened, concerning the validity of 2018 Indenture or 2018 Installment Purchase Contract.

The City

General. There is no litigation pending with service of process having been accomplished or, to the knowledge of the City, threatened, questioning the existence of the City, or the title of the offices of the City to their respective offices. Except as otherwise disclosed in this Official Statement, there is no litigation pending or, to the knowledge of the City, threatened, questioning or affecting in any material respect the financial condition of the City’s Water System or the validity of the 2018 Bonds, the 2018 Installment Purchase Contract, or the 2018 Indenture.

The City is involved in ongoing contract negotiations with employee bargaining units and also has various legal actions pending against the City. Neither the resolution of the contract negotiations nor the aggregate amount of the uninsured liabilities of the City which may result from all legal claims currently pending against it will, in the opinion of the City, materially affect the financial condition of the City’s Water System or impair its ability of the City to make the 2018 Installment Payments under the 2018 Installment Purchase Contract.

SEWD Litigation. In December 2017, SEWD filed an action (Stockton East Water District v. City of Stockton, California Water Service Company, San J oaquin County, Lincoln Village Maintenance District, and Colonial Heights Maintenance District, Case No. STK-CV-UOCT-2017-0013066 (the “Complaint”)) seeking an order that the defendants (referred to as the “Urban Contractors”) comply with SEWD’s interpretation of the terms of the Second Amended Contract that would require each Urban Contractor to: (i) accept the amount of water allocated to it pursuant to the formula applied by SEWD as described in the Second Amended Contract; and (ii) pay the full amount of the invoice billed to each Urban Contractor based on the amount of water allocated. The Complaint does not seek any monetary damages.

Collectively, the Urban Contractors are accepting and paying for the full allocation of water as allocated by SEWD under the Second Amended Contract. However, the Urban Contractors entered into an agreement (the “2012 Allocation Agreement”) without the consent of SEWD that reallocates the

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amount of water and the corresponding payments made by each Urban Contractor. The reallocation, principally between the City and Cal Water, differs from the calculations prepared by SEWD pursuant to the terms of the Second Amended Contract. SEWD alleges that the 2012 Allocation Agreement conflicts with the Second Amended Contract, and purports to modify terms of the Second Amended Agreement in which SEWD alleges it has an interest, and amounts to a breach of the Second Amended Contract, resulting in injury to SEWD.

The City believes that the eventual disposition of this case, even if decided adversely to the City, will not have a material adverse impact the operation of the Water System, or the timely collection of the Water System revenues pledged to the payment of the 2018 Bonds.

CONTINUING DISCLOSURE

The Authority has determined that no financial or operating data concerning the Authority is material to an evaluation of the offering of the Bonds or to any decision to purchase, hold or sell the Bonds and the Authority will not provide any such information. The City, will covenant for the benefit of owners of the 2018 Bonds to provide certain financial information and operating data relating to the Water Utility (the “Annual Report”) by not later than the March 31 following the end of the City’s fiscal year, commencing March 31, 2019, with the report for the fiscal year ended June 30, 2018, and to provide notices of the occurrence of certain listed events (“Notice Events”). These covenants have been made in order to assist the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5), as amended (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of listed events is set forth in Appendix D.

The City and related governmental entities - specifically those entities, like the Authority, for whom City staff is responsible for undertaking compliance with continuing disclosure undertakings - have previously entered into numerous disclosure undertakings under the Rule in connection with the issuance of long-term obligations. The City hired Digital Assurance Certification (“DAC”) to do a detailed review of all of the City’s postings on EMMA for the preceding five years. The audit was completed on or about June 30, 2018. Additionally, in August 2018, the Underwriters engaged DAC to complete a compliance review.

In the preceding five years, the City failed to timely comply in certain respects with its previous undertakings with regard to the Rule to provide annual reports, adopted budgets, or notices of Notice Events, and in some instances information was not associated with the correct CUSIP number. In addition, on several occasions during the last five years the City failed to provide its audited or unaudited financial statements in the time required by its continuing disclosure undertakings, including the audited financial statements for Fiscal Year 2011-12 and Fiscal Year 2012-13 and the Fiscal Year 2016-17 audited financial statements with respect to the Refunded 2002 Bonds. The City’s compliance with its previous undertakings for Fiscal Years 2011-12 and 2012-13 was complicated by the bankruptcy proceedings, and while the City filed with EMMA detailed information as and when available with respect to the bankruptcy, the completion of its audited financial statements demanded more time into past years than expected and agreed in its previous undertakings.

The City has an ongoing contract with Willdan Financial Services as Dissemination Agent. The City believes it has established procedures in policies adopted by the City Council to ensure that the City will make all required continuing disclosure filings on a timely basis in the future.

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FINANCIAL STATEMENTS

The financial statements for the City for the Fiscal Year ended June 30, 2017, included in Appendix B, have been audited by The Pun Group, LLP (the “Independent Auditor”), as stated in its report appearing in Appendix B and are included for background information only. The Independent Auditor has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Independent Auditor with respect to any event subsequent to the date of its report. See Appendix B-“Audited Financial Statements of the City of Stockton for the Year Ended June 30,2017.”

The audited financial statements include information concerning the City’s General Fund and other funds. The 2018 Bonds are limited obligations of the Authority payable solely from installment payments to be made by the City to the Authority, for which the City has pledged Available Revenues derived from the operation of the Water System and are reflected under “Proprietary Fund Financial Statements” of the audited financial statements as a major enterprise fund of the City. See “Security and Sources of Payment for the 2018 Bonds.” No other funds of the City other are available for payment of the 2018 Bonds.

The report of the Independent Auditor states that in the opinion of the Independent Auditor, the financial statements referred to therein present fairly, in all material respects, the financial position of the City, including the Water Fund as of June 30, 2017, and the respective changes in financial position for the year then ended in conformity with generally accepted accounting principles in the United States of America.

RATINGS

S&P Global Services (“S&P”) has issued insured ratings on the 2018 Bonds of “AA,” assuming that the Policy is issued by the Bond Insurer. S&P and Fitch, Inc., doing business as Fitch Ratings have also issued underlying ratings on the 2018 Bonds of “A-” and “BBB+,” respectively.

A rating reflects only the view of the agency giving such rating and is not a recommendation to buy, sell or hold the 2018 Bonds. An explanation of the significance of each rating may be obtained from the rating agencies at the following addresses: Moody’s Investors Service, Inc., 7 World Trade Center at 250 Greenwich Street, New York, New York 10007; Standard & Poor’s Ratings Group, a Division of McGraw-Hill Companies, 55 Water Street, New York, New York 10041 and Fitch Inc., One State Street Plaza, New York, New York 10004. There is no assurance that the ratings will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by either rating agency if, in its judgment, circumstances so warrant. The Authority and the City undertake no responsibility to oppose any such revision or withdrawal but the Authority and the City will comply with notification requirements. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the 2018 Bonds.

In providing a rating on the 2018 Bonds, certain rating agencies may have performed independent calculations of coverage ratios using their own internal formulas and methodology which may not reflect the provisions of the 2018 Indenture. The Authority and the City make no representation as to any such calculations, and such calculations should not be construed as a representation by the Authority or the City as to past or future compliance with any bond covenants, the availability of particular revenues for the payment of debt service on the 2018 Bonds or for any other purpose.

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The City will covenant in the Continuing Disclosure Certificate to file on EMMA, notices of any ratings changes on the 2018 Bonds. See “Continuing Disclosure” and Appendix D-“Proposed Form of Continuing Disclosure Certificate.” Notwithstanding such covenants, information relating to ratings changes on the 2018 Bonds may be publicly available from the rating agencies prior to such information being provided to the City and prior to the date notice of such rating change is obligated to be filed on EMMA. Purchasers of the 2018 Bonds are directed to the rating agencies and their respective websites and official media outlets for the most current ratings changes with respect to the 2018 Bonds following the initial issuance of the 2018 Bonds.

UNDERWRITING

Citigroup Global Markets Inc. and RBC Capital Markets, LLC (the “Underwriters”) have agreed to purchase the 2018 Bonds at a purchase price equal to $159,846,051.46 which represents the par amount of the 2018 Bonds, less an Underwriters’ discount in the amount of $562,815.34, plus a net original issue premium in the amount of $15,188,866.80. The bond purchase agreement relating to the 2018 Bonds provides that the Underwriters will purchase all of the 2018 Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in said bond purchase agreement, the approval of certain legal matters by counsel and certain other conditions.

Citigroup Global Markets Inc., an underwriter of the Bonds, has entered into a retail distribution agreement with Fidelity Capital Markets, a division of National Financial Services EEC (together with its affiliates, “Fidelity”). Under this distribution agreement, Citigroup Global Markets Inc. may distribute municipal securities to retail investors at the original issue price through Fidelity. As part of this arrangement, Citigroup Global Markets Inc. will compensate Fidelity for its selling efforts.

The Underwriters and their respective affiliates are full-service financial institutions engaged in various activities that may include securities trading, commercial and investment banking, municipal advisory, brokerage and asset management. In the ordinary course of business, the Underwriters and their affiliates may actively trade debt and, if applicable, equity securities (or related derivative securities) and provide financial instruments (which may include bank loans, credit support or interest rate swaps). The Underwriters and their affiliates may engage in transactions for their own accounts involving the securities and instruments made the subject of this securities offering or other offering of the Issuer. The Underwriters and their affiliates may make a market in credit default swaps with respect to municipal securities in the future. The Underwriters and their affiliates may also communicate independent investment recommendations, market color or trading ideas and publish independent research views in respect of this securities offering or other offerings of the Issuer.

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MUNICIPAL ADVISOR

The Authority has retained Del Rio Advisors, LLC of Modesto, California, as municipal advisor (the “Municipal Advisor”) in connection with the offering of the Bonds. All financial and other information presented in this Official Statement has been provided by the Authority and others from their records. Unless otherwise footnoted, the Municipal Advisor takes no responsibility for the accuracy or completeness of the data provided by the Authority or others and has not undertaken to make an independent verification or does not assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor has assisted the Authority with the structure, timing and terms for the sale of the Bonds. The Municipal Advisor provides municipal advisory services only and does not engage in the underwriting, marketing, or trading of municipal securities or other negotiable instruments. The fee of the Municipal Advisor is contingent upon the successful closing of the Bonds.

VERIFICATION OF MATHEMATICAL COMPUTATIONS

Upon delivery of the 2018 Bonds, Grant Thornton, LLP, Minneapolis, Minnesota (the “Verification Agent”), will deliver a report stating that it has reviewed and confirmed the mathematical accuracy of certain computations relating to the adequacy of the funds and/or securities deposited in the Escrow Funds and the interest thereon, if any, to pay, when due, the principal of and interest on and redemption price of the Refunded Bonds on the specified respective payment and redemption dates thereof.

(Remainder of the Page Intentionally Left Blank)

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MISCELLANEOUS

This Official Statement is not to be construed as a contract or agreement between the Authority, the City and the Underwriters. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The information and expressions of opinion herein are subject to change without notice and neither the delivery of the 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 Authority or the City since the date hereof.

References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of such documents and reports are available for inspection at the office of the Chief Financial Officer, City of Stockton, 425 North El Dorado Street, Stockton California 95202.

The execution and delivery of the Official Statement has been duly authorized by the Board of Directors of the Authority and by the City Council.

STOCKTON PUBLIC FINANCING AUTHORITY

By: /s/ Matt Paulin Treasurer

CITY OF STOCKTON

By: /s/ Matt Paulin_________Chief Financial Officer

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APPENDIX A

GENERAL, ECONOMIC AND DEMOGRAPHIC INFORMATION RELATINGTO THE CITY OF STOCKTON

The following information concerning the City and surrounding areas is included only for the purpose of supplying general information regarding the community. The 2018 Bonds are not a debt of the City, the State or any of its political subdivisions and neither the City, the State, nor any of its political subdivisions is liable therefor. The 2018 Bonds are limited obligations of the Authority payable solely from 2018 I nstallrrent Payments made by the City. See “ Security and Sources of Payment for the 2018 Bonds.”

General

The City is a municipal corporation and charter city incorporated in 1850. The City is the county seat of the County and is located in California’s San Joaquin Valley, approximately 78 miles east of the San Francisco Bay Area, approximately 345 miles north of Los Angeles and approximately 45 miles south of Sacramento. The County covers approximately 1,400 square miles. The County is bounded by Sacramento County on the north, Stanislaus County on the south, Contra Costa County and Alameda County on the west and Amador County, Calaveras County and Stanislaus County on the east. The land area of the City is 61.7 square miles.

Governing Body

The City operates under a Council/Manager form of government, with a seven-member City Council (current members were elected by district voting) for staggered four-year terms. Under this form of government, policy making and legislative authority is entrusted to the City Council. The Mayor is elected by City-wide election, and the representatives of the City Council are elected from six districts for staggered four-year terms, with a two-term limit. Newly elected representatives are sworn in on the first Tuesday of January of each odd-numbered year.

The City Manager is responsible for carrying out policies and ordinances of the City Council for appointing heads of departments and overseeing the operation of the City. The City Manager, the City Attorney, the City Auditor and the City Clerk are appointed by the City Council.

The Mayor, current members of the City Council and key administrative personnel of the City are listed in Table A-l and Table A-2, respectively.

TABLE A-l CITY OF STOCKTON

Name

Mayor and City Councilmembers

TermOffice Expires Occupation

Michael Tubbs Mayor 12/31/21 EducatorElbert H. Holman, Jr. Vice Mayor, District 1 12/31/19 Retired - law enforcementChristina Fugazi Councilmember, District 5 12/31/19 EducatorDan Wright Councilmember, District 2 12/31/19 Elementary School PrincipalSusan Lofthus Councilmember, District 3 12/31/18 Administrative AssistantSusan Lenz Councilmember, District 4 12/31/20 Business OwnerJesus Andrade Councilmember, District 6 12/31/20 Businessman

A-l

TABLE A-2 CITY OF STOCKTON

Key Administrative Personnel

Name Position

Kurt O. Wilson John M. Luebberke Matt Paulin Kevin Beltz Moss Adams LLP Christian Clegg

City Manager City Attorney

Chief Financial Officer Program Manager

City Auditor Interim City Clerk

The City provides a full range of municipal services. As provided in the City Charter, these services include public safety (police, fire, paramedics, water rescue and building inspection), sanitation (solid waste disposal, wastewater and stormwater utilities), water utility, community development, library, parks and recreation and general administrative services.

Population

Population information is set forth in Table A-3.

TABLE A-3CITY OF STOCKTON, COUNTY OF SAN JOAQUIN

AND STATE OF CALIFORNIA Population

(As of January 1)

Year City of Stockton County of San Joaquin State of California2013 302,227 704,700 38,239,2072014 304,994 711,850 38,567,4592015 312,990 723,761 38,907,6422016 316,464 735,677 39,189,0352017 311,724 747,263 39,500,9732018 315,103 758,744 39,809,693

Sources: California State Department of Finance, E-l Population Estimates for Cities, Counties, and the State—January 1, 2013 and 2014 through January 1, 2017 and 2018, released May 1, 2018; California State Department of Finance.

A-2

Labor Force and Employment

Table A-4 compares estimates of the labor force, civilian employment, and unemployment for City residents, County residents, State residents, and United States residents between 2013 and 2017. For September 2018, the preliminary estimated unemployment rate (not seasonally adjusted) for the City, the County, the State and the United States were 5.9%, 5.0%, 3.9% and 3.7%, respectively.

Table A-4CITY OF STOCKTON, COUNTY OF SAN JOAQUIN

STATE OF CALIFORNIA AND UNITED STATES Civilian Labor Force, Employment, and Unemployment

2013 through 2017 (Not Seasonally Adjusted)

UnemploymentYear and Area Labor Force Employment Unemployment Rate

2017City 130,900 122,300 8,600 6.6%County 324,400 305,600 18,800 5.8State 19,312,000 18,393,100 918,900 4.8United States 160,320,000 15,337,000 6,982,000 4.4

2016City 129,400 118,100 11,300 8.7County 319,200 293,500 25,700 8.1State 19,312,000 18,393,100 1,044,800 5.5United States 159,187,000 151,436,000 148,976,000 4.9




Sources: California State Employment Development Department and U.S. Department of Labor, Bureau of Labor Statistics.

A-3

Employment and Industry

Approximately 3,000 acres in the City are zoned for light and heavy industry. Included in this acreage are 15 industrial parks with all on/site improvements. Six industrial parks are rail served.

The principal employers in the City as of Fiscal Year 2016-17 are set forth in Table A-5.

Table A-5CITY OF STOCKTON

Principal Employers Fiscal Year 2016-17 (As of August 2017)

Company Product/Service Employees

Percent of Total City Employers

St. Joseph’s Medical Center Health Care 4,600 1.48%Stockton Unified School District Public Education 3,894 1.25City of Stockton City Government 1,862 0.60Dameron Hospital Health Care 1,200 0.39Kaiser Permanente Health Care 1,065 0.34San Joaquin Delta College Education 967 0.31University of the Public Education 900 0.29Lincoln Unified School District Education 765 0.25O’Reilly Auto Parts Automotive 600 0.19World Class Distribution, Inc. Warehouse 500 0.18

Total 5.27%

Source: City of Stockton Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2017.


A-4

The Industry Employment and Labor Force for the Stockton-Lodi Metropolitan Statistical Area (MSA) are set forth in Table A-6. The principal city within the Stockton-Lodi MSA is the City.

Table A-6STOCKTON-LODI MSA

Industry Employment and Labor Force By Annual Average

March 2017 Benchmark

2013 2014 2015 2016 2017

Total All Industries 221,200 226,700 234,800 242,600 250,900Agriculture 16,100 15,700 16,700 16,600 16,600Nonagriculture 205,100 211,000 218,200 226,000 234,300Goods Producing 26,800 27,500 28,800 30,000 30,800Manufacturing 17,900 18,500 18,600 18,800 19,200Wholesale Trade 11,100 11,100 11,400 11,700 12,100Retail Trade 25,600 25,700 26,000 26,500 26,800Transportation, Warehousing, Utilities 17,200 18,300 20,400 23,600 26,700Information 2,100 2,100, 1,900 2,000 1,900Financial Activities 7,600 7,500 7,400 7,500 7,800Professional and Business Services 17,400 18,300 19,400 19,600 19,000Education and Health Services 35,500 35,900 36,500 36,400 38,000Leisure and Hospitality 18,200 19,100 19,700 20,500 21,400Other Services 6,600 6,900 7,200 7,500 7,900Government 37,100 38,600 39,600 40,800 42,000

t Industry employment is by place of work; excludes business owners, self-employed people, unpaid volunteers or family workers and private household workers.

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

Personal Income

The United State Department of Commerce, Bureau of Economic Analysis (the “BEA”) produces economic accounts statistics that enable government and business decision-makers, researchers, and the public to follow and understand the performance of the national economy.

The BEA defines “personal income” as income received by persons from all sources, including income received from participation in production as well as from government and business transfer payments. Personal income represents the sum of compensation of employees (received), supplements to wages and salaries, proprietors’ income with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj), rental income of persons with CCAdj, personal income receipts on assets, and personal current transfer receipts, less contributions for government social insurance. Per capita personal income is calculated as the personal income divided by the resident population based upon the Census Bureau’s annual midyear population estimates.

A-5

Table A-7 summarizes the total personal income and per capita income for the Stockton-Lodi Metropolitan Statistical Area (an “MSA”), the State and the United States for the calendar years 2012 through 2016 (the most recent annual data available). The principal city within the Stockton MSA is the City.

Table A-7STOCKTON-LODI MSA, STATE OF CALIFORNIA AND UNITED STATES

Personal Income

Per CapitaPersonal Income Personal Income

Year and Area (millions of dollars) (dollars)

2016^Stockton MSA $29,684 $40,458State 2,212,691 56,374United States 15,912,770 49,246

2015Stockton MSA 28,280 39,087State 2,133,664 54,718United States 15,547,661 48,451




f The most recent annual data available.Source: U.S. Department of Commerce, Bureau of Economic Analysis. Per capita personal income was computed using

Census Bureau Midyear population estimates. Estimates reflect County population estimates available as of March 2017.

Note: All dollars estimates are in current dollars no adjusted for inflation)Last updated: November 16, 2017.

A-6

Construction Activity

Building activity for the past five calendar years for which data is available in the City is shown in Table A-8.

Table A-8CITY OF STOCKTON

Total Building Permit Valuations1^ ($ in thousands)

Permit Valuation 2013 2014 2015 2016 2017New Single Family $24,633 $19,135 $32,955 $58,735 $65,566New Multiple Family 7,265 1,011 29,605 14,797 13,037Residential Alterations/Additions 9,608 13,577 12,860 75,506 62,938

Total Residential 41,507 33,724 75,421 149,038 141,541Total Nonresidential 92.300 87.732 78.556 122.975 255.824

Total $133,808 $121,456 $153,978 $270,013 $397,365

Net Dwelling Units 2013 2014 2015 2016 2017Single Family 96 75 123 215 238Multiple Family 70 4 257 25 115

Total 166 79 380 240 353

(1) Certain columns may not total due to rounding.(2) Most recent annual data available.Sources: Construction Industry Research Board: “Building Permit Summary” for years 2013 through 2017.

Transportation

The City is located on Interstate 5, the West Coast’s major route from Canada to Mexico. The City’s cross-town freeway connects Interstate 5 with State Route 99, the State’s other principal north- south freeway, and State Route 99, California’s other principal north-south highway. The City also benefits from direct highway connections to the San Francisco Bay Area via Interstate 580, and to the Reno-Lake Tahoe area via Interstate 80. Thirty-five major transcontinental truck lines and nearly 200 contract carriers serve the City and provide overnight delivery to Los Angeles, San Francisco and Reno. The City is also served by Greyhound and the San Joaquin Regional Transit District.

The City is served by the rail services of Santa Fe, Southern Pacific, and Union Pacific systems in addition to three short line railroads: Central California Traction Company, Tidewater Southern, and Stockton Terminal and Eastern Railroad. Passenger service is provided by Amtrak.

The Stockton Metropolitan Airport, located on 1,449 acres on the southern boundary of the City, is a general aviation facility offering both passenger and freight transport services. It has six air carrier gates adjoining a 44,355 square foot terminal building.

The Port of Stockton is the largest inland deep water port in the State. It is located on the Stockton deepwater ship channel and encompasses a 2,000 acre operating area. The Port has berthing space for 17 vessels, 1.1 million square feet of dockside transit sheds and shipside rail trackage, and 7.7 million square feet of warehousing, and is 75 nautical miles east of the Golden Gate Bridge.

Railroad service is provided to the City by Burlington Northern, Santa Fe and the Union Pacific railroads. Daily passenger service by Amtrak is available to San Francisco, Los Angeles and Sacramento.

A-7

Education and Recreation

Education. Within the City, there are five post-secondary institutions: San Joaquin Delta Community College, California State University Stanislaus-Stockton (extension), University of the Pacific, Humphrey’s College and School of Law and National University (private).

The majority of students living within City limits attend schools operated by one of four unified school districts providing kindergarten through grade 12 education: the Stockton Unified School District, the Lodi Unified School District, the Lincoln Unified School District and the Manteca Unified School District.

The Escalon Unified School District, the Holt Union Elementary School District, the Linden Unified School District, the Tracy Unified School District and the County Office of Education also operate schools located within the City.

There are also more than 20 private schools located within the City offering elementary and secondary education.

There is also one central, five branch libraries and two mobile library units holding more than one million books in the collection.

Recreation. The City is situated along the San Joaquin Delta waterway which connects to the San Francisco Bay and the Sacramento and San Joaquin Rivers and is also located in close proximity to Lake Tahoe and Yosemite National Park. There are approximately 619 acres of parkland located within the City.

The Stockton Children’s Museum is located in downtown Stockton and offers educational experiences based upon hands-on, play-based exhibits that enhance a child’s understanding of how the world works. The Museum features more than a dozen different child-sized environments that recreate the ambience of a small city where merchants, bankers and doctors might mingle among the grocery shoppers, fast food customers and canning crew.

The 5,000 seat Stockton Ballpark that opened in April 2005 is the home of the Stockton Ports single A minor league team for the Oakland Athletics features four luxury suites, lawn seating, a family recreation area and a barbeque area with umbrella seating behind the outfield.

The City Centre Cinema Complex in downtown Stockton offers a 16-screen movie theater, restaurants and retail shopping.

The 220,000 square foot, 10,000 seat Stockton Arena is home of the Stockton Thunder Minor League Hockey Team.

The 2,042-seat Bob Hope Theater is located in the historic former Fox Theater that was constructed in 1930. This performing arts center hosts national and local theatrical, musical, comedy and dance productions.

The Gary & Janice Podesto IMPACT Teen Center, located in downtown Stockton, features four bowling lanes, a half-court basketball area, stage, meeting rooms, game rooms, classrooms, a computer lab, snack bar, and a climbing wall.

The City also operates a Skate Park and Ice Arena and offers various other sports and recreational opportunities through the City Park and Recreation Department.

A-8

APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE CITY OF STOCKTON FOR THE YEAR ENDED JUNE 30, 2017

The audited financial statements include information concerning the City’s General Fund and other funds and are included for background information only.

The 2018 Bonds are I i rrited obi igations of the Authority payable solely from i nstal I rrent payments to be made by the City to the Authority, for which the City has pledged Available Revenues derived from the operation of the Water System and are reflected under “ Proprietary Fund Financial Statements” of the audited financial statements as a major enterprise fund of the City. See “ Security and Sources of Payment for the 2018 Bonds” in the forepart of this Official Statement. No other funds of the City are available for payment of the 2018 Bonds.

The I ndependent Auditor has not undertaken to update its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the I ndependent Auditor with respect to any event subsequent to the date of its report.

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1CITY OF STOCKTON

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED JUNE 30,2017 CITY OF STOCKTON, CAUFORNIA

Prepared and Issued by Administrative Services Department

MATT PAULINChief Financial Officer

SW^>rrrnTimtfLntiT3Bi55l l esi

City of StocktonComprehensive Annual Financial Report

For the year ended J une BO, 2017

Table of Contents

Page

INTRODUCTORY SECTION (UNAUDITED)

Table of Contents............................................................................................................................................................................. iLetter of Transmittal....................................................................................................................................................................... vList of Principal Officials..............................................................................................................................................................xiOrgani zati on C hart........................................................................................................................................................................ xi i

FINANCIAL SECTION

Independent Auditors’ Report................................................................................................................................................... 1

Management’s Discussion and Analysis (Required Supplementary Information - Unaudited)............................... 7

Basic Financial Statements:

Government-Wide Financial Statements:Statement of Net Position...............................................................................................................................................25Statement of Activities and Changes in Net Position................................................................................................. 26

Fund Financial Statements:Governmental Fund Financial Statements:

Balance Sheet.................................................................................................................................................................. 30R econci I i ati on of the B al ance S heet of G overnmental F unds to the

Government-Wide Statement of Net Position........................................................................................................33Statement of Revenues, Expenditures, and Changes in Fund Balances.........................................................................34Reconciliation of the Statement of Revenues, Expenditures, and Changes in

Fund Balances of Governmental Funds to the Government-W ide Statement of Activities..................................36Proprietary Fund Financial Statements:

Statement of Net Position...............................................................................................................................................38Statement of Revenues, Expenses and Changes in Net Position..............................................................................42Statement of Cash Flows................................................................................................................................................44

Fiduciary Fund Financial Statements:Statement of Net Position...............................................................................................................................................50Statement of Additions, Deductions and Changes in Net Position......................................................................... 51

City of Stockton Comprehensive Annual Financial

Report For the year ended J une BO, 2017

Table of Contents (Continued)

Page

Notes to the Basic Financial Statements.................................................................................................................................55

Required Supplementary I nformation (Unaudited):B udgetary I nformation............................................................................................................................................................... 131

B udget Process......................................................................................................................................................................131B udget B asi s of Accounti ng..............................................................................................................................................132Budget Comparison Schedule - General Fund................................................................................................................133Budget Comparison Schedule- HOME Program Loans Special Revenue Fund....................................................... 135Budget Comparison Schedule - Low and Moderatedncome Housing City Loans Special Revenue Fund...........136

Defined Benefit Pension Plan Funded Status.......................................................................................................................... 137Schedule of Changes in the City’s Net Pension Liability and Relations Ratios...........................................................137Schedule of Changes in the City’s Contributions............................................................................................................ 140

Supplementary I nformation:

Nonmajor Governmental Funds:Combi ni ng B al ance S heet.................................................................................................................................................. 146Combining Statement of Revenues, Expenditures, and Changes in Fund Balances...................................................150

Nonmajor Enterprise Funds:Combining Statement of Net Position..............................................................................................................................156Combining Statement of Revenues, Expenses, and Changes in Net Position.............................................................157Combining Statement of Cash Flows...............................................................................................................................158

I nternal Service Funds:Combi ni ng Statement of Net Position..............................................................................................................................160Combining Statement of Revenues, Expenses, and Changes in Net Position.............................................................164Combining Statement of Cash Flows...............................................................................................................................166

Agency Funds:Statement of Changes in Assets and Liabilities.............................................................................................................. 172

Schedule of Sources and Uses - Measures A and B 174

City of Stockton Comprehensive Annual Financial

Report For the year ended J une BO, 2017

Table of Contents (Continued)

PageSTATISTICAL SECTION (UNAUDITED)

Financial Trend Information LastTen Fiscal Years:Net Position by Classification............................................................................................................................................175Changes in Net Position..................................................................................................................................................... 177Fund Balance, Governmental Funds.................................................................................................................................. 181Changes in Fund Balance of Governmental Funds......................................................................................................... 183Tax Revenues by Source, Governmental Funds............................................................................................................. 187

Revenue Capacity Information:Assessed Value and Estimated Actual Value of Taxable Property............................................................................... 189Direct and Overlapping Property Tax Rates....................................................................................................................191Pri nci pal Property Tax Payers.......................................................................................................................................... 192Secured Property Tax Levies and Collections.................................................................................................................193Water Sold by Customer Type............................................................................................................................................194Water and W astewater Uti I ity Rates.................................................................................................................................195

Debt Capacity Information:Ratios of Outstanding Debt by Type................................................................................................................................196Ratios of General Bonded Debt Outstanding.................................................................................................................... 198Direct and Overlapping Governmental Activities Debt...................................................................................................199Legal Debt Margin Information......................................................................................................................................... 200Pledged-Revenue Coverage................................................................................................................................................202

Demographic and Economic Information:Demographic and Economic Statistics............................................................................................................................. 204Principal Employers.............................................................................................................................................................205

Operating Information:Full-Time Equivalent City Government Employees By Function/Program/Department........................................... 206Operating Indicators by Function/Program/Department................................................................................................. 207Capital Asset Statistics by Function/Program/Department.............................................................................................210

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December 31,2017

To the Honorable Mayor,City Counci I, Audit Committee and the Citizens of the City of Stockton, California

The Stockton City Charter, federal grant regulations and agreements with investors, require the City of Stockton, California (“City”) to publish a complete set of financial statements presented in conformance with Generally Accepted Accounting Principles (“GAAP”) and audited by a firm of licensed, certified public accountants. Under those requirements, we respectfully submit the Comprehensive Annual Financial Report (“CAFR”) of the City of Stockton for the fiscal year(“FY”) endedj une 30,2017.

Responsibility for both the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge, the data, as presented, is accurate in all material aspects; and is presented in a manner designed to fairly set forth the financial position and results of operations of the City as measured by the financial activity of its various funds. This report contains all disclosures necessary to enable the reader to gai n the maxi mum understandi ng of the City ’ s fi nancial affairs.

An overview of the City’s financial activities for the fiscal year is discussed in detail in the Management’s Discussion and A naly si s (“MD& A”) secti on of the C A F R.

PROFILE OF THE GOVERNMENT

The City of Stockton is located in the center of California’s San Joaquin Valley and is the seat of San Joaquin County. Stockton is located about 80 miles east of the San Francisco Bay Area and 40 miles south of Sacramento, the Capitol of California

One of the oldest cities in the State of California, Stockton was founded in 1849 and incorporated in 1850. In 1888, the voters approved Stockton’s first local Charter, which was ratified by the State Legislature in 1889. The current Charter was approved by the voters in November 1922 and became effective in 1923. This Charter changed the City from a commission form of government to the current City Council-City Manager form of government. Under the Counci I-Manager form of government, the City Council has policy-making and legislative authority. Representatives from six districts are chosen by district election, with the Mayor being chosen by citywide election, for staggered four- yearterms, with atwoTerm limit. The City Manager is responsible for carrying out the policies and ordinances of the City Council, appointing department heads and overseeing the operation of the City. The City Council appoints the City Manager, City Attorney, City Auditor, and City Clerk.

The City Charter has been amended many times since 1922, with the most recent amendments approved by voters in November 2016. Those amendments eliminated city-wide voting for council districts, modified the Mayor’s compensation, pa/vers, and duties, and made several changes related to budget and fiscal affairs.

The City provides a full range of municipal services including police and fire protection, community development, economic development and affordable housing, public works and street maintenance, parks, recreational services, libraries, and water, wastewater and stormwater utilities. The City serves approximately 55% of water accounts in the City while the California Water Service Company, an investor-owned company, provides water service to 42%, and San J oaqui n County provides water service to the remai ni ng 3%.

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This report includes the financial activity of the Stockton Public Financing Authority, a separate legal entity controlled by the City. The City reports the Successor Agency to the Redevelopment Agency of the City of Stockton’s financial statements as a private-purpose trust fund i n these fi nancial statements.

The Council is required to adopt an annual budget following a public hearing to review the proposed annual budget. This annual budget serves as the foundation for the City’s financial planning and control. The City prepares the budget by fund, function (and department, e.g., Pol ice). Department heads may transfer budget appropriations withi n a department as they see fit. Transfers between General Fund departments, however, need City Council approval. Outside the General Fund, the City Manager has authority to transfer budget appropriations at the fund level.

THE LOCAL ECONOMY

The City encompasses nearly 65 square miles and is surrounded by the fertile lands of the SanJ oaquin Valley and is home to the furthest inland deepwater seaport in California The City has adiversified economic base as a regional center for commerce, both in agricultural and manufacturing export trade activities. Its distribution of sales tax producing businesses mirrors the diversity of the average of all California cities. The University of the Pacific, California State University-Stanislaus-Stockton campus, Humphries College and San Joaquin Delta Community College are all located in Stockton. Four school districts serve K-12 students within the City limits.

I n J anuary 2017, Stockton’s population was 320,554 accordi ng to the Cal ifomia Department of F i nance, whi ch represents a 1.3% increase over last year’s population estimate of 316,464. The latest University of the Pacific (“UOP”) forecast projects that the population in the Stockton metropolitan area will continue to increase at a rate of approximately 1.4% from 2017 through 2020. As the 13th largest city in California, Stockton is comparable in size to other cities such as Pittsburgh, St. Paul, Cincinnati, and Buffalo.

According to UOP’s Eberhardt School of Business, Business Forecasting Center, theStockton Metropolitan Statistical Area, which i ncl udes the City of Stockton and surrounding areas, wil I conti nue to experience sol id economic growth. Nonfarm employment growth is on track for a 1.8% gain in 2017 and is projected to remain above 2% in SanJ oaquin County in 2018, well above the California average of 1.5%.

The area’s unemployment rate is expected to conti nue to decrease, from 7.5% in 2017 to 7.2% in 2018 and level out at 6.8% through 2020. Unemployment rates remain higher than the 2017 State of California average of 4.9% and the San J ose/Oakland average of 3.5%.

The average annual wage in the Stockton metropolitan area is expected to be $52,547 in 2017, an increase of 2.C% from the previous year. Per capita income, expected to be $40,900 in 2017, will increase each year through 2020, reaching $46,000 in 2020.

Housi ng starts are gradual ly expected to i ncrease begi nni ng i n 2017. The medi an home val ue i n Stockton i s approxi mately $268,000, which represents a 12.2% increase over the past year. Home prices are expected to conti nue to rise in 2017 by over 6% with sales volume staying stable.

FI NANCIAL CONDITION HIGHLIGHTS

Financial results for the year compare favorably with budget estimates in most areas of the City’s operations. For the General Fund, financial results for the year were bettemthan-estimated. Expenditures (including encumbrances and carryovers and other uses of funds) came in 5.3% under budget. Revenues (including other sources of funds) were 1.4% above projections. As a result, the General Fund balance atj une 30, 2017 (excluding related funds), of $53.1 million was combi ned with prior year reserve funds of $36.3 mi 11 ion for a total of $89.4 mi 11 ion avai lable to fund reserves.

The City Counci I has a reserve pol icy that cal I s for the City to mai ntai n a 11% operati ng reserve and establ ishes additional reserves for known contingencies, unforeseen revenue changes, infrastructure failures, and catastrophic events. Additionally, the policy establishes an automatic process to deposit oneTime revenue increases and expenditure savi ngs i nto the reserves. These policies are consistent with the Government Finance Officers’ Association (GFOA) best practice recommendations and Governmental Accounting and Standards Board (GASB) guidance.

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The $89.4 million is sufficient to fund the 17% operating reserve ($36.2 million) and set aside $48.2 million for known contingencies and $5 million for the other reserve categories.

These reserves allowed the City to address two of the kncwn contingencies in 2017. In September, the City Council authorized $13.6 million for the purchase of the Waterfront Office Towers, which will serve as the new City Hall. In November, the City Council approved the establishment of a post-employment benefits trust that will be used to prefund the City’s pension obligations and authorized $21.2 million to be deposited into the trust.

The Statement of Net Position (revenues and sources of funds less expenses and uses of funds) for the City is approximately $1.2 billion. The change from the prior fiscal year includes a prior period pension adjustment of $51.8 million. Excluding this adjustment, the City’s net position is approximately $48.1 million higher, or 4%, than the prior fiscal year, mostly in Governmental Activities.

TheCity’s Long-Range Financial Plan

The City mai ntai ns a comprehensive and detai led 30-year Long-Range Financial Plan (“L-RFP”), which provides a longterm forecast for the City’s General Fund and the impacts of other funds on the General Fund. The L-RFP is an important tool and reflects the City's commitment to fiscal health and sustainability. This financial model is used to evaluate the immediate impact of budgetary decisions and the costs of decisions over multiple years. The L-RFP was based on the City’s bankruptcy exit plan, or Plan of Adjustment, which included certain assumptions and agreements reached with creditors. Since its development, the L-RFP has become a dynamic tool that is updated based on current revenue and expenditure trends. Though the individual variables and assumptions may change over time, the L-RFP provides a consistent model to realistically model the City's fiscal performance.

A summary of the L-RFP is available on the City’s website:

http: /Mww.stocktorx:aciov/government/fcjepartrrKnts/adrri nseivices,faudL rf Pvhtml

For more detailed analysis of the financial performance of the City, refer to the Management’s Discussion and Analysis sections titled F i nancial Analysis of the City’s F unds and General F und Budgetary H ighl ights.

Measure M, a Voter Approved !4 Cent Transactions and Use Tax(Sales Tax)

In November 2016, Stockton’s voters approved Measure M, which is estimated to generate approximately $9 million annually for 16years. The City can only use the new revenues for library and recreation services, which were significantly reduced by the City during bankruptcy and the Great Recession.

Access to the Financial Markets

B ond rati ngs on debt backed by the C ity’s G eneral Fund remai ned stabl e at B -, with the outl ook i mprovi ng to positive from stable. Bond ratings for debt issued by the City’s Municipal Utilities Department also remained stable with ratings of A-or better except for wastewater bonds, which were upgraded to A in December 2016. In response to decreased water consumption and to mai ntai n debt coverage related to the Delta W ater Treatment Plant, the City Counci I approved water rate increases that became effective August 1, 2016, and also authorized annual i ncreases over the next four years, which become effective after review and approval by the City Council.

The Federal Reserve i ncreased its benchmark i nterest rate three ti mes i n 2017 with the last i ncrease occurri ng i n December 2017. The City is not anticipating any bond issuances backed by the General Fund; however, the City does have a $150 million design-build project to upgrade its Wastewater facilities underway, portions of which may be bond- financed.

RESERVE POLICIES

The City’s General Fund reserve policy calls for the City to maintain a 17% operating reserve (approximately two months of expenditures) and establishes additional reserves for known contingencies, unforeseen revenue changes, infrastructure failures, and catastrophic events. The known contingencies include amounts to address staff recruitment and retention,

vii

future CalPERS costs and City facilities. Approximately $178.7 million would be needed to fund all of the reserve categories fully, and on November 7, 2017, the City placed $89.4 million into reserves.

The policy establishes an automatic process to deposit onettime revenue increases and expenditure savings into the reserves. These policies are consistent with GFOA best practice recommendations and GASB guidance.

The reserve policy is available on the City’s website at:

http:/Mww.stocktoncaaov/fHes^]eneral_Fund..Resesve_Policv,.pdf

DEBT POLICY AND ANNUAL CONTINUING DISCLOSURES

The City’s debt policy is available on its website as follcws:

http: //Www.stGcktonca.qcv/f i I es.Capi tal _ F i nanci ns „ Debt.. M anaaement... Pol i cy. pdf

The City’s annual financial disclosures are available on the Municipal Securities Rulemaking Board’s and Electronic Municipal Market Access website at http: /ferrma. rr6rb.org

INVE STM ENT POL ICY

The City adopts an investment policy annually that provides guidelines for the prudent investment of the City’s cash balances. The City contracts with Public Financial Management for the management of the City’s I ongtterm investment portfolio. TheAdministrativeServicesDepartment oversees both theCity’s I ongTerm investment portfolio management and liquid cash requirements.

TheCity’s investment policy is posted on the City’s website:

http: /Avww.stocktoncaacv/files/lr8vestment..Policv_Final..08CEl 7.pdf

CASH AND I NVE STM ENTS

The Cal ifornia Government Code and the City's i investment pol icy adopted i n compl iance with that Code defi ne how the City can invest its cash. The City's policy also outlines the principles for maximizing the efficiency of the City's cash management operations while meeting the daily cash flew demands of the City. The average overall rate of return on funds not held by fiscal agents for the fiscal year endingj une 30, 2017, was .09%. This amount includes both realized and unrealized gains distributed to funds. Absent unrealized Fair Market Value gains and Accrued Interest amounts di stri buted on J une 30, 2017, di stri buted returns woul d have been 1.14%.

Additional information on the City's cash and investment management can be found in Notes 1 and 2 in the notes to the financial statements.

GENERALLYACCEPTEDACCOUNTING PRINCIPLES

The GASB establishes GAAP for local and state governments in the United States and Canada Its counterpart for private-sector entities is the Financial Accounting Standard Board. The American Institute of Certified Public Accountants and state and federal regulators require that financial reports follow GAAP to receive an unmodified audit opinion. The GFOA and the California Committee on Municipal Accounting entail additional standards that govern disclosures in the CAFR.

GAAP requires management to provide a narrative overview and analysis discussing the City’s financial position to accompany the basic financial statements. This narrative overview is called Management’s Discussion and Analysis (MD&A), which provides an analytical overview of the City’s financial position for its major funds, as defined by GAAP, on a government-wide basis. This letter of transmittal is intended to complement the MD&A and not to duplicate the MD&A. It provides additional qualitative information on impacts to the City to help improve the reader’s understandi ng of the i nformati on presented i n the CA F R.

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http://Www.stGcktonca.qcv/f

The City’s CAFR conforms to the requirements established by GAAP, the City’s Charter, GFOA standards and agreements with investors. The CAFR includes basic financial statements, footnotes, supplemental information required by GASB for GAAP financial reports, MD&A of the financial statements, the City’s independent auditor’s opinion regarding the conformance of the financial statements with GAAP, and other information required to conform to GFOA standards.

INDEPENDENT AUDIT

The City Charter, Article XIX, Section 1911, states: “after the close of the fiscal year, an annual audit shall be made of the City’s funds. Such audit shall be made by a firm of independent certified public accountants.” The Pun Group, LLP, an independent firm of licensed, certified public accountants, has audited the City of Stockton’s financial statements.

The purpose of the independent audit is to obtain reasonable assurance that the City’s financial statements are free of material misstatement and are fairly presented in conformity with GAAP. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.

The independent auditors issued an unmodified opinion for the fiscal year ended June 30, 2017.

SINGLE AUDIT REPORTTO FEDERAL GRANTI NG AGENCIES

A broader, federally- mandated “Single Audit,” designed to meet the needs of federal granting agencies, is also required. The standards governing Single Audit engagements require the independent auditor to report on the fair presentation of the financial statements and the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards.

The City prepares a separate single audit report in conformity with the provisions of the Federal Single Audit Act as amended and U. S. Office of Management and Budget Circular A-133, “Audits of State and Local Governments.” This report is filed with the federal clearinghouse on or before March 31 each year.

RISKMANAGEMENT

During FY 2016-17 the City continued its self-insurance program for General Liability and Workers’ Compensation. The City is a member of the California Joint Powers Risk Management Authority for General Liability. The self-insured retention (“SIR”) is $1 million. The City is also a member of the California State Association of Counties insurance pool for excess Workers’ Compensation coverage. The SIR is $500,000. The City also obtains Property Protection as a member of the Authority’s All Risks Property Protection Program which is primarily underwritten by a casualty underwriter insurance company. Coverage is up to $400 million per occurrence with a $25,000 deductible.

INTERNAL CONTROLS AND LI IMITATIONS

The CAFR intends to provide the City Council and the public with an understanding of the City’s financial position. City management assumes responsibility for the completeness, accuracy, and reliability of the information presented in this report. City management established an internal control framework intended to protect the City’s assets from loss, theft, or misuse and to compile sufficient, reliable information for the preparation of the City’s financial statements.

The City’s comprehensive system of internal controls continues to be the subject of ongoing review to ensure the timeliness and accuracy of the CAFR, and to improve management reporting and controls. A large number of significant and material weaknesses in the internal control structure (many due to the use of an antiquated financial system) were found and reported by management and the auditors in prior audits. The City’s Finance team, along with the City’s Internal Auditor (Moss Adams LLP) continues to work together to close out those prior findings and also continually improve the City’s key controls, systems, policies, and procedures.

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Budgetary control is at the department level for the General Fund and the fund level for all other funds. Transfers within funds and like categories of the same department require City Manager approval. Revisions to increase appropriation authority above a department’s original adopted budget require City Council approval.

ACKNOWLEDGEMENTS

This report would not have been possible without the dedicated professionals in the Administrative Services Department and the cooperation of employees from throughout the City who provided detailed information and other support and assistance.

We also want to thank the Mayor, City Council and the Audit Committee for your interest and support in planning and conducting the City’s financial operations responsibly and sustainably.

KURT O. WILSON MATT PAULINCITY MANAGER CHIEF FINANCIAL OFFICER

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CITY OF STOCKTON

CITY COUNCIL

MICHAEL TUBBSMAYOR

ELBERT HOLMAN, JR.

VICE MAYOR

District 1

SUSAN LENZ

COUNCILMEMBER

District 4

DAN WRIGHT

COUNCILMEMBER

District 2

CHRISTINA FUGAZI

COUNCILMEMBER

District 5

SUSAN LOFTHUS

COUNCILMEMBER

District 3

JESUS ANDRADE

COUNCILMEMBER

District 6

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CITY OF STOCKTON ORGANIZATION CHART

AS OF J UNE 30, 2017

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PUN GROUPACCOUNTANTS & ADVISORS

INDEPENDENT AUDITORS’ REPORT

To the Honorable Mayor and the Members of the City Council of the City of Stockton

Stockton, California

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Stockton, California (the “City”) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the F inancial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing 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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

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, as of June 30, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

200 East Sandpointe Avenue, Suite 600, Santa Ana, California 92707Tel: 949-777-8800 • Fax: 949-777-8850

www.pungroup.com


Stockton, California Page 2

Other Matters

Required Supplementary I nforrmtion

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, the Budgetary Comparison Schedule, the Schedule of Changes in Net Position Liability and Related Ratios, and the Schedule of Contributions on pages 7 to 23 and 131 to 142 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, Schedule of Sources and Uses - Measure A and B, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining and individual nonmajor fund financial statements and the schedule of sources and uses - Measure A and B are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and the Schedule of Sources and Uses - Measure A and B are fairly stated in all material respects, in relation to the basic financial statements as a whole.

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

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http://www.pungroup.com


Stockton, California Page 3

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 29, 2017 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Governrrent Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Santa Ana, California December 29, 2017

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PUN GROUPACCOUNTANTS & ADVISORS

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN

ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

I independent Auditors’ Report



We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Gcvernrrent Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Stockton, California (the “City”), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December 29, 2017

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.

Our consideration of internal control was for the limited purpose described in the preceding paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in a separate Report on Internal Control Related Matters Identified in the Audit dated December 29, 2017, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency reported in our separately issued Report on Internal Control Related Matters Identified in the Auditto be material weakness as item 2017-01, 2017-02 and 2017-03.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency reported in our separately issued Report on I nternal Control Related Matters Identified in the Audit to be significant deficiency as item 2017-04.

200 East Sandpointe Avenue, Suite 600, Santa Ana, California 92707Tel: 949-777-8800 • Fax: 949-777-8850

www.pungroup.com

To the Honorable City Council City of Stockton


Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Governrrent Auditing Standards.

We have issued a separate Report on I nternal Control Related Matters Identified in the Audit dated December 29, 2017, which is an integral part of our audits and should be read in conjunction with this report.

City’s Response to Findings

The City’s responses to the findings identified in our audit are described in the separately issued Report on I nternal Control Related Matters Identified in the Audit We did not audit the City’s response and, accordingly, we express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Gcvernrrent Auditi ng Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Santa Ana, California December 29, 2017

6

http://www.pungroup.com

MANAGEMENT’S DISCUSSION AND ANALYSIS UNAUDITED

JUNE 30, 2017

INTRODUCTION

CITY OF! STOCKTON

As management of the City of Stockton (“City”), we offer readers of the City’s financial statements this overview and analysis of the City’s financial activities for the fiscal year ended June 30, 2017. We encourage readers to consider the information presented here in conjunction with the accompanying Transmittal Letter, the Basic Financial Statements, and the Notes to the Financial Statements. All amounts, unless otherwise indicated, are expressed in thousands of dollars.

FINANCIAL HIGHLIGHTS

Government-wide:

• The City’s total net position for the governmental and business-type activities show that, as of June 30, 2017, total assets and deferred outflow of resources exceeded its liabilities and deferred inflow of resources by $1.2 billion. Of this amount, $336.3 million represents the unrestricted net position, $175.7 million is restricted for City's ongoing obligation related to programs with external restrictions and $693.5 million represents the City's net investment in capital assets, less any related outstanding debt used to acquire those assets. In the recording of net position for fiscal year ended June 30, 2017, $32.8 million has been reclassified from restricted to unrestricted which represents the Internal Service Fund balances that City Council has restricted for use in equipment replacement.

• Governmental revenues total $289 million and include program revenues of $71 million and general revenues of $218 million. Governmental expenses were $271.7 million.

• Business-type program revenues, other taxes, and investment earnings were $128.4 million while business-type expenses were $107.6 million.

F und Level:

• The City’s governmental funds reported a combined ending fund balance of $225.5 million at the close of June 30, 2017, an increase of $9.5 million compared with the prior fiscal year. The General Fund balance in this report as of June 30, 2017 was $102.7 million absent encumbrances. Included in this fund balance and under the guidance of the Reserve and Fund Balance Policy - General Fund (excluding related funds), Council took action to entirely fund the priority one working capital reserve at $36.2 million, known contingency reserves at $48.2 and partially fund risk-based reserves at $5.0 million.

• Governmental Fund revenues decreased slightly from the prior fiscal year by 1.7 percent.• Governmental Fund expenditures increased by 17.3 percent compared to the prior fiscal year

primarily due to the filling of vacant positions and new police officer positions.

7

OVERVIEW OF THE FINANCIAL STATEMENTS

Thi s di scussi on and analysi s are i ntended to serve as an i ntroducti on to the City ’ s basic financial statements. The City’s basic financial statements are comprised of three components: 1) Government-wide financial statements; 2) F und financial statements and 3) Notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-Wide F inancial Statements:

The government-wide financial statements are designed to provide readers with a broad overview of City finances. These statements provide both longTerm and short-term information about the City’s overall financial status.

The Statement of Net Position presents information on all of the City’s assets, the deferred outflow of resource, liabilities and deferred inflow of resources; the difference is reported as net position.

The Statement of Activities presents information shewing how the City’s net position changed during the most recent fiscal year. The City reports all changes in net position as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows (i.e., accrual basis of accounting). Thus, revenues and expenses are reported in this statement for some items that will result in cash flews in future fiscal periods, such as revenues from uncollected taxes and expenses about earned but unused vacation leave.

Thi s Comprehensive Annual Financial Report (“CAFR”) i ncl udes the fi nancial activity of the separate legal entity controlled by the City, the Stockton Public Financing Authority.

The Successor Agency’s activities are reported as a private-purpose trust fund in the CAFR. The City Council sits as the Successor Agency to the Stockton Redevelopment Agency’s Board; however, all actions about the Successor Agency’s obligations are made by the Successor Agency Oversight Board, which is comprised of members representng the interests of local j urisdictions affected by redevelopment activities and revenue claims, including the City.

The government-wide financial statements can be found on pages 25-27 of this report.

F und F inancial Statements:

A fund i s a groupi ng of related accounts, whi ch are used to mai ntai n control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate finance-related legal compliance.

All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary 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 outflcws of spendable resources, as well as the balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the City’s near Term financing requirements.

8

OVERVIEW OF THE FINANCIAL STATEMENTS. CONTI NUED

F und F inancial Statements, Continued

B ecause the focus of governmental f unds i s narrower than that of the government-wi de f i nanci al 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 will understand the long-term impact of the government’s near Term financing decisions. Reconciliations areprovided to facilitate this comparison for both the governmental funds’ balance sheet and the governmental funds’ statement of revenues, expenditures, and changes in fund balances.

The City maintains several individual governmental funds organized according to their category type. The governmental fund category types are the General Fund, special revenue, debt service, capital projects, and permanent funds. Information is presented separately in the governmental funds’ balance sheet and the governmental funds’ statement of revenues, expenditures, and change in fund balances for the General Fund, FIOME ProgramLoans, Low-ModeratelncomeFlousingCity Loans and Capital I improvement f unds, which are reported as major funds. Data from the remai ni ng non-major governmental funds are combi ned into a single, aggregated presentation. TheCAFR provides individual fund data for each of the non-major governmental funds i n the form of combi ni ng statements i n the I ater secti ons of thi s report.

The City adopts an annual budget for its General Fund and various other funds. A budgetary comparison schedule has been provided for the General Fund to demonstrate compliance with the budget. Budgetary compari son schedul es for vari ous other governmental funds are al so provi ded i n I ater secti ons of thi s report.

The basic governmental fund's financial statements can be found on pages 30-36 of this report.

Proprietary funds are used to account for services for which the City charges customers - either outside customers or internal units of departments of the City. Proprietary funds provide the same type of i nformation as shown i n the government-wide fi nancial statements, only i n more detai I. The City mai ntai ns the fol lowi ng two types of proprietary funds:

• E nterprise funds are used to report the same functions presented as businessType activities in the government-wide financial statements. TheCity uses enterprise funds to account for the operations of the Water Utility, Wastewater Utility, Stormwater Utility and Parking Authority, which are reported as maj or funds. Data for the remai ni ng non-maj or enterpri se funds are combi ned i nto a single, aggregated presentation. Additional information is provided for each of these nonmajor enterprise funds in later sections of this report.

• I nternal service funds are used to report activities that provide goods and services for certain City insurance, pension and other related programs and activities. The City uses internal service funds to account for its self-i nsurance programs, pension obi igations, employee health benefits i nsurance, vehicle fleet, information technology systems, and radio and other equipment. Because these services predominately benefit governmental rather than businessType functions, the CAFR includes them within the governmental activities in the government-wide financial statements. The CAFR combi nes i nternal service funds i nto a si ngle, aggregated presentation i n the proprietary fund financial statements. TheCAFR also provides individual fund information for the internal service funds i n the form of combi ni ng statements i n its later sections.

The basic proprietary fund financial statements can be found on pages 38-47 of this report.

OVERVIEW OF THE FINANCIAL STATEMENTS. CONTI NU ED

F und F inancial Statements, Continued:

F iduciary funds are used to account for resources held for the benefit of parties outside the government. It includes resources related to land-secured financing, employee payroll withholdings, the area of benefit fees, public facilities pass through fees and other miscellaneous fiduciary activities. The City’s fiduciary funds are reported as agency funds and are not reflected in the government-wide financial statements since the resources of the funds are not available to support the City’s programs and services.

The City has established a private-purpose trust fund (fiduciary fund) effective February 1, 2013, for purposes of accounti ng for the wi ndi ng dawn of the S uccessor Agency.

The basic fiduciary fund's fi nancial statement can be found on pages 50-51 of this report.

Notes to the Basic Financial Statements

The notes to the fi nancial statements provide additional i nformation that i s essential to a ful I understandi ng of the financial information provided in the government-wide and fund financial statements.

The notes to the financial statements can be found on pages 54-131 of this report.

Other information

In addition to the basic financial statements, this report presents certain required supplementary information. This information provides a budgetary comparison schedule for the General Fund, HOME Program Loans Fund, and the Low-Moderate Income Housing City Loans Fund, as well as information about the City's participation in the PERS and PARS defined benefit pension plans.

Requi red supplementary i nformation can be found on pages 133-144 of thi s report.

The combining statements referred to earlier in connection with non-major governmental funds, non-major enterprise funds, and internal service funds are presented immediately following the required supplementary information.

10

GOVERNMENT-WIDE FINANCIAL ANALYSIS

Analysis of Net Position

The City’s net position may serve over time as a useful indicator of a government’s financial health or financial position. As of J une 30, 2017, the City’s total assets and deferred outflows of resources exceeded its liabilities and deferred inflows of resources by $1.2 billion which is an increase of $45.1 million or 4.1 percent compared to the prior fiscal year.

The following is the condensed statement of net position for the fiscal years ended J une 30, 2017, and 2016 (amounts in thousands).

Governmental Business-typeActivities Activities Total

2017 2016 2017 2016 2017 2016Assets:

Current and other assets $ 520,764 $ 475,881 $ 180,954 $ 165,148 $ 701,718 $ 641,029Capital assets 738,736 748,161 712,561 730,680 1,451,297 1,478*841

Total assets 1,259,500 1,224,042 893,515 895,828 2,153,015 2,119,870

Deferred Outflow of Resources:U namortized loss on refunding of debt 452 484 2,174 2,361 2,626 2,845Deferred Pension Contributions 91,570 28,942 10,602 4,167 102,172 33,109

Total Deferals-Outflows 92,022 29,426 12,776 6,528 104,798 35,954

Liabilities:Current and other liabilities 61,490 37,751 21,708 24,279 83,198 62,030Long-term obligations 135,840 155,353 340,575 349,998 476*415 505,351Net Pension liability 423,532 343,346 44,735 46,345 468,267 389,©1

Total liabilities 620,862 536,450 407,018 420,622 1,027,880 957,072

Deferred I nflow of Resources:Deferred Rent 776 444 - - 776 444Deferred between projected-actual on plan 21,152 80,405 2,545 12,340 23,©7 92,745

Total Deferrals I nflows 21,928 80,849 2,545 12,340 24,473 93,1©

Net position:Net investment in capital assets 330,655 287,077 362,886 369,983 693,541 657,0©Restricted 124,765 153,087 50,904 54,618 175,669 207,705Unrestricted (deficit) 253,312 196,005 82,938 44,793 336*250 240,798

Total net position $ 708,732 $ 636,169 $ 496*728 $ 469,394 $ 1,205,460 $ 1,105,563

11

GOVERNMENT-WIDE FINANCIAL ANALYSIS. CONTINUED

Analysis of Net Position, Continued

The primary components of the City’s net position consist of the following elements:

• The investment in capital assets (e.g., infrastructure, land, buildings, improvements other than buildings, construction in progress, and equipment), less any related debt used to acquire assets still outstanding, represents the largest portion of the City’s net position of $693.5 million or 57.5 percent. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City reports its investment in its capital assets net of related debt, the resources needed to repay this debt must be provided from other sources because proceeds from the sale of capital assets are not used to liquidate these liabilities.

• External restrictions represent $175.7 million or 14.6 percent of net position and are subject to various external restrictions on how they may be used. Creditors, grantors, contributions or laws and regulations of other governments have imposed this component of the net position; or it has been imposed b/ law through enabling legislation or constitutional provisions. The I nternal Service F unds balance of $32.8 mi 11 ion was reclassified to unrestricted i n fiscal year ended J une 30, 2017

• The remaining unrestricted net position of $336.3 million or 27.9 percent can be used to finance day To-day operations without constrai nts establ i shed b/ debt covenants or other legal requi rements or restrictions. The current year includes $32.8 million for equipment replacement in the internal service funds that was not considered unrestricted in the prior year. While these assets are technically unrestricted, most of these assets are designated for a specific use.

I nformation about changes i n net position for FY 2016-17 and FY 2015-16 is summarized below. TheCAFR discusses the reasons for the changes in the sections for governmental activities and business-type activities.

12



The following table indicates the change in net position for governmental and business-type activities (amounts in thousands):

Governmental Business-typeActivities Activities Total

2017 2016 2017 2016 2017 2016RevenuesProgram revenues

Charges for services S 40,886 s 47,460 S 121,576 S 114,509 S 162,462 $ 161,969Operating grants and

contributions 12,566 12,861 3,889 3,776 16,455 16,637Capital grants and contributions 17,591 16,286 2,971 3,562 20,562 19,848

General revenues:Property taxes 32,411 30,646 - - 32,411 30,646In lieu of sales tax - 8,775 - - - 8,775Utility user taxes 34,455 33,379 - - 34,455 33,379Sales and use taxes (City levied) 42,506 39,070 - - 42,506 39,070Franchise taxes 13,289 12,397 - - 13,289 12,397Business licenses 12,243 11,995 - - 12,243 11,995Hotel/motel room taxes 2,997 2,711 - - 2,997 2,711Document transfer taxes 801 856 - - 801 856Other taxes 1,940 1,801 1,292 1,239 3,232 3,040Motor vehicle fees in lieu 21,423 20,354 - - 21,423 20,354Sales and use taxes (State levied) 49,910 45,097 - - 49,910 45,097Other shared revenue 44 46 - - 44 46Investment earnings 1,966 4,728 131 2,653 2,097 7,381Mis c e llane ous 2,820 7,303 - - 2,820 7,303Loss on sale of capital assets 578 568 (1,156) - (578) 568Proceeds from L.T. Debt - - - - - -

Total revenues 288,426 296,333 128,703 125,739 417,129 422,072Expe nses

General government 33,378 39,608 - - 33,378 39,608Public safety 154,932 169,015 - - 154,932 169,015Public works 45,670 36,344 - - 45,670 36,344Library 10,904 10,406 - - 10,904 10,406Parks and recreation 22,481 21,620 - - 22,481 21,620Interest and fiscal charges 4,288 2,216 - - 4,288 2,216Water utility - - 42,886 48,001 42,886 48,001Wastewater utility - - 50,545 58,665 50,545 58,665Stormwater utility - - 5,288 6,601 5,288 6,601Central parking district - - 5,641 5,384 5,641 5,384Other - - 3,235 3,116 3,235 3,116

Total expenses 271,653 279,209 107,595 121,767 379,248 400,976Increase/(decrease) in net

position before transfers 16,773 17,124 21,108 3,972 37,881 21,096Transfers 654 (297) (654) 297 - -

Special Item: 10,237 - - - 10,237 -Change in net position 27,664 16,827 20,454 4,269 48,118 21,096

Net position, beginning, original 636,169 619,342 469,393 465,125 1,105,562 1,084,467Prior period adjustment 44,899 - 6,881 - 51,780 -

Net position, beginning, as restated 681,068 619,342 476,274 465,125 1,157,342 1,084,467Net position, end of year S 708,732 S 636,169 S 496,728 S 469,394 $1,205,460 $1,105,563

13



Governmental activities: The change in net position increased by $10.8 million compared to the prior fiscal year, as restated for pension prior year adjustment, due to these significant variances:

• Total governmental activities revenues have decreased by $7.9 million or 2.7 percent compared to the prior fiscal year. The decreases were mostly attributable to grant program revenues on capital projects.

• Capital grants and contributions increased from the prior year primarily due to $5 million in additional Measure K revenues.

• Miscellaneous revenues decreased primarily due to refinancing of Successor Agency debt, $6.2 million.

• Total governmental activities expenses shew a decrease from the prior year of $7.6 million or 2.7 percent due to the prior period pension adjustment that restated the beginning net position along with an increase in public safety salary and benefits expenditures attributable to further implementation activities of the Marshall Plan. The pension adjustment was $29.5 million for safety and $ 15.4 mi 11 i on for general government. Detai I s of the pensi on adj ustments can be found in Note#8.

• Special item is the recording of proceeds from refunding of 2003 A and B COPs debt of $10.2 million.

B usi nessTy pe act i vi t i es: The change i n net posi ti on i ncreased by $ 16.2 mi 11 i on compared to the pri or f i seal year due to prior period pension adj ustment of $6.9 mi 11 ion and water rate i ncreases to cover operati ng costs and capital commitments. Details of the pension adj ustments can be found in Note US.

FINANCIAL ANALYSIS OF THE CITY’S FUNDS

The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. This analysis should be read in conjunction with fund financial statements beginning on page 29.

Governmental Funds

The focus of the City’s governmental funds is to provide information on near Term inf lews, outflows, and balances of resources that are available to provide services. Such information is useful in assessing the City’s financing requirements. I n particular, unassigned fund balance may serve as a useful measure of agovernment’s net spendable resources.

GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government i s bound to observe constrai nts i imposed upon the use of the resources reported i n governmental funds. The statement provides fund balance categories and classifications as non-spendable, restricted, committed, assigned and unassigned (Note 10). The fund balance note disclosures also give users information necessary to understand the processes under which constraints are imposed upon the use of resources and how those constraints may be modified or eliminated. The financial analysis information provided in the follcwing tables are useful in assessing the City’s financing requirements. In particular, committed, assigned and unassigned fund balances may serve as a useful measure of a government’s net resources avai I abl e for spendi ng at the end of the f i seal year.

14

FINANCIAL ANALYSIS OF THE CITY’S FUNDS. CONTI NU E D

Governmental F unds, Continued

A s of J une 30,2017, the City ’ s governmental funds reported a combi ned endi ng bal ance of $225.5 mi 11 i on, an increase of $9.4 million compared to the prior fiscal year. The total fund balance of the governmental funds consi sts of the fol I owi ng:

• The non-spendable fund balance of $1.9 mi 11 ion were amounts that i nherently cannot be spent such as inventories and prepaid items. Also, longTerm loans and notes receivable, and property held for resale would be reported here unless the proceeds are restricted, committed or assigned.

• Restricted fund balance of $123.7 million that is based on restrictions imposed by external parties or enabling legislation.

• Committed fund balance of $56.5 million was constrained for a specific purpose by the City Council through resolution. It would require action by the same group to remove or change the constraints placed on the resources.

• Assigned fund balance of $3.9 million was constrained for the intent to be used for a specific purpose by a governing board or a body or official that has been delegated authority to assign amounts. The amount reported as assigned should not result in a deficit in the unassigned fund balance.

• The unassigned fund balance of $39.6 million of which $36.2 million is the working capital reserve established in the Reserve and Fund Balance Policy-General Fund to accommodate normal fl uctuations i n the ti mi ng of revenues and unforeseen operational costs.

15

FINANCIAL ANALYSIS OF THE CITY’S FUNDS. CONTINUED


Revenues - The following table presents revenues (amounts in thousands) classified by source with a comparison to the prior fiscal year:

Use of money and property 2.8%

Fines and forfeitures 0.4%

Charges for services 7.8%

.Interest income Refunds and reimbursements0-6%^ \ 2.1% .Miscellaneous

2.3%^~ Property taxes 11.0%

In lieu of sales tax 0.0%Utility user

11.7%

g...HnHBBSfHMl Sales tax - levied by City

14.5%

License and permits _ 2.0%

Franchise fees 4.5%

Business license em 4.2%Transrent occupancy tax

1.0%Document Transfer/other

0.9%

2017 2016 I ncrease/(Decrease)

Revenue by Source AmountPercent of

Total AmountPercent of

Total AmountPercent of Change

Property tales $ 32,411 11.696 $ 30,646 10.4% $ 1,765 5.8%In lieu of sales tax - O.C% 8775 3C% (§775) -100. CP6Utility user 34,455 11.796 33379 11.496 1,076 3.2%Sales tax-levied by City 42,506 14.596 39,070 133% 3436 &8%Franchise fees 13289 4.596 12,397 4.2% 892 7.2%Business license 12,243 4.296 11,995 4.1% 248 2.1%Transient occupancy tax 2,997 1.C96 2,711 0.9% 286 10.5%Document T ransfer/other 2,740 0.996 2,391 0.8% 349 14.6%License and permits 5,867 2.C96 5,347 1.8% 520 9.796Intergovernmental 100,343 34.296 92,264 31.4% 8079 &8%Charges for services 22,920 7.86 26,473 9.C% (8553) -134%Fines and forfeitures 1,164 0.496 624 0.2% 540 86.5%U se of money and property 8197 2.896 8172 2.8% 25 0.3%Interest income 1,762 0.696 3088 1.1% (1,326) -42.9%Refunds and reimbursements 6,077 2.1% 5,188 1.8% 889 17.1%M iscellaneous 6,745 2.3% 11,246 38% (4,501) ADM

Total $ 293716 10QC96 $ 293766 100.C% $ (50) O.C%

16

FINANCIAL ANALYSIS OF THE CITY’S FUNDS. CONTINUED


The following bullets provide an explanation of significant changes in revenues compared with the prior fiscal year:

• I n I i eu of sal es tax can be expl ai ned as a shi ft of sal es tax to the State that was backfi 11 ed to the C ity in a different period of time. This State practice ended as of mid-Fiscal Year 2015-16. These revenues are now included in the Sales Tax category.

• Fines and Forfietures vary each year due to code enforcement activities and administrative citations.

• Interest income includes a fair market value adjustment. This adjustment was much less significant i n FY 2016-17 causi ng a variance of 42.9% year over year.

• Miscellaneous revenues decreased primarily due to refinancing Successor Agency debt of $6.2 million.

Expenditures -The following table presents expenditures (amounts in thousands) by function compared with the prior fiscal year:

GeneralDebt service government

2017 2016 I ncrease/(Decrease)

E>penditures by Function ArrauntPercent of

Total ArrauntPercent of

Total ArrauntPercent of Change

Current:General government $ 29,235 9.9/o $ 27,229 10.8% $ 2,006 7WoPublic safety 171,073 58C% 150,853 599*6 20,220 132%Public works 15,818 5.4% 14,861 5.9/o 957 6.4%Library 10,619 3.6% 10,107 4.9/o 512 5.1%Parks and recreation 20,493 6.9/o 19,295 7.7/o 1,196 6.2%

Capital outlay 31,407 10.6% 23,857 95% 7,550 31.6%Debt service 16,465 5.6% 5,444 22% 11,021 202.4%

Total $ 295,110 100.C% $ 251,646 100.C% $ 43,464 17.3%

17

FINANCIAL ANAL YSIS OF THE CITY’S F U N PS, CONTI N U E D


The following bullets explain the expenditures that changed significantly compared with the prior fiscal year.

• Public safety expenditures have increased by $20 million compared to the prior fiscal year due to continued implementation of the Marshall Plan.

• Capital outlay expenditures increased by $7.6 million compared to the prior fiscal year primarily due to $5 million in additional Measure KTunded capital projects, and various other capital projects.

• General government and debt service expenditures increased by $11 million due to refunding of the 2003 A and B COPs.

General Fund

Bela/v is a graph that depicts the change in General Fund balances between FY 2015-16andFY 2016-17. The unassigned, committed and restricted balances have all increased from the prior fiscal year.

Fund Balance (in millions)

Unassigned

Assigned

CommittedH FY 2015-16 a FY 2016-17

N onspendable

$10 $20 $30 $40 $50 $60

The City’s General Fund provides police, fire, development, public works, and administrative services to the City’s residents, other funds, businesses, and visitors. The General Fund is distinct from other funds because it is the only source of unrestricted funds that the City Council can allocate at its discretion for any municipal purpose.

18

FINANCIAL ANALYSIS OF THE CITY’S FUNDS. CONTI NU E D


General Fund revenues were $228.6 million at the close of June 30, 2017, an increase of $4.5 million compared to the pri or f i seal year. The fol I owi ng provi des an expl anati on of si gni f i cant changes i n G eneral Fund revenues compared with the pri or fiscal year:

• Property tax revenues i ncreased by $1.8 million from the prior fiscal year due to a steady increase in properly values.

• Franchise and utility user taxes increased by $2 million.• Refunds and Reimbursements include reimbursement of dispatch services from the new San

Joaquin County Regional Fire Dispatch Authority.

General Fund expenditures were $210.8 million, an increase of $25.5 million compared to the prior fiscal year. Additional Police Department salary and benefits expenditures associated with the continued implementation of the Marshall Plan largely drove the increase.

Proprietary Funds

The City’s proprietary funds statements provide the same type of information found in the governmentwide fi nancial statements, but i n more detai I. At the end of J une 30, 2017, the net position of busi nessType activities was $496.7 million, an increase of $27.3 million or 5.8 percent compared to the pri or fiscal year.

The assets and deferred outflows of resources i ncreased by $3.9 million. Of this amount, the current cash and investments and other current assets increased by $19.5 million and non current assets including capital assets and deferred outflcws decreased by $15.6 million, primarily due to the disposal and depreciation of capital assets.

The liabilities and deferred inflows of resources decreased by $23.4 million due primarily to the principal payments made on debt and pension related adjustments.

GENERAL FUND BUDGETARY HIGHLIGHTS

While the City’s FY 2016-17 General Fund Adopted Budget funded the most pressing needs in support of the Council’s strategic priorities, it was also constrained by the fiscal reality of the City’s longTerm financial outlook. The balanced and fiscally prudent budget plan strengthened reserves while making incremental service-level enhancements consistent with Counci I-adopted strategic priorities. This analysis should be read i n conj unction with the General Fund B udgetary I nformation begi nni ng on page 133.

The General Fund’s original budgeted revenue and transfers-in totaled $229.8 million. These revenues were increased by $300,000 during the year to reflect the receipt of donations for library activities and reimbursements for fire services provided to other agencies. The revised budgeted revenues and transfers- in for FY 2016-17were $230.1 million.

The General Fund’s original budgeted expenditures and transfers-out were $224.9 million; the amended budget was i ncreased by $15.7 million. Included in this amount is $4.5 million for encumbrances not fully expended during the prior fiscal year. Following adoption of the FY 2016-17 budget, the City Council approved employee labor agreements resulting in a $9.9 million increase to the General Fund. Capital outlay cany over from prior year accounted for another 1.1 mi 11 ion. After these amendments, the approved budgeted expenditures and transfers-out for FY 2016-17 were $240.6 mi 11 ion.

19

GENERAL F UND BUDGETARY HIGHLIGHTS. CONTI NUED

Actual FY 2016-17 General Fund revenues and transfers-in were higher than the approved budget by $943,000, a variance of less than one-half percent. Positive variances in property taxes, utility user taxes, other taxes, charges for services and interest income were offset by reductions in the sales and use tax and other governmental revenues. Sales tax revenues levied by State were lewerthanthe budget by $2.1 million as a result of an adj ustment for a multi -year mi sal location of sales tax from a major retai I outlet. Revenues from other governmental agencies were belcw budget as a result of Sanjoaquin County opting to retain funding for library services rather than contribute the full amount to the City-County Library System Improved home prices increased property tax revenues above the budget projections. Utility rate increases generated additional utility user tax revenues in the areas of water, electricity, and gas. Successor Agency resi dual tax recei pts are the pri mary cause of the positive budget vari ance i n the other taxes category and code enforcement col lections increased the charges for services category. The variance in I nterest I ncome of $912,785 refl ects the prepayment of the ful I annual Cal PE RS cost.

Actual expenditures and transfers-out were lower than the final approved budget appropriations by $19.6 million or 8.1%. The City Council authorized $1.4 mi 11 ion in unspent funds for planned activities to conti nue i nto the FY 2016-17 budget. AI so, $ 5.4 mi 11 i on i n encumbrances that were not ful ly expended by June 30, 2016, rolled forward. General Government departments achieved a savings of $6.3 million, $7.9 million was saved in Public Safety largely attributable to salary savings due to vacant positions. The remaining $5.4million was due to Public Works, Library, Parks and Recreation, Capital Outlay and operating transfers. Approximately $6.5 million of the savings was the result of higherThan-anticipated vacancies across all General Fund departments. The General Fund saved $2.3 million as funding for contingencies, labor litigation tax col lection, and election fees was not fully expended.

The City’s General Fund balance atjune 30, 2017, is $97.3 million on a budgetary basis, which is an increase of $8.1 million from the prior year. This reporting of General Fund balance includes general services to the public such as public safety and streets, along with libraries, recreation centers and marinas. Whereas the quarterly budget status reports released through City Council break down the general operations ($89.4 million) separate from ancillary services of libraries, recreation, etc. The intentional rebuilding of the fund balance is the result of bankruptcy restructuring of debt, reductions to salaries and benefits, various department operating cuts, and high levels of staff vacancies. The vacancy savings were oneTi me savi ngs and are not expected to conti nue fol I ewi ng the i mpl ementati on of the three-year empl oyee labor agreements approved effectivej uly 1,2016, and stabilization of City services. This effort to rebuild the City’s General Fund balance is consistent with the City’s Long-Range Financial Plan and the Fund Balance and Reserve policy adopted by City Council on March 29, 2016.

CAPITAL ASSETS AND DEBT ADM INI STRATI ON

Capital Assets

The capital assets of the City are those assets that are used m the performance of the City’s functions, including infrastructure assets. This investment in capital assets includes land, infrastructure, buildingsand i improvements, machi nery and equi pment, i nfrastructure, and construction i n progress. I nfrastructure assets are assets that are long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. These assets are classified in major categories, which include roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting systems.

20

CAPITAL ASSETS AND DEBT ADMINISTRATION. CONTI NUED

Capital Assets, Continued

The City depreciates all its capital assets over their estimated useful lives. The purpose of depreciation is to spread the cost of a capital asset over the years of its useful life so that all users bear an allocable portion of the cost of the asset.

The City’s investment in capital assets for its governmental andbusinessType activities as of J une 30, 2017,amounted to $1.5 billion (net of accumulated depreciation). Net investment in capital assets includes infrastructure, land, buildings, and improvements other than buildings, intangible assets, equipment and construction i n progress. The total change in the City’s net investment in capital assets for the current fiscal year was a decrease of 2 percent.

The City of Stockton’s capital assets, net of accumulated depreciation, for the governmental and business- type activities are presented below to i 11 ustrate changes from the prior year (amounts i n thousands):

Governmental BusinessTypeActivities Activities Total

2017 2016 2017 2016 2017 2016

Land $ 43,039 $ 43,039 $ 11,744 $ 13,090 $ 54,783 $ 56,129

1 ntangible Assets 4,355 4,355 750 750 5,105 $5,105

B uilding and1 mprovements 192,088 198,958 687,965 704,146 880,053 903,104

Machinery and Equipment 25,281 19,948 5,758 4,755 31,039 24,703

1 nfrastructure 372,664 373,053 - - 372,664 373,053

Construction in Progress 101,309 108,807 6,343 7,938 107,652 116,745

Total $ 738,736 $ 748,160 $ 712,560 $ 730,679 $1,451,296 $1,478,839

Additional information on the City’s capital assets can be found i n Note 6 -Capital Assets of this report.

Bond I ndebtedness

At the end of the fiscal year, the City’s total outstanding net bonded debt including bankruptcy settlementswas $413.1 million. Of thisamount, $63.5 million is related to governmental activities, and $349.7 million are debt obligations of businessType activities.

Governmental activities bonded indebtedness decreased by $11.9 million due to scheduled principal payments and amortization of bond premiums and the refunding of bonds formerly backed by the City’s General Fund and now backed solely by tax increment from the Successor Agency to the former Redevelopment Agency of the City of Stockton.

21

CAPITAL ASSETS AND DEBT ADMI NISTRATI ON. CONTI NUED

Bond I ndebtedness, Continued

BusinessType activities bonded indebtedness, as restated, decreased by $11 million due to scheduled principal payments and amortization of bond premium insurance and discounts.

Governmental outstanding net bonded debt of $63.5 million includes $53.6 million in settlement liability to the bond insurer (Assured Guaranty) for 2007 bonds adjusted in bankruptcy and $9.9 million of leaserevenue bonds for the City’s Stewart/Eberhardt Building.

BusinessType activities outstanding net bonded debt obligations of $349.7 million includes $242 million of revenue bonds of the Water Utility, $71.7 million in certificates of participation for the Wastewater Utility, and $25.1 million in settlement liability for the Parking Authority on 2004 bonds adjusted in bankruptcy. Additionally, Marina operations have a loan obligation of $10.9 million through the State Department of Parks and Recreation. This obligation no longer accrues interest due to the bankruptcy settlement. The General Fund annually subsidizes the Manna’s operations, and payments on this loan will not commence until subsidization is no longer needed.

Successor Agency bonded debt of $112.8 million is reported separately in a Private Purpose Trust Fund. The balance outstanding at J une 30, 2017, includes $83 million of tax-exempt tax allocation bonds issued to refinance revenue bonds for various former redevelopment projects and $29.8 million of taxable tax allocation bonds issued to refinance revenue bonds for various housing projects.

Additional information on the City ’ s long Term debt can be found i n Note 7 -Long-T erm Debt of thi s report.

Economic Factors and Next Year’s Budget

Continued improvement in the local economy and sound fiscal practices have enabled the City to maintain essential services, fund a 17% working capital reserve, and set aside funds for known contingencies, i ncl uding pension costs, staff recruitment and retention, fi nancial system replacement and a permanent City Hall. General Fund reserves were $89.4 million at the close of the 2016/17 fiscal year. These reserves provided the resources for the City to move forward with purchase of the Waterfront Towers for the permanent City Hall. These reserves also allowed the City to begin the replacement of its antiquated financial system

The City continues to utilize its Long-Range Financial Plan (L-RFP), which is an important tool and reflects the City's commitment to fiscal health and sustainability. This financial model is used to evaluate the i mmediate i impact of budgetary decisions and the costs of decisions over multi pie years. The Federal Court reviewed the L-RFP extensively and considered challenges by the City’s creditors during the bankruptcy process. The L-RFP demonstrated the City’s future financial viability with the changes detailed in the Plan of Adjustment, and it was approved by the Court. Since its development, the L-RFP has become adynamic tool that is updated based on current revenue and expenditure trends. Though the individual variables and assumptions may change over time, the L-RFP provides a consistent model to realistically forecast the City's fiscal performance. The City updates the L-RFP as part of regular quarterly budget updates and presents it to the City Council and the public. These updates are part of developing the budget for the upcoming fiscal year.

In November 2016, Stockton’s voters approved Measure M, which is estimated to generate approximately$9 million annually for 16years. The City can only use the new revenues for library and recreation services, which were significantly reduced by the City during bankruptcy and the Great Recession.

22

CAPITAL ASSETS AND DEBT ADMINISTRATION. CONTI NUED

Economic Factors and Next Year’s Budget, continued

The FY 2017-18 Annual Budget is structurally balanced, with revenues expected to exceed expenditures by over $4 million. It dedicates resources in suport of the Council’s strategic goals of Public Safety, Fiscal Sustainability, Economic Development, and Infrastructure.

Requests for I nformation

This financial report is designed to provide citizens, taxpayers, customers, grantors, investors, and creditors with a general overview of the City’s finances and to demonstrate the City’s accountability for the money it receives. Ifyou have any questions about this report or need additional financial information, contact the Administrative Services Department of the City of Stockton at City Hall, 425 North El Dorado Street, Stockton, CA 95202.

Fi nancial reports are available on the City’s website at:

http: //Www.stoc ktongov.com/government/departments/adrri nServices/fi nRep.htrri

23 24

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ASSETSCash and investments Restricted cash and investments Interest receivable Accounts receivable, net Due from other governments, net Inventory of supplies Other assets Prepaid itemsLoans to Successor Agency, net Loans to property owners, net Capital assets:

Nondepreciable Depreciable, net

Total assets

DEFERRED OUTFLOWS OF RESOURCES Unamortized loss on refunding of debt Pension related deferred outflows of resources

Total deferred outflows of resources

LIABILITIESAccounts payable and accrued expenses Accrued payroll and benefits Accrued interest Deposits and other liabilities Unearned revenue Long-term liabilities:

Due within one yearCompensated absences Claims payable Long-term debt

Due in more than one year Compensated absences Claims payable Long-term debt Aggregate net pension liability Total liabilities

DEFERRED INFLOWS OF RESOURCES Deferred rentPensions related deferred inflows of resources

Total deferred inflows of resources

NET POSITIONNet investment in capital assetsRestrictedUnrestricted

Total net position

City of Stockton Statement of Net Position

June 30,2017

Governmental Business-TypeActivities Activities Totals

$ 319,082,497 $ 107,034,215 $ 426,116,7123,112,987 50,904,375 54,017,362

591,476 465,613 1,057,08919,122,185 19,847,511 38,969,69636,409,189 36,409,189

466,296 1,714,789 2,181,0852,788,854 987,950 3,776,804

64,823 64,8231,224,441 1,224,441

137,899,840 137,899,840

148,702,992 18,837,695 167,540,687590,032,903 693,723,446 1,283,756,349

1,259,498,482 893,515,594 2,153,014,077

452,124 2,174,083 2,626,20791,570,314 10,602,195 102,172,50992,022,438 12,776,278 104,798,716

14,224,447 3,170,622 17,395,0692,957,273 1,121,000 4,078,2741,896,708 5,627,771 7,524,4795,124,336 1,582,674 6,707,010

17,909,848 14,790 17,924,638

5,665,53210,905,5652,806,014

741,600

9,449,471

6,407,13210,905,56512,255,485

5,560,53951,499,81378,779,986

423,531,624

350,205

340,226,08644,734,535

5,910,74451,499,813

419,006,072468,266,159

620,861,685 407,018,754 1,027,880,440

775,87321,151,634 2,544,654

775,87323,696,288

21,927,507 2,544,654 24,472,161

330,654,527124,765,451253,311,750

362,885,91850,904,37582,938,171

693,540,445175,669,826336,249,921

$ 708,731,728 $ 496,728,464 $ 1,205,460,192

See accompanying Notes to the Basic Financial Statements. 25

City of StocktonStatement of Activities and Changes in Net Position

For the Year Ended June 30,2017

Program Revenues

Functions/Programs ExpensesCharges for

Services

Operating Grants and

Contributions

Capital Grants and

ContributionsPRIMARY GOVERNMENT:

Governmental activities:General government $ 33,377,759 19,184,093 $ $Public safety 154,931,840 9,187,615 7,673,197Public works 45,670,456 3,373,166 11,856 17,591,184Library 10,904,265 376,612 4,879,574Parks and recreation 22,480,877 8,764,889Interest and fiscal charges 4,287,551

Total governmental activities 271,652,748 40,886,375 12,564,627 17,591,184

Business-type activities:Water utility 42,886,081 42,308,131 3,889,251 1,349,565Wastewater utility 50,544,648 66,832,629 1,616,589Stormwater utility 5,288,496 5,618,620 5,268Parking Authority 5,640,942 5,140,906Other 3,234,557 1,675,386

Total business-type activities 107,594,724 121,575,672 3,889,251 2,971,422Total $ 379,247,472 $ 162,462,047 $ 16,453,878 $ 20,562,606


City of StocktonStatement of Activities and Changes in Net Position (Continued)

For the Year Ended June 30,2017

Net (Expense) Revenue and Change in Net Position

Functions/ProgramsGovernmental

ActivitiesBusiness-Type

ActivitiesPRIMARY GOVERNMENT:

Governmental activities:General government $ (14,193,666)Public safety (138,071,028)Public works (24,694,250)Library (5,648,079)Parks and recreation (13,715,988)Interest and fiscal charges (4,287,551)

Total governmental activities (200,610,562)

Business-type activities:Water utility $ 4,660,869Wastewater utility 17,904,570Stormwater utility 335,392Parking Authority (500,036)Other (1,559,171)

Total business-type activities 20,841,624Total (200,610,562) 20,841,624

General revenues and transfers:General revenues:Taxes:

Property 32,411,463Utility user 34,454,907Sales - levied by City 42,506,378Franchise fees 13,289,073Business license 12,243,208Hotel/motel room 2,996,990Document transfer 801,444Other 1,938,771 1,292,249

Shared revenue:Vehicle license fees 21,422,797Sales and use tax levied by state 49,909,959Other 44,151

Investment earnings 1,965,888 131,422Miscellaneous 2,820,332Gain (loss) on disposal of capital assets 577,553 (1,156,388)

Transfers 654,384 (654,384)Total general revenues and transfers 218,037,298 (387,101)

Special Items:Transfer of Successor Agency for refunding of debt 10,236,779

Changes in net position 27,663,515 20,454,523

Net position:Beginning of year, as previously reported 636,169,647 469,393,387Prior period adjustment (Note 18) 44,898,566 6,880,554Beginning of year, as restated 681,068,213 476,273,941End of year $ 708,731,728 $ 496,728,464


Totals

(14,193,666)(138,071,028)

(24,694,250)(5,648,079)

(13,715,988)(4,287,551)

(200,610,562)

4,660,86917,904,570

335,392(500,036)

(1,559,171)20,841,624

(179,768,938)

32,411,46334,454,90742,506,37813,289,07312,243,2082,996,990

801,4443,231,020

21,422,79749,909,959

44,1512,097,3102,820,332(578,835)

217,650,197

10,236,779

48,118,038

1,105,563,034

51,779,120 1,157,342,15T

1,205,460,19228

GOVERNMENT FUND FINANCIAL STATEMENTS

Governmental Fund Types

Governmental funds consist of the general fund, special revenue, debt service, capital projects, and permanent funds.

Special revenue and capital projects funds are used to account for the financial resources that are restricted, committed, or assigned to expenditures for special purposes or capital outlays, including the acquisition and development of capital facilities and other capital assets.

The City's major governmental funds include:

General F undTo account for resources not accounted for in another fund. The General Fund is the City's main operating fund reflecting transactions related to municipal governmental services supported by taxes, intergovernmental revenues, charges for services and other governmental type revenues.

HOME Program Loans Special RevenueFundTo account for the City’s HOME Program providing affordable housing for low- and very low-income residents in accordance with various federal and state laws.

Low and Moderated ncome Housing City Loans Special Revenue F undTo account for loans extended to eligible low and moderate-income families as approved by the former Stockton Redevelopment Agency and the California Health and Safety Code.

Capital Improvement Capital Projects FundTo account for the acquisition, construction and improvement of capital facilities as required by City Council action or state law in which the projects are financed by grants, lease proceeds and transfers from other City governmental funds.

29

ASSETSCash and investmentsCash and investments with fiscal agentsReceivables, net:

InterestAccounts and other receivables

Advance deposits Due from other governments, net Inventory of supplies Prepaid itemsLoans to Successor Agency Loans to property owners, net

Total assets

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES

Liabilities:Accounts payable Accrued payroll and benefits Due to other funds Due to other governments Due to other agencies Deposits and other liabilities Unearned revenue

Total liabilities

Deferred Inflows of Resources:Unavailable revenue - Loans to property owners Unavailable revenue - Other Deferred rent


Fund Balances:NonspendableRestrictedCommittedAssignedUnassigned

Total fund balances

Total liabilities, deferred inflows of resoui and fund balances

City of Stockton Balance Sheet

Governmental Funds June 30,2017

Major Funds

GeneralFund

Special Revenue Capital ProjectsHome

ProgramLoans

Low-Moderate Income Housing

City LoansCapital

Improvement

$ 84,055,622 $ 120,344 $ 1,782,598 $ 28,637,820

299,708 19,18015,405,663 3,781 459,521

762,357 50020,486,564 3,573,443

466,29662,852

1,724,44143,893,933 60,250,100

$ 121,539,062 $ 44,018,058 $ 63,757,139 $ 32,690,464

$ 5,595,328 $ 6,636 $ $ 2,181,5261,296,486 5,992 56,585

2,611,448 29,652327,481

1,298,426336,163 4,465,877

11,465,332 12,628 6,733,640

6,766,841619,754

43,893,933 60,250,100

7,386,595 43,893,933 60,250,100

1,538,6734,603,433 111,497 25,956,824

56,439,1233,922,291

36,183,615 3,507,039102,687,135 111,497 3,507,039 25,956,824

$ 121,539,062 $ 44,018,058 $ 63,757,139 $ 32,690,464


City of Stockton Balance Sheet (Continued)

Governmental Funds June 30,2017

OtherGovernmental

ASSETSCash and investments $ 93,615,180Cash and investments with fiscal agents 1,261,280Receivables, net:

Interest 272,588Accounts and other receivables 2,210,091

Advance depositsDue from other governments, net 12,349,182Inventory of suppliesPrepaid itemsLoans to Successor AgencyLoans to property owners, net 33,755,807

Total assets $ 143,464,128

LIABILITIES, DEFERRED INFLOWS OFRESOURCES AND FUND BALANCES

Liabilities:Accounts payable $ 4,810,175Accrued payroll and benefits 1,134,010Due to other funds 27,706Due to other governments 422,336Due to other agenciesDeposits and other liabilities 385,889Unearned revenue 13,107,808

Total liabilities 19,887,924

Deferred Inflows of Resources:Unavailable revenue - Loans to property owners 30,258,142Unavailable revenue - OtherDeferred rent

Total deferred inflows of resources 30,258,142

Fund Balances:Nonspendable 372,879Restricted 93,000,086CommittedAssignedUnassigned (54,903)

Total fund balances 93,318,062

Total liabilities, deferred inflows of resourcesand fund balances $ 143,464,128


TotalGovernmental

Funds

$ 208,211,5641,261,280

591,476 18,079,056

762,857 36,409,189

466,296 62,852

1,724,441 ______ 137,899,840$ 405,468,851

$ 12,593,6652,493,073

27,706 3,063,436

327,481 1,684,315

17,909,848 38,099,524

134,402,1756,766,841

619,754141,788,770

1,911,552123,671,84056,439,123

3,922,29139,635,751

225,580,557

405,468,851

City of StocktonReconciliation of the Balance Sheet of Governmental Funds

to the Government-Wide Statement of Net Position June 30,2017

Total Fund Balances - Total Governmental Funds

Amounts reported for governmental activities in the Statement of Net Position are different because:

Capital assets used in governmental activities are not financial resources, and therefore, are not reported in the governmental funds.

Non-depreciableDepreciable (net of accumulated depreciation $341,953,741, and net capital assets $22,674,752 reported in the Internal Service Funds)

Prepaid insurance related to bond issuance is not available for current period and, therefore, is expensed in the governmental funds when incurred.

Internal Service Funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of Internal Service Funds are included in governmental activities in the Government-Wide Statement of Net Position.

Long-term liabilities were not due and payable in the current period. Therefore, they were not reported in the Governmental funds' Balance Sheet.

Compensated absences (net of $495,550 reported in Internal Service Funds)Bonds payable and other long-term debt (net of $5,770,300 in capital leases reported in Internal Service Funds) Unamortized bond discount Deferred amount on refundingAccrued interest payable (net of $73,953 reported in Internal Service Funds)

Aggregate net pension liability is not due and payable in the current period and therefore is not required to be reported in the governmental funds.

Pension contributions made during the year after the measurement date are reported as expenditures in governmental funds and as deferred outflows of resources in the Government-Wide Statement of Net Position.

Difference between projected and actual earnings on pension plan investments are reported in the Government- Wide Statement of Net Position.

Revenues which are unavailable on the Fund Balance Sheet, because they are not available currently, are taken into revenue in the Statement of Activities:

Unavailable revenue - Loans to property owners Unavailable revenue - Others

Net position of governmental activities

$ 225,580,557

148,702,992

567,358,151

64,823

67,569,992

(10,730,521)(76,547,999)

48,292452,124

(1,822,755)

(423,531,624)

91,570,314

(21,151,634)

134,402,175 6,766,841

$ 708,731,728


City of StocktonStatement of Revenues, Expenditures and Changes in Fund Balances

Governmental FundsFor the Year Ended June 30.,2017

Major Funds

GeneralFund

Special RevenueHome Low-Moderate

Program Income HousingLoans City Loans

Capital Projects

CapitalImprovement

REVENUES:Taxes:

Property $ 32,411,463 $ $ $Utility user 34,454,907Sales - levied by City 30,048,605Franchise fees 13,289,073Business license 10,781,783Hotel/motel room 2,996,990Document transfer 801,444Other 1,938,771

Licenses and permits 481,949Intergovernmental:

Federal grants and subsidies 144,471 2,241,531 3,994,021Sales and use tax - levied by state 45,076,627Other governmental 26,765,310 1,242,576

Charges for services 9,479,177Fines and forfeitures 1,101,873Use of money and property 7,322,957 140,735 56,949 11,000Investment income:

Interest income 1,506,285 29,501 8,826Refunds and reimbursements 4,912,688 993,718Miscellaneous 5,066,692 3,000 60,143

Total revenues 228,581,065 2,382,266 89,450 6,310,284

EXPENDITURES:Current:

General government 17,939,541 1,064,408Public safety 154,707,628Public works 7,026,373 (749,228)Library 10,522,145Parks and recreation 17,477,568

Capital outlay 3,095,014 2,494,505 1,731,903 11,387,286Debt service:

Principal retirementInterest and fiscal charges

Total expenditures 210,768,269 2,494,505 2,796,311 10,638,058

EXCESS (DEFICIENCY) OF REVENUESOVER (UNDER) EXPENDITURES 17,812,796 (112,239) (2,706,861) (4,327,774)

OTHER FINANCING SOURCES (USES):Proceeds from sale of capital assets 492,346Transfers in 2,008,527 8,272,500Transfers out (11,270,206) (11,001)

Total other financing sources (uses) (8,769,333) 8,261,499CHANGE IN FUND BALANCES 9,043,463 (112,239) (2,706,861) 3,933,725

FUND BALANCES:Beginning of year 93,643,672 223,736 6,213,900 22,023,099End of year $ 102,687,135 $ 111,497 $ 3,507,039 $ 25,956,824


City of StocktonStatement of Revenues, Expenditures and Changes in Fund Balances (Continued)

Governmental Funds For the Year Ended June 30,2017

TotalOther Governmental

Governmental FundsREVENUES:

Taxes:Property $ $ 32,411,463Utility user 34,454,907Sales - levied by City 12,457,773 42,506,378Franchise fees 13,289,073Business license 1,461,425 12,243,208Hotel/motel room 2,996,990Document transfer 801,444Other 1,938,771

Licenses and permits 5,385,146 5,867,095Intergovernmental:

Federal grants and subsidies 6,478,846 12,858,869Sales and use tax - levied by state 4,833,332 49,909,959Other governmental 9,565,810 37,573,696

Charges for services 13,440,353 22,919,530Fines and forfeitures 62,328 1,164,201Use of money and property 665,445 8,197,086Investment income:

Interest income 216,926 1,761,538Refunds and reimbursements 170,854 6,077,260Miscellaneous 1,615,488 6,745,323

Total revenues 56,353,726 293,716,791


General government 10,231,040 29,234,989Public safety 16,365,300 171,072,928Public works 9,458,734 15,735,879Library 96,679 10,618,824Parks and recreation 3,097,450 20,575,018

Capital outlay 12,698,531 31,407,239Debt service:

Principal retirement 13,593,113 13,593,113Interest and fiscal charges 2,871,510 2,871,510

Total expenditures 68,412,357 295,109,500

EXCESS (DEFICIENCY) OF REVENUESOVER (UNDER) EXPENDITURES (12,058,631) (1,392,709)

OTHER FINANCING SOURCES (USES):Proceeds from sale of capital assets 492,346Transfers in 13,066,122 23,347,149Transfers out (1,684,933) (12,966,140)

Total other financing sources (uses) 11,381,189 10,873,355CHANGE IN FUND BALANCES (677,442) 9,480,646

FUND BALANCES:Beginning of year 93,995,504 216,099,911End of year $ 93,318,062 $ 225,580,557


City of StocktonReconciliation of the Statement of Revenues, Expenditures, and Changes in

Fund Balances of Governmental Funds to the Government-Wide Statement of Activities For the Year Ended June 30,2017

Net change in fund balances - Total Governmental Funds: $ 9,480,646

Amounts reported for governmental activities in the Statement of Activities are different because:

Governmental funds report capital outlays as expenditures. Donated capital assets do not create or use financial resources, and are not reported in governmental funds. However, in the statement of activities, the cost/fair value of those assets are allocated over their estimated useful lives and reported as depreciation expense. Capital outlays, donated capital assets, capital asset disposals, loss from disposal of capital assets and depreciation expense are as follows:

Capitalized capital outlaysDonated capital assetsCapital asset disposals, netDepreciation expense (net of depreciation $4,643,454 in reported in Internal Service Funds)

13,816,74459,063

(5,857,897)(20,241,346)

Long-term debt (including refunding debt), net of bond premiums and discounts, provides current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net assets. Repayment of principal (including bond refundings) and costs of issuance are expenditures in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets, and the costs of issuance increase deferred charges in the statement of net assets. Long-term debt proceeds, bond premiums, discounts, repayment of principal, costs of issuance and bond refundings are as follows:

Reduction of state animal control obligationRepayment of principalAmortization of prepaid insurance related to costs of issuance

152,35013,593,113

(120,228)

Internal Service Funds are used by management to charge the costs of certain activities, such as central garage, equipment and insurance, to individual funds. The net revenue (expense) of Internal Service Funds is reported with governmental activities. 22,910,267

The amounts below included in the Statement of Activities do not provide or (require) the use of current financial resources and therefore are not reported as revenue or expenditure in governmental funds (net change):

Change in compensated absencesAmortization of bond discounts and premiums and deferred amount on refundingChange in accrued interestUnavailable revenue - Loans to property ownersUnavailable revenue - OthersAccounting adjustment pension expense

Change in net position of governmental activities

(251,299)(42,879)

(1,111,547)2,435,440

(3,955,614)(3,203,298)

$ 27,663,515


PROPRIETARY FUND FINANCIAL STATEMENTS

Proprietary Fund Types

Proprietary funds focus on the determination of operating income, changes in net positions, financial position, and cash flows. There are two different types: enterprise funds and the internal service funds. Enterprise funds are used to report activities for which a fee is charged to external users for goods and services. Internal service funds may be used to report any activity that provides goods and services on a cost-reimbursement basis to other City funds, departments, or agencies of the primary government and its component units, or to other governments. The City's internal service funds include: General Liability Insurance, Workers' Compensation Insurance, Employee and Retiree Elealth Insurance, Retirement Benefits, Other Benefits and Insurance, Vehicle Fleet Equipment, Computer Equipment, Radio Equipment, and Other Equipment funds.

The City's major enterprise funds include:

Water Utility E nterprise F undTo account for activities associated with the acquisition or construction of water treatment facilities, production, distribution and transmission of potable water to users, and operations related to the provision of services.

Wastewater Utility E nterprise F undTo account for activities associated with the acquisition or construction, and operation and maintenance of wastewater facilities for collection, treatment, and disposal of wastewater, and operations related to the provision of services.

The City elects to present the following as major funds:

Stormwater Utility E nterprise F undTo account for activities associated with the acquisition or construction, and operation and maintenance of stormwater facilities for drainage and disposal of stormwater, and operations related to the provision of services.

Parking Authority E nterprise F undTo account for activities associated with the acquisition or construction, operation and maintenance of off-street parking facilities, and operations related to the provision of services.

37

City of Stockton Statement of Net Position

Proprietary Funds June 30,2017

Major Enterprise FundsWater Wastewater Stormwater ParkingUtility Utility Utility Authority

ASSETSCurrent assets:

Cash and investments $ 30,339,869 $ 66,979,997 $ 5,991,272 $ 3,164,860Receivables, net:

Interest 156,296 280,155 18,433 9,555Accounts and other receivables 7,247,567 11,247,751 821,713 500,220

Due from other fundsInventory of supplies 1,676,049Deposits and advancesPrepaid insurance 535,539 446,716 284

Total current assets 38,279,271 80,630,668 6,831,702 3,674,635Noncurrent assets:

Restricted assets:Cash and investments 648,314 20,199,295Cash and investments with fiscal agents 30,056,400 32 334

Capital assets, net:Nondepreciable 7,216,508 6,591,915 724,194 3,945,273Depreciable, net 315,732,922 287,184,938 44,681,224 22,128,644Total noncurrent assets 353,654,144 313,976,180 45,405,418 26,074,251Total assets 391,933,415 394,606,848 52,237,120 29,748,886

DEFERRED OUTFLOWS OF RESOURCESUnamortized loss on refunding of debt 98,106 2,075,977Pension-related deferred outflows of resources 3,012,327 6,926,018 663,850

Total deferred outflows of resources 3,110,433 9,001,995 663,850


City of StocktonStatement of Net Position (Continued)



LIABILITIESCurrent liabilities:

Accounts payable 614,411 2,168,756 127,929 23,064Accrued payroll 275,439 752,042 68,647 23,754Due to other governments 116,010 16,809Deposits and other liabilities 1,333,962 100,000 63,264Accrued interest 4,170,890 1,024,000 432,881Unearned revenueCapital lease obligationCompensated absences - current 182,321 530,848 16,227 12,204Self-insurance claims and judgments - currentOther long-term debt - current 5,110,003 4,219,981 119,487

Total current liabilities 11,803,036 8,695,627 312,803 691,463Noncurrent liabilities:

Loans from other funds, netCompensated absences - long-term 107,498 231,242 9,267 2,198Self-insurance claims and judgments - long-termCapital lease obligationsNotes payableBonds payable 236,856,029 67,528,787 24,970,449Net pension liability 12,740,167 29,078,812 2,915,556

Total noncurrent liabilities 249,703,694 96,838,841 2,924,823 24,972,647Total liabilities 261,506,730 105,534,468 3,237,626 25,664,110

DEFERRED INFLOWS OF RESOURCESDeferred rentDeferred amounts between projected and actual

earning on plan investments 730,128 1,638,907 175,619Total deferred inflows of resources 730,128 1,638,907 175,619

NET POSITIONNet investment in capital assets 80,983,398 222,028,085 45,405,418 984,315Restricted for capital projects 30,056,400 20,199,327 334Restricted for debt service 648,314Restricted for equipment replacementUnrestricted 21,118,878 54,208,056 4,082,307 3,100,127

Total net position $ 132,806,990 $ 296,435,468 $ 49,487,725 $ 4,084,776





Cash and investments Receivables, net:


Due from other funds Inventory of supplies Deposits and advances Prepaid insurance

Total current assets

Noncurrent assets:Restricted assets:

Cash and investments Cash and investments with fiscal agents

Capital assets, net:Nondepreciable Depreciable, net Total noncurrent assets

Total assets

DEFERRED OUTFLOWS OF RESOURCES Unamortized loss on refunding of debt Pension-related deferred outflows of resources


GovernmentalOther Nonmajor Activities

Enterprise Totals Internal Service

$ 558,217 $ 107,034,215 $ 110,870,933

1,174 465,61330,260 19,847,511 1,043,129

27,70638,740 1,714,789

1,159,0005,411 987,950 804,145

633,802 130,050,078 113,904,913

20,847,60930,056,766 1,851,707

359,805 18,837,69523,995,718 693,723,446 22,674,75224,355,523 763,465,516 24,526,45924,989,325 893,515,594 138,431,372

2,174,08310,602,19512,776,278





Accounts payable Accrued payroll Due to other governments Deposits and other liabilities Accrued interest Unearned revenue Capital lease obligation Compensated absences - current Self-insurance claims and judgments - current Other long-term debt - current

Total current liabilities

Noncurrent liabilities:Loans from other funds, netCompensated absences - long-termSelf-insurance claims and judgments - long-termCapital lease obligationsNotes payableBonds payableNet pension liability

Total noncurrent liabilities

Total liabilities

DEFERRED INFLOWS OF RESOURCESDeferred rentDeferred amounts between projected and actual earnings on plan

investmentsTotal deferred inflows of resources

NET POSITION Net investment in capital assets Restricted for capital projects Restricted for debt service Restricted for equipment replacement Unrestricted

Total net position


Enterprise Totals Internal Service

100,821 3,034,981 1,630,7821,118 1,121,000 464,2012,822 135,641

85,448 1,582,674 49,1045,627,771 73,953

14,790 14,790605,839

741,600 290,67310,905,565

9,449,471204,999 21,707,928 14,020,117

500,000350,205 204,877

51,499,8134,480,454

10,870,821 10,870,821329,355,265

44,734,53510,870,821 385,310,826 56,685,14411,075,820 407,018,754 70,705,261

156,119

2,544,6542,544,654 156,119

13,484,702 362,885,918 17,588,45950,256,061

648,3141,851,707

428,803 82,938,171 48,129,826$ 13,913,505 $ 496,728,464 $ 67,569,992


City of StocktonStatement of Revenues, Expenses, and Changes in Net Position

Proprietary Funds For the Year Ended June 30, 2017


OPERATING REVENUES:Charges for servicesMiscellaneous

$ 41,516,569791,562

$ 65,413,3381,419,291

$ 5,433,421185,199

$ 5,116,44624,460

Total operating revenues 42,308,131 66,832,629 5,618,620 5,140,906

OPERATING EXPENSES:Operation and maintenance 6,641,498 23,872,100 1,004,626 3,626,626General and administrative 4,225,043 12,127,932 2,672,825Depreciation and amortization 7,649,189 12,009,713 1,611,045 713,204Purchased water 7,699,278

Total operating expenses 26,215,008 48,009,745 5,288,496 4,339,830OPERATING INCOME (LOSS) 16,093,123 18,822,884 330,124 801,076

NON-OPERATING REVENUES (EXPENSES):Taxes 1,292,249Grants and subsidies 3,889,251Investment income:

Interest income (14,989) 147,957 4,686 1,082Gain (loss) from disposal of capital assets (1,156,388)Interest expense and fiscal charges (16,671,073) (2,534,903) (1,301,112)Other non-operating revenues

Total non-operating revenues (expenses) (12,796,811) (2,386,946) 4,686 (1,164,169)

INCOME (LOSS) BEFORE CAPITALCONTRIBUTIONS AND TRANSFERS 3,296,312 16,435,938 334,810 (363,093)

Capital contributions 1,349,565 1,616,589 5,268Transfers inTransfers out (814,290) (910,094)

CHANGES IN NET POSITION 4,645,877 17,238,237 340,078 (1,273,187)

NET POSITION:Beginning of year, as previously reported 126,186,101 274,775,903 48,663,430 5,357,963Prior period adjustments (Note 18) 1,975,012 4,421,328 484,217Beginning of year, as restated 128,161,113 279,197,231 49,147,647 5,357,963End of year $ 132,806,990 $ 296,435,468 $ 49,487,725 $ 4,084,776


City of StocktonStatement of Revenues, Expenses, and Changes in Net Position (Continued)


Other Nonmajor Enterprise Totals

GovernmentalActivities

Internal ServiceOPERATING REVENUES:

Charges for services $ 879,021 $ 118,358,795 $ 120,976,125Miscellaneous 796,365 3,216,877 186,904

Total operating revenues 1,675,386 121,575,672 121,163,029

OPERATING EXPENSES:Operation and maintenance 2,598,216 37,743,066 90,308,986General and administrative 24,911 19,050,711 6,261,193Depreciation and amortization 611,430 22,594,581 4,643,454Purchased water 7,699,278

Total operating expenses 3,234,557 87,087,636 101,213,633OPERATING INCOME (LOSS) (1,559,171) 34,488,036 19,949,396

NON-OPERATING REVENUES (EXPENSES):Taxes 1,292,249Grants and subsidies 3,889,251Investment income:

Interest income (7,314) 131,422 209,261Gain (loss) from disposal of capital assets (1,156,388) 84,971Interest expense and fiscal charges (20,507,088) (141,387)Other non-operating revenues 260,221

Total non-operating revenues (expenses) (7,314) (16,350,554) 413,066

INCOME (LOSS) BEFORE CAPITALCONTRIBUTIONS AND TRANSFERS (1,566,485) 18,137,482 20,362,462

Capital contributions 2,971,422 2,037,415Transfers in 1,070,000 1,070,000 814,290Transfers out (1,724,384) (303,900)

CHANGES IN NET POSITION (496,485) 20,454,520 22,910,267

NET POSITION:Beginning of year, as previously reported 14,409,990 469,393,387 44,659,725Prior period adjustments (Note 18) 6,880,557Beginning of year, as restated 14,409,990 476,273,944 44,659,725End of year $ 13,913,505 $ 496,728,464 $ 67,569,992


City of Stockton Statement of Cash Flows


CASH FLOWS FROM OPERATING ACTIVITIES:Receipts from customers and users Receipts for interfund services provided Payments to suppliers Payments to employees

Net cash provided by (used in) operating activities

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in Transfers outReceipt of cash subsidies and federal grants Due from other funds / govts.Proceeds from taxes

Net cash provided by (used in) noncapital financing activities

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Proceeds from sale of capital assets Purchases of capital assets Capital contributions received Unamortized loss on refunding of debt Principal paid on debt Interest paid on debt

Net cash (used in) capital and related financing activities

CASH FLOWS FROM INVESTING ACTIVITIES:Investment earnings

Net cash provided by investing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS:Beginning of year End of year

Major Enterprise FundsWaterUtility

WastewaterUtility

StormwaterUtility

ParkingAuthority

$ 40,455,300 $ 66,336,706 $ 5,318,157 $ 5,063,784

(16,785,445)(6,992,538)

(30,247,323)(17,849,548)

(2,899,242)(2,096,972)

(3,808,230)(2,160)

16,677,317 18,239,835 321,943 1,253,394

3,889,251(101,239)

(814,290)

(883,646)

(910,094)

1,292,249

3,788,012 (1,697,936) 382,155

(234,106)1,349,565

16,818(6,832,681)

(16,752,670)

(4,985,279)1,616,589

170,584(4,074,981)(2,579,503)

(580,085)5,268

998,158(808,159)

(113,534)(1,303,071)

(22,453,074) (9,852,590) (574,817) (1,226,606)

(32,527) 73,840 479 (2,678)

(32,527) 73,840 479 (2,678)

(2,020,272) 6,763,149 (252,395) 406,265

61,089,843 75,994,847 5,759,453 2,758,929$ 59,069,571 $ 82,757,996 $ 5,507,058 $ 3,165,194


City of Stockton Statement of Cash Flows (Continued)


RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION - PROPRIETARY FUNDS:

Cash and investments Restricted assets:

Cash and investments Cash and investments with fiscal agents

Total cash and investments

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:

Operating income (loss)Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities:

Depreciation and amortization Accounting adjustment for retirement expense Other non-operating revenues Changes in assets and liabilities:

Accounts and other receivables Due from other governments Prepaid items Inventory of supplies Deposits and advances Deferred charges Net pension asset Accounts payable Accrued payroll Due to other governments Deposits and other liabilities Compensated absences Self-insurance - claims and judgments

Net cash provided by (used for) operating activities

NONCASH TRANSACTIONS:Amortization of issuance discounts Amortization of issuance premiums Amortization of (gain) on refunding Prepaid cost of issuance expense Transfer of capital assets from (to) other funds Accounting adjustment for retirement expense

Major Enterprise FundsWaterUtility

WastewaterUtility

StormwaterUtility

ParkingAuthority

$ 30,339,869 66,979,997 $ 5,991,272 $ 3,164,860

648,31430,056,400

20,199,29532 334

$ 61,044,583 87,179,324 $ 5,991,272 $ 3,165,194

$ 16,093,123 $ 18,822,884 $ 330,124 $ 801,076

7,649,189 12,009,713 1,611,045 713,204(5,084,198) (11,622,355) (1,134,637)

(1,908,714) (1,372,923) (300,463) (77,122)101,239 883,646

(231,442) 98,741(34,227)

169

31,415 (687,810) (162,439) (198,925)10,825 109,443 (22,934) 89482,118 16,809

(45,356) (6,646) 512(20,882) 39,369 1,078 (3,054)

$ 16,677,317 $ 18,239,835 $ 321,943 $ 1,253,394

$ 14,219(169,222)

$ $ $

(16,818) (170,584)(9,042) (98,741)

5,084,198 11,622,355 1,134,637




GovernmentalOther Nonmajor

Enterprise TotalsActivities

Internal ServiceCASH FLOWS FROM OPERATING ACTIVITIES:

Receipts from customers and users $ 1,673,675 $ 118,847,622 $ 120,434,397Receipts for interfund services provided 260,221Payments to suppliers (2,629,804) (56,370,044) (93,837,572)Payments to employees 32,806 (26,908,412) (9,407,485)

Net cash provided by (used in) operating activities (923,323) 35,569,166 17,449,561

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES:Transfers in 1,070,000 1,070,000 814,290Transfers out (1,724,384) (303,900)Receipt of cash subsidies and federal grants 3,889,251Due from other funds (984,885) 421,641Proceeds from taxes 1,292,249

Net cash provided by (used in) noncapital financing activities 1,070,000 3,542,231 932,031

CASH FLOWS FROM CAPITAL ANDRELATED FINANCING ACTIVITIES:

Proceeds from sale of capital assets 998,158 84,971Purchases of capital assets (22,849) (6,630,478) (5,404,779)Capital contributions received 2,971,422Unamortized loss on refunding of debt 187,402Principal paid on debt (11,021,196) 1,438,007Interest paid on debt (20,635,244) (132,845)

Net cash (used in) capital and related financing activities (22,849) (34,129,936) (4,014,646)

CASH FLOWS FROM INVESTING ACTIVITIES:Investment earnings (7,766) 31,348 209,261

Net cash provided by investing activities (7,766) 31,348 209,261

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 116,062 5,012,809 14,576,207

CASH AND CASH EQUIVALENTS:Beginning of year 442,155 146,045,227 98,146,433End of year $ 558,217 $ 151,058,036 $ 112,722,640





Enterprise Totals Internal ServiceRECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION - PROPRIETARY FUNDS:

Cash and investmentsRestricted assets:

Cash and investmentsCash and investments with fiscal agents

Total cash and investments

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:


Depreciation and amortization Accounting adjustment for retirement expense Other non-operating revenues Changes in assets and liabilities:

Accounts and other receivables Due from other governments Prepaid items Inventory of supplies Deposits and advances Deferred charges Net pension asset Accounts payable Accrued payroll Due to other governments Deposits and other liabilities Compensated absences Self-insurance - claims and judgments

Net cash provided by (used for) operating activities

NONCASH TRANSACTIONS:Amortization of issuance discounts Amortization of issuance premiums Amortization of (gain) on refunding Prepaid cost of issuance expense Transfer of capital assets from (to) other funds Accounting adjustment for retirement expense

$ 558,217 $ 107,034,215 $ 110,870,933

20,847,60930,056,766 1,851,707

$ 558,217 $ 157,938,590 $ 112,722,640

$ (1,559,171) $ 34,488,036 $ 19,949,396

611,430 22,594,581 4,643,454(17,841,190)

260,221

(5,258) (3,664,480) (470,288)984,885

14,260 (118,272) (258,344)3,729 (30,498)

58,240

11,214 (1,006,545) 468,02810 98,238 60,587

645 99,572(182) (51,672)

16,511 5,055(7,266,788)

$ (923,323) $ 35,569,166 $ 17,449,561

$ $ 14,219 $(169,222)(187,402)(107,783)

2,037,41517,841,190

See accompanying Notes to the Basic Financial Statements. 47 48

FIDUCIARY FUND FINANCIAL STATEMENTS

Fiduciary Fund Types

The fiduciary funds are used to report assets held in a trustee or agency capacity for others and which, therefore, cannot be used to support the govemment's own programs. The financial activities of these funds are excluded from the Entity-wide financial statements, but are presented in separate Fiduciary Funds financial statements. The fiduciary funds category includes agency funds and private-purpose trust funds.

Agency F undTo account for land secured financing, developer area of benefit fees, pass-thru public fees on behalf of other entities, funds held in trust as security for development projects, and various community enhancement programs the City administers on behalf of other entities.

Successor Agency to the Redevelopment Agency of the City of StocktonTo account for a separate legal entity, which was formed to hold the assets and liabilities of the former Redevelopment Agency pursuant to the City Council actions taken on August 23, 2011. The activity of the Successor Agency is overseen by an Oversight Board comprised of individuals appointed by various government agencies and the City of Stockton as Successor Agency of the former Redevelopment Agency. The nature and significance of the relationship between the City and the Successor agency is such that it would be misleading to exclude the Successor Agency from the City’s financial statements. The Successor Agency is presented herein in the City’s fiduciary funds as a private-purpose trust fund.

49

City of Stockton Statement of Fiduciary Net Position

Fiduciary Fund June 30,2017

Successor

ASSETS

AgencyFunds

Agency to the Redevelopment

AgencyPrivate-Purpose

Trust Fund

Cash and investments $ 33,361,866 $ 9,927,849Cash and investments with fiscal agentsReceivables, net:

3,517,098 16,309

Interest (14,651) 20,532Accounts and other receivables 5,152,838 14,064

Deposits 54,900Prepaid items 856,070Due from other governmentsCapital assets:

145

Nondepreciable 12,997,928Depreciable, net 15,084,086Total assets $ 42,017,295 38,971,738

DEFERRED OUTFLOWS OF RESOURCES Deferred unamortized loss on refunding


LIABILITIESAccounts payable $ 16,517 554Accrued payroll 7,706Due to other governments 1,806,932Deposits and other liabilities 40,193,846Loans from the City, net 1,224,441Accrued interest 1,328,385Bonds payable - current 4,725,555Bonds payable - noncurrent 108,026,265Pollution remediation 275,000

Total liabilities $ 42,017,295 115,587,906

NET POSITION HELD IN TRUST $ (75,396,915)

1,219,2531,219,253


City of StocktonStatement of Changes in Fiduciary Net Position

Fiduciary FundFor the Year Ended June 30, 2017

Successor Agency to the

Redevelopment Agency

Private-Purpose Trust Fund

ADDITIONSProperty tax $ 9,570,444Use of money and property 6,065Investment Income 39,582Miscellaneous 1,351,350

Total additions 10,967,441

DEDUCTIONSGeneral government (1,391,309)Public Works 233,535Interest and fiscal charges 5,787,633

Total deductions 4,629,859

SPEICAL ITEM:Transfer to the City to refund 2003 Series A and B (10,236,779)

Total special item (10,236,779)

CHANGE IN NET POSITION (3,899,197)

NET POSITION (DEFICITS):Beginning of year (71,497,718)End of year $ (75,396,915)

See accompanying Notes to the Basic Financial Statements. 51 52

City of StocktonI ndextothe Notes to the Basic Financial Statements

For the Year E nded J une 30, 2017

Note 1 - Summary of Significant Accounting Policies............................................................................................ 55

A. Financial Reporting EntityB. Basis of Presentation, Measurement Focus and Basis of AccountingC. Deferred Outflows/1 nflows of ResourcesD. EncumbrancesE. Cash, Cash Equivalents, and I investmentsF. Restri cted Cash and I investmentsG. ReceivablesFI. I nterf und L oans and A dvancesI. I inventory of S uppl iesJ. Capital AssetsK. Capital ContributionsL. Accrued PayrolI and Related LiabiIitiesM. Accrued Compensated AbsencesN. Long-Term DebtO. PensionsP. Net PositionQ. Fund BalancesR. Property TaxesS. Use of EstimatesT. I implementation of Governmental Accounti ng Standards B oard Statements

Note 2- Cash, Cash Equivalents and I nvestments...................................................................................................68

A. Cash DepositsB. A uthori zed I nvestmentsC. I nvestments in Local Agency I investment FundD. I nvestments i n Repurchase Agreements and M oney M arket Funds as a Sweep I nstrumentE. Fair Value of InvestmentsF. Risk DisclosuresG. Restricted Cash and I nvestments

Note 3 - I nterfund Transactions................................................................................................................................... 78

A. Due To/From Other FundsB. LoansTo/FromOtherFundsC. Transfers

Note 4- Successor Agency - Loans from City, Net...................................................................................................81

Note 5- Loans to Property Owners..............................................................................................................................83

Note 6- Capital Assets.................................................................................................................................................... 84

A. Government-Wide Financial StatementsB. Governmental ActivitiesC. Business-Type ActivitiesD. Fiduciary Fund Activities

53

City of StocktonI ndextothe Notes to the Basic Financial Statements (Continued)


Note 7- Long-Term Liabilities......................................................................................................................................88

A. Governmental ActivitiesB. Business-Type ActivitiesC. Fiduciary Fund ActivitiesD. Debt W ithout City Commitment

Note 8- Accrued Compensated Absences....................................................................................................................106

Note 9-Unamortized Loss on Refundings..................................................................................................................107

Note 10 - Fund Balances.................................................................................................................................................. 108

Note 11 - Retirement Plans.............................................................................................................................................109

A. Cal PE RS Retirement PlanB. PARS Retirement Plan

Note 12 - R isk Services.................................................................................................................................................... 123

Note 13 - Pollution Remediation Obligations............................................................................................................. 125

Note 14- Individual Fund Disclosures......................................................................................................................... 126

Note 15 - Commitments and Contingencies................................................................................................................127

Note 16- Restricted Net Position................................................................................................................................... 129

Note 17-Subsequent Events...........................................................................................................................................129

Note 18- Prior Period Adjustment...............................................................................................................................130

54

City of StocktonNotes to the Basic Financial Statements


Note 1 - Summary of Significant Accounting Policies

The basic financial statements of the City of Stockton, California (the “City”) have been prepared in conformity with Generally Accepted Accounting Principles of the United States of America (“U.S. GAAP”) as applied to governmental agencies. The Governmental Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting standards in the United States. The more significant of the City’s accounting policies are described below.

A. F inancial Reporting E ntity

The City was i ncorporated on J uly 25, 1850, under the general laws of the State of Cal ifornia. U nder the charter adopted i n 1923, the City operates under a Counci I -M anager form of government and provides the fol lowi ng services as authorized by its charter: public safety, community services, engineering services, planning services, public works, general administrative services and capital improvements.

These basic financial statements present the City and its component units, entities for which the City is considered to be financially accountable. The City is considered to be financially accountable for an organization if the City appoints a voting majority of that organization’s governing body and either the City can impose its will on that organization, or there is a potential for that organization to provide financial benefits to or impose specific financial burdens on the City. The City is also considered to be fi nancial ly accountable for an organization if that organization is fiscally dependent (i.e., it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval from the City). In certai n cases, other organizations are i ncl uded as component units if the nature and significance of their relationship with the City are such that their exclusion would cause the City’s financial statements to be misleading or incomplete. Blended component units, although legally separate entities are, in substance, part of the City’s operations and data from these units are combi ned with data of the City. Each blended component unit has aj une 30year-end. The following entities are reported component units:

F iduciary Component U nit Successor Agency

The Successor Agency to the Redevelopment Agency of the City of Stockton (“Successor Agency”) is a separatelegal entity, which was formed to hold the assets and liabilities of the former Redevelopment Agency under City Council action taken on August 23, 2011. The activity of the Successor Agency is overseen by an Oversight Board comprised of individuals appointed ty various government agencies and the City of Stockton as Successor Agency of the former Redevelopment Agency. The nature and significance of the relationship between the City and the Successor Agency are such that it would be misleading to exclude the Successor Agency from the City’s financial statements. The Successor Agency is presented herein in the City’s fiduciary funds as a private-purpose trust fund for the fiscal year endedj une 30, 2017.

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City of StocktonNotes to the Basic Financial Statements (Continued)


Note 1 - Summary of Significant Accounting Policies (Continued)

A. Financial Reporting Entity (Continued)

The Stockton Public Financing Authority (the “SPFA ”)

The SPFA was created in J une 1990 and carries out bonded debt and lease financing for the City. The governing body of theSPFA iscomprisedof City Council members. TheSPFA is authorized to borrcw money for the purpose of financing the acquisition of bonds, notes and other obligations of, or for the purpose of making loans to the City and to refinance outstanding obligations of the City. The SPFA does not prepare separate financial statements.

Excluded Agencies

A governmental agency in which the City participates istheSanJoaquinAreaFlood Control Agency (“SJAFCA”) which is jointly governed by the City and the County of Sanjoaquin (“County”). The City retains neither an ongoing financial interest in nor obligation toSJAFCA.Therefore financial information for the SJAFCA is not included in the accompanying financial statements.

An additional governmental agency in which the City participates is the San Joaquin County Regional Fire Dispatch Joint Powers Authority (“SJCRFDA”) consequent to City Council approval of an operating agreement between the SJCRFDA and the City of Stockton. In addition to dispatch services, the City will provide financial and adni ni strative support services to the SJ CR FDA. The f i nancial i nformation for the SJ C RF DA i s not i ncl uded i n the accompanying financial statements. Flowever, the City’s portion of the revenues received from emergency communications is tracked and reported in the General Fund.

B. Basisof Presentation, Measurement Focus and Basisof Accounting

The accounts of the City are organized ty funds. The operations of each fund are accounted for by providing a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance or net position, revenues and expenditures or expenses, as appropriate. Fund accounti ng segregates funds accordi ng to thei r i ntended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The mini mum number of funds is maintained consistent with legal and managerial requirements.

The City’s financial position and results of operations are presented from two perspectives in the follcwing two sets of financial statements:

Government-Wide Financial Statements

The City’s Government-W ide Financial Statements include a Statement of Net Position and aStatement of Activities and Change in Net Position. These statements present summaries of governmental activities and business Type activities for the City, the primary government, accompanied by a total column. Fiduciary activities of the City are not included in these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from businessType activities, which rely to a significant extent on fees and charges for support.

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B. Basis of Presentation, Measurement Focus and Basis of Accounting (Continued)

Government-W ide F inancial Statements (Continued)

The statement of activities demonstrates the degree to which the di rect expenses of a given function or programs are offset by program revenues. Direct expenses are those expenses specifically associated with a service, program, or department and, are clearly identifiable with a specific function or program 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 included among program revenues are reported as general revenues.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. Fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and enterprise funds are reported as separate columns in the fund financial statements with nonmajor funds aggregated in and combined with the major funds.

The Government-Wide financial statements are presented on an “economic resources” measurement focus and the accrual basis of accounting. Accordingly, all of the City’s assets and liabilities, including capital assets, as well as infrastructure assets, and longTerm liabilities, are included in the accompanying Statement of Net Position. The Statement of Activities presents the Change in Net Position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred.

Certain types of transactions are reported as program revenues for the City in three categories:

• Charges for services• Operating grants and corrtributions• Capital grants and corrtri butions

Certain eliminations have been made for interYund activities, payables, and receivables. All internal balances in the Statement of Net Position have been eliminated except those representing balances between the governmental activities and the businessType activities, which are presented as internal balances and netted in the total primary government col umn. I n the Statement of Activities, i nternal service fund transactions have been el i mi nated; however, transactions between governmental and businessType activities have not been eliminated. The following interYund activities have been eliminated:

• Due to, Due from other funds• L oans to, L oans from other funds• Transfers i n, Transfers out

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B. Basisof Presentation, Measurement Focus and Basisof Accounting (Continued)

Governmental Fund Financial Statements

Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures, and Change in Fund Balances for all major governmental funds and nonmajor funds aggregated. An accompanying schedule is presented to reconcile and explain the differences in fund balances as presented in these statements to the net position presented in the government-wide financial statements.

All governmental funds are accounted for on a spending or “current financial resources” measurement focus and the modified accrual basisof accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures and Change in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing use) in fund balances.

Revenues are recognized in the accounting period in which they become both "measurable” and “available” to finance expenditures of the current period. Revenues are considered to be available when they are collectible within the current period as soon enough after that 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. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property tax, sales tax, intergovernmental revenues, and other taxes.

Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general longTerm debt and compensated absences, which are recognized as expenditures to the extent they have matured or been earned. Governmental capital asset acquisitions are reported as expenditures in governmental funds as capital outlay. Proceeds of governmental longTerm debt and acquisitions under capital leases are reported as other financing sources. Revenues and expenditures not meeting recognition criteria are treated as deferred inflows or outflows (Note 1C).

The Reconciliation of the Fund Financial Statements to the Government-W ide Financial Statements is provided to explain the differences.

The City reports the following major governmental funds:

• General F undTo account for resources not accounted for in another fund. The General Fund is the City's main operating fund reflecting transactions related to municipal governmental services supported ty taxes, intergovernmental revenues, charges for services and other governmental type revenues.

• FIOME Program Loans Special Revenue FundTo account for the City’s HOME Program providing affordable housing for low-and very low-income residents by various federal and state laws. HOME is the largest Federal block grant to State and local governments designed exclusively to create affordable housing for low-and very low-income households.

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Governmental Fund Financial Statements (Continued)

• Low and Moderate I ncome Flousing City Loans Special Revenue FundTo account for loans extended to eligible low and moderate-income families as approved by the Stockton Redevelopment Agency (until dissolution on February 1,2012) and the California Health and Safety Code. Loans have not been extended subsequently to the date of dissolution.

• Capital I improvement Capital Projects F undTo account for the acquisition, construction and improvement of general governmental capital facilities as required by City Council action or state law in which the projects are financed ty grants, lease proceeds, and transfers from other City governmental funds.

Proprietary Fund Financial Statements

Proprietary fund financial statements include a Statement of Net Position, a Statement of Revenues, Expenses and Change in Net Position, and a Statement of Cash Flows for all proprietary funds.

Proprietary funds are accounted for using the “economic resources” measurement focus and the accrual basis ofaccounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the Statement of Net Position. The Statement of Revenues, Expenses, and Change in Net Position presents increases (revenues) and decreases (expenses) in total net position. Linder the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which liability is incurred.

Operating revenues in the proprietary funds are those revenues that are generated from the primary operations of the fund. A11 other revenues are reported as non-operati ng revenues. O perati ng expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as nonoperating expenses.

The City reports the following major enterprise funds:

• Water Utility Enterprise FundTo account for activities associated with the acquisition or construction of water treatment facilities, production, distribution and transmission of potable water to users, and operations related to the provision of services.

• Wastewater Utility E nterprise F undTo account for activities associated with the acquisition or construction, and operation and maintenance of wastewater facilities for collection, treatment, and disposal of wastewater, and operations related to the provision of services.

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Proprietary Fund Financial Statements (Continued)

The City also elects to present the following as major funds:

• Storm/vater Utility E nterprise F undTo account for activities associated with the acquisition or construction, and operation and maintenance of storm/vater facilities for drainage and disposal of storm/vater, and operations related to the provision of services.

• Parking Authority Enterprise FundTo account for activities associated with the acquisition or construction, operation and maintenance of off- street parking facilities, and operations related to the provision of services.

A column representing internal service funds is also presented in these statements. However, internal service balances and activities have been combined with the governmental activities in the government-wide financial statements. I nternal service funds are a type of proprietary fund used to report the provision of goods and services to other funds, departments, or agencies of the pri mary government and its component units on a cost-rei mbursement basis. The City’s internal service funds include nine individual funds which provide services directly to other City funds.

• The Internal Service Funds of the City are the General Liability Insurance, Workers’ CompensationInsurance, Health Benefits, Retirement Benefits, Other Benefits & Insurance, Vehicle Fleet Equipment, Computer Equipment, Radio Equipment, and Other Equipment funds.

Fiduciary Fund Financial Statements

Fiduciary funds include private-purpose trust and agency funds. Fiduciary fund types are accounted for according to the nature of the fund. Agency fund financial statements include a Statement of Net Position. The City has agency funds, which are purely custodial in nature (assets equal liabilities), and thus do not involve measurement of results of operations. The agency funds are accounted for on the accrual basis of accounting for the proprietary funds. These funds are used to account for money and property held by the City as trustee or custodian. They are also used to account for various assessment di stricts for which the City acts as an agent for debt service activities. The private- purpose trust fund accounts for assets, liabilities, and activities of the dissolved Redevelopment Agency of the City of Stockton, which is accounted for in the Successor Agency Trust Fund.

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C. Deferred Outflows/1 nflows of Resources

In accordance with GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, the Statement of Net position report separate sections for Deferred Outflows of Resources, and Deferred I nflows of Resources, when applicable.

Deferred Outflows of Resources represent outflows of resources (consumption of net position) that apply to future periods and that, therefore, will not be recognized as an expense until that time.

Deferred I nflows of Resources represent inflows of resources (acquisition of net position) that apply to future periods and that, therefore, are not recognized as revenue until that time.

D. EncumbrancesEncumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of monies are recorded to reserve that portion of the appl icable appropriation, is employed as an extension of budgetary controls.

E. Cash, Cash E quivalents, and I nvestments

The City pools its available cash for investment purposes. The City considers pooled cash and investment amounts, with original maturities of three months or less, to be cash equivalents. The statement of cash flows requires presentation of “cash and cash equivalents.” For the statement of cash flows, the City considers all proprietary fund pooled cash and investments as “cash and cash equivalents,” including restricted cash held by fiscal agents for debt service and capital projects.

The City participates in an external investment pool managed by the State of California (State), the Local Agency I investment Fund (LAI F). The City records its investment in LAI F at fair value based on information obtained from the State on the holdi ngs i n the pool.

Investments are recorded at fair value ty GASB Statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease in investment assets and investment income. I investment income consists of interest income, dividend income, and recognized gains or losses on investments. Money market investments and certain guaranteed investment contracts are carried at cost. H ighly I iquid market i nvestments with maturities of one year or less at the ti me of purchase are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those securities for which market quotations are readily available. The City allocates the fair value adjustment for unrealized gains and losses at J une 30 of each year. I merest earni ngs on i nvestments are al located to the i ndividual pooled funds quarterly based on each fund’s average quarterly pooled cash and investments balances. The City reported its investments at fair value and the unrealized losses on investments amounted to ($290,663) for the fiscal year endedj une 30, 2017.

Certai n disclosure requi rements, if appl icable, for Deposits and I nvestment Risks i n the fol lowi ng areas are presented in the footnotes:

• I merest Rate Risk• Credit Risk

OverallCustodial Credit Risk Concentration of Credit Risk

• Foreign Currency Risk

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F. Restricted Cash and I nvestments

Restricted cash and investments consist of cash and investments held ty fiscal agents that are restricted due to limitations on their use by bond covenants or cash or investments with donor limitations. Fiscal agents acting on behalf of the bond investors hold investments arising from the proceeds of longTerm debt issuances. The funds may be used for specific capital outlays or for the payment of certain bonds, certificate of participation or tax allocation bonds and have been invested as permitted by specific State statutes or applicable City ordinance, resolution or bond indenture. Cash held in the Water and Wastewater Rate Stabilization Fund were established under the issuance of bonds in 2009and 2014, respectively.

G. Receivables

Revenues are recorded when received i n cash, except revenues subject to accrual (up to 60 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the City, are sales tax, special assessments, intergovernmental revenues, other taxes, imerest revenue, rental revenue and certain charges for services.

Federal and State grams are considered receivable and accrued as revenue when all eligibility requirements have been met on the accrual basis of accounting in the government-wide statement of net positions. The amount recognized as revenue under the modified accrual basis of accounting in the governmental funds is limited to the amount that is deemed measurable and available.

Long-term loans receivable, which consist of the principal amount of the loan plus the accrued borrower’s deferredinterest is reported in the governmental fund statements with offsetting unavailable revenue as resources are not available for expenditure. LongTerm loans receivable reported in the governmental activities on the government- wide statement of net position is not offset by unavailable revenue as it is recorded on an accrual basis at its net realizable value based on an estimate of uncollectible amounts for loan losses.

B illed but not collected and unbilled utility revenue earned is recognized as revenue and accounts receivable in the enterprise funds.

H. Interfund Loans and Advances

Activity between funds that is representative of lending/borrcwing arrangements outstanding at the end of the fiscalyear is referred to as either “due to/from other funds” (i.e., the current portion of interTund loans) or “loans to/from other funds” (i.e., the non-current portion of interTund loans). All other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and businessType activities are reported in the government-wide financial statements as “internal balances.”

Management has determined that there are some interTund balances which may or may not be repaid within a reasonable period. U .S. GAAP permits the reporting of interTund balances such as interTund loans and advances only when repayment is expected within a reasonable period. However, City policy does not permit the elimination of interTund balances without City Council approval. Accordingly, interTund balances, which are not expected to be repaid within a reasonable period or not at all, have been offset by an allowance for uncollectible advances in both the borrowing and the lending funds.

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I. I nventory of S u ppl i es

I nventories consist of expendable supplies held for consumption. I nventories are valued at weighted average cost using the first-imfirst-out basis. Inventories of all funds are recorded as expenditures/expenses when consumed rather than purchased. I nventory of supplies is recorded in the Wastewater Fund, for the City’s Water, Wastewater, and Stormwater Enterprise Funds which operates as a central store for all of the City’s utilities.

J. Capital Assets

Capital assets are valued at historical cost or estimated historical cost if the actual historical cost was not available. Donated capital assets are valued at their estimated fair market value on the date donated. City policy has set the capitalization threshold for reporting capital assets at $5,000 for equipment and works of art; $10,000 for land, buildings, iimprovements and intangible assets; $50,000for infrastructure, alI of which must have an estimated useful life more than one year. Depreciation is recorded on a straight-line basis over estimated useful lives of the assets as follows:

B ui I di ngs and structures 30-50 yearsI improvements other than bui I di ngs 20-30 yearsM achi nery and equi pment 3-30 yearsI nf rastructure 30-100 years

M ajor outlays for capital assets are capital ized as projects progress and once constructed begi n depreciation. Repai rs and maintenance costs are expensed. I merest accrued during capital assets construction, if any, iscapitalizedforthe busi nessTy pe funds as part of the asset cost.

K. Capital Contributions

Capital contributions are comprised of cash and assets donated from developers. Connection fees are reported as capital contri butions i n the W ater Uti lity and W astewater Utility enterpri se funds.

L. Accrued Payroll and Related Liabilities

The City is on a semi-monthly payroll period, and employees are paid seven calendar days after the end of the payroll periods endi ng on the 15th and the end of the month or the last worki ng day before that date. As of J une 30, 2017, the payroll accrual is recorded in the respective funds when the related liability is incurred.

M. Accrued Compensated Absences

By negotiated labor agreements, employees accumulate earned but unused vacation, other compensated leave, and sick leave pay benefits. E mployees were al Icwed to apply 100% of accrued sick leave hours for additional Cal iforniaPublic Employees’ Retirement System (“CalPERS”) service credit upon retiremem depending upon bargaining unit and date of hire.

For employees separating from service after February 17, 2012, and before J une 30, 2015, vacation payouts are new paid in annual installments on the separation date equal to the greater of $10,000 or 1 /3 of the employee's accrued balance until paidinfull and sick leave accruals are no longer paid out. For those employees separating from service after J uly 1,2013, they receive their full vacation payout.

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M. Accrued Compensated Absence (Conti nued)

After subtracting the sick leave balance equivalent of one full year of service credit (2080 hours), which may be applied to CalPERS service credit, any sick leave balance remaining upon separation shall be paid at a specific percentage of the cash value to employees who have remained in City service until the dates specified in the labor agreements.

Government-Wide Financial Statements

For governmental and businessType activities, compensated absences are recorded as expenses when earned.

Fund Financial Statements

For governmental funds, compensated absences are recorded as expenditures in the year paid. The General Fund is typically used to liquidate compensated absences. I n proprietary funds, compensated absences are expensed to the various funds in the period they are earned, and such fund’s share of the unpaid liability is recorded as a longTerm liability of the fund.

N. Long-Term Debt

In the government-wide and proprietary fund financial statements, longTerm debt and other longTerm financial obligations are reported as liabilities.

BeforeJ uly 1,2013, bond premiums and discounts, as well as issuance costs, are amortized over the life of the bonds usi ng the straight-1 i ne method, which approxi mates effective i nterest method. B onds payable are reported net of the applicable premium or discount except for insurance prepaid bond insurance premiums.

I n the fund financial statements, governmental fund types recognize bond premiurns and discounts, as welI as bond issuance costs, in the year of issuance. The face amount of the 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. The differences between the government-wide and fund financial statements are shewn in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position.

O. Pensions

For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the net fiduciary position of the City’s CalPERS plans(Plans) and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as CalPERS report them For this purpose, benefit payments (including refunds of employee contri butions) are recognized when due and payable ty benefit terms. I investments are reported at fai r val ue.

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O. Pensions (Continued)

CalPERSValuation Date Jtne 30,2015M eastrement Date Jtne 30,2016M eastrement P eri od July 1, 2015 tojune 30, 2016

PARSValuation Date Jtne30, 2016M eastrement Date Jtne30, 2017M eastrement P eri od July 1, 2016 toj une 30, 2017

Gain and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gai n or loss.

P. Net Position

I n governmental-wide and proprietary fund financial statements, Net Position is categorized as follows:

Net I investment in Capital Assets - This component of net position consists of capital assets, net of accumulated depreciation, reduced ty the outstanding balances of debt that are attributable to the acquisition, construction, or i mprovement of those assets and i ncl ude deferred i nflows and outflows.

Restricted - This component of net position consists of restricted assets reduced by liabilities and deferred inflcws of resources related to those assets.

Unrestricted - This component of the net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of the net position.

When expenses are incurred for purposes for which both restricted and unrestricted net position are available, the City’s policy is to first spend the restricted net position.

Q. Fund Balances

For governmental fund financial statements, fund balances are categorized as folla/vs:

Nonspendable - Amounts that cannot be spent because they are (1) not in spendable form, such as prepaid items, inventories and longTerm receivables for which the payment of proceeds are not restricted or committed with respect to the nature of the specific expenditures of that fund or (2) legal ly or contractual ly requi red to be mai ntai ned i ntact.

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Q. Fund Balances (Continued)

Restricted - A mounts that are restri cted by external parti es such as creditors or i imposed ty grants, laws or regul ati ons of other governments or imposed by law through constitutional provisions or enabling legislation. The City has legislative restrictions on amounts collected and reported in the City’s various governmental funds. As a result, these restrictions have been classified as restricted for community development, debt service reserve, general government, housing projects/loans, libraries and arts, parks and recreation, public safety, public services, redevelopment projects, solid waste/recycling and streets, transit and traffic.

Committed- This amount indicates the portion of fund balances which can only be used for specific purposes under formal resolution or ordinance of the City Council. Commitments may be changed or lifted only ty the City taking the same formal action that i imposed the constrai nt origi nal ly.

Assigned - Amounts that have been allocated by action of an official authorized ty the Stockton City Council inwhich the City’s intent is to use the funds for a specific purpose. The City considers this level of authority to be theCity Manager.

Unassiqned - A mounts that constitute the resi dual bal ances that have no restri cti ons pi aced upon them. I f restri cti ons exceed avai lable resources at the end of the year, the deficit amounts are reported and classified as unassigned.

W hen expenditures are i ncurred for purposes for which both restricted and unrestricted fund balances are avai lable, the City’s policy is first to expend restricted fund balances, then unrestricted fund balances as they are needed.

When expenditures are incurred for purposes where only unrestricted fund balances are available, the City uses the unrestricted resources in the folla/ving order: committed, assigned, and unassigned depending on the nature of the expenditure

R. Property Taxes

Property taxes are levied on October 1 and are payable by property owners in two installments: November 1 and February 1 ofeachyear. Property taxes become delinquent on December 10 and April 10, for the first and second installments, respectively. The lien date is January 1. The County of San Joaquin, California (“County”) bills and col lects property taxes and remits them to the City accordi ng to a pay merit schedule establ i shed by the County. The County general ly operates under the Teeter Plan, whereby the County pays the City 1 00% of the taxes levied. The County assumes responsibility for collecting any delinquent amounts and upon collection retains the penalty and interest portion of those amounts. Therefore, no allowance for doubtful accounts is considered necessary.

The County is permitted by State law to levy taxes at 1% of full market value (at the time of purchase) and can increase the property tax rate no more than 2% per year or the current CPI, whichever is less. TheCity receivesa share of this basic tax levy proportionate to what it received duri ng the years 1980-1981.

Property tax revenue is recognized in the fiscal year for which the taxes have been levied, provided the taxes are received within 90 days after the end of the fiscal year. Property taxes received after this date are not considered available as a resource that can be used to finance the current year operations of the City and, therefore, are not recorded as revenue until collected.

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S. Use of Estimates

The preparation of basic financial statements in conformity with U.S. GAAP requires management to make esti mates and assumptions that affect the reported amounts and di sclosures. Actual results could differ from these estimates and assumptions.

T. I mplementation of Governmental Accounting Standards Board Statements

GASB has issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. This change is implemented at the plan level and did not have a significant impact on the City’s financial statements for the year ended J une 30, 2017.

GASB has issued Statement No. 77, Tax Abatement Disclosure. This Statement requires governments that enter into tax abatement agreements to disclose the follcwing information about the agreements: 1) Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients. 2) The gross dollar amount of taxes abated during the period 3) Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement. This statement became effective for periods beginning after June 15, 2016 and did not have a significant impact on the City’s financial statements for the year ended J une 30, 2017.

GASB has issued Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. This Statement amends the scope and appl icabi I ity of Statement 68 to excl ude pensions provided to employees of state or local governmental employers through a cost-shari ng multi pie-employer defi ned benefit pension plan that (1) is not a state or local governmental pension plan, (2) isused to provide defi ned benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. This statement became effective for periods begi nni ng after J une 15, 2016 and did not have a significant i impact on the City’s financial statements for the year ended June 30, 2017.

GASB has issued Statement No. 80, Blending Requirements for Certain Corrponent Units. The objective of this Statement is to i improve f i nancial reporti ng by clarifyi ng the fi nancial statement presentation requi rements for certai n component units. This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not Tor-prof it corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisionsof Statement No. 39, Determining Whether Certain Organizations A re Component Units. This statement became effective for periods beginning after J une 15, 2016, and should be applied retroactively. This statement did not have a significant impact on the City’s financial statements for the year ended June 30, 2017.

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T. I mplementation of Governmental Accounting Standards Board Statements

GASB has issued Statement No. 82, Pension I ssues. The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets ThatAre Not within the Scope of GASB Statement 68, and Amendments to Certain Provisionsof GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. This statement became effective for periods beginning after June 15, 2016, and should be applied retroactively. This statement did not have a significant impact on the City’s financial statements for the year ended J une 30, 2017.

Note 2- Cash, Cash Equivalents and I nvestments

The following is a summary of cash, cash equivalents, and investments, including restricted cash and investments on June 30, 2017:

Deposits:Cash on hand $ 700,694Demand deposits 49,897,807

Total deposits 50,598,501

Investments 476,358,695

Total cash and investments $ 526,957,196

Presented in the government-wide statement of net position:Cash and investments $ 426,116,712Restricted cash and investments 54,017,362

Presented in the statement of fiduciary net position:Cash and investments 43,289,715Cash and investments with fiscal agents 3,533,407

Total cash and investments $ 526,957,196

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Note 2- Cash, Cash Equivalents and I nvestments (Continued)

A. Cash Deposits

The carrying amount of the City’s pooled cash deposits was $49,897,807 at June 30, 2017. Bank balances beforereconciling items were $54,994,817 at that date, the total amount of which was insured or collateralized withsecurities held by the pledging financial institutions in the City’s name as discussed below.

The California Government Code requires California banks and savings and loan associations to secure the Fund’scash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the City's name.

The market value of pledged securities must equal at least 110% of the City's cash deposits. California law also al lows i nstitutions to secure City deposits by pledgi ng fi rst trust deed mortgage notes havi ng aval ue of 150% of the City’s total cash deposits. The City may waive collateral requirements for cash deposits, which are fully insured by the Federal Deposit I nsurance Corporation. The City, however, has not waived the col lateral ization requi rements.

The City follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal agents under the provisions of bond indentures or ty donor direction. Interest income from cash and investments with fiscal agents is credited directly to the related fund.

69




B. Authorized I nvestments

Investments Authorized by the California Government Code and City’s Investment Policy

The table below identifies the investment types that are authorized for the City ty the California Government Code orthe City’s investment policy, where more restrictive. The table also identifies certain provisions of the CaliforniaGovernment Code or the City’s investment policy, which are more restrictive to address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held ty the bond trustee that are governed ty the provisions of debt agreements of the City.

Maximum MinimumMaximum in Credit

Authorized Investment Type Maturity Portfolio QualitySecurities of the U.S. Government or its agencies:

U.S. Treasury Bonds, Notes and Bills 10 Years** No Limit N/AState of California Obligations 5 Years No Limit N/A49 other States Obligations 5 Years No Limit N/ACalifornia Non Stockton Local Agency Obligations 5 Years No Limit N/AU.S. Agency and U.S. Government sponsored

Enterprise Securities 10 Years** No Limit N/ACity of Stockton Obligations 5 Years* None NoneNegotiable Certificates of Deposit 5 Years* 30% AATime Certificates of Deposit 5 Years 30% N/ABankers' Acceptances 180 Days 40% N/ACommercial Paper 270 Days 25% Al, PI, F-lMedium-Term Corporate Notes 5 Years 30% ACalifornia Local Agency Investment Fund

- Investments made in County or other types of investment $65,000,000pools require due diligence Upon Demand per account N/A

California Asset Management Program Upon Demand No Limit N/ARepurchase Agreements 1 year None N/AReverse Repurchase Agreements 92 days 20% N/A

- If the City invests in Repurchase Agreements, a MasterRepurchase Agreement is required

Demand Accounts - Insured/Collateralized Medium Term Notes N/A No Limit N/AMutual Funds

SEC registered Money Market Funds limited to a percentage of theCity's surplus as narrowly defined in the California GovernmentCode Section 53601 et seq. N/A 20% AAA

* Limited to 5 years, except permits investment in variable rate demand obligations ** Securities with term to maturity greater than 5 years shall not exceed 15% of the total portfolio value.

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B. Authorized I nvestments (Conti nued)

I nvestments Authorized by Debt Agreements

Investments of debt proceeds held by the City’s bond trustee are governed by provisions of the debt agreement, rather than the general provisions of the California Government Code or the City’s investment policy. The tablebelow identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk.

Authori zed 1 nvestment Type

Maximum

Maturity

Minimum

Credit

Quality

Maximum

in

Portfolio

Maximum

1 nvestment

In One Issuer

R epurchase A gcements BOda/s Top Four Rating NoLirrit NoLirrit

U.S.Treasury Bonds, Notes and Bills NoLirritCategories

N/A NoLirrit NoLirrit

U.S. Agency and U.S. Government Sponsored NoLirrit NoLirrit NoLirrit NoLirrit

Enterprise Securities

State Oblicptions NoLirrit Not lower than their NoLirrit NoLirrit

Commercial Paper 270 daysbond rating

A-1 + NoLirrit NoLirrit

Negotiable Certificates of Deposit NoLirrit N/A NoLirrit NoLirrit

Time Certificates of Deposit NoLirrit N/A NoLirrit NoLirrit

Corporate Notes and Bonds NoLirrit Not lower than their NoLirrit NoLirrit

G uaranteed 1 nvestment Contracts NoLirrit

bond ratingNot lower than their NoLirrit NoLirrit

Shares of Beneficial 1 merest NoLirrit

bond rating

Top RatingCategory NoLirrit NoLirrit

M one/ M arket M utual Funds NoLirrit AAm 2CK NoLirrit

B ankers' A cceptances B65 days A-1 + 3CK 3CK

M uni a pal Bonds NoLirrit AAA NoLirrit NoLirrit

California Local Agency Investment Fund (LAIF) U pon Demand N/A $65,000,000 $65,000,000

1 nvestment A gcements NoLirrit AA- NoLirrit NoLirrit

71




C. I nvestments in Local Agency I nvestment F und

The City is a participant in LAIF which is regulated ty California Government Code Section 16429 under theoversight of the Treasurer of the State of California. The City’s investments in LAIF included a portion of pool funds invested in structured notes and asset-backed securities:

Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options.

Asset-Backed Securities, the bul k of which are mortgage-backed securities, entitle thei r purchasers to receive a share of the cash flows from a pool of assets such as pri nci pal and i merest repayments from mortgages (such as Collateralized mortgage obligations) or credit card receivables.

As of J une 30, 2017, the City had $65,000,000 invested in LAI F, which had invested 2.89% of the Pool investment funds i n medi umterm and shortTerm structured notes and asset-backed securities. The face value of the City ’ s position inthepool is the same as the value of the pool shares.

D. I nvestments i n Repurchase Agreements and M oney M arket F unds as a Sweep I nstrument

Repurchase agreements are a type of shortTerm investment where there is a sale of securities together with an agreement for the seller to buy back the securities at a later date. The City formerly had a repurchase agreement with Wells Fargo Bank as an overnight sweep of its operating cash account with a one-day maturity. The City has opted to move its sweep to a U.S. dollar-denominated money market instruments that consist of U.S. Government obligations and repurchase agreements collateralized ty U .S. Government obligations that invest in governmental securities. Essentially this serves to invest excess operating cash in the City’s investment pool overnight to receive an investment return on those funds. These repurchase transactions occur daily.

E. Fair Value of Investments

The City measures and records its investments using fair value measurement guidelines established ty generally accepted accounting principles. These guidelines recognize athreeTiered fair value hierarchy, as follows:

• Level 1: Quoted prices for identical investments in active markets;• Level 2: Observable inputs other than quoted market prices; and,• Level 3: Unobservable inputs.

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E. Fair Value of I nvestments (Continued)

At J une 30, 2017, the City had the fol lowi ng recurri ng fai r val ue measurements.

Fair Value Measurements Using

U.S.Agencies US Treasuries Medium Term Notes Commercial Paper Asset-backed securities Negotiable CDTotal investments by fair value level

________June 30, 2017 ________Level 1

$ 153,772,605 $83,755,88690,299,25221,484,72129,080,310

________ 10,000,000 _____________$______ 388,392,774 $_____________

Level 2 Level 3

$ 153,772,605 $83,755,88690,299,25221,484,72129,080,310

___________ 10,000,000 ____________$_________ 388,392,774 $____________

Investments Measured at the net assetvalue (NAV) Local Agency Investment Fund Money market mutual funds

Total investments measured at the NAV

65,000,000 _________ 22,965,921

87,965,921 $476,358,695

Debt and equity securities classified in Level 1 are valued using prices quoted in active markets for those securities. Debt and equity securities classified in Level 2 are valued using the foil cwing approaches:

• U .S. Treasuries, U .S. Agencies, and Commercial Paper: quoted prices for identical securities in markets that are not active;

• Medium term notes: quoted prices for similar securities in active markets;• Local Agency I nvestment F und: appl ication of the J une 30, 2017, fair value factor, as calculated, to the City ’ s

average daily balance in the Fund; and• A sset-backed securiti es: recent apprai sal s of the asset val ue.

73



Note 2- Cash, Cash Equivalents, and I nvestments (Continued)

F. Risk Disclosures

I nterest Rate Risk

As a means of limiting its exposure to fai rvalue losses arising from rising interest rates, the City's investment policy provides that final maturities of securities cannot exceed five years. The exceptions to this policy are that U.S. Treasury or U.S. Agency securities may be invested in greater than five years and investment in variable rate obligations of the City is permissible when allowed ty the IRS andSEC. Investments maturing beyond a five-year horizon should not exceed fifteen percent (15%) of the total portfolio value at any given time. The maturity of investments is evaluated before purchase depending on liquidity needs.

I nformation about the sensitivity of the fair values of the City’s investments (including investments held by fiscal agents) to market i nterest rate f I uctuati ons i s prov i ded by the fol I owi ng tabl e that shows the di stri buti on of the C i ty ’ s investments by maturity or earliest call date.

Investment Maturities

Investment Type Fair ValueorT"

1-3 years 3-5 years5 years

U. S. AgenciesU. S. TreasuriesMedium term notesLocal Agency Investment FundMoney market mutual funds Negotiable CD

Commercial paper

$ 153,772,605 $83,755,88690,299,25165,000,00022,965,92210,000,000

21,484,721

9,519,558 $

27,240,64865,000,00022,965,92210,000,000

21,484,721

82,586,625 $40,007,47834,954,543

61,529,17743,748,40828,100,054

$ 137,245

4,007

Asset backed securities 29,080,310 191,369 28,888,941 -

Total $ 476,358,695 $ 156,402,218 $ 186,437,587 $ 133,377,639 $ 141,252Allocation by percentage 100% 33% 39% 28% 0%

74




F. Risk Disclosure (Continued)

Credit Risk

Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. It is measured by the assignment of a rating ty a nationally recognized statistical rating organization.

Presented below is the actual rating as of J une 30, 2017, for each investment type as provided by Standard andPoor’s investment rating system:

Investment Type AAA/AAAm AA/AA+/AA- A/A+/A- A-1+ Total

Held by the City and its Component Units:U. S. Agencies:

Non-callable Medium term notes:

Non-callableCallable

Asset Backed Securities Money market mutual funds Commercial Paper

$ 130,286,164 $ $ $ 130,286,164

4,436,170 26,321,163 55,520,537 - 86,277,8704,014,174 - 4,014,174

15,355,006 - - - 15,355,0069,360,712 - - - 9,360,712

21,484,721 21,484,721

Held by Fiscal Agents:U. S. Agencies - 23,486,441Money market mutual funds 13,605,211 -

Total $ 42,757,098 $ 180,093,768 $ 59,534,711 $ 21,484,721

Not rated or exempt from rating disclosure:Local Agency Investment Fund U. S. TreasuriesNegotiable certificates of depositsMedium Term notes and Asset Backed Securities securities not rated by S&P

Total Investments

23,486,44113,605,211

$ 303,870,298

65,000,00083,755,88610,000,00013,732,511

$ 476,358,695

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F. Risk Disclosure (Continued)

Credit Risk (Continued)

The City's portfolio manager utilized ratings of S& P in compiling the previous table. I n August 2011, S& P took an extraordinary stance of downgrading the debt of the United States and numerous agencies whose debt it stands behind. Moody's and Fitch only took moves to Icwer the outlook on U.S. debt while still maintaining the AAA ratings on these entities. Injune2017, S&P maintained the AA+rating with a stable outlook that is still in place today. Moody's affirmed their AAA rating with stable outlook on August 24, 2017, and Fitch affirmed the AAA rati ng and brought the outlook to stable on A pri I 12, 2017.

Custodial Credit Risk

For an investment, custodial credit risk refers to the event in which the custodial bank (outside party) in possession of an investment security fails to supply the value of investments or collateral securities to the City upon demand. All securities, except the money market mutual funds and LAIF, are held ty a third party custodian, Union Bank of Cal ifornia (“U B OC”).U B OCi s a regi stered member of the Federal Reserve B ank and combi ned with B ank of Tokyo- Mitsubishi in 2014 to form MU FG Union Bank. The securities held ty UBOC are in the street name with a customer number assigned to the City that identifies ownership.

Concentration Credit Risk

The City’s investment policy regarding the amount that can be invested in any one issuer is stipulated ty the California Government Code. Concentrations of 5.0% or more in investments in any one issuer, held ty individual funds in the securities of issuers other than U.S. Treasury securities, mutual funds, and external investment pools are required to be disclosed.

AtJ une 30,2017, the City’s Pooled investments that represent a concentration in the securities of any individual issuers,other than U. S. Treasury securities or mutual funds, are set forth belcw:

IssuerHeld by City and its Component Units:

Federal National Mortgage Association Federal Home Loan Mortgage Corp Federal Home Loan Bank

InvestmentType

Federal Agency Securities Federal Agency Securities Federal Agency Securities

ReportedAmount

$ 60,289,611$ 45,958,388$ 20,243,909

Held by Fiscal Agent:Federal Home Loan Mortgage Corp Federal National Mortgage Association Federal Home Loan Bank

Federal Agency Securities Federal Agency Securities Federal Agency Securities

4,980,0503,546,1467,892,562

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G. Restricted Cash and I nvestments

Certain proceeds of revenue bonds and other longTerm liabilities are classified as restricted cash and investments on the Statement of Net Position as their use is limited ty applicable indentures or covenants. Covenants provide that these funds, in the absence of specific statutory provisions governing the issuance of bonds, certificates, or leases, may be i nvested ty the ordi nances, resol utions or i ndentures specifyi ng the types of i nvestments its trustees or fi seal agents may require. The ordinances, resolutions, and indentures are more restrictive than the City’s investment policy. Restricted cash and investments of the City are primary for the construction or acquisition of facilities, and reserves for payment of debt service as requi red by the bond i ndentures.

The City has a reserve policy governing the establishment of Rate Stabilization Fund for its Water, Wastewater, and Stormwater F unds. These reserves are to ease future revenue fI uctuations, where revenues are i nterrupted or otherwi se insufficient to offset the operating expenditures and to minimize the impact of rate increases. The City has established a Rate Stabilization Fund in the Water Fund in connection with the issuance of its 2010 Variable Rate Demand Water Revenue Bonds and the Wastewater Fund in connection with the 2014 Wastewater Refunding Bonds. The City use money on deposit in the Rate Stabilization Fund for any lawful purpose. All interest or other earnings in the Rate Stabilization Fund may be withdrawn and accounted for as revenues or used for any lawful purpose. The balance in the Water and Wastewater Rate Stabilization Accounts at June 30, 2017, was $2.7 million and $12.0 million, respectively.

AtJ une 30,2017, Government-Wide restricted cash and investments and restricted cash and investments with fiscal agents are as follows:

Governmental activities $ 3,112,987

Business-type activities:Water Utility 30,704,714Wastewater Utility 20,199,327Central Parking District 334

Subtotal 50,904,375

Total restricted cash and investments $ 54,017,362

Fiduciary $ 36,878,964

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Note 3- I nterfund T ransactions

A. Due To/F rom Other F unds

“Due to” and “ Due from” report lending transactions primarily when individual funds overdraw their share of pooledcash or when there are shortterm loans between funds. These balances are expected to be repaid shortly after the end of the fiscal year upon receipt of a grant or other reimbursements. There is $27,706 of interTund balances as of J une 30, 2017, as fol lews:

The most significant interfund transactions were as follows:

______ Fund Making Short Term Lean______ Fund Receiving Short Term Lean Amount

I nternal Service Fund -Workers' Compensation

Gas Tax -Transportati on Development Act $27,706

$27,706

78



Note 3- I nterfund T ransactions

B. Loans To/From Other Funds

“Loans to” and “loans from” balances represent loan activity between funds that is non-current. Interfund balances, which are not expected to be repaid within a reasonable period or not at all, have been offset ty an allowance for uncollectible loans.

The most significant i nterYund transactions were as fol lews:

Allowance for

UncollectibleFund Making Loan Fund Receiving Loan Amount Loans Net

Redevelopment Agency - Administration (Waterfront) Internal Service Funds -Workers' Comp. $ (500,000) $ $ (500,000)

Low Moderate Income Housing RDA Loans Redevelopment Agency Capital Projects Fund 1,724,441 1,724,441

Non-Major Governmental - CDBG Fund Redevelopment Agency Capital Projects Fund 11,010,102 (11,010,102)

Public Facilities Impact Fees Capital Projects Fund Redevelopment Agency Capital Projects Fund

Non-Major Governmental - Dev. Services Fund Redevelopment Agency Capital Projects Fund

Wastewater Utility Enterprise Fund Redevelopment Agency Capital Projects Fund

Parking Authority Fund Redevelopment Agency Capital Projects Fund 847,000 (847,000)

General Fund Redevelopment Agency Capital Projects Fund 706,917 (706,917)

Capital Improvement Capital Projects Fund Redevelopment Agency Capital Projects Fund Public Facilities Impact Fees Capital Proj. Func Non Major Enterprise Funds - Golf Courses Fu

Interest on Redevelopment Agency Loans

11,534,250991,738763,500

(11,534,250)(991,738)(763,500)

Total $ 27,077,948 $ (25,853,507) $1,224,441

79



Note 3- I nterfund Transactions (Continued)

C. Transfers

I nterfund transfers report the nonreci procal contri butions of resources from one fund to another that i ncl ude program support, debt service and settlement, and other oneTime transfers. The following is a summary of transfers for the year ended J une 30, 2017:

Transfers In Transfers Out NetTranstersGo/ernmental Activities:

General Fund Programs upport $ 2,008,527 $ (9,826,333) $ (7,817,809General Fund Debt S erv ice/S ettlemsnt - (1,443,873) (1,443,873)SSA Debt S erv ice/S ettlemsnt - (10,236,775) (10,236,779Low-M oderate 1 ncoms Housing-City Loans Debt S erv ice/S ettlemsnt - - -Capital Inprovemsnt Programs upport 8,272,500 - 8,272,500Capital Inprovemsnt Debt S erv ice/S ettlemsnt - (11,009 (11,009Other Governmsntal non-major funds Programs upport 1,070,332 (1,684,933) (614,601)Other Governmsntal non-major funds Debt Service 11,995,552 - 11,995,552Internal Service Funds Transfer Loan Obligation - (303,909 (303,909Internal Service Funds Programs upport 814,290 - 814,290Total govemmsntal activities 24,161,202 (23,506,819 654,384

B usiness4ypeActivities:Wastewater Utility Programs upport - (814,299 (814,299Central Parking District Debt S erv ice/S ettlemsnt - (910,094) (910,094)Other Enterprise non-major funds Programs upport 1,070,000 - 1,070,000Total business4ypeactivities 1,070,000 (1,724,384) (654,385)

Total government-wide statements $ 25,231,202 $ (25,231,202) -

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Note 4- S uccessor Agency - L oans from C ity, Net

With the dissolution of the Redevelopment Agency effective January 31,2012, the folla/ving loans are outstanding as of June 30, 2017, most of which are offset by an Allowance for Uncollectible Loans. The Successor Agency received its Fi ndi ng of Completion from the State Department of Finance on October 30,2014. On November 4,2015, the Oversight Board adopted a resolution finding 51 Redevelopment loans from the City were made for legitimate redevelopment purposes. Dissolution law required that the accrued interest on outstanding loans be recalculated quarterly at a simple interest of 3% from the date the loans were originally authorized by the former Redevelopment Agency. Also, the Department of Finance required to have approved resolutions and signed loan agreements for the loans to be approved for repayment. City staff was unable to locate signed loan agreements and approved resolutions for all of the 51 loans. Adjustments for the write off of all loans disallowed by the Department of Finance was made in the 2016-2017 fiscal year.

Also, the interest rate on the loans is limited to the Local Agency Investment Fund interest rate calculated from the inception of each loan. Therefore, the total amount cwed has been offset by an allowance for uncollectible interest ($4,926,751 as of J une 30, 2017) as the rate on loan was 3%.

Fund Making Loan Fund Receiving Loan Amount

Al 1 crwance for Uncollectible

Loans Net

Private-PurposeTrust FundSuccessorAgency to the Reda/elopment A epney 1 ntemal Service F unds -Workers' Comp. $ (500,000) S - S (500,000)

Low Moderate 1 ncome Housing RDA LoansPrivate-PurpaseTrust FundSuccessor Agency to the Reda/elopment Agency 617,860 - 617,860

Low Moderate 1 ncome Housing RDA LoansPrivate-PurpaseT rust FundSuccessor Agency to the Reda/elopment Agency 1,106,581 - 1,106,581

Non-MajorGcvernmental -CDBG FundPrivate-PurpaseT rust FundSuccessor Agency to the Reda/elopment Agency 6,083,352 (6,083,352) -

ParkingAuthority Enterprise FundPrivate-PurpaseT rust FundSuccessor Agency to the Reda/elopment Agency 847,000 (847,000) -

General FundPrivate-PurpaseT rust FundSuccessor Agency to the Reda/elopment Agency 706,917 (706,917) -

Capital 1 mprevement Capital Projects FundPrivate-PurpaseT rust FundSuccessor Agency to the Reda/elopment Agency 11,534,250 (11,534,250) -

1 nterest on Private-PurpaseT rust F und Successor Agency totheReda/elopmentAgency Loans 4,926,751 (4,926,751)

Total $ 25,322,711 $ (24,098270) $ 1,224,441

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Note 4- Successor Agency - Loans from City, Net (Continued)

• The $500,000 loan from the former Redevelopment Agency Waterfront Project Area to the City’s Downtown MarinaEnterprise Fund was for the initial start-up operations of the Dcwntcwn Marina I n the fiscal year ended J une 30, 2011, this loan obligation was transferred from the Downtown Marina to the Workers’ Compensation Internal Service Fund because the Downtown Marina did not have the demonstrated ability to repay the loan in the foreseeable future. The transfer of this obligation was done to offset a portion of another loan that the Workers’ Compensation Fund had extended to the Waterfront Project in the fiscal year ended June 30, 2010.

• The $617,860 of loans from the Low-Moderate I ncome Housing City Loans Special Revenue Fund to the former Redevelopment Agency Capital Projects Fund for payment of tax increment to the SanJ oaquin County Supplemental Educational Revenue Augmentation Fund under Assembly Bill 26 4x to be repaid in five installments beginning in the fi seal year 2011-12. The fi seal year 2011 -12 payment was not made due to the di ssol ution of the Redevelopment Agency effectivej anuary 31,2012.

• The $1,106,581 is a loan fromthe Low-Moderate Income Housing City Loans Special Revenue Fund to the former Redevelopment Agency Capital Projects Fund for the Waterfront Redevelopment ProjectArea.

• The $6,083,352 in loans from the CDBG Programs Special Revenue Fund to the former Redevelopment Agency Capital Projects Fund was for project area expenditures. Of this balance, $4,685,574 is subjeetto 3% annual interest. As of J une 30, 2017, outstanding accrued interest balance was $4,926,750.

• The $847,000 is a loan from the Central Parking District Enterprise Fund to the former Redevelopment Agency Capital Projects Fund for the Waterfront Redevelopment ProjectArea

• The $706,917 is a loan from the General Fund to the former Redevelopment Agency Capital Projects Fund for various project areas.

• The $11,534,250 from the Capital I improvement Capital Projects Fund totheformer Redevelopment Agency Capital Projects Fund represents loans for various project areas.

• The fiduciary fund has a special item recorded for the transfer of proceeds of $10,236,779 to the City to refund the 2003 5eries A & B.

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Note 5- Loans to Property Owners

Loans provided to property owners are managed by the City’s Economic Development Department. Loans receivables under the City’s loan programs atj une 30, 2017, are as foilcws:

Loan ProgramsFirst Time Home Buyers Program (HOME)Community Development Block Grant Programs Neighborhood Stabilization First Time Home Buyer Program California Home LoansLow & Moderate Income Housing Programs (former Agency)

Less: Allowance for doubtful accounts

Governmental Activites

PrincipalDeferredInterest Total

$ 39,166,439 $ 6,345,558 $ 45,511,99717,454,126 3,837,880 21,292,0069,120,402 557,200 9,677,6023,681,790 244,918 3,926,708

51,449,244 8,800,856 60,250,100$ 120,872,001 $ 19,786,412 140,658,413

(2,758,573) $ 137,899,840

The governmental funds report unavailable revenues from notes and loans receivable as a deferred inflow of resources. These amounts are recognized or reported as revenues in the period that the amounts become available.

First Time Horre Buyers Proqram(HOME)The Home Investment Partnerships Loan Programs are funded through U.S. Department of Housing and Urban Development HOM E funds. The programs include deferred gap financing loans for qualified firstTi me homebuyers, a/vner-occupied housing rehabilitation loans to qualified borrowers, and multifamily loans to qualified housing developers. Loan repayments are re-deposited into the program cash accounts and are redistributed as future loans.

Corrmunity Development Block Grant ProgramThe Community Development Block Grants Loan Programs are funded through U.S. Department of Housing and Urban Development CDBG funds. The programs include deferred gap financing loans for qualified firstTime homebuyers, owner occupied emergency repair loans, public facility project loans, and commercial loan programs. Loan repayments are re-deposited into the program cash accounts and are redistributed as future loans.

Neighborhood Stabilization ProgramThe Neighborhood Stabilization Program loans are funded through U.S. Department of Housing and Urban Development Neighborhood Stabilization program funds. The programs include acquisition, rehabilitation, and resale of foreclosed homes to qualified home buyers, deferred gap financing loans for qualified home buyers; and acquisition, rehabilitation, and rent of foreclosed properties in targeted areas. Loan repayments are re-deposited i nto the program cash accounts and are redi stri buted as future I oans.

83



Note 5- Loans to Property Owners (Continued)

California Home Loans ProgramThe California Home Loans Program are funded through the California Department of Housing and Community Development. The programs include deferred gap financing loans to qualified firstTime homebuyers and owner occupied rehabilitation loans. Loan repayments are re-deposited into the program cash accounts and are redistributed as future loans.

Low& Moderate Income HousingThe City’s Low & Moderate Income Housi ng Programs are funded through the Low and M oderate-l ncome Housi ng City LoansSpecial Revenue FundandStrong Neighborhoods Initiative Bond proceeds. The programs include loans for rehabilitation and construction of affordable housing units which are deed restricted for occupancy ty low and moderate income households for at least fifty Tive years. Interest income is recorded as payments are received.

Note 6- Capital Assets

A. Government-Wide Financial Statements

Atj une 30, 2017, the City’s capital assets consisted of the following:


Business - TypeActivities Total

Capital assets, not being depreciated:Land $ 43,038,796 $ 11,743,933 $ 54,782,729Intangible assets - easements 4,354,960 750,453 5,105,413Construction in progress 101,309,236 6,343,309 107,652,545

Total capital assets, not being depreciated 148,702,992 18,837,695 167,540,687

Capital assets, being depreciated:Infrastructure 556,307,846 - 556,307,846Buildings and improvements 305,438,815 1,025,209,487 1,330,648,302Machinery and equipment 70,239,983 14,676,504 84,916,487

Total capital assets, being depreciated 931,986,644 1,039,885,991 1,971,872,635

Less accumulated depreciation for:Infrastructure (183,644,309) - (183,644,309)Buildings and improvements (113,350,623) (337,244,038) (450,594,661)Machinery and equipment (44,958,809) (8,918,507) (53,877,316)

Total accumulated depreciation (341,953,741) (346,162,545) (688,116,286)

Total capital assets, being depreciated, net 590,032,903 693,723,446 1,283,756,349

Total capital assets, net $ 738,735,895 $ 712,561,141 $ 1,451,297,036

84



Note 6- Capital Assets (Continued)

B. Governmental Activities

Summary of changes in governmental activities capital assets for the year ended June 30, 2017, are as follows:

Governmental activities:Balance

July 1, 2016 Additions Deletions TransfersBalance

June 30, 2017Capital assets, not being depreciated:

Land $ 43,038,796 $ $ $ $ 43,038,796Intangible assets - easements 4,354,960 - - - 4,354,960Construction in progress 108,807,479 13,816,744 (3,820,483) (17,494,505) 101,309,236

Total capital assets, not being depreciated 156,201,235 13,816,744 (3,820,483) (17,494,505) 148,702,992

Capital assets, being depreciated:Infrastructure 543,771,346 59,063 - 12,477,437 556,307,846Buildings and improvements 305,438,815 - - - 305,438,815Machinery and equipment 62,358,258 4,759,404 (2,709,036) 5,831,357 70,239,983

Total capital assets, being depreciated 911,568,419 4,818,467 (2,709,036) 18,308,794 931,986,644

Less accumulated depreciation for:Infrastructure (170,718,108) (12,926,201) - - (183,644,309)Buildings and improvements (106,480,890) (6,869,733) - - (113,350,623)Machinery and equipment (42,410,064) (5,088,866) 2,540,121 - (44,958,809)

Total accumulated depreciation (319,609,062) (24,884,800) 2,540,121 - (341,953,741)

Total capital assets, being depreciated, net 591,959,357 (20,066,333) (168,915) 18,308,794 590,032,903

Governmental activities capital assets, net $ 748,160,592 $ (6,249,589) $ (3,989,398) $ 814,289 $ 738,735,895

Governmental activities depreciation expenses for capital assets for the year ended J une 30, 2017, are as fol lews:

t

Governmental Activities:General Government Public Works Parks & Recreation library Public Safety Internal Service Funds

Total

$ 3,362,05013,646,960 2,270,336

181,548 780,454

4,643,453

$ 24,884,800

85




C. Business-Type Activities

Summary of changes in businessType activities capital assets for the year ended J une 30, 2017, are as follows:

Business-type activities:Balance



LandIntangible asset - easementsConstruction in progress

$ 13,090,320750,453

7,938,161

$

4,098,482

$ (1,346,388)

(27,639)

$

(5,665,694)

$ 11,743,932750,453

6,343,310

Total capital assets, not being depreciated 21,778,934 4,098,482 (1,374,027) (5,665,694) 18,837,695

Capital assets, being depreciated:Buildings and improvementsMachinery and equipment

1,019,447,19513,065,735

96,5982,435,398 (10,339)

5,665,694(814,290)

1,025,209,48714,676,504

Total capital assets, being depreciated 1,032,512,930 2,531,996 (10,339) 4,851,404 1,039,885,991

Less accumulated depreciation for:Buildings and improvementsMachinery and equipment

(315,300,898)(8,311,176)

(21,943,139)(617,670) 10,339

- (337,244,037)(8,918,507)

Total accumulated depreciation (323,612,074) (22,560,809) 10,339 - (346,162,545)

Total capital assets, being depreciated, net 708,900,856 (20,028,813) _ 4,851,404 693,723,446

Business-type activities capital assets, net $ 730,679,790 $ (15,930,331) $ (1,374,027) $ (814,290) $ 712,561,141

BusinessType activities depreciation expenses for capital assets for the year ended June 30, 2017, are as follows:

Business-type Activities:Water Utility $ 7,649,189Wastewater Utility 11,975,939Stormwater Utility 1,611,045Parking Authority 713,204Golf Courses 79,561Marina 531,869

Total $ 22,560,809

86




D. Fiduciary Fund Activities

Summary of Changes in Fiduciary Fund capital assets for the year endedj une 30, 2017, are as follows:

Fiduciary fund activities:Balance



LandIntangible assets - easements

$ 12,897,928100,000

$ $ $ $ 12,897,928100,000

Total capital assets, not being depreciated 12,997,928 12,997,928

Capital assets, being depreciated: InfrastructureBuildings and improvementsMachinery and equipment

10,898,54911,229,529

471,547

- - - 10,898,54911,229,529

471,547

Total capital assets, being depreciated 22,599,625 22,599,625

Less accumulated depreciation for: InfrastructureBuildings and improvementsMachinery and equipment

(1,777,094)(4,940,052)

(186,142)

(249,630)(343,980)(18,641)

- - (2,026,724)(5,284,032)

(204,783)

Total accumulated depreciation (6,903,288) (612,251) (7,515,539)

Total capital assets, being depreciated, net 15,696,337 (612,251) 15,084,086

Governmental activities capital assets, net $ 28,694,265 $ (612,251) $ $ $ 28,082,014

Fiduciary fund depreciation expenses for capital assets for the year endedj une 30, 2017, are as fol lows:

Fiduciary Fund Activities:Successor Agency $ 612,251

87



Note 7- LongAerm Liabilities

A. Governmental Activities

Summary of changes in governmental activities I ong^rm debt for the year ended June 30, 2017, are as follows:

City DebtCity Debt Sei

; Refunding Bonds2006A ESB Lease Revenue Refunding Bonds $10,385,000

(51,681)$ 9,915,000

(48,292)490,000 $ 9,425,000

(3,389) (44,903)

2003A RDA Housing Projects Certificates of Participation

2003B RDA Housing Projects Certificates of Participation Total Certificates of Participation

985,000(7,762)

10,515,000

(985,000)

(10,515,000)

Assured Settle] Total Settlemer

tent Obligai : Obligation

41,943 53,547,04941,943 53,547,049

Other Long-Term ObligationsCDBG

USD-HUD Housing Note (4)USD-HUD Housing Note (1 replaced with new 1) USD-HUD Housing Note (2 paid off FY15,3 replac

Subtotal CDBG

8,680,0001,150,0003,930,000

(515,000)(200,000)(685,000)

8,165,000950,000

3,245,000

505,000 7,660,000215,000 735,000735,000 2,510,000

1,455,000 10,905,000

Capital Lease OgUgattonsCapital / Equip (Fire) Tax-Exempt Lea Capital / Equip (Civic-HVAC) Tax-Ex. Capital / Equip (Fire) Tax-Exempt Lea Capital/Equip (Fire) Tax-Exempt Leas Capital/Equip (Fire) Tax-Exempt Leas

State- Animal Control Facility Obligatioi Total Capital Leases and Loan

Total

e Obligation-2008 mpt Lease Obligation-2010 e Obligation-2013

: Obligation- 2015 : Obligation- 2017

504,199889,991

1,144,0872,000,000

(69,649)(205,983)(175,545)(177,700)

(152,350)

434,550684,008968,542

1,822,3001,860,900

72,364216,622181,338184,600167,536

362,186467,387787,203

1,637,7001,693,364

>0,900 $(14,168,356) $81,586,000 $ 2,806,014 $78,779,986

88



Note 7- LongTerm Liabilities (Continued)

A. Governmental Activities (Conti nued)

Lease Revenue Bonds

2006 Lease Revenue Refunding Bonds. Series A (the “2006 Bonds”)

The 2006 Bonds were issued by the Stockton Public Financing Authority (SPFA) in the amount of $13,965,000 on April 6, 2006. As of June 30, 2017, bonds totaling $9,915,000 are due in semi-annual installments ranging from $490,000 on August 1,2017, to $875,000 on August 1,2031, with interest rates ranging from 4.0% to 4.5% and a final maturity date of August 1, 2031. The 2006 Bonds are insured and have a reserve fund surety provided ty National Public Finance Guaranty (“NPFG”).

The 2006 Bonds were issued to advance refund and retire $13,795,000 in outstanding 1999 Certificates of Participation which were used to finance a portion of the acquisition and construction of the Stewart/Eberhardt B uiIding and an adjacent parking facility in downtown Stockton.

The 2006 Bonds are limited obligations of the SPFA payable solely from all amounts received by the SPFA or the Trustee under the Lease Agreement and other assets pledged under the I ndenture.

The Leased Premises consists of the Stewart/E berhardt Building (the “Eberhardt Building”) located at 22 East WeberAvenue and the adjacent public parking facility located at 15 North El Dorado Street in downtown Stockton.

The General Fund is obligated to make the lease payments, and no other funds are legally pledged to the repayment of the 2006 Bonds. The Parking Authority has budgeted to pay 100% of the debt service. The unamortized loss on refunding of debt was previously reported as a contra liability in the longTerm debt. With the implementation of GASB Statement No. 65, the balance on the loss of refunding is reported as a deferred outflow of resources in the amount of $452,124. The principal amount due is reported net of the unamortized discount of $48,292.

Certificates of Participation

Certificates of Participation Series 2003A and Taxable Series 2003B (the “2003 COPs”)

The 2003 COPs were issued to finance the construction of capital improvements to provide redevelopment housing. The 2003 COPs were refunded in November 2016 through the issuance of tax allocation bonds by the Successor Agency of the Redevelopment Agency of the City of Stockton. Proceeds of the 2016 Series A and B Tax AI location bonds provi ded $ 10.2 5 mi 11 i on i n resources to defease the 2003 CO Ps, whi ch previ ously had a pi edge of C i ty G eneral Fund resources that were to step in should tax increment resources prove insufficient to provide ongoing debt payments on the bonds.

For additional information on the Successor Agency 2016SeriesA and B Tax Allocation Bonds, seethe Successor Agency section of this note, directly following the section on Business-Type Activities.

89





Pension Obligation Bonds

Taxable Pension Obligation Bonds 2007 Series A and Series B (the “2007 POBs)

The 2007 POBs were issued on March 26, 2007, to refinance the obligation of the City to make payments to the California Public Employees Retirement System for retirement benefits accruing to its employees and retirees. The 2007 POBs for Series A were issued in the amount of $96,985,000. As of June 30,2017, bonds totaling $87,330,000 were due in installments of principal ranging from $2,545,000 on September 1,2017, to $8,400,000 on September 1, 2037, with interest rates ranging from 5.14% to 5.455%, and a final maturity date of September 1, 2037. The 2007 POBs for Series B were issued in the amount of $28,325,000. At June 30, 2016, bonds totaling $28,325,000 are due in installments of principal ranging from $715,000 on September 1, 2018, to $2,800,000 on September 1, 2037, with i merest rates rangi ng from 5.675% to 5.795%. The Series A and Series B for the 2007 POB s are i nsured ty Assured G uaranty and do not have a reserve fund. The above I iabi I ities are written down and an alternate liability is being recorded which reflects the payments required ty the City under a settlement agreement reached with Assured Guaranty. This background on the original liabilities is shown in this footnote due to the bonds still trading in the secondary markets.

As part of a settlement between the City and Assured G uaranty, that became effective upon i mplementation of the approved Plan of Adjustment. The City is obligated, under a revised indenture, to pay a new series of payments. That series of payments is made up of Non-Contingent General Fund payments which are made up of three types; 5pecial Fund, Ask, and 5upplemental, which have all been determined, from $1,489,254 on July 1, 2017 to $2,009,482 due onj uly 1,2053; Ask Fund payments are due in in installments ranging from $1,334,875 onj une 1, 2018 to $2,531,250 due onj une 1,2052; and$upplemental Payments are due in installments of $250,000fromj une 1, 2023, toj une 1,2042, and installments of $350,000 fromj une 1,2043, toj une 1,2052. Additionally, there are Contingent General Fund Payments, which are yet to be determined by future revenues of the City’s General Fund. These Contingent Payments extend fromj une 1,2018, toj une 1,2053, should General Fund Revenues require them to be made. The payment duej une 1,2018, is currently anticipated to be $2,106,000.

Payments made after the origi nal debt service end date of 5eptember 1, 2037, wi 11 be retai ned by Assured G uaranty. The obligation of the City to pay these settlement amounts when due is an absolute and unconditional obligation of the City imposed ty law, and is not limited to any special source of funds. U nder the Revised I ndenture, the City is obi igated to deposit non-conti ngent settlement payments with the Trustee as detai led above and reflected i n the table below.

U nder the settlement agreement, payments are to be made from all legally available funds and resources available to the City. U nder extraordinary events, the City may notice Assured Guaranty and suspend contingent payments. 5hould this occur, unpaid amounts accrue i nterest at the Pri me Rate pi us 3% and must be paid no later than ten years after the suspension date. Additionally, any delinquent payments due under the agreement shall also accrue interest at the pri me rate pi us 3%.

90





Pension Obligation Bonds (Continued)

Taxable Pension Obligation Bonds 2007 Series A and Series B (the “2007 POESs) (Continued)

Debt Service on the original bonds expires in Sept 2037, and payments under the settlement agreement extend to July 2053. If contingent payment streams drastically exceed expectations, it is possible that scheduled payments could reach a point of paying back funds forwarded and accrued interest associated with these funds. Should this occur, it is possible that payments could cease beforej uly 2053.

The City settlement with Assured Guaranty was confirmed as part of the City’s Approved Bankruptcy Plan of Adjustment. The plan for the adjustment of the City’s debts provides for material modifications of the City’s obl igations on the 2007 POB s and results i n a schedule of payments reflected i n the fol lowi ng table.

Annual Debt Service Requirements to Maturity

Year Ending Lease Revenue Bonds Special Fund Payments 2007 Lease Ask Payments Supplemental PaymentsJune 30, Principal Interest Principal Interest Principal Interest Principal Interest

2018 $ 490,000 $ 418,894 $ 41,943 $ 1,447,311 $ $ 1,334,875 $ $2019 510,000 398,894 69,384 1,444,997 1,334,8752020 530,000 378,094 99,423 1,441,170 1,334,8752021 550,000 356,219 130,569 1,435,686 1,334,8752022 570,000 333,188 164,013 1,428,483 1,334,875 - -

2023-2027 3,240,000 1,272,447 1,129,250 6,965,567 12,649,688 1,250,0002028-2032 4,025,000 468,563 1,053,420 6,687,459 12,647,251 1,250,0002033-2037 2,006,729 6,298,195 12,651,565 1,250,0002038-2042 4,240,216 5,529,620 5,678,669 6,969,832 1,250,0002043-2047 5,890,078 4,157,332 8,257,125 4,393,189 1,123,634 626,3662048-2052 7,703,946 2,343,464 10,797,340 1,850,661 1,493,943 256,0572053-2057 3,709,308 309,656

Total $ 9,915,000 $ 3,626,298 $ 26,238,279 $ 39,488,940 $ 24,733,134 $ 57,836,561 $ 2,617,577 $ 5,882,423

The amounts in the annual debt service requirements to maturity schedule are the scheduled debt service under the bond indentures and settlement agreements.

91





Other Loncnterm Obligations

Notes Payable

The City entered i nto four Section 108 loan guarantee agreements with the U .S. Department of Housi ng and U rban Development to complete redevelopment projects. The first loan was paid off on August 1,2014 and as of June 30, 2017, the second loan totaling $1,150,000 has notes due in installments ranging from $ 215,000 to $260,000 that are to be paid August 1,2017, through August 1, 2020, with interest rates ranging from 0.93% to 1.98%; the third loan with payments totaling $4,575,000 has notes due in installments ranging from $735,000 to $890,000 that are due to be paid from August 1,2016, through August 1,2020, with interest rates ranging from 0.93% to 1.98%. The fourth loan with payments totaling $8,680,000 remaining has notes due in installments ranging from $500,000 to $1,920,000 and are to be paid through August 1,2024, with interest rates ranging from 4.56% to 5.25%. Repayment of the loans is made from program income received under the City’s housing loans program

Annual Debt 5ervice Requirements to Maturity

Notes PayableU.S. Dept, of Housing & Urban Development

Year EndingJune 30, Principal Interest

2018 1,455,000 461,1592019 1,515,000 426,9272020 1,600,000 385,8142021 1,675,000 338,5952022 1,750,000 270,002

2023-2027 4,365,000 277,130

Total $ 12,360,000 $ 2,159,627

92





Annual Debt Service Requirements to Maturity (Continued)

Capital Lease Obligations

Fire Vehicles- (Lease#l)

On April 17, 2007, Resolution 07-0133 approved the execution of a Master Equipment/Lease Agreement in the amount of $7,000,000 with Banc of America Leasing and Capital, LLC to provide a tax-exempt financing mechanism and established the underlying financing tool for designated capital projects. Linder the terms of the M aster Equi pment/Lease Agreement, the City authorized the purchase of an aerial fi re truck and water rescue vehicle for the Fire Department in the amount of $1,000,000. The remaining $6,000,000 of the original amount authorized by City Council was never utilized and is no longer available due to the City’s bankruptcy filing. The longTerm master lease agreement with Banc of America Public Capital Corporation for the purchase of these vehicles has lease payments due on April 26 and October 26 through October 26, 2022, with an interest rate of 3.862%.

The assets acquired through the capital lease are as follows:

The assets acquired through the capital lease is as follows:

Machinery and Equipment $ 1,005,792Less: Accumulated depreciation (669,140)

Total $ 336,652

Civic Auditorium’s Heating, Ventilation & Air Conditioning (HVAC) $ystem-( Lease#2)

On December 15,2009, Resolution 09-0422 approved the execution of a lease purchase agreement with Wei Is Fargo $ecurities, L LC i n an aggregate amount not to exceed $2,236,000 to provide a tax-exempt fi nanci ng mechanism and establish the underlying financing tool for replacement of the $tockton Memorial Civic Auditorium’s HVAC system. The City authorized the purchase and installation of the HVAC system, making use of $1,930,000 of the amount authorized. The remaining portion of the project costs was covered through federal grant funding. The lease agreement has payments due on February and August through February 2020 with an interest rate of 5.10%. Lease payments are repayable from the Capital I mprovement Projects Fund.

The assets acquired through the capital lease is as follows:


Total $ 1,388,672

93





Annual Debt 5ervice Requirements to Maturity (Continued)

Capital Lease Obligations (Continued)

Fire Pumper Trucks- (Lease#3)

On January 24, 2012, Resolution 2012-01-24-1504 approved the execution of a tax-exempt lease through Oshkosh Capital in the amount of $1,795,506 to purchase 4 Pierce Fire PumperTrucks. Modifications to the contract increased the lease amount to $1,871,404. The tax-exempt lease has annual lease payments due on 5eptember 15, through 5eptember 15, 2021, with an interest rate of 3.300%.

The assets acqui red through the capital lease are as fol lows:


Total $ 1,330,776

Fire Engines and Ladder Truck - (Lease#4)

On May 19, 2015, Resolution 2015-05-19-1212 approved the execution of a tax-exempt lease through TPB Investments, Inc.in the amount of $2,000,000 to purchase 3 Pierce Fire Pumper Trucks and one Ladder Truck. The tax-exempt lease has annual lease payments due on February 1 and A ugust 1 of each year, through A ugust 1, 2025, with an i nterest rate of 3.900%. The trucks were del ivered i n fal I 2016.

The assets acqui red through the capital lease are as fol lows:


Total $ 2,580,334

Two Fire Engines and Ladder Truck - (Lease #5)

On February 7, 2017, Resolution 2017-02-07-1210 approved the execution of a tax-exempt lease through Western Alliance Business Trust in the amount of $1,860,900 to purchase 2 Pierce Fire Pumper Trucks and one Ladder Truck. The tax-exempt lease has annual lease payments due on February 1 and August 1 of each year, through August 1, 2025, with an interest rate of 4.140%. Delivery of the trucks is expected in spring 2018.

94





Annual Debt Service Requirements to Maturity (Continued)

Capital Lease Obligations (Continued)

These five leases qualify as capital leases for accounting purposes and have been recorded at the present value of the future minimum lease payments. As of June 30, 2017, the future minimum lease obligations and the net present value of this minimum lease payments are as follows:

2007 B of A Civic HVAC Pierce Oshkosh 2015 W A leaseYear Ending Capital Lease #1 Capital Lease #2 Capital Lease #3 Capital Lease #4

June 30, Principal Interest Principal Interest Principal Interest Principal Interest

2017 W A LeaseCapital Lease #5

Principal Interest

2018

20192020 2021 2022

2023-2027

16,090 216,622 32,157 181,338

13,269 227,810 20,969 187,32310,337 239,577 9,202 193,504

7,291 - - 199,8904,126 - - 206,486839---

184,600 69,287

191,900 62,018199.500 54,460

207.400 46,603215.500 38,436823.400 65,469

167,536 59,759

158,816 68,478165,459 61,835

172,380 54,914179,591 47,704

1,017,118 119,355

Total $ 434,551 $ 51,952 $ 684,009 $ 62,328 $ 968,541 $ 97,960 $ 1,822,300 $ 336,273 $ 1,860,900 $ 412,046

StateAnimal Control Obligation

The City had claimed $2.9 million fromj uly 1, 1998 through June 30, 2007, in unreimbursed Animal Adoption Program cost from State of California (“State”). Upon audit of the mandated cost claims, the State disallowed $1.9 mi 11 ion of the costs clai med by the City. The State also determi ned that FY 2002 and 2003 amounts were never reimbursed to the City, which amounted to $282,150. These audit findings required the City to pay the remainder of $1.7 million back to the State ty May 15, 2011; hcwever, instead of paying this amount in lump-sum, the State agreed that the City’s future reimbursement claims would be used to reduce this liability. This liability was reduced ty $915,365 from FY 2012-2015 due to the reimbursement clai ms submitted by the City. In FY 2015-16, the City’s remaining obligation was decreased by additional $651,501. The balance of the obligation at June 30, 2016 was $152,350. This balance was reduced to zero in the fiscal year 2016-17.

95




B. Business-Type Activities

Summary of changes in businessType activities I ongTerm debt for the year ended June 30, 2017, are as follows:Water UtilitvObliaations Balanceat Balanceat

Payments /J une 30, 2016 Acfcltions Reductions June 30, 2017 Current Non-Current

2002A CSCDA WaterRevenue Bonds $ 6,560,000 $ _ $ (806000) $ 5,756000 $ 640,000 $ 4,916000Discount (97,164) " 14,219 (82,945) (14,219) (66726)

2005A Water System Revenue Bonds 24,230,000 - _ 24,230,000 150,000 24,080,000Premium 86761 " (4,468) 82,294 4,468 77,826

2009A Water System Revenue Bonds 5,656000 - (5,656000) - - -2009B Water System Revenue Bonds (Taxable) 164,550,000 - - 164,550,000 3,83 6000 150,716000

Premium 896065 - (40,424) 856641 40,424 816217201QA Water System Demand Revenue Bonds (2013 Conversion) 53,810,000 - (136000) 53,676000 130,000 53,646000Prerrium(From 2013 Conversion) 3,026373 - (124,331) 2,901,642 124,330 2776712Federal Drought Relief Act Loan 82,678 - (82,678) - - -

Total Water Utility 248,796713 - (6,832,682) 241,966032 6110,003 236856029

WasteiAater UtilitvObliqations2014 Wastewater Refunding Revenue Bonds 66,210,000 - (3,346000) 62,866000 3,490,000 ©,376000

Prerrium(on 2014refunding 9,613,747 - (729,980) 8,883,767 729,981 6153,786Total WasteiAater Utility 75,823,747 - (4,074,980) 71,746767 4,219,981 67,526786

Parkina AuthorityParking Bond Settlement Obligation 25,203,471 - (113,535) 25,089,936 119,487 24,970,449

Total -Central Parking Debt 25,203,471 - (113,535) 25,089,936 119,487 24,970,449

Marina OperationCDBW Harbor Facility Constructionand Planning Loans 10,870,822 - - 10,870,822 - 10,870,822

Total -MarinaDebt 10,870,822 - - 10,870,822 - 10,870,822

Total -EnterpriseFundActivities Debt $ 360,696753 _ $(11,021,197) $ 349,676 557 '5 9,449,471 $ 340,226086

96




B. Business-Type Activities (Continued)

Water Utility

The bonds and notes of the Water Utility are secured ty and payable from certain revenues of the City's water enterprise fund (the “Water Fund”), amounts that are derived from "property related fees" collected by the City for water service. Application of amounts in the Water Fund is governed by the requirements of Article X111D, Section 6 of the California Constitution, which provides that the Water Fund may only be used for the water enterprise, and may not be used for general governmental purposes. The City is in compliance with its covenants in connection with its obligations, including covenants on the current rates and charges, and the Water Fund has revenues sufficient to meet the operation and maintenance costs of the water enterprise, scheduled debt service and required debt service coverage. The City’s Approved Bankruptcy Plan of Adjustment did not directly impact repayment of the bonds.

California Statewide Community Development Authority Revenue Bonds Series 2002A

On April 16, 2002, the City participated in the California Statewide Community Development Authority Water and Wastewater Revenue Bond (Pooled Financing Program), Series 2002A, (the “2002A Bonds”) which issued 2002A Bonds in the amount of $14,280,000 for the City. As of June 30, 2017, $5,755,000 of the 2002A Bonds are outstanding with installments of principal ranging from $840,000 on October 1,2017, to $1,090,000 on October 1, 2022, with interest rates ranging from 4.8000% to 5.125%. The 2002A Bonds were issued to refinance prior water system expansion bonds. Net revenues of the Water Fund are pledged towards repayment of the 2002A Bonds. The unamortized loss on refunding of debt was previously reported as a contra liability of the longTerm debt balance. With the implementation of Government Accounting Standard Board (“GASB”) Statement No. 65, the balance of the loss on refunding is reported as a deferred outflow of resources in the amount of $98,107. Also, bond issuance costs related to prepaid insurance remained unamortized at J une 30, 2017. The principal amount due is reported net of unamortized discount of $82,945.

97





Water Utility (Continued)

Stockton Public Financing Authority Revenue Bonds Series 2005A

The 2005 Water Revenue Bonds, Series A (Water System Capital Improvement Projects) (the “2005A Bonds”) were issued in the amount of $24,230,000 by the Stockton Public Financing Authority (“SPFA”) on November 3, 2005.As of June 30, 2016, $24,230,000 of 2005A Bonds remain outstanding with installments of principal ranging from $150,000 to $2,350,000 beginning October 1,2017, through October 1, 2035, and interest rates ranging from 4.0% to 5.0%. Net revenue for the water fund is pledged towards repayment of the 2005A Bonds. The 2005A Bonds were issued to finance various water system capital improvement projects. The principal amount due is reported net of the unamortized premium of $82,293.

Please refer to Subsequent Events Note 17 for information regarding the partial call of the above bonds that occurred in October 2017.

Stockton Public Financing Authority Revenue Bonds Series 2009B

The 2009 Water Revenue Bonds, Series B (Taxable Build America Bonds, Delta Water Supply Project) (the “2009B Bonds”) were issued in the amount of $154,550,000 ty the Stockton Public Finance Authority on August 11,2009. The 2009B Bonds were issued as “Build America Bonds” under the provisions of the American Recovery andReinvestment Act of 2009. The SPFA receives a cash subsidy from the U nited States Treasury under the Recovery Act equal to 35% of the i nterest payable on or about each I merest Payment Date. The amount of the subsidy received for the year endedj une 30, 2017, was $3,889,251 net of a reduction due to sequestration. As of J une 30,2017, there are $154,550,000 in 2009B Bonds outstanding remaining with installments of principal ranging from $3,835,000 to $13,570,000 beginning October 1,2017, through October 1,2038, and interest rates ranging from 6.09% to 7.942%. The 2009B Bonds were issued for the design and construction of the first phase of the Delta Water Supply Project. The pri nci pal amount due is reported net of the unamortized premi um of $855,641. Net revenues of the Water Fund are pledged towards repay mem of the 2009B Bonds.

The City was notified that under sequestration the subsidy payment would be reduced by 6.9% for the federal fiscal year ending September 30, 2017.

It is anticipated that future subsidy payments will be subject to similar sized reductions. As long as this reduction continues at this level, net system revenues are projected to be adequate to maintain the coverage requiremem (see Debt Covenants below).





Water Utility (Continued)


The 2010 Water Revenue Bonds, Series A (DeltaWater Supply Project) (the “2010A Bonds”) were issued in the amount of $55,000,000 by the SPFA on October 20,2010. TheSPFA originally issuedthe2010A Bonds as variable rate demand bonds i n weekly mode. Due to an inabi I ity to successful ly obtai n a new Letter of Credit whi le i n Chapter 9 bankruptcy, the 2010A Bonds were remarketed inalongTerm, fixed rate mode on November 26, 2013. As of J une 30, 2017, $53,675,000 of 2010A B onds remai n outstandi ng with i nstal I ments of pri nci pal rangi ng from $ 130,000 to $16,500,000 beginning October 1,2017, through October 1, 2040, with interest rates ranging from 4.0% to 6.25%. There was no gai n or loss as a result of the current refundi ng.

The bonds were issued for the design and construction of the first phase of the DeltaWater Supply Project. The repayment of the 2010A Bonds is from a pledge of net revenues of the Fund. The principal amount due is reported net of the unamortized prenium of $2,901,042.

Pledge Revenues

The C ity has pi edged future net system revenues from the W ater F und for the repay merit of al I of the Revenue B onds of the Water Fund. For the year ended J une 30, 2017, total principal and interest paid was $23,441,755, and net revenues were $23,240,742 after including the Build America Bonds Subsidy and after a deposit of $2,100,000 in Rate Stabi I ization F und resources. The total pri nci pal and i nterest remai ni ng to be paid on the W ater U ti I ity Revenue Bonds are $488,720,882.

Debt Covenants

The Revenue Bonds all require the maintenance of afinancial covenant of mini mum debt service coverage (DSC) ratio. The minimum DSC ratio for the senior bonds is 115% of net system revenues, which are pledged for repayment of senior revenue bonds. The minimum DSC ratio for subordinate bonds is 115% of net system revenues after the payment of senior bonds. The DSC ratio is the measure of the Water Fund’s ability to have sufficient resources to pay its debt service. The Water Fund has met its DSC for the fiscal year endedj une 30, 2016, at each measurement, first on senior lien bond, and then on subordinate lien bonds.

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Wastewater Utility

The bonds of the Wastewater Utility are secured ty and payable from certain revenues of the City's wastewater enterprise fund (the “Wastewater Fund”), amounts that are derived from"property related fees" collected by the City for wastewater service. Application of amounts in the enterprise fund is governed by the requirements of Article X111D, 5ection 6 of the California Constitution, which provides that the enterprise fund may only be used for the wastewater enterprise, and may not be used for general governmental purposes. The City is in compliance with its covenants in connection with its obligations, including covenants on the current rates and charges, and the Wastewater Fund has revenues sufficient to meet the operation and maintenance costs of the wastewater utility, scheduled debt service and required debt service coverage. The City’s Approved Bankruptcy Plan of Adjustment does not impact repayment of the bonds.

5tockton Public Financing Authority

W astewater Revenue Refundi ng B onds, 5eries 2014 (1998 W astewater Project and 2003 W astewater Project) were issued in an amount of $69,440,000 by the 5PFA on November 24, 2014. As of June 30, 2017, bonds totaling $59,375,000 are due i n annual i nstal I ments of pri nci pal rangi ng from $3,490,000 to $6,530,000 begi nni ng 5eptember 1,2017, through 5eptember 1,2029, with i nterest rates rangi ng from 4.00% to 5.00% on the bonds outstandi ng. The Bonds were issued to advance refund the 1998 and 2003 certificates of participation. Repayment of the Bonds is a pledge of net revenues of the Wastewater Fund. With the implementation of Government Accounting 5tandard B oard (“G A5 B ”) 5tatement No. 65, the balance of the loss on refundi ng i s reported as a deferred outf lew of resources and at J une 30, 2017, there is $2,075,977 outstanding. The principal amount due is reported net of the unamortized premium of $8,153,786.

Pledge Revenues

The City has pledged future net revenues from the W astewater F und for the repayment of the COPs and B onds. For the year ended June 30, 2017, the City paid total principal and interest of $6,483,900 and had net revenues of $33,167,866. At J une 30, 2017, the total principal and interest remaining to be paid on the Wastewater Bonds are $85,596,900.

Debt Covenants

The Bonds require the maintenance of a financial covenant of minimum debt service coverage (D5C) ratio. The minimum D5C ratio for Bonds is 115% of Adjusted Net 5ystem Revenues which are pledged toward repayment of all bonds. TheD5C ratioisthe measure of theWastewater Fund’s ability to have sufficient resources to pay its debt service. TheWastewater Fund has met its D5C for the fiscal year endedj une 30,2017, at each measurement period.

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Parking Authority

Lease Revenue Bonds. Series 2004 (“2004 Parking Bonds”)

The 2004 Parking Bonds were issued in the amount of $32,785,000 ty the SPFA onj une 25, 2004. As of J une 30, 2017, the 2004 Parking Bonds totaling $29,270,000 are due in annual installments of principal ranging from $670,000 on 5eptember 1, 2017, to $2,950,000 on 5eptember 1, 2034, with interest rates ranging from 4.50% to 5.25%, and a final maturity date of 5eptember 1, 2034. The 2004 Parking Bonds were issued to finance the construction of the 5tockton Events Center Parking 5tructure, the Edward 5. Coy Parking Garage, and other parking facilities within the Parking Authority. The above bonds, held by investors, while still outstanding has been replaced by an alternate liability of the Parking Authority (“Authority”), which at June 30, 2017, totaled $24,970,449, and was due in installments ranging from $119,487 to be paid in FY 2017 and $1,795,823 to be paid in FY 2047. These principal installments reflect the payments required by the Authority under a settlement agreement reached with the I nsurer of the Bonds, National Public Finance Guaranty (“NPFG”). Additional explanation on the liability and how it is reflected is shown belcw.

The 2004 Parking Bonds are special limited obligations of the 5PFA payable from and secured ty revenues, consisting primarily of lease payments to be made by the City, as lessee, to the 5PFA, as lessor, under a Lease Agreement datedj une 1,2004. The lease payments are made i n exchange for the right to use and occupy the property consisting of the property constructed with bond proceeds and an existing parking facility of the City, and the sites on which such parking facilities are located.

On December 17, 2013, the City, by council action established the Parking Authority of the City of 5tockton (“Authority”), a new component unit of the City, to operate the parking facilities of the City as described in the settlement with NPFG. U nder the terms of the agreement, the City was required to transfer the parking properties (including those built with the original bond proceeds) over to the Authority, who in turn assumed the revised lease of the assets from the C ity, who had I eased them from the 5 P FA under the ori gi nal agreement.

U nder the Revised Lease, the Authority is obligated to deposit with the Trustee the payment of debt service under the settlement on February 25 and August 25 each year, commencing with 2015 and the pledge to make payments from any available source is no longer in place, but rather is limited to the Authority. In March of 2012, the City defaulted on the 2004 Parking B ond Lease payments and under this new payment structure has an altered obligation, reported in tables elsewhere in this footnote.

The Authority also maintains surface parking and parking meters throughout the District and levies a special tax on properties within the District under the M el lo-Roos Community Facilities District Act of 1982. Linder the existing documents, the special tax is not pledged as security for the 2004 Parking Bonds, or on the settlement payments.

The principal and interest amounts reported below are based on total settlement payments discounted at the average rate of payment required on the remaining bonds when they were written off. Which is in compliance with Governmental Accounting 5tandards Board 5tatement 58 (GA5B 58) which is the authoritative literature for government bankruptcy implementation. As part of a settlement between the City and NPFG, that became effective upon implementation of the Approved Bankruptcy Plan of Adjustment, the City is obligated under a revised indenture to pay a new series of payments, which are due February 25 and August 25 of each year, commencing with 2015 and the pledge to make payments from any available source is no longer in place, but rather is limited to gross Authority revenues. That series of payments extends to February 25, 2047. The difference between these payments and the original debt service scheduled on these bonds is to be made up by NPFG. Payments which extend beyond the original debt service end date of 5eptember 1,2034, will be retained ty NPFG.

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Downtown Marina

Construction and Planning Loans

On March 17, 1997, the City entered into an agreement with the California Department of Boating and Waterways (“DBAW”) for a planning loan to provide funding for a feasibility study regarding the potential construction of waterfront improvements. That feasibility study was approved on May 16, 2000, and the City entered into an agreement with DBAW for the construction loan to develop a small craft harbor facility on August 9, 2004. E ngi neeri ng work began i n the fiscal year 2006. Construction of the faci I ity started duri ng the fiscal year ended J une 30, 2009, and the project was completed in 2011. The principal remaining to be paid on both the planning and construction loans as of J une 30, 2017, is $10,870,822.

The construction note was scheduled to be repaid under a 30-year repayment schedule at 4.5% interest beginning in August 2011. Repayment of the Note is secured by a pledge of the gross revenues of the Downtown Marina, which have been insufficient to pay the full debt service. The loan provides that, subject to the requirements of Article X VI, 5ection 18 of the California Constitution (the “Debt Limit”), the City will make up any shortfall in debt service after application of Marina revenues. The Marina does not currently generate sufficient annual revenues to cover operational costs (net of debt service), and the City continues to provide an annual subsidy to the operator to cover this shortfall.

The City’s settlement with DBAW as to the treatment of this obligation was confirmed as Part of the City’s Approved Bankruptcy Plan of Adjustment. The terms of the settlement call for the outstanding principal to be paid from net operati ng revenues of the M ari na operation, with no interest accrui ng on the unpaid porti on. The settlement removes the General Fund backing and a reserve fund balance formerly in place in the General Fund has been removed. With operations continuing to receive an annual subsidy, it is unkncwn when any principal reduction payment will occur.

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Annual Debt Service Requirements to Maturity

Year Ending Lease Revenue Bonds Special Fund Payments 2007 Lease Ask Payments Supplemental PaymentsJune 30, Principal Interest Principal Interest Principal Interest Principal Interest

2018 $ 490,000 $ 418,894 $ 41,943 $ 1,447,311 $ $ 1,334,875 $ $2019 510,000 398,894 69,384 1,444,997 1,334,8752020 530,000 378,094 99,423 1,441,170 1,334,8752021 550,000 356,219 130,569 1,435,686 1,334,8752022 570,000 333,188 164,013 1,428,483 1,334,875 - -

2023-2027 3,240,000 1,272,447 1,129,250 6,965,567 12,649,688 1,250,0002028-2032 4,025,000 468,563 1,053,420 6,687,459 12,647,251 1,250,0002033-2037 2,006,729 6,298,195 12,651,565 1,250,0002038-2042 4,240,216 5,529,620 5,678,669 6,969,832 1,250,0002043-2047 5,890,078 4,157,332 8,257,125 4,393,189 1,123,634 626,3662048-2052 7,703,946 2,343,464 10,797,340 1,850,661 1,493,943 256,0572053-2057 3,709,308 309,656

Total $ 9,915,000 $ 3,626,298 $ 26,238,279 $ 39,488,940 $ 24,733,134 $ 57,836,561 $ 2,617,577 $ 5,882,423

C. Fiduciary Fund Activities

Summary of changes in fiduciary fund longTerm liabilities for the year endedj une 30, 2017, are as follows:

Successor Agency to RDA of Stockton June 30,2016 Additions Reductions June 30,2017 Current Non-Current

Revenue Bonds2004 Arena Settlement Obligation 2006 A Redevelopment SNI Revenue Bonds 2006C Redevelop SNIHousingRevs -Taxable

Premium2016 Series A Successor Agency Tax Allocatic

Premium2016 Series B Successor AgencyTax Allocatio

DiscountTotalRDA Liabilities

(Taxable)

$ 39,978,51849,160,000 22,285,000

1,616,349

S 113,039,867

$

73,310,00010,039,29530,010,000

(253,772)

$ (39,978,518) (49,160,000) (22,285,000)

(1,616,349)

(375,301)

21,598S (113,393,570)

$

73,310,0009,663,994

30,010,000(232,174)

$

73,310,000 562,951 F 9,101,042

4,195,000 25,815,000(32,396) (199,778)

4,725,555 $ 108,026,265

The fiduciary fund has a special item recorded for the transfer of proceeds of $10,236,779 to the City to refund the 2003 Series A & B.

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C. F iduciary F und Activities (Continued)

Successor Redevelopment Agency

Revenue Bonds Series 2004 (Event Center - Arena Project)

The Redevelopment Agency of the City of Stockton issued the Series 2004 Revenue Bonds to provide funds to fi nance a portion of the costs of an i ndoor arena consisti ng of approxi mately 220,000 square feet, i ncl udi ng faci I ities for ice hockey, indoor football, indoor soccer, concerts and other events with a total seating capacity of approximately 10,000. The Series 2004 Revenue Bonds were refunded in November 2016through the issuance of tax allocation bonds ty the Successor Agency of the Redevelopment Agency of the City of Stockton. Proceeds of the 2016 Series A and Tax Allocation bonds provided resources to defease the Series 2004 Revenue Bonds, which previously had a pledge of City of Stockton General Fund resources in the event that tax increment resources were insufficient in providing ongoing debt payments on the bonds.

For additional information on the Successor Agency 2016 Series A and B Tax Allocation Bonds, see below.

Revenue Bonds Series 2006 (Strong Neighborhoods I nitiative)

The SPFA issued Revenue Bonds (Redevelopment Projects), 2006 Series A, Taxable Revenue Bonds (Redevelopment Projects, 2006 Series B and the Taxable Revenue Bonds (Housing Projects, 2006 Series C (the “SNI Bonds”)) to finance certain redevelopment projects within or of benefit to the M idta/vn, North Stockton, and South Stockton Redevelopment Projects and to finance certain lew, and moderate income housing projects throughout the City. Proceeds of the 2016 Series A and B Tax Allocation bonds provided resources to defease the 2006 Series A andC bonds.

2016Tax Allocation Refunding Bonds. SeriesA and B (Federally Taxable)

The Successor Agency issued the 2016 Tax Allocation Bonds, SeriesA in the amount of $73,310,000 on November 3, 2016 to provide funds to refinance bonds issued in 2004 to finance a portion of the downtown Arena, and 2006 SeriesA bonds used to finance redevelopment projects in the North, South, and Midtown projects areas of the former Redevelopment Agency.

As of June 30, 2017, the 2016 Series A Bonds totaling $73,310,000 are due in annual installments of principal ranging from $610,000 onSeptember 1,2024to $7,195,000 onSeptember 1,2037, with final payment on September 1, 2037, with interest rates ranging from 3.00% to 5.00%. The principal amount due is reported net of the unamortized premium of $9,663,994.

The 2016 Tax Allocation Bonds, Series B (Federally Taxable) were issued in the amount of $30,010,000 on November 3, 2016 to provide funds to refinance Certificates of Participation issued in 2003 to finance the construction of capital improvements to provide redevelopment housing in the City of Stockton, and 2006 Series C Bonds issued to finance certain lew, and moderate income housing projects throughout the City of Stockton.

As of June 30, 2017, the 2016 Series B Bonds totaling $30,010,000 are due in annual installments of principal ranging from $4,195,000 on September 1, 2017 to $3,415,000 on September 1, 2037, with final payment on September 1, 2037, with interest rates ranging from 1.375% to 2.75%. The principal amount due is reported net of the unamortized discount of $232,174.

104




C. F iduciary F und Activities (Continued)

Successor Redevelopment Agency (Continued)

The 2016 Series A and B bonds are I i nited obi igations of the S uccessor Agency secured by a fi rst charge and I ien on, and a security interest in Tax Revenues received by the Successor Agency pursuant to the laws of the State of California related to Redevelopment Property Tax Trust Fund (“RPTTF”) and the revenues of the former Redevelopment Agency under California Health and Safety Code Sections 34183 and 34170.5(b), whereby the County Auditor-Controller is obligated to deposit the Tax Revenues into the RPTTF.

Annual Debt Service Requirements to Maturity2016 Series A Successor Agency 2016 Series B Successor Agency

Year Ending June 30,

Tax Allocation Bonds Tax Allocation Bonds (Taxable)Principal Interest Principal Interest

2018 3,373,800 4,195,000 582,5162019 - 3,373,800 3,565,000 524,7092020 - 3,373,800 3,625,000 466,2912021 - 3,373,800 3,685,000 399,9882022 - 3,373,800 3,760,000 323,188

2023-2027 9,120,000 16,372,500 11,180,000 427,5692028-2032 25,290,000 11,551,500 - -2033-2037 31,705,000 5,080,088 - -2038-2042 7,195,000 149,688 - -

Total $ 73,310,000 $ 50,022,776 $ 30,010,000 $ 2,724,260

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D. Debt Without City Commitment

Land Secured Debt Financing (No City Commitment) - The City has authorized the formation of community facilities districts (CFDs) and assessment districts (called local improvement districts) or LIDs and the issuance of bonds under various publ ic i improvement acts of the State of Cal ifornia to fi nance el igi ble publ ic faci I ities necessary to serve developing commercial, industrial, residential and/or mixed-use developments. The bonds are secured by annual special tax levies or liens placed on the property within the districts.

The City is not liable for repayment and is only responsible for collecting the special taxes or assessments, making payment from the special taxes or assessments to bondholders, and initiating foreclosure proceedings when necessary. These bonds are payable solely from special taxes or assessments, specific reserves, and the proceeds from property foreclosures. Accordingly, the bonds are not reported as liabilities in the City’s basic financial statements. As of J une 30, 2017, there was one CFD special tax bond and five revenue bonds outstanding with aggregate principal amounts payable of $18,275,000 and $50,310,000, respectively.

Changes from last year are due to the 2016 Assessment and 5pecial Tax District refunding which reclassed many CFD and AD district debt into a combined revenue bond.

Conduit Debt (No City Commitment) - As of J une 30, 2017, there is no longer any conduit debt outstanding that was issued with the City as the conduit issuer

Note 8- Accrued Compensated Absences

The value of all accumulated vacation and longevity vacation allowance is accrued, as appropriate, for all funds. Earned but unused sick is not accrued starting with negotiated bargaining unit contracts that began inthe fiscal year 2012-13 and continued through J une 30, 2017. The bargaining unit contracts state that all sick time accrual has no cash value upon separation from the City.

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Note 8- Accrued Compensated Absences (Continued)

The compensated absence accrual is presented in the Government-Wide and Business Type proprietary fund financial statements. The changes in compensated absences of governmental and businessType activities are as follows:

Governmental Business-TypeActivities Activities Total

Beginning July 1, 2016 $ 10,969,717 $ 1,075,294 $ 12,045,011Additions 6,500,635 828,363 7,328,996Payments (6,244,280) (811,852) (7,056,132)

Balance June 30, 2017 $ 11,226,071 $ 1,091,805 $ 12,317,876

Current Portion $ 5,665,532 $ 741,600 $ 6,407,132

Non-Current Portion $ 5,560,539 $ 350,205 $ 5,910,744

Governmental Actvities ISF - ST ISF - LT

Total excluding ISF

11,226,071 (290,673) (204,877)

$ 10,730,521

Note 9-Unamortized Loss on Refundings

Summary of Changes in Unamortized Loss on Refundi ngs for the year ended J une 30, 2017, is as follows:

Governrrantal Funds2006 Essential Service B uilding Refinance Subtotal Ccvernrrental Funds

Municipal Utility Enterprise Debt Obligations 2002 Deferred amounts on refunding 2014Wastewater Refunding Revenue Bond Subtotal -Business Activities

Total Deferred Arraunt on Refunding

B egin B alance at 7/1/2016

Additions DeletionsEnding Balance

at 6/30/2017

$ 483,853 $ $ 31,728 $ 452,124483,853 - 31,728 452,124

114,925 - 16,819 98,1062,246,561 - 170,583 2,075,9772,361,486 187,403 2,174,083

$ 2,845,339 $ - $ 219,131 $ 2,626,207

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F or the Y ear E nded J une 30, 2017

Note 10 - Fund Balances

A summary of the City ’ s fund balance classification as nonspendable, restricted, committed, assigned and unassignedreported in the City’s Governmental Funds balance sheet at June 30, 2017, are as follows:

HOME Low-Moderate TotalGeneral Program Income Housing Capital Other Governmental

Fund Loans City Loans Improvement Governmental Funds:und balances:

Nonspendable:Inventories $ 466,296 $ $ $ - $ $ 466,296Prepaid expense 62,852 - - - - 62,852Advance deposits 762,357 - - - 372,879 1,135,236Other nonspendable asset 247,168 - - - - 247,168

Total Nonspendable 1,538,673 - - - 372,879 1,911,552

Restricted for:Section 108 Loan 1,277,452 - - - - 1,277,452Community development - - - - 24,272,746 24,272,746Debt service reserve - - - - 1,549,904 1,549,904General government - - - 25,289,277 1,890,168 27,179,445Housing - 111,497 - - 2,394,343 2,505,840Libraries and arts 3,325,981 - - 667,547 9,067,333 13,060,861Parks and recreation - - - - 9,523,730 9,523,730Public safety - - - - 5,826,540 5,826,540Solid waste/recycling - - - - 1,897,711 1,897,711Streets, transit & traffic - - - - 36,577,612 36,577,612

Total Restricted 4,603,433 111,497 - 25,956,824 93,000,086 123,671,840

Committed for:General government operations 56,439,123 - - - - 56,439,123

Total Committed 56,439,123 - - - - 56,439,123

Assigned for:General government operations 3,922,291 - - - - 3,922,291

Total Assigned 3,922,291 - - - - 3,922,291

Unassigned: 36,183,615 _ 3,507,039 _ (54,903) 39,635,751Total Fund Balances $ 102,687,135 $ 111,497 $ 3,507,039 $ 25,956,824 $ 93,318,063 $ 225,580,557

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For the Y ear E nded J une 30, 2017

Note 11 - Retirement Plans

The City contributes to three pension plans: The Safety Plan of the City of Stockton; the M iscellaneous Plan of the City of Stockton, which are both part of the Public Agency portion of the California Public Employees’ Retirement System (CalPERS); and the City of Stockton Retirement Enhancement Plan, a customized supplemental retirement plan administered by Public Agency Retirement Services (PARS) for municipal utilities employees, who worked under a private contract between 2003 and 2008.

Summary:

CalPERSDeferred Outflows:

SafetyContribution after measurement Date Earnings

Total 2017

$ 24,192,82336,358,385


$ 24,192,82336,358,385

$

Business Type Activities

60,551,208 60,551,208 -

M iscellaneous:Contribution after measurement Date 13,734,030 10,281,158 3,452,872I nvestments 27,702,678 20,737,918 6,964,730

41,436,708 31,019,106 10,417,602

PARSEarnings 184,593 - 184,593

184,593 - 184,593Total Pension Deferred Outflows $ 102,172,509 $ 91,570,314 $ 10,602,195

Net Pension Liability: Safety

Net Pension Liability $ (302,114,751) $ (302,114,751) $ -

M iscellaneousNet Pension Liability (162,194,089) (121,416,873) (40,777,216)

PARSNet Pension Liability (3,957,319) - (3,957,319)

Total Net Pension Liability $ (468,266,159) $ (423,531,624) $ (44,734,535)

Deferred I nflows: Safety

AssumptionExperience

$ (8,454,07Q $(5,383,027)

(8,454,07Q $ (5,383,027)

$ (13,837,097) $ (13,837,097) $ -

M iscellaneous:Assumption $ (2,256,263) $ (1,689,016) $ (567,247)Experience (7,514,822) (5,625,521) (1,889,301)

$ (9,771,085) $ (7,314,537) $ (2,456,548)

PARSAssumption $ - $ - $ -Experience (88,106) - (88,106)

$ (88,106) $ - $ (88,106)Total Pension Deferred 1 nflows $ (23,696,28$ $ (21,151,634) $ (2,544,654)

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Note 11 - Retirement Plans (Continued)

A. CalPERS Retirement Plan

General I nformation about Pension Plans

CalPERS is an agent multiple-employer agency trust, that acts as acommon investment and administrative agent for participating public entities in the State of California and provides retirement, disability and death benefits to plan members and beneficiaries. CalPERS benefits are payable monthly for life in an amount equal to a certain percent of the employee's highest annual salary. Benefit provisions and all other requirements are established by contract with CalPERS, State statute, and City ordinance. Copies of the CalPERS comprehensive annual financial report may be obtained from the CalPERS Executive Office, 400 Q Street, Sacramento, CA, 95811.

PARS is an agent multiple-employer agency trust that acts as a common investment and administrative agent for participating public entities in the State of California Annual financial reports for the aggregate Plan may be obtained ty contacting PARS directly.

Plan Description - All qualified permanent and probationary employees are eligible to participate in the City of Stockton’s separate Safety (police and fire) and Miscellaneous (all other) Plans, agent multiple-employer defined benefit pension plans administered by CalPERS, which acts as acommon investment and administrative agent for its participating member employers. Benefit provisions under the Plans are established by State statute and City resolution. CalPERS issues publicly available reports that include afull description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

The Safety Plan is for sworn Police and Fire employees. The contribution requirements of the plan members and the City are established and may be amended ty CalPERS.

The M iscellaneous Plan is available to full Time employees not enrolled in the Safety Plan. PartTime employees must meet specific criteria for participation. City employees are eligible for service or normal retirement at age 55 or older with a mi ni mum of five years Cal PE RS service. The contri bution requi rements of the plan members and the City are established by CalPERS and may be amended.

110




A. CalPERS Retirement Plan (Continued)

General I nformation about Pension Plans (Continued)

Benefits provided - CalPERS provides service retirement and disability benefits, the annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits for public safety employees are calculated as a percentage of the employee’s final 3-year average salary times the employees’ years of service. Public safety employees with ten years of continuous service are eligible to retire atage 55. Public safety employees may retire at any age after 20 years of service. The Plans’ provisions and benefits in effect at J une 30, 2016, are summarized as follows:

Hire DateBenefit Vesting Schedule

Benefit Formula Benefit PaymentsRequired Employee Contribution Rates Required Employer Contribution Rates

SafetyPrior to January 1, 2014

5 years service Tier II Fire: 3% @ 55 years of age

All Other: 3% @ 50 years of age monthly for life

9.00% 41.385%

After January 1, 2014 5 years service

2.7% @ 57 years of age monthly for life

11.25% 41.385%

Hire DateBenefit Vesting Schedule

Benefit Formula Benefit PaymentsRequired Employee Contribution Rates Required Employer Contribution Rates

Miscellaneous Prior to January 1, 2014

5 years service Tier I: 2% @ 55 years of age

Tier II: 2% @ 60 years of age monthly for life

7.00% 20.090%

After January 1, 2014 5 years service

2% @ 62 years of age monthly for life

6.25% 20.090%

Employees Covered - At June 30, 2017 the following employees were covered under benefit terms:

Safety Plan Miscellaneous FlanInactive employees or beneficiaries currently receiving benefits 818 1398Inactive employees entitled to but not yet receiving benefits 148 528Active employees 540 938

1506 2864

111





General I nformation about Pension Plans (Continued)

Contributions-The City establishes rates based on an actuarially determined rate recommended by an independent actuary. The actuarial ly deterni ned rate i s the esti mated amount necessary to fi nance the costs of benefits earned by the employee during the year, with an additional amount to finance any unfunded accrued liability. The City is requi red to corrtri bute the difference between the actuarial ly deterni ned rate and the corrtri bution rate of employees. For the year ended June 30, 2016, the Safety Plan employer contribution rate was 41.385% of wages. The M i seel I aneous PI an was 20.09% of wages.

Net Pension Liability

The City’s net pension liability was measured as of J une 30, 2015, using an annual actuarial valuation as of J une 30, 2014, rol led forward to J une 30, 2015, usi ng standard update procedures.

Actuar ial assumptions - The total pension I iabi I ity on J une 30, 2014, the actuarial val uation was determi ned usi ng the folIewing actuarial assumptions, applied to all periods included in the measurement:

Safety Plan Miscellaneous Plan

Valuation Date 6/30/2015 6/30/2015

Measurement Date 6/30/2016 6/30/2016

Actuarial Cost Method Entry-Age Normal Cost Method

Actuarial Assumptions:Discount Rate 7.65% 7.65%

Inflation 2.75% 2.75%

Payroll Growth 3.00% 3.00%

Projected Salary Increase Varies a) Varies

Investment Rate of Return 7.50% (2) 7.50%Mortality see note (3) see note

(1) Depending on age, service and type of employment(2) Net of pension plan investment expenses, including inflation(3) The mortality table used was developed based on CalPERS specific data. The table includes 20

years of mortality improvements using Society of Actuaries BB. For more details on this table, please refer to the 2014 experience study report

Mortality rates were based on the RP-2000 Healthy Annuitant Mortal ity Table for Males or Females, as appropriate, with adjustments for mortality improvements based on Scale AA.

The actuarial assumptions used on J une 30, 2014, valuation were based on the results of an actuarial experience study for the period from 1997 to 2011.

112





Net Pension Liability (Continued)

Discount rate - The discount rate used to measure the total pension liability was 7.65 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that the City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the employee rate. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of currently active and inactive employees. Therefore, the longTerm expected rate of return on pension plan i investments was appl ied to al I periods of projected benefit payments to determine the total pension liability.

The longTerm expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combi ned to produce the longTerm expected rate of return by weighti ng the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of real arithmetic rates of return for each major asset class are summarized in the following table:

The target allocation and best estimates of arithmetic real reates of return for each major asset class are summarized in the following table:

Safety Plan/Miscellaneous PlanNew Strategic Real Return Years Real Return Years

Asset Class Allocation l-10(a) ll+(b)

Global Equity 51.9% 5.25% 5.75%Global Fixed Income 20.3% 0.99% 2.43%Inflation Sensitive 6.0% 0.45% 3.36%Private Equity 9.0% 6.83% 6.95%Real Estate 10.8% 4.50% 5.13%Infrastructure and Forestland 0.5% 4.50% 5.09%Liquidity 1.5% -0.55% -1.05%

Total 100.0%

113





Changes in the Net Pension Liability

The changes in the Net Pension Liability for each Plan are as follows:

Safety Plan

Increase (Decrease)

Total Pension Plan Fiduciary Net Pension

Liability Net Position Liability(•') (b) (a)-(b)

Balances at 06/30/2015 $ 934,566,397 $ 682,984,347 $ 251,582,050Changes for the year:Service cost 13,548,998 13,548,998Interest 69,765,169 69,765,169Differences between expected and actual experience (3,570,311) (3,570,311)Contributions-employer 20,338,253 (20,338,253)Contributions-employee 5,940,342 (5,940,342)Net investment income 3,348,803 (3,348,803)Benefit payments, including refunds of employee (51,615,173) (51,615,173)Administrative expense (416,243) 416,243Other changesNet Changes 28,128,683 (22,404,018) 50,532,701Balances at 06/30/2016 $ 962,695,080 $ 660,580,329 $ 302,114,751

Miscellaneous PlanIncrease (Decrease)

Total Pension Plan Fiduciary Net PensionLiability Net Position Liability

(a) (b) (a)-(b)

Balances at 06/30/2015 $ 651,214,143 $ 517,450,480 $ 133,763,663Changes for the year:Service cost 9,240,648 9,240,648Interest 48,179,529 48,179,529Differences between expected and actual experience (8,961,502) (8,961,502)Plan to plan resource movement 933 (933)Contributions-employer 13,879,482 (13,879,482)Contributions-employee 3,971,944 (3,971,944)Net investment income 2,491,249 (2,491,249)Benefit payments, including refunds of employee (34,150,397) (34,150,397)Administrative expense (315,359) 315,359Other changesNet Changes 14,308,278 (14,122,148) 28,430,426Balances at 06/30/2016 $ 665,522,421 $ 503,328,332 $ 162,194,089

114





Changes in the Net Pension Liability (Continued)

Sensitivity of the net pension liability to changes in the discount rate - The following presents the net pension liability of the City, calculated using the discount rate of 7.65 percent, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.65 percent) or 1-percentage- point higher (8.65 percent) than the current rate:

i% Current 1%Decrease Discount Increase

Rate ( 6.65%) Rate ( 7.65%) Rate ( 8.65%)

Net pension liability $ 431,838,369 $ 302,114,751 $ 195,908,562

Miscellaneous Plan1% Current 1%

Decrease Discount Increase

Rate ( 6.65%) Rate ( 7.65%) Rate ( 8.65%)

Net pension liability $ 247,563,708 $ 162,194,089 $ 91,400,450

Pension plan fiduciary net position - Detailed information about the pension plan’s fiduciary net position isavailable in the separately issued CalPERS financial report.

115





Deferred Outflows of Resources and Deferred I nflows of Resources Related to Pensions

At June 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the fol lowi ng sources:

Safety Plan

Deferred Outflows Deferred Inflows

of Resources of Resources

Pension contribution subsequent to measurement date $Differences between expected and actual experience

24,192,823 $(5,383,027)

Changes of assumptionsNet differences between projected and actual

(8,454,070)

earnings on pension plan investments 60,356,007 (24,006,622)Total $ 84,548,830 $ (37,843,719)

Miscellaneous Plan

Deferred Outflows Deferred Inflows


Pension contribution subsequent to measurement date $ 13,734,030 $Differences between expected and actual experience (7,514,822)Changes of assumptionsNet differences between projected and actual

(2,256,263)

earnings on pension plan investments 45,854,306 (18,151,628)Total $ 59,588,336 $ (27,922,713)

The $24,192,823 and $13,734,030 reported as deferred outflows of resources related to pension resulting from the City’s contributions subsequent to the measurement date during the year ended J une 30, 2017, will be recognized as a reduction of the net pension liability in the year ended J une 30, 2018. Other amounts reported as deferred outflows, and deferred inflows of resources related to pensions will be recognized in future pension expense.

116




Safety PlanDeferred

Measurement periods ended Outflows/(inflows) ofJune 30: Resources.

2017 $ (1,544,153)2018 (1,544,153)2019 16,038,8392020 9,561,755

Miscellaneous Plan

DeferredMeasurement periods ended Outflows/(inflows) of

June 30: Resources.

2017 $ (3,921,507)2018 1,713,5042019 12,587,3572020 7,282,239

117




B. PARS Enhancement Plan

General I nformation about Pension Plans

Plan Description - The PARS Retirement Enhancement Plan, a closed retirement plan, provides retirement benefits for M unici pal U ti I ity Department employees for the period they worked for OMI -Thames Water Stockton, I nc. The City entered into an agreement with Public Agency Retirement Services (PARS) (a public sector retirement plan administrator specializing in providing public entities customized retirement plans and solutions) to contribute to a supplemental plan for employees joining or rejoining City service after having been employed between 2003 and 2008 ty OMI-Thames, a private sector utility contractor. OMI-Thames employees did not earn CalPERS service credit during the period OM I -Thames operated the City utilities.

Benefits provided -U pon retirement, the REP benefits will supplement any CalPERS retirement for which those particular employees are eligible. Eligibility for the REP, a single-employer post-employment defined benefit plan, other than employment with OMI-Thames between 2003 and 2008, is defined as concurrent retirement with CalPERS and the City upon attaining age 55 and a mini mum of 5 years of full Time continuous service with the City, with at least 1 year of continuous City service after March 1,2008.

E mployees covered -At J une 30, 2017, the fol Icwi ng employees were covered ty the benefit terms:

Enhancement PlanInactive employees or beneficiaries currently receiving benefits 36Inactive employees entitled to but not yet receiving benefits 0Active employees 48

84

Contributions-The City establishes rates based on an actuarial ly determined rate recommended by an independent actuary. The actuarial ly deterni ned rate i s the esti mated amount necessary to fi nance the costs of benefits earned ty the employee during the year, with an additional amount to finance any unfunded accrued liability. The City is requi red to corrtri bute the difference between the actuarial ly deterni ned rate and the corrtri bution rate of employees.

118




B. PARS Enhancement Plan (Continued)

Net Pension Liability

The City’s net pension liability was measured as of J une 30, 2017, using an annual actuarial valuation as of J une 30, 2015, rolled forward toj une 30, 2017, using standard update procedures.

Actuar ial assumptions - The total pension I iabi I ity on J une 30, 2016, the actuarial val uation was determi ned usi ng the folIcwing actuarial assumptions, applied to all periods included in the measurement:

Valuation Date Measurement Date

Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Payroll Growth Projected Salary Increase Investment Rate of Return Mortality

Enhancement Plan 6/30/2016

6/30/2017

Entry-Age Normal Cost Method

a)

(2)

7.00%2.75%N/A

3.5% - 9.9% 7.00%

(1) Depending on years of service.(2) Pre-retirement: CalPERS Miscellaneous Non-Industrial Rates. Post-

Retirement: CalPERS 1997-2011 Healthy Retiree Table (sex-distinct) projected using Scale AA and base year of 2008

Mortality rates were based on the RP-2000 Healthy Annuitant Mortal ity Table for Males or Females, as appropriate, with adjustments for mortality improvements based on Scale AA.

Discount rate - The discount rate used to measure the total pension liability was 7.00 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that the City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the employee rate. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of currently active and inactive employees. Therefore, the longTerm expected rate of return on pension plan investments was applied to alI periods of projected benefit payments to determine the total pension liability.

119





Net Pension Liability (Continued)

The longTerm expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the IongTermexpected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of real arithmetic rates of return for each major asset class are summarized in the following table:

Enhancement PlanLong-Term Long-Term

Expected ExpectedNew Strategic Arithmetic Real Geometric Real

Asset Class Allocation Rate of Return Rate of Return

Cash 3.38% 0.36% 0.35%Core Fixed Income 46.76% 2.17% 2.04%Broad US Equities 35.93% 4.83% 3.57%Developed Foreign Equities 9.20% 5.76% 4.15%Emerging Market Equities 3.24% 8.06% 4.84%REITs 2% 5.04% 3.27%

Total 100%

120





Changes in the Net Pension Liability

The changes in the Net Pension Liability for the Plan are as follows:

Enhancement PlanIncrease (Decrease)

Total Pension Plan Fiduciary Net PensionLiability Net Position Liability

(a) (b) (a)-(b)

Balances at 06/30/2016 $ 10,192,514 $ 5,847,714 $ 4,344,800Changes for the year:Service cost 134,056 134,056Interest 701,117 701,117Differences between expected and actual experience (110,133) (110,133)Contributions-employerContributions-employee

528,894 (528,894)

Net investment income 596,724 (596,724)Benefit payments, including refunds of employeeContributions

(407,870) (407,870)

Administrative expenseOther changes (13,097) 13,097Net Changes 317,170 704,651 (387,481)Balances at 06/30/2017 $ 10,509,684 $ 6,552,365 $ 3,957,319

Sensitivity of the net pension liability to changes in the discount rate - The following presents the net pension liability of the City, calculated using the discount rate of 7.00percent, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.00 percent) or 1-percentage- point higher (8.00 percent) than the current rate:

Enhancement Plan1% Current 1%

Decrease Discount Increase

Rate ( 6.00%) Rate ( 7.00%) Rate ( 8.00%)

Net pension liability _$_______ 5,282,160 _$_______ 3,957,319 _$_______ 2,847,975

121





Changes in the Net Pension Liability (Continued)

Pension plan fiduciary net position - Detailed information about the pension plan’s fiduciary net position isavailable in the separately issued REP financial report.

Deferred Outflows of Resources and Deferred I nflows of Resources Related to Pensions

At June 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the fol lowi ng sources:

Enhancement PlanDeferred Outflows Deferred Inflows


Pension contribution subsequent to measurement date Differences between expected and actual experienceChanges of assumptionsNet differences between projected and actualearnings on pension plan investments $ 184,593 $

(88,106)

Total $ 184,593 $ (88,106)

For the year ended J une 30, 2017, $184,593 was reported as deferred outflows of resources related to earnings on pension plan investments, and $88,106 was reported as deferred inflows related to experience, expected and actual experience and wi 11 be recognized i n future pension expense as fol lows:

DeterredOutflows

M easurement Period of Resources Ended J une 30 Enhancement Plan

2018 67,9552019 67,9572020 19,3342021 (58,759)

Thereafter _______________ _

S 96,487

122



Note 12-Claims Payable

The City is exposed to various risks of loss related to liability torts; theft of, damage to, and destruction of assets; errors and omissions; health and medical needs of employees; and natural disasters. The City established three internal service insurance funds (General Liability, Workers’ Compensation, and Employee Flealth Insurance funds) to account for and finance its selfTnsured risks of loss. Under the City’s risk management program, the City retains risk for each general liability claim, for each workers’ compensation claim (described under Risk Pools), and for each medical plan member under the health benefits program The City purchases stop-loss coverage for the health benefits program over its $350,000 self-i nsured retention (SIR) from U nion Labor L ife I nsurance Company up to a maxi mum of $1,000,000 per Original Plan member and $2,000,000 per Modified Plan member. The City’s coverage for SIR excess claims for general liability and workers’ compensation is discussed later in this note under risk pools. The workers’ compensation and health benefits programs are administered by third-party clai ms adni nistrators. The general liability program is self-administered by the City.

The City’s estimated liabilities for claims filed or expected to be filed up to the amounts for which it retains risk in the I nternal Service Funds is reported as Self-insurance claims and judgments.

Charges to the General Fund and other funds are determined from an analysis of claims costs and are recorded as expenditures or expenses in the contributing funds and charges for services in the internal service funds. Chargesfor general liability and workers’ compensation insurances are a percentage of payroll, and the charge for healthbenefits is a monthly dollar amount for all actively occupied positions.

Independent actuaries perform an analysis of the City’s potential liability for the City’s retained risk portions of thevarious self-insurance programs. The amounts recorded as liabilities represent estimates of amounts to be paid for reported claims, as well as incurred but not reported claims based on experience, modified for current trends and information. For general liability and workers’ compensation for the current year, the present value of estimated outstanding losses is recognized at a 70% confidence level, using a 1.25% discount rate to reflect future investment earnings. While the ultimate amounts of losses incurred through June 30, 2017, are dependent on future developments, based on information provided by the City Attorney, outside counsel and others involved with the administration of the programs, the City’s management believes that the aggregate accrual is adequate to recognize such losses. There have been no significant reductions in any of the City ’ s insurance coverage each of the past three years.

123



Note 12-ClaimsPayable(Continued)

Changes in the balances of the City’s claims liabilities, which include incremental claims adjustments expenses, forthe current and prior fiscal years, are as follows:

General Workers' HealthLiability Compensation Benefits Total

Balance, June 30, 2015 $ 8,691,954 $ 55,389,000 $ 745,900 $ 64,826,854Claims incurred 752,305 11,819,022 4,995,070 17,566,397Claims paid (1,616,693) (5,946,022) (5,158,370) (12,721,085)

Balance, June 30, 2016 7,827,566 61,262,000 582,600 69,672,166Claims incurred 5,909,924 2,486,009 3,828,720 12,224,654Claims adjustment - (8,317,000) - (8,317,000)Claims paid (858,112) (6,309,009) (4,007,320) (11,174,442)

Balance, June 30, 2017 $ 12,879,378 $ 49,122,000 $ 404,000 $ 62,405,378

Risk Pools - The City is a member of two joint powers authorities organized under California Government Code for the purpose of pooling self-insured losses, as described below.

General Liability I nsurance-In 1986, the City joined with other municipalities and regional municipal joint powers authorities to form the California Joint Powers Risk Management Authority (CJ PRMA), a public entity risk pool currently operating as a general liability risk management and insurance program for 22 member entities. The City’s selfYnsured retention (SIR) is $1 million. Losses above the City’s SIR are pooled up to $5 million per occurrence, with reinsurance above the $5 million up to $40 million by CJ PRMA. Specific coverage includes comprehensive and general automotive liability, personal injury, contractual liability, errors and omissions, physical automobile damage and certai n other coverage.

The CJPRMA governing board is comprised of a representative from each member entity. All members have a single vote for policy and charter changes. An executive committee of seven is elected to handle administration. Members are assessed annual contributions based on actuarially determined rates. CJ PRMA retroactively adjusts premium deposits for any excess or deficiency in deposits related to paid claims and reserves. Financial statements for CJ PRMA for the fiscal year ended J une 30, 2016, can be obtained from CJ PRMA at 3201 Doolan Road, Suite #285, Livermore, California94551.

Property Protection -The City participates in CJPRMA’s All Risks Property Protection Program, which is primarilyunderwritten ty a casualty insurance company. The Program provides $10 million per occurrence in coverage to partici pati ng members, subject to a deducti ble of $25,000. Premi urns, which are negotiated each year, are based on property values and are not subject to retroactive adjustments.

124



Note 12-ClaimsPayable(Continued)

Workers ’ Compensation Insurance - The City has been selfTunded for its Worker’s Compensation Program since1979. Injuly 2003, the City joined California Public Entity Insurance Authority (CPE I A), a public entity risk pool which operated an Excess Workers’ Compensation Program. CPEIA has since merged into an existing authority known as California State Association of Counties Excess I nsurance Authorities (CSAC-EIA). The CSAC-EIA was formed in 1979 by 29 California counties for the purpose of pooling risk and providing a viable and cost effective solution for the counties’ insurance and risk management needs. It has since expanded to allow admittance from cities and other entities and currently includes 93% of the counties in California, nearly 61% of the cities, as wel I as, numerous school districts, special districts, housing authorities and otherjoint Powers Authorities. The City’s self-insured retention is currently set $500,000 per occurrence. Losses above the City’s SIR are pooled up to $4 million per occurrence ty the CSAC-EIA. Statutory coverage for losses above $5 million is covered by reinsurance and excess insurance policies throughout CSAC-EIA.

Note 13- Pollution Remediation Obligations

GASB Statement No. 49 requires the former Agency, now Successor Agency, to report a pollution remediation liability upon the occurrence of an obligating event, such as being compelled by a regulatory agency or legal action to clean up existing pollution. The liability is estimated based on the expected future cash flows technique (i.e., the sum of the probabi I ity -weighted amounts i n a range of possi ble esti mated amounts). Only components of the I iabi I ity (e.g., site assessment, site investigation, corrective measures feasibility study, remediation design, remediation operations and maintenance, and post-remediation monitoring) which can be reasonably estimated are included in the esti mated I iabi I ity. Expected recoveries from i nsurers and other responsi ble parties reduce the esti mated I iabi I ity.

Actual pollution remediation costs may vary from the estimated liability for many reasons, including changes in pollution laws and regulations, the technology used for the cleanup, the remediation plan or operating conditions, prices of products and services.

The former Agency, now Successor Agency, has identified the U NOCAL site along the Stockton channel that are designated “Brownfields” by the U.S. Environmental Protection Agency, with the goal of revitalizing contaminated properties that the Successor Agency currently owns in the area near Stockton's downtown waterfront in the Waterfront Redevelopment Project Area The following are details of the Successor Agency-owned contaminated site, including a description of the pollution, the obligating event requiring remediation action, estimable remediation costs components, and recoveries by responsible parties. Details of the liabilities as of J une 30, 2017, are also discussed.

To provide clarification of the following discussion, the California Polanco Redevelopment Act (AB 3193, Chapter 1113, Statutes of 1990, Polanco), part of the Community Redevelopment Act, was enacted ty the California legislature to assist redevelopment agencies in responding to brownfield properties in their redevelopment areas. It prescribes processes for redevelopment agencies to follow when cleaning up a hazardous substance release in a redevelopment project area. It also provides immunity from liability for redevelopment agencies and subsequent property purchases for sites cleaned up under a cleanup plan approved by the California Department of Toxic Substances Control or a Regional Board.

125



Note 13 - Pollution Remediation Obligations (Continued)

The following provides a discussion of the identified brownfield sites of the Successor Agency:

Area 2A-U nocal - Soil and groundwater contamination has been identified in Area 2A-U nocal associated with total petroleum hydrocarbons, volatile and semi-volatile organic compounds. The obligating event for this site stems from a Polanco agreement notice issued to the responsible party, currently in negotiation for settlement. Esti mated costs are for a consultant, legal and City personnel costs for cleanup of the soil contamination, and precleanup and investigative study of the site about the groundwater contamination. Future groundwater cleanup and ongoing post-remediation monitoring costs cannot be reasonably estimated. The net pollution remediation liability of this site as of June 30, 2016, is $431,250, which includes an estimated recovery of costs by the responsible party.

The total net estimated net pollution remediation liability for the site in the amount of $275,000, is reported to the 5 uccessor Agency as of J une 30, 2017.

Note 14-1 ndividual Fund Disclosures

Deficit F und Balances

Atj une 30, 2017, the following funds had net positions or fund balance deficits:

_________________ Fund__________________ ____________________ Fund I ype____________________ _______ Deti ci t_______Transportation Da/elopment Act Non-M ajor Governmental -Special Ra/enue Fund $ (54,903)Workers'Compensation Insurance Internal Service Fund $ (9,071,474)Successor Agency Agency Fund $ (75,396,915)

• The Transportation Development Act F und has a deficit fund balance of $54,903 as of J une 30, 2017. The City maintains its general ledger on a modified accrual basis of accounting and has defined its availability period as 90 days. Due to the ti mi ng of recei pt of rei mbursement and the i mplementation of GAS B Statement No. 65, the City classified this revenue as a deferred inflow of resources. This revenue does not qualify for recognition as they are not yet considered available.

• The Workers’ Compensation Insurance Fund has an accumulated deficit fund balance of $9,071,474 as of J une30, 2017. The City has historically budgeted revenues and projected expenditures in the Fund on acash basis. Contributions to cover claims expenditures are based on a percentage of payroll based upon city-wide loss experience. Asa result, contributions have been insufficient to cover the outstanding estimated future claims. On an accrual basis of accounti ng, the F und has a longTerm I iabi I ity of $40,850,000 for clai ms and j udgments while the cash balance of the fund as of J une 30, 2017, is $40,502,706. The City has increased its rates as necessary to hel p fund the accumulated deficit over ti me.

• The 5 uccessor Agency to the Redevelopment Agency Private Purpose Trust Fund has an accumulated deficit fund balance of $75,396,915 as of June 30, 2017. This is an Agency Private Purpose Trust fund and notincluded in the City’s net position. The fund has a bonds payable balance that causes a liability.

126



Note 15-Commitments and Contingencies

Contingent Liability - Pending Litigation

Various claims and legal actions are pending against the City, some of which have a reasonable possibility of an unfavorable outcome. These legal actions involve property, personal injury, and civil rights claims. GAS B Statement No. 62 requires disclosure of pending litigation for which contingency is possible, and the amount cannot be reasonably estimated. As discussed in Note 12, the City is self-insured and has accrued a liability for estimated claims outstanding. Amounts for the claims, which cannot be reasonably estimated at this time, have not been included in the financial statements. Management, after consultation with legal counsel, is of the opinion that ultimate disposition of these matters will not have a material adverse effect on the City’s financial position or results of operations.

Capital Commitments

The City is undertaking some capital improvement projects, the most significant of which include the foil owing outstanding capital commitments atj une 30, 2017:

Amount

Developer Reimbursements $ 5,598,041Regional Wastewater Control Facility 4,373,943Reimbursement Agreement - University Park 3,150,875Street Resurfacing 2,925,795Police Facilities 943,582Sanitary Sewer Rehabilitation 879,377

Total $____________ 17,871,613

Operating Leases

Operating lease obligations are primarily for rental of parking facilities space, but other lease obligations are included. Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of a year or more are as follows:

Year EndedJune 30, Amount

2018 $ 1,375,9102019 1,715,6752020 1,740,2602021 1,766,0322022 1,793,047

2023-2027 9,179,9942028-2032 1,873,105

Total $ 19,444,024

127



Note 15-Commitments and Contingencies (Continued)

Encumbrances

The City utilizes encumbrance accounting as a means of controlling expenditures. Under this method, funds are encumbered when purchase orders, contracts, and other commitments are signed or approved by authorized City officials. Such outstanding commitments at the end of the year do not constitute expenditures or liabilities under GAAP.

GASB Statement No. 54 provides additional guidance on the classification within the fund balances section of amounts that have been encumbered. E ncumbrances of balances withi n the governmental funds are classified as either committed, restricted or assigned and are included in the respective classification. Outstanding encumbrances atj une 30, 2017, are as follows:

AmountGeneral Fund $ 5,405,043

Capital Improvements $ 18,428,459

Other Governmental $ 25,265,210

F aci I ities M anagement Agreement

Onjanuary 25, 2011, the Stockton City Council approved a Facilities Management Agreement (Agreement) with SMG for providing operation management and marketing services to the City for the Stockton. Events Center, which includes a multi-purpose indoor arena and a baseball park, the Events Center common areas, the Bob Hope Theatre and the Oak Park I ce A rena.

SMG is responsible for operating these facilities in keeping with the management goals set and approved each year ty the City Council, with the overarching goal of having the facilities operating revenues exceed the respective operating expenses.

The Agreement is for five years commend ng i n 2011 and may be renewed at the option of the City for one additional five-year period. Either party may terminate the Agreement for cause during the agreement period due to a material breach ty the other party or for default. B egi nni ng i n 2014, the City may terni nate the Agreement without cause.

SMG is required to provide various fidelity and performance bonds, which includes various types of coverage in the amount of $1,000,000. This coverage extends to the areas of Commercial General and Automobile Liability,Professional Errors and Omissions, Crime, Employment and Worker’s Compensation. Additionally, there is anU mbrella Liability coverage requirement of $5,000,000.

Compensation to SMG is determined from a base fee for all venues, plus performance-based compensation, as defined in the Agreement. Both of these components are eligible for periodic adjustments based on the consumer price index (CPI).

Financial activities of SMG, as a service organization, is combined with and reported in the General Fund.

128



Note 15-Commitments and Contingencies (Continued)

F ederal and State G rant P rograms

The City participates in some state and federal grant programs that are subject to financial and compliance audits ty the grantors. A udits of certai n grant programs for or i ncl udi ng the year ended J une 30, 2017, have not yet been conducted or completed. The amount, if any, of expenditures which may be disallcwed ty the granting agencies, cannot be determi ned at thi s ti me. FIowever, management does not bel ieve that any audit di sal Iowances would have a material effect on the financial position of the City.

Note 16- Restricted Net Position

AtJ une 30, 2017, restricted net position consisted of the follcwing:


Business -Type

ActivitiesTotals

Restricted for:Capital projects $ 50,256,061 $ 50,256,061

DS,SC I nvest-DBAW - -

Section 108 Loan 1,277,452 1,277,452Community development 24,272,746 24,272,746Debt service reserve 1,549,904 648,314 2,198,218General government 27,179,445 27,179,445Housi ng 2,505,840 2,505,840Libraries and arts 13,060,861 13,060,861Parks and recreation 9,523,730 9,523,730Public safety 5,826,540 5,826,540Public service - -Redevelopment - -Solid waste/recycling 1,897,711 1,897,711Streets, transit & traffic 35,819,515 35,819,515Fleet and equipment 1,851,707 1,851,707

Total Restricted $ 124,765,451 $ 50,904,375 $ 175,669,826

Note 17-Subsequent Events


On October 26, 2017, remaining project funds from the bonds were used to make partial calls of remaining bonds. Remaining projects had stalled beyond the ability to retain proceeds for use on these projects and $4.9 million in bond calls occurred on October 26, 2017. Should these projects come back on line, they will be paid for either through the use of cash on hand, or wi 11 be f i nanced through a future bond i ssuance at such ti me as the proj ects can be completed.

129



Note 18-Prior Period Adjustment

As of July 1,2017, the City reported the follcwing prior period adjustment to the governmental activities and businessrtype activities to correct an actuarial deferral that was not recorded as of J une 30, 2016 accordi ngly.

Government WideFinancial

StatatementsGovernmental Business- Type

Activities Activities

Net Position at July 1 2016Deferred Outflow of Resources

$ 636,169,647 $ 469,393,38744,898,566 6,880,554

Net Position at July 1, 2016 as Restated $ 681,068,213 $ 476,273,941

130

City of StocktonRequired Supplementary Information (Unaudited)

For the year ended June 30, 2017

1. Budgetary Information

B udqet P rocess

In accordance with the provisions of the City Charter, the City prepares and adopts a budget on or before June 30 for each fiscal year. Total Appropriations shall not exceed the total of estimated revenues, estimated unencumbered balances of funds to be carried over from the preceding year and unencumbered available fund balances. The General Fund, HOME Programs Loans Special Revenue Fund, Low-Moderate Income Housing City Loans Special Revenue Fund and certain nonmajor special revenue funds (Solid Waste and Recycling, Gas Tax, Measure K Streets Sales Tax, Measure W Public Safety Sales Tax, Special Assessments, Development Services, and Other Special Revenue) and certain capital projects funds (Public Facilities Impact Fees and Capital Improvement) have legally adopted annual budgets. Prior to July 1, the original adopted budget is legally enacted through the passage of a resolution by the City Council. In the event this does not occur, the City Manager’s draft budget is in force until a budget is adopted by the City Council.

Enterprise and internal service funds are accounted for on a cost of service (net income) or capital maintenance measurement focus. The City is not legally mandated to report the results of operations for these fund types on a budgetary comparison basis; therefore, budgetary data related to these funds has not been presented.

If expenditures exceed appropriations at the department level for the General Fund or at the fund level for all other funds, the City Manager is authorized to transfer budgeted amounts between line items within any fund. During the year, the City Council approves supplemental appropriations and, by resolution, has also authorized the City Manager to transfer fund balances to applicable appropriation accounts, or to transfer between funds, when necessary to continue purposes approved by the City Council in the current year, adopted budget, or subsequent action. Amounts reported as final budget in the Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - On a Budgetary Basis include amendments authorized throughout the year.

Formal budgetary integration is employed as a management control device during the year for the General Fund and certain Special Revenue and Capital Projects Funds. Formal budgetary integration is not employed for the Debt Service Funds because effective budgetary control is alternately achieved through bond indenture provisions.

All unencumbered appropriations lapse at year-end, with the exception of some capital improvement projects and miscellaneous grants in the respective funds. Encumbered appropriations are re-appropriated in the following year’s budget.

131



1. Budgetary Information (Continued)

B udqet B asi s of Accounti nq

The City adopts budgets each fiscal year on a basis of accounting, which is different from accounting principles generally accepted in the United States of America (GAAP).

The statements of revenue, expenditures and changes in fund balances have been prepared on the modified accrual basis of accounting in accordance with GAAP. The schedules of revenues, expenditures and changes in fund balances - budget and actual - on a budgetary basis have been prepared on the budgetary basis, which is different from GAAP.

The variations from GAAP that are for budgetary purposes include the following:

Outstanding commitments relating to construction contracts and other purchases of goods and services are recorded as expenditures at the time contracts or purchase agreements are entered into. Under GAAP, these obligations are recognized when goods are received or services are rendered.

The write-off uncollectable accounts receivables is not recognized as an expenditure. Under GAAP, these writeoffs are recognized as expenditures when the accounts receivables are determined to be uncollectable.

Certain funds of the City contain capital projects, grant projects, loan programs or other programs that are budgeted on a multi-year or project length basis. The amounts of the projects and programs budgeted on a multi-year basis are significant compared to the items budgeted on an annual basis; therefore, a comparison of budget to actual for the fund would not be meaningful. As a result, such funds are excluded from budgetary reporting.

132




Budget Comparison Schedule - General Fund

Budget Variance withOriginal Final Actual Final Budget

REVENUES:Taxes:

Prop erty $ 31,670,000 $ 31,670,000 $ 32,411,463 $ 741,463

Utility user 33,870,000 33,870,000 34,454,907 584,907

Sales - levied by City 30,161,000 30,161,000 30,048,605 (112,395)

Franchise fees 12,808,000 12,808,000 13,289,073 481,073

Business license 10,955,000 10,955,000 10,781,783 (173,217)

Hotel/motel room 2,700,000 2,700,000 2,996,990 296,990

Document transfer 720,000 720,000 801,444 81,444

Other 1,282,000 1,282,000 1,938,771 656,771

Licenses and permits 422,693 422,693 481,949 59,256

Int er government al:

Federal grants and subsidies 123,485 144,471 20,986

Sales and use tax - levied by state 47,223,000 47,223,000 45,076,627 (2,146,373)

Other governmental 28,460,928 28,575,219 26,765,310 (1,809,909)

Charges for services 8,499,452 8,525,537 9,479,177 953,640

Fines and forfeitures 858,507 858,507 1,101,873 243,366

Use of money and property 7,526,872 7,526,872 7,322,957 (203,915)

Investment income:

Interest income 593,500 593,500 1,506,285 912,785

Refunds and reimbursements 4,796,961 4,796,961 4,912,688 115,727

Miscellaneous 4,780,786 4,818,286 5,066,692 248,406

Total revenues 227,328,699 227,630,060 228,581,065 951,005

EXPENDITURES:

General government:

City council 533,559 668,693 596,224 72,469

City manager 1,412,659 1,418,188 1,404,493 13,695

City attorney 1,339,924 1,339,948 1,337,337 2,611

City clerk 852,830 853,419 834,222 19,197

City auditor 756,667 1,340,043 639,252 700,791

Administrative services 4,997,605 5,083,558 4,520,065 563,493

Human resources 2,333,149 2,590,190 1,938,281 651,909

Housing 3,323,634 3,455,730 2,014,309 1,441,421

Non-dep artmental 8,533,245 7,539,707 4,655,358 2,884,349

Total general government 24,083,272 24,289,476 17,939,541 6,349,935

133




Budget Comparison Schedule - GeneralFund (continued)

Budget

Original Fmal Actual

Public safety:

Police

Fire

109,917,822

41,550,444

117,680,510

44,878,417

111,773,510

42,934,118

T otal public safety 151,468,266 162,558,927 154,707,628

Public works 6,515,026 7,856,467 7,026,373

Library 11,268,372 11,440,493 10,522,145

Parks and recreation 17,942,513 18,446,914 17,477,568

Capital Outlay 2,195,684 4,353,573 3,095,014

Total expenditures 213,473,133 228,945,850 210,768,269

DEFICIENCY OF REVENUES OVER

EXPENDITURES (BUDGETARY BASIS) 13,855,566 (1,315,790) 17,812,796

OTHER FINANCING SOURCES (USES):

Sale of capital assets

Transfers m

Transfers out

500,000

2,008,527

(11,449,873)

500,000

2,008,527

(11,699,873)

492,346

2,008,527

(11,270,206)

Total other financing sources (uses) (8,941,346) (9,191,346) (8,769,333)

NET CHANGE IN FUND BALANCE

(GAAP BASIS) $ 4,914,220 $ (10,507,136) 9,043,463

BASIS ADJUSTMENT:

Encumbrances (mcluded m Fmal Budget above) (5,412,435)

NET CHANGE IN FUND BALANCE (BUDGETARY BASIS) 3,631,028

FUND BALANCE, BEGINNING OF YEAR 93,643,672

FUND BALANCE, END OF YEAR $ 97,274,700

* Adjusted to Budgetary Basis.

The note to the required supplementary information is an integral part of this schedule.

Variance with

Fmal Budget

5,907,000

1,944,299

7,851,299

830,094

918,348

969,346

1,258,559

18,177,581

19,128,586

(7,654)

429,667

422,013

$ 19,550,599

134




Budget Comparison Schedule-HOME Program Loans Special Ra/enueFund

Budget Variance withOriginal Final Actual Final Budget

REVENUES:Intergovernmental: $1,608,613 $2,241,531 $2,241,531 $

Federal grants and subsidies 200,000 81,335 140,735 59,400Use of money and propertyInterest incomeMis cellaneous

1,808,613 2,322,866 2,382,266 59,400T otal revenues

EXPENDITURES: 1,611,624 2,494,504 2,494,505 (1)Capital outlay 1,611,624 2,494,504 2,494,505 (1)

Total expenditures

DEFICIENCY OF REVENUES OVER 196,989 (171,638) (112,239) 59,399EXPENDITURES (GAAP BASIS)OTHER FINANCING USES:

Transfers inTransfers out

Total other financing sources (uses)$ 196,989 $ (171,638) (112,239) $ 59,399

NET CHANGE IN FUND BALANCE (GAAP BASIS)

NET CHANGE IN FUND BALANCE (BUDGETARY BASIS) (112,239)

FUND BALANCE, BEGINNING OF YEAR 223,736

FUND BALANCE, END OF YEAR $ 111,497

The note to the required supplementary information is an integral part of this schedule

135




Budget Comparison Schedule-Low and Moderate-! ncome Housing City Loans Special Ra/enue Fund

Budget Variance with

Original Final Actual F inal BudgetREVENUES:

Use of money and property $ 60,000 $ 85,295 $ 56,949 $ (28,346)Interest income 4,155 29,501 25,346Mis cellaneous 3,000 3,000

T otal revenues 60,000 89,450 89,450

EXPENDITURES:General government 1,270,890 1,731,903 1,064,408 667,495Capital outlay 3,106,027 3,106,027 1,731,903 1,374,124Debt service:

PrincipalInterest and fiscal charges


DEFICIENCY OF REVENUES OVEREXPENDITURES (BUDGETARY BASIS) (4,316,917) (4,748,480) (2,706,861) 2,041,619

OTHER FINANCING SOURCES (USES):Transfers in 4,915,575Transfers out (977,744) (977,744) 977,744

Total other financing sources (uses) 3,937,831 (977,744) 977,744

NET CHANGE IN FUND BALANCE (GAAP BASIS) $ (379,086) $(5,726,224) (2,706,861) $ 3,019,363

BASIS ADJUSTMENT: Encumbrances

NET CHANGE IN FUND BALANCE (BUDGETARY BASIS) (2,706,861)

FUND BALANCE, BEGINNING OF YEAR, AS ORIGINALLY REPORTED 6,213,900

FUND BALANCE, END OF YEAR $ 3,507,039

The note to the required supplementary information is an integral part of this schedule

136



2. Defined Benefit Pension Plan Funded Status

Schedule of Changes in the City's Net Pension Liability and Relations Ratios fa the Measurement Periods EndedJ une 30

Safety Plan Measurement Date

Total pension liability2016 2015 2014

Service cost $ 13,548,998 $ 13,593,233 $ 13,907,523InterestChanges of benefit terms

69,765,169 67,693,599 65,730,714

Differences between expected and actual experience (3,570,311) (5,410,590)Changes of assumptions (16,908,140)Benefit payments, including refunds of employee contributions (51,615,173) (49,614,935) (47,761,534)Net change in total pension liability 28,128,683 9,353,167 31,876,703Total pension liability - beginning 934,566,397 925,213,230 893,336,527Total pension liability - ending (a) $ 962,695,080 $934,566,397 $925,213,230

Plan fiduciary net positionContributions - employer 20,338,253 17,178,961 13,818,051Contributions - employee 5,940,342 5,896,729 6,449,394Net investment income 3,348,803 15,155,169 105,163,288Benefit payments, including refunds of employee contributions (51,615,173) (49,614,935) (47,761,534)Plan to plan resource movement 3,305Administrative expense (416,243) (771,300)OtherNet change in plan fiduciary net position $ (22,404,018) $(12,152,071) $ 77,669,199Plan fiduciary net position - beginning 682,984,347 695,136,418 617,467,219Plan fiduciary net position - ending (b) 660,580,329 682,984,347 695,136,418

City’s net pension liability - ending (a) - (b) $ 302,114,751 $251,582,050 $230,076,812

Plan fiduciary net position as a percentage of the totalpension liability 68.62% 73.08% 75.13%

Covered - employee payrollCity's net pension liability as a percentage of covered employee

$ 47,115,477 $ 46,710,538 $ 45,422,701

payroll 641.22% 538.60% 506.52%

Notes to Schedule:

Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2015. This applies for vohinary benefit changes as well as any offers of Two Additional Service Credit (a.k.a. Golden Handshakes)

Changes of assurrptions. The discount rate was changed from 7.5 percent (net of administrative expense) to 7.65 percent.

137



2. Defined Benefit Pension Plan Funded Status (Continued)Schedule of Changes in the City's Net Pension Liability and Relations Ratios fa the Measurement Periods Ended I une 30

(Continued)

Miscellaneous Plan ____________ Measurement Date

Total pension liability2016 2015 2014

Service cost $ 9,240,648 $ 9,145,587 $ 9,440,824Interest 48,179,529 47,148,768 46,152,921Changes of benefit termsDifferences between expected and actual experience (8,961,502) (10,000,256)Changes of assumptions (11,281,319)Benefit payments, including refunds of employee contributions (34,150,397) (33,662,380) (32,763,729)Net change in total pension liability 14,308,278 1,350,400 22,830,016Total pension liability - beginning 651,214,143 649,863,743 627,033,727Total pension liability - ending (a) $ 665,522,421 $651,214,143 $649,863,743

Plan fiduciary net positionContributions - employer 13,879,482 10,783,508 9,402,881Contributions - employee 3,971,944 3,802,226 3,761,959Net investment income 2,491,249 11,522,892 79,512,728Benefit payments, including refunds of employee contributions (34,150,397) (33,662,380) (32,763,729)Plan to plan resource movement 933 (13,377)Administrative expense (315,359) (599,978)OtherNet change in plan fiduciary net position $ (14,122,148) $ (8,167,109) $ 59,913,839Plan fiduciary net position - beginning 517,450,480 525,617,589 465,703,750Plan fiduciary net position - ending (b) 503,328,332 517,450,480 525,617,589

City’s net pension liability - ending (a) - (b) $ 162,194,089 $133,763,663 $124,246,154

Plan fiduciary net position as a percentage of the totalpension liability 75.63% 79.46% 80.88%

Covered - employee payrollCity's net pension liability as a percentage of covered employee

$ 56,400,439 $ 53,997,677 $ 52,603,907

payroll 287.58% 247.72% 236.19%

Notes to Schedule:

Benefit changes. The figures above do not include any liability impact that may have resulted from plan changes which occurred after June 30, 2015. This applies for vohinary benefit changes as well as any offers of Two Additional Service Credit (a.k.a. Golden Handshakes)

Changes of assurrptions. The discount rate was changed from 7.5 percent (net of administrative expense) to 7.65 percent.

138



2. Defined Benefit Pension Plan Funded Status (Continued)Schedule of Changes in the City's Net Pension Liability and Relations Ratios for the Measurement Periods Ended I une 30

(Continued)

Enhancement Plan Measurement Date2016 2015 2014

Total pension liabilityService cost $ 134,056 $ 150,623 $ 145,882Interest 701,117 680,023 650,386Changes of benefit termsDifferences between expected and actual experienceDemographic gains/losses (110,133)Changes of assumptionsBenefit payments, including refunds of employee contributions (407,870) (397,530) (358,380)Net change in total pension liability 317,170 433,116 437,888Total pension liability - beginning 10,192,514 9,759,398 9,321,510Total pension liability - ending (a) $ 10,509,684 $ 10,192,514 $ 9,759,398

Plan fiduciary net positionContributions - employer 528,894 705,192 751,157Contributions - employeeNet investment income 596,724 8,851 124,454Benefit payments, including refunds of employee contributions (407,870) (397,530) (358,380)Administrative expense (13,097) (43,490) (966)OtherNet change in plan fiduciary net position $ 704,651 $ 273,023 $ 516,265Plan fiduciary net position - beginning 5,847,714 5,574,691 5,058,426Plan fiduciary net position - ending (b) 6,552,365 5,847,714 5,574,691

City’s net pension liability - ending (a) - (b) $ 3,957,319 $ 4,344,800 $ 4,184,707

Plan fiduciary net position as a percentage of the total 62.35% 57.37% 57.12%pension liability

Covered - employee payroll $ 3,454,139 $ 3,454,139 $ 3,610,315City's net pension liability as a percentage of covered employee 114.57% 125.79% 115.91%payroll

139



2. Defined Benefit Pension Plan Funded Status (Continued)

Schedule of Changes in the City's Plan Contribution for the M easurement Periods Ended I une 30

Safety Plan Fiscal Year2017 2016 2015

Actuarially determined contributionContributions in relation to the actuarially determined contribution

$ 20,338,253 $(20,338,253)

17,178,961(17,178,961)

$ 13,818,051 (13,818,051)

Contribution deficiency (excess) $ - $ $

Covered - employee payroll $ 47,115,477 $ 46,710,538 $ 45,422,701City's Contributions as a percentage of covered employeepayroll 43.17% 36.78% 30.42%

SAFTEYPLAN:Methods and assumptions used to determine contribution rates:

Actuarial cost method Amortization method/Period Asset valuation method

Inflation Salary increases Payroll Growth Investment rate of return

Retirement age

Mortality

Entry Age Normal.For details, see June 30, 2012 Funding Valuation Report. Market Value of Assets. Varies, see June 30, 2013 Funding Valuation Report.2.75%Varies by entry age and service.3.00%7.50%, net of pension plan investment and administrative expense, including inflation.The probabilites of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007.The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Pre-retirement and post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries.

140




Schedule of Chanaes in the City's Plan Contribution for the M easurement Periods Ended I une 30 (Continued)

Miscellaneous Plan Fiscal Year2017 2016 2015

Actuarially determined contribution $ 12,545,482 $ 10,783,518 $ 9,402,881Contributions in relation to the actuarially determined contribution

(13,879,482) (10,783,518) (9,402,881)

Contribution deficiency (excess) $ (1,334,000) $ $


MISCELLANEOUS PLAN:

Methods and assumptions used to determine contribution rates:

Actuarial cost method Amortization Method/Period Asset valuation method

Inflation Salary increases Payroll Growth Investment rate of return

Retirement age

Mortality

Entry Age Normal.Varies, see June 30, 2013 Funding Valuation Report. Market Value of Assets. Varies, see June 30, 2013 Funding Valuation Report.2.75%Varies by entry age and service.3.00%7.50%, net of pension plan investment and administrative expense, including inflation.The probabilites of Retirement are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007.The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period from 1997 to 2007. Pre-retirement and post-retirement mortality rates include 5 years of projected mortality improvement using Scale AA published by the Society of Actuaries.

141




Schedule of Chanaes in the City's PI an Contribution for the Measurement Periods Ended 1 une 30 (Continued)

Enhancement Plan Fiscal Year2017 2016 2015

Actuarially determined contributionContributions in relation to the actuarially determined

$ 528,894 $ 705,192 $ 700,451

contribution (528,894) (705,192) (751,157)Contribution deficiency (excess) $ $ $ (50,706)


ENHANCEMENT PLAN:

Methods and assumptions used to determine contribution rates:

Actuarial cost method Amortization method Remaining amortization period Asset valuation method Inflation Salary increases Investment rate of return Retirement age

Mortality

Entry Age Normal.Level dollar, closed.13.67 yearsNone2.75%Varies by entry age and service.7.00%Consistent with those used to value the Miscellaneous CalPERS Pension Plans 2.7% at age 55. The rates used are those for retirees with 20 years of service, with an increased retirement rate of 20% at age 55. Pre-retirement: CalPERS Miscellaneous Non-Industrial Rates.Post-retirement: CalPERS 1997-2011 Healthy Retiree Tables (sex-distinct) projected using Scale AA and base year of 2008.

142

NON-MAJOR GOVERNMENTAL FUNDS

SPECIAL REVENUE FUNDSSpecial revenue funds are used to account for specific governmental revenue sources that are restricted, committed or assigned to expenditures for specified purposes other than debt service or capital projects.

The City’s non-major governmental special revenue funds include:

Special Grants F undTo account for resources from miscellaneous, comparatively smaller grants from federal and state governments to support public safety and other community programs which are not otherwise accounted for in other special revenue funds.

Solid Waste and Recycling F undTo account for the administration of solid waste collection services, and the planning and implementation of solid waste reduction and recycling programs, in compliance with California Public Resources Code Section 40050 through 40063 (AB 939).

GasTaxFundTo account for revenues and expenditures apportioned to the City under the California Streets and Highway Code, sections 2103 through 2107.5. Expenditures of these resources for administration, maintenance and construction must be street and transportation related.

MeasureK streets Sales Tax FundTo account for revenues and expenditures apportioned to the City from !4 cent sales tax collections under Measure K. The Measure K program is administered by the San Joaquin Council of Governments (“SJCOG”) as the Local Transportation Authority for San Joaquin County. SJCOG was established as the Local Transportation Authority for this measure when San Joaquin County voters approved the enactment of the Measure K program in 1990. In 2006 voters approved to extend this measure for an additional 30 years. Expenditures for administration, maintenance and construction received under Measure K must be for street and transportation related projects.

Measure M Strong Communities I nitiativeMeasure M implements a dedicated one-quarter (1/4) cent special transactions and use sales tax for a period of 16 years for the provision of library and recreation services. On May 24, 2016, the Stockton City Council approved placing a one-quarter (1/4) cent sales tax on the November 8, 2016, General Election ballot with a Council vote of 7 - 0 and adopted Resolution 2016-05-24- 1602. Minor amendments were made to define the incorporated area of the City of Stockton, the election date, and to correct the name of a state board that had changed, based on comments received from the California State Board of Equalization, and the Resolution was superseded by Resolution 2016-06-07-1212 on June 7, 2016.

Measure W Public Safety Tax FundTo account for revenues and expenditures apportioned to the City 14 cent sales tax collections from the district including the City of Stockton under Measure W, which was adopted by local voters in November 2004. Expenditures are for administration, implementation, and operation of the Police and Fire Safe Neighborhood Gang and Drug Prevention Program, among other programs.

Special Assessment F undTo account for revenues and expenditures related to levies on property owners as approved by the City Council and state laws for special types of services - basic street and neighborhood lighting, land and streetscapes, and stormwater drainage maintenance services.

Community Development Block Grant Programs F undTo account for federal grant programs and other resources that provide for development of a viable urban community by providing a suitable living environment and expansion of economic opportunities, principally for low- and moderate-income residents. This fund includes the City’s annual federal funding from the Community Development Block Grant, Community Rehabilitation Loan program, federal revolving loan program, and revitalization activities in the designated Urban Development Action Grant area.

Neighborhood Stabilization Loan Program FundTo account for the City’s Neighborhood Stabilization Loan Program that provides loans to non- profit housing developers to acquire and rehabilitate abandoned and foreclosed homes, and provides down payment assistance to qualified low- and moderate- income households who purchase from the non-profit organization authorized under the NSLP program as authorized by Division B, Title 111 of the U.S. Housing and Economic Recovery Act of 2008.

143 144

NON-MAJOR GOVERNMENTAL FUNDS (Continued)

SPECIAL REVENUE FUNDS (Continued)

H ousi ng C rants and L oans P rogram F undTo account for the City’s economic development and federal department of Housing and Urban Development (HUD) Section 108 housing grant and loan programs that provide funding for low- and moderate-income housing development in Stockton, as approved by the City Council and various federal and state laws.

Development Services F undTo account for resources for development planning and project review services including land use entitlements, permit processing and review and inspection of public improvements to ensure orderly physical growth and development of the City as approved by the City Council. Revenues and fees collected and recorded in this fund are committed to its related activities.

Cal-Home Programs F undTo account for resources for the City’s CalHome State Loan Program that support homeownership programs aimed at very low income households. This fund includes the City’s annual funding to single family, down-payment assistance and single family rehabilitation.

Other Special Revenue F undTo account for the resources of comparatively smaller special revenue funds, including the Litigated Asset Seizure public safety program, State Housing Loan Program and various governmental expendable special revenue/trusts of funds donated to the City for various community projects and programs.

Transportation Development Act F undTo account for the Local Transportation Fund revenues derived from a 1/4-cent general sales tax. The use the revenues for nontransit related purposes.

CAPITAL PROJECTS FUNDSCapital Projects Funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds.

The City’s non-major governmental capital project funds include:

Public F acilities I impact F ees Capital Projects F undTo account for the collection of and expenditure of fees imposed as a condition of new development within the City, in compliance with California Government Code Section 66006 (AB 1600).

Impact fees have been established for each of the following types of public facilities: Traffic signals, Street improvements, Community recreation center, City office space, Fire stations, Libraries, Police stations, Parkland, Street tree & street signs, Street light in-lieu, Air quality mitigation, and Public facilities fees - administration.

DEBT SERVICE FUNDSDebt Service Funds are used to account for and report financial resources that are restricted committed, or assigned to expenditures for principal and interest on long-term debt.

The City’s non-major governmental debt service funds include:

Stockton Public Financing Authority Debt Service F undTo account for the accumulation of resources for the retirement of principal and interest payment on long-term debt for municipal bonds issued on behalf of and approved by the Stockton Public Financing Authority.

PERMANENT FUNDThe Permanent Fund reports resources that are legally restricted to the extent that only earnings, and not principal, can be spent. Permanent Fund resources help support designated arts, recreation, library and public safety programs.

145

City of Stockton Combining Balance Sheet

Nonmajor Governmental Funds June 30,2017

Special RevenueSolid Measure K

Special Waste & Gas StreetsGrants Recycling Tax Sales Tax

ASSETSAssets:

Cash and investments $ 2,777,935 $ 1,899,094 $ 1,966,106 $ 10,145,095Cash and investments with fiscal agentsReceivables, net:

Interest 6,204 35,557Accounts and other 179,997 55,512

Due from other governments, net 1,301,376 543,760 6,234,985Loans to property owners, net

Total assets $ 4,259,308 $ 1,960,810 $ 2,509,866 $ 16,415,637


Liabilities:Accounts payable $ 334,591 $ 15,137 $ 201,418 $ 3,572,087Accrued payroll 140,222 44,047 156,610 45,827Due to other fundsDue to other governmentsDeposits and other liabilities 3,915Unearned revenue 2,703,217 5,357,749

Total liabilities 3,178,030 63,099 358,028 8,975,663

Deferred Inflows of Resources:Unavailable revenue - Loans to property ownersUnavailable revenue - Other

Total deferred inflows of resource

Fund Balances (Deficit):NonspendableRestricted 1,081,278 1,897,711 2,151,838 7,439,974CommittedUnassigned (deficit)

Total fund balances 1,081,278 1,897,711 2,151,838 7,439,974

Total liabilities, deferred inflows ofresources and fund balances (deficit) $ 4,259,308 $ 1,960,810 $ 2,509,866 $ 16,415,637

(Continued)

146

City of StocktonCombining Balance Sheet (Continued)


Special RevenueMeasure M Measure W Neighborhood

Strong Public Special CDBG StabilizationCommunities Safety Tax Assessments Programs Loan Program

ASSETSAssets:

Cash and investments $ 543 $ 1,493,735 $ 15,199,474 $ 1,046,061 $ 204,054Cash and investments with fiscal agentsReceivables, net:

Interest 49,582Accounts and other 3,685 2,280 11,762

Due from other governments, net 2,421,355 1,790,703Loans to property owners, net 20,580,540 9,677,602

Total assets $ 2,421,898 $ 3,288,123 $ 15,251,336 $ 21,638,363 $ 9,881,656

LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES

Liabilities:Accounts payable $ 30,308 $ 209 $ 220,753 $ 56,241 $Accrued payroll 391,258 22,315 41,933 704Due to other fundsDue to other governments 218,986 203,350Deposits and other liabilitiesUnearned revenue

Total liabilities 30,308 391,467 243,068 317,160 204,054

Deferred Inflows of Resources:Unavailable revenue - Loans to property owners 20,580,540 9,677,602Unavailable revenue - Other

Total deferred inflows of resource 20,580,540 9,677,602

Fund Balances (Deficit):NonspendableRestricted 2,391,590 2,896,656 15,008,268 740,663CommittedUnassigned (deficit)

Total fund balances (deficit) 2,391,590 2,896,656 15,008,268 740,663

Total liabilities, deferred inflows ofresources and fund balances (deficit) $ 2,421,898 $ 3,288,123 $ 15,251,336 $ 21,638,363 $ 9,881,656

(Continued)

147



Special RevenueHousing Other Transportation

Grants / Loans Development CalHome Special DevelopmentProgram Services Programs Revenue Act

ASSETSAssets:

Cash and investmentsCash and investments with fiscal agentsReceivables, net:

InterestAccounts and other

Due from other governments, netLoans to property owners, net

$ 262,3911,261,275

505

$ 9,746,843

30,041604,552

$ 128,431

1,078

3,497,665

$ 1,199,706 $

57,003

Total assets $ 1,524,171 $ 10,381,436 $ 3,627,174 $ 1,199,706 $ 57,003


Liabilities:Accounts payable $ $ 307,866 $ $ 9,159 $ 27,197Accrued payroll 263,206Due to other funds 27,706Due to other governmentsDeposits and other liabilities 381,974Unearned revenue 163,913 3,497,665 57,003

Total liabilities 1,116,959 3,497,665 9,159 111,906

Deferred Inflows of Resources:Unavailable revenue - Loans to property ownersUnavailable revenue - Other

Total deferred inflows of resource

Fund Balances (Deficit):NonspendableRestricted 1,524,171 9,264,477 $129,509 1,190,547Committed (54,903)Unassigned (deficit)

Total fund balances (deficit) 1,524,171 9,264,477 129,509 1,190,547 (54,903)

Total liabilities, deferred inflows ofresources and fund balances (deficit) $ 1,524,171 $ 10,381,436 $ 3,627,174 $ 1,199,706 $ 57,003

(Continued)

148



Capital Projects Public

Facilities Impact Fees

Debt Service

Primary City Debt Service

Permanent

Miscellaneous TotalsASSETS

Assets:Cash and investments $ 45,556,816 $ 1,570,221 $ 418,675 $ 93,615,180Cash and investments with fiscal agents 5 1,261,280Receivables, net:

Interest 146,328 3,484 887 272,588Accounts and other 1,339,874 11,351 2,210,091

Due from other governments, net 12,349,182Loans to property owners, net 33,755,807

Total assets $ 47,043,018 $ 1,585,061 $ 419,562 $ 143,464,128


Liabilities:Accounts payable $ 21,681 $ 12,028 $ 1,500 $ 4,810,175Accrued payroll 4,759 23,129 1,134,010Due to other funds 27,706Due to other governments 422,336Deposits and other liabilities 385,889Unearned revenue 1,328,261 13,107,808

Total liabilities 1,354,701 35,157 1,500 19,887,924

Deferred Inflows of Resources:Unavailable revenue - Loans to property owners Unavailable revenue - Other

30,258,142

Total deferred inflows of resource 30,258,142

Fund Balances (Deficit):NonspendableRestrictedCommittedUnassigned (deficit)

45,688,317 1,549,904372,879

45,183372,879

93,000,086(54,903)

Total fund balances 45,688,317 1,549,904 418,062 93,318,062

Total liabilities, deferred inflows of resources and fund balances (deficit) $ 47,043,018 $ 1,585,061 $ 419,562 $ 143,464,128

(Concluded)

149

City of StocktonCombining Statement of Revenues, Expenditures and Changes in Fund Balances

Nonmajor Governmental Funds For the Year Ended June 30,2017

Special RevenueSolid Measure K

Special Waste & Gas StreetsGrants Recycling Tax Sales Tax

REVENUES:Taxes:

Sales - levied by City S $ $ $Business licenses

Licenses and permitsIntergovernmental:

Federal grants and subsidies 2,255,536Sales and use tax - levied by state 4,833,332Other governmental 2,169,222 5,442,198 1,566,345

Charges for services 1,185,158Fines and forfeituresUse of money and propertyInvestment income:

Interest income 26,842 2,473 27,723 39,153Refunds and reimbursements 1,384 25,394Miscellaneous 1,546,988

Total revenues 5,636,758 1,549,461 5,471,305 6,464,224


General government 764,521Public safety 4,284,683Public works 1,542,451 6,070,442 1,690,161Library 72,895Parks and recreation 8,685 286,748

Capital outlay 305,876 7,008 8,324,480Debt service:



EXCESS (DEFICIENCY) OF REVENUES OVER(UNDER) EXPENDITURES 200,098 7,010 (892,893) (3,550,417)

OTHER FINANCING SOURCES (USES):Transfers in 70,333Transfers outDeveloper contributionsBond insurers proceedsPayment to refunded bond escrow agent

Total other financing sources (uses) 70,333CHANGE IN FUND BALANCES 270,431 7,010 (892,893) (3,550,417)

FUND BALANCES:Beginning of year 810,847 1,890,701 3,044,731 10,990,391End of year $ 1,081,278 $ 1,897,711 $ 2,151,838 $ 7,439,974

(Continued)

150

City of StocktonCombining Statement of Revenues, Expenditures and Changes in Fund Balances (Continued)


Special RevenueMeasure M Measure W Neighborhood

Strong Public Special CDBG StabilizationCommunities Safety Tax Assessments Programs Loan Program

REVENUES:Taxes:

Sales - levied by City $ 2,474,095 $ 9,983,678 $ $ - $Business licenses 1,461,425

Licenses and permitsIntergovernmental:

Federal grants and subsidies 3,548,875 674,435Sales and use tax - levied by stateOther governmental

Charges for services 3,229,178 3,775Fines and forfeituresUse of money and property 502,518 22,952Investment income:

Interest income (6,115) 21,592Refunds and reimbursementsMiscellaneous

Total revenues 2,474,095 9,977,563 4,712,195 4,055,168 697,387


General government 1,450,071 140,567Public safety 10,148,782Public works 153,369LibraryParks and recreation 82,505 2,681,364

Capital outlay 336,976 2,053,799 697,387Debt service:

Principal retirement 1,400,000Interest and fiscal charges 492,299

Total expenditures 82,505 10,485,758 4,284,804 4,086,665 697,387

EXCESS (DEFICIENCY) OF REVENUES OVER(UNDER) EXPENDITURES 2,391,590 (508,195) 427,391 (31,497)

OTHER FINANCING SOURCES (USES):Transfers inTransfers outDeveloper contributionsBond insurers proceedsPayment to refunded bond escrow agent

Total other financing sources (uses)CHANGES IN FUND BALANCES 2,391,590 (508,195) 427,391 (31,497)

FUND BALANCES:Beginning of year 3,404,851 14,580,877 772,160End of year $ 2,391,590 $ 2,896,656 $ 15,008,268 $ 740,663 $

(Continued)

151



Special RevenueHousing Other Transportation

Grants / Loans Development CalHome Special DevelopmentProgram Services Programs Revenue Act

REVENUES:Taxes:

Sales - levied by City $ - $ - $ - $ - $Business licenses _____

Licenses and permits 5,385,146Intergovernmental:

Federal grants and subsidiesSales and use tax - levied by stateOther governmental 119,660 268,385

Charges for services 4,203,801Fines and forfeitures 62,328Use of money and property 66,422Investment income:

Interest income 1,563 13,840 (1) 12,646Refunds and reimbursements 122,378Miscellaneous 55,824 12,676

Total revenues 1,563 9,843,317 66,421 144,982 268,385


General government 7,536,616 3,650Public safety 1,844,181 52,485Public worksLibrary 23,784Parks and recreation 20

Capital outlay 50,628 289,538 14,467 57,003Debt service:


Total expenditures 9,431,425 289,538 94,406 57,003

EXCESS (DEFICIENCY) OF REVENUES OVER(UNDER) EXPENDITURES 1,563 411,892 (223,117) 50,576 211,382

OTHER FINANCING SOURCES (USES):Transfers in 1,000,000Transfers out (1,086,000) (586,500) (12,433)Developer contributionsBond insurers proceedsPayment to refunded bond escrow agent

Total other financing sources (uses) (1,086,000) 413,500 (12,433)CHANGES IN FUND BALANCES (1,084,437) 825,392 (223,117) 38,143 211,382

FUND BALANCES:Beginning of year 2,608,608 8,439,085 352,626 1,152,404 (266,285)End of year $ 1,524,171 $ 9,264,477 $ 129,509 $ 1,190,547 $ (54,903)

(Continued)

152


Nonmajor Governmental FundsFor the Year Ended June 30,2017

Capital Projects Debt Service PermanentPublic

Facilities Primary City DebtImpact Fees Service Miscellaneous Totals

REVENUES:Taxes:

Sales - levied by City $ $ $ - $ 12,457,773Business licenses 1,461,425

Licenses and permits 5,385,146Intergovernmental:

Federal grants and subsidies 6,478,846Sales and use tax - levied by state 4,833,332Other governmental 9,565,810

Charges for services 3,331,736 1,486,705 13,440,353Fines and forfeitures 62,328Use of money and property 73,553 665,445Investment income:

Interest income 92,612 (13,763) (1,639) 216,926Refunds and reimbursements 21,698 170,854Miscellaneous 1,615,488

Total revenues 3,519,599 1,472,942 (1,639) 56,353,726


General government 334,115 1,500 10,231,040Public safety 35,169 16,365,300Public works 2,311 9,458,734Library 96,679Parks and recreation 38,128 3,097,450

Capital outlay 561,369 12,698,531Debt service:

Principal retirement 12,193,113 13,593,113Interest and fiscal charges 2,379,211 2,871,510

Total expenditures 636,977 14,906,439 1,500 68,412,357

EXCESS (DEFICIENCY) OF REVENUES OVER(UNDER) EXPENDITURES 2,882,622 (13,433,497) (3,139) (12,058,631)

OTHER FINANCING SOURCES (USES):Transfers in 11,237 11,984,552 13,066,122Transfers out (1,684,933)Developer contributionsBond insurers proceedsPayment to refunded bond escrow agent

Total other financing sources (uses) 11,237 11,984,552 11,381,189CHANGES IN FUND BALANCES 2,893,859 (1,448,945) (3,139) (677,442)

FUND BALANCES:Beginning of year 42,794,458 2,998,849 421,201 93,995,504End of year $ 45,688,317 $ 1,549,904 $ 418,062 $ 93,318,062

(Concluded)

153 154

NON-MAJOR ENTERPRISE FUNDSEnterprise funds are used to report activities for which a fee is charged to external users for goods and services. These funds are used by governments to account for operations that are financed and operated in a manner similar to private business enterprises, where the intent of City Council is that the costs of providing goods and services to the general public on a continuing basis be financed or recovered primarily through user charges, or where the City Council has decided that periodic determination of income is appropriate for accountability purposes.

The City’s non-major enterprise funds include:

Downtown Marina EnterpriseFundTo account for resources and activities associated with the operations and maintenance of the Downtown Stockton Marina facilities.

Coif Courses E nterprise F undTo account for resources and activities associated with the improvement, operation and maintenance of the Swenson and Van Buskirk golf courses.

155

City of Stockton Combining Statement of Net Position

Nonmajor Enterprise Funds June 30,2017

Downtown GolfMarina Courses Total


Cash and investments $ 408,597 $ 149,620 $ 558,217Receivables, net:

Interest 1,174 1,174Accounts and other receivables 27,463 2,797 30,260

Prepaid items 1,250 4,161 5,411Inventory of supplies 38,740 38,740

Total current assets 438,484 195,318 633,802

Noncurrent assets:Capital assets, net:

Nondepreciable 359,805 359,805Depreciable, net 23,363,436 632,282 23,995,718Total noncurrent assets 23,363,436 992,087 24,355,523Total assets 23,801,920 1,187,405 24,989,325


Accounts payable 40,961 59,860 100,821Accrued payroll 236 882 1,118Deposits and other liabilities 10,679 74,769 85,448Accrued interestUnearned Revenues 14,790 14,790Due to other governments 2,822 2,822

Total current liabilities 66,666 138,333 204,999

Noncurrent liabilities:Notes payable 10,870,821 10,870,821

Total noncurrent liabilities 10,870,821 10,870,821Total liabilities 10,937,487 138,333 11,075,820

NET POSITIONNet investment in capital assets 12,492,615 992,087 13,484,702Unrestricted (deficit) 371,818 56,985 428,803

Total net position $ 12,864,433 $ 1,049,072 $ 13,913,505

156

City of StocktonCombining Statement of Revenues, Expenses, and Changes in Net Position

Nonmajor Enterprise Funds For the Year Ended June 30,2017

DowntownMarina

GolfCourses Total

OPERATING REVENUES:Charges for services $ 214,325 $ 664,696 $ 879,021Miscellaneous 91,138 705,227 796,365

Total operating revenues 305,463 1,369,923 1,675,386

OPERATING EXPENSES:Operation and maintenance 447,342 2,150,874 2,598,216General and administrative 24,911 24,911Depreciation and amortization 531,869 79,561 611,430

Total operating expenses 1,004,122 2,230,435 3,234,557OPERATING INCOME (LOSS) (698,659) (860,512) (1,559,171)

NON-OPERATING REVENUES AND EXPENSES:Investment income:

Interest income 722 (8,036) (7,314)Total non-operating revenues (expenses) 722 (8,036) (7,314)

INCOME (LOSS) BEFORE TRANSFERS (697,937) (868,548) (1,566,485)

Transfers in 220,000 850,000 1,070,000Extraordinary Items

CHANGE IN NET POSITION (477,937) (18,548) (496,485)

NET POSITION:Beginning of year 13,342,370 1,067,620 14,409,990End of year $ 12,864,433 $ 1,049,072 $ 13,913,505

157

City of Stockton Combining Statement of Cash Flows

Nonmajor Enterprise Funds For the Year Ended June 30,2017

Downtown GolfMarina Courses Total

CASH FLOWS FROM OPERATING ACTIVITIES:Receipts from customers and users $ 304,704 $ 1,368,971 $ 1,673,675Payments to suppliers (443,019) (2,186,785) (2,629,804)Payments to employees 23 32,783 32,806

Net cash (used for) operating activities (138,292) (785,031) (923,323)

CASH FLOWS FROM CAPITAL AND RELATEDFINANCING ACTIVITIES:

Purchases of capital assets 1 (22,850) (22,849)Net cash (used for) noncapital financing activities 1 (22,850) (22,849)

CASH FLOWS FROM NONCAPITAL FINANCINGACTIVITIES:

Transfers in 220,000 850,000 1,070,000Net cash provided by noncapital financing activities 220,000 850,000 1,070,000

CASH FLOWS FROM INVESTING ACTIVITIES:Investment earnings 270 (8,036) (7,766)

Net cash provided by (used for) noncapital financing activities 270 (8,036) (7,766)

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS 81,979 34,083 116,062

CASH AND CASH EQUIVALENTS:Beginning of year 326,618 115,537 442,155End of year $ 408,597 $ 149,620 $ 558,217

RECONCILIATION OF OPERATING INCOME (LOSS) TONET CASH USED FOR OPERATING ACTIVITIES:

Operating income (loss) $ (698,659) $ (860,512) $ (1,559,171)Adjustments to reconcile operating loss to net cash provided (used for) by operating activities:

Depreciation and amortization 531,869 79,561 611,430Changes in assets and liabilities:

Accounts and other receivables (8,142) 2,884 (5,258)Prepaids 7,317 6,943 14,260Inventory of supplies 3,729 3,729Accounts payable 21,917 (10,703) 11,214Accrued payroll 23 (13) 10Due to other governments 645 645Deposits and other liabilities 7,383 (7,565) (182)

Net cash (used for) operating activities $ (138,292) $ (785,031) $ (923,323)

158

INTERNAL SERVICE FUNDS

Internal service funds are a type of proprietary fund used to report any activity that provides goods and services on a cost- reimbursement basis to other funds, departments, or agencies of the primary government and its component units, or to other governments.

The City’s internal service funds include:

General Liability Insurance FundTo account for premiums and claims paid and the administration of general liability insurance provided to all City departments on a cost reimbursement basis. The fund also accounts for future estimated related liabilities to the City based on independent actuarial studies utilizing insurance industry standards of applicable data, factors and assumptions.

Workers’ Compensation I nsurance F undTo account for premiums and claims paid and the administration of workers’ compensation liability insurance provided to all City employees incurring injury on the job, of which health benefits and other related liability costs are funded by City department payments into the fund. The fund also accounts for future estimated related liabilities to the City based on independent actuarial studies utilizing insurance industry standards of applicable data, factors and assumptions.

E mployee and Retiree Health I nsurance FundTo account for premiums and claims paid and the administration of health benefits insurance provided to qualified active and qualified retired City employees, with City departmental payments made to the Fund sought to reimburse health related expenses incurred by the Fund. The fund also accounts for future estimated related liabilities to the City based on independent actuarial studies utilizing insurance industry standards of applicable data, factors and assumptions.

Retirement Benefits F undTo account for the accumulation and payout of resources for the purpose of providing defined retirement and disability benefits, annual cost of living adjustments and death benefits to City employee plan members and beneficiaries through the California Public Employees’ Retirement System (“CalPERS”) on a cost reimbursement basis. The fund also accounts for future estimated related liabilities to the City based on independent actuarial studies utilizing insurance industry standards of applicable data, factors and assumptions, of which were pre-funded by bond proceeds from the 2007 Taxable Pension Obligations Bonds, Series A and B.

Other Benefits and I nsurance F undTo account for premiums and claims paid and the administration of comparatively smaller insurance funds provided to City employees on a cost reimbursement basis. Included are long - term disability, life insurance, and termination pay benefits.

Vehicle F leet E quipment F undTo account for the financing, operations, servicing and maintenance of fleet vehicles and major equipment utilized by City departments, of which the services are rendered on a cost reimbursement basis.

Computer Equipment F undTo account for the financing, service and maintenance of all computer and related equipment provided to City departments on a cost reimbursement basis.

Radio E quipment F undTo account for the financing, service and maintenance of radio equipment provided to City departments on a cost reimbursement basis.

Other Equipment FundTo account for the financing, operating and maintenance of other, comparatively smaller equipment funds provided to City departments on a cost reimbursement basis. Included are telephone, office, and printing and mailing equipment.

159

City of Stockton Combining Statement of Net Position

Internal Service Funds June 30,2017

GeneralLiabilityInsurance

Workers'Compensation

Insurance

Employee &Retiree Health

InsuranceRetirement

Benefits

OtherBenefits &Insurance


Cash and investments $ 16,789,551 $ 40,502,706 $ 13,275,176 $ 3,700,390 $ 2,940,027Receivables, net:

Accounts and other receivables 701,864 126,888 43,222 6,450 9,578Due from other funds 27,706Deposits and advances 1,159,000Prepaid items

Total current assets 17,491,415 40,657,300 14,477,398 3,706,840 2,949,605


Cash and investments with fiscal agentsCapital assets, net

Total noncurrent assets

Total assets 17,491,415 40,657,300 14,477,398 3,706,840 2,949,605

160

City of StocktonCombining Statement of Net Position (Continued)


Vehicle FleetEquipment

ComputerEquipment

RadioEquipment

OtherEquipment Total


Cash and investments $ 4,847,254 $ 22,681,312 $ 1,742,628 $ 4,391,889 $ 110,870,933Receivables, net:

Accounts and other receivables 64,441 72,078 5,034 13,574 1,043,129Due from other funds 27,706Deposits and advances 1,159,000Prepaid items 728,071 23,476 52,598 804,145

Total current assets 4,911,695 23,481,461 1,771,138 4,458,061 113,904,913


Cash and investments with fiscal agents 1,851,707 1,851,707Capital assets, net 18,975,927 2,268,673 1,324,258 105,894 22,674,752

Total noncurrent assets 20,827,634 2,268,673 1,324,258 105,894 24,526,459

Total assets 25,739,329 25,750,134 3,095,396 4,563,955 138,431,372

161



General Workers' Employee & OtherLiability Compensation Retiree Health Retirement Benefits &Insurance Insurance Insurance Benefits Insurance


Accounts payable 214,822 29,679 90,410 461,237 19,612Accrued payroll 52,192 25,141 35,870 (400)Deposits and other liabilities 49,104Accrued interestCapital lease obligations - currentCompensated absences - current 12,286 2,850 8,709Self-insurance claims and judgments - current 2,229,565 8,272,000 404,000

Total current liabilities 2,508,865 8,378,774 538,989 460,837 19,612

Noncurrent liabilities:Loans from other funds 500,000Compensated absences - long-term 6,173 110Self-insurance claims and judgments - long-term 10,649,813 40,850,000

Total liabilities 13,164,851 49,728,774 539,099 460,837 19,612

DEFERRED INFLOWS OF RESOURCESDeferred rent


NET POSITIONNet investment in capital assetsRestricted for fleet and equipment replacementUnrestricted (deficits) 4,326,564 (9,071,474) 13,938,299 3,246,003 2,929,993

Total net position $ 4,326,564 $ (9,071,474) $ 13,938,299 $ 3,246,003 $ 2,929,993

162



Vehicle FleetEquipment

ComputerEquipment

RadioEquipment



Accounts payable 299,464 228,680 193,253 93,625 1,630,782Accrued payroll 135,856 198,216 6,540 10,786 464,201Deposits and other liabilities 49,104Accrued interest 73,953 73,953Capital lease obligations - current 605,839 605,839Compensated absences - current 85,729 169,559 5,107 6,433 290,673Self-insurance claims and judgments - current 10,905,565

Total current liabilities 1,200,841 596,455 204,900 110,844 14,020,117

Noncurrent liabilities:Loans from other funds 500,000Compensated absences - long-term 39,773 153,657 3,305 1,859 204,877Self-insurance claims and judgments - long-term 51,499,813

Total liabilities 5,721,068 750,112 208,205 112,703 70,705,261

DEFERRED INFLOWS OF RESOURCESDeferred rent 156,119 156,119

Total deferred inflows of resources 156,119 156,119

NET POSITIONNet investment in capital assets 13,889,634 2,268,673 1,324,258 105,894 17,588,459Restricted for fleet and equipment replacement 1,851,707 1,851,707Unrestricted (deficits) 4,276,920 22,575,230 1,562,933 4,345,358 48,129,826

Total net position $ 20,018,261 $ 24,843,903 $ 2,887,191 $ 4,451,252 $ 67,569,992

163

City of StocktonCombining Statement of Revenues, Expenses, and Changes in Net Position

Internal Service Funds For the Year Ended June 30, 2017



Insurance

Employee & Retiree Health

InsuranceRetirement

Benefits


OPERATING REVENUES:Charges for services $ 7,015,666 $ 16,830,685 $ 19,380,055 $ 50,832,670 $ 1,184,465Miscellaneous (3)

Total operating revenues 7,015,666 16,830,682 19,380,055 50,832,670 1,184,465

OPERATING EXPENSES:Operation and maintenance 8,799,270 (5,780,777) 18,807,446 50,286,841 1,306,023General and administrative 1,240,918 2,271,115 875,965Depreciation and amortization

Total operating expenses 10,040,188 (3,509,662) 19,683,411 50,286,841 1,306,023OPERATING INCOME (LOSS) (3,024,522) 20,340,344 (303,356) 545,829 (121,558)

NON-OPERATING REVENUES (EXPENSES):Investment income:

Interest income 32,908 105,117 20,704 (14,705) 3,042Gain from disposal of capital assetsInterest expense and fiscal chargesOther non-operating revenues 260,221

Total non-operating revenues (expenses) 32,908 105,117 280,925 (14,705) 3,042

INCOME (LOSS) BEFORE CAPITALCONTRIBUTIONS AND TRANSFERS (2,991,614) 20,445,461 (22,431) 531,124 (118,516)

Capital contributionsTransfers inTransfers out (303,900)

CHANGES IN NET POSITION (2,991,614) 20,445,461 (22,431) 227,224 (118,516)

NET POSITION:Beginning of year 7,318,178 (29,516,935) 13,960,730 3,018,779 3,048,509End of year $ 4,326,564 $ (9,071,474) $ 13,938,299 $ 3,246,003 $ 2,929,993

164

City of StocktonCombining Statement of Revenues, Expenses, and Changes in Net Position (Continued)


Vehicle Fleet Equipment

ComputerEquipment

RadioEquipment


OPERATING REVENUES:Charges for services $ 10,297,242 $ 11,859,653 $ 1,623,759 $ 1,951,930 $ 120,976,125Miscellaneous 186,907 186,904

Total operating revenues 10,484,149 11,859,653 1,623,759 1,951,930 121,163,029

OPERATING EXPENSES:Operation and maintenance 5,689,889 8,689,087 1,636,057 875,150 90,308,986General and administrative 1,873,195 6,261,193Depreciation and amortization 3,838,723 598,265 170,772 35,694 4,643,454

Total operating expenses 11,401,807 9,287,352 1,806,829 910,844 101,213,633OPERATING INCOME (LOSS) (917,658) 2,572,301 (183,070) 1,041,086 19,949,396

NON-OPERATING REVENUES (EXPENSES):Investment income:

Interest income 6,398 43,408 (1,327) 13,716 209,261Gain from disposal of capital assets 84,971 84,971Interest expense and fiscal charges (141,387) (141,387)Other non-operating revenues 260,221

Total non-operating revenues (expenses) (50,018) 43,408 (1,327) 13,716 413,066

INCOME (LOSS) BEFORE CAPITALCONTRIBUTIONS AND TRANSFERS (967,676) 2,615,709 (184,397) 1,054,802 20,362,462

Capital contributions 1,695,761 180,031 161,623 2,037,415Transfers in 814,290 814,290Transfers out (303,900)

CHANGES IN NET POSITION 1,542,375 2,795,740 (22,774) 1,054,802 22,910,267

NET POSITION:Beginning of year 18,475,886 22,048,163 2,909,965 3,396,450 44,659,725End of year $ 20,018,261 $ 24,843,903 $ 2,887,191 $ ; 4,451,252 $ 67,569,992

165

City of Stockton Combining Statement of Cash Flows


General Workers' Employee & OtherLiability Compensation Retiree Health Retirement Benefits &Insurance Insurance Insurance Benefits Insurance

CASH FLOWS FROM OPERATING ACTIVITIES:Receipts from customers and usersReceipts for interfund services providedPayments to suppliersPayments to employees

$ 6,690,004

3,544,291(8,346,980)

$ 16,779,823

(8,645,248)(5,272)

$ 19,368,898260,221

(18,718,179) (1,082,391)

$ 50,833,746 $

(49,843,029)(824)

1,182,546

(1,326,281)

Net cash provided by (used in) operatingactivities 1,887,315 8,129,303 (171,451) 989,893 (143,735)


Transfers inTransfers out (303,900)Due from other funds 421,641

Net cash provided by (used in) noncapital financing activities 421,641 (303,900)


Proceeds from sales of capital assetsPurchases of capital assetsPrincipal paid on debtInterest paid on debt

Net cash used in capital and related financing activities

CASH FLOWS FROM INVESTING ACTIVITIES:Investment earnings 32,908 105,117 20,704 (14,705) 3,042

Net cash provided by investing activities 32,908 105,117 20,704 (14,705) 3,042

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS 1,920,223 8,656,061 (150,747) 671,284 (140,693)

CASH AND CASH EQUIVALENTS:Beginning of year 14,869,328 31,846,645 13,425,923 3,029,106 3,080,720

End of year $ 16,789,551 $ 40,502,706 $ 13,275,176 $ 3,700,390 $ 2,940,027

166

City of StocktonCombining Statement of Cash Flows (Continued)


Vehicle Fleet Computer Radio OtherEquipment Equipment Equipment Equipment Total

CASH FLOWS FROM OPERATING ACTIVITIES:Receipts from customers and usersReceipts for interfund services providedPayments to suppliersPayments to employees

$ 10,431,860

(8,023,338)(28,489)

$ 11,596,323 $

(8,527,768)55,993

1,610,838 $

(1,469,787)795

1,940,359 $

(828,229)(317)

120,434,397260,221

(93,837,572)(9,407,485)

Net cash provided by (used in) operatingactivities 2,380,033 3,124,548 141,846 1,111,813 17,449,561


Transfers inTransfers outDue from other funds

814,290 814,290(303,900)421,641

Net cash provided by (used in) noncapital financing activities 814,290 932,031


Proceeds from sales of capital assetsPurchases of capital assetsPrincipal paid on debtInterest paid on debt

84,971(3,866,628)1,438,007(132,845)

(1,034,330) (503,822) 184,971

(5,404,779)1,438,007(132,845)

Net cash used in capital and related financing activities (2,476,495) (1,034,330) (503,822) 1 (4,014,646)

CASH FLOWS FROM INVESTING ACTIVITIES:Investment earnings 6,398 43,408 (1,327) 13,716 209,261

Net cash provided by investing activities 6,398 43,408 (1,327) 13,716 209,261

NET INCREASE (DECREASE) IN CASH ANDCASH EQUIVALENTS 724,226 2,133,626 (363,303) 1,125,530 14,576,207

CASH AND CASH EQUIVALENTS:Beginning of year 5,974,735 20,547,686 2,105,931 3,266,359 98,146,433

End of year $ 6,698,961 $ 22,681,312 $ 1,742,628 $ 4,391,889 $ 112,722,640

167





Insurance

EmployeeHealth

InsuranceRetirement

Benefits


RECONCILIATION OF CASH AND CASHEQUIVALENTS TO THE STATEMENT OF NETPOSITION - PROPRIETARY FUNDS:

Cash and investments $ 16,789,551 $ 40,502,706 $ 13,275,176 $ 3,700,390 $ 2,940,027Restricted assets:

Cash with investments fiscal agents .....

Total cash and investments $ 16,789,551 $ 40,502,706 $ 13,275,176 $ 3,700,390 $ 2,940,027

(LOSS) TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:

Operating income (loss) $ (3,024,522) $ 20,340,344 $ (303,356) $ 545,829 $ (121,558)Adjustments to reconcile operating income (loss) to net cash provided by (used for) operating activities:

Depreciation and amortization .....Other non-operating revenues 260,221Changes in assets and liabilities:

Accounts and other receivables (325,662) (50,859) (11,157) 1,076 (1,919)Prepaid expensesDeferred chargesAccounts payable 179,939 (14,910) 70,836 443,812 (20,258)Accrued payroll 3,983 6,567 12,499 (824)Compensated absences 1,765 (11,839) (21,894)Self-insurance - claims and judgments 5,051,812 (12,140,000) (178,600)

Net cash provided by (used in) operatingactivities $ 1,887,315 $ 8,129,303 $ (171,451) $ 989,893 $ (143,735)

NONCASH TRANSACTIONS:Transfer of capital assets from other funds

168



Vehicle Fleet Computer Radio OtherEquipment Equipment Equipment Equipment Total

RECONCILIATION OF CASH AND CASHEQUIVALENTS TO THE STATEMENT OF NETPOSITION - PROPRIETARY FUNDS:

Cash and investmentsRestricted assets:

$ 4,847,254 $ 22,681,312 $ 1,742,628 $ 4,391,889 $ 110,870,933

Cash with investments fiscal agents 1,851,707 1,851,707

Total cash and investments $ 6,698,961 $ 22,681,312 $ 1,742,628 $ 4,391,889 $ 112,722,640

(LOSS) TO NET CASH PROVIDED BY (USEDFOR) OPERATING ACTIVITIES:


$ (917,658) $ 2,572,301 $ (183,070) $ 1,041,086 $ 19,949,396

Depreciation and amortization 3,838,723 598,265 170,772 35,694 4,643,454Other non-operating revenuesChanges in assets and liabilities:

260,221

Accounts and other receivables (52,289) (23,227) (71) (6,180) (470,288)Prepaid expenses (240,103) (12,850) (5,391) (258,344)Deferred charges 58,240 58,240Accounts payable (507,657) 103,079 166,270 46,921 468,028

Accrued payroll 11,552 27,290 580 (1,060) 60,587Compensated absences 7,362 28,703 215 743 5,055Self-insurance - claims and judgments (7,266,788)

Net cash provided by (used in) operatingactivities $ 2,380,033 $ 3,124,548 $ 141,846 $ 1,111,813 $ 17,449,561

NONCASH TRANSACTIONS:Transfer of capital assets from other funds $ 1,695,761 $ 180,031 $ 161,623 $ 2,037,415

169 170

AGENCY FUNDS

Agency funds are a type of fiduciary fund used to account for assets held in an agency capacity for parties outside the City. The resources of these funds cannot be used to support the City’s own programs.

The City’s agency funds include:

L and Secured F i nanci ng Agency F undTo account for special taxes or assessment collections from property owners that are authorized under various public improvement acts of the State of California. The City acts only as an agent and forwards collections to bondholders and initiated foreclosure proceedings when necessary.

Area of Benefit F ees Agency F undTo account for the collection of developer fees, proportionate share fees, and reimbursement of construction costs required as a condition of a development or subdivision for approved public improvements within established areas of benefit.

P u bl i c F aci I i ti es F ees Agency FundTo account for fees collected on behalf of other governments and agencies related to community new development impacts.

M i seel laneous Agency F undTo account for deposits held by the City as security for construction improvements and development, unified utility bill collections on behalf of other entities, and for other deposits held in a fiduciary capacity.

All Other Agency F undsTo account for various cultural, recreational and educational programs that the City administers on behalf of other governmental and private sector entities and organizations.

171

City of StocktonStatement of Changes in Assets and Liabilities

Agency FundsFor the Year Ended June 30,2017

Balance BalanceJuly 1, 2016 Additions Deductions June 30, 2017

LAND SECURED FINANCING

Assets:Cash and investments $ 21,399,843 $ 8,731,884 $ 12,205,454 $ 17,926,273Cash and investments with fiscal agents Receivables:

6,360,646 103,752,797 106,596,345 3,517,098

Interest & other receivablesAccounts and other receivablesPrepaid

49,955 57,680 173,881 (66,247)

Total assets $ 27,810,444 $ 112,542,361 $ 118,975,680 $ 21,377,124

Liabilities:Deposits and other liabilities 27,810,444 $ 106,597,802 $ 113,031,122 21,377,124

$Total liabilities $ 27,810,444 $ 106,597,802 $ 113,031,122 $ 21,377,124

AREA OF BENEFIT FEES

Assets:Cash and investmentsReceivables:

$ 12,208,462 $ 133,658 $ 802,591 $ 11,539,529

Interest 31,828 37,427 31,828 37,427Total assets $ 12,240,290 $ 171,085 $ 834,419 $ 11,576,956

Liabilities:Deposits and other liabilities $ 12,240,290 $ (912,910) $ (249,576) $ 11,576,956

Total liabilities $ 12,240,290 $ (912,910) $ (249,576) $ 11,576,956

PUBLIC FACILITIES FEES


$ 1,226,635 $ 3,176,147 $ 3,175,272 $ 1,227,510

Interest 1,273 1,098 1,274 1,097Accounts and other receivables $ 538,237 538,237

Total assets $ 1,227,908 $ 3,715,482 $ 3,176,546 $ 1,766,844

Liabilities:Due to other governments $ 1,227,908 $ 7,429,261 $ 6,890,324 $ 1,766,844

Total liabilities $ 1,227,908 $ 7,429,261 $ 6,890,324 $ 1,766,844

172

City of StocktonStatement of Changes in Assets and Liabilities (Continued)

Agency FundsFor the Year Ended June 30,2017

Balance BalanceJuly 1, 2016 Additions Deductions June 30, 2017

MISCELLANEOUS



$ 5,175,043

13,6584,085,711

$ 22,812,518

12,82323,580,268

$ 25,416,558 1

13,65823,050,620

$ 2,571,003

12,8234,615,358

Total assets $ 9,274,412 $ 46,405,609 $ 48,480,836 1$ 7,199,185

Liabilities:Accounts payableDue to other governmentsDeposits and other liabilities

$ (6,176)55,242

9,225,346

$ 806,07133

24,564,737

$ 787,481 115,188

26,643,399

$ 12,41440,087

7,146,685Total liabilities $ 9,274,412 $ 25,370,840 $ 27,446,068 1$ 7,199,185

ALL OTHER


InterestDue from other governments

$ 80,391

254385

$ 177,707

243255

$ 160,547

1,006495

$ 97,551

(509)145

Total assets $ 81,030 $ 178,205 $ 162,048 $ 97,187

Liabilities:Accounts payable $ 3,438 $ 115,587 $ 114,922 $ 4,103Deposits and other liabilities 77,592 178,516 163,024 93,084

Total liabilities $ 81,030 $ 294,103 $ 277,946 $ 97,187

TOTAL

Assets:Cash and investments $ 40,090,374 $ 35,031,914 $ 41,760,422 $ 33,361,866Cash and investments with fiscal agents 6,360,646 103,752,797 106,596,345 3,517,098Receivables:

Interest 97,726 109,271 221,647 (14,650)Accounts and other receivables 4,084,953 24,118,505 23,050,620 5,152,838Prepaid

Due from other governments 385 255 495 145Total assets $ 50,634,084 $ 163,012,742 $ 171,629,530 $ 42,017,296

Liabilities:Accounts payable $ (2,738) $ 921,658 $ 902,403 $ 16,517Due to other governments 1,283,150 7,429,294 6,905,512 1,806,932Deposits and other liabilities 49,353,672 130,428,144 139,587,969 40,193,847

Total liabilities $ 50,634,084 $ 138,779,095 $ 147,395,884 $ 42,017,296

173

City of Stockton Measures A and B

Schedule of Sources and Uses For Year E nded J une 30, 2017

Final Year End VariancewithBudget Actual Final Budget

RevenuesM easure A Transacti on and U se Tax $ 30,161,000 $ 30,048605 $ (112,395)

Total Revenues $ 30,161,000 $ 30,048605 $ (112,395)

Uses/ExpendituresPolice

Salary & BenefitsSworn 16,685,841 11,077,640 5,608,201N on-Sworn 3,325,678 2,313,333 1,012,345Vacancy Savings (3,640,000) - (3,640,000)

Other ServicesMaterials & Supplies

1,363,526 1,217,757 145,769

Fuel 146,461 135,690 10,771Other Supplies

Equi pment540,024 441,864 98,160

Radios 489,465 411,352 78,113Vehicles 1,487,914 1,259,990 227,924Technd ogy U pgrades

Other Expenses195,851 170,401 25,450

Training 405,460 405,456 421,000,220 17,433,483 3,566,737

Office of Violence PreventionSalary & Benefits

N on-Sworn 627,914 615,792 12,122Other ServicesMaterials & Supplies

252,850 169,557 83,293

Other SuppliesEqui pment

11,289 9,487 1,802

Office Equipment 20,897 20,928 (31)Vehicles 23,747 23,746 1

Other Expenses 8,750 7,712 1,038945,447 847,222 98,225

Basis AdjustmentE ncumbrances (i ncl uded i n Fi nal B udget) - 160,609 (160,609)

Total Measure B Expenditures 21,945,667 18441,314 3,504,353Crime Prevention (Measure B) expendituresasa% of annual Measure A revenues 73% 61%

Other City ServicesTransfers to Mission Critical Projects

Street Resurfacing 273,801 273,801 -

E conomi c Dev. 1 mpl ementati on - U L1 76,166 31,600 44,566Marketing/Communications Plan 100,000 74,800 25,200

Ceneral Fund Avai 1 able Fund Balance 7,765,366 11,199,924 (3,434,558)Basis Adjustment

E ncumbrances (i ncl uded i n Fi nal B udget) - 27,166 (27,166)

8,215,333 11,607,291 (3,391,958)

Total Uses/Expenditures $ 30,161,000 $ 30,048,605 $ 112,395

174

City of Stockton Table 1

Net Position by Classification Last Ten Fiscal Years

(Dollar amounts in thousands)

Fiscal Year2017 2016 2015 2014 2013

Governmental activities:

Net investment in capital assets $ 330,655 $ 287,078 $ 326,823 $ 714,595 $ 725,426Restricted 148,493 153,087 130,763 96,596 93,905Unrestricted 229,584 196,005 160,224 (62,855) (82,351)

Total governmental activities net position 708,732 636,170 617,810 748,336 736,980

Business-type activities:

Net investment in capital assets 362,886 369,983 379,853 413,783 418,881Restricted 50,904 54,618 56,521 54,175 56,589Unrestricted 82,938 44,792 28,751 42,641 38,380

Total business-type activities net position 496,728 469,393 465,125 510,599 513,850

Primary government:Net investment in capital assets 693,540 657,061 706,676 1,128,378 1,144,307Restricted 199,397 207,705 187,284 150,771 150,494Unrestricted 312,522 240,797 188,975 (20,214) (43,971)

Total primary government net position 1,205,460 1,105,563 $ 1,082,935 $ 1,258,935 $ 1,250,830

Note: Some prior year balances may have been restated from previous CAFRs to reflect new GASB implementations or prior period restatements.

Source: City of Stockton Department of Administrative Services

175


Net Position by Classification (Continued) Last Ten Fiscal Years


Fiscal Year2012 2011 2010 2009 2008

Governmental activities:

Net investment in capital assets $ 703,266 $ 645,249 $ 612,914 $ 611,775 $ 594,070Restricted 84,099 122,730 188,655 162,363 172,088Unrestricted (114,859) (169,356) (139,549) (66,091) (21,053)

Total governmental activities net position 672,506 598,623 662,020 708,047 745,105

Business-type activities:

Net investment in capital assets 432,082 414,066 402,215 400,551 399,813Restricted 27,976 33,558 30,751 35,408 39,568Unrestricted 54,340 61,172 41,442 42,449 39,138

Total business-type activities net position 514,398 508,796 474,408 478,408 478,519

Primary government:Net investment in capital assets 1,135,348 1,059,315 1,015,129 1,012,326 993,883Restricted 112,075 156,288 219,406 197,771 211,656Unrestricted (60,519) (108,184) (98,107) (23,642) 18,085

Total primary government net position $ 1,186,904 $ 1,107,419 $ 1,136,428 $ 1,186,455 $ 1,223,624

Note: Some prior year balances may have been restated from previous CAFRs to reflect new GASB implementations or prior period restatements.


176


Changes in Net Position Last Ten Fiscal Years


Fiscal Year2017 2016 2015 2014 2013

ExpensesGovernmental activities:

General government $ 33,378 $ 39,608 $ 35,576 $ 34,594 $ 24,909Public safety 154,932 169,015 123,403 124,806 108,931Public works 45,670 36,344 37,685 51,942 49,259Library 10,904 10,406 9,098 9,807 8,445Parks and recreation 22,481 21,620 20,801 19,456 19,736Interest and fiscal charges 4,288 2,216 3,401 14,486 14,615

Total governmental activities 271,653 279,209 229,964 255,091 225,895

Business-type activities:Water utility 42,886 48,001 47,474 44,720 48,570Wastewater utility 50,545 58,665 56,153 55,724 51,166Stormwater utility 5,288 6,601 7,084 5,758 5,959Parking Authority 5,641 5,384 5,026 5,120 4,944Other 3,235 3,116 3,374 3,448 2,939

Total business-type activities 107,595 121,767 119,111 114,770 113,578Total expenses 379,247 400,976 349,075 369,861 339,473

Program RevenuesGovernmental activities:

Charges for services:General government 19,184 15,831 15,169 14,785 17,977Public safety 9,188 13,663 16,863 21,016 18,130Public works 3,373 8,292 6,105 5,178 6,136Library 377 517 441 437 670Parks and recreation 8,765 9,158 6,145 5,655 6,597

Operating grants and contributions 12,565 12,861 18,823 18,840 23,827Capital grants and contributions 17,591 16,286 34,268 36,052 57,146


Business-type activities:Charges for services:

Water utility 42,308 33,277 35,059 37,855 37,464Wastewater utility 66,833 68,938 65,726 59,953 55,369Stormwater utility 5,619 5,573 5,569 5,571 5,503Parking Authority 5,141 4,971 4,170 2,882 2,669Other 1,675 1,750 1,769 1,870 1,934


Total business-type activities 128,436 121,847 120,371 113,108 111,814Total program revenues 199,479 198,455 218,185 215,071 242,297

Change in Net PositionGovernmental activities (200,611) (202,601) (132,150) (153,128) (95,412)Business-type activities 20,842 80 1,260 (1,662) (1,764)Total primary government $ (179,769) $ (202,521) $ (130,890) $ (154,790) $ (97,176)

177


Changes in Net Position (Continued) Last Ten Fiscal Years


Fiscal Year2012 2011 2010 2009 2008

ExpensesGovernmental activities:

General government $ 41,548 $ 40,873 $ 30,765 $ 33,923 $ 27,819Public safety 154,230 182,582 187,647 190,692 181,187Public works 34,635 48,826 56,416 43,985 134,737Library 10,176 11,589 12,767 14,852 14,723Parks and recreation 20,760 24,435 22,309 26,038 33,138Interest and fiscal charges 20,529 19,274 20,430 19,620 17,921


Business-type activities:Water utility 30,162 35,909 28,856 24,146 22,070Wastewater utility 51,530 49,234 45,958 49,414 40,045Stormwater utility 6,685 7,406 7,842 8,129 6,696Parking Authority 4,903 4,264 4,616 4,810 5,002Other 3,750 3,517 2,394 2,237 2,093

Total business-type activities 97,030 100,330 89,666 88,736 75,906Total expenses 378,908 427,909 420,000 417,846 485,431

Program RevenuesGovernmental activities:

Charges for services:General government 15,342 17,079 11,387 13,180 12,141Public safety 15,002 16,765 18,812 22,131 30,738Public works 6,255 15,005 17,755 19,750 30,429Library 719 593 504 4,800 1,462Parks and recreation 6,037 7,353 6,464 2,104 9,741



Business-type activities:Charges for services:

Water utility 33,308 30,056 25,775 24,258 22,882Wastewater utility 50,324 42,598 37,271 35,607 33,661Stormwater utility 5,888 5,879 5,655 5,498 6,160Parking Authority 3,487 3,585 3,672 3,934 3,815Other 2,071 1,852 1,701


Total business-type activities 109,392 104,105 81,473 75,551 81,834Total program revenues 227,694 233,367 194,307 186,679 220,571

Change in Net PositionGovernmental activities (163,576) (198,317) (217,500) (217,982) (270,788)Business-type activities 12,362 3,775 (8,193) (13,185) 5,928Total primary government $ (151,214) $ (194,542) $ (225,693) $ (231,167) $ (264,860)

178




Fiscal Year2017 2016 2015 2014 2013

General Revenues and OtherChange in Net Position:Governmental activities:

Taxes:Property $ 32,411 $ 30,646 $ 29,573 $ 28,015 $ 29,420In lieu of sales tax 8,775 9,816 9,706 9,938Utility user 34,455 33,379 32,921 32,370 31,941Sales - levied by City (1) 42,506 39,070 37,208 15,536 9,086Franchise fees 13,289 12,397 12,379 11,981 11,677Business licenses 12,243 11,996 10,805 10,392 10,153Hotel/motel room 2,997 2,711 2,378 2,080 2,006Document transfer 801 857 587 564 458Other 1,939 1,801 930 728 287

Shared revenue:Vehicle license fees 21,423 20,354 19,602 18,069 17,433Sales and use tax levied by state (1) 49,910 45,097 36,904 35,111 34,031Other 44 45 49 253 400

Investment earnings 1,966 4,728 1,532 1,128 123Gain on sale of capital assets 578 568 (13,214) (3,712) (1)Miscellaneous 2,820 7,303 16,982 3,042 2,411Special itemProceeds of long-term debt 10,237 23,396Extraordinary items 250,701Transfers 654 (297) 383 1,330 524


Business-type activities:Other taxes 1,292 1,239 974 1,166 1,197Grants and contributions not restricted to specific programsInvestment earnings 131 2,653 1,172 1,448 530Gain on sale of capital assets (1,156) (3,300)Miscellaneous 431 14Special itemTransfers (654) 297 (383) (1,330) (524)Extraordinary items (3) 9,548

Total business-type activities (387) 4,189 8,011 1,715 1,217Total general revenues and otherchanges in net assets 227,887 223,619 480,943 168,308 161,104

Change in Net PositionGovernmental activities 27,663 16,828 340,782 13,465 64,475Business-type activities 20,455 4,269 9,273 53 (547)Total primary government $ 48,118 $ 21,097 $ 350,055 $ 13,518 $ 63,928

(1) Measure A-Public Safety Tax, approved an additional .75% sales tax and Measure M - a new .25% sales tax approved in 2017 contributed to increases

(2) In fiscal year 2010-11 Net Assets were restated for prior period restatements for the Government activities and Business-type activities.

(3) In fiscal year 2015 Extraordinary items for Government activities and Business-type activites relate to GASB #58 Bankruptcy, with both principal and interest debt forgiven. GASB #68 Penision obligations being restated to show on balance sheet.


179




Fiscal Year2012 20U 2010 2009 2008

General Revenues and Other Change in Net Position:Governmental activities:

Taxes:Property $ 32,772 $ 41,051 $ 45,549 $ 58,640 $ 63,998In lieu of sales tax 8,392 8,118 7,087 9,823 10,164Utility user 31,505 30,994 30,717 30,854 30,861Sales - levied by City (1) 8,576 7,875 7,652 7,921 9,409Franchise fees 12,465 11,503 11,354 11,608 11,537Business licenses 9,873 9,855 9,717 9,699 10,772Hotel/motel room 1,933 1,799 1,749 1,962 2,287Document transfer 603 583 559 702 686Other 159 155 203 234 246

Shared revenue:Vehicle license fees 17,734 20,014 20,468 23,459 24,051Sales and use tax levied by state (1) 32,604 30,061 28,856 31,245 36,098Other 352 361 370 389

Investment earnings 2,802 1,620 5,927 13,104 15,007Gain on sale of capital assets 8 127 88Miscellaneous 974 1,083 172 722 756Special item 3,270 (288) (8,736)Proceeds of long-term debtExtraordinary items 75,350Transfers 1,718 542 1,382 803 1,049


Business-type activities:Other taxes 1,205 1,152 1,095 1,066 1,055Grants and contributions not restricted to specific programsInvestment earnings 1,865 3,176 4,192 4,075 5,892Gain on sale of capital assetsMiscellaneous (18,012)Special item 288 8,736Transfers (1,718) (542) (1,382) (803) (1,049)Extraordinary items (3)

Total business-type activities (16,660) 3,786 4,193 13,074 5,898Total general revenues and otherchanges in net assets 220,800 172,661 175,666 205,611 223,296

Change in Net PositionGovernmental activities 73,884 (29,442) (46,027) (25,445) (53,390)Business-type activities (4,298) 7,561 (4,000) (111) 11,826Total primary government $ 69,586 $ (21,881) $ (50,027) $ (25,556) $ (41,564)


(2) In fiscal year 2010-11 Net Assets were restated for prior period restatements for the Government activities and Business-type activities.

(3) In fiscal year 2015 Extraordinary items for Government activities and Business-type activites relate to GASB #58 Bankruptcy, with both principal and interest debt forgiven. GASB #68 Penision obligations being restated to show on balance sheet.


180


Fund Balance, Governmental Funds Last Ten Fiscal Years


Fiscal Year2017 2016 2015 2014 2013

General FundNonspendable $ 1,539 $ 2,214 $ 810 $ 500 $ 409Restricted 4,603 3,549 2,949 3,551 2,334Committed 56,439 49,088 28,930 34,008 23,775Assigned 3,922 5,467 3,059 1,710Unassigned 36,184 33,326 38,639 9,751 3,093

Total General Fund 102,687 93,644 71,328 50,869 31,321

All other governmental fundsNonspendable 384 373 382 443 369Restricted 114,254 122,350 104,785 81,435 75,157CommittedAssignedUnassigned 3,232 (266) (20,669) (18,793)

Total all other governmental funds 117,870 122,456 105,167 61,209 56,733

Total Fund Balance $ 220,557 $ 216,100 $ 176,495 $ 112,078 $ 88,054

Fiscal Year2017 2016 2015 2014 2013

General FundReserved $ $ $ $ $Unreserved

Total General Fund

All other governmental fundsReservedUnreserved, reported in:

Special revenue fundsDebt service fundsCapital projects fundsPermanent Fund

Total all other governmental funds

Total Fund Balance $ $ $ $ $

Notes:

The City implemented the provisions of GASB Statement #54 in fiscal year 2010 which changed the fund balance classifications. The implementaiton was implemented prospectively. Other prior year balances were changed based on prior period restatements.


181


Fund Balance, Governmental Funds (Continued) Last Ten Fiscal Years (Dollar amounts in thousands)

Fiscal Year2012 2011 2010 2009 2008

General FundNonspendable $ 355 $ 317 $ 13,466 $ $Restricted 2,100 2,100 2,100Committed 8,070 5,081 1,851Assigned 4,111 4,758 5,730Unassigned

Total General Fund 14,636 12,256 23,147

All other governmental fundsNonspendable 370 304 1,604Restricted 83,636 115,700 228,190Committed 67,466Assigned 1,815Unassigned (18,775) (15,017) (63,475)

Total all other governmental funds 65,231 100,987 235,600

Total Fund Balance $ 79,867 $ 113,243 $ 258,747 $ $

Fiscal Year2012 2011 2010 2009 2008

General FundReserved $ $ $ $ 14,175 $ 13,498Unreserved 8,607 9,627

Total General Fund 22,782 23,125

All other governmental fundsReserved 285,941 289,368Unreserved, reported in:

Special revenue funds 6,417 24,677Debt service funds 38Capital projects funds (53,248) (25,307)Permanent Fund 358 333

Total all other governmental funds 239,468 289,109

Total Fund Balance $ $ $ $ 262,250 $ 312,234

Notes:

The City implemented the provisions of GASB Statement #54 in fiscal year 2010 which changed the fund balance classifications. The implementaiton was implemented prospectively. Other prior year balances were changed based on prior period restatements.


182


Changes in Fund Balance of Governmental Funds Last Ten Fiscal Years


Fiscal Year2017 2016 2015 2014 2013

Revenues:Taxes:

Property $ 32,411 $ 30,646 $ 29,573 $ 28,014 $ 29,420In lieu of sales tax 8,775 9,816 9,706 9,938Utility user 34,455 33,379 32,921 32,369 31,941Sales (levied by City) (1) 42,506 39,070 37,208 15,536 9,086Franchise fees 13,289 12,397 12,380 11,981 11,677Business license 12,243 11,996 10,805 10,392 10,153Hotel/motel room 2,997 2,711 2,378 2,080 2,006Document transfer 801 856 587 565 458Other 1,939 1,535 930 728 287

Licenses and permits 5,867 5,347 4,398 3,808 3,696Federal grants and subsidies 12,859 10,470 21,796 22,453 23,158Other shared revenue (sales and use tax levied by state) (1) 45,096 45,097 36,904 35,111 34,031Other governmental 37,364 36,696 41,806 47,951 71,746Charges for services 22,920 26,473 21,351 19,410 19,059Fines and forfeitures 1,164 624 3,814 2,925 2,419Use of money and property 8,197 8,172 9,318 9,536 13,767Investment income:

Interest income 1,762 3,088 916 650 119Refunds and reimbursements 6,077 5,188 12,710 2,401 1,814Miscellaneous 6,745 11,246 16,674 7,707 6,942

Total revenues 288,693 293,766 306,285 263,323 281,717

Expenditures:Current:

General government 29,235 27,229 34,652 25,510 23,245Public safety 171,073 150,853 141,542 129,030 125,331Public works 15,818 14,861 14,152 14,458 13,498Library 10,619 10,107 9,880 9,793 9,039Parks and recreation 20,493 19,295 19,094 17,202 17,733

Capital outlay 31,407 23,857 31,345 43,273 72,568Debt service:

Principal retirement 13,593 3,325 8,217 9,589 9,013Cost of issuance 2,119Interest and fiscal charges 2,872 3,229 4,661 5,957

Total expenditures 295,110 251,646 262,111 253,516 276,384Excess (deficiency) of revenues

over (under) expenditures $ (6,416) $ 42,120 $ 44,174 $ 9,807 $ 5,333

183


Changes in Fund Balance of Governmental Funds (Continued) Last Ten Fiscal Years


Fiscal Year2012 2011 2010 2009 2008

Revenues:Taxes:

Property $ 32,772 $ 41,051 $ 45,549 $ 58,640 $ 63,998In lieu of sales tax 8,392 8,118 7,087 9,823 10,164Utility user 31,505 30,994 30,717 30,854 30,861Sales (levied by City) (1) 8,576 7,875 7,652 7,921 9,409Franchise fees 12,465 11,503 11,354 11,608 11,537Business license 9,873 9,855 9,717 9,699 10,772Hotel/motel room 1,933 1,799 1,749 1,962 2,287Document transfer 603 583 559 702 686Other 159 155 203 234 246

Licenses and permits 4,024 3,584 4,257 4,335 5,273Federal grants and subsidies 19,927 33,244 26,034 12,976 13,617Other shared revenue (sales and use tax levied by state) (1) 32,604 30,061 28,856 31,245 36,098Other governmental 66,985 47,929 47,779 53,498 59,976Charges for services 21,655 21,262 26,174 31,462 55,244Fines and forfeitures 2,792 3,538 5,090 4,499 3,321Use of money and property 11,848 14,966 11,962 13,234 12,922Investment income:

Interest income 2,367 1,339 5,352 11,375 13,100Refunds and reimbursements 3,213 9,790 5,186 4,113 4,253Miscellaneous 6,088 7,594 8,449 13,429 8,515

Total revenues 277,781 285,240 283,726 311,609 352,279

Expenditures:Current:

General government 22,742 30,900 21,818 24,272 22,285Public safety 139,047 152,527 152,714 163,339 168,372Public works 13,989 13,528 14,029 16,113 18,464Library 9,537 10,252 11,041 12,485 13,432Parks and recreation 16,887 19,669 17,948 22,376 27,185

Capital outlay 68,005 66,975 84,194 105,384 135,071Debt service:

Principal retirement 5,883 22,661 11,739 3,973 1,017Cost of issuance 846 99 111Interest and fiscal charges 13,531 12,706 12,523 11,938 10,771

Total expenditures 289,621 329,218 326,852 359,979 397,374Excess (deficiency) of revenues

over (under) expenditures $ (11,840) $ (43,978) $ (43,126) $ (48,370) $ (45,095)

184




Fiscal Year2017 2016 2015 2014 2013

Other financing sources (uses):Capital contributions $ - $ - $ - $ - $Transfers in 23,347 15,916 16,860 13,497 30,678Transfers out (12,966) (18,810) (20,235) (13,031) (30,360)Bond insurers proceeds 29,178 7,800 8,287Operating transfers out to a component unitIssuance of long-term debtSales of capital assets 492 379 521 200Payment to refunded bond escrow agent (6,080)Premiums on debt issuancesDiscounts on debt issuances

Total other financing sources (uses) 10,873 (2,515) 20,244 8,466 8,605

Special itemsNet change in fund balance 4,457 39,605 64,417 18,273 13,938Fund balance, beginning of year, original 216,100 176,495 112,078 93,805 79,868Prior period restatementFund balance, beginning of year, restated 216,100 176,495 112,078 93,805 79,868Fund balance, end of year $ 220,557 $ 216,100 $ 176,495 $ 112,078 $ 93,806

Debt service as a percentage of noncapital expenditures 6.7% 2.4% 5.2% 7.3% 7.9%


Note: Some prior year balances may have been restated from previous CAFRs to reflect new GASB implementations or prior period restatement.

185




Fiscal Year2012 2011 2010 2009 2008

Other financing sources (uses):Capital contributions $ - $ (284) $ - $ - $Transfers in 24,706 78,125 35,341 46,051 59,991Transfers out (25,450) (74,128) (34,357) (45,381) (59,839)Bond insurers proceedsOperating transfers out to a component unitIssuance of long-term debt 533 30 39,702 6,343 53,436Sales of capital assets 1,127 109 44Payment to refunded bond escrow agentPremiums on debt issuancesDiscounts on debt issuances (775) (24)

Total other financing sources (uses) (211) 4,870 39,911 7,122 53,608

Special items (21,324) 3,270 (288) (8,736)Net change in fund balance (33,375) (35,838) (3,503) (49,984) 8,513Fund balance, beginning of year, original 113,244 258,748 262,250 312,234 303,721Prior period restatement (109,666)Fund balance, beginning of year, restated 113,244 149,082 262,250 312,234 303,721Fund balance, end of year $ 79,869 $ 113,244 $ 258,747 $ 262,250 $ 312,234

Debt service as a percentage of noncapital expenditures 9.6% 15.6% 11.5% 6.7% 5.0%


Note: Some prior year balances may have been restated from previous CAFRs to reflect new GASB implementations or prior period restatement.

186


Tax Revenues by Source, Governmental Funds Last Ten Fiscal Years (Dollar amounts in thousands)

Fiscal Year

2017 2016 2015 2014 2013

Property (1) $ 32,411 $ 30,646 $ 29,573 $ 28,014 $ 29,420In lieu of sales tax (2) 8,775 9,816 9,706 9,938Utility user (3) 34,455 33,379 32,921 32,369 31,941Sales (levied by city) (4) 42,506 39,070 37,208 15,536 9,086Franchise fees (5) 13,289 12,397 12,380 11,981 11,677Business licenses (6) 12,243 11,995 10,805 10,392 10,153Hotel/motel room 2,997 2,711 2,378 2,080 2,006Document transfer (7) 801 856 587 565 458Other 1,939 1,535 930 728 287Totals $ 140,642 $ 141,364 $ 136,598 $ 111,371 $ 104,966

(1) Property taxes decreased beginning in 2009 due to declining residential home values and foreclosures, resulting in a devaluation of City’s assessed valuation performed by San Joaquin County. Also, between 2008 and 2011, property taxes collected by the RDA was included in the City's property tax revenue.(2) Effective with fiscal year 2005, the City began receiving property tax in-lieu of sales tax under provisions of Proposition 1A approved by the voters of the State of California. Fluctuations are due to the value of property when sold.



187


Tax Revenues by Source, Governmental Funds (Continued) Last Ten Fiscal Years


Fiscal Year

2012 2011 2010 2009 2008

% Change2006

Property (1) $ 32,772 $ 41,051 $ 45,549 $ 58,640 $ 63,998

(or inception) to 2017

-32%In lieu of sales tax (2) 8,392 8,118 7,087 9,823 10,164 -100%Utility user (3) 31,505 30,994 30,717 30,854 30,861 0%Sales (levied by city) (4) 8,576 7,875 7,652 7,921 9,409 328%Franchise fees (5) 12,465 11,503 11,354 11,608 11,537 29%Business licenses (6) 9,873 9,855 9,717 9,699 10,772 9%Hotel/motel room 1,933 1,799 1,749 1,962 2,287 38%Document transfer (7) 603 583 559 702 686 -60%Other 159 155 203 234 246 789%Totals $ 106,278 $ 111,933 $ 114,587 $ 131,443 $ 139,960 11%

(1) Property taxes decreased beginning in 2009 due to declining residential home values and foreclosures, resulting in a devaluation of City’s assessed valuation performed by San Joaquin County. Also, between 2008 and 2011, property taxes collected by the RDA was included in the City's property tax revenue.(2) Effective with fiscal year 2005, the City began receiving property tax in-lieu of sales tax under provisions of Proposition 1A approved by the voters of the State of California. Fluctuations are due to the value of property when sold.



188


Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years


Fiscal Year2017 2016 2015 2014 2013

Secured roll $ 21,378,475 $ 20,299,172 $ 19,473,994 $ 16,981,109 $ 16,272,927

Utility roll 5,863 5,833 6,199 6,228 7,504

Unsecured roll 1,629,758 1,596,101 1,651,844 1,557,131 1,566,497

Gross assessed value 23,014,096 21,901,106 21,132,037 18,544,468 17,846,928

Less exemptions (1) 1,532,852 1,786,986 1,729,742 1,699,348 1,608,513

Net assessed value 21,481,244 20,114,120 19,402,295 16,845,120 16,238,415

Land 6,081,944 5,713,082 5,420,167 4,597,437 4,019,017

Improvements 15,666,837 15,004,037 14,501,054 12,868,329 12,696,221

Personal property 1,265,315 1,183,987 1,210,816 1,078,702 1,131,690


Less exemptions (1) 1,532,852 1,786,986 1,729,742 1,699,348 1,608,513

Net assessed value $ 21,481,244 $ 20,114,120 $ 19,402,295 $ 16,845,120 $ 16,238,415

Total Direct Tax Rate 1.00% 1.00% 1.00% 1.00% 1.00%

(1) For FY 2017, all exemptions (secured, utility, and unsecured rolls) are: homeowners - $220,165,719 and other - $88,605 = $220,254,324.

Note: In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2%). With few exceptions, property is only reassessed at the time that it is sold to a new owner. At that point, the property being sold is reassessed at the purchase price. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above.Source: San Joaquin County Auditor-Controller's Office

189


Assessed Value and Estimated Actual Value of Taxable Property (Continued) Last Ten Fiscal Years


Fiscal Year2012 2011 2010 2009 2008

Secured roll $ 16,575,192 $ 17,388,579 $ 18,339,819 $ 20,988,391 $ 21,520,451

Utility roll 7,204 7,119 7,081 5,633 5,652

Unsecured roll 1,566,928 1,606,951 1,628,749 1,588,293 1,234,912


Less exemptions (1) 1,654,143 1,584,109 1,514,454 1,398,902 1,302,249

Net assessed value 16,495,181 17,418,540 18,461,195 21,183,415 21,458,766

Land 4,168,722 4,461,053 4,817,327 6,387,373 6,661,962

Improvements 12,846,828 13,284,209 13,910,082 14,984,980 15,092,621

Personal property 1,133,774 1,257,387 1,248,240 1,209,964 1,006,432


Less exemptions (1) 1,654,143 1,584,109 1,514,454 1,398,902 1,302,249

Net assessed value $ 16,495,181 $ 17,418,540 $ 18,461,195 $ 21,183,415 $ 21,458,766

Total Direct Tax Rate 1.00% 1.00% 1.00% 1.00% 1.00%

(1) For FY 2017, all exemptions (secured, utility, and unsecured rolls) are: homeowners - $220,165,719 and other - $88,605 = $220,254,324.

Note: In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2%). With few exceptions, property is only reassessed at the time that it is sold to a new owner. At that point, the property being sold is reassessed at the purchase price. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above.Source: San Joaquin County Auditor-Controller's Office

190


Direct and Overlapping Property Tax Rates Last Ten Fiscal Years

(Rate per $100 of assessed value)

Fiscal Year

BasicCountywide

Levy City Total Direct

Stockton UnifiedSchool District

(1)

San JoaquinDelta College

District Total2017 1.0000 1.0000 0.2537 0.0180 1.27172016 1.0000 1.0000 0.2710 0.0198 1.29082015 1.0000 1.0000 0.2280 0.0233 1.25132014 1.0000 1.0000 0.2105 0.0194 1.22992013 1.0000 1.0000 0.1917 0.0202 1.21192012 1.0000 1.0000 0.1601 0.0200 1.18012011 1.0000 1.0000 0.1730 0.0194 1.19242010 1.0000 1.0000 0.1273 0.0180 1.14532009 1.0000 1.0000 0.1497 0.0160 1.16572008 1.0000 1.0000 0.1514 0.0015 1.1529

(1) Stockton Unified School District Building Loan Repayment.Note: On June 6, 1978, California voters approved an amendment to the Article XIIIA of the California Constitution. The amendment, commonly known as Proposition 13, limits the taxing power of California public agencies. The California Legislature enacted legislation to implement Article XIIIA (Statues of 1978, Chapter 292, as amended) providing that local agencies may not levy any property tax except to pay debt service on indebtedness approved by voters prior to July 1, 1978, and that each county will levy the maximum tax permitted of $1.00 per $100.00 of full assessed value.Source: San Joaquin County Tax Rate Book

191


Principal Property Tax Payers Current Year and Nine Years Ago


Fiscal Year2017 2008

TaxpayerExcel Stockton LLCDTE Stockton LLCCentral Valley Indl Core EloldCom Products International IncDiamond Foods IncPacific Ethanol Stockton LLCSimpson Manufacturing CO IncWal Mart Stores Inc/Sam'sBuzz Oates LLC ETALAG Spanos Professional Office Center LLCLevine Investments Ltd PTP/Pacific CompaniesDiamond Walnut Growers IncFR Net Lease Co-Invest Prog 10 LLCSherwood Mall LLCWTM Glimcher LLCPavilions Apartments LPInland Western Stkn Airport Way LLC-Cost Plus Inc Toys R US Inc-TRU Properties Inc Principal Secured Property Valuation Other Secured TaxpayersTotal Secured Property Valuation Before Exemptions Less Exemptions relative to secured tax roll (1)Total Secured Property Valuation

TaxableAssessed Value Rank

Percent of Total City Taxable Assessed

Value$ 124,667 1

118,571 297,787 3

0.900 %0.8560.706

77,865 4 0.56276,425 5 0.55176,035 6 0.54974,809 7 0.54068,869 8 0.49766,378 9 0.47965,651 10 0.474

847,058 13,774,651 14,621,709

______ 762,855$ 13,858,854

6.112 %

99.392 105.504 %

5.504 100.000 %

Percent of TotalTaxable City Taxable

Assessed Value Rank Assessed Value

64,845 2 0.320

59,834 3 0.295

80,623 159,244 443,000 542,088 641,524 739,229 837,776 9

_______ 37,691 10505,854

21,014,597 21,520,451

1,259,157 $ 20,261,294

0.398 0.292 0.212 0.208 0.205 0.194 0.186 0.186 2.497 '

103.718106.215

6.215

(1) Exemptions relative to secured tax roll: FY 2017 - homeowners - $167,023 and other - $595,832 = $762,855FY 2008 - homeowners - $269,059 and other - $990,099 = $1,259,157

Note: In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2%). With few exceptions, property is only reassessed at the time that it is sold. At that point, the purchase price becomes the new assessed value. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above.

Source: San Joaquin County Assessor's OfficeSan Joaquin County Auditor-Controller's Office

192


Secured Property Tax Levies and Collections Last Ten Fiscal Years (Dollar amounts in thousands)

Collected Within the Fiscal Year of the Levy

Total Collections to Date

Secured Taxes Collections in

Fiscal YearLevied for the

Fiscal Year AmountPercent ofLevy (1)

SubsequentYears Amount

Percent ofLevy

2017 $ 30,495 $ 30,495 100 % $ 30,495 100 %

2016 $ 28,907 $ 28,907 100 % $ 28,907 100 %

2015 $ 27,852 $ 27,852 100 % $ 27,852 100 %

2014 $ 25,952 $ 25,952 100 % $ 25,952 100 %

2013 $ 24,745 $ 24,745 100 % $ 24,745 100 %

2012 $ 24,785 $ 24,785 100 % $ 24,785 100 %

2011 $ 26,519 $ 26,519 100 % $ 26,519 100 %

2010 $ 22,150 $ 22,150 100 % $ 22,150 100 %

2009 $ 31,134 $ 31,134 100 % $ 31,134 100 %

2008 $ 33,633 $ 33,633 100 % $ 33,633 100 %

(1) Per agreement with San Joaquin County; the County provides the City of Stockton with 100% of the amount owed to the City of Stockton for secured properties, regardless of collection status. In exchange, the County is entitled to 100% of delinquency and penalty revenues collected.

Source: San Joaquin County Auditor-Controller’s Office

193


Water Sold by Customer Type Last Five Fiscal Years

Fiscal Year

2017 2016 2015 2014 2013

Type of Customer

Residential 7,289,614 cf 7,088,802 cf 8,220,045 cf 9,303,185 cf 9,834,835

Institutional 573,873 442,461 608,940 651,307 2,379,843

Commercial/Industrial 1,512,098 1,429,848 1,598,432 1,596,477 1,678,854

Irrigation 1,110,614 861,094 1,344,966 1,531,137 1,724,891

Total 10,486,199 cf 9,822,205 cf 11,772,383 cf 13,082,106 cf 15,618,423

1 cubic foot (cf) = 7.481 gallons


194


Water and Wastewater Utility Rates Last Ten Fiscal Years

Wastewater

Tier 1 Additional Per Tier 2 AdditionalFiscal Year Monthly Base Rate 100 cf** Per 100 cf** Monthly Base Rate

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

28.00 $ 2.00 $

22.25 $ 1.67 $

21.90 $ 1.64 $

21.51 $ 1.61 $

21.15 $ 1.58 $

20.00 $ 1.40 $

18.80 $ 1.21 $

17.65 $ 1.02 $

16.75 $ 0.82 $

15.90 $ 0.78 $

2.39 $ 38.36

$ 37.76

$ 37.09

$ 34.03

$ 31.22

$ 28.64

$ 24.69

$ 20.75

$ 20.00

$ 21.10

* Effective 8/01/2016-Water Cosumption Tier 1 0-15 CF and Tier 2 15+CF.100 of = 100 eubie feet (748 gallons)

Rates are based on 1" and less meter, which is the standard household meter size.

**The Utility charges an excess use rate above normal demand.


195


Ratios of Outstanding Debt by Type Last Ten Fiscal Years

(Dollar amounts in thousands, except per capita)

Governmental Activities*

Notes

FiscalYear

Revenue * Bonds (1)

Certificatesof

Participation

RedevelopmentAgency

Revenue Bonds*

Payable / Equip. Leases /

SettlementsPensionBonds*

TotalGovernmental

Activities

2017 $ 9,915 $ $ 103,320 $ 18,130 $ 53,589 $ 184,954

2016 $ 10,385 $ 11,500 $ 111,424 $ 18,298 $ 53,606 $ 205,213

2015 $ 10,835 $ 11,890 $ 113,262 $ 18,095 $ 54,530 $ 208,612

2014 $ 75,285 $ 12,265 $ 119,210 $ 20,157 $ 121,770 $ 348,687

2013 $ 81,465 $ 12,625 $ 122,100 $ 25,326 $ 123,350 $ 364,866

2012 $ 87,520 $ 12,970 $ 124,695 $ 26,625 $ 124,280 $ 376,090

2011 $ 88,050 $ 13,300 $ 127,200 $ 29,353 $ 124,660 $ 382,563

2010 $ 88,560 $ 13,300 $ 145,855 $ 42,881 $ 124,910 $ 415,506

2009 $ 53,965 $ 13,300 $ 155,020 $ 38,800 $ 125,040 $ 386,125

2008 $ 54,305 $ 13,300 $ 157,010 $ 32,528 $ 125,060 $ 382,203

2007 $ 13,860 $ 13,300 $ 157,185 $ 19,405 $ 125,310 $ 329,060

* Includes settlement amounts for debts adjusted under Chapter 9 of the US Bankruptcy Code.

Details regarding the City's outstanding debt can be found in the Notes to the Financial Statements, Note 8-Long-Term Debt and Note 8-Short- Term Debt of these financial statements.

(1) Beginning with fiscal year 2006, land-secured financings were removed from the City's government-wide financial statements and are no longer reported as governmental activities debt. For comparative purposes, 2005 balances were restated to reflect this change. For fiscal years 2004 and prior, the balances of land-secured financings are reflected in the balances reported above as revenue bonds, special assessment bonds, and Mello- Roos bonds of the governmental activities.

(2) These ratios are calculated using the latest available data, personal income for fiscal year 2015 and population for fiscal year 2017.

Sources: City of Stockton Department of Administrative Services US Dept, of Commerce, Bureau of Economic Analysis

State of California, Department of Finance

196


Ratios of Outstanding Debt by Type (Continued) Last Ten Fiscal Years


Business-type Activities

FiscalYear

RevenueBonds

Certificatesof

ParticipationNotes

Payable

TotalBusiness-type

Activities Total

Percentof

Personal Income (2)

AmountPer

Capita (2)

2017 $ 326,165 $ $ $ 326,165 $ 511,119 1.82 % $ 1,594

2016 $ 336,218 $ $ 10,954 $ 347,172 $ 552,385 2.56 % $ 1,750

2015 $ 343,926 $ $ 11,040 $ 354,966 $ 563,578 2.61 % $ 1,836

2014 $ 284,225 $ 81,270 $ 11,123 $ 376,618 $ 725,305 3.36 % $ 2,410

2013 $ 289,360 $ 84,500 $ 11,202 $ 385,062 $ 749,928 3.47 % $ 2,531

2012 $ 293,425 $ 87,590 $ 11,276 $ 392,291 $ 768,381 3.56 % $ 2,598

2011 $ 294,370 $ 90,545 $ 11,600 $ 396,515 $ 779,078 3.69 % $ 2,654

2010 $ 240,245 $ 90,545 $ 545 $ 331,335 $ 746,841 3.87 % $ 2,557

2009 $ 67,920 $ 96,105 $ 610 $ 164,635 $ 550,760 2.86 % $ 1,896

2008 $ 68,650 $ 98,710 $ 672 $ 168,032 $ 550,235 2.85 % $ 1,898

2007 $ 69,315 $ 101,220 $ 731 $ 171,266 $ 500,326 2.59 % $ 1,727

* Includes settlement amounts for debts adjusted under Chapter 9 of the US Bankruptcy Code.

Details regarding the City's outstanding debt can be found in the Notes to the Financial Statements, Note 8-Long-Term Debt and Note 8-Short- Term Debt of these financial statements.

(1) Beginning with fiscal year 2006, land-secured financings were removed from the City's government-wide financial statements and are no longer reported as governmental activities debt. For comparative purposes, 2005 balances were restated to reflect this change. For fiscal years 2004 and prior, the balances of land-secured financings are reflected in the balances reported above as revenue bonds, special assessment bonds, and Mello- Roos bonds of the governmental activities.

(2) These ratios are calculated using the latest available data, personal income for fiscal year 2015 and population for fiscal year 2017.

Sources: City of Stockton Department of Administrative Services US Dept, of Commerce, Bureau of Economic Analysis

State of California, Department of Finance

197


Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years


General Bonded Debt Outstanding*

Fiscal Year

LeaseRevenue

Bonds

Certificatesof

Participation(2)

Pension Obligation Bonds (1)

RedevelopmentAgencyBonds* Total

Percent ofAssessedPropertyValue (4)

AmountPer

Capita (3)

2017 $ 9,915 $ $ 53,589 $ $ 63,504 0.003 % $ 198.107

2016 $ 10,385 $ 11,500 $ 53,606 $ $ 75,491 0.004 % $ 239.204

2015 $ 10,835 $ 11,890 $ 54,529 $ $ 77,254 0.004 % $ 251.643

2014 $ 75,285 $ 12,265 $ 121,770 $ 119,210 $ 328,530 0.020 % $ 1,091.828

2013 $ 81,465 $ 12,625 $ 123,350 $ 122,100 $ 339,540 0.021 % $ 1,145.763

2012 $ 87,520 $ 12,970 $ 124,280 $ 124,695 $ 349,465 0.021 % $ 1,181.7952011 $ 88,050 $ 13,300 $ 124,660 $ 127,200 $ 353,210 0.020 % $ 1,203.3802010 $ 88,560 $ 13,300 $ 124,910 $ 145,855 $ 372,625 0.020 % $ 1,275.532

2009 $ 53,965 $ 13,300 $ 125,040 $ 155,020 $ 347,325 0.016 % $ 1,195.986

2008 $ 54,305 $ 13,300 $ 125,060 $ 157,010 $ 349,675 0.016 % $ 1,206.079

* Redevelopment Agency Bonds are no longer included in the General Bonded debt

(1) Includes settlement amounts for debts adjusted under Chapter 9 of the US Bankruptcy Code.

(2) General Fund liability limited to only 80.5% of amounts due on principal shown

(3) Amount Per Capita understated in prior years and have been adjusted to correct amounts.

(4) 2016/2015 Percent of Assessed Property Value previously stated at .005, correct % is .004.

General bonded debt is payable with governmental fund resources. General obligation bonds (of which the City has none) are backed by the taxing authority of the City (taxes may be raised to provide resources for debt service payments.)

Source: City of Stockton Department of Administrative Services San Joaquin County Auditor-Controller’s Office State of California, Department of Finance

198


Direct and Overlapping Governmental Activites Debt

OVERLAPPING TAX AND ASSESSMENT DEBT:

San Joaquin Delta Community College District Stockton Unified School District Lodi Unified School DistrictLodi Unified School District School Facilities Improvement District No. 1 Lincoln Unified School DistrictLincoln Unified School District Community Facilities District No. 1 Manteca Unified School DistrictManteca Unified School District Community Facilities District No. 1989-1Tracy Joint Unified School District and School Facilities Improvement Dist. No.3City of Stockton Community Facilities District No. 90-2City of Stockton Community Facilities District No. 2001-1 (Spanos Park West)City of Stockton Community Facilities District No. 2003-1City of Stockton Community Facilities District No. 2006-1City of Stockton Community Facilities District No. 2006-3City of Stockton 1915 Act BondsReclamation District No. 2042 Community Facilities District No. 2001-1 San Joaquin County Reclamation District No. 17 Assessment District

TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT

OVERLAPPING GENERAL FUND DEBT:San Joaquin County Certificates of Participation Lincoln Unified School District Certificates of Participation Lodi Unified School District Certificates of Participation Manteca Unified School District General Fund Obligations Stockton Unified School District Certificates of Participation City of Stockton 2006 Lease Revenue Bonds City of Stockton Capital Lease Obligations City of Stockton Bond Insurere Settlement Agreement Liability

TOTAL OVERLAPPING GENERAL FUND DEBT

OVERLAPPING TAX INCREMENT DEBT (Successor Agency):2016 Tax Allocation Revenue Bonds Series A 2016 Tax Allocation Revenue Bonds Series B TOTAL OVERLAPPING TAX INCREMENT DEBT

Total Debt

6/30/2017

$ 126,614,970378,117,362 161,955,000 34,295,000 81,115,538 23,361,567

101,829,885 22,176,013

104,919,900 18,275,000 13,760,000

1,980,000 2,740,000 5,020,000

26,810,000 5,768,853

23,932,948

124,925,0004,769,835

24,735,00025,961,00038,155,000

9,915,0005,770,300

53,588,991

73,310,00030,010,000

Percentage

Applicable (1)

28.020 % 84.965 33.243 84.649 87.220 80.608 14.086

100.000 .005 & .009

100.000 100.000 100.000 100.000 100.000 100.000

18.211 27.618

30.594 % 87.220 33.243 14.086 84.965

100.000 100.000 100.000

100.000100.000

City’s share of

Debt 6/30/2017

$ 35,477,515321,267,417

53,838,701 29,030,375 70,748,972 18,831,292 14,343,758 22,176,013

7,857 18,275,000 13,760,000 1,980,000 2,740,000 5,020,000

26,810,000 1,050,566

6>609>802641,967,266

38,219,5554,160,2508,222,6563,656,866

32,418,3969,915,0005,770,300

53,588,991

155,952,014

73,310,00030,010,000

103,320,000

TOTAL DIRECT DEBT

TOTAL OVERLAPPING DEBT

GROSS COMBINED TOTAL DEBT (2)

69,274,291

831,964,988

901,239,279

2016-17 Assessed Valuation (3): $ 20,337,129,485(after deducting $1,563,976,305 Other Exemptions Valuation)

2016-17 Population 320,554

Debt Ratios Per CapitaRatio to Assessed

Total Gross Debt (2)Ratios to 2016-17 Assessed Valuation: Total Overlapping Tax and Assessment Debt

Ratios to Adjusted Assessed Valuation: Combined Direct Debt

$ 901,239,279 $ 2,812641,967,266 2,003

69,274,291 216

4.43 %3.16

0.34

(1) Percent of overlapping agency's assessed valuation located within boundaries of the City.

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

(3) Represents Gross Assessed Valuation after deducting $1,563,976,305

(4) Includes debt outside Stockton limits. Therefore, no per capita calculated.

Sources: California Municipal Statistics, Inc., San Francisco, CASan Joaquin County Auditor-Controller’s OfficeState of California, Department of Finance, Demographic Research Unit ^ gg


Legal Debt Margin Information Last Ten Fiscal Years


Fiscal Year2017 2016 2015 2014 2013

Assessed valuation (1) $ 20,337,129 $ 19,628,594 $ 18,653,199 $ 17,079,491 $ 16,479,102

Conversion percentage 25% 25% 25% 25% 25%

Adjusted assessed valuation 5,084,282 4,907,149 4,663,300 4,269,873 4,119,776

Debt limit percentage 15% 15% 15% 15% 15%

Debt Limit 762,642 736,072 699,495 640,481 617,966

Total net debt applicable to limit

Legal debt margin $ 762,642 $ 736,072 $ 699,495 $ 640,481 $ 617,966

Legal debt margin/debt limit 100% 100% 100% 100% 100%

(1) Reflects City assessed valuation excluding other exemptions of $1,563,976,305. Redevelopment Agency was dissolved in 2013.

Under State law, the City has a legal debt limitation not to exceed 15% of the total assessed valuation of taxable property within the City boundaries, adjusted for subsequent legislative actions. In accordance with California Government Code Section 43605, only the City's general obligation bonds are subject to the legal limit. The City of Stockton does carry bonded debt secured by special assessments and other revenue sources, but at this time, doesn't have any outstanding general obligation bonds. The City is not at risk of exceeding its legal debt limit.

Sources: City of Stockton Department of Administrative Services California Municipal Statistics, Inc., San Francisco, CA San Joaquin County Auditor-Controller's Office

200


Legal Debt Margin Information (Continued) Last Ten Fiscal Years (Dollar amounts in thousands)

Fiscal Year2012 2011 2010 2009 2008

Assessed valuation (1) $ 15,572,567 $ 16,340,562 $ 16,957,547 $ 18,903,286 $ 19,281,142

Conversion percentage 25% 25% 25% 25% 25%

Adjusted assessed valuation 3,893,142 4,085,141 4,239,387 4,725,822 4,820,286

Debt limit percentage 15% 15% 15% 15% 15%

Debt Limit 583,971 612,771 635,908 708,873 723,043

Total net debt applicable to limit

Legal debt margin $ 583,971 $ 612,771 $ 635,908 $ 708,873 $ 723,043

Legal debt margin/debt limit 100% 100% 100% 100% 100%

(1) Reflects City assessed valuation excluding other exemptions of $1,563,976,305. Redevelopment Agency was dissolved in 2013.

Under State law, the City has a legal debt limitation not to exceed 15% of the total assessed valuation of taxable property within the City boundaries, adjusted for subsequent legislative actions. In accordance with California Government Code Section 43605, only the City's general obligation bonds are subject to the legal limit. The City of Stockton does carry bonded debt secured by special assessments and other revenue sources, but at this time, doesn't have any outstanding general obligation bonds. The City is not at risk of exceeding its legal debt limit.

Sources: City of Stockton Department of Administrative Services California Municipal Statistics, Inc., San Francisco, CA San Joaquin County Auditor-Controller's Office

201


Pledged-Revenue Coverage Last Ten Fiscal Years

(Dollars amounts in thousands)

Less: Net DebtFiscal Gross Operating Available Debt Service CoverageYear Revenues (1) Expenses (2) Revenue Principal Interest Total Ratio

Water Revenue Bonds

2017 $ 43,643 $ 23,798 $ 19,845 $ 83 $ 12,798 $ 12,881 1.54

2016 $ 37,906 $ 23,312 $ 14,594 $ 87 $ 13,242 $ 13,329 1.09

2015 $ 42,416 $ 22,830 $ 19,586 $ 4,263 $ 13,397 $ 17,660 1.11

2014 $ 38,991 $ 19,762 $ 19,229 $ 3,939 $ 12,116 $ 16,055 1.20

2013 $ 40,601 $ 21,652 $ 18,949 $ 3,780 $ 10,139 $ 13,919 1.36

2012 $ 35,914 $ 20,055 $ 15,859 $ 711 $ 2,146 $ 2,857 5.55

2011 $ 34,245 $ 19,987 $ 14,258 $ 688 $ 8,839 $ 9,527 1.50

2010 $ 29,131 $ 17,546 $ 11,585 $ 655 $ 3,199 $ 3,854 3.01

2009 $ 26,080 $ 20,123 $ 5,957 $ 627 $ 1,728 $ 2,355 2.53

2008 $ 26,352 $ 18,010 $ 8,342 $ 599 $ 1,758 $ 2,357 3.54

* Coverage requirement is 1.15, however, it is applied in sequence, first to the senior, and then to the subordinate issues. Done in sequence both senior and subordinate issues met the coverage requirement in both years.

202


Pledged-Revenue Coverage (Continued) Last Ten Fiscal Years

(Dollars amounts in thousands)

Less: Net DebtFiscal Gross Operating Available Debt Service CoverageYear Revenues (1) Expenses (2) Revenue Principal Interest Total Ratio

Wastewater Certificates of Participation

2017 $ 68,597 $ 43,201 $ 25,396 $ 3,345 $ 3,139 $ 6,484 3.92

2016 $ 70,532 $ 43,730 $ 26,802 $ 3,230 $ 3,254 $ 6,484 4.13

2015 $ 57,321 $ 39,698 $ 17,623 $ 3,390 $ 3,217 $ 6,607 2.67

2014 $ 61,230 $ 40,173 $ 21,057 $ 3,230 $ 4,143 $ 7,373 2.86

2013 $ 56,316 $ 35,423 $ 20,893 $ 3,090 $ 4,287 $ 7,377 2.83

2012 $ 51,708 $ 35,206 $ 16,502 $ 2,955 $ 4,417 $ 7,372 2.24

2011 $ 45,152 $ 33,325 $ 11,827 $ - $ 4,480 $ 4,480 2.64

2010 $ 39,716 $ 30,094 $ 9,622 $ 2,720 $ 4,659 $ 7,379 1.30

2009 $ 38,298 $ 35,002 $ 3,296 $ 2,605 $ 4,770 $ 7,375 0.45 ~(3)

2008 $ 39,602 $ 25,633 $ 13,969 $ 2,510 $ 4,867 $ 7,377 1.89

Includes all nongeneral obligation long term debt backed by pledged revenues.

Details regarding the City's outstanding debt can be found in the Note 8 - Long-Term Debt of these financial statements.

(1) Total revenues including investment earnings. Also includes connection fees in Water & Wastewater funds. In 2008 CAFR, statistical section did not include connection fees in Water & Wastewater funds - included in 2009. Also, net increase/decrease in fair value of investments and other non - operating revenues were reported in gross revenues - removed in 2009.

(2) Total operating expenses exclusive of depreciation and amortization.

(3) The FY 2008-09 Wastewater Certificates of Participation debt coverage ratio fell below the 1.25 times net revenues required by the bond covenants.


203


Demographic and Economic Statistics Last Ten Fiscal Years

FiscalYear

PersonalIncome

(millions Population of dollars)

PerCapita

PersonalIncome

UnemploymentRate Labor Force

TotalHousing

Units

HouseholdAverage

Size

MedianFamilyIncome

SchoolEnrollment

2017 320,554 $ 12,428 $ 38,770 7.3 316,200 100,254 3.23 a> 44,797 71,491

2016 315,592 $ 11,404 $ 36,136 8.3 % 323,200 100,146 3.20 a> 45,347 71,738

2015 306,999 $ 10,670 $ 34,755 8.5 % 311,600 100,097 3.23 a> 46,831 66,037

2014 300,899 $ 9,937 $ 33,024 12.8 % 125,600 100,025 3.23 a> 47,246 69,183

2013 296,344 $ 9,191 $ 31,013 14.8 % 124,800 100,003 3.20 a> 47,246 67,997

2012 295,707 $ 9,171 $ 31,013 17.0 % 125,400 99,925 3.i9 a> 47,365 68,568

2011 293,515 $ 9,020 $ 30,732 20.0 % 128,400 99,637 3.i6 a> 47,797 88,258

2010 292,133 $ 9,105 $ 31,166 19.8 % 131,000 97,085 3.09 a> 63,100

2009 290,409 N/A N/A 18.1 % 130,800 96,854 3.08 a> 63,600

2008 289,927 $ 8,459 $ 29,178 10.0 % 127,200 96,553 3.09 a> 61,300 91,744

College and Graduate School Enrollment numbers for 2017 were unavailable.

Personal income is the income received by all persons from all sources. Personal income is the sum of net earnings by place of residence, rental income of persons, personal dividend income, personal interest income, and personal current transfer receipts.

Per capita personal income is calculated as the personal income of residents of a given area divided by the resident population of the area. In computing per capita personal income, Bureau of Economic Analysis uses the Census Bureau's annual midyear population estimates.

Sources: City of Stockton Department of Administrative Services & Community Development Department CA Dept, of Finance and Employment Development Department US Dept, of Commerce, Bureau of Economic Analysis US Census Bureau CADept. of Education

204


Principal Employers Current Year and Nine Years Ago

Fiscal Year

Employer Employees

2017Percent

of Total CityRank Employment Employees

2008Percent

of Total City Rank Employment

St. Joseph’s Medical Center 4,600 i 1.48 % 2,650 3 2 %

Stockton Unified School District 3,894 2 1.25 % 4,100 2 3.77 %

City of Stockton 1,862 3 0.60 % 1,754 4 1.61 %

Dameron Hospital 1,200 4 0.39 % 1,200 5 1 %

Kaiser Permanente 1,065 5 0.34 % 1,060 6 0.97 %

San Joaquin Delta College 967 6 0.31 % - %

University of the Pacific 900 7 0.29 % 1,000 7 0.92 %

Lincoln Unified School District 765 8 0.25 % - %

O'Reilly Auto Parts 600 9 0.19 % - %

World Class Distribution, Inc 550 10 0.18 % - %

San Joaquin County - % 6,700 1 6 %Diamond Walnut - % 1,000 8 0.92 %

California Department of Transportation - % 750 9 0.69 %

Washington Mutual - % 650 10 0.60 %

Total 16,403 5.27 % 20,864 19.18 %

San Joaquin County employs both within and outside of the City. Details of the split are not available and so has not been included in the list.

Note: Principal employers are based on best available information.

Sources: San Joaquin Partnership Survey, August 2017 City of Stockton CAFR, 2008

205


Full-Time Equivalent City Government Employees By Function/Program/Department

Last Five Fiscal Years

Fiscal Year2017 2016 2015 2014 2013

F unction/Progr am/De partment:Admin Svcs 76 65 59 88 89City Attorney 11 9 10 8 8City AuditorCity Clerk 7 7 7 5 5City Council/Mayor 3 1 1 1 1City Manager 28 25 20 19 19Community Development 30 33 29 27 26Community Services 79 82 78 78 77Human Resources 29 28 26 25 25Information Technology 39 36 35Police:

Sworn 445 411 387 348 324Non-swom 195 179 168 165 167Animal control 12 12 13 13 11

Total Police 652 602 568 526 502Fire:

Firefighters-swom 171 168 160 168 168Firefighters-auxiliary 37 22 28 18 26Non-swom personnel 24 24 24 23 23Paramedic teams (2 per team)

Total Fire 232 214 212 209 217

Public Works 143 142 140 138 132Economic Development 14 18 17 17 16Water Utility 43 45 49 41 41Wastewater Utility 153 149 138 136 144Stormwater Utility 2 7 6 3Central Parking District (1)Total 1,539 1,458 1,396 1,324 1,305

(1) In FY 2015 the Central Parking District was dissolved and current operations are handled by the Parking Authority.

Source: City of Stockton Human Resources Department

206


Operating Indicators by Function/Program/Department Last Five Fiscal Years

Fiscal Year2017 2016 20l5 2014 2013

General government:Building permits issued Business tax certificates:

Retail sales and serviceRental Properties - Commercial and Residential WholesaleManufacturers and processors ProfessionsMiscellaneous contractors, peddlers, delivery vehicles, etc.

Improvement district and hotel/motel room tax Utility billing/customer service:

Utility bills issued Utility accounts opened and closed New service locations (water) added Delinquency Notices Sent - Active Accounts Water Service Terminated for Non-Payment Utility customer service calls received Utility customers using automated voice response Utility Customers Using Online Pmt/Account Access

Miscellaneous accounts receivable bills issued Public safety:

Police:Major reported crimes Total arrestsDispatched calls for service

Fire:Interior structure fire calls Non-structural fire calls Hazardous materials calls Emergency medical calls Total emergency calls Total number of units dispatched

Public works:Miles of streets resurfaced Fleet job orders completed

7,132 2,537 6,576 4,595 3,956

4,782 6,228 5,908 5,821 5,8864,399 4,700 4,485 4,466 4,624

282 424 390 374 330188 179 156 163 177

1,872 1,809 1,856 1,878 1,947

4,430 4,534 4,018 4,054 4,10439 46 42 90 90

1,100,374 1,091,429 636,359 640,836 626,33523,188 27,214 16,635 19,138 21,405

109 124 107 120 11381,725 85,752 80,682 82,050 81,358

4,796 4,489 6,674 4,972 5,90941,717 62,178 56,549 46,179 57,126

845,359 45,026 291,065 195,917 195,47833,068 39,369 35,614 29,209 26,43047,199 30,748 45,157 31,355 44,243

15,940 16,871 16,943 17,821 19,85911,497 10,893 11,278 11,541 10,585

149,527 129,602 123,737 119,187 119,276

377 356 363 403 3642,296 2,019 1,668 1,430 1,117

232 527 226 234 22626,777 22,933 18,686 18,422 21,72945,551 39,613 35,748 37,387 39,51854,414 47,284 47,467 45,709 47,939

5 7 2 4 1910,082 8,368 8,797 10,065 9,625

207


Operating Indicators by Function/Program/Department (Continued) Last Five Fiscal Years

Fiscal Year2017 2016 2015 2014 2013

Library:Registered borrowers 190,049 191,699 151,504 221,844 209,823Circulation of library materials 1,363,048 1,498,176 1,576,156 1,640,185 1,673,049Reference, research and informational questions answered 140,784 156,340 167,744 167,857 228,240Annual attendance at libraries 773,374 877,766 922,957 952,894 981,213Number of programs offered 3,506 3,446 2,977 2,898 2,567Annual attendance at programs 84,658 87,505 78,874 81,356 77,448

Parks and Recreation:Golf rounds:

Swenson Park golf course 44,073 50,683 50,699 57,757 54,492Van Buskirk golf course 13,753 18,083 21,731 21,919 24,316

Trees planted 6 5Heritage tree removal-permits issued 6 11 7 10 16After school program registration (number of participants) 2,087 22,454 23,408 20,620 23,365Day camp participants 3,106 4,951 7,444 4,363 2,583Instructional classes 1,414 3,866 3,591 2,327 1,426Softball/baseball diamonds bookings 251 368 344 273 73Showmobile (Mobile Stage) bookings 14 27 32 30 34Community center bookings 175 928 1,133 1,444 1,441Picnic facility bookingsAdult sports (number of teams):

166 417 339 328 475

Softball 185 238 297 347 348Basketball 4 26Volleyball 15

Youth sports (basketball, track, soccer, baseball, volleyball, flag football) (number of participants) 2,241 2,785 3,620 3,715 2,688

208


Operating Indicators by Function/Program/Department (Continued) Last Five Fiscal Years

Parks and Recreation (cont.):Admissions to:

Pixie WoodsSenior Center memberships Civic Auditorium bookings Parks and Recreation sponsored events Weber Point Events Center bookings

Economic Development:Rental Housing UnitsOwner Housing (Emergency Repair or Rehabilitation) Down Payment AssistanceSpecial Needs (Homes Repaired or Rehabilitated)Public Facilities (Rehabilitated or Constructed)Fa9ade Program (Commercial Fa9ade Repair/Rehabilitated)Public Services ProvidedHomeless Services ProvidedMeals Provided to HomelessJobs Created and/or RetainedBusiness Assisted (Entrepreneur Program)

Water utility:New connections (DUE's) (1)Water main breaks

Wastewater utility:

Average daily influent (million gallons per day)

Fiscal Year2017 2016 20l5 2014 2013

5,5842,450

1639

1766

912

120,7654,578

401

10621

29 mgd

12,452874991318

5 46 14

52,4243,597

5

12413

24 mgd

13,9501,276

1441725

495

5

118,316532,043

2

2914

30 mgd

12,500911139

1435

711718

2 1 6

205,8843,555

539,62614

9216

32 mgd

12,161943157

43

9162712

189,6064,420

519,74014

21916

33 mgd

(1) Changed reporting to Dwelling Unit Equivalent (DUE) in 2011 to more accurately reflect new connections. Not all single water connections are equal to one dwelling unit equivalent (DUE), or single family residence. For example, a 12" meter is equal to 209 single family residential connections. In 2011, there were 115 new connections which were equal to 654 DUE's.

Source: City of Stockton Departments

209


Capital Asset Statistics by Function/Program/Department Last Five Fiscal Years

Fiscal Year2017 20l6 20l5 2014 2013

General government:

Land use-square miles:Residential Mixed use Commercial Industrial Institutional All other uses

Total square miles

Public safety:Police:

Facilities:Stations and substations

Animal control facility

Police training facility (pistol range) Vehicles:

Marked patrol cars Motorcycles and scooters Animal control vehicles VIPS vehicles Other automobiles Other mobile units (all others)

Public area security cameras Fire:

Fire stations Training facilities

Fire hydrants Public works:

Miles of streets

Traffic signals

Street light fixtures

2444

1344

53

25 25 254 4 44 5 4

13 13 134 4 4

J5 3 3

53 54 53

2544

1343

53

1 1 1 1 1 1

1 1 1

1 1 1 1 1 1

175 211 18930 28 27

8 8 8111

209 283 17321 444 444

324 300 300

16432

97

15415

76

14534

97

15415

76

12 12 121 1 1

9,054 9,032 9,039

12 121 1

8,981 8,959

769 769

307 291

19,206 21,993

806 760

291 312

19,224 19,196

760

307

19,195

210


Capital Asset Statistics by Function/Program/Department (Continued) Last Five Fiscal Years

Fiscal Year2017 20l6 20l5 2014 2013

Parks and recreation:Arena

BallparkBaseball/softball diamonds

Bike/jogging paths (miles)

Boating facilities - launch lanes Children's Museum

Civic Auditorium (2,800 capacity)

Community centers

Dog Areas

Family camps

Golf course acreage

Group picnic areas

Gymnasium Ice rink

Municipal golf courses

Park acreage

Parks and squares Philomathean Club

Playgrounds Senior center

Showmobile (Mobile Stage)

Skateboard park

Swimming pools Teen Center Tennis courts

Theater (Bob Flope)Weber Point Events CenterConsolidated landscape maintenance districts:

Streetscaping (square feet)

Public open spaces (acreage)

1 11 1 1

54 54 541 1

54 54

20 20 20

12 12 10 1 1 1

20

101

20

101

1 1 15 5 5

1 15 5

3 3 3

1 1 1371 371 371

3

1371

3

1371

31 31 31 31 31

513

625

671

5 5 51 1 13 3 3

625 625 625

67 67 671 1 1

513

625

67171

11171

67

11

71 71 711 1 1

1 1 11 1

111 1 1 1

67 67 67

1 1 11 1 1

7111171

67

11

211


Capital Asset Statistics by Function/Program/Department (Continued) Last Five Fiscal Years

Fiscal Year2017 2016 2015 2014 2013

Library:Central library (1)City branches 5 5 4 4 4

Library mobile units 2 2 2 2 2

San Joaquin County branches 8 8 8 8 8Total items in collection 873,377 810,473 895,640 893,419 886,370

Cargo delivery van 2 2 2 2 2

Cargo van 1 1 1 1 1Undeveloped land for branch library 2 2 2 2 2Integrated library system 1 1 1 1 1Microform readers 7 7 7 7 7

Microform readers/printers 7 7 7 7 7Self check out machines 28 28 28 28 28

Water utility:Water main lines (miles) 668 668 668 668 665

Storage capacity (thousand gallons) 26,200 26,200 26,200 26,200 26,200Water wells (active) 21 19 20 21 21Water reservoirs 8 8 8 8 8

Wastewater utility:Wastewater main lines (miles) 899 899 899 861 928

Treatment capacity (million gals/day) 55 55 55 55 55

Wastewater pump stations 27 27 27 27 27Stormwater utility:

Stormwater main drain lines (miles) 626 626 626 488 488

Stormwater pump stations 74 74 72 72 72Parking Authority: (2)

Parking spaces 5,783 5,549 4,259 3,656 3,656

Parking lots & garages 23 23 18 21 21

(1) Prior to fiscal year ended June 30, 2012, the Central Library total was reported separate from the City Branches total.

(2) In FY 2015 the Central Parking District was dissolved and current operations are handled by the Parking Authority.

Source: City of Stockton Departments

212


APPENDIX C

SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS

The following is a summary of certain provisions of the 2018 Indenture and the 2018 Installment Purchase Contract. This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of such documents. All capitalized terms not defined in this summary or the forepart of this Official Statement shall have the meaning set forth in the 2018 Indenture and in the 2018 Installment Purchase Contract.

DEFINITIONS OF CERTAIN TERMS

“2010 Installment Purchase Contract” means that certain Installment Purchase Contract, dated as of October 1, 2010, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with its terms.

“2018 Bonds” means the Authority’s Water Revenue Refunding Bonds, Series 2018A authorized, issued and delivered under and in accordance with the 2018 Indenture that are at any time Outstanding pursuant thereto.

“2018 Indenture” means the 2018 Indenture, dated as of November 1, 2018, by and between the Authority and the Trustee, as originally executed and as it may from time to time be amended or supplemented by all Supplemental Indentures executed pursuant to the provisions thereof.

“2018 Installment Purchase Contract” means the 2018 Installment Purchase Contract, dated as of November 1, 2018, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance therewith.

“2018 Installment Payment Date” has the meaning set forth in the 2018 Installment Purchase Contract, as described under the heading “2018 INSTALLMENT PURCHASE CONTRACT - Payment of the 2018 Installment Payments.”

“2018 Installment Payment Fund” means the Stockton Public Financing Authority 2018 Installment Payment Fund established pursuant to the 2018 Indenture.

“2018 Installment Payments” means the installment payments scheduled to be paid by the City under and set forth in the 2018 Installment Purchase Contract.

“2018 Reserve Account” means the account within the 2018 Installment Payment Fund by that name established pursuant to the 2018 Indenture.

“2018 Reserve Requirement” means, as of any date of determination, the least of (a) ten percent (10%) of the amount of the 2018 Bonds (as defined in Section 1.148-2(f)(l) of the Treasury Regulations), or (b) the maximum annual 2018 Installment Payments payable under the 2018 Installment Purchase Contract in the then current or any future one-year period ending on October 1, or (c) one hundred twenty-five per cent (125%) of the average annual 2018 Installment Payments payable under the 2018 Installment Purchase Contract in the then current and all future one-year periods ending on October 1, all as computed by the City under the Code and specified in writing to the Trustee; provided, that such requirement (or any portion thereof) may be provided by one or more financial instruments (including, but not limited to, one or more policies of financial guaranty insurance, one or more surety bonds or one or more letters of credit) issued by a municipal bond insurer, bank or other financial

C-l

institution or organization with ratings at the time of issuance of such financial instrument in one of the two highest rating categories (without regard to numerical modifier or plus or minus sign) from at least one nationally recognized rating agency.

“Accountant’s Report” means an audited financial report prepared and signed by an Independent Certified Public Accountant.

“Act” means the Joint Exercise of Powers Act (being Chapter 5 of Division 7 of Title 1 of the Government Code of the State, as amended) and all laws amendatory thereof or supplemental thereto.

“Adjusted Available Revenues” means, for any Fiscal Year or other period of calculation, the Available Revenues for such Fiscal Year or other period of calculation less, to the extent included in the calculation of Net System Revenues for such Fiscal Year or other period of calculation, all amounts referred to in clause (G) of the definition of Parity Debt Service received or expected to be received by the City or fiduciary, on behalf of the City, in such Fiscal Year or other period of calculation; provided, that if the Senior Obligations shall hereafter be deemed to be paid and no longer outstanding pursuant to their terms, all references in the 2018 Installment Purchase Contract to “Adjusted Available Revenues” shall refer instead to “Adjusted Net System Revenues.”

“Adjusted Net System Revenues” means, for any Fiscal Year or other period of calculation, the Net System Revenues for such Fiscal Year or other period of calculation less, to the extent included in the calculation of Net System Revenues for such Fiscal Year or other period of calculation, all amounts referred to in clause (G) of the definition of Parity Debt Service received or expected to be received by the City or fiduciary, on behalf of the City, in such Fiscal Year or other period of calculation.

“Authority” means the Stockton Public Financing Authority, a joint exercise of powers entity duly organized and existing under and by virtue of the Act.

“Available Revenue Account” means the account by that name established within the City Revenue Fund pursuant to the 2018 Installment Purchase Contract.

“Available Revenues” means all Net System Revenues remaining on the first Business Day of each month after the payment or setting aside of all payments, transfers and other deposits with respect to the Senior Obligations required to be made in such month pursuant to the terms of the Senior Obligations; provided, that if the Senior Obligations shall hereafter be deemed to be paid and no longer outstanding pursuant to their terms, all references in the 2018 Installment Purchase Contract to “Available Revenues” shall refer instead to “Net System Revenues.”

“Balloon Obligation” means any Parity Obligation designated as such in such obligation or in the related Issuing Document.

“Business Day” means any day (other than a Saturday, a Sunday or a legal holiday) on which banks in New York, New York, are open for business and on which the Trustee is open for business at its Principal Corporate Trust Office.

“Certificate of the Authority” means an instrument in writing signed by the Treasurer, or by any other officer of the Authority duly authorized by the Authority for that purpose.

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“City” means the City of Stockton, a municipal corporation and chartered city duly organized and existing under and by virtue of the Constitution and laws of the State and its charter.

“City Revenue Fund” means the System Revenue Fund established pursuant to the Senior Obligations and continued under the 2018 Installment Purchase Contract.

“Code” means the Internal Revenue Code of 1986 and the regulations of the United States Department of the Treasury issued thereunder, and reference to any particular section of the Code shall include reference to all successor sections of the Code.

“Consultant” means the consultant, consulting firm, financial consultant, financial consulting firm, engineer, architect, engineering firm, architectural firm, accountant or accounting firm retained by the City to perform acts or carry out the duties provided for such consultant in the 2018 Installment Purchase Contract. Such consultant, consulting firm, financial consultant, financial consulting firm, engineer, architect, engineering firm or architectural firm shall be nationally or regionally recognized within its profession for work of the character required. Any such accountants or accounting firms shall be an Independent Certified Public Accountant.

“Costs of Issuance Fund” means the Stockton Public Financing Authority Water Revenue Refunding Bonds, Series 2018A Costs of Issuance Fund established pursuant to the 2018 Indenture.

“Coverage Requirement” means, for any Fiscal Year or any other period of calculation, an amount of Adjusted Available Revenues equal to at least one hundred fifteen per cent (115%) of Parity Debt Service for such Fiscal Year or other period of calculation, as applicable.

“Credit Provider Reimbursement Obligations” means obligations of the City to repay, from Available Revenues or Net System Revenues, amounts advanced by a municipal bond insurance company, bank or other financial institution or organization as credit support or liquidity for Parity Obligations.

“Escheat Period” means, with respect to any money held by the Trustee in trust for the payment of the interest on or principal of or redemption premiums, if any, on 2018 Bonds, a period beginning on the date such payment was due and ending on the date sixty (60) days prior to the date on which such money would escheat to the State by operation of applicable law.

“Event of Default,” with respect to the 2018 Indenture, means an event defined as such in the provisions of the 2018 Indenture concerning events of default and acceleration of maturities and, with respect to the 2018 Installment Purchase Contract, means an event defined as such in the provisions of the 2018 Installment Purchase Contract concerning events of default and remedies of the Authority.

“Fiscal Year” means the twelve-month period terminating on June 30 of each year, or any other annual accounting period thereafter selected and designated by the Authority, with respect to the 2018 Indenture, or by the City, with respect to the 2018 Installment Purchase Contract, as its Fiscal Year in accordance with applicable law.

“Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Governmental Accounting Standards Board or its successor.

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Bonds.“Holder” means any person who shall be the registered owner of any Outstanding 2018

“Independent Certified Public Accountant” means any firm of certified public accountants, appointed and paid by the Authority, with respect to the 2018 Indenture, and by the City, with respect to the 2018 Installment Purchase Contract, and each of whom -

(1) is in fact independent and not under the domination of the Authority, with respect to the 2018 Indenture, or the City, with respect to the 2018 Installment Purchase Contract;

(2) does not have a substantial financial interest, direct or indirect, in the operations of the Authority, with respect to the 2018 Indenture, or the City, with respect to the 2018 Installment Purchase Contract; and

(3) with respect to the 2018 Indenture, is not connected with the Authority as a member, officer or employee of the Authority, but which firm may be regularly retained by the Authority to audit the accounting records of the Authority and make reports thereon to the Authority, and with respect to the 2018 Installment Purchase Contract, is not connected with the City as a councilmember, officer or employee of the City, but which firm may be regularly retained by the City to audit the accounting records of the City and make reports thereon to the City.

“Insured 2018 Bonds” means the 2018 Bonds maturing on October 1 in the years 2020 through 2037, inclusive.

“Insurer” means Build America Mutual Assurance Company, or any successor thereto.

“Interest Account” means the account within the 2018 Installment Payment Fund by that name established pursuant to the 2018 Indenture.

“Interest Payment Date” means a date on which interest is due on the 2018 Bonds, being April 1 and October 1 of each year to which reference is made, commencing on April 1, 2019.

“Issuing Document” means the 2018 Installment Purchase Contract and any other installment purchase contract, indenture, trust agreement or other document that provides for the issuance of Parity Obligations.

“Moody’s” means Moody’s Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, and its successors or assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the services of a municipal securities rating agency, then “Moody’s” shall be deemed to refer to any other nationally recognized municipal securities rating agency selected by the Authority.

“Net System Revenues” means, for any period, the System Revenues during such period less the Operation and Maintenance Costs during such period.

“Operation and Maintenance Costs” means the reasonable and necessary costs paid or incurred by the City for maintaining and operating the Water System, determined in accordance with Generally Accepted Accounting Principles, including all costs of water or capacity purchased or otherwise acquired for the Water System whether or not such water or capacity is delivered or capable of

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being delivered or otherwise made available to or received by or for the account of the Water System and all costs of treating water for the Water System and all expenses necessary to maintain and preserve the Water System in good repair and working order and including all administrative and management costs of the City that are charged directly or apportioned to the operation of the Water System, such as salaries and wages of employees, overhead, taxes (if any) and insurance premiums (including payments required to be paid into any self-insurance funds), and including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the 2018 Installment Purchase Contract, the Senior Obligations or of any Parity Obligations, but excluding in all cases (i) depreciation, replacement and obsolescence charges or reserves therefor, (ii) amortization of intangibles, (iii) costs of capital additions, replacements, betterments, extensions or improvements to the Water System which under Generally Accepted Accounting Principles are chargeable to a capital account, and (iv) charges for the payment of principal and interest on any debt service on account of any Senior Obligation, Parity Obligation or obligation subordinate to the Parity Obligations.

“Opinion of Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, retained by the Authority.

“Outstanding” means, when used with reference to 2018 Bonds and subject to the provisions of the 2018 Indenture concerning disqualified 2018 Bonds, all 2018 Bonds except -

(1) 2018 Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation;

(2) 2018 Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the 2018 Indenture; and

(3) 2018 Bonds in lieu of or in substitution for which other 2018 Bonds shall have been executed, issued and delivered by the Authority pursuant to the 2018 Indenture.

“Parity Debt Service” means, with respect to any Parity Obligation for any period of calculation, those portions of the payments of interest on and principal and redemption premiums, if any, required to be made during such period under such Parity Obligation, less any such interest that is to be paid from proceeds of such Parity Obligation, less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds and capitalized interest funds established for such Parity Obligation; provided, that for purposes of the calculation of Parity Debt Service, the following shall apply:

(A) Interest on Variable Interest Rate Obligations. Interest on any Variable Interest Rate Obligation shall be assumed to bear interest at a fixed rate equal to the higher of:

(1) the actual rate on the date of calculation, or if such Parity Obligation is not yet outstanding, the initial rate (if established and binding); or

(2) if such Parity Obligation has been outstanding for at least twelve months, the average rate over the twelve months immediately preceding the date of calculation, or if such Parity Obligation has not been outstanding for the twelve prior months, the average rate borne by reference to an index comparable to that to be utilized in determining the interest rate for the Parity Obligation to be issued.

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(B) Interest on Parity Obligations with respect to which a Payment Agreement is in force. For purposes of the definition of Parity Debt Service, interest deemed to be payable on any Parity Obligation with respect to which a Payment Agreement is in force shall be based on the net economic effect on the City expected to be produced by the terms of such Parity Obligation and such Payment Agreement, including but not limited to the effects that (i) such Parity Obligation would, but for such Payment Agreement, be treated as an obligation bearing interest at a Variable Interest Rate instead shall be treated as an obligation bearing interest at a fixed interest rate, and (ii) such Parity Obligation would, but for such Payment Agreement, be treated as an obligation bearing interest at a fixed interest rate instead shall be treated as an obligation bearing interest at a Variable Interest Rate; and accordingly, the amount of interest deemed to be payable on any Parity Obligation with respect to which a Payment Agreement is in force shall be an amount equal to the amount of interest that would be payable at the rate or rates stated in such Parity Obligation plus the applicable Payment Agreement Payments minus the applicable Payment Agreement Receipts, and for the purpose of calculating as nearly as practicable the Payment Agreement Receipts and the Payment Agreement Payments under such Parity Obligation, the following assumptions shall be made:

(1) City Obligated to Pay Net Variable Payments. If a Payment Agreement has been entered into by the City with respect to a Parity Obligation resulting in the payment of a net variable interest rate with respect to such Parity Obligation and Payment Agreement by the City, the interest rate on such Parity Obligation for future periods when the actual interest rate cannot yet be determined shall be assumed, during the period the Payment Agreement is in effect, to be equal to the sum of (i) the fixed rate or rates stated in such Parity Obligation, minus (ii) the fixed rate paid by the counterparty to the City, plus (iii) the lesser of (A) the interest rate cap, if any, provided by the counterparty with respect to such Payment Agreement (but only during the period that such interest rate cap is in effect) and (B) the higher of (x) the actual variable rate or rates payable by the City to the counterparty pursuant to the Payment Agreement on the date of calculation, or if such Payment Agreement is not yet outstanding, the initial rate (if established and binding) and (y) if such Payment Agreement has been in effect for at least twelve months, the average variable rate or rates payable by the City to the counterparty pursuant to the Payment Agreement over the twelve months immediately preceding the date of calculation, or if such Payment Agreement has not been outstanding for the twelve prior months, the average variable rate or rates that would have been payable by the City to the counterparty pursuant to such Payment Agreement for the twelve prior months determined by reference to an index comparable to that to be utilized in determining the variable rate for the Payment Agreement to be executed.

(2) City Obligated to Pay Net Fixed Payments. If a Payment Agreement has been entered into by the City with respect to a Parity Obligation which is reasonably believed, in the opinion of a financial consultant or financial consulting firm, to result in the payment of a net fixed interest rate with respect to such Parity Obligation and Payment Agreement by the City, the interest on such Parity Obligation shall be included in the calculation of the Parity Debt Service during the period the Payment Agreement is in effect by including for each calculation period an amount equal to the amount of interest payable at the fixed interest rate pursuant to such Payment Agreement;

(C) For purposes of calculating the Parity Debt Service on any Balloon Obligation, it shall be assumed that the principal of such Balloon Obligation will be amortized in a manner resulting in approximately equal annual installments of debt service over a term of thirty (30)

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years from the date of calculation of Parity Debt Service, at an assumed interest rate determined by reference to subparagraph (A) of this definition of Parity Debt Service;

(D) For purposes of any Parity Obligation or portions thereof the debt service requirements under which contain no current interest component but which are sold at a discount and which discount accretes with respect to such Parity Obligation or portions thereof, such accreted discount shall be treated as interest in the calculation of Parity Debt Service;

(E) For purposes of any Parity Obligations that constitute paired obligations, the interest rate on such Parity Obligations shall be the resulting linked rate or the effective fixed interest rate (each as certified by a financial consultant or financial consulting firm) reasonably expected to be paid by the City with respect to such paired obligations;

(F) The amount on deposit in a debt service reserve fund with respect to a Parity Obligation on any date of calculation of Parity Debt Service shall be deducted from the amount of principal due at the final maturity of such Parity Obligation to the extent the amount in such debt service reserve fund is in excess of such amount of principal, such excess shall be applied to the full amount of principal due, in each preceding year, in inverse order of due date, until such amount is exhausted;

(G) If, under any statutory scheme, during any period of calculation the City or a fiduciary, on behalf of the City, receives or expects to receive any subsidy, reimbursement or other payment from a governmental entity (including, but not limited to, the federal government of the United States of America) in connection with, or related to, payments of principal of and/or interest on Parity Obligations, then principal of and/or interest on such Parity Obligations during such period of calculation shall be disregarded and not included in calculating Parity Debt Service to the extent that such subsidy, reimbursement or other payment is received or expected to be received by the City or fiduciary, on behalf of the City, during such period of calculation;

(H) If any Parity Obligations feature an option, on the part of the owners, or a requirement under the terms of such Parity Obligations, to tender all or a portion of such Parity Obligations to the City, or other fiduciary or agent, and to purchase such Parity Obligations or portion thereof if properly presented, then for purposes of determining the amounts due in any period with respect to such Parity Obligations, the options or obligations of the owners of such Parity Obligations to tender the same for purchase or payment shall be ignored;

(I) Payments on Parity Obligations shall be excluded to the extent such payments are to be paid from amounts on deposit with a trustee or other fiduciary in escrow specifically therefor;

(J) Credit Provider Reimbursement Obligations and potential Credit Provider Reimbursement Obligations shall be ignored; and

(K) Payments and potential payments under Payment Agreements may, at the option of the City, be ignored except as provided in clause (B) of this definition.

“Parity Obligations” means the 2018 Installment Payments and any other obligation (including, but not limited to, any installment payment obligation) payable on a parity with the 2018 Installment Payments from Available Revenues or Net System Revenues, as the case may be, as provided in the 2018 Installment Purchase Contract and the regularly scheduled payments under any Payment Agreement which have been designated by the City as a “Parity Obligation” in the Payment Agreement.

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“Payment Agreement” means a written agreement for the purpose of managing or reducing the City’s exposure to fluctuations in interest rates or for any other interest rate, investment, asset or liability managing purposes, entered into either on a current or forward basis by the City as authorized under any applicable laws of the State in connection with, or incidental to, the entering into of any Parity Obligation, that provides for an exchange of payments based on interest rates, ceilings or floors on such payments, options on such payments or any combination thereof, or any similar device.

“Payment Agreement Payments” means the regularly scheduled amounts (excluding Termination Payments) periodically required to be paid by the City under all Payment Agreements.

“Payment Agreement Receipts” means the regularly scheduled amounts (excluding Termination Payments) required to be paid by all counterparties to the City under all Payment Agreements.

“Permitted Investments” means any of the following obligations to the extent then authorized by law for the investment of money of the Authority:

(1) United States Government Obligations;

(2) Direct obligations of any of the following federal agencies, which obligations represent the full faith and credit of the United States of America:

■ Export-Import Bank

■ Farm Credit System Financial Assistance Corporation

■ Rural Economic Community Development Administration (formerly the Farmers Home Administration)

■ General Services Administration

■ U.S. Maritime Administration

■ Small Business Administration

■ Government National Mortgage Association (GNMA)

■ U.S. Department of Housing & Urban Development (PHA’s)

■ Federal Housing Administration

■ Federal Financing Bank;

(3) Direct obligations of any of the following federal agencies, which obligations are not fully guaranteed by the full faith and credit of the United States of America:

■ Senior debt obligations rated on the date of purchase “Aaa” by Moody’s and “AAA” by S&P issued by the Federal National Mortgage Association (FNMA) or Federal Home Foan Mortgage Corporation (FHFMC)

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■ Obligations of the Resolution Funding Corporation (REFCORP)

■ Senior debt obligations of the Federal Home Loan Bank System

■ Senior debt obligations of other Government Sponsored Agencies;

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

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

(6) Investments in a money market fund rated at the time of purchase “AAAm” or “AAAm-G” by S&P, including any such fund managed, advised or sponsored by the Trustee or any of its affiliates;

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

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

(B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (1) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in such irrevocable instructions, as appropriate;

(8) General obligations of states with a rating at the time of purchase of at least “A2/A” or higher by both Moody’s and S&P;

(9) Investment agreements with notice to S&P;

(10) Shares in the California Asset Management Program (established pursuant to Title 1, Division 7, Chapter 5 of the Government Code of the State) that invests exclusively in investments permitted by Section 53635 of the Government Code of the State, as now existing and as it may be amended from time to time;

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(11) The Local Agency Investment Fund (established under Sections 53600- 53609 of the California Government Code, as amended or supplemented from time to time); and

(12) Other forms of investment agreements (including repurchase agreements) with notice to S&P.

“Principal Corporate Trust Office” means the corporate trust office of the Trustee in Minneapolis, Minnesota, or such other office designated by the Trustee from time to time.

“Principal Subaccount” means the subaccount within the Redemption Account by that name established pursuant to the 2018 Indenture.

“Record Date” means, with respect to any Interest Payment Date, the day of the month that is the fifteenth (15th) day of the month prior to such Interest Payment Date.

“Redemption Account” means the account within the 2018 Installment Payment Fund by that name established pursuant to the 2018 Indenture.

“Revenues” means all 2018 Installment Payments paid by the City and received by the Authority, its successors and assigns under the 2018 Installment Purchase Contract, together with all income from any investment, pursuant to the provisions of the 2018 Indenture concerning the deposit or investment of money in accounts and funds, of any money in any account or fund established pursuant thereto.

“Senior Obligations” means the 2010 Installment Purchase Contract.

“Serial 2018 Bonds” means 2018 Bonds for which no sinking fund payments are provided. All the 2018 Bonds are Serial 2018 Bonds.

“S&P” means S&P Global, a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the services of a municipal securities rating agency, then “S&P” shall be deemed to refer to any other nationally recognized municipal securities rating agency selected by the Authority.

“State” means the State of California.

“Supplemental Indenture” means any indenture, duly executed and delivered by the Authority and the Trustee and in full force and effect, which is amendatory of the 2018 Indenture or supplemental thereto; but only if and to the extent that such Supplemental Indenture is specifically authorized thereunder.

“System Revenues” means all gross income and revenue received or receivable by the City from the ownership or operation of the Water System, determined in accordance with Generally Accepted Accounting Principles, including all fees, rates, charges and amounts paid under any contracts received by or owed to the City in connection with the operation of the Water System and all proceeds of insurance relating to the Water System and all other income and revenue howsoever derived by the City from the ownership or operation of the Water System. Notwithstanding the foregoing, there shall be deducted from current System Revenues any amounts transferred into the Rate Stabilization Fund from current System Revenues as provided in the 2018 Installment Purchase Contract and there shall be added

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to current System Revenues any amounts transferred out of the Rate Stabilization Fund as provided in the 2018 Installment Purchase Contract, each as described below under the heading “2018 INSTALLMENT PURCHASE CONTRACT - Amount of Charges, Fees and Rates; Rate Stabilization Fund.”

“Tax Certificate” means the Tax Certificate delivered by the Authority at the time of the issuance and delivery of the 2018 Bonds, as the same may be amended or supplemented in accordance with its terms.

“Termination Payments” means any payments due and payable by the City in connection with the termination of a Payment Agreement.

“Treasurer” means the Treasurer of the Authority.

“Trustee” means Wells Fargo Bank, National Association, a national banking association duly organized and existing under and by virtue of the laws of the United States of America, at its Principal Corporate Trust Office, or any successor Trustee which may at any time be substituted in place of the original or any successor Trustee under the 2018 Indenture as provided in the provisions of the 2018 Indenture concerning the Trustee.

“United States Government Obligations” means (1) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of Treasury of the United States of America) and obligations the timely payment of the principal of and interest on which are fully guaranteed by the United States of America, and (2) certificates or other instruments that evidence ownership of the right to the payment of the principal of and interest on obligations described in clause (1) provided that such obligations are held in the custody of a bank or trust company in a special account separate from the general assets of such custodian or (3) municipal obligations the timely payment of the principal of and interest on which is fully provided for by the deposit in trust or escrow of cash or obligations described in clauses (1) or (2).

“Variable Interest Rate” means any variable interest rate or rates to be paid under any Parity Obligation, the method of computing which variable interest rate shall be as specified in such obligation, which obligation shall also specify either (i) the payment period or periods or time or manner of determining such period or periods or time for which each value of such variable interest rate shall remain in effect, and (ii) the time or times based upon which any change in such variable interest rate shall become effective, and which variable interest rate may, without limitation, be based on the interest rate on certain bonds or may be based on interest rate, currency, commodity or other indices.

“Variable Interest Rate Obligations” means, for any period of time, any Parity Obligations that bear a Variable Interest Rate during such period.

“Water Project” means any additions, betterments, extensions or improvements to the Water System designated by the City Council of the City as a designated Water Project for the City.

“Water Service” means the water services made available or provided by the WaterSystem.

“Water System” means the whole and each and every part of the water system of the City, including the portion thereof existing on the date of the 2018 Indenture or the 2018 Installment Purchase Contract, as applicable, and including all additions, betterments, extensions and improvements to such system or any part thereof and hereafter acquired or constructed.

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“Written Request of the Authority” means an instrument in writing signed by the Chairperson, Vice-Chairperson, Executive Director or Treasurer of the Authority, or by any other officer of the Authority duly authorized by the Authority for that purpose.

THE 2018 INDENTURE

General

The 2018 Indenture sets forth the terms of the 2018 Bonds, the nature and extent of the security for the 2018 Bonds, various rights of the Holders of the 2018 Bonds, rights, duties and immunities of the Trustee and the rights and obligations of the Authority. Certain provisions of the 2018 Indenture are summarized below. Other provisions are summarized in the forepart of this Official Statement under the caption “THE 2018 BONDS.” This summary does not purport to be complete or definitive and is qualified in its entirety by reference to the full terms of the 2018 Indenture.

Equal Security

In consideration of the acceptance of the 2018 Bonds by the Holders thereof, the 2018 Indenture shall be deemed to be and shall constitute a contract by and among the Authority, the Trustee and the Holders from time to time of all 2018 Bonds authorized, executed, authenticated and delivered under the 2018 Indenture and then Outstanding to secure the full and final payment of the interest on and principal of and redemption premiums, if any, on all 2018 Bonds which may from time to time be authorized, executed, authenticated and delivered thereunder, subject to the agreements, conditions, covenants and terms contained therein; and all agreements and covenants set forth therein to be performed by or on behalf of the Authority shall be for the equal and proportionate benefit, protection and security of all Holders of the 2018 Bonds without distinction, preference or priority as to security or otherwise of any 2018 Bonds over any other 2018 Bonds by reason of the number or date thereof or the time of authorization, sale, execution, authentication or delivery thereof or for any cause whatsoever, except as expressly provided in the 2018 Indenture or therein.

Pledge of Revenues

All Revenues received by the Authority are assigned pursuant to the 2018 Indenture by the Authority to the Trustee for the benefit of the Holders of the 2018 Bonds, and are irrevocably pledged to the payment of the interest on and principal of and redemption premiums, if any, on the 2018 Bonds as provided in the 2018 Indenture, and the Revenues shall not be used for any other purpose while any of the 2018 Bonds remain Outstanding; provided, that out of the Revenues there may be applied such sums for such purposes as are permitted under the 2018 Indenture. Such pledge shall constitute a first pledge of and charge and lien upon the Revenues and all money on deposit in the accounts and funds established under the 2018 Indenture for the payment of the interest on and principal of and redemption premiums, if any, on the 2018 Bonds in accordance with the terms of the 2018 Indenture and the 2018 Bonds. The Authority (to the extent of its rights, if any, in the 2018 Installment Payment Fund and all money on deposit in the accounts and funds established under the 2018 Indenture, although it is the intent of the parties thereto that the Authority not have any right, title or interest in or to the 2018 Installment Payment Fund or such money) pledges and grants a lien on and a security interest in the 2018 Installment Payment Fund and such money to the Trustee for the benefit of the Holders.

In order to secure the pledge of the Revenues under the 2018 Indenture, the Authority transfers, conveys and assigns to the Trustee, for the benefit of the Holders, all of the Authority’s rights under the 2018 Installment Purchase Contract (excepting its right to indemnification thereunder),

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including the right to receive 2018 Installment Payments from the City, and the right to exercise any remedies provided therein in the event of a default by the City thereunder.

Receipt and Deposit of Revenues in the 2018 Installment Payment Fund

In order to carry out and effectuate the pledge, charge and lien contained in the 2018 Indenture, the Authority agrees and covenants that all Revenues when and as received by the Authority will be forthwith transferred by the Authority to the Trustee for deposit in the “Stockton Public Financing Authority 2018 Installment Payment Fund,” which fund is created pursuant to the 2018 Indenture and which fund the Authority agrees and covenants to maintain with the Trustee so long as any 2018 Bonds are Outstanding under the 2018 Indenture. All money in the 2018 Installment Payment Fund shall be accounted for through and held in trust in the 2018 Installment Payment Fund by the Trustee, and the Authority shall have no beneficial right or interest in any money in the 2018 Installment Payment Fund except only as provided in the 2018 Indenture. All Revenues, whether received by the Authority or deposited with the Trustee as provided in the 2018 Indenture, shall nevertheless be allocated, applied and disbursed solely to the purposes and uses set forth in the 2018 Indenture, and shall be accounted for separately and apart from all other accounts, funds, money or other resources of the Authority.

Establishment and Maintenance of Accounts for Use of Money in the 2018 Installment Payment Fund

All money in the 2018 Installment Payment Fund shall be set aside by the Trustee in the following respective special accounts within the 2018 Installment Payment Fund (each of which is created pursuant to the 2018 Indenture and each of which the Trustee covenants and agrees to cause to be maintained) in the following order of priority:

(a) Interest Account,

(b) Redemption Account, and

(c) 2018 Reserve Account.

All money in each of such accounts shall be held in trust by the Trustee and shall be applied, used and withdrawn only for the purposes authorized in the provisions of the 2018 Indenture summarized in this section.

(a) Interest Account. On April 1 and October 1 of each year, beginning on April 1, 2019, the Trustee shall set aside from the 2018 Installment Payment Fund and deposit in the Interest Account an amount of money which is equal to the amount of interest becoming due and payable on all Outstanding 2018 Bonds on such April 1 or October 1, as the case may be; provided, that no such deposit need be made in the Interest Account if the amount contained therein is at least equal to the aggregate amount of interest becoming due and payable on all Outstanding 2018 Bonds on such Interest Payment Date. All money in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the 2018 Bonds as it shall become due and payable (including accrued interest on any 2018 Bonds purchased or redeemed prior to maturity).

(b) Redemption Account. On October 1 of each year, beginning on October 1, 2019, the Trustee shall set aside from the 2018 Installment Payment Fund and deposit in the Principal Subaccount of the Redemption Account an amount of money equal to the principal amount of all Outstanding Serial 2018 Bonds maturing on such October 1; provided, that no such deposit need be made in the Principal Subaccount on October 1 of any year if the amount contained in the Principal Subaccount

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therein is at least equal to the aggregate amount of the principal of all Outstanding Serial 2018 Bonds maturing by their terms on such October 1. All money in the Principal Subaccount in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Serial 2018 Bonds as they shall become due and payable, whether at maturity or on prior redemption.

(c) 2018 Reserve Account.

(i) On October 1 of each year, beginning on October 1, 2019, the Trustee shall set aside from the 2018 Installment Payment Fund and deposit in the 2018 Reserve Account the amount of money necessary to restore the 2018 Reserve Account to the 2018 Reserve Requirement, and for such purpose all investments in such account on October 1 of each year (beginning on October 1, 2019) shall be valued at the face value thereof if such investments mature within twelve (12) months from the date of such valuation, or if such investments mature more than twelve (12) months after the date of such valuation, at the price at which such investments are redeemable by the holder, at his option, if so redeemable, or if not so redeemable, at the then current market value of such investments.

(ii) All money in the 2018 Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on or principal of or redemption premiums, if any, on the 2018 Bonds if no other money is available in the 2018 Installment Payment Fund for such purpose; provided, that if at any time the Trustee determines that an amount in excess of the 2018 Reserve Requirement is on deposit in the 2018 Reserve Account (due to the foregoing valuation, the redemption or defeasance of 2018 Bonds or otherwise), the Trustee shall withdraw any such excess and transfer it to the 2018 Installment Payment Fund or as otherwise directed in a Written Request of the Authority for any lawful purpose.

Punctual Payment and Performance

The Authority will punctually pay the interest on and principal of and redemption premium, if any, to become due on every 2018 Bond issued under the 2018 Indenture from the Revenues in strict conformity with the terms thereof and of the 2018 Bonds, and will faithfully observe and perform all the agreements, conditions, covenants and terms to be observed or performed by it contained in the 2018 Indenture and in the 2018 Bonds.

Against Encumbrances

The Authority will not make any pledge of or place any charge or lien upon the Revenues except as provided in the 2018 Indenture, and will not issue any 2018 Bonds, notes or obligations payable from the Revenues or secured by a pledge of or charge or lien upon the Revenues except the 2018 Bonds.

Tax Covenants

The Authority will not use or permit the use of any proceeds of 2018 Bonds or any funds of the Authority, directly or indirectly, to acquire any securities or obligations and will not take or permit to be taken any other action or actions which would cause any 2018 Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code, “private activity bonds” within the meaning of Section 141(a) of the Code or “federally guaranteed” within the meaning of Section 149(b) of the Code and any applicable requirements thereunder and under Section 103(c) of the Code. The Authority will observe and will not violate the requirements of Section 148 of the Code and any applicable regulations thereunder, and the Authority will comply with all requirements of Sections 148 and 149(b) of the Code and any applicable regulations thereunder to the extent applicable to the 2018 Bonds. In the event that at any time the Authority is of the opinion that for purposes of its tax covenants that it is necessary to restrict or to limit

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the yield on the investment of any money held by the Trustee under the 2018 Indenture, the Authority shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions.

The Authority will comply with the provisions and procedures of the Tax Certificate, and the Trustee shall only be obligated to follow the directions of the Authority agreed to be followed by it under the 2018 Indenture.

The Authority will not use or permit the use of any proceeds of the 2018 Bonds or any funds of the Authority, directly or indirectly, in any manner, and will not take or omit to take any action that would cause any of the 2018 Bonds to be treated as an obligation not described in Section 103(a) of the Code and any applicable regulations thereunder or which would affect the exemption of interest on the 2018 Bonds from State personal income taxes.

Notwithstanding any provisions summarized under this heading, if the Authority provides the Trustee with an Opinion of Counsel that any specified action required under the provisions of the 2018 Indenture summarized under this heading is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest with respect to the 2018 Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of the 2018 Indenture summarized under this heading, and, notwithstanding the provisions of the 2018 Indenture concerning amendments thereof, the tax covenants under the 2018 Indenture shall be deemed to be modified to that extent.

Accounting Records and Reports

The Authority will keep or cause to be kept proper books of record and accounts in which complete and correct entries shall be made of all transactions relating to the receipts, disbursements, allocation and application of the Revenues, and such books shall be available for inspection by the Trustee at reasonable hours and under reasonable conditions. Not more than two hundred seventy (270) days after the close of each Fiscal Year, the Authority will furnish or cause to be furnished to the Trustee audited financial statements for such Fiscal Year prepared by an Independent Certified Public Accountant. The Authority will also keep or cause to be kept such other information as required under the Tax Certificate, and the Trustee shall have no duty to review or examine such statements.

Prosecution and Defense of Suits

The Authority will defend against every suit, action or proceeding at any time brought against the Trustee upon any claim to the extent arising out of the receipt, application or disbursement of any of the Revenues or to the extent involving the failure of the Authority to fulfill its obligations under the 2018 Indenture; provided, that the Trustee or any affected Holder at its election may appear in and defend any such suit, action or proceeding. The Authority will indemnify and hold harmless the Trustee against any and all liability claimed or asserted by any person to the extent arising out of any such failure by the Authority, and will indemnify and hold harmless the Trustee against any attorney’s fees or other expenses which it may incur in connection with any litigation to which it may become a party by reason of its actions under the 2018 Indenture, except for any loss, cost, damage or expense resulting from the negligence or willful misconduct by the Trustee.

Amendments to 2018 Installment Purchase Contract

The Authority will not supplement, amend, modify or terminate any of the terms of the 2018 Installment Purchase Contract, or consent to any such supplement, amendment, modification or

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termination, without the prior written consent of the Trustee, which consent shall be given only if (a) such supplement, amendment, modification or termination will not materially adversely affect the interests of the Holders or result in any material impairment of the security given in the 2018 Indenture for the payment of the 2018 Bonds, or (b) the Trustee first obtains the written consent of the Holders of a majority in aggregate principal amount of the 2018 Bonds then Outstanding to such supplement, amendment, modification or termination; provided, that no such supplement, amendment, modification or termination shall reduce the amount of 2018 Installment Payments to be made to the Authority by the City pursuant to the 2018 Installment Purchase Contract, or extend the time for making such 2018 Installment Payments, or permit the creation of any lien prior to the lien created by the 2018 Installment Purchase Contract on the revenues of the Water System without the written consent of the Holders of all the 2018 Bonds then Outstanding.

Further Assurances

Whenever and so often as reasonably requested to do so by the Trustee or any Holder, the Authority will promptly execute and deliver or cause to be executed and delivered all such other and further assurances, documents or instruments, and promptly do or cause to be done all such other and further things as may be necessary or reasonably required in order to further and more fully vest in the Holders all rights, interests, powers, benefits, privileges and advantages conferred or intended to be conferred upon them by the 2018 Indenture.

Amendment of the 2018 Indenture

The 2018 Indenture and the rights and obligations of the Authority and of the Holders may be amended at any time by a Supplemental Indenture which shall become binding when the written consents of the Holders of a majority in aggregate principal amount of the 2018 Bonds then Outstanding, exclusive of 2018 Bonds disqualified as provided in the provisions of the 2018 Indenture concerning disqualified 2018 Bonds, are filed with the Trustee. No such amendment shall (1) extend the maturity of or reduce the interest rate on or amount of interest on or principal of or redemption premium, if any, on any 2018 Bonds without the express written consent of the Holder of such 2018 Bonds, or (2) permit the creation by the Authority of any pledge of or charge or lien upon the Revenues as provided in the 2018 Indenture superior to or on a parity with the pledge, charge and lien created by the 2018 Indenture for the benefit of the 2018 Bonds without the express written consent of all of the Holders of the 2018 Bonds then Outstanding, or (3) reduce the percentage of 2018 Bonds required for the written consent to any such amendment without the express written consent of all of the Holders of the 2018 Bonds then Outstanding, or (4) modify any duties or obligations of the Authority or the Trustee without their prior written assent thereto, respectively.

The 2018 Indenture and the rights and obligations of the Authority and of the Holders may also be amended at any time by a Supplemental Indenture which shall become binding upon adoption without the consent of any Holders, but only to the extent permitted by law, for any purpose that will not materially adversely affect the interests of the Holders, including (without limitation) for any one or more of the following purposes -

(a) to add to the agreements and covenants required in the 2018 Indenture to be performed by the Authority other agreements and covenants thereafter to be performed by the Authority, or to surrender any right or power reserved in the 2018 Indenture to or conferred therein on the Authority;

(b) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained in the 2018 Indenture or in regard to

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questions arising under the 2018 Indenture which the Authority may deem desirable or necessary and not inconsistent with the 2018 Indenture;

(c) to add to the agreements and covenants required in the 2018 Indenture, such agreements and covenants as may be necessary to qualify the 2018 Indenture under the Trust Indenture Act of 1939;

(d) to make any amendments or supplements necessary or appropriate to preserve or protect the exclusion of interest on the 2018 Bonds from gross income for federal income tax purposes under the Code or the exemption of such interest from State personal income taxes;

(e) to make such amendments or supplements as may be necessary or appropriate to maintain any then current rating on the 2018 Bonds; or

(f) to add to the rights of the Trustee.

Disqualified 2018 Bonds

2018 Bonds owned or held by or for the account of the Authority shall not be deemed Outstanding for the purpose of any consent or other action or any calculation of Outstanding 2018 Bonds, and shall not be entitled to consent to or take any other action provided in the 2018 Indenture.

Endorsement or Replacement of 2018 Bonds After Amendment

After the effective date of any action taken as provided in the 2018 Indenture, the Authority may determine that the 2018 Bonds may bear a notation by endorsement in form approved by the Authority as to such action, and in that case upon demand of the Holder of any Outstanding 2018 Bonds and presentation of his 2018 Bonds for such purpose at the Principal Corporate Trust Office of the Trustee, a suitable notation as to such action shall be made on such 2018 Bonds. If the Authority shall so determine, new 2018 Bonds so modified as, in the opinion of the Authority, shall be necessary to conform to such action shall be prepared and executed, and in that case upon demand of the Holder of any Outstanding 2018 Bonds a new 2018 Bond or 2018 Bonds shall be exchanged at the Principal Corporate Trust Office of the Trustee without cost to each Holder for its 2018 Bond or 2018 Bonds then Outstanding upon surrender of such Outstanding 2018 Bonds.

Amendment by Mutual Consent

The provisions of the 2018 Indenture regarding amendments shall not prevent any Holder from accepting any amendment as to the particular 2018 Bonds held by him; provided, that due notation thereof is made on such 2018 Bonds.

Events of Default and Acceleration of Maturities

If one or more of the following events (defined in the 2018 Indenture to constitute “Events of Default”) shall happen, that is to say:

(a) if default shall be made by the Authority in the due and punctual payment of the interest on any 2018 Bonds when and as the same shall become due and payable;

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(b) if default shall be made by the Authority in the due and punctual payment of the principal of or redemption premium, if any, on any 2018 Bonds when and as the same shall become due and payable, whether at maturity or by proceedings for redemption;

(c) if default shall be made by the Authority in the performance of any of the agreements or covenants contained in the 2018 Indenture required to be performed by the Authority, and such default shall have continued for a period of thirty (30) days after the Authority shall have been given notice in writing of such default by the Trustee;

(d) if the Authority shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the Authority seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property; or

(e) If an Event of Default (as that term is defined in the 2018 Installment Purchase Contract) has occurred under the 2018 Installment Purchase Contract;

then and in each and every such case during the continuance of such Event of Default the Trustee may, and upon the written request of the Holders of not less than a majority in aggregate principal amount of the 2018 Bonds then Outstanding shall, by notice in writing to the Authority, declare the principal of all 2018 Bonds then Outstanding and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become due and payable, anything contained in the 2018 Indenture or in the 2018 Bonds to the contrary notwithstanding; provided, that such provision is subject to the condition that if at any time after the principal of the 2018 Bonds then Outstanding shall have been so declared due and payable and before any judgment or decree for the payment of the money due shall have been obtained or entered the Authority shall deposit with the Trustee a sum sufficient to pay all matured interest on all the 2018 Bonds and all principal of the 2018 Bonds matured prior to such declaration, with interest at the rate borne by such 2018 Bonds on such overdue interest and principal, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of interest on and principal of the 2018 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 Trustee shall, on behalf of the Holders of all the 2018 Bonds then Outstanding, rescind and annul such declaration and its consequences and waive such default; and provided further, that 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 Event of Default

If an Event of Default shall occur and be continuing, all money in the Costs of Issuance Fund, the 2018 Installment Payment Fund, the Interest Account, the Redemption Account and the 2018 Reserve Account and all Revenues thereafter received by the Authority under the 2018 Indenture shall be transmitted to the Trustee and shall be applied by the Trustee in the following order:

(a) To the payment of the costs and expenses of the Trustee, if any, in carrying out the provisions of the 2018 Indenture regarding default and remedies, including any outstanding fees and expenses of the Trustee and including reasonable compensation to its accountants and counsel, and

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thereafter to the payment of the costs and expenses of the Holders in providing for the declaration of such Event of Default, including reasonable compensation to their accountants and counsel; and

(b) To the payment of the principal of, premium, if any, and interest then due on the 2018 Bonds (upon presentation of the 2018 Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid), subject to the provisions of the 2018 Indenture, as described below:

(i) Unless the principal of all of the 2018 Bonds shall have become or have been declared due and payable,

First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and

Second: To the payment to the persons entitled thereto of the unpaid principal of and premium, if any, on any 2018 Bonds which shall have become due, whether at maturity or by call for redemption, in the order of their due dates, with interest on the overdue principal at the rate borne by the respective 2018 Bonds, and, if the amount available shall not be sufficient to pay in full all the 2018 Bonds due on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal and premium, if any, due on such date to the Persons entitled thereto, without any discrimination or preference.

(ii) If the principal of all of the 2018 Bonds shall have become or have been declared due and payable, to the payment of the whole amount then owing and unpaid upon the 2018 Bonds for interest and principal, with interest on the overdue principal at the rate borne by such 2018 Bonds, and in case such money shall be insufficient to pay in full the whole amount so owing and unpaid upon the 2018 Bonds, then to the payment of such interest, principal and interest on overdue principal without preference or priority among such interest, principal and interest on overdue principal ratably to the aggregate of such interest, principal and interest on overdue principal.

Institution of Legal Proceedings by Trustee

If one or more of the Events of Default shall happen and be continuing, the Trustee may, and upon the written request of the Holders of a majority in principal amount of the 2018 Bonds then Outstanding (so long as the Trustee is indemnified to its satisfaction therefor) shall, proceed to protect or enforce its rights or the rights of the Holders of 2018 Bonds under the 2018 Indenture by a suit in equity or action at law, either for the specific performance of any agreement or covenant contained in the 2018 Indenture, or in aid of the execution of any power in the 2018 Indenture granted, or by mandamus or other appropriate proceeding for the enforcement of any other legal or equitable remedy as the Trustee shall deem most effectual in support of any of its rights and duties under the 2018 Indenture.

Non-Waiver

Nothing in the 2018 Indenture or in the 2018 Bonds shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the interest on and principal of and

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redemption premiums, if any, on the 2018 Bonds to the respective Holders of the 2018 Bonds at the respective dates of maturity or upon prior redemption as provided in the 2018 Indenture from the Revenues and the funds held in the accounts and funds as provided therein pledged for such payment, or (except as provided in the provisions of the 2018 Indenture concerning the limitation on the 2018 Bondholders’ rights to sue) shall affect or impair the right of such Holders, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied in the 2018 Indenture and in the 2018 Bonds.

A waiver of any default or breach of duty or contract by the Trustee or any Holder shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract. No delay or omission by the Trustee or any Holder to exercise any right or remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Holders by the 2018 Indenture may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee or the Holders.

If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned, the Authority, the Trustee and any Holder shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.

Actions by Trustee as Attorney-in-Fact

Any action, proceeding or suit which any Holder shall have the right to bring to enforce any right or remedy under the 2018 Indenture may be brought by the Trustee for the equal benefit and protection of all Holders, whether or not the Trustee is a Holder, and the Trustee is appointed (and the successive Holders, by taking and holding the 2018 Bonds issued under the 2018 Indenture, shall be conclusively deemed to have so appointed it) the true and lawful attorney-in-fact of the Holders for the purpose of bringing any such action, proceeding or suit and for the purpose of doing and performing any and all acts and things for and on behalf of the Holders as a class or classes as may be advisable or necessary in the opinion of the Trustee as such attorney-in-fact.

Remedies Not Exclusive

No remedy in the 2018 Indenture conferred upon or reserved to the Holders is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the 2018 Indenture or now or thereafter 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 law.

Limitation on 2018 Bondholders’ Right to Sue

No Holder of any 2018 Bond issued under the 2018 Indenture shall have the right to institute any suit, action or proceeding, at law or equity, for any remedy under the 2018 Indenture unless (a) such Holder shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Holders of at least a majority in aggregate principal amount of all the 2018 Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the 2018 Indenture or to institute such suit, action or proceeding in its own name; (c) such Holders shall have tendered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have refused or omitted to comply with

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such request for a period of sixty (60) days after such request shall have been received by, and such tender of indemnity shall have been made to, the Trustee.

Each such notification, request, tender of indemnity and refusal or omission are declared, in every case, to be conditions precedent to the exercise by any Holder of 2018 Bonds of any remedy under the 2018 Indenture; it being understood and intended that no one or more Holders shall have any right in any manner whatever by his or their action to enforce any right under the 2018 Indenture except in the manner provided in the 2018 Indenture, and that all proceedings at law or in equity to enforce any provision of the 2018 Indenture shall be instituted and maintained in the manner therein provided and for the equal benefit of all Holders of Outstanding 2018 Bonds.

Discharge of 2018 Indenture

The 2018 Bonds may be paid by the Authority or the Trustee on behalf of the Authority in any of the following ways:

(a) by paying or causing to be paid the principal of, premium, if any, and interest on all 2018 Bonds Outstanding, as and when the same become due and payable;

(b) by depositing with the Trustee, in trust, at or before maturity, moneys or securities in the necessary amount to pay when due or redeem all 2018 Bonds then Outstanding; or

(c) by delivering to the Trustee, for cancellation by it, all 2018 Bonds thenOutstanding.

If the Authority shall also pay or cause to be paid all other sums payable under the 2018 Indenture by the Authority, then and in that case at the election of the Authority (evidenced by a Certificate of the Authority filed with the Trustee signifying the intention of the Authority to discharge all such indebtedness and the 2018 Indenture), and notwithstanding that any 2018 Bonds shall not have been surrendered for payment, the 2018 Indenture and the pledge of Revenues and other assets made under the 2018 Indenture and all covenants, agreements and other obligations of the Authority under the 2018 Indenture (except as otherwise provided in the provisions of the 2018 Indenture described above under the section heading “Tax Covenants”) shall cease, terminate, become void and be completely discharged and satisfied.

Discharge of Liability on 2018 Bonds

Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as described under the immediately following heading) to pay or redeem any Outstanding 2018 Bond (whether upon or prior to its maturity or the redemption date of such 2018 Bond), provided that, if such 2018 Bond is to be redeemed prior to maturity, notice of such redemption shall have been given as provided in the 2018 Indenture or provision reasonably satisfactory to the Trustee shall have been made for the giving of such notice, all liability of the Authority in respect of such 2018 Bond shall cease, terminate and be completely discharged, except only that thereafter the Holder thereof shall be entitled to payment of the principal of and interest on such 2018 Bond by the Authority, and the Authority shall remain liable for such payments, but only out of such money or securities deposited with the Trustee as described above for their payment, subject, however, to the provisions of the 2018 Indenture described below under the section heading “Unclaimed Money.”

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Deposit of Money or Securities with Bond Trustee

Whenever in the 2018 Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any 2018 Bonds, the money or securities to be so deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the 2018 Indenture and shall be:

(a) lawful money of the United States of America in an amount equal to the principal amount of such 2018 Bonds and all unpaid interest thereon to maturity, except that, in the case of 2018 Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption shall have been given as provided in the 2018 Indenture or provision reasonably satisfactory to the Trustee shall have been made for the giving of such notice, the amount to be deposited or held shall be the principal amount of such 2018 Bonds and premium, if any, and all unpaid interest thereon to the redemption date; or

(b) United States Government Obligations (not callable by the issuer thereof prior tomaturity), the principal of and interest on which when due (without any income from the reinvestment thereof) will provide money sufficient to pay the principal of, premium, if any, and all unpaid interest to maturity, or to the redemption date, as the case may be, on the 2018 Bonds to be paid or redeemed, assuch principal, premium, if any, and interest become due; provided that, in the case of 2018 Bonds whichare to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the 2018 Indenture or provision reasonably satisfactory to the Trustee shall have been made for the giving of such notice;

provided, in each case, that the Trustee shall have been irrevocably instructed (by the terms of the 2018 Indenture or by Written Request of the Authority) to apply such money to the payment of such principal, premium, if any, and interest on such 2018 Bonds; and, provided further, in the case of the deposit of United States Government Obligations in accordance with subsection (b) above, that the Trustee and the Authority shall have received a report prepared by an Independent Certified Public Accountant or other financial consultant reasonably satisfactory to the Authority to the effect that principal of and interest on such United States Government Obligations when due (without any income from reinvestment thereof) will be sufficient to provide money to pay the principal of, premium, if any, and all unpaid interest tomaturity, or to the redemption date, as the case may be, on the 2018 Bonds to be paid or redeemed, assuch principal, premium, if any, and interest become due.

Certain Provisions Relating to the Insurer

(a) Any reorganization or liquidation plan with respect to the Authority or the City must be acceptable to the Insurer. The Trustee and each owner of the Insured 2018 Bonds appoint the Insurer as their agent and attorney-in-fact with respect to the Insured 2018 Bonds and agree that the Insurer may at any time during the continuation of any proceeding by or against the Authority or the City under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an “Insolvency Proceeding”) direct all matters relating to such Insolvency Proceeding, including without limitation, (A) all matters relating to any claim or enforcement proceeding in connection with an Insolvency Proceeding (a “Claim”), (B) the direction of any appeal of any order relating to a Claim, (C) the posting of any surety, supersedeas or performance bond pending any such appeal, and (D) the right to vote to accept or reject any plan of adjustment. In addition, the Trustee and each owner of the Insured 2018 Bonds delegate and assign to the Insurer, to the fullest extent permitted by law, the rights of the Trustee and each owner of the Insured 2018 Bonds with respect to the Insured 2018 Bonds in the conduct of any Insolvency Proceeding, including, without limitation, all rights of any

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party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding.

(b) Anything in the 2018 Indenture or the 2018 Installment Purchase Contract to the contrary notwithstanding, upon the occurrence and continuance of a default or an event of default, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the holders of the Insured 2018 Bonds or the Trustee for the benefit of the holders of the Insured 2018 Bonds under the 2018 Indenture and the 2018 Installment Purchase Contract. No default or event of default may be waived without the Insurer’s written consent.

(c) Upon the occurrence and continuance of a default or an event of default as described in the 2018 Indenture, the Insurer shall be deemed to be the sole owner of the Insured 2018 Bonds for all purposes under the 2018 Indenture and the 2018 Installment Purchase Contract, including, without limitations, for purposes of exercising remedies and approving amendments.

(d) The Insurer’s written consent is required as a condition precedent to and in all instances of acceleration. No grace period shall be permitted for payment defaults on the Insured 2018 Bonds. No grace period for a covenant default shall exceed 30 days without the prior written consent of the Insurer.

(e) The Insurer is recognized as and shall be deemed to be a third party beneficiary of the 2018 Indenture and may enforce the provisions of the 2018 Indenture as if it were a party thereto.

Unclaimed Money

Anything contained in the 2018 Indenture to the contrary notwithstanding, if any money is held by the Trustee in trust for the payment and discharge of the interest on or principal of or redemption premiums, if any, on any of the 2018 Bonds after the date when the interest on or principal of or redemption premiums, if any, on such 2018 Bonds has become due and payable, either at their stated maturity dates or by call for redemption prior to maturity, and remains unclaimed for the Escheat Period, such money shall be repaid by the Trustee to the Authority as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Holders shall not look to the Trustee for the payment of the interest on or principal of or redemption premiums, if any, on such 2018 Bonds; provided, that before being required to make any such payment to the Authority, the Trustee shall, at the expense of the Authority, cause to be mailed to all Holders a notice that such money remains unclaimed and that, after a date named in such notice, which date shall not be less than thirty (30) days after the date of the mailing of each such notice, the balance of such money then unclaimed will be returned to the Authority.

Liability of Authority Limited to Revenues and Certain Other Funds

Notwithstanding anything contained in the 2018 Indenture, the Authority shall not be required to advance any money derived from any source other than the Revenues and the funds held in the accounts and funds as provided in the 2018 Indenture for the payment of the interest on or principal of or redemption premiums, if any, on the 2018 Bonds or for the performance of any agreements or covenants in the 2018 Indenture contained; provided, that the Authority may, however, advance funds for any such purpose so long as such funds are derived from a source legally available for such purpose without incurring an indebtedness.

The 2018 Bonds are limited obligations of the Authority and are payable, as to interest thereon, principal thereof and any redemption premiums thereon, solely from the Revenues and the funds

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held in the accounts and funds provided in the 2018 Indenture, and the Authority is not obligated to pay such interest, principal or redemption premiums, if any, on the 2018 Bonds except from the Revenues and such funds. All the 2018 Bonds are equally and ratably secured by a pledge of and charge and lien upon the Revenues and such funds, and the Revenues and such funds constitute a trust fund for the security and payment of the interest on and principal of and redemption premiums, if any, on the 2018 Bonds as provided in the 2018 Indenture. The full faith and credit of the Authority is not pledged for the payment of the interest on or principal of or redemption premiums, if any, on the 2018 Bonds, and no tax shall ever be levied or collected to pay the interest on or principal of or redemption premiums, if any, on the 2018 Bonds. The 2018 Bonds are not secured by a legal or equitable pledge of or charge or lien upon any property of the Authority or any of its income or receipts except the Revenues and such funds. Neither the payment of the interest on or principal of or redemption premiums, if any, on the 2018 Bonds is a debt, liability or general obligation of the City or the State and neither the faith and credit of the City or the State are pledged to the payment of interest on or principal, or redemption premium, if any, on the 2018 Bonds.

Waiver of Personal Liability

No member, officer or employee of the Authority shall be individually or personally liable for the payment of the interest on or principal of or redemption premiums, if any, on the 2018 Bonds by reason of their issuance, but nothing in the 2018 Indenture contained shall relieve any such member, officer or employee from the performance of any official duty provided by any applicable provisions of law or the 2018 Indenture.

Deposit or Investment of Money in Accounts and Funds

Subject to the provisions of the 2018 Indenture described above under the heading “Tax Covenants,” all money held by the Trustee in any of the accounts or funds established pursuant thereto shall be invested in those Permitted Investments described in a Written Request of the Authority filed with the Trustee at least two (2) Business Days prior to the making of any such investment, which such Permitted Investments shall, as nearly as practicable, mature on or before the dates on which such money is anticipated to be needed for disbursement under the 2018 Indenture, except that any money held in the 2018 Reserve Account shall be invested in those Permitted Investments that mature (or which may be redeemed or terminated by the Authority or the Trustee at par) not later than five (5) years after their purchase or the final maturity date of the related 2018 Bonds, whichever is earlier, and the Trustee shall have no liability or responsibility for any loss resulting from any investment made in accordance with the 2018 Indenture; provided, that if no such Written Request is received by the Trustee, the Trustee shall invest such money in the Wells Fargo Government Money Market Fund or any successor money market fund. The earnings on any investment in any fund or account created under the 2018 Indenture shall be deposited in such fund or account. The Trustee will furnish the Authority periodic cash transaction statements which include detail for all investment transactions made by the Trustee under the 2018 Indenture. No statement need be rendered for any fund or account if no activity occurred in such fund or account during such month.

The Authority acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority the right to receive brokerage confirmations of security transactions as they occur, the Authority specifically waives receipt of such confirmations to the extent permitted by law.

The Trustee or any of its affiliates may act as principal, agent, sponsor or advisor in connection with any investment made by the Trustee under the 2018 Indenture and may impose its customary fees therefor.

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Business Day Adjustments

Any action required to occur under the 2018 Indenture on a date which is not a Business Day may be made on the next succeeding Business Day with the same effect as if made on such date.

2018 INSTALLMENT PURCHASE CONTRACT

General

Certain provisions of the 2018 Installment Purchase Contract 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 2018 Installment Purchase Contract.

Payment of the 2018 Installment Payments

The City shall, subject to any right of prepayment provided in the 2018 Installment Purchase Contract, pay the Authority the 2018 Installment Payments, without offset or deduction of any kind, by paying the principal components of the 2018 Installment Payments annually in the amounts and on or before the date that is at least two (2) business days prior to October 1 in each of the years in accordance with the 2018 Installment Purchase Contract, together with the interest components of the 2018 Installment Payments, which interest components shall be paid semiannually on or before the date that is at least two (2) business days prior to each April 1 and October 1, commencing April 1, 2019 (each a “2018 Installment Payment Date”), in the amounts set forth in the 2018 Installment Purchase Contract; provided, that in the event the City fails to make any 2018 Installment Payment when due, the defaulted 2018 Installment Payment shall continue as an obligation of the City, and the City shall pay the same with interest thereon from the due date thereof at the rate of interest applicable thereto.

The obligation of the City to pay the 2018 Installment Payments from the Available Revenues is absolute and unconditional, and until such time as the 2018 Installment Payments shall have been fully paid (or provision for the payment thereof shall have been made pursuant to 2018 Installment Purchase Contract), the City will not discontinue or suspend any 2018 Installment Payments required to be made by it, whether or not the Water System or any part thereof is operating or operable or has been completed, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or in part, and such payments shall not be subject to abatement because of any damage to, destruction or condemnation of the Water System, and such payments shall not be subject to reduction whether by offset or otherwise and shall not be conditioned upon the performance or nonperformance by any party of any agreement for any cause whatsoever.

Pledge of Net System Revenues; Springing Pledge of Revenues; City Revenue Fund

All Net System Revenues are irrevocably pledged to the payment of the 2018 Installment Payments and all other Parity Obligations as provided in the 2018 Installment Purchase Contract, and the Net System Revenues shall not be used for any other purpose while any 2018 Installment Payments remain unpaid; provided, that out of the Net System Revenues there may be apportioned such sums for such purposes as are expressly permitted by the 2018 Installment Purchase Contract. Such pledge, together with any other pledge of the Net System Revenues created for Parity Obligations, shall constitute an exclusive lien on the Net System Revenues for the payment of the 2018 Installment Payments and all other Parity Obligations in accordance with the terms of the 2018 Installment Purchase Contract, subordinate and junior in priority only to the lien thereon granted as security for the Senior Obligations.

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If the Senior Obligations shall be deemed to be paid and no longer outstanding pursuant to their terms, and if the lien on Net System Revenues created as security therefor shall be terminated and discharged, immediately upon such termination and discharge and automatically without any further act, all Net System Revenues shall be irrevocably pledged to the payment of the Parity Obligations, and the Net System Revenues shall not be used for any purpose while any 2018 Installment Payments remain unpaid; provided, that out of Net System Revenues there may be apportioned such sums for such purposes as are expressly permitted by the 2018 Installment Purchase Contract. Upon the effectiveness of such pledge, such pledge, together with any other pledge of the Net System Revenues created for Parity Obligations, shall constitute a first and exclusive lien on Net System Revenues for the payment of the 2018 Installment Payments and Parity Obligations in accordance with the terms of the 2018 Installment Purchase Contract.

All System Revenues shall be deposited as and when received in the City Revenue Fund, which fund is continued in the treasury of the City and which fund shall be maintained by the City, and all money in the City Revenue Fund shall be set aside by the City and applied to the payment of Operation and Maintenance Costs, as and when required to be paid.

The City covenants (for so long as the Senior Obligations remain outstanding pursuant to their terms) to apply Net System Revenues to payments, transfers and other deposits required by the terms of the Senior Obligations at the times and in the amounts required by the Senior Obligations.

This paragraph shall apply until such time as the Senior Obligations shall be deemed to be paid and no longer outstanding pursuant to their terms, at which time this paragraph shall have no continuing force or effect. The City covenants to cause all Available Revenues to be set aside in a separate account in the City Revenue Fund, to be known as the “Available Revenue Account,” which account is established by the 2018 Installment Purchase Contract, and shall cause such Available Revenues to be allocated and applied as provided in the 2018 Installment Purchase Contract; provided, that pending the use by the City of the Available Revenues for such purposes, such money may be invested by the City in Permitted Investments.

This paragraph shall apply from and after such time as the Senior Obligations shall be deemed to be paid and no longer outstanding pursuant to their terms, prior to which time this paragraph shall have no force or effect. The City covenants to cause all Net System Revenues to be allocated and applied as provided in the 2018 Installment Purchase Contract; provided, that pending the use by the City of the Net System Revenues for such purposes, such money may be invested by the City in Permitted Investments.

Allocation of Net System Revenues and Available Revenues

(a) The provisions described in this subparagraph (a) shall apply until such time as the Senior Obligations shall be deemed to be paid and no longer outstanding pursuant to their terms, at which time the provisions described in this subparagraph (a) shall have no continuing force or effect. All Available Revenues in the Available Revenue Account shall be set aside by the City at the following times and deposited in the following account or fund in the following order of priority:

(1) 2018 Installment Payment Fund Deposits. On or before each 2018Installment Payment Date, the City shall, from Available Revenues, transfer to the Trustee (on a parity with any required transfers of Available Revenues for the payment of all other Parity Obligations) for deposit in the 2018 Installment Payment Fund a sum equal to the amount of the interest components becoming due thereunder on such 2018 Installment Payment Date and a sum

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equal to the amount of the principal components, if any, becoming due thereunder on such 2018 Installment Payment Date;

(2) Reserve Account Deposits. On each date required by the 2018 Indenture, after making the transfers and deposits required by paragraph (1) for 2018 Installment Payments and payments on Parity Obligations currently due and payable, the City shall, from Available Revenues, transfer to the Trustee (on a parity with any required transfers of Available Revenues for the replenishment of all other reserve accounts for all Parity Obligations) for deposit in the 2018 Reserve Account a sum equal to the amount, if any, required by the terms of the 2018 Indenture, to be necessary to restore the 2018 Reserve Account to the 2018 Reserve Requirement on such date; and

(3) Surplus Available Revenues. On any date, provided that (a) all transfers and deposits required by paragraph (1) for 2018 Installment Payments and payments on Parity Obligations currently due and payable have been made and (b) all transfers required to be made on such date by paragraph (2) have been made, Available Revenues may be used for any lawful purpose, including, but not limited to the payment of any obligations secured by Net System Revenues on a priority subordinate to the Parity Obligations or the payment of any Termination Payment;

provided, that no such transfers to and deposits in the 2018 Installment Payment Fund need be made if the amount available and contained therein is at least equal to the interest component becoming due under the 2018 Installment Purchase Contract on such 2018 Installment Payment Date, plus the principal component, if any, becoming due under the 2018 Installment Purchase Contract on such 2018 Installment Payment Date and if the 2018 Indenture does not require a replenishment of the amounts contained in the 2018 Reserve Account; and provided further, that nothing in this section shall be construed to limit the City’s ability to make other transfers and deposits at any time from Available Revenues for the payment of debt service, reserve replenishment, credit enhancement reimbursement costs and Payment Agreement Payments to the extent required with respect to additional Parity Obligations incurred in accordance with the provisions of the 2018 Installment Purchase Contract described below under the heading “Additional Obligations.”

(b) The provisions described in this subparagraph (b) shall apply from and after such time as the Senior Obligations shall be deemed to be paid and no longer outstanding pursuant to their terms, prior to which time the provisions described in this subparagraph (b) shall have no force or effect. All Net System Revenues shall be set aside by the City at the following times and deposited in the following account or fund in the following order of priority:

(1) 2018 Installment Payment Fund Deposits. On or before each 2018 Installment Payment Date, the City shall, from Net System Revenues, transfer to the Trustee (on a parity with any required transfers of Net System Revenues for the payment of all other Parity Obligations) for deposit in the 2018 Installment Payment Fund a sum equal to the amount of the interest components becoming due thereunder on such 2018 Installment Payment Date and a sum equal to the amount of the principal components, if any, becoming due thereunder on such 2018 Installment Payment Date;

(2) Reserve Account Deposits. On each date required by the 2018 Indenture, after making the transfers and deposits required by paragraph (1) for 2018 Installment Payments and payments on Parity Obligations currently due and payable, the City shall, from Net System Revenues, transfer to the Trustee (on a parity with any required transfers of Net System Revenues for the replenishment of all other reserve accounts for all Parity Obligations) for deposit

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in the 2018 Reserve Account a sum equal to the amount, if any, required by the terms of the 2018 Indenture, to be necessary to restore the 2018 Reserve Account to the 2018 Reserve Requirement on such date; and

(3) Surplus Net System Revenues. On any date, provided that (a) all transfers and deposits required by paragraph (1) for 2018 Installment Payments and payments on Parity Obligations currently due and payable have been made and (b) all transfers required to be made on such date by paragraph (2) have been made, Net System Revenues may be used for any lawful purpose, including, but not limited to the payment of any obligations secured by Net System Revenues on a priority subordinate to the Parity Obligations or the payment of any Termination Payment;

provided, that no such transfers to and deposits in the 2018 Installment Payment Fund need be made if the amount available and contained therein is at least equal to the interest component becoming due under the 2018 Installment Purchase Contract on such 2018 Installment Payment Date, plus the principal component, if any, becoming due under the 2018 Installment Purchase Contract on such 2018 Installment Payment Date and if the 2018 Indenture does not require a replenishment of the amounts contained in the 2018 Reserve Account; and provided further, that nothing in this section shall be construed to limit the City’s ability to make other transfers and deposits at any time from Net System Revenues for the payment of debt service, reserve replenishment, credit enhancement reimbursement costs and Payment Agreement Payments to the extent required with respect to additional Parity Obligations incurred in accordance with the provisions of the 2018 Installment Purchase Contract described immediately below under the heading “Additional Obligations.”

Additional Obligations

(a) The City will not incur any obligations payable from Net System Revenues superior to the payment of the 2018 Installment Payments, including, but not limited to, any obligations permitted to be incurred by the terms of the Senior Obligations.

(b) Without regard to the provisions of the 2018 Installment Purchase Contract described immediately below in subparagraph (c), the City may at any time enter into or create an obligation or commitment which is a Credit Provider Reimbursement Obligation or a Payment Agreement.

(c) The City may at any time and from time to time issue or create any other Parity Obligations (in addition to the 2018 Installment Payments, which may be incurred without compliance with the provisions of the 2018 Installment Purchase Contract described under this heading “Additional Obligations”), provided:

(1) There shall not have occurred and be continuing (i) an Event of Default under the terms of the 2018 Installment Purchase Contract or any Issuing Document or (ii) an Event of Default or Termination Event (as defined in any Payment Agreement) under any Payment Agreement; and

(2) The City obtains or provides a certificate or certificates, prepared by the City or at the City’s option by a Consultant, showing that either:

(A) the Adjusted Available Revenues for either the most recent Fiscal Year for which audited financial statements are available or any 12 consecutive calendar month period during the 18 consecutive calendar month period ending

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immediately prior to the incurring of such additional Parity Obligations were at least sufficient to satisfy the Coverage Requirement for each of the next five full Fiscal Years following the incurring of such additional Parity Obligations or each of the next three full Fiscal Years following the incurring of such additional Parity Obligations during which no interest is capitalized, whichever is later, including the Parity Debt Service during such Fiscal Years on such additional Parity Obligations; and for the purpose of providing such certificate or certificates, the City or the City’s Consultant, as applicable, may adjust the Adjusted Available Revenues for such Fiscal Year or 12 calendar month period, as the case may be, to reflect:

(i) an allowance for Net System Revenues that would have been derived from each new connection to the Water System that was made prior to the incurrence of such additional Parity Obligations but which was not in existence, during all or any part of such Fiscal Year or 12 calendar month period under consideration, in an amount equal to the estimated additional Net System Revenues that would have been derived from each such connection if it had been made prior to the beginning of such Fiscal Year or 12 calendar month period, and

(ii) an allowance for Net System Revenues that would have been derived from any increase in the rates, fees and charges fixed and prescribed for Water Service which became effective prior to the incurrence of such additional Parity Obligations but which was not in effect, during all or any part of such Fiscal Year or 12 calendar month period, in an amount equal to the estimated additional Net System Revenues that would have been derived from such increase in rates, fees and charges if it had been in effect prior to the beginning of such Fiscal Year or 12 calendar month period; or

(B) the estimated Adjusted Available Revenues for each of the five full Fiscal Years next following the earlier of (i) the end of the period during which interest on such additional Parity Obligations is to be capitalized or, if no interest is capitalized, the Fiscal Year in which such additional Parity Obligations are incurred, or (ii) the date on which substantially all Water Projects financed with such additional Parity Obligations plus all Water Projects financed with all existing Parity Obligations are expected to commence operations, will be at least sufficient to satisfy the Coverage Requirement for such period; and for the purpose of providing such certificate or certificates, the City or the City’s Consultant, as applicable, may adjust the foregoing estimated Adjusted Available Revenues to reflect:

(i) an allowance for Net System Revenues that areestimated to be derived from any increase in the rates, fees and charges for WaterService which have been adopted by the City and which will be in effect during all or any portion of the period for which such estimates are provided; and

(ii) an allowance for Net System Revenues that areestimated to be derived from new customers of the Water System anticipated tobe served by any additions or improvements to or extensions of the Water System reasonably expected to become available during such five year period in an amount equal to the additional Net System Revenues that are estimated to be derived from such customers.

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For purposes of clause (B) above, with respect to Operation and Maintenance Costs, the City or the City’s Consultant, as applicable, shall use such assumptions (which shall be set forth in such certificate or certificates) as such believes to be reasonable, taking into account: (i) historical Operation and Maintenance Costs, (ii) Operation and Maintenance Costs associated with the additions or improvements to or extensions of the Water System to be financed with the proceeds of such additional Parity Obligations and any other new additions or improvements to or extensions of the Water System during such five year period and (iii) such other factors, including inflation and changing operations or policies of the City, as the City or the City’s Consultant, as applicable, believes to be appropriate.

The certificate or certificates described above in subparagraph (c)(2) shall not be required if the Parity Obligations being issued are for the purpose of refunding (x) then outstanding Parity Obligations, if at the time of the issuance of such refunding Parity Obligations a certificate of the City shall be delivered showing that Parity Debt Service in each Fiscal Year on all Parity Obligations outstanding after the issuance of the refunding Parity Obligations will not exceed 110% of Parity Debt Service in each corresponding Fiscal Year on all Parity Obligations outstanding prior to the issuance of such refunding Parity Obligations; or (y) then outstanding Balloon Obligations or Variable Interest Rate Obligations, but only to the extent that the principal amount of such Balloon Obligations or Variable Interest Rate Obligations has been put, tendered to or otherwise purchased by a standby purchase or other liquidity facility relating to such indebtedness.

(d) Without regard to the provisions of the 2018 Installment Purchase Contract described above in subparagraph (c) of this heading, the City may issue or incur obligations secured by Net System Revenues on a priority subordinate to the Parity Obligations and such obligations may be paid only in accordance with the provisions of the 2018 Installment Purchase Contract described above under the heading “Allocation of Net System Revenues and Available Revenues” as long as (i) no Event of Default has occurred and is continuing (unless such Event of Default will not be continuing after the incurrence of such subordinate obligations) and (ii) no Event of Default or Termination Event (as defined in any Payment Agreement) under any Payment Agreement has occurred and is continuing (unless such Event of Default or Termination Event will not be continuing after the incurrence of such subordinate obligations).

Compliance with and Amendment of 2018 Installment Purchase Contract

The City will punctually pay the 2018 Installment Payments in strict conformity with the terms of the 2018 Installment Purchase Contract, and will faithfully observe and perform all the agreements, conditions, covenants and terms contained in the 2018 Installment Purchase Contract required to be observed and performed by it, and will not terminate the 2018 Installment Purchase Contract for any cause whatsoever, including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Water System, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State of California or any political subdivision of either or any failure of the Authority to observe or perform any agreement, condition, covenant or term contained in the 2018 Installment Purchase Contract required to be observed and performed by it, whether express or implied. The City will, so long as any 2018 Installment Payments remain unpaid, apply Net System Revenues and Available Revenues as provided in the 2018 Installment Purchase Contract.

The City and the Authority shall not supplement, amend, modify or terminate any of the terms of the 2018 Installment Purchase Contract, or consent to any such supplement, amendment, modification or termination, without the prior written consent of the Insurer and the Trustee, which such consent shall be given only if (a) such supplement, amendment, modification or termination will not materially adversely affect the interests of the 2018 Bonds or result in any material impairment of the

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security of the 2018 Installment Purchase Contract given for the payment of the 2018 Installment Payments, or (b) the Trustee first obtains the written consent of the Holders of a majority in aggregate principal amount of the 2018 Bonds then Outstanding to such supplement, amendment, modification or termination; provided, that no such supplement, amendment, modification or termination shall reduce the amount of 2018 Installment Payments to be made to the Authority or the Trustee by the City pursuant to the 2018 Installment Purchase Contract, or extend the time for making such 2018 Installment Payments, or permit the creation of any lien prior to the lien created by the 2018 Installment Purchase Contract on Net System Revenues without the written consent of the Insurer and all of the Holders of all 2018 Bonds then Outstanding.

Against Encumbrances

The City will not make any use of or encumber the Net System Revenues or Available Revenues except as provided in the 2018 Installment Purchase Contract; provided, that so long as the City is not in default under the 2018 Installment Purchase Contract, the City may issue any obligations subordinate to the Parity Obligations that are payable from surplus Available Revenues as described in subparagraph (a)(3) under the heading “Allocation of Net System Revenues and Available Revenues” above or from surplus Net System Revenues as described in subparagraph (b)(3) under the heading “Allocation of Net System Revenues and Available Revenues” above.

Against Sale or Other Disposition of Property

The City will not sell, lease or otherwise dispose of the Water System or any part thereof essential to the proper operation of the Water System or to the maintenance of Net System Revenues. The City will not enter into any agreement which impairs the operation of the Water System or any part thereof necessary to secure adequate Net System Revenues for the payment of the Parity Obligations or which would otherwise impair the rights of the City with respect to Net System Revenues or the operation of the Water System.

Against Competitive Facilities

The City will not, to the extent permitted by law, acquire, purchase, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, purchase, maintain or operate within the City any water system competitive with the Water System.

Tax Covenants

The City will at all times do and perform all acts and things permitted by law which are necessary or desirable in order to assure that the interest components of the 2018 Installment Payments will not be included in the gross income of the owners of the 2018 Bonds for federal income tax purposes under the Code and will be exempt from State of California personal income taxes, and will take no action that would result in such interest being so included or not being so exempt. Without limiting the foregoing, the City and the Authority will at all times comply with the requirements of the Tax Certificate executed in connection with the delivery of the 2018 Bonds. The City’s tax covenant described under this heading shall survive any defeasance or discharge of the 2018 Installment Payments pursuant to the provisions of the 2018 Installment Purchase Contract or any prepayment of principal components of the 2018 Installment Payments pursuant to the 2018 Installment Purchase Contract.

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Maintenance and Operation of the Water System

The City will maintain and preserve the Water System in good repair and working order at all times and will operate the Water System in an efficient and economical manner and will pay all Operation and Maintenance Costs as they become due and payable.

Payment of Claims

The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on Net System Revenues or any part thereof or on any funds in the hands of the City or which might impair the security of the 2018 Installment Payments.

Compliance with Contracts

The City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be kept, observed and performed by it contained in all contracts for the use of the Water System and all other contracts affecting or involving the Water System to the extent that the City is a party thereto.

Insurance

The City will procure and maintain such insurance relating to the Water System which it shall deem advisable or necessary to protect its interests and the interests of the Authority and the Trustee, which insurance shall afford protection in such amounts and against such risks as are usually covered in the State in connection with municipal water systems comparable to the Water System; provided, that any such insurance may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with municipal water systems in the State comparable to the Water System and is, in the opinion of an accredited actuary, actuarially sound. All policies of insurance required to be maintained under the 2018 Installment Purchase Contract shall provide that the Authority and the Trustee shall be given thirty (30) days’ written notice of any intended cancellation thereof or reduction of coverage provided thereby.

Accounting Records; Financial Statements and Other Reports

The City will keep appropriate accounting records in which complete and correct entries shall be made of all transactions relating to the Water System and the Net System Revenues, the Operation and Maintenance Costs and the Available Revenues relating thereto, which records shall be available for inspection by the Authority and the Trustee at reasonable hours and under reasonable conditions.

The City will prepare annually within two hundred seventy (270) days after the close of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2019) financial statements of the City for the preceding Fiscal Year prepared in accordance with generally accepted accounting principles, together with an Accountant’s Report thereon, which records shall be available for inspection by the Authority and the Trustee at reasonable hours and under reasonable conditions.

Protection of Security and Rights of Authority

The City will preserve and protect the security of the 2018 Installment Purchase Contract and the rights of the Authority to the 2018 Installment Payments under the 2018 Installment Purchase Contract and will warrant and defend such rights against all claims and demands of all persons.

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Payment of Taxes and Compliance with Governmental Regulations

The City will pay and discharge all taxes, assessments and other governmental charges which may be lawfully imposed upon the Water System or any part thereof or upon Net System Revenues when the same shall become due. The City will duly observe and comply with all valid regulations and requirements of any governmental authority relative to the operation of the Water System or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith.

Amount of Charges, Fees and Rates; Rate Stabilization Fund

The City will fix, prescribe and collect rates, fees and charges for the Water Service during each Fiscal Year which are estimated to yield Available Revenues for such Fiscal Year equal to at least the Coverage Requirement for such Fiscal Year. The City may make adjustments from time to time in such fees and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates, fees and charges then in effect unless the Available Revenues from such reduced rates, fees and charges are estimated to be sufficient to meet the requirements described in this subparagraph.

The City has previously established a fund denominated the Rate Stabilization Fund. From time to time the City may deposit into the Rate Stabilization Fund, from current System Revenues, such amounts as the City shall determine and the amount of available current System Revenues shall be reduced by the amount so transferred. The City may also deposit amounts in the Rate Stabilization Fund from any other lawfully available source other than current System Revenues and the amount of available current System Revenues shall not be reduced by the amounts so transferred. Amounts may be transferred from the Rate Stabilization Fund and deposited in the City Revenue Fund, and any amounts so transferred within 270 days after the end of a Fiscal Year shall be deemed System Revenues for such Fiscal Year when so transferred. The City may also apply moneys on deposit in the Rate Stabilization Fund for any lawful purpose. All interest or other earnings upon amounts in the Rate Stabilization Fund may be withdrawn therefrom and accounted for as System Revenues in accordance with the terms of this subparagraph or used for any lawful purpose.

Eminent Domain and Insurance Proceeds

If all or any part of the Water System shall be taken by eminent domain proceedings, or if the City receives any insurance proceeds resulting from a casualty loss to the Water System, the net proceeds thereof, at the option of the City, shall be applied either to (a) the prepayment of the Senior Obligations, then to the extent of any remaining proceeds, the prepayment of Parity Obligations, or (b) to acquire and construct additions, betterments or improvements to the Water System to replace the condemned or destroyed portion of the Water System.

Continuing Disclosure

The City agrees to comply with and carry out all of the provisions of the continuing disclosure undertaking relating to the 2018 Bonds. Notwithstanding any other provision of the 2018 Installment Purchase Contract, failure of the City to comply with such undertaking shall not be considered an Event of Default under the 2018 Installment Purchase Contract or the 2018 Indenture; provided, that the Trustee may (and, at the request of any Participating Underwriter or the Holders of at least twenty-five per cent (25%) in aggregate principal amount of Outstanding 2018 Bonds, shall) or any Holder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations described under

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this heading. Capitalized terms used under this heading but not otherwise defined in the 2018 Installment Purchase Contract shall have the meanings given in the aforesaid continuing disclosure undertaking.

Further Assurances

The City will adopt, deliver, execute and make any and all further assurances, instruments and resolutions as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the 2018 Installment Purchase Contract and for the better assuring and confirming unto the Authority of the rights and benefits provided to it in the 2018 Installment Purchase Contract.

Events of Default

If one or more of the following Events of Default shall happen, that is to say -

(a) if default shall be made in the due and punctual payment of any 2018 Installment Payment when the same shall become due and payable;

(b) if default shall be made by the City in the performance of any of the other agreements or covenants contained in the 2018 Installment Purchase Contract required to be performed by it, and such default shall have continued for a period of thirty (30) days after the City shall have been given notice in writing of such default by the Authority or the Trustee; or

(c) if the City shall file a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction shall approve a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of its property;

(d) if an event of default (as defined in any Parity Obligation or Issuing Document) shall have occurred; or

(e) if an event of default (as defined in the Senior Obligations) shall have occurred;

then and in each and every such case during the continuance of such Event of Default the Authority may, by notice in writing to the City, declare the entire principal amount of the unpaid 2018 Installment Payments and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything contained in the 2018 Installment Purchase Contract to the contrary notwithstanding; provided, that if at any time after the entire principal amount of the unpaid 2018 Installment Payments and the accrued interest thereon shall have been so declared due and payable and before any judgment or decree for the payment of the money thereby due shall have been obtained or entered the City shall deposit with the Authority a sum sufficient to pay the unpaid principal amount of the 2018 Installment Payments due prior to such declaration and the accrued interest thereon, and the reasonable expenses of the Authority, and any and all other defaults known to the Authority (other than in the payment of the entire principal amount of the unpaid 2018 Installment Payments and the accrued interest thereon due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Authority or provision deemed by the Authority to be adequate shall have been made therefor then and in every case the Authority, by written notice to the City, may rescind and annul such declaration and its consequences, except that no

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such rescission and annulment shall extend to or shall affect any subsequent default or shall impair or exhaust any right or power consequent thereon.

Distribution of Assets

Upon the date of the declaration of an Event of Default by the Authority, all Available Revenues shall be applied in the following order -

(1) First, to the payment of the costs and expenses of the Trustee (as assignee of the Authority), if any, in carrying out the provisions of the 2018 Installment Purchase Contract described under this heading, including reasonable compensation to its agents, accountants and counsel and including any expenses of the Authority in indemnifying the Trustee and to the payment of the costs and expenses of any trustee or other fiduciary, if any, for or in respect of any other Parity Obligations in carrying out the provisions of such Parity Obligations or any related Issuing Document relating to a default with respect to such Parity Obligations, including reasonable compensation to its agents, accountants and counsel and including any expenses of the Authority or the City in indemnifying such trustee or other fiduciary and, if the Available Revenues shall not be sufficient to pay all such costs, expenses and other amounts then due and payable, then to the payment thereof ratably, according to the amounts then due;

(2) Second, to the payment of principal of and interest on and other regularly scheduled payments on Parity Obligations (except Termination Payments), as follows:

(A) Unless all principal of and interest on and other regularly scheduled payments on all Parity Obligations have become due or been declared due and payable,

First: to the payment to the persons entitled thereto of all installments of interest or other regularly scheduled payments (other than principal or Termination Payments) then due and payable on Parity Obligations and, if the amount available shall not be sufficient to pay in full all such interest and regularly scheduled payments then due and payable, then to the payment thereof ratably, according to the amounts due thereon without any discrimination or preference; and

Second: to the payment of the unpaid principal amount of the Parity Obligations then due and payable with interest on the overdue principal of the unpaid Parity Obligations at the rate or rates of interest then applicable to such Parity Obligations if paid in accordance with their terms, and, if the amount available shall not be sufficient to pay in full all the amounts due with respect to the Parity Obligations on any date, together with such interest, then to the payment thereof ratably, according to the amounts of principal and interest due on such date, without any discrimination or preference;

(B) If the principal of and interest on and other regularly scheduled payments on all Parity Obligations have become due or been declared due and payable, to the payment of the whole amount then owing and unpaid upon all Parity Obligations for interest and principal and other regularly scheduled payments (except Termination Payments) with interest on the overdue principal of the unpaid Parity Obligations at the rate or rates of interest then applicable to such Parity Obligations if paid in accordance with their terms, and, if the amount available shall not be sufficient to pay in full the whole amount then owing and unpaid upon all Parity Obligations for interest and principal and other regularly scheduled payments (except

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Termination Payments), then to the payment of such interest, principal, interest on overdue principal and other regularly scheduled payments without preference or priority among such interest, principal, interest on overdue principal or other regularly scheduled payments ratably to the aggregate of such interest, principal, interest on overdue principal and other regularly scheduled payments.

(3) Third, to the required replenishment of any debt service reserves with respect to the Parity Obligations (including reimbursement or payment of any provider of a credit facility for any such debt service reserve);

(4) Fourth, to the payment of any other amounts becoming due and payable with respect to Parity Obligations (including any letter of credit and remarketing fees);

(5) Fifth, to the payment of the costs and expenses of the Authority, if any, in carrying out the provisions of the 2018 Installment Purchase Contract described under this heading, including reasonable compensation to its agents, accountants and counsel, that were not paid pursuant to clause (1) above; and

(6) Sixth, to the payment of all other amounts due and payable by the City from Net System Revenues, including, but not limited to the payment of obligations secured by Net System Revenues on a priority subordinate to the Parity Obligations, and to the payment of any Termination Payments on any Payment Agreements.

Other Remedies of the Authority

The Authority shall have the right -

(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the City or any councilmember, officer or employee thereof, and to compel the City or any such councilmember, officer or employee to perform and carry out its duties under agreements and covenants required to be performed by it or him or her contained in the 2018 Installment Purchase Contract;

(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority; or

(c) by suit in equity upon the happening of an Event of Default to require the City and its councilmembers, officers and employees to account as the trustee of an express trust.

Non-Waiver

Nothing in the 2018 Installment Purchase Contract shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the 2018 Installment Payments to the Authority at their respective due dates or upon prepayment as provided in the 2018 Installment Purchase Contract from the Available Revenues, or shall affect or impair the right of the Authority, which is also absolute and unconditional, to institute suit to enforce such payment by virtue of the contract embodied in the 2018 Installment Purchase Contract.

A waiver of any default or breach of duty or contract by the Authority shall not affect any subsequent default or breach of duty or contract or impair any rights or remedies on any such subsequent default or breach of duty or contract, and no delay or omission by the Authority to exercise any right or

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remedy accruing upon any default or breach of duty or contract shall impair any such right or remedy or shall be construed to be a waiver of any such default or breach of duty or contract or an acquiescence therein, and every right or remedy conferred upon the Authority by applicable law or by the remedies provisions of the 2018 Installment Purchase Contract may be enforced and exercised from time to time and as often as shall be deemed expedient by the Authority.

If any action, proceeding or suit to enforce any right or exercise any remedy is abandoned or determined adversely to the Authority, the City and the Authority shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken.

Remedies Not Exclusive

No remedy in the 2018 Installment Purchase Contract conferred upon or reserved to the Authority is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given under the 2018 Installment Purchase Contract or now or thereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by applicable law.

Discharge of Obligations

If the City shall pay or cause to be paid all the 2018 Installment Payments at the times and in the manner provided in the 2018 Installment Purchase Contract, the right, title and interest of the Authority in the 2018 Installment Purchase Contract and the obligations of the City under the 2018 Installment Purchase Contract shall thereupon cease, terminate, become void and be completely discharged and satisfied, except as provided in the tax covenants of the 2018 Installment Purchase Contract.

Any unpaid component of any 2018 Installment Payment shall on its scheduled payment date or date of prepayment be deemed to have been paid within the meaning of and with the effect described in the immediately preceding paragraph if the City makes payment of such component of such 2018 Installment Payment and prepayment premium, if applicable, thereon in the manner provided in the 2018 Installment Purchase Contract, and money for the purpose of such payment or prepayment is then held by the Trustee.

All or any portion of any unpaid component of any 2018 Installment Payment shall, on or prior to its scheduled payment date or date of prepayment, be deemed to have been paid within the meaning of and with the effect described above in the first paragraph of this heading (except that the City shall remain liable for the payment of any such component of such 2018 Installment Payment, but only out of the money or securities deposited with the Trustee pursuant to the 2018 Indenture) to the extent that the corresponding liability of the Authority in respect of 2018 Bonds shall have ceased, terminated and been completely discharged as provided under the provisions of the 2018 Indenture described above under the heading “THE 2018 INDENTURE - Discharge of Liability on 2018 Bonds.”

Liability of City Limited to Available Revenues

Notwithstanding anything contained in the 2018 Installment Purchase Contract, the City shall not be required to advance any money derived from any source of income other than the Available Revenues and the other funds provided in the 2018 Installment Purchase Contract for the payment of the 2018 Installment Payments or for the performance of any agreements or covenants required to be performed by it contained in the 2018 Installment Purchase Contract; provided, that the City may advance

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money for any such purpose so long as such money is derived from a source legally available for such purpose and may be legally used by the City for such purpose.

The obligation of the City to make the 2018 Installment Payments is a special obligation of the City and is payable solely from the Available Revenues and the other funds as provided in the 2018 Installment Purchase Contract, and does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction, and does not constitute an obligation for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation.

Assignment

The 2018 Installment Purchase Contract and any rights thereunder may be assigned by the Authority, as a whole or in part, without the necessity of obtaining the prior consent of the City. The assignment of the 2018 Installment Purchase Contract or rights thereunder to the Trustee is solely in its capacity as Trustee and the duties, powers and liabilities of the Trustee in acting under the 2018 Installment Purchase Contract shall be subject to the provisions of the 2018 Indenture.

Waiver of Personal Liability

No councilmember, officer or employee of the City shall be individually or personally liable for the payment of the 2018 Installment Payments, but nothing contained in the 2018 Installment Purchase Contract shall relieve any councilmember, officer or employee of the City from the performance of any official duty provided by any applicable provisions of law or by the 2018 Installment Purchase Contract.

Net Contract

The 2018 Installment Purchase Contract shall be deemed and construed to be a net contract, and the City shall pay absolutely net during the term thereof the 2018 Installment Payments and all other payments required thereunder, free of any deductions and without abatement, diminution or setoff whatsoever.

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APPENDIX D

PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Stockton (the “City”) in connection with the issuance of $145,220,000 Stockton Public Financing Authority Water Revenue Refunding Bonds, Series 2018A (Green Bonds) (the “Bonds”). The Bonds are being issued pursuant to an Indenture dated as of November 1, 2018 (the “Indenture”), by and between the Stockton Public Financing Authority (the “Authority”) and Wells Fargo Bank, National Association, as trustee (the “Trustee”). The City covenants and agrees as follows:

SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth 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 Report’ means any Annual Report provided by the City pursuant to, and as described in, Section 3 and Section 4 of this Disclosure Certificate.

“ Beneficial Owner” means any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

“ Disclosure Representative” means the Chief Financial Officer of the City or a designee, or such other officer or employee as the City shall designate in writing to the Dissemination Agent from time to time.

“Dissemination Agenf means initially Willdan Financial Services, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the City written evidence of such designation.

“EMMA” means the Electronic Municipal Marketplace Access site maintained by the MSRB, currently located at http://emma.msrb.org.

“Filing Date” means March 31 following the end of each Fiscal Year of the City (or the next succeeding business day if such day is not a business day), commencing with the filing for Fiscal Year 2017-18 due March 31, 2019.

“ Fiscal Year” means with respect to the City, the period beginning on July 1 of each year and ending on the next succeeding June 30, or any 12-month or 52-week period thereafter selected by the City with notice of such selection of change in fiscal year to be provided as set forth in Section 3(a).

“ Holders” means either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any applicable participant in its depository.

“MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the

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http://emma.msrb.org

Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.

“ Official Statement’ means the Official Statement dated November 6, 2018 relating to the Bonds.

“Participating Underwriter” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

“ Rule” means 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.

“Significant Evenf means any of the events listed in Section 5(a) or Section 5(b) of this Disclosure Certificate and any other event legally required to be reported pursuant to the Rule.

SECTION 3. Provision of Annual Reports.

(a) The City shall provide, or shall cause the Dissemination Agent to provide to the MSRB, not later than the Filing Date, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. The Annual Report shall be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the Fiscal Year of the City changes, it shall give notice of such change in the same manner as for a Significant Event under this Disclosure Certificate. The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder.

(b) Not later than 15 Business Days prior to the Filing Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). The City shall provide, or cause the preparer of the Annual Report to provide, a written certificate with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished to it hereunder. The Dissemination Agent may conclusively rely upon such certification and shall have no duty or obligation to review such Annual Report.

(c) If the City is unable to provide to the Annual Report to the MSRB by the date required in Section 3(a), the City shall send a notice in a timely manner to the MSRB in substantially the form attached as Exhibit A.

(d) The Dissemination Agent shall:

(i) Provided it has received the Annual Report from the City pursuant toSection 3(a), file the Annual Report the MSRB by the Filing Date, and file any notice of a Significant Event, if requested by the City, as soon as practicable following receipt from the City of such notice; and

(ii) Provided it has received the Annual Report from the City pursuant toSection 3(a), file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided.

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

(a) The Statement of Net Assets, the Statement of Revenues, Expenditures and Changes in Fund Net Assets and the Statement of Cash Flows for the Water System for the prior Fiscal Year, 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 financial reports 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 relating to the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) To the extent not presented in the audited financial statements:

(i) A maturity schedule for the outstanding Bonds;

(ii) The balance in each of the following funds established pursuant to the Indenture as of the close of the prior Fiscal Year:

(A) total deposits in the 2018 Installment Payment Fund for the prior Fiscal Year (with a statement of debt service requirement discharged by the 2018 Installment Payment Fund in the prior Fiscal Year);

(B) the 2018 Reserve Account (with a statement of the current 2018 Reserve Requirement and the name of the guaranteed investment contract provider, if any).

(iii) Information for the prior Fiscal Year substantially similar to that provided in the following tables of the Official Statement;

(A) Table 5A - “Customer Class by Type of Account and Number of Connections;”

(B) Table 5B - “Water Sold by Customer Class;”

(C) Table 6 - “Ten Fargest Accounts by Annual Consumption;”

(D) Table 7 - “Ten Fargest Accounts by Revenue;”

(E) Table 9 - “Schedule of Rates and Charges and Effective Dates;”

(F) Table 10 - “Historical Connection Fee Revenues;”

(G) Table 11 - “Uncollectible Charges for Services;” and

(iv) Debt service schedules for any Parity Debt.

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SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Disclosure Certificate, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than 10 business days after the occurrence of the event:

(i) Principal and interest payment delinquencies;

(ii) Unscheduled draws on debt service reserves reflecting financial difficulties;

(iii) Unscheduled draws on credit enhancements reflecting financial difficulties;

(iv) Substitution of credit or liquidity providers, or their failure to perform;

(v) Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);

(vi) Tender offers;

(vii) Defeasances;

(viii) Rating changes; or

(ix) Bankruptcy, insolvency, receivership or similar event of the City or other obligated person.

Note: This event is considered to occur upon the happening of any of the following: the appointment of a receiver, trustee or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

(b) The City shall give, or cause to be given, notice to the MSRB of the occurrence of any of the following events described in this Section 5(b) with respect to the Bonds, if material, not later than 10 business days after the occurrence of the event:

(i) Unless described in Section 5(a)(vh adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;

(ii) Modifications to rights of the Bond holders;

(iii) Bond calls;

(iv) Release, substitution, or sale of property securing repayment of the Bonds;

(v) Non-payment related defaults;

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(vi) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or

(vii) Appointment of a successor or additional trustee or the change of name of atrustee.

(c) The City acknowledges that it is required to make a determination whether a Significant Event in Section 5(b) is material under applicable federal securities laws in order to determine if a filing with the MSRB is required. If the City determines that the occurrence of an event listed in Section 5(b) would be material under applicable federal securities laws, or if the City changes its Fiscal Year, the City shall file, or shall cause the Dissemination Agent to file, within 10 business days of occurrence, a notice of such event on EMMA.

(d) Notwithstanding the foregoing, notice of Significant Events described in Section 5(a)(vii) and Section 5(b)(iii) need not be given any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture.

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

SECTION 7. Termination of Reporting Obligation. The obligations of the City 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 City shall give notice of such termination in the same manner as for a Significant Event under Section 5(c).

SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign at any time upon delivery of written notice thereof to the City at least 30 days prior to the effective date of such resignation. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent. The Dissemination Agent, if other than the City, shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate.

SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied with respect to such amendment or waiver:

(a) If the amendment or waiver relates to the provisions of Section 3(a), Section 4, or Section 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 a change in the nature, identity or status of an obligated person with respect to the Bonds or the type of business conducted by such person;

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(b) The undertaking in this Disclosure Certificate, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either: (i) is approved by the Holders of the Bonds in the same manner as provided in the Indenture for amendments to such Indenture with the consent of Holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds.

(d) Any amendment that modifies or increases the duties or obligations of the Dissemination Agent shall be agreed to in writing by the Dissemination Agent.

(e) In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Significant Event, and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

(f) Notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for the occurrence of a Significant Event under Section 5(c).

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

SECTION 11. Default. This Disclosure Certificate shall be solely for the benefit of the holders and beneficial owners from time to time of the Bonds. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, the Trustee may (and, at the request of the Participating Underwriter or the Holders of at least 25% aggregate principal amount of Outstanding Bonds and upon receipt of indemnity satisfactory to the Trustee, 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 order of a court of competent jurisdiction in the County of San Joaquin, California, to cause the City to comply with its obligations under this Disclosure Certificate, provided that any holder or beneficial owner seeking to require the City to comply with this Disclosure Certificate shall first provide at least thirty (30) days prior written notice to the City of the failure of the City, giving reasonable detail of such failure. Failure by the City to comply with any provision of 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 City to comply with the terms of this Disclosure Certificate shall be an action to compel performance. No person or entity shall be entitled to recover monetary damages under this Disclosure Certificate.

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SECTION 12. 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 City 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 negligence or willful misconduct of the Dissemination Agent. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The obligations of the City under this Section 12 shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

SECTION 13. Notices. Any notice or other communication to be given by the City or the Dissemination Agent under this Disclosure Certificate may be given by delivering the same by first class mail, postage prepaid, messenger, or overnight delivery to the addresses set forth below (until another address is filed by the City or the Dissemination Agent with the Trustee):

To the City: City of Stockton425 North El Dorado Street Stockton, California 95202 Attention: Chief Financial Officer

If to the Trustee: Wells Fargo Bank, N.A.Corporate Trust Services 333 Market Street, 18th Floor San Francisco, California 94105

If to the Dissemination Agent: Willdan Financial Services27368 Via Industria, Suite 200 Temecula, California 92590

SECTION 14. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

SECTION 15 Record Keeping. The City shall maintain records of Annual Reports and notices of Significant Events, including the content of such disclosure, the name of the entities with which such disclosure was filed and the date of filing of such disclosure.

SECTION 16. Governing Law. The laws of the State of California shall govern this Disclosure Certificate, the interpretation thereof and any right or liability arising hereunder. Any action or proceeding to enforce or interpret any provision of this Disclosure Certificate shall be brought, commenced or prosecuted in any courts of the State located in the County of San Joaquin, California.

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SECTION 17. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Dated: November 20, 2018

CITY OF STOCKTON

By:______________________Chief Financial Officer

The undersigned hereby agrees to act asDissemination Agent pursuant to the termsand conditions of this Continuing Disclosure Certificate

WIFFDAN FINANCIAF SERVICES

By:___________________Authorized Officer

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EXHIBIT A

NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Stockton Public Financing Authority

Name of Bond Issue: Stockton Public Financing Authority Water Revenue Refunding Bonds, Series2018A (Green Bonds)

Date of Issuance: November 20, 2018

NOTICE IS HEREBY GIVEN that the City of Stockton (the “City”) has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Certificate dated November 20, 2018 executed by the City. The City anticipates that the Annual Report will be filed by____________________•

Dated:

CITY OF STOCKTON

By:_______________________[Chief Financial Officer]

cc: Willdan Financial Services27368 Via Industria, Suite 200 Temecula, California 92590

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APPENDIX E

DTC AND THE BOOK-ENTRY ONLY SYSTEM

The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, redemption premium^ if any, and interest with respect to the Bonds to DTC, its Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, its Participants and the Beneficial Owners is based solely on the understanding of the Authority and the City of such procedures and record keeping from information provided by DTC. Accordingly, no representations can be made concerning these matters and neither DTC, its Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or its Participants, as the case may be. The Authority, the City, the Trustee, and the U nderwriters understand that the current “ Rules” applicable to DTC are on file with the Securities and Exchange Commission and that the current “Procedures” of DTC to be followed in dealing with Participants are on file with DTC.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for each maturity of the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of the 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. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant

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http://www.dtcc.com

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 Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 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 Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC, if less than all of the 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 each issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments of principal of, premium, if any, and interest on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Authority, the City, or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, the Authority, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest on the Bonds to Cede (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

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

The Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

The foregoing information concerning DTC concerning and DTC’s book-entry system has been provided by DTC, and none of the Authority, the City, or the Trustee take any responsibility for the accuracy thereof.

NONE OF THE AUTHORITY, THE CITY, OR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION.

None of the Authority, the City, or the Trustee can give any assurances that DTC, DTC Participants, Indirect Participants or others will distribute payments of principal of, premium, if any, and interest on the Bonds paid to DTC or its nominee, as the registered Owner, or any redemption or other notice, to the Beneficial Owners or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement.

In the event that the book-entry system is discontinued as described above, the requirements of the Indenture will apply.

The Authority, the City, and the Trustee cannot and do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium, if any, evidenced by the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. None of the Authority, the City, or the Trustee is responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or an error or delay relating thereto.

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APPENDIX F

PROPOSED FORM OF OPINION OF BOND COUNSEL

[ISSUE DATE]

Stockton Public Financing Authority Stockton, California

Stockton Public Financing Authority Water Revenue Refunding Bonds, Series 2018A

(Final Opinion)

Fadies and Gentlemen:

We have acted as bond counsel to the Stockton Public Financing Authority (the “Authority”) in connection with the issuance of $145,220,000 aggregate principal amount of Stockton Public Financing Authority Water Revenue Refunding Bonds, Series 2018A (the “Bonds”), issued pursuant to a 2018 Indenture, dated as of November 1, 2018 (the “Indenture”), by and between the Authority and Wells Fargo Bank, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

In such connection, we have reviewed the Indenture; the 2018 Installment Purchase Contract, dated as of November 1, 2018 (the “Installment Purchase Contract”), by and between the Authority and the City of Stockton (the “City”); the Tax Certificate; opinions of counsel to the Authority, the Trustee and the City; certificates of the Authority, the Trustee, the City and others; and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Installment Purchase Contract and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Installment Purchase Contract and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting

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creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against joint exercise of powers agencies and cities in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, nonexclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Indenture or the Installment Purchase Contract or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated November 6, 2018, or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions:

1. The Bonds constitute the valid and binding limited obligations of the Authority.

2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority.

3. The Installment Purchase Contract has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority and the City, respectively.

4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

per

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APPENDIX G

SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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MUNICIPAL BOND INSURANCE POLICY

ISSUER: [NAME OF ISSUER] Policx No:

MEMBER: [NAME OF MEMBER]

BONDS: $__________in aggregate principal hlTeclix e I)ale:amount of [NAME OF TRANSACTION][and maturing on]

Risk Premium: SMember Surplus Contribution: S _

Total Insurance Pax menl: S ___

BUILD AMERICA MUTUAL ASSURANCE COMPANY (B \M'). I'm consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the “Trustee”) or paying agent (the "Pax mg \geni") for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer.

On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon icceipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner’s right to receive pax ment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner’s rights with icspect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such pax ment. BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or inteiest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner’s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpax ment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment.

Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. “Business Dax ” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer’s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. “Due for Payment” means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatoix sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatoix sinking fund tedemplion). acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. “Nonpayment” means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. “Nonpayment ' shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. “Notice” means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. “Owner” means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that “Owner” shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

BAM may appoint a fiscal agent (the “Insurer’s Fiscal Agent”) for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and the Issuer specifying the name and notice address of the Insurer’s Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be delivered to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer’s Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer’s Fiscal Agent on behalf of BAM. The Insurer’s Fiscal Agent is the agent of BAM only, and the Insurer’s Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer’s Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for 1 he benefit of each Owner, all rights (whether by counterclaim, setoff or otherwise) and defenses (including, without limitation, the defense of fraud), whether acquired by subrogation, assignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid payment of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked

This Policy sets forth in full the undertaking of BAM and shall not be modified, altered or affecled h\ am olhei agreement or msiiument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement hereto, any premium paid in respect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for payment, of the Bonds pnoi to maturity. THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW. THIS POLICY IS ISSUED WITHOUT CONTINGENT \ll Tl \1, LIABILITY FOR ASSESSMENT.

In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMP \\N lias caused this Policv to be executed on its behalf by its Authorized Officer.

BUILD AMI .RICA MUTUAL ASSURANCL COMPANY

BnAulhori/ed (IITicer

Notices (Unless Otherwise Specified by BAM)

Email:claims@buil damerica. corn

Address:200 Liberty Street, 27th floor New York, New York 10281

Telecopy:212-962-1524 (attention: Claims)

CALIFORNIA

ENDORSEMENT TO

MUNICIPAL BOND INSURANCE POLICY

NO.

This Policy is not covered by the California Insuiance (iuaianl\ \ssocialion established puisiiant lo \ilicle 15.2 of Chapter 1 of Part 2 of Division 1 of the California Law.

Nothing herein shall be construed to waive, alter, i educe oi amend cmeiage in am other section of the Policy. If found contrary to the Policy language, the terms of this Endorsement supeisede the Polic\ language

IN WITNESS WHEREOF, BUILDAMI'RIO V MUTUAL ASSl R \\(T COMP \M has caused this policy to be executed on its behalf by its Authorized Officer.

I WILD AMERICA MUTUAL ASSURANCE COMPANY

JT i, JP' %Authorized Officer

w Mixed SourcesProduct group from well managed forests, controlled sources and recycled wood or fiber.

Printed by: Royce Printing www.royceprintlng.com

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