NEW ISSUE—BOOK-ENTRY ONLY RATING: S&P: ‘‘AA-/A-1+’’

(See ‘‘RATING’’ herein)

In the opinion of Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, under existing law interest on the Bonds is exempt from personal
income taxes of the State of California and, assuming compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to
section 103(a) of the Internal Revenue Code of 1986 (the ‘‘Code’’) from the gross income of the owners thereof for federal income tax purposes and is not an
item of tax preference under section 57(a) of the Code for purposes of the federal alternative minimum tax. See, however, ‘‘TAX EXEMPTION’’ herein
regarding certain other tax considerations.

$83,770,000
VICTORVILLE JOINT POWERS FINANCING AUTHORITY
VARIABLE RATE LEASE REVENUE BONDS, 2007 SERIES A
(COGENERATION FACILITY PROJECT)
Dated: Date of Delivery Due: May 1, 2040
The Victorville Joint Powers Financing Authority Variable Rate Lease Revenue Bonds, 2007 Series A (Cogeneration Facility Project) (the
‘‘Bonds’’) will be issued by the Victorville Joint Powers Financing Authority (the ‘‘Authority’’) under an Indenture, dated as of May 1, 2007 (the
‘‘Indenture’’), by and between the Authority and The Bank of New York Trust Company, N.A., as trustee (the ‘‘Trustee’’). The proceeds of the Bonds
will be used (i) to refund the Authority’s Variable Rate Lease Revenue Bonds, 2005 Series A (Cogeneration Facility Project) and Variable Rate Lease
Revenue Bonds, 2006 Series A (Cogeneration Facility Expansion Project), (ii) to finance certain improvements to the City’s electric system, (iii) to
fund capitalized interest on the Bonds, (iv) to fund a reserve fund for the Bonds, and (v) to pay costs of issuance of the Bonds. See ‘‘PLAN OF
REFUNDING,’’ ‘‘THE PROJECT’’ and ‘‘ESTIMATED SOURCES AND USES OF FUNDS’’ herein.
The Bonds are being issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New
York, New York (‘‘DTC’’), and will be available to ultimate purchasers in Authorized Denominations as described herein, under the book-entry
system maintained by DTC. Ultimate purchasers of Bonds will not receive physical certificates representing their interest in the Bonds. Interest on the
Bonds will be payable on the first Business Day of each month, commencing June 1, 2007, so long as the Bonds bear interest at a Weekly Rate or
Daily Rate and, after conversion to a fixed interest rate, interest will be payable on each May 1 and November 1, commencing May 1 or November 1
that is at least 75 days after the Fixed Rate Conversion Date (as defined herein). The Trustee will make payments of the principal of, premium, if any,
and interest on the Bonds directly to DTC, or its nominee, Cede & Co., so long as DTC or Cede & Co. is the registered owner of the Bonds.
Disbursements of such payments to the Beneficial Owners of the Bonds is the responsibility of DTC’s Participants and Indirect Participants, as more
fully described herein. See ‘‘APPENDIX D—BOOK-ENTRY ONLY SYSTEM.’’
The Bonds are subject to optional redemption, mandatory sinking fund redemption and mandatory redemption from net proceeds as described
herein. The Bonds are also subject to mandatory tender and optional tender as described herein.
The Authority has leased certain real property and improvements thereon (the ‘‘Leased Property’’) from the City of Victorville (the ‘‘City’’)
pursuant to a Site Lease, dated as of May 1, 2007, by and between the Authority and the City, and has leased the Leased Property back to the City
pursuant to a Lease Agreement, dated as of May 1, 2007 (the ‘‘Lease’’), by and between the Authority and the City. Under the Lease, the City will pay
to the Authority certain base rental payments (the ‘‘Base Rental Payments’’) in amounts equal to the scheduled debt service on the Bonds. Pursuant to
the Indenture and an Assignment Agreement, dated as of May 1, 2007 (the ‘‘Assignment Agreement’’), by and between the Authority and the Trustee,
the Authority will assign its right to receive the Base Rental Payments to the Trustee for the benefit of the Owners of the Bonds.
The Bonds are special limited obligations of the Authority secured by and payable solely from Revenues, consisting primarily of (i) all Base
Rental Payments payable by the City under the Lease (including prepayments), (ii) any proceeds of Bonds originally deposited with the Trustee and all
moneys on deposit in the funds and accounts established under the Indenture, (iii) investment income with respect to such moneys held by the Trustee
and (iv) any insurance proceeds or condemnation awards received by or payable to the Trustee with respect to the Leased Property, including rental
interruption insurance. See ‘‘SECURITY FOR THE BONDS’’ herein.
Payments of principal and interest (but not any premium) on the Bonds will be initially supported by an irrevocable letter of credit (the ‘‘Letter of
Credit’’ or ‘‘Credit Facility’’) to be issued to the Trustee, the drawings under which will be used to pay the principal of and interest on the Bonds when
due. The Letter of Credit will also be drawn on, if other funds are not available, to purchase Bonds tendered by Owners at the purchase price of such
Bonds. The Letter of Credit will be issued by

FORTIS BANK S.A./N.V., acting through its New York Branch

28JUN200619105346
(the ‘‘Credit Entity’’). The Letter of Credit will expire on May 8, 2012 unless extended or unless a substitute letter of credit or substitute or other
replacement securities meeting the requirements of the Indenture is provided.
The City is required under the Lease to make Base Rental Payments in each year in consideration for the use and occupancy of the Leased
Property from any source of legally available funds, and in an amount sufficient to pay the annual principal of and interest on the Bonds. The City’s
obligation to make Base Rental Payments is subject to abatement in the event of substantial interference with the use and possession of all or a part of
the Leased Property. See ‘‘RISK FACTORS—Abatement’’ herein. The City has covenanted under the Lease to take such action as may be necessary to
include and maintain all Base Rental Payments in its annual budget and to make the necessary appropriations therefor, subject to such abatement.
THE BONDS ARE NOT A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS
(OTHER THAN THE AUTHORITY), AND NONE OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL
SUBDIVISIONS (OTHER THAN THE AUTHORITY) IS LIABLE THEREFOR. THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF
THE AUTHORITY PAYABLE SOLELY FROM REVENUES, CONSISTING PRIMARILY OF BASE RENTAL PAYMENTS PAID BY THE
CITY PURSUANT TO THE LEASE AND AMOUNTS HELD IN THE FUNDS AND ACCOUNTS ESTABLISHED UNDER THE
INDENTURE. THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION
FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED
OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS DOES NOT
CONSTITUTE AN INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN
THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.
This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Official
Statement to obtain information essential to make an informed investment decision.
The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to the approval as to legality by Fulbright & Jaworski L.L.P., Los
Angeles, California, Bond Counsel. Certain legal matters will be passed on for the Authority and the City by Fulbright & Jaworski L.L.P., Los Angeles,
California and by Green, de Bortnowsky & Quintanilla, LLP, Calabasas, California, Co-Disclosure Counsel, for the Authority and the City by the City
Attorney of the City of Victorville, and for the Credit Entity by Sidley Austin LLP, Los Angeles, California. It is anticipated that the Bonds will be available for
delivery through the facilities of DTC on or about May 8, 2007.

19JUN200623105310
Dated: May 7, 2007.
VICTORVILLE JOINT POWERS FINANCING AUTHORITY
CITY OF VICTORVILLE
AUTHORITY GOVERNING BOARD

Terry E. Caldwell, President

JoAnn Almond, Vice President
Rudy Cabriales, Member
Mike Rothschild, Member
Bob Hunter, Member

CITY COUNCIL

Terry E. Caldwell, Mayor

JoAnn Almond, Mayor Pro-Tem
Rudy Cabriales, Councilmember
Mike Rothschild Councilmember
Bob Hunter, Councilmember

ADMINISTRATIVE OFFICERS

Jon Roberts, Executive Director/City Manager

Doug Robertson, Deputy City Manager
Adair M. Patterson, Authority Treasurer/Finance Director
Carolee Bates, Secretary/City Clerk

SPECIAL SERVICES

City Attorney and Co-Disclosure Counsel

Green, de Bortnowsky & Quintanilla, LLP
Calabasas, California

Bond Counsel and Co-Disclosure Counsel

Fulbright & Jaworski L.L.P.
Los Angeles, California

Counsel to Credit Entity

Sidley Austin LLP
Los Angeles, California

Remarketing Agent
Gates Capital Corporation
New York, New York

Trustee
The Bank of New York Trust Company, N.A.
Los Angeles, California
 No dealer, broker, salesperson or other person has been authorized by the Authority, the City, the
Credit Entity or the Underwriter to give any information or to make any representations other than those
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. The Official Statement does not
constitute an offer to sell or the solicitation of an offer to buy by any person in any jurisdiction in which it
is unlawful for such person to make such offer, solicitation or sale.

The information set forth herein has been obtained from the Authority, the City and other sources
which are believed to be reliable, but it is not guaranteed as to accuracy or completeness and is not to be
construed as a representation by the Underwriter. The information and expressions of opinion herein are
subject to change without notice, and neither the delivery of this Official Statement nor any sale made
hereunder, under any circumstances, shall create any implication that there has been no change in the
affairs of the Authority, the City, the Credit Entity or any other party described herein subsequent to the
date as of which such information is presented.

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

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE
BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAW OF
ANY STATE.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR

EFFECT TRANSACTIONS WHICH STABILIZE THE MARKET PRICE OF THE BONDS AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
 TABLE OF CONTENTS
Page
INTRODUCTORY STATEMENT................................ 1
Authorization ............................................................ 1
Use of Proceeds ........................................................ 1
Security for the Bonds .............................................. 1
Further Information................................................... 2
THE BONDS ................................................................. 2
General Provisions.................................................... 2
Interest Rate Determination Methods ....................... 4
Conversion of Interest to Fixed Rate ........................ 5
Swap Agreements ..................................................... 7
Trustee and Tender Agent......................................... 7
Remarketing Agent ................................................... 8
Redemption............................................................... 8
Mandatory Tender of Bonds – Fixed Rate
Conversion Date............................................. 11
Mandatory Tender of Bonds – Other than on
Fixed Rate Conversion Date .......................... 11
Mechanics of Mandatory Tender ............................ 12
Option to Tender Prior to Fixed Rate Conversion
Date ................................................................ 12
Purchase of Bonds Delivered On a Tender Date .... 13
Remarketing of Bonds by Remarketing Agent ....... 14
Delivery of Bonds................................................... 14
Payment of Bonds After Discharge of Indenture.... 15
Book-Entry Only System........................................ 15
SECURITY FOR THE BONDS .................................. 15
Revenues................................................................. 15
Base Rental Payments............................................. 16
Reserve Fund .......................................................... 16
Insurance................................................................. 16
Additional Obligations............................................ 17
THE LETTER OF CREDIT AND THE
REIMBURSEMENT AGREEMENT .......................... 18
Letter of Credit ....................................................... 18
Reimbursement Agreement .................................... 18
THE CREDIT ENTITY ............................................... 21
ESTIMATED SOURCES AND USES OF
FUNDS......................................................................... 23
PLAN OF REFUNDING ............................................. 23
THE PROJECT ............................................................ 24
LEASED PROPERTY ................................................. 25
CITY FINANCIAL INFORMATION ......................... 25
General.................................................................... 25
Budgetary Process .................................................. 25
Financial Statements ............................................... 26
Revenues and Expenditures .................................... 26
General Fund .......................................................... 27
Sales Tax................................................................. 31
45898975.6
Page
Commercial Activity ...............................................31
State of California Motor Vehicle In-Lieu
Payments.........................................................32
Impact of State Budget ............................................32
Budgets for Fiscal Years 2006-07 and 2007-08 ......32
City Investment Policy ............................................33
Long-Term General Fund Obligations ....................34
Direct and Overlapping Bonded Debt .....................35
Employees and Labor Relations ..............................36
Defined Benefit Pension Plan..................................36
Other Post-Employment Benefits............................36
Insurance .................................................................36
RISK FACTORS ..........................................................37
Substitution of Property...........................................37
Base Rental Payments Not Debt..............................37
Abatement ...............................................................38
Risk of Uninsured Loss ...........................................38
Seismic Risks ..........................................................39
Bankruptcy ..............................................................39
Enforcement of Remedies Under the Lease ............40
No Liability of Authority to the Owners .................40
Risks Related to Taxation in California ..................40
Future Initiatives .....................................................42
THE AUTHORITY ......................................................42
UNDERWRITING .......................................................43
CERTAIN LEGAL MATTERS ...................................43
TAX EXEMPTION ......................................................43
LITIGATION ...............................................................44
RATING .......................................................................45
NO CONTINUING DISCLOSURE .............................45
MISCELLANEOUS .....................................................46
APPENDIX A – CERTAIN ECONOMIC AND
DEMOGRAPHIC INFORMATION CONCERNING
THE CITY OF VICTORVILLE ................................A-1
APPENDIX B – AUDITED FINANCIAL
STATEMENTS OF THE CITY FOR THE FISCAL
YEAR ENDED JUNE 30, 2006..................................B-1
APPENDIX C – SUMMARY OF PRINCIPAL
LEGAL DOCUMENTS..............................................C-1
APPENDIX D – BOOK-ENTRY ONLY
SYSTEM ...............................................................D-1
APPENDIX E – FORM OF BOND COUNSEL
OPINION .............................................................. E-1
i
[THIS PAGE INTENTIONALLY LEFT BLANK]
 OFFICIAL STATEMENT

$83,770,000
VICTORVILLE JOINT POWERS FINANCING AUTHORITY
VARIABLE RATE LEASE REVENUE BONDS, 2007 SERIES A
(COGENERATION FACILITY PROJECT)

INTRODUCTORY STATEMENT

Authorization

This Official Statement, including the cover page and appendices, is provided to furnish
information in connection with the sale by the Victorville Joint Powers Financing Authority (the
“Authority”) of $83,770,000 aggregate principal amount of Victorville Joint Powers Financing Authority
Variable Rate Lease Revenue Bonds, 2007 Series A (Cogeneration Facility Project) (the “Bonds”). This
Introductory Statement is not a summary of this Official Statement. It is only a brief description of and
guide to, and is qualified by, more complete and detailed information contained in the entire Official
Statement, including the appendices hereto, and the documents summarized or described herein. A full
review should be made of the entire Official Statement. The offering of Bonds to potential investors is
made only by means of the entire Official Statement.

The Bonds will be issued under the provisions of the Marks-Roos Local Bond Pooling Act of
1985, constituting Article 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6584) of the
California Government Code (the “Bond Law”). The Bonds will be issued pursuant to an Indenture,
dated as of May 1, 2007 (the “Indenture”), by and between the Authority and The Bank of New York
Trust Company, N.A., as trustee (the “Trustee”).

Use of Proceeds

The proceeds of the Bonds will be used (i) to refund the Authority’s Variable Rate Lease
Revenue Bonds, 2005 Series A (Cogeneration Facility Project) and Variable Rate Lease Revenue Bonds,
2006 Series A (Cogeneration Facility Expansion Project), (ii) to finance certain improvements to the
City’s electric system, (iii) to fund capitalized interest on the Bonds, (iv) to fund a reserve fund for the
Bonds, and (v) to pay costs of issuance of the Bonds. See “PLAN OF REFUNDING,” “THE PROJECT”
and “ESTIMATED SOURCES AND USES OF FUNDS” herein.

Security for the Bonds

The Authority has leased certain real property and improvements thereon (the “Leased Property”)
from the City of Victorville (the “City”) pursuant to a Site Lease, dated as of May 1, 2007, by and
between the Authority and the City, and has leased the Leased Property back to the City pursuant to a
Lease Agreement, dated as of May 1, 2007 (the “Lease”), by and between the Authority and the City.
Under the Lease, the City will pay to the Authority certain base rental payments (the “Base Rental
Payments”) in amounts equal to the scheduled debt service on the Bonds. A portion of the Leased
Property has been leased to the City by the Victorville Recreation and Park District and the Victorville
Fire Protection District pursuant to separate Site Leases, each dated as of May 1, 2007 (collectively, the
“District Site Leases”).

The Bonds are special obligations of the Authority secured by and payable solely from Revenues,
defined in the Indenture as (i) all Base Rental Payments payable by the City under the Lease (including
prepayments), (ii) any proceeds of Bonds originally deposited with the Trustee and all moneys on deposit

1
in the funds and accounts established under the Indenture, (iii) investment income with respect to such
moneys held by the Trustee and (iv) any insurance proceeds or condemnation awards received by or
payable to the Trustee with respect to the Leased Property, including rental interruption insurance. Under
the Lease, the City is obligated to budget and appropriate from its General Fund amounts sufficient to
make Base Rental Payments. See “SECURITY FOR THE BONDS.”

Pursuant to an Assignment Agreement, dated as of May 1, 2007 (the “Assignment Agreement”),

by and between the Authority and the Trustee, the Authority will assign to the Trustee certain of its rights
under the Lease, as additional security for the performance of its obligations under the Bonds and the
Indenture, including its right to receive Base Rental Payments and Additional Rental Payments under the
Lease. The Base Rental Payments and the Additional Rental Payments are to be applied, and the rights so
assigned are to be exercised, by the Trustee as provided in the Indenture.

The obligation of the City to make Base Rental Payments under the Lease is an unsecured
obligation of the City, payable from its general fund. See “SECURITY FOR THE BONDS” herein.
Under the Lease, the City has covenanted to budget and appropriate sufficient funds to make all payments
required to be made under the Lease, subject only to abatement as provided therein. See “RISK
FACTORS – Base Rental Payments Not Debt” and “– Abatement.”

Letter of Credit. Payments of principal, redemption amount (but not any premium) and interest
on the Bonds will be initially supported by an irrevocable letter of credit (the “Letter of Credit” or “Credit
Facility”) to be issued by Fortis Bank S.A./N.V., acting through its New York Branch (the “Credit
Entity”). Drawings under the Letter of Credit will be used to pay the principal of and interest on the
Bonds when due. The Letter of Credit will also be drawn on, if other funds are not available, to purchase
Bonds tendered by Owners. See “THE LETTER OF CREDIT AND THE REIMBURSEMENT
AGREEMENT” and “THE CREDIT ENTITY” herein.

Further Information

Brief descriptions of the Bonds, the Indenture, the Site Lease, the Lease, the Assignment
Agreement, the Letter of Credit, the Reimbursement Agreement, the Authority and the City, the Credit
Entity, and other information are included in this Official Statement. Such descriptions and information
do not purport to be comprehensive or definitive. The descriptions herein of the Bonds, the Indenture, the
Lease, the Letter of Credit, the Reimbursement Agreement and other documents are qualified in their
entirety by reference to the forms thereof. For definitions of certain capitalized terms used herein and not
otherwise defined, and a description of certain terms relating to the Bonds, see “APPENDIX C –
SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.”

THE BONDS

General Provisions

The Bonds will be dated the Closing Date thereof and will bear interest until their maturity,
payable on each Bond Payment Date, except that interest due with respect to any Bonds purchased by the
Trustee by means of a drawing on the Letter of Credit pursuant to the tender of Bonds on a Tender Date
and which Bonds are registered in the name of and owned by the Credit Entity and held by the Tender
Agent (“Credit Facility Bonds”), will accrue from the date such Bonds become Credit Facility Bonds at
the rate set forth in the Reimbursement Agreement and shall be payable as set forth therein.

Each Bond will bear interest from the Bond Payment Date next preceding the date on which it is
authenticated unless it is (a) authenticated after a Record Date and on or before the next Bond Payment
Date, in which event it will bear interest from such Bond Payment Date or (b) authenticated on or before

2
the first Record Date, in which event it will bear interest from the Closing Date; provided, however, that
if at the time of authentication of any Bond interest is in default, such Bond will bear interest from the
date to which interest has been paid. The Bonds will bear interest at the Weekly Rate or Daily Rate until
the Fixed Rate Conversion Date, and on and after the Fixed Rate Conversion Date, at the Fixed Rate.
Interest on the Bonds during the Weekly Rate Period or Daily Rate Period will be computed upon the
basis of a 365- or 366-day year, as applicable, for the number of days actually elapsed prior to the Fixed
Rate Conversion Date. On and after the Fixed Rate Conversion Date interest on the Bonds will be
computed upon the basis of a 360-day year, consisting of twelve 30-day months.

Payment of interest with respect to any Bond on any Bond Payment Date or Redemption Date
will be made to the person appearing on the registration books of the Trustee as the Owner thereof as of
the Record Date immediately preceding such Bond Payment Date or Redemption Date, as the case may
be, such interest to be paid by check mailed by first class mail on the Bond Payment Date to such Owner
at his address as it appears on such registration books. Payments of defaulted interest will be paid by
check of the Trustee mailed to the registered Owners as of a special record date to be fixed by the Trustee
in its sole discretion, notice of which will be given to the Owners not less than 10 days prior to such
special record date. Payment of interest represented by the Bonds may, at the option of any Owner of at
least $1,000,000 principal amount of Bonds of a series (such option to be exercised by written request of
such Owner to the Trustee), be transmitted by wire transfer to such Owner to the bank account number in
the United States filed with the Trustee prior to the Record Date for a Bond Payment Date. See “THE
BONDS – Book-Entry Only System” herein.

The principal payable upon maturity or prior redemption with respect to the Bonds will be
payable upon surrender prior to the Fixed Rate Conversion Date at the Principal Office of the Trustee or
the Principal Office of the Tender Agent and thereafter at the Principal Office of the Trustee with such
principal to be paid by check mailed by the Trustee on the Bond Payment Date or redemption date by first
class mail to each Owner at his address as it appears on the registration books; provided, however, that
prior to the Fixed Rate Conversion Date payment of such principal will be made by wire transfer to an
Owner of Bonds who has exercised his/her option for payment by wire transfer pursuant to the Indenture.
Said amounts will be payable in lawful money of the United States of America. The Trustee is authorized
to pay or redeem the Bonds when duly presented for payment at maturity or on redemption and to cancel
all Bonds upon payment thereof; provided, however, that no such cancellation of Bonds will affect the
obligations of the Credit Entity arising under the Credit Facility; provided that the Credit Facility is
subject to reduction in accordance with its terms in connection with the payment at maturity or earlier
redemption of the Bonds.

Upon surrender by the Owner of a Bond for partial redemption at the Principal Office, payment
of such partial redemption of the principal amount of a Bond will be made to such Owner by check
mailed by first class mail to the Owner at his address as it appears on the registration books of the
Trustee, or prior to the Fixed Rate Conversion Date by wire transfer to any Owner who has exercised its
option for payment by wire transfer pursuant to the Indenture. Upon surrender of any Bond redeemed in
part only, the Trustee or the Tender Agent will execute and deliver to the Owner thereof, at the expense of
the City, a new Bond or Bonds of the same series which will be of Authorized Denominations equal in
aggregate principal amount to the unredeemed portion of the Bond surrendered and of the same interest
rate and the same maturity. Such partial redemption will be valid upon payment of the amount thereby
required to be paid to such Owner, and the City, the Authority and the Trustee will be released and
discharged from all liability to the extent of such payment.

Subject to the book-entry only system, Bonds may be exchanged or substituted for or in lieu of
mutilated, lost, stolen or destroyed Bonds by request to the Trustee. The Trustee and the Tender Agent
may require payment of an appropriate fee and expenses with respect to any such exchange or
substitution.

3
Interest Rate Determination Methods

Weekly Rate. The rate of interest on the Bonds may, at the option of the City, be established at a
Weekly Rate on any Bond Payment Date during a Daily Rate Period. So long as the Bonds bear interest
at a Weekly Rate, the Remarketing Agent will set the Weekly Rate on Wednesday of each calendar week.
The Remarketing Agent will give notice in writing to the Trustee and the Credit Entity of each Weekly
Rate as soon as possible following the determination of such rate. Each Weekly Rate will be the rate per
annum equal to the minimum rate necessary (as determined by the Remarketing Agent) for the
Remarketing Agent to sell the Bonds on the date the Weekly Rate is set at a price equal to 100% of the
principal amount thereof plus accrued interest; provided, however, that in no event will the interest rate
borne by the Bonds (other than Credit Facility Bonds) exceed the Maximum Rate. Each Weekly Rate will
be effective Thursday through the next succeeding Wednesday (or through the end of the period in which
the Bonds bear interest at a Weekly Rate, whichever first occurs).

The City shall deliver a written notice to the Trustee, the Tender Agent, the Remarketing Agent,
and the Credit entity specifying the Interest Rate Conversion Date upon which the interest rate borne by
the Bonds shall be converted to a Weekly Rate, which shall be not less than thirty (30) days after notice is
received by the parties. The Trustee shall give notice to the registered owners of the bonds, in the same
manner that notices of redemption are given, not less than fifteen (15) days before the Interest Rate
Conversion Date specifying the Interest Rate Conversion Date, and that the interest rate on the Bonds will
be established at a Weekly Rate on the Interest Rate Conversion Date, that all outstanding Bonds not
tendered for purchase at least seven (7) days before the Interest Rate Conversion Date will be deemed to
have been so tendered and shall, unless remarketed, be purchased on the Interest Rate Conversion Date at
a price equal to the principal amount thereof plus interest accrued on such date and that all Bonds must be
surrendered to the Tender Agent for purchase not later than 11:00 a.m., New York time, on the Interest
Rate Conversion Date.

If for any reason the Remarketing Agent does not set a Weekly Rate on Wednesday of a calendar
week, then the Weekly Rate for that period will remain at the Weekly Rate set for the immediately
preceding Thursday through Wednesday period. If a court holds that the Weekly Rate set for any period is
invalid or unenforceable, the Weekly Rate for that period, will be the rate that is equal to the 30-day tax-
exempt commercial paper rate published in The Bond Buyer (or any successor to such publication) as of
the date of determination of the unenforceable rate or, in the event The Bond Buyer (or any such
successor) is no longer published, any other newspaper or journal containing financial news, printed in
the English language and customarily published on each Business Day, of general circulation in New
York, New York and selected by the Authority, whose decision will be final and conclusive.

Daily Rate. The rate of interest on the Bonds may, at the option of the City, be established at a
Daily Rate on any Bond Payment Date during a Weekly Period. So long as the Bonds bear interest at a
Daily Rate, the Remarketing Agent will set the Daily Rate on or before 10:30 a.m., New York time, on
each Business Day for that Business Day. The Daily Rate for any non-Business Day shall be the Daily
Rate for the last day on which a Daily Rate was set. The Remarketing Agent will give notice in writing to
the Trustee and the Credit Entity of each Daily Rate as soon as possible following the determination of
such rate. Each Daily Rate will be the rate per annum equal to the minimum rate necessary (as
determined by the Remarketing Agent) for the Remarketing Agent to sell the Bonds on the date the Daily
Rate is set at 100% of the principal amount thereof plus accrued interest; provided, however, that in no
event shall the interest rate borne by the Bonds (other than Credit Facility Bonds) exceed the Maximum
Rate.

The City shall deliver a written notice to the Trustee, the Tender Agent, the Remarketing Agent
and the Credit Entity specifying the Interest Rate Conversion Date upon which the interest rate borne by
the Bonds shall be converted to a Daily Rate, which shall be not less than thirty (30) days after notice is

4
received by the parties. The Trustee shall give notice to the registered owners of the bonds, in the same
manner that notices of redemption are given, not less than fifteen (15) days before the Interest Rate
Conversion Date specifying the Interest Rate Conversion Date, and that the interest rate on the Bonds will
be established at a Daily Rate on the Interest Rate Conversion Date, that all outstanding Bonds not
tendered for purchase at least seven (7) days before the Interest Rate Conversion Date will be deemed to
have been so tendered and shall, unless remarketed, be purchased on the Interest Rate Conversion Date at
a price equal to the principal amount thereof plus interest accrued on such date and that all Bonds must be
surrendered to the Tender Agent for purchase not later than 11:00 a.m., New York time, on the Interest
Rate Conversion Date.

If for any reason the Remarketing Agent does not set a Daily Rate on any Business Day, then the
Daily Rate most recently determined shall remain in effect until such time as the Remarketing Agent
determines the new Daily Rate.

Fixed Rate. The Remarketing Agent will set the Fixed Rate on a date (the “Determination Date”)
no fewer than two nor more than fifteen (15) Business Days before the Fixed Rate Conversion Date. The
Fixed Rate will be the rate determined by the Remarketing Agent to be the rate per annum equal to the
minimum interest rate which would be necessary for the Remarketing Agent to sell the Bonds on the
Determination Date at 100% of the principal amount thereof plus accrued interest; provided, however,
that in no event will the interest rate borne by the Bonds on and after the Fixed Rate Conversion Date
exceed the Maximum Rate. A conversion of all or any sinking fund redemptions to serial maturity dates
will be required to the extent, in the opinion of the Remarketing Agent, such a conversion will reduce the
total interest to be paid by the City as Base Rental. In such case, all references to a Fixed Rate will refer
to the interest rates applicable to each maturity.

Conversion of Interest to Fixed Rate

Notice and Opinion of Bond Counsel. The City may initiate action to convert the interest borne
by all of the Bonds from the Weekly Rate or Daily Rate to the Fixed Rate by notifying the Authority, the
Trustee, the Tender Agent, the Credit Entity and the Remarketing Agent of the proposed Fixed Rate
Conversion Date at least 60 days prior to such proposed date. The notice will be accompanied by (i) an
opinion of Bond Counsel stating that the conversion is not prohibited by the law of the State or the
Indenture and that the conversion will not cause the interest on the Bonds to fail to be exempt from
personal income taxes of the State, or to fail to be excluded pursuant to section 103(a) of the Code from
the gross income of the owners thereof for federal income tax purposes, and (ii) written evidence of
satisfaction of the limitations specified in the Indenture. The Trustee will have no obligation to provide
notice to the Owners of a change to a Fixed Rate unless the Trustee has received the notice from the City
and the opinion of Bond Counsel in accordance with the provisions set forth under this heading. The City
may not request a conversion from the Weekly Rate or Daily Rate to the Fixed Rate during the existence
of an Event of Default and the notice from the City will certify as to the absence thereof. If the City’s
notice complies with the provisions of this paragraph, the Fixed Rate will be applicable from the effective
date specified in the notice until maturity of the Bonds. Upon conversion from the Weekly Rate or Daily
Rate to the Fixed Rate, the Trustee promptly will surrender the Letter of Credit to the Credit Entity
required by the terms of the Letter of Credit.

Limitation. A conversion from the Weekly Rate or Daily Rate to the Fixed Rate pursuant to the
paragraph above will comply with the following: (i) the effective date of the conversion will be a Bond
Payment Date; and (ii) the Remarketing Agent will have agreed to remarket the Bonds on the Fixed Rate
Conversion Date.

Notice to Owners of Change to Fixed Rate. When a conversion from the Weekly Rate or Daily
Rate to the Fixed Rate is to be made, the Trustee will notify the Owners and the Credit Entity by first

5
class mail at least 30 but not more than 60 days prior to the proposed Fixed Rate Conversion Date. The
notice will be prepared and furnished by the City to the Trustee for mailing at least 60 days prior to the
proposed Fixed Rate Conversion Date and will state:

(1) that the interest rate payable with respect to the Bonds will be converted to the Fixed
Rate;

(2) the effective date of the Fixed Rate;

(3) the Bond Payment Dates and Record Dates following the Fixed Rate Conversion Date;

(4) that following the Fixed Rate Conversion Date there will be no option to tender Bonds
for purchase;

(5) that all Bonds are subject to mandatory tender for purchase on the Fixed Rate Conversion
Date and will be deemed to have been so tendered and will be purchased on the Fixed Rate
Conversion Date at the principal amount thereof plus interest accrued to such date;

(6) any ratings assigned to the Bonds by a nationally recognized rating agency to be effective
on the Fixed Rate Conversion Date and that such ratings assigned to the Bonds may be reduced or
withdrawn;

(7) the proposed maturity schedule for the Bonds following the Fixed Rate Conversion Date;

(8) the redemption provisions to which the Bonds are subject following the Fixed Rate
Conversion Date;

(9) that following the Fixed Rate Conversion Date Bonds may be issued in denominations of
$5,000 or integral multiples of $5,000;

(10) that if the opinion of Bond Counsel described under the heading “Notice and Opinion of
Bond Counsel” above is rescinded, the interest rate will not be converted to the Fixed Rate; and

(11) that if a Credit Facility is to be provided to secure the payment of the Bonds, the name of
the institution providing such Credit Facility and the principal terms of such Credit Facility; or, if
a Credit Facility is not to be provided, the fact that a Credit Facility will not thereafter secure the
payment of the Bonds.

Calculation of Interest. During the Weekly Rate Period or Daily Rate Period, interest with
respect to the Bonds will be computed on the basis of the actual number of days elapsed in a year of 365
days (366 days in leap years) and will be payable on each Bond Payment Date as set forth in the
Indenture. On and after the Fixed Rate Conversion Date, interest with respect to the Bonds will be
computed on the basis of a 360-day year comprised of twelve 30-day months and will be payable on each
Bond Payment Date as set forth in the Indenture. Interest on overdue principal and, to the extent lawful,
on overdue premium and interest with respect to any Bond will be payable at the rate applicable to such
Bond until paid. Provisions in the Reimbursement Agreement may make different arrangements with
respect to interest accruing on Credit Facility Bonds. The Trustee will compute the amount of interest
payable with respect to the Bonds using the rates supplied to the Trustee by the Remarketing Agent. The
Remarketing Agent will send notice in writing to the Trustee and the Tender Agent, of the following:

(1) on the Wednesday of each week in which interest on the Bonds is payable at a Weekly
Rate, of the Weekly Rate for the applicable Thursday through Wednesday period;

6
 (2) on or before 10:30 a.m., New York time, on each Business Day of each week in which
interest on the Bonds is payable at a Daily Rate, of the Daily Rate for such Business Day; and

(3) on the first Business Day after the Determination Date, the Fixed Rate set on such
Determination Date.

Using the rates supplied by such notices, the Trustee will calculate the interest payable with
respect to the Bonds for the applicable period. During the Weekly Rate Period or the Daily Rate Period,
the Trustee will send the City at least five (5) days prior to each Bond Payment Date as set forth in the
Indenture written notice of the interest that will have accrued with respect to the Bonds for the period
from the preceding Bond Payment Date to the upcoming Bond Payment Date. The Remarketing Agent
will inform the Trustee, the City, the Tender Agent and the Credit Entity orally at the oral request of any
of them of any interest rate established by the Remarketing Agent. The Trustee will confirm the effective
interest rate by telephone or in writing to any Owner (at such Owner’s cost) who requests it in any
manner.

The setting of the rates and the calculation of interest payable with respect to the Bonds as
provided in the Indenture will be conclusive and binding on all parties.

Rescission of Opinion of Bond Counsel. Notwithstanding any provision in the Indenture to the
contrary, no conversion will be made from the Weekly Rate or Daily Rate to the Fixed Rate if the Trustee
and the Tender Agent receive written notice from Bond Counsel prior to such conversion that the opinion
of Bond Counsel required as described under the heading “Notice and Opinion of Bond Counsel” above
has been rescinded. If the Trustee has sent any notice to the Owners and the Credit Entity regarding the
conversion to the Fixed Rate pursuant to Indenture, then in the event of rescission of the opinion of Bond
Counsel, the Trustee will promptly notify all Owners and the Credit Entity of such rescission and that the
rate will not be converted to the Fixed Rate.

Swap Agreements

The Authority may, with the prior consent of the Credit Entity, at any time that the Bonds are
Outstanding enter into one or more additional contracts (each a “Swap Agreement”) in order to place the
Bonds, or any portion thereof, on the interest rate, currency, cash-flow, or other basis desired by the City
and the Authority, including, without limitation, interest rate swap agreements, currency swap
agreements, forward payment conversion agreements, futures contracts, contracts providing for payments
based on levels of or changes in interest rates, currency exchange rates, stock or other indices, or contracts
to exchange cash flows or a series of payments, and contracts including, without limitation, interest rate
floors or caps, options, puts or calls to hedge payments, currency rate, spread or similar exposure;
provided, however, the Authority will enter into such a contract only if either (i) the counterpart to any
such contract or the guarantor of the obligations of such counterpart has an unsecured, uninsured and
unguaranteed long-term obligation rated by Moody’s or S&P in one of its two highest long-term rating
categories (without reference to gradations such as “plus” or “minus”) or, (ii) each rating agency which
then has a rating assigned by any Bond that would be secured on a parity with the Authority’s obligation
under said contract confirms in writing to the Trustee that the City’s execution and delivery of such Swap
Agreement will not result in a reduction or withdrawal of such rating.

Trustee and Tender Agent

The Bank of New York Trust Company, N.A., Los Angeles, California has been appointed
Trustee for all of the Bonds under the Indenture. The Trustee may be removed or replaced by the
Authority as provided in the Indenture.

7
 The Bank of New York Trust Company, N.A., Los Angeles, California, has been appointed
Tender Agent under the Indenture. The Tender Agent may be removed or replaced by the Authority as
provided in the Indenture.

Remarketing Agent

Gates Capital Corporation, New York, New York, has been appointed Remarketing Agent for the
Bonds. The Remarketing Agent may be removed or replaced by the Authority and may resign, all as
provided in the Remarketing Agreement, dated as of May 1, 2007, by and among the Authority, the
Trustee, and the Remarketing Agent.

Redemption

Mandatory Redemption from Net Proceeds. The Bonds are subject to mandatory redemption on
any Bond Payment Date, in whole or in part, from moneys drawn under the Credit Facility, which shall be
reimbursed from Net Proceeds following the deposit by the Trustee in the Lease Prepayment Account of
the Redemption Fund of Net Proceeds deposited by the City under the Indenture, at least 45 days prior to
a Bond Payment Date which have been credited towards the Prepayment made by the City pursuant to the
Lease Agreement, at a redemption price equal to the principal amount of the Bonds to be redeemed,
together with accrued interest to the date fixed for redemption, without premium; provided, however, that
if there shall no longer be available a Credit Facility to secure the payment of principal and interest
represented by the Bonds or if the Credit Facility does not permit a draw with respect to Prepayments, the
Bonds are subject to redemption from Net Proceeds which the Trustee shall deposit in the Lease
Prepayment Account of the Redemption Fund, to be used to redeem the Bonds by the Trustee as provided
herein.

In the event that amounts remain in the Lease Prepayment Account because such amounts did not
constitute an Authorized Denomination of a Bond, then such amounts shall be transferred to the Lease
Payment Account of the Debt Service Fund.

Optional Redemption. During the Weekly Rate Period or the Daily Rate Period and on the Fixed
Rate Conversion Date, the Bonds are subject to optional redemption in whole or in part (in an amount of
$100,000 or any integral multiple of $5,000 in excess thereof) on any Business Day, at the option of the
Authority at a redemption price equal to the principal amount thereof together with accrued interest to the
date fixed for redemption, without premium.

8
 After the Fixed Rate Conversion Date and subject to modification pursuant to the Indenture, the
Bonds are subject to optional redemption in whole or in part (in integral multiples of $5,000) on any
Business Day, at the option of the Authority at a redemption price equal to the principal amount thereof
together with accrued interest to the date fixed for redemption and following premium expressed as a
percentage of the redeemed principal amount:

Prepayment Date Premium

Ninth anniversary of the Fixed Rate Conversion Date to the day before
the tenth anniversary date of the Fixed Rate Conversion Date 2%

Tenth anniversary of the Fixed Rate Conversion Date to the day before
the eleventh anniversary date of the Fixed Rate Conversion Date 1%

Eleventh anniversary of the Fixed Rate Conversion Date and thereafter 0%

During the term of any Credit Facility no notice of any optional redemption shall be sent unless
either (1) the Authority has deposited with the Trustee moneys in an amount sufficient to cover the
principal of, premium, if any, and interest due on such redemption date (exclusive of anticipated
investment earnings thereon), or (2) the Authority delivers to the Trustee the written consent of the Credit
Entity.

Sinking Fund Redemption. The Bonds are subject to mandatory redemption in part on the dates
in the following years in the following amounts at a redemption price equal to the principal amount
thereof together with accrued interest to the date fixed for redemption, without premium:

Redemption Date Redemption Date

(May 1) Principal Amount (May 1) Principal Amount

2011 $300,000 2026 $2,720,000

2012 400,000 2027 2,865,000
2013 500,000 2028 3,020,000
2014 750,000 2029 3,180,000
2015 1,000,000 2030 3,345,000
2016 1,620,000 2031 3,525,000
2017 1,705,000 2032 3,715,000
2018 1,795,000 2033 3,910,000
2019 1,895,000 2034 4,120,000
2020 1,995,000 2035 4,335,000
2021 2,100,000 2036 4,565,000
2022 2,210,000 2037 4,810,000
2023 2,330,000 2038 5,065,000
2024 2,455,000 2039 5,335,000
2025 2,585,000 2040* 5,620,000
_______________________
*Final Maturity

At the Fixed Rate Conversion Date, any annual sinking fund redemption which has not yet
become due may be treated as a serial maturity of principal bearing interest at the Fixed Rate payable on
May 1 and November 1 thereafter to maturity.

9
 In the event of a partial redemption of Bonds pursuant to mandatory redemption from Net
Proceeds or optional redemption as described in the Indenture, the foregoing annual sinking fund
payments shall be reduced in equal percentages, as nearly as practicable, provided that the reductions
shall be made in multiples of $5,000. The City shall provide the Trustee with the amended sinking fund
payments schedule calculated as set forth above.

Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the
redemption of Bonds and less than all Outstanding Bonds are called for redemption, the Trustee shall
select Bonds for redemption, from the Outstanding Bonds not previously called for redemption, in
Authorized Denominations, first from Credit Facility Bonds, then with respect to a mandatory redemption
from Net Proceeds on a pro rata basis among maturities and by lot within a maturity, and in the case of an
optional redemption from such maturities as are designated in a City Certificate. The Trustee shall
promptly notify the City and the Authority in writing of the Bonds so selected for redemption.

Partial Redemption of Bonds. Upon surrender by the Owner of a Bond for partial redemption at
the Principal Office, payment of such partial redemption of the principal amount of a Bond will be made
to such Owner by check mailed by first class mail to the Owner at his address as it appears on the
registration books of the Trustee, or prior to the Fixed Rate Conversion Date by wire transfer to any
Owner who has exercised its option for payment by wire transfer pursuant to the Indenture. Upon
surrender of any Bond redeemed in part only, the Trustee or the Tender Agent shall execute and deliver to
the Owner thereof, at the expense of the City, a new Bond or Bonds which shall be of Authorized
Denominations equal in aggregate principal amount to the unredeemed portion of the Bond surrendered
and of the same interest rate and the same maturity. Such partial redemption shall be valid upon payment
of the amount thereby required to be paid to such Owner, and the City, the Authority and the Trustee shall
be released and discharged from all liability to the extent of such payment.

Notice of Redemption. When redemption is authorized or required pursuant to the Indenture, the
Trustee shall give notice of the redemption of the Bonds. Such notice shall specify: (a) that the Bonds or
a designated portion thereof are to be redeemed, (b) the CUSIP numbers and, if less than all of the Bonds
of a maturity are to be redeemed, the serial numbers of the Bonds to be redeemed, (c) the date of
redemption, (d) the place or places where the redemption will be made, (e) the following descriptive
information regarding the Bonds: date, interest rates and stated maturity dates, and (f) that a new Bond in
an amount equal to that portion not so redeemed will be executed by the Trustee and delivered to the
Owner in the event of a partial redemption. Such notice shall further state that on the specified date there
shall become due and payable upon each Bond to be redeemed, the portion of the principal amount of
such Bond to be redeemed, together with interest accrued to said date, and that from and after such date,
provided that moneys therefore have been deposited with the Trustee, interest with respect to such Bonds
to be redeemed shall cease to accrue and be payable.

Notice of such redemption shall be mailed by first-class mail, postage prepaid, to the City, to all
municipal Securities Depositories and to at least one national Information Service which the City shall
designate to the Trustee, and to the respective Owners of any Bonds designated for redemption at their
addresses appearing on the Bond registration books, at least 30 days, but not more than 60 days, prior to
the redemption date; provided that neither failure to receive such notice nor any defect in any notice so
mailed shall affect the sufficiency of the proceedings for the redemption of such Bonds, and provided,
further, however, that the Trustee shall, on the day it receives notice of redemption by the City, provide
telephonic, telegraphic or telex notice of such notice of redemption to the Remarketing Agent and the
Credit Entity.

Effect of Notice of Redemption. Notice having been given as described above, and the moneys
for the redemption (including the interest to the applicable date of redemption), having been set aside in
the Redemption Fund, the Bonds shall become due and payable on said date of redemption, and, upon

10
presentation and surrender thereof at the Principal Office, said Bonds shall be paid at the unpaid principal
price with respect thereto, plus interest accrued and unpaid to said date of redemption.

If, on said date of redemption, moneys for the redemption of all the Bonds to be redeemed,
together with interest to said date of redemption, shall be held by the Trustee so as to be available therefor
on such date of redemption, and, if notice of redemption thereof shall have been given as aforesaid, then,
from and after said date of redemption, interest with respect to the Bonds shall cease to accrue and
become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be
held in trust for the account of the Owners of the Bonds so to be redeemed.

All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the
Indenture shall be canceled upon surrender thereof and delivered to or upon the order of the City.

Mandatory Tender of Bonds – Fixed Rate Conversion Date

In the event the City has complied with the requirements of the Indenture to change the interest
rate represented by the Bonds to a Fixed Rate, all Bonds will be subject to mandatory tender and purchase
on the Fixed Rate Conversion Date in accordance with the provisions of the Indenture and as described
herein under the heading “Mechanics of Mandatory Tender.”

Mandatory Tender of Bonds – Other than on Fixed Rate Conversion Date

The Bonds are subject to mandatory tender on the last Bond Payment Date occurring on or prior
to the date at least five days prior to the date on which the Credit Facility is scheduled to expire or
terminate in accordance with its respective terms and if the Trustee has not received notice at least 40
days prior to such Bond Payment Date that an Alternate Credit Facility is to be provided. Not less than
thirty days before each such Mandatory Tender Date under this paragraph, the Trustee shall send a notice
to all Owners by first class mail, postage prepaid, which notice shall contain the following information:
(1) that the Credit Facility is scheduled to expire or terminate and no Alternate Credit Facility will be
provided, (2) that each Owner’s Bond is subject to mandatory tender as provided in such notice, and (3) if
any of the nationally recognized rating agencies which has a credit rating outstanding on the Bonds has
indicated to the Trustee in writing that it will lower or withdraw its rating on the Bonds as of such
Mandatory Tender Date, notice of such new rating, or if no new rating is available, notice that any of such
rating agencies may lower or withdraw such rating as of such Mandatory Tender Date.

The Bonds are subject to mandatory tender on an Interest Rate Conversion Date for which a
notice can be given.

The Bonds are subject to mandatory tender under this paragraph on the first Business Day to
occur on or after the seventh day following receipt by the Trustee of notice from the Credit Entity of the
occurrence of an event of default under the Reimbursement Agreement, or that the Credit Entity will not
reinstate the interest portion of the Credit Facility. Not later than the third Business Day after receipt by
the Trustee of such notice, the Trustee shall send to all Owners by first class mail, postage prepaid, and to
the Depository also by facsimile, a notice which shall contain the following information: (1) that an event
of default has been declared under the Reimbursement Agreement, or that the Credit Entity will not
reinstate the interest portion of the Credit Facility, and (2) that each Owner’s Bond is subject to
mandatory tender on the first Business Day to occur on the seventh day following the receipt by the
Trustee of such notice from the Credit Entity. See “THE LETTER OF CREDIT AND THE
REIMBURSEMENT AGREEMENT” for a description of the Events of Default which could cause a
mandatory tender under the Letter of Credit and the Reimbursement Agreement.

11
 The Bonds are subject to mandatory tender on the last Business Day prior to the effective date of
any Alternate Credit Facility in accordance with the provisions of the Indenture.

All notices of a Mandatory Tender Date will also be mailed by the Trustee to the Credit Entity,
the Remarketing Agent and the Tender Agent.

Mechanics of Mandatory Tender

Owners of Bonds will be required to tender the Bonds to the Tender Agent by 11:00 a.m., New
York time, on the Mandatory Tender Date for purchase at a purchase price equal to the principal amount
thereof plus accrued interest thereon to and including the Mandatory Tender Date. So long as the Bonds
are registered in the name of the Nominee, such tenders shall be made through the book-entry system.
Any Untendered Bonds will be deemed to have been tendered. In the event of a failure by Owners of
Bonds to tender Bonds on the Mandatory Tender Date, said Owners of Untendered Bonds will not be
entitled to any payment (including any interest to accrue subsequent to the Mandatory Tender Date) other
than the purchase price for such Untendered Bonds, and any Untendered Bonds will no longer be entitled
to the benefits of the Indenture, except for the purpose of payment of the purchase price thereof. Such
Untendered Bonds will be deemed purchased, canceled and no longer Outstanding under the Indenture.
However, the purchase price will be paid only upon presentation of the Bonds to the Tender Agent.

In the case of the Fixed Rate Conversion Date only, if the Remarketing Agent notifies the Trustee
not less than fifteen days before the Fixed Rate Conversion Date that it cannot remarket all of the Bonds
or if the requirements for the effectiveness of a Fixed Rate Conversion Date are not satisfied before the
Fixed Rate Conversion Date, the Trustee will give notice thereof by first-class mail, postage prepaid, to
all Owners, the Remarketing Agent, the Credit Entity and the City and each of such parties will be
restored to their respective positions as if notice of the Fixed Rate Conversion Date had not been given
and no mandatory tender will occur. In addition to the mailed notice required by the preceding sentence,
the Trustee will deliver a duplicate copy of such notice to the Depository and the Credit Entity by
telecommunications or overnight delivery.

Option to Tender Prior to Fixed Rate Conversion Date

Prior to the Fixed Rate Conversion Date, any Owner of the Bonds may give irrevocable written
notice to the Tender Agent at its Principal Office and request that the Tender Agent purchase all or any
part (in Authorized Denominations) of the Bonds then outstanding and registered in the name of such
Owner at an amount or price equal to the unpaid principal amount thereof plus accrued and unpaid
interest thereon to, but not including, the Business Day on which the Bonds are to be tendered to the
Tender Agent (the “Optional Tender Date”) and without premium. Such notice (the “Optional Tender
Notice”) will specify the Optional Tender Date (which, during a Weekly Rate Period, shall not be less
than seven (7) days after the date of receipt by the Tender Agent of such Optional Tender Notice, and
during a Daily Rate Period, shall be the date of receipt of the Optional Tender Notice by the Tender
Agent, provided with respect to a tender during a Daily Rate Period, the Optional Tender Notice shall be
received by the Tender Agency prior to 9:30 a.m., New York time, on the Optional Tender Date), the
CUSIP number, the principal amount being tendered in integral multiples of Authorized Denominations
and, so long as the Bonds are registered in the name of the Nominee, such notice shall also specify the
Participant number and the contact person of the Participant. Upon receipt of an Optional Tender Notice,
the Tender Agent will, as soon as is practicable but in no event later than the close of business on the
Business Day following the day of receipt of such Optional Tender Notice, give notice to the Trustee, the
Authority, the Credit Entity and the Remarketing Agent of the Optional Tender Notice, the Optional
Tender Date specified therein and the principal amount of Bonds to be purchased on such Optional
Tender Date.

12
 Owners providing an Optional Tender Notice will be required to tender the Bonds to the Tender
Agent for purchase by 11:00 a.m., New York time, on the Optional Tender Date. In the event of a failure
by Owners of Bonds to tender Bonds on the Optional Tender Date, said Owners of Bonds will not be
entitled to any payment (including any interest to accrue subsequent to the Optional Tender Date) other
than the purchase price for such Untendered Bonds, and any Untendered Bonds will no longer be entitled
to the benefits of the Indenture, except for the purpose of payment of the purchase price thereof.
However, the purchase price will be paid only upon presentment of the Bonds to the Tender Agent. Upon
the cancellation of Untendered Bonds, the Trustee will execute new Bonds in the same aggregate
principal amount as, and in substitution for, the Bonds not so tendered by such Owner and will hold,
deliver and make available such new Bonds to the new Owner thereof in accordance with the provisions
of the Indenture which will be fully applicable notwithstanding that such new Bonds are executed in
substitution for the Bonds not so tendered.

From and after the Fixed Rate Conversion Date, the Tender Agent will not be required to
purchase such Bonds on demand and optional tender by the Owners thereof in accordance with the
provisions set forth under this heading.

Purchase of Bonds Delivered On a Tender Date

Bonds purchased from Owners on any Tender Date will be purchased at a price equal to the
principal amount thereof plus accrued interest, if any, to the Tender Date in immediately available funds,
but solely from the following sources of funds in the following order of priority:

(1) moneys deposited into the Remarketing Proceeds Account, other than moneys
representing remarketing proceeds from the sale of Bonds to the Authority or the City, in
accordance with the Indenture;

(2) moneys deposited into the Liquidity Account in accordance with the Indenture;

(3) other Available Moneys (as described in the Indenture) furnished to the Trustee; and

(4) other moneys made available to the Trustee for such purpose from the Authority or the
City.

The Tender Agent or Trustee, as applicable, will promptly give notice to the Credit Entity, the
Remarketing Agent, the Tender Agent, the Trustee and the City of any notice given by or to an Owner
pursuant to certain provisions of the Indenture.

No later than 11:00 a.m. New York time on the Business Day next preceding each Tender Date,
the Remarketing Agent will give telex or telephonic notice, promptly confirmed in writing, to the Tender
Agent and the Trustee and specifying the amount of the proceeds of the sale of such Bonds, if any, sold
by the Remarketing Agent pursuant to the Indenture and the name, address and tax identification number
of the purchasers thereof as well as the denominations of such remarketed Bonds.

The purchase price of any Bonds tendered for purchase will be payable by check mailed to the
Owners of record as of the close of business on the day next preceding the Tender Date; provided,
however, that the purchase price of such tendered Bonds for purchase may, at the option of any Owner, be
transferred to such Owner by wire transfer on the Tender Date if prior to such Tender Date such Owner
has delivered to the Tender Agent a request in writing for such wire transfer specifying the bank account
number to which such transfer is to be made.

13
 On the Business Day next preceding each Tender Date, the Trustee shall draw on the Credit
Facility and shall deposit the amount of such draw in the Liquidity Account to pay for the purchase price
of any Bonds that cannot be paid from remarketing proceeds in the Remarketing Proceeds Account. In
the event that the Trustee has not received notice from the Remarketing Agent as to the availability of
remarketing proceeds prior to the time of its draw on the Credit Facility on the Business Day next
preceding each Tender Date, the Trustee shall draw on the Credit Facility to pay the purchase price of all
Bonds tendered for purchase on such Tender Date. The Tender Agent shall pay, to the extent that it has
received funds therefor, the purchase price of such tendered Bonds, plus accrued interest, if any, no later
than 5:00 p.m., New York time, on any Optional Tender Date or Mandatory Tender Date.

Remarketing of Bonds by Remarketing Agent

Subject to the terms of the Remarketing Agreement, the Remarketing Agent will use its best
efforts to remarket Bonds subject to purchase on a Tender Date and to remarket Bonds registered in the
name of the Credit Entity. The proceeds of any sale with respect to a Tender Date will be delivered to the
Tender Agent for deposit into the Remarketing Proceeds Account by no later than 11:00 a.m., New York
time, on the Business Day prior to each Tender Date. The proceeds of the sale of any Bonds registered to
or on behalf of the Credit Entity will be delivered to the Tender Agent for deposit in the Remarketing
Proceeds Account by 11:00 a.m., New York time, on the date of sale and the Tender Agent will remit
such amounts to the Credit Entity no later than 4:00 p.m., New York time, on such date.

In the event that any Bonds are purchased for the benefit of the Credit Entity pursuant to the
Indenture, the Remarketing Agent will continue to offer for sale and use its best efforts to sell such
Bonds. So long as the Credit Facility is in effect, prior to the release of any Credit Facility Bonds or the
remarketing of any Bonds purchased following the mandatory tender thereof pursuant to the Indenture,
the Tender Agent shall have received written notice from the Credit Entity that the Letter of Credit has
been reinstated or an Alternate Credit Facility has been delivered in an amount equal to the principal
amount of the Credit Facility Bonds and interest thereon in accordance with its terms.

Delivery of Bonds

Bonds remarketed by the Remarketing Agent pursuant to the Indenture will be delivered to the
Remarketing Agent, and registered in the name, or at the direction, of the respective purchasers.

Bonds purchased with moneys drawn under the Letter of Credit will be registered in the name, or
at the direction, of the Credit Entity or its nominee and delivered to and held by the Tender Agent for the
account of such Credit Entity, as secured party, unless the Credit Entity will make other arrangements
with the Tender’ Agent. The Tender Agent will notify the Remarketing Agent when Bonds are registered
to or on behalf of the Credit Entity and the Remarketing Agent will remarket such Bonds in accordance
with the Indenture.

Bonds purchased with Available Moneys will be delivered to the Trustee for cancellation.

Moneys in the Liquidity Account and the Remarketing Proceeds Account will be held in trust for
the persons who delivered such Bonds for purchase. Following payment to persons who delivered such
Bonds for purchase, to the extent that any fees or obligations are owed to the Trustee or the Credit Entity,
moneys remaining in the Remarketing Proceeds Account and the Liquidity Account will be paid by the
Tender Agent first to the Credit Entity for the repayment of amounts owing under the Reimbursement
Agreement as certified to the Tender Agent in writing by the Credit Entity and then to the Trustee to the
extent of fees and obligations owing thereto. Money remaining in such Accounts following such
payments will be paid to the City.

14
Payment of Bonds After Discharge of Indenture

In any event any Bond shall not be presented for payment when the principal with respect thereof
becomes due, either at maturity, or at the date fixed for redemption thereof, if moneys sufficient to pay
such Bond shall have been deposited in the Credit Facility Account or if Available Moneys sufficient to
pay such Bond shall have been deposited in the Lease Payment Account, all liability of the Authority to
the Owner thereof for payment of such Bond shall forthwith cease, terminate and be completely
discharged, and thereupon it shall be the duty of the Trustee to hold such moneys, without liability for
interest thereon, for the benefit of the Owner of such Bond who shall thereafter be restricted exclusively
to such moneys, for any claim of whatever nature on his or her part under this Indenture or on, or with
respect to, said Bond.

Any moneys so deposited with and held by the Trustee not so applied to the payment of Bonds
within two (2) years after the date on which the same were deposited with the Trustee due shall be paid by
the Trustee to the City. Thereafter, Owners shall be entitled to look only to the City for payment, and
then only to the extent of the amount so disbursed by the Trustee. The City shall not be liable for any
interest on the sums paid to it pursuant to this section and shall not be regarded as a trustee or trustees of
such money. Any such moneys held shall be held uninvested.

Book-Entry Only System

The Depository Trust Company, New York, New York (“DTC”), will act as securities depository
for the Bonds. The Bonds will be registered in the name of Cede & Co. (DTC’s partnership nominee),
and will be available to ultimate purchasers in the denomination of $5,000 or any integral multiple
thereof, under the book-entry system maintained by DTC. Ultimate purchasers of Bonds will not receive
physical certificates representing their interest in the Bonds. So long as the Bonds are registered in the
name of Cede & Co., as nominee of DTC, references herein to the Owners shall mean Cede & Co., and
shall not mean the ultimate purchasers of the Bonds. Payments of the principal of, premium, if any, and
interest on the Bonds will be made directly to DTC, or its nominee, Cede & Co., by the Trustee, so long
as DTC or Cede & Co. is the registered owner of the Bonds. Disbursements of such payments to DTC’s
Participants is the responsibility of DTC and disbursements of such payments to the Beneficial Owners is
the responsibility of DTC’s Participants and Indirect Participants. See “APPENDIX D – BOOK-ENTRY
ONLY SYSTEM.”

SECURITY FOR THE BONDS

Revenues

THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE

SOLELY FROM REVENUES, CONSISTING PRIMARILY OF BASE RENTAL PAYMENTS PAID
BY THE CITY PURSUANT TO THE LEASE AND AMOUNTS HELD IN THE FUNDS AND
ACCOUNTS ESTABLISHED UNDER THE INDENTURE. THE OBLIGATION OF THE CITY TO
MAKE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH
THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH
THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE
CITY TO MAKE BASE RENTAL PAYMENTS DOES NOT CONSTITUTE AN INDEBTEDNESS OF
THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN
THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR
RESTRICTION.

The Indenture provides that, subject to certain rights of the Trustee, the Bonds are secured by a
first lien on and pledge of all of the Revenues and a pledge of moneys in all Funds and Accounts

15
established and held by the Trustee under the Indenture including the investments thereof and the
proceeds of such investments. “Revenues” are defined in the Indenture to mean: (i) all Base Rental
Payments payable by the City pursuant to the Lease (including prepayments), (ii) any proceeds of Bonds
originally deposited with the Trustee and all moneys on deposit in the funds and accounts established
under the Indenture, (iii) investment income with respect to such moneys held by the Trustee and (iv) any
insurance proceeds or condemnation awards received by or payable to the Trustee relating to the Base
Rental Payments, including rental interruption insurance.

Base Rental Payments

As security for the Bonds, the Authority will assign to the Trustee for the payment of the Bonds
certain rights of the Authority in the Lease, including the right to receive the Base Rental Payments to be
made by the City. Under the Lease, the City agrees to make Base Rental Payments for the beneficial use
and occupancy of the Leased Property, and to take such action as is necessary to budget for and to
appropriate such amounts. See “APPENDIX C – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS
– The Lease.”

The Base Rental Payments are equal to the principal of and interest on the Bonds, and are payable
on the twenty-fifth day of the month immediately preceding each Bond Payment Date. The Base Rental
Payments will be paid by the City to the Trustee for the benefit of the Owners of the Bonds.

The City’s obligation to make Base Rental Payments is subject to abatement in the event of
substantial interference with the use and possession of all or a part of the Leased Property. See “RISK
FACTORS – Abatement.”

Reserve Fund

In order to further secure the payment of principal of and interest on the Bonds, the Trustee is
required to set aside under the Indenture and deposit in the Reserve Fund for the Bonds (the “Reserve
Fund”) an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Fund. The
Reserve Requirement means, as of the date of calculation thereof, the least of (i) the maximum aggregate
annual Base Rental payments payable during the then-current or any remaining Bond Year during which
the Bonds are to remain Outstanding by their terms, (ii) 125% of the average annual aggregate Base
Rental payments payable for the then-current and any remaining Bond Years during which the Bonds are
to remain Outstanding by their terms, or (iii) ten percent (10%) of the proceeds derived from the sale of
the Bonds, with all such calculations assuming, during any period while the Bonds bear interest at a
Weekly Rate or a Daily Rate, the greater of (a) the average interest rate per annum borne by the Bonds
during the preceding twelve-month period, or (b) an average 4.5% per annum interest rate borne by the
Bonds; and provided, however, that during any period when the Bonds bear interest at a Fixed Rate, such
calculation shall be based on the actual rate or rates of interest. Following the date of delivery of the
Bonds, and at the instruction of the Authority, the Trustee shall recalculate the Reserve Requirement
under clauses (i) or (ii) above, whichever is less, and shall transfer any amounts in excess of the Reserve
Requirement in accordance with the Indenture.

Insurance

The Lease requires the City to maintain insurance coverage on the Leased Property, consisting of
the following:

(1) insurance against loss or damage to the Leased Property or such structure or item
of furniture or equipment caused by fire or lightning, with an extended coverage endorsement and
vandalism and malicious mischief insurance, which such extended coverage insurance shall, as

16
 nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle
damage, smoke and such other hazards as are normally covered by such insurance. The insurance
required by this paragraph shall be in an amount equal to the replacement cost (without deduction
for depreciation) of improvements located or to be located on the Leased Property but shall be not
less than the principal amount of the Outstanding Bonds (except that such insurance may be
subject to deductible clauses of not to exceed ten percent (10%) of the amount of any one loss);

(2) rental interruption insurance against the Authority’s loss of income due to events
giving rise to the right of abatement on the part of the City under the Lease in an amount
sufficient to pay the total Base Rental payments attributable to the Leased Property for a 24
month period (measured by the Base Rental payments for the 24 months following the month in
which the insurance commences and assuming for such purpose that Interest Components will be
payable at a fixed rate of 12% per annum or such lesser amount as may be agreed upon by the
Credit Entity); provided, that the amount of such insurance need not exceed the total remaining
Base Rental payments attributable to the Leased Property;

(3) workers’ compensation insurance covering all employees working in or on the

Leased Property, in the same amount and type as other workers’ compensation insurance
maintained by the City for similar employees doing similar work; and the City shall also require
any other person or entity working in or on the Leased Property to carry the foregoing amount of
workers’ compensation insurance;

(4) a standard comprehensive public entity liability insurance policy or policies in

protection of the City, the Authority, and their respective directors, officers and employees and
the Trustee, indemnifying and defending such parties against all direct or contingent loss or
liability for damages for personal injury, death or property damage occasioned by reason of the
possession, operation or use of the Leased Property. Such public liability and property damage
insurance shall be in the form of a single limit policy in the amount of not less than three million
dollars ($3,000,000), subject to a deductible clause of not to exceed $250,000, covering all such
risks; and

(5) a CLTA standard coverage leasehold policy of title insurance on the Leased
Property in an amount at least equal to the initial aggregate amount of the principal amount of
Base Rental payments issued by a company of recognized standing duly authorized to issue the
same. The title policy or policies shall insure the City’s leasehold estate hereunder with respect
to the Leased Property, subject only to Permitted Encumbrances.

Notwithstanding the foregoing, the Lease does not require the City to maintain more insurance
than is specifically referred to above or any policies of insurance other than standard policies of insurance
with standard deductibles offered by reputable insurers at a reasonable cost on the open market.
Furthermore, as an alternative to providing the insurance required by paragraphs (1), (3) and (4) above,
with the prior written consent of the Credit Entity, the City may provide a self-insurance method or plan
or protection. See “APPENDIX C – SUMMARY OF PRINCIPAL LEGAL DOCUMENTS – The Lease
– Insurance.”

Additional Obligations

Other than refunding bonds, the Authority may not issue bonds, notes or indebtedness that are
payable out of Revenues in whole or in part. See “APPENDIX C – SUMMARY OF PRINCIPAL
LEGAL DOCUMENTS – The Indenture – Additional Obligations.”

17
 However, the City may incur additional lease or other obligations payable from the City’s general
fund without the consent of or notice to the Owners of the Bonds. See “RISK FACTORS – Base Rental
Payments Not Debt.”

THE LETTER OF CREDIT AND THE REIMBURSEMENT AGREEMENT

The following are brief outlines of certain provisions contained in the Letter of Credit established
in favor of the Trustee and the Reimbursement Agreement between the City and the Credit Entity and are
not to be considered a full statement pertaining thereto. Reference is made to the Letter of Credit and the
Reimbursement Agreement on file with the Authority for the complete text thereof.

Letter of Credit

Concurrently with the issuance of the Bonds, and at the request and for the account of the City,
the Credit Entity will issue the Letter of Credit in favor of the Trustee. The Letter of Credit will
irrevocably authorize the Trustee to draw on the Credit Entity by sight drafts in an aggregate amount not
exceeding $84,706,388 (as increased, reduced or reinstated from time to time in accordance with the
provisions thereof, the “Stated Amount”) of which an amount not exceeding $83,770,000 (as reduced or
reinstated from time to time in accordance with the terms thereof, the “Principal Portion”), may be drawn
with respect to payment of the unpaid principal of or the portion of the purchase price corresponding to
the unpaid principal of the Bonds and an initial amount not exceeding $936,388 (as increased, reduced or
reinstated from time to time in accordance with the terms thereof, the “Interest Portion”) may be drawn
upon with respect to payment of interest actually accrued and unpaid on, or the portion of the purchase
price corresponding to interest actually accrued and unpaid on, the Bonds on or prior to their stated
maturity date, but in no event more than interest accrued and unpaid on the Bonds calculated at a
maximum interest rate of 12% per annum (based on a year of 365 days) for the 34 days immediately
preceding any drawing. The Stated Amount is comprised of the Principal Portion and the Interest
Portion, as they may vary from time to time. The Letter of Credit is only available to be drawn upon with
respect to Bonds bearing interest at a rate other than a fixed rate pursuant to the Indenture. Funds under
the Letter of Credit will be paid with the Credit Entity’s own funds.

The Letter of Credit shall expire at 4:00 p.m. (New York time) on the date (the “Expiration
Date”) which is the earliest of: (i) May 8, 2012, unless extended by the Credit Entity in its sole discretion
by delivery of a specified certificate (the “Stated Termination Date”), (ii) the date on which the Credit
Entity honors a drawing which when added to all other drawings honored under thereunder and not
subject to reinstatement in the aggregate equals the Stated Amount, (iii) the first (1st) Business Day which
is five (5) days after the date of the Credit Entity’s receipt of a specified certificate signed by one
purporting to be the Trustee’s duly authorized officer appropriately completed stating that either (x) the
Trustee has accepted an Alternate Credit Facility, (y) no Bonds remain outstanding under the Indenture,
or (z) all Bonds remaining outstanding under the Indenture have been converted to bear interest at a fixed
rate until maturity, (iv) the day the Credit Entity delivers to the Trustee a specified certificate stating that
an Event of Default under the Reimbursement Agreement has occurred and that the Letter of Credit has
expired, or (v) the date when the Trustee surrenders the Letter of Credit to the Credit Entity for
cancellation. The Trustee agrees to surrender the Letter of Credit to the Credit Entity, and not to make
any drawing, after (a) the Expiration Date, or (b) the date on which there are no Bonds outstanding under
the Indenture.

Reimbursement Agreement

General. The City and the Credit Entity have entered into the Reimbursement Agreement,
pursuant to which the Letter of Credit will be issued. Among other things, the Reimbursement
Agreement provides for (a) the repayment to the Credit Entity of all draws made under the Letter of

18
Credit, together with specified interest thereon; (b) the payment or reimbursement to the Credit Entity of
certain specified fees, costs and expenses; (c) affirmative and negative covenants to be observed on the
part of the City; and (d) certain indemnification obligations on the part of the City.

“Default” shall mean an event, act or occurrence which, with the giving of notice or the lapse of
time (or both), would become an Event of Default.

“Financing Documents” shall mean the Reimbursement Agreement, the Letter of Credit, the
Bonds, the Indenture, the City authorizing resolution, the Authority authorizing resolution, the Lease, the
District Site Leases, the Site Lease, the Assignment Agreement, the purchase contract for the Bonds, the
remarketing agreement for the Bonds, this Official Statement and any other document or instrument
required or stated to be delivered under those documents, all in form and substance satisfactory to the
Credit Entity, as the same may be amended or supplemented from time to time in compliance with the
Reimbursement Agreement.

Events of Default. Each of the following events, acts or occurrences shall constitute an “Event of
Default” under the Reimbursement Agreement:

(a) default in the payment when due of (i) any Base Rental, (ii) reimbursement to the Credit
Entity of any drawings, or (iii) principal of or interest on any Credit Facility Bonds or default in the
payment within three (3) days following the due date of any other amount owing by the City under the
Reimbursement Agreement; or

(b) the City shall default in the performance or observance of (i) any term, covenant,
condition or agreement on its part to be performed or observed under certain of the affirmative covenants
or any of the negative covenants contained in the Reimbursement Agreement or (ii) any other term,
covenant, other condition or agreement on its part to be performed or observed and such Default shall
continue unremedied for thirty (30) days after written notice thereof shall have been given to the City by
the Credit Entity, unless, in the case of any Default, the City shall have notified the Credit Entity within
such ten day period that the City has commenced curing such Default within such 30-day period,
provided that no Event of Default shall occur under this clause (ii) only so long as the City is diligently
prosecuting such cure to completion in a manner satisfactory to the Credit Entity, and, if so requested by
the Credit Entity not less than thirty (30) days after the occurrence of such Default, the City shall deliver
to the Credit Entity evidence satisfactory to the Credit Entity that such Default is curable and that the City
is diligently prosecuting such cure; or

(c) any of the City’s representations or warranties made in the Reimbursement Agreement or
in any statement or certificate at any time made or deemed made by or on behalf of the City pursuant
thereto or in connection therewith, and/or in any of the other Financing Documents, is false or misleading
in any material respect when made or deemed made; or

(d) the City or the Authority shall either (i) become insolvent or generally fail to pay, or
admit in writing its inability to pay, its debts as they become due; or (ii) voluntarily commence any
proceeding or file any petition under bankruptcy law or similar law seeking dissolution or reorganization
or the appointment of a receiver, trustee, custodian or liquidator for itself or a substantial portion of its
property, assets or business or to effect a plan or other arrangement with its creditors, or shall file any
answer admitting the jurisdiction of the court and the material allegations of an involuntary petition filed
against it in any bankruptcy, insolvency or similar proceeding, or shall be adjudicated bankrupt, or shall
make a general assignment for the benefit of creditors, or shall consent to, or acquiesce in the
appointment of, a receiver, trustee, custodian or liquidator for itself or a substantial portion of its property,
assets or business; or (iii) take any action for the purpose of effectuating any of the foregoing; or

19
 (e) involuntary proceedings or an involuntary petition shall be commenced or filed against
the City or the Authority under bankruptcy law or similar law seeking the dissolution or reorganization of
the City or the Authority or the appointment of a receiver, trustee, custodian or liquidator for the City or
the Authority or of a substantial part of the property, assets or business of the City or the Authority, or
any writ, judgment, warrant of attachment, execution or similar process shall be issued or levied against a
substantial part of the property, assets or business of the City or the Authority, and such proceedings or
petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded, within sixty (60) days after commencement, filing
or levy, as the case may be; or

(f) an event of default on the part of the City or the Authority under any of the Financing
Documents to which it is a party shall have occurred and be continuing; or

(g) the City shall fail to make any payment when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) in respect of any debt payable from or secured
by the City’s general fund outstanding in a principal amount of $1,000,000 or more, and such failure shall
continue after the applicable grace period, if any, specified in the agreement or instrument relating
thereto; or any other default under any agreement or instrument relating thereto, or any other event, shall
occur and shall continue after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the
maturity thereof; or any such debt shall be properly declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or

(h) a final judgment or order for the payment of money in excess of $3,000,000 shall be
rendered against the City and not satisfied by the City and either (i) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order or (ii) there shall be any period of sixty
(60) consecutive days during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or

(i) any material provision of the Reimbursement Agreement or any other Financing
Document to which the City or the Authority is a party shall at any time for any reason cease to be valid
and binding on the City or the Authority, or shall be declared to be null and void, or the validity or
enforceability thereof shall be contested by the City or the Authority, or a proceeding shall be commenced
by any governmental agency or authority having jurisdiction over the City or the Authority seeking to
establish the invalidity or unenforceability thereof, or the City or the Authority shall deny that it has any
or further liability or obligation under the Reimbursement Agreement or any other Financing Document
to which it is a party; or

(j) any of the funds or accounts established pursuant to the Indenture or any funds or
accounts on deposit, or otherwise to the credit of, such funds or accounts shall become subject to any stay,
writ, judgment, warrant of attachment, execution or similar process by any of the creditors of the City and
such stay, writ, judgment, warrant of attachment, execution or similar process shall not be released,
vacated or stayed within fifteen (15) days after its issue or levy; or

(k) any pledge or security interest created by the Indenture, the Lease, the Assignment
Agreement or the Reimbursement Agreement to secure any Base Rental or Additional Rental or any
amount due by the City under the Reimbursement Agreement or with respect to the Bonds shall fail to be
fully enforceable with the priority required thereunder; or

(l) S&P, Moody’s or Fitch or any other nationally recognized securities rating agency shall
have assigned a rating to any long-term debt of the City below “BBB-” or “Baa-3”(or its equivalent), or to
any short-term debt of the City below “SP-3”, “MIG 4” or “Prime 3” (or its equivalent); or

20
 (m) a change occurs in the financial or operating conditions of the City, that, in the Credit
Entity’s reasonable judgment, will have a materially adverse impact on the ability of the City to pay the
Base Rental and the Additional Rental and its obligations under the Reimbursement Agreement or its
other obligations, and the City fails to cure such condition within six (6) months after receipt by the City
of written notice thereof from the Credit Entity; or

(n) any change in the Code or any final ruling, assessment, notice of deficiency or technical
advice by the Internal Revenue Service is made which results, or would result in interest on any Bonds
being included in gross income to the holders thereof; provided, however, it shall not be considered an
Event of Default under the Reimbursement Agreement if the Bonds are remarketed, reissued as, or
refunded with, obligations the interest on which is included in gross income for federal income tax
purposes, so long as any such remarketing, reissuance or refunding does not result in any amounts owing
to the Credit Entity under the Reimbursement Agreement and such interest is includable in gross income
only from the date of remarketing, reissuance or refunding, and not retroactively; or

(o) the City’s accountant fails or refuses to deliver an unqualified opinion with respect to the
financial statements of the City.

Remedies. Upon the occurrence and during the continuance of any Event of Default, the Credit
Entity at its option, may, upon notice to the Trustee and the City, do any one or more of the following:

(i) require, in accordance with the Indenture, the Trustee to give notice of mandatory tender
of Bonds in an amount equal to the Base Rental remaining unpaid under the Lease and to
purchase all such Bonds at a price equal to the principal amount thereof and interest accrued with
respect thereto and to register the Bonds in the name or on behalf of the Credit Entity or its
nominee pursuant to the Indenture; or
(ii) exercise any or all rights provided or permitted by law or granted pursuant to any of the
Financing Documents in such order and in such manner as the Credit Entity may, in its sole
judgment, determine.
No Waiver of Remedies. No waiver of any breach of or default under any provision of any of the
Financing Documents shall constitute or be construed as a waiver by the Credit Entity of any subsequent
breach of or default under that or any other provision of any of the Financing Documents.

Remedies Not Exclusive. No remedy conferred upon the Credit Entity in the Reimbursement
Agreement is intended to be exclusive of any other remedy therein or in any other agreement between the
parties thereto or by law provided or permitted, but each is cumulative and is in addition to every other
remedy given thereunder or now or hereafter existing at law, in equity or by statute.

THE CREDIT ENTITY

The following information concerning the Credit Entity has been provided by representatives of
the Credit Entity and has not been confirmed or verified by any of the Authority, the City, the Underwriter
or the Remarketing Agent. No representation is made herein to the accuracy or adequacy of such
information or as to the absence of material adverse changes to such information subsequent to the date
hereof, or that the information contained or incorporated herein by reference is correct as of any time
subsequent to its date.

Fortis Bank S.A./N.V. (“Fortis Bank”) conducts the banking activities of Fortis, an international
financial services provider active in the fields of banking, insurance and investment.

21
 Fortis Bank is a wholly-owned indirect subsidiary of Fortis SA/NV and Fortis N.V., whose
principal offices are located in Brussels (Belgium) and Utrecht (the Netherlands) respectively.

Fortis Bank is a commercial bank offering a full range of banking and insurance products and
services to a wide range of customers. In its home market, the Benelux countries, Fortis Bank occupies a
leading position. Fortis is the largest bank in Belgium, the second-largest in Luxembourg, and the fourth-
largest in the Netherlands. The bank had full-time staff of over 43,000 in 2006. Outside its home market,
Fortis Bank concentrates on selected market segments. Its business is subject to examination and
regulation by the Belgian Banking, Finance and Insurance Commission (“CBFA”).

As of December 31, 2006 Fortis Bank had total assets of EUR 674.7 billion.

Fortis Bank's Connecticut branch (the “Connecticut Branch”) has been licensed by the
Connecticut Department of Banking (the “CT Banking Department”) to conduct a wholesale banking
business since October 9, 2002. Fortis Bank’s New York branch (the “New York Branch”) has been
licensed by the New York State Banking Department (the “NY Banking Department”) to carry on the
business of a branch as of November 15, 2002. Both the Connecticut Branch and the New York Branch
are subject to examination by their respective Banking Departments and the Federal Reserve Bank of
New York. In addition, both branches are required to file periodic and other reports containing financial
information with their respective Banking Departments and the Federal Reserve Bank of New York.

Additional information, including the Fortis Annual Report for 2006, may be obtained without
charge by each person to whom this Official Statement is delivered upon the written request of any such
person to Fortis Bank, 520 Madison Avenue, New York, New York 10022. This information is also
available at www.Fortis.com.

The financial statements appearing in the Fortis Annual Report for 2006 were prepared in
accordance with International Financial Reporting Standards as adopted by the European Union, which
differ from generally accepted accounting principles in use in the United States.

The information in this Appendix has been obtained from Fortis Bank, which is solely
responsible for its content. The delivery of the Official Statement shall not create any implication that
there has been no change in the affairs of Fortis Bank since the date hereof, or that the information
contained or referred to in this Appendix is correct as of any time subsequent to its date.

The information in this Section has been obtained from Fortis Bank, which is solely responsible
for its content. The delivery of the Official Statement shall not create any implication that there has been
no change in the affairs of Fortis Bank since the date hereof, or that the information contained or referred
to in this Section is correct as of any time subsequent to its date.

22
 ESTIMATED SOURCES AND USES OF FUNDS

The following table sets forth the estimated sources and uses of funds related to the issuance of
the Bonds.

Sources of Funds:
Principal Amount of Bonds ............................................................................. $83,770,000.00
Transfers from 2005 Trust Estate .................................................................... 2,427,393.15
Transfers from 2006 Trust Estate .................................................................... 4,378,161.45
Less: Underwriter’s Discount ......................................................................... (502,620.00)
Total Sources of Funds ............................................................................... $90,072,934.60

Uses of Funds:
Deposit to 2005 Credit Facility Prepayment Account ..................................... $41,043,853.15
Deposit to 2006 Credit Facility Prepayment Account ..................................... 23,670,290.43
Deposit to Construction Fund .......................................................................... 11,576,695.63
Deposit to Lease Payment Fund(1) ................................................................... 7,466,001.25
Deposit to Reserve Fund.................................................................................. 5,872,900.00
Deposit to Costs of Issuance Fund(2) ................................................................ 443,194.14
Total Uses of Funds .................................................................................... $90,072,934.60
____________________
(1)
Represents capitalized interest on the Bonds through May 1, 2009 at an assumed interest rate of 4.50%.
(2)
Costs of issuance include fees and expenses of Bond Counsel, Co-Disclosure Counsel, Credit Entity Counsel, the Special
Financial Consultant and the Trustee, rating agency fees, printing expenses and other costs of issuance of the Bonds.

PLAN OF REFUNDING

On May 5, 2005, the Authority issued its $41,000,000 Lease Revenue Bonds, 2005 Series A
(Cogeneration Facility Project) (the “2005 Bonds”) pursuant to an Indenture, dated as of May 1, 2005 (the
“2005 Indenture”), by and between the Authority and the Trustee, as trustee thereunder. (the “Prior
Trustee”), currently outstanding in the aggregate principal amount of $41,000,000. A portion of the
proceeds of the Bonds, along with funds held under the 2005 Indenture, will be used to redeem on May
10, 2007 (the “Redemption Date”) all of the presently outstanding 2005 Bonds pursuant to the terms of
the 2005 Indenture.

On July 6, 2006, the Authority issued its $23,645,000 Lease Revenue Bonds, 2006 Series A
(Cogeneration Facility Expansion Project) (the “2006 Bonds”) pursuant to an Indenture, dated as of July
1, 2006 (the “2006 Indenture”), by and between the Authority and the Prior Trustee, currently outstanding
in the aggregate principal amount of $23,645,000. A portion of the proceeds of the Bonds, along with
funds held under the 2006 Indenture, will be used to redeem on the Redemption Date all of the presently
outstanding 2006 Bonds pursuant to the terms of the 2006 Indenture.

The District will effect the defeasance of the 2005 Bonds and the 2006 Bonds by drawing on the
related letter of credit for each of the 2005 Bonds and the 2006 Bonds (collectively, the “Prior Letters of
Credit”) in an amount sufficient to pay principal of and accrued interest on the 2005 Bonds and the 2006
Bonds, respectively, on the redemption date. A portion of the proceeds of the Bonds, along with other
available moneys, will be deposited to the Credit Facility Prepayment Accounts of the Redemption Funds
established for each of the 2005 Bonds and the 2006 Bonds under the 2005 Indenture and the 2006
Indenture, respectively. Amounts in the Credit Facility Prepayment Accounts will be sufficient to
reimburse the Credit Entity, in its capacity as credit entity with respect to the 2005 Bonds and the 2006
Bonds, for the respective draws under the Prior Letters of Credit.

23
 THE PROJECT

Victorville Municipal Utility Services (“VMUS”) was formed on January 9, 2001 by City
Council as a new department of the City. VMUS’s primary purpose is to assist existing businesses in the
City and to attract new businesses by offering lower energy costs. VMUS has 16 employees; two senior
staff, four administrative and ten operations & maintenance personnel. VMUS currently has
approximately 100 gas customers and approximately 10 electric customers.

In furtherance of the VMUS’s goals of providing lower energy costs to businesses in the City as
part of the City’s economic development plans, VMUS is currently undertaking the construction of a
cogeneration power plant and related facilities (the “Project”) in the Foxborough Industrial Park, a 272
acre industrial park located in a redevelopment area on the eastern side of the City, which is owned by the
City.

The City awarded a contract for construction of the Project to The Industrial Company on March
1, 2005 and began construction of the Project. The Project is designed to serve as the City of
Victorville’s “off-grid” facility providing the steam and electrical power requirements of the first two
Foxborough Industrial Park customers, Nutro Pet Foods and Americold cold storage facility and future
industrial park customers. The Project was originally designed to provide approximately 17.5 megawatts
(MW) of combined-cycle electricity with sufficient steam to exceed Nutro Pet Foods process
requirements of 11,000 pounds-per-hour (pph) with peaks to 14,000 pph, as well as provide enough steam
to power a 5 MW steam turbine generator.

Nutro Pet Foods, has expanded its facility with completion of a third extruder line which is
expected to be operational by June 2007. Nutro Pet Food’s energy requirements are expected to grow
from 4.1 million kilowatt hours (m/kWh) per month (peaking to 4.75 m/kWh) to 5.2 million kilowatt
hours per month (peaking to 6 m/kWh). Steam requirements will also increase to 16,500 pph with peaks
of 21,000 pph. Nutro Pet Food’s additional line requires that the Project also expand beyond the initial
17.5 MW capacity to an approximate 22.5 MW capacity, in addition to enhanced steam production, to
meet the increased energy requirements of this customer. The expansion project includes the design,
procurement, installation and commissioning of one 5,500 KW gas-fired combustion turbine engine
generator; one fresh-air fired heat recovery steam generator, one fuel gas compressor, a step-up
transformer, paralleling breaker, cooling tower, high resistance grounding system, protective relays and
modification of motor control centers. The main plant building and fuel gas compressor buildings is
being expanded as necessary and additions/modifications to the Plant Control System, CEMS and
instrumentation, necessary mechanical, electrical and balance of plant equipment and systems will also be
completed. In anticipation of the increased needs of its customers and this expansion, the City purchased
certain additional large equipment items (turbines & HRSG) at the same cost as similar previously
purchased items using Power Producers Index as an annual escalator, avoiding additional cost increases
imposed by the manufacturer. The Project including the expansion is expected to be completed and
operational by December 2008.

In order for VMUS to meet its contractual requirements to supply electricity and steam to Nutro
and Americold while the Project is under construction, VMUS leased and purchased a combination of
assets to be used as an interim temporary generating facility. VMUS owned assets include two packaged
boiler plants for steam, two 1.25 MW gas engine/genset packages & emissions systems and other assets
of plant support (switchgear, fuel and reagent storage/delivery systems). Leased assets include two (2) 2
MW and two (2) 0.8 MW rental gensets. This interim solution is capable of supplying the current power
demands for the two customers.

Approximately $8.5 million of the Bonds is allocated for further improvements to the Project.
The improvements include four 1.9MW Bio-Bi-Fuel reciprocating engine/generators and one 2.8MW

24
natural gas engine/generator cogeneration system being placed in a new building addition to the power
plant. These items will replace all leased assets described above and will relieve other VMUS-owned
assets to be reassigned to service elsewhere. This 10.4 MW system is designed to serve the loads of
current projected Foxborough Industrial Park (Nutro Pet Foods & ConAgra) customers in the most
efficient manner possible, significantly reducing costs to VMUS and providing added reliability for this
“off grid” islanded utility plant. This plant expansion also includes the design and capability of the
Project to utilize biofuels to generate “green power” such that the facility will meet the California
Renewable Portfolio Standard (RPS) being imposed on all utilities by the State by 2010. The Project will
also generate excess “green power” which VMUS will be able to sell to other utilities at significant
margins, to enable those utilities to meet the new State minimum “green power” generation guidelines.
Completion of this component of the Project is expected to be in December 2007 and will be functional
prior to the completion of the Project as described above.

Current total customer electric load at the Project is 2,000 megawatt hrs/mo., but expectations are
that this will increase in the next 100 days to close to 3,000 megawatt hrs/mo. due to the commencement
of operations at the third line at Nutro Pet Foods.

LEASED PROPERTY

The Leased Property shall consist of the following parcels of land owned by the City and its
subsidiary districts: City Hall, Green Tree Golf Course, Mojave Vista Park, 8th Street Community Center,
Activities Center, Avalon Park, Village Park, Center Street Park, Eagle Ranch Park, Fire Station 311, Fire
Station 312, Fire Station 313, Fire Station 314, Forrest Park, Grady Trammel Park, Sunset Ridge Park,
Victorville Police Station, Corporate Yard, Liberty Park, Library, Pebble Beach Park and Recreation
Center and Transportation Center CNG Station.

The Lease permits the City to substitute other premises for the Leased Property or portions
thereof under the Lease, provided that the fair market value and the fair rental value of the substitute
premises are at least equal to those of such portion of the Leased Property as is to be removed from the
Lease, and provided certain other criteria are met. See “APPENDIX C – SUMMARY OF PRINCIPAL
LEGAL DOCUMENTS – The Lease – Substitution of Property.”

CITY FINANCIAL INFORMATION

General

The City of Victorville is located in San Bernardino County approximately 97 miles northeast of
Los Angeles and 35 miles northeast of San Bernardino. The City, incorporated on September 21, 1962,
has a 2006 population of approximately 95,145 according to the California State Department of Finance.
See “APPENDIX A – CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION
CONCERNING THE CITY OF VICTORVILLE” for additional information relating to the City.

Budgetary Process

The fiscal year of the City begins on the first day of July of each year and ends on the thirtieth
day of June of the following year. The City Manager and City staff review estimates of revenues and
expenditures for each department for the ensuing fiscal year. At least thirty (30) days prior to the
beginning of each fiscal year, the City Manager submits to the Council the proposed budget. After
reviewing and making such revisions as it deems advisable, the City Council determines the time for the
holding of a public meeting thereon.

25
 At the conclusion of the public meeting, the City Council further considers the proposed budget
and makes any revision thereof that it deems advisable. On or before June 30 it adopts the budget with
revisions, if any, by the affirmative vote of at least a majority of the total members of the City Council.

From the effective date of the budget, the amounts stated as proposed expenditures become
appropriated to the several departments, offices and agencies for the objects and purposes named,
provided that the City Manager may transfer the appropriations from one object or purpose to another
within the divisional budget. All appropriations lapse at the end of the fiscal year to the extent that they
have not been expended or lawfully encumbered.

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

Financial Statements

A copy of the most recent financial statements of the City audited by Conrad and Associates,
L.L.P. (the “Auditor”) are included hereto as “APPENDIX B – AUDITED FINANCIAL STATEMENTS
OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2006.” The Auditor’s letter concludes that
the general purpose financial statements present fairly, in all material respects, the financial position of
the City as of June 30, 2005 and the results of its operations and the cash flows of its proprietary fund
types for the year then ended in conformity with account principals generally accepted in the United
States of America. The City has not requested nor did the City obtain permission from the Auditor to
include the audited financial statements as an appendix to this Official Statement. Accordingly, the
Auditor has not performed any post-audit work on the financial statements.

Revenues and Expenditures

CITY OF VICTORVILLE
GENERAL FUND REVENUES BY SOURCE
Fiscal Years 2002-03 through 2005-06

Category 2002-03 2003-04 2004-05 2005-06

Taxes(1) $17,481,279 $18,229,944 $25,794,655 $32,867,978
Intergovernmental 4,557,190 3,651,849 816,310 790,210
Licenses and Permits 4,582,058 6,387,342 6,005,625 7,877,751
Fines and Forfeits 94,820 135,120 181,285 178,792
Charges for Services 3,741,371 5,183,413 7,170,782 10,420,037
Other 425,560 645,118 753,845 998,173
Realized Gain on Investments 0 0 0 5,870
Transfers In 1,876,996 426,645 187,190 399,094

TOTALS $32,759,274 $34,659,431 $ 40,909,692 $53,537,905

_____________________
(1)
Amounts are primarily comprised of sales tax. Other than property tax subventions, the General Fund receives no ad valorem
property tax.
Source: City of Victorville.

26
 CITY OF VICTORVILLE
GENERAL FUND EXPENDITURES BY FUNCTION
Fiscal Years 2002-03 through 2005-06

Category 2002-03 2003-04 2004-05 2005-06

General Government $4,759,092 $5,485,399 $6,879,232 $8,098,740

Safety 9,162,931 9,990,118 11,433,445 13,674,921
Public Works 8,170,707 6,146,323 9,298,464 18,359,715
Parks and Recreation 197,414 243,521 265,597 387,932
Capital Outlay 0 0 0 0
Transfers out 3,605,605 9,230,319 9,695,272 14,334,869

TOTALS $25,895,749 $31,095,680 $37,572,010 $54,856,177

____________________
Source: City of Victorville.

General Fund

The following tables reflect the City’s General Fund balance sheet and revenues, expenditures
and fund balances for the Fiscal Years ended June 30, 2002 through June 30, 2006 and the City’s General
Fund budgeted revenues and expenditures for the Fiscal Year ended June 30, 2007. The budget was
adopted in June 2006. This information has been derived from the audited financial statements of the
City for the fiscal years shown. This information should be read in conjunction with “APPENDIX B –
AUDITED FINANCIAL STATEMENTS OF THE CITY FOR FISCAL YEAR ENDED JUNE 30, 2006”
attached hereto.

[Remainder of Page Intentionally Left Blank]

27
 CITY OF VICTORVILLE
GENERAL FUND BALANCE SHEET
For Fiscal Years Ended June 30, 2002 Through June 30, 2006

2002 2003 2004 2005 2006

Assets

Cash and investments $ -- $5,095,965 $14,847,594 $19,272,015 $19,070,000

Accounts receivable 22,569 519,165 452,774 569,877 885,148
Interest receivable 156,006 236,050 110,297 435,479 693,178
Notes receivable 10,276 7,658 -- -- --
Inventories 303,171 215,682 308,641 359,976 442,719
Due from other governments 2,307,536 5,703,976 5,358,094 3,988,035 4,555,922
Prepaid items 97,349 221,408 588,880 966,660 380,431
Advances to other funds 15,679,676 16,655,464 10,668,915 -- 7,500,000
Loans from other governments 3,034,599 -- -- -- --
Due from other funds -- -- -- 10,806,753 1,243,761
Total Assets $21,611,182 $28,655,368 $32,335,195 $36,398,795 $34,771,159

Liabilities and Fund Balances

Accounts payable $1,299,767 $1,368,022 $1,392,971 $2,020,941 $2,929,346

Deferred credits -- -- -- 635,053 --
Accrued liabilities 354,925 443,400 544,636 -- 830,665
Deposits payable 29,014 36,375 42,837 50,367 55,106
Deferred revenue -- 16,571 -- -- --
Advances from other funds 4,820,173 4,820,172 4,820,172 4,820,172 3,402,052
Total Liabilities $6,503,879 $6,684,540 $6,800,616 $7,526,533 $7,217,69

Equity and Other Credits

Fund balances:
Reserved $14,304,898 $17,083,641 $11,566,436 $12,133,389 $9,566,911
Unreserved 802,405 4,887,187 13,968,143 16,738,873 17,987,079
Total Fund Balances $15,107,303 $21,970,828 $25,534,579 $28,872,262 27,553,990
Total Liabilities and Fund Balances $21,611,182 $28,655,368 $32,335,195 $36,398,795 $34,771,159
____________________
Source: City of Victorville Audited Financial Statements.

28
 CITY OF VICTORVILLE GENERAL FUND
REVENUES, EXPENDITURES AND FUND BALANCES
For Fiscal Years Ended June 30, 2002 Through June 30, 2006

2002 2003 2004 2005 2006

Revenues:
Taxes $14,036,800 $17,481,279 $18,229,944 $25,794,655 $32,867,978
Licenses and permits 2,906,886 4,582,058 6,387,342 6,005,625 7,877,751
Intergovernmental 4,147,574 4,557,190 3,651,849 816,310 790,210
Charges for services 1,847,636 3,741,371 5,183,413 7,170,782 10,420,037
Fines and forfeitures 68,237 94,820 135,120 181,285 178,792
Investment income 470,892 125,230 187,561 297,826 461,908
Sale of assets 346,696 7,983 39,935 29,948 --
Other 186,936 292,347 417,622 426,071 536,265
Total revenues $24,011,657 $30,882,278 $34,232,786 $40,722,502 $53,132,941

Expenditures:
Current:
General government $ 6,949,235 $4,759,092 $5,485,399 $ 6,879,232 $8,098,740
Public safety 8,846,240 9,162,931 9,990,118 11,433,445 13,674,921
Public works 7,706,523 8,170,707 6,146,323 9,298,464 18,359,715
Parks and recreation 437,585 197,414 243,521 265,597 387,932
Total expenditures $23,939,583 $22,290,144 $21,865,361 $27,876,738 $40,521,308

Excess (deficiency) of revenues over

(under) expenditures $72,074 $8,592,134 $12,367,425 $12,845,764 $12,611,633

Other financing sources (uses):

Transfers in 2,242,802 1,876,996 426,645 187,190 399,094
Transfers out (4,065,203) (3,605,605) (9,230,319) (9,695,272) (14,334,869)
Sale of Assets -- -- -- -- 5,870
Total other financing sources (uses) (1,822,401) (1,728,609) (8,803,674) (9,508,082) (13,929,905)

Net change in fund balances $(1,750,327) $6,863,525 $3,563,751 $3,337,682 $(1,318,272)

Fund balances at beginning of year 16,857,630 15,107,303 21,970,828 25,534,580 28,872,262

(as restated for 2002)

Fund balances at end of year $15,107,303 $21,970,828 $25,534,579 $28,872,262 $27,553,990

____________________
Source: City of Victorville Audited Financial Statements.

29
 CITY OF VICTORVILLE
BUDGETED GENERAL FUND REVENUES AND EXPENDITURES
For Fiscal Year Ended June 30, 2007

Revenues
Taxes $ 35,008,880
Licenses and Permits 5,867,600
Intergovernmental 706,000
Fines and Forfeitures 145,550
Charges for Services 9,981,925
Use of Property 528,600
Transfers-In Other Funds 347,500
Cost Recovery 1,022,700
Other 64,000
Reduction in Unappointed Fund Balance 5,198,186
Total Revenues $58,870,941

Expenditures
City Council 108,350
Legislative & Community Affairs 715,265
Library Services 1,197,410
City Manager 868,336
Emergency Services 133,991
Risk Management 962,310
City Clerk 448,282
Elections 16,000
Finance Department 1,127,154
Purchasing 521,823
Computer Information Services 4,210,959
City Treasurer 560,177
License Control 151,985
City Attorney 250,000
Planning Department 1,363,196
Human Resources 1,141,954
Police Department 14,638,795
Fire Museum 1,900
Explorer Post Station #2 3,550
Building and Safety 3,159,536
Building Code Enforcement 715,840
Engineering Department 5,957,899
Public Works Week 15,000
Graffiti Removal 147,225
Animal Control 662,156
Parking Enforcement 78,483
Fleet Maintenance 1,823,504
Fleet Maintenance SCLA B & D 29,015
Fueling Stations 502,140
Open Space, Trees & Medians 323,996
City Facilities 2,290,035
Transfers Out 14,669,855
CIP Projects 74,820
Total Expenditures $58,870,941
____________________
Source: City of Victorville

30
Sales Tax

Sales tax revenues of the City have trended upwards during the last five Fiscal Years as shown in
the following table.

CITY OF VICTORVILLE
SALES AND USE TAX REVENUES
Fiscal Years 2001-02 Through 2005-06
(unaudited)

Fiscal Years Totals Percentage Change

2001-02 $12,852,066 7.28%

2002-03 15,826,366 23.14
2003-04 16,465,113 4.04
2004-05 19,680,830 19.53
2005-06 23,375,886 18.77
____________________
Source: City of Victorville.

Commercial Activity

The following table shows the dollar value of taxable transactions within the City for the years
2001 through 2005.

CITY OF VICTORVILLE
TAXABLE TRANSACTIONS, BY TYPE OF BUSINESS
Calendar Years 2001 through 2005
(Dollar Amounts in Thousands)

2001 2002 2003 2004 2005

Retail Stores:
Apparel stores .................... $ 32,628 $ 35,113 $ 52,890 $ 59,937 $72,147
General merchandise(1) ....... 238,689 254,324 271,110 307,816 333,724
Food stores......................... 45,635 48,945 52,986 54,569 58,926
Eating & drinking
establishments ................ 99,790 108,548 121,481 145,956 161,412
Home furnishings
& appliances................... 43,886 50,365 56,975 73,237 87,716
Building materials
and farm implements...... 103,420 109,149 131,697 178,309 200,068
Auto dealers and supplies .. 246,476 282,981 324,577 427,639 528,258
Service stations .................. 75,306 78,461 100,397 123,250 149,292
Other retail stores............... 138,186 153,898 167,975 193,496 220,178

Total retail stores.................. 1,024,016 1,121,784 1,280,088 1,564,209 1,811,721

All other outlets.................... 113,296 234,591 135,221 159,198 189,733

Total Taxable Transactions.. $1,137,312 $1,356,375 $1,415,309 $1,723,407 $2,001,454

____________________
(1)
Sales figures have been omitted because their publication would result in the disclosure of confidential information. The
totals for this category have been included under “Other Retail Stores.”
Source: California State Board of Equalization.

31
State of California Motor Vehicle In-Lieu Payments

The State imposes a vehicle license fee (the “VLF”), which is the portion of the fees paid in lieu
of personal property taxes on a vehicle and is included in intergovernmental revenue received by the City.
The VLF is based on vehicle value (in the amount of two percent of the market value of the vehicle) and
declines as the vehicle ages. The State allocates the revenues equally between cities and counties,
apportioned based on population. In 1998, the State legislature and Governor enacted temporary laws to
reduce the VLF by 25%. In 2000, the reduction was increased to a total of 35%. In 2001, legislation
authorized the Department of Motor Vehicles and the State Controller to rebate an additional 32.5% of
the VLF (a total of 67.5%). In 2003, the State triggered an increase in the VLF to be effective beginning
October 1, 2003 but deferred payment to local agencies until August, 2006 the amount of the VLF
backfill for the period from June 20, 2003 to September 30, 2003, when the higher VLF went into effect.
This VLF “gap up” or “loan” is estimated at approximately $1.3 billion statewide. (The City’s share is
$1.2 million for fiscal year 2003-04.) The 2004-05 State Budget includes a reduction in VLF from 2% to
0.65% and eliminates the VLF backfill. Instead, cities and counties, including the City, will receive
increased property tax revenues to compensate for the reduction in VLF. However, in fiscal years 2004-
05 and 2005-06, each category of cities, counties and special districts will give up $350 million of such
property tax revenues, with redevelopment agencies contributing $250 million, for a total of $1.3 billion.
The City estimates its General Fund share of such concession will be approximately $731,103 for fiscal
years 2004-05 and 2005-06. See “Impact of State Budget” below.

Impact of State Budget

The State has been experiencing serious budgetary shortfalls for the past three fiscal years, and it
is currently projected to experience budgetary shortfalls in the current fiscal year. The State General
Fund Budgets for fiscal year 2002-03 and fiscal year 2003-04 were both adopted over two months late,
and required the Legislature to close multi-billion dollar deficits. The State’s 2003-04 budget, in addition
to suspending, deferring or eliminating certain State mandated local programs, reduced the vehicle license
fee backfill to cities and counties by approximately $662 million. However, Assembly Bill 1768 was
subsequently adopted by the Legislature, and required the State to repay this transferred amount of
vehicle license fees by August 15, 2006.

Budgets for Fiscal Years 2006-07 and 2007-08

On June 30, 2006, the Governor signed into law AB 1801 (as amended), the State’s fiscal year
2006-07 budget bill. The California Department of Finance has posted a report providing highlights to
the enacted State budget (the “Budget Highlight Report”) on its website. According to the Budget
Highlight Report, in fiscal year 2006-07, the State general fund revenues are expected to be
approximately $103.4 billion, and general fund expenditures are expected to be $101.3 billion after taking
into account the prior year’s general fund balance. The following is an excerpt from the Budget Highlight
Report pertaining to the provisions of the fiscal year 2006-07 State budget which impact local
government funds:

“The 2006 Budget Act includes more than $2.1 billion in funding growth for local
governments over the 2005-06 Budget. This includes $1.3 billion in property tax
revenues that local governments are no longer required to shift to the ERAF pursuant to
the provisions of Proposition 1A, $417 million for transit, $175 million for local street
and road maintenance, $145 million for substance abuse treatment programs, $35 million
for county jail booking fee subventions, $38 million for various juvenile justice and local
law enforcement activities, and $1.6 million in disaster relief funds.

Additionally, while not reflected in state budget totals, the replacement of city and county
vehicle license fee revenues with property tax has resulted in $700 million in growth of

32
 these new local revenues compared to what they would have been in 2006-07, had this
revenue swap not occurred.”

On January 10, 2007, the Governor’s Proposed Budget for fiscal year 2007-08 was submitted.
The Governor’s Revised Budget will be available in mid-May 2007. The California Department of
Finance has posted a summary of the State budget for 2007-08 on its website (the “Proposed Budget
Summary”). According to the Proposed Budget Summary, in fiscal year 2007-08, the State general fund
revenues are expected to be approximately $101.3 billion, and general fund expenditures are expected to
be $103.1 billion. The following is an excerpt from the Proposed Budget Summary pertaining to the
provisions of the proposed fiscal year 2007-08 State budget which will impact local government funds:

“The economic outlook is generally positive for all regions of the state, and local
revenues are expected to show continued growth. Due to the termination of ERAF III
payments in 2006-07, the share of the property tax going to local governments has
increased to approximately 63 percent.

Property tax revenues are expected to increase almost 12 percent in 2006-07, and by
almost 10 percent in 2007-08. The projected growth rates translate to an additional $2.5
billion for local governments in 2007-08, thereby increasing their total property tax
revenues to approximately $29.7 billion.

The sales tax, local governments’ other major source of discretionary revenue, also is
expected to show modest growth in 2007-08. The sales tax should provide over $4.4
billion for discretionary purposes, in addition to $3 billion for public safety, $3 billion for
health programs, and $1.5 billion for county transportation purposes. Vehicle license
fees, which provide partial funding for local health programs and discretionary revenue
for cities, were up 4.5 percent in 2005-06 and are expected to show gains of four percent
and 3.9 percent over the next two years.

The recently passed Proposition 1B provides $19.9 billion in bond funds for
transportation projects, of which approximately $7.1 billion will go to local governments
for their transportation infrastructure needs.”

Further information about the State budget is available from the Public Finance Division
of the State Treasurer’s Office. In addition, information about the State budget is
regularly available at various State-maintained websites, including www.dof.ca.gov
(Department of Finance), www.lao.ca.gov (Office of the Legislative Analyst) and
www.treasurer.ca.gov (State Treasurer). The above-mentioned websites are included
herein for informational purposes only. The Authority makes no representation
concerning, and does not take any responsibility for, the accuracy or timeliness of
information posted on such websites or the continued maintenance of such websites by
the respective entities.

City Investment Policy

The City’s investment policy is to minimize credit and market risks while maintaining a
competitive yield on its portfolio. Accordingly, the majority of City deposits are either insured by federal
depository insurance or collateralized. Nearly all investments held by the City at June 30, 2006 were
classified in the category of lowest custodial credit risk as defined by the Government Accounting
Standard Board. The basic objectives of the City’s investment program are: safety, liquidity and yield.
Under provision of the City’s investment policy, and in accordance with Section 53601 of the California
Government Code, the City may invest in:

33
 • Securities of the U.S. Government or its agencies
• U.S. Treasury notes/bonds
• Negotiable certificate of deposits – (30% max)
• Banker’s acceptances – (30% max)
• Commercial paper – (15% max)
• Local Agency Investment Fund (state pool) deposits – a special fund of the California
State Treasury through which local governments may pool investments.
• Money Market Accounts – (20% max)
• Medium Term Corporate Notes – (30% max)
• Certificates of Deposits – (25% max)

It is the intent of the City to hold all investments until maturity or until market value equals or
exceeds cost.

The City Treasurer is charged with the responsibility of custody and investment of surplus City
funds. The City Treasurer is required to submit a quarterly investment report to the City Council that
provides a summary of the status of the current investment portfolio and material transactions entered into
during the quarter.

Long-Term General Fund Obligations

The chart below provides a summary of governmental long-term liabilities of the City for the year
ended June 30, 2006.

Balance at Balance at Due Within

July 1, 2005 Additions Retirements June 30, 2006 One Year
City Debt:
Compensated Absences $3,067,219 $580,738 $44,907 $3,603,050 $500,000
Certificates of Participation
1997 Series EE Refunding 590,000 -- 110,000 480,000 110,000
Installment Purchase Agreement
2004 Project Revenue Bond 2,683,071 -- 133,371 2,549,700 138,872
Redevelopment Agency Debt:
Tax Allocation Bonds:
2002 Tax Allocation Bonds, A 9,540,000 -- 195,000 9,345,000 205,000
2003 Tax Allocation Bonds, A 10,100,000 -- 210,000 9,890,000 215,000
2003 Tax Allocation Bonds, B 4,965,000 -- 105,000 4,860,000 105,000
2006 Tax Allocation Bonds, A -- 22,975,000 -- 22,975,000 820,000

Total $30,945,290 $23,555,738 $798,278 $53,702,750 $2,090,872

34
Direct and Overlapping Bonded Debt

The following table present a statement of the outstanding direct and overlapping debt for
properties within the City as of May 1, 2007. All of the debt shown is of taxing agencies other than the
City. As stated above, the City currently has no bonded indebtedness.
CITY OF VICTORVILLE
DIRECT AND OVERLAPPING BONDED DEBT
2006-07 Assessed Valuation: $7,400,816,527
Redevelopment Incremental Valuation: 2,919,583,022
Adjusted Assessed Valuation: $4,481,233,505

OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/07

Victor Valley Joint Union High School District 55.798% $ 12,808,487
Adelanto School District 33.726 5,463,746
Oro Grande School District 1.548 12,616
Victor School District 76.297 30,695,963
Mojave Water Agency 20.997 4,690,730
Adelanto School District Community Facilities District No. 1, I.A. A 100. 17,360,000
Adelanto School District Community Facilities District No. 2 100. 3,520,000
Hesperia Unified School District Community Facilities District No. 2004-1 100. 1,540,000
Snowline Joint Unified School District Community Facilities District No. 2 100. 10,000,000
Victor School District Community Facilities District No. 2004-1 100. 8,695,000
Victor Valley Joint Union High School District Community Facilities District No. 2003-1 100. 2,930,000
City of Victorville Community Facilities Districts 100. 11,550,000
Baldy Mesa Water District, Assessment District No. 2R 100. 4,070,000
TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $113,336,542

DIRECT AND OVERLAPPING GENERAL FUND DEBT:

San Bernardino County General Fund Obligations 4.133% $ 34,753,984
San Bernardino Pension Obligations 4.133 30,519,130
Victor Valley Joint Community College District Certificates of Participation 24.659 13,056,941
Victor Valley Union High School District Certificates of Participation 55.798 5,671,867
Hesperia Unified School District Certificates of Participation 3.118 3,273,900
Snowline Joint Unified School District Certificates of Participation 16.584 9,592,186
Adelanto School District Certificates of Participation 33.726 3,202,284
Victor School District Certificates of Participation 76.297 7,107,066
City of Victorville General Fund Obligations 100. 64,645,000 (1)
Victorville Recreation and Park District Certificates of Participation 81.727 283,919
TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $172,106,277

COMBINED TOTAL DEBT $285,442,819

(2)

(1) Excludes lease revenue bonds to be sold.

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

Ratios to 2006-07 Assessed Valuation:

Total Overlapping Tax and Assessment Debt...................1.53%

Ratios to Adjusted Assessed Valuation:

Combined Direct Debt ($64,645,000) ............................1.44%
Combined Total Debt........................................................6.37%

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/06: $0

____________________
Source: California Municipal Statistics Inc.

35
Employees and Labor Relations

The City currently employs approximately 646 full-time and part-time employees. A historical
summary of City employment levels is set forth below.

CITY OF VICTORVILLE EMPLOYMENT LEVELS

Fiscal Years 2002-03 Through 2006-07

Permanent Seasonal and

Fiscal Year Full Time Part Time

2002-03 250 197

2003-04 291 189
2004-05 344 193
2005-06 407 178
2006-07 466 180
____________________
Source: City of Victorville.

The City has never experienced a work stoppage by its employees. The City currently has a
Memorandum of Understanding (MOU) between the City and the Victorville Professional Firefighters.
This MOU will terminate on June 30, 2008. The City currently does not have a MOU with the
miscellaneous employees.

Defined Benefit Pension Plan

The City has contracted with the California Public Employees Retirement System (“PERS”) to
provide retirement, disability, death and survivor benefits for all eligible full and part-time City
employees. The City’s contribution to the system based on actuarially determined requirements was
$3,466,449 for Fiscal Year 2005-06.

For the three Fiscal Years ended June 30, 2004, 2005 and 2006, the total contribution to PERS
was $2,058,266, $4,138,915 and $5,527,233, respectively. The total contribution paid by the City
included employer contributions as well as member contributions for which the City is contractually
obligated to pay on behalf of its employees. According to an actuarial valuation report prepared by
PERS, as of June 30, 2004, the City had unfunded liability for safety contributions in the amount of
$4,425,782. As of June 30, 2005, the City had unfunded liability for miscellaneous contributions in the
amount of $6,564,784.

Other Post-Employment Benefits

Employees who retire from the City are eligible to receive health care benefits covering such
employees only and not their dependants. The City pays, based on years of service, a percentage of all
premiums charged under a health benefit plan administered by the Public Employee’s Retirement System
(PERS) in which the individuals are able to select, on an annual basis, an insurance carrier from a number
of insurance carriers. Expenditures for post-retirement health care benefits for the fiscal year ended
June 30, 2006 amounted to $41,892, which included 20 participants.

Insurance

The City is a member of the Public Entity Risk Management Authority (PERMA), formerly
Coachella Valley Joint Powers Insurance Authority (CVJPIA), a joint powers authority formed under

36
Section 990 of the California Government Code for the purpose of jointly funding programs of insurance
coverage for its members. PERMA is comprised of twenty-six participating member agencies. The City
participates in the liability and worker’s compensation insurance programs of PERMA.

The liability program provides coverage up to $40,000,000 per occurrence for personal injury,
bodily injury, property damage and public officials’ errors and omissions.

Effective July 1, 1996, the PERMA restructured its pooling arrangement by establishing risk
sharing pools with various attachment points and discontinuing the deductible program. Each member
selects a self-insured retention of either $0, $10,000, $25,000, $50,000, $125,000, $250,000 or $500,000,
and participates in risk sharing pools for coverage above its retention. PERMA maintains member equity
accounts for each pool member. Member liability deposit premiums are subject to retrospective rating
adjustments.

For Fiscal Year 2006-07, the City has selected a self-insurance retention of $50,000. The City
participates in risk sharing pools for losses up to $1,000,000, followed by excess coverage up to
$25,000,000 provided by the California Joint Powers Risk Management Authority.

The workers’ compensation program provides statutory benefits for employee injuries arising out
of and in the course of employment.

The workers’ compensation coverage is provided through a banking pool, risk sharing pool, and
an insurance purchasing pool. As an insurance purchasing pool, the program allows participating
members to obtain the economies of scale in securing excess workers’ compensation coverage. The City
self-insures up to a level of $250,000 per accident or employee within the banking pool. A risk sharing
pool through PERMA provides the coverage above $250,000 up to $500,000. Excess coverage above
$500,000 up to $2,000,000 is provided by the Local Agency Workers’ Compensation Excess JPA and
coverage above $2,000,000 up to $100,000,00 is provided by the California Public Entity Insurance
Authority.

RISK FACTORS

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

Substitution of Property

The Lease permits the City to substitute other premises for the Leased Property or portions
thereof under the Lease, provided that the fair market value and the fair rental value of the substitute
premises are at least equal to such portion of the Leased Property to be removed from the Lease, and
provided certain other criteria are met. See “APPENDIX C – SUMMARY OF PRINCIPAL LEGAL
DOCUMENTS – The Lease – Substitution of Property.”

Base Rental Payments Not Debt

The obligation of the City to make the Base Rental Payments does not constitute an obligation of
the City for which the City is obligated to levy or pledge any form of taxation or for which the City has
levied or pledged any form of taxation. Neither the Bonds nor the obligation of the City to make Base
Rental Payments constitute a debt of the City, the State of California or any political subdivision thereof

37
(other than the Authority) within the meaning of any constitutional or statutory debt limitation or
restriction.

The Bonds are not general obligations of the Authority, but are limited obligations payable solely
from and secured by a pledge of Revenues, consisting primarily of Base Rental Payments. The Authority
has no taxing power.

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

The City has the capacity to enter into other obligations payable from the City’s general fund,
without the consent of or prior notice to the Owners of the Bonds. To the extent that additional
obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased.
In the event the City’s revenue sources are less than its total obligations, the City could choose to fund
other activities before making Base Rental Payments and other payments due under the Lease. The same
result could occur if state constitutional expenditure limitations were to prohibit the City from
appropriating and spending all of its otherwise available revenues.

Abatement

In the event of loss or substantial interference in the use and occupancy by the City of all or any
portion of the Leased Property caused by material damage, title defect, destruction to or condemnation of
the Leased Property, Base Rental Payments will be subject to abatement. In the event that such
component of the Leased Property, if damaged or destroyed by an insured casualty, could not be replaced
during the period of time that proceeds of the City’s rental interruption insurance will be available in lieu
of Base Rental Payments, or in the event that casualty insurance proceeds or condemnation proceeds are
insufficient to provide for complete repair or replacement of such component of the Leased Property or
prepayment of the Bonds, there could be insufficient funds to make payments to Owners in full.

Risk of Uninsured Loss

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

Certain of the City’s insurance policies provide for deductibles up to $1,000,000. Should the City
be required to meet such deductible expenses, the availability of General Fund revenues to make Base
Rental Payments may be correspondingly affected.

38
Seismic Risks

The State of California, including the San Bernardino County Area, is a seismically active region.
There are several geological faults in the area which have the potential to cause serious earthquakes and
damage to the Leased Property. Should an earthquake occur such that extensive damage is caused to the
Leased Property that results in substantial interference with the use and occupancy of the Leased
Property, under the abatement provisions of the Lease, the City would not be obligated to make the Base
Rental Payments. See “RISK FACTORS – Abatement” above.

Bankruptcy

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

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

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

39
Enforcement of Remedies Under the Lease

If the City defaults on its obligation to make Base Rental Payments with respect to the Leased
Property, the Authority’s only effective remedy is to sue for Base Rental Payments as they become due.
In the event of a default, there is no remedy of acceleration of the total Base Rental Payments due over
the term of the Lease. The City, while it is the lessee under the Lease, will only be liable for Base Rental
Payments on a semiannual basis, and the Authority would be required to seek a separate judgment for
each year’s defaulted Base Rental Payment. Any such suit for money damages would be subject to
limitations on legal remedies against cities in the State.

In addition, any exercise of remedies to recover shortfalls in the receipt of Base Rental Payments
will be subject to the parity claims of holders of any other parties entitled to receive Base Rental
Payments.

No Liability of Authority to the Owners

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

Risks Related to Taxation in California

Constitutional Amendments Affecting Tax Revenues. Article XIIIA of the California

Constitution limits the amounts of ad valorem tax on real property to 1% of “full cash value” as
determined by the county assessor. Article XIIIA defines “full cash value” to mean “the City Assessor’s
valuation of real property as shown on the 1975-76 tax bill under `full cash value’, or thereafter the
appraised value of real property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment period.” Furthermore, all real property valuation may be increased to
reflect the inflation rate, as shown by the consumer price index, not to exceed 2% per year, or may be
reduced in the event of declining property values caused by damage, destruction or other factors.

Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by
the voters prior to July 1, 1978, and any bonded indebtedness for the acquisition or improvement of real
property approved on or after July 1, 1978 by two-thirds of the voters voting on the proposition approving
such bonds, and requires a vote of two-thirds of the qualified electorate to impose special taxes, while
totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property.
In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to
change any State tax law resulting in increased tax revenues.

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

On November 5, 1996, California voters approved an initiative to amend the California

Constitution known as the Right to Vote on Taxes Act (“Proposition 218”), which added Article XIIIC
and XIIID to the California Constitution. Among other provisions, Proposition 218 requires majority
voter approval for the imposition, extension or increase of general taxes and two-thirds voter approval for

40
the imposition, extension or increase of special taxes by a local government, which is defined in
Proposition 218 to include cities. Proposition 218 also provides that any general tax imposed, extended
or increased without voter approval by any local government on or after January 1, 1995 and prior to
November 6, 1996 will continue to be imposed only if approved by a majority vote in an election held
within two years of November 6, 1996. Proposition 218 also provides that the initiative power shall not
be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or
charge. This extension of the initiative power is not limited by the terms of Proposition 218 to
impositions after November 6, 1996 and absent other legal authority, could result in retroactive reduction
in any existing taxes, assessments, fees and charges. In addition, Proposition 218 limits the application of
assessments, fees and charges and requires certain existing, new and increased assessments, fees and
charges to be submitted to property owners for approval or rejection, after notice and public hearing. The
City does not expect Proposition 218 to have any immediate material effect on the revenues from which
Base Rental Payments are expected to be appropriated.

Implementing Legislation. Legislation enacted by the California Legislature to implement

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

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

Constitutional Challenges to Property Tax System. There have been many challenges to
Article XIIIA of the California Constitution. The United States Supreme Court heard the appeal in
Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in
Nordlinger, the United States Supreme Court held that the method of property tax assessment under
Article XIIIA did not violate the federal Constitution. The Authority cannot predict whether there will be
any future challenges to California’s present system of property tax assessment and cannot evaluate the
ultimate effect on the Agency’s receipt of tax increment revenues should a future decision hold
unconstitutional the method of assessing property.

Statutory Revenue Limitations -- Proposition 62. Proposition 62 is a statewide statutory

initiative adopted by the voters at the November 4, 1986 general election. It added Sections 53720 to
53730 to the Government Code to require that all new local taxes be approved by the voters. The statute
provides that all local taxes are either general taxes or special taxes. General taxes are imposed for
general governmental purposes. Special taxes are imposed for specific purposes only. General taxes may
not be imposed by local government unless approved by a two-thirds vote of the entire legislative body
and a majority of the voters voting on the proposed general tax. Special taxes may not be imposed by
local government unless approved by a majority of the entire legislative body and by two-thirds of the
voters voting on the special tax. Soon after Proposition 62 was adopted by the voters, legal challenges to
taxes adopted contrary to its provisions were filed. In 1991, in the most significant case, City of

41
Woodlake v. Logan, the California Court of Appeal held that the statutory voter approval requirement for
general taxes was unconstitutional. The California Supreme Court refused to review Woodlake.

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

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

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

The Authority cannot predict the outcome of any pending or future litigation concerning the
validity of Proposition 62, nor can it predict the scope of the Guardino or Brawley decisions discussed
above. Proposition 62 could affect the ability of the City to continue the imposition of, or to retain,
certain taxes, and restrict the City’s ability to raise revenue.

Future Initiatives

Articles XIIIA, XIIIB, XIIIC and XIIID were each adopted as measures that qualified for the
ballot pursuant to California’s initiative process. From time to time other initiative measures could be
adopted, further affecting revenues of the City or the City’s ability to expend revenues. The nature and
impact of these measures cannot be anticipated by the Authority or the City.

THE AUTHORITY

The Authority was established pursuant to a Joint Exercise of Powers Agreement dated as of
September 1, 1990, by and between the City and the Redevelopment Agency of the City of Victorville in
accordance with the provisions of the Bond Law. The Authority was created for the purpose of providing

42
financing for public capital improvements for the City through the acquisition by the Authority of such
public capital improvements and/or the purchase by the Authority of local obligations within the meaning
of the Bond Law. Under the Bond law, the Authority has the power to pay and finance the costs of
acquiring, installing and constructing the Leased Property. The Authority has no independent staff and
consequently will be dependent upon the City’s officers and employees to administer its programs on its
behalf. The Board of Directors of the Authority is composed of the members of the City Council.

UNDERWRITING

The Underwriter has agreed to purchase the Bonds at a purchase price of $83,267,380, which
includes an Underwriter’s discount of $506,620. The purchase agreement relating to the Bonds provides
that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such
purchase being subject to certain terms and conditions set forth in the purchase agreement, the approval of
certain legal matters by counsel and certain other conditions.

The Underwriter reserves the right to join with dealers and other underwriters in offering the
Bonds to the public. The Underwriter may offer and sell the Bonds to certain dealers (including dealers
depositing Bonds into investment trusts) at prices lower than the public offering prices, and such dealers
may reallow any such discounts on sales to other dealers.

CERTAIN LEGAL MATTERS

Fulbright & Jaworski L.L.P., Los Angeles, California will render an opinion with respect to the
validity and enforceability of the Bonds, the Indenture, the Lease and the Site Lease, substantially in the
form set forth in APPENDIX E hereto. Certain other legal matters will be passed on for the Authority
and the City by Fulbright & Jaworski L.L.P., Los Angeles, California and by Green, de Bortnowsky &
Quintanilla, LLP, Calabasas, California, Co-Disclosure Counsel, and for the Authority and the City by the
City Attorney of the City of Victorville.

TAX EXEMPTION

The Internal Revenue Code of 1986 (the “Code”) imposes certain requirements that must be met
subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded
pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax
purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in
the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance
of the Bonds. The Authority and the City have covenanted to maintain the exclusion of the interest on the
Bonds from the gross income of the owners thereof for federal income tax purposes.

In the opinion of Fulbright & Jaworski L.L.P., Bond Counsel, under existing law, interest on the
Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the
aforementioned covenant, interest on the Bonds is excluded pursuant to section 103(a) of the Code from
the gross income of the owners thereof for federal income tax purposes. Bond Counsel is also of the
opinion that, assuming compliance with the aforementioned covenant, the Bonds are not “specified
private activity bonds” within the meaning of section 57(a)(5) of the Code and, therefore, the interest on
the Bonds will not be treated as an item of tax preference for purposes of computing the alternative
minimum tax imposed by section 55 of the Code. The receipt or accrual of interest on the Bonds owned
by a corporation may affect the computation of its alternative minimum taxable income, upon which the
alternative minimum tax is imposed, to the extent that such interest is taken into account in determining
the adjusted current earnings of that corporation (75 percent of the excess, if any, of such adjusted current
earnings over the alternative minimum taxable income being an adjustment to alternative minimum

43
taxable income (determined without regard to such adjustment or to the alternative tax net operating loss
deduction)).

Bond Counsel has not undertaken to advise in the future whether any events after the date of
issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the
ownership of the Bonds. No assurance can be given that future legislation, or amendments to the Code, if
enacted into law, will not contain provisions that could directly or indirectly reduce the benefit of the
exemption of interest on the Bonds from personal income taxation by the State of California or of the
exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax
purposes. Furthermore, Bond Counsel expresses no opinion as to any federal, state or local tax law
consequences with respect to the Bonds, or the interest thereon, if any action is taken with respect to the
Bonds or the proceeds thereof predicated or permitted upon the advice or approval of bond counsel if
such advice or approval is given by counsel other than Bond Counsel.

Although Bond Counsel is of the opinion that interest on the Bonds is exempt from state personal
income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an
owner’s federal, state or local tax liability may be otherwise affected by the ownership or disposition of
the Bonds. The nature and extent of these other tax consequences will depend upon the owner’s other
items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of
the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness
incurred or continued to purchase or carry the Bonds or, in the case of a financial institution, that portion
of an owner’s interest expense allocated to interest on the Bonds, (ii) with respect to insurance companies
subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for
loss reserves by 15 percent of the sum of certain items, including interest on the Bonds, (iii) interest on
the Bonds earned by certain foreign corporations doing business in the United States could be subject to a
branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest
on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S
corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than
25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86
of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take
into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds
and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Bonds,
may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel has
expressed no opinion regarding any such other tax consequences.

Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based
upon its review of existing statutes, regulations, published rulings and court decisions and the
representations and covenants of the Authority described above. No ruling has been sought from the
Internal Revenue Service (the “Service”) with respect to the matters addressed in the opinion of Bond
Counsel, and Bond Counsel’s opinion is not binding on the Service. The Service has an ongoing program
of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the Bonds is
commenced, under current procedures the Service is likely to treat the Authority as the “taxpayer”, and
the Owners would have no right to participate in the audit process. In responding to or defending an audit
of the tax-exempt status of the interest on the Bonds, the Authority may have different or conflicting
interest from the Owners. Further, the disclosure of the initiation of an audit may adversely affect the
market price of the Bonds, regardless of the final disposition of the audit.

LITIGATION

There is no action, suit or proceeding known to the Authority to be pending or threatened,

restraining or enjoining the execution or delivery of the Bonds, the Indenture or the Lease or in any way

44
contesting or affecting the validity of the foregoing or any proceedings of the Authority taken with respect
to any of the foregoing.

The City has pending against it several claims and lawsuits arising in the normal course of City
operations. The City is of the view that, if determined adversely to the City, such claims and lawsuits
would not, in the aggregate, materially impair the City’s ability to make payments of Base Rental and
Additional Rental when due.

RATING

Standard & Poor’s (“S&P”) has assigned the rating of “AA-/A-1+” to the Bonds, based upon
issuance of the Letter of Credit. Bonds bearing interest at Daily Rate are not rated. Such rating reflects
only the view of S&P, and explanation of the significance of the ratings may be obtained from S&P.
There is no assurance that the rating will continue for any given period of time or that it will not be
revised downward or withdrawn entirely by S&P, if in the judgment of S&P circumstances so warrant.
Any such downward revision or withdrawal of the rating may have an adverse effect on the market price
of the Bonds.

NO CONTINUING DISCLOSURE

With respect to any time prior to the Fixed Rate Conversion Date, neither the City nor the
Authority has covenanted in the Indenture or the Lease that it will undertake any continuing disclosure
with respect to the Bonds.

[Remainder of Page Intentionally Left Blank]

45
 MISCELLANEOUS

All of the preceding summaries of the Indenture, the Lease, the Site Lease, the Assignment
Agreement, the Letter of Credit, the Reimbursement Agreement, the Bond Law, other applicable
legislation, agreements and other documents are made subject to the provisions of such documents
respectively and do not purport to be complete statements of any or all of such provisions. Reference is
hereby made to such documents on file with the Authority for further information in connection
therewith.

This Official Statement does not constitute a contract with the purchasers of the Bonds. Any
statements made in this Official Statement involving matters of opinion or estimates, whether or not
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 execution and delivery of this Official Statement by the Executive Director of the Authority
have been duly authorized by the Board of Directors of the Authority.

VICTORVILLE JOINT POWERS FINANCING AUTHORITY

By /s/ Jon Roberts

Executive Director

46
 APPENDIX A

CERTAIN ECONOMIC AND DEMOGRAPHIC INFORMATION

CONCERNING THE CITY OF VICTORVILLE

The following information relating to the City of Victorville and the County of San Bernardino,
California is supplied solely for purposes of information. Neither the City nor the County is obligated in
any manner to pay principal of or interest on the Bonds or to cure any delinquency or default on the
Bonds. The Bonds are payable solely from Tax Revenues and other moneys as described in the Official
Statement. The Project Area is located within the boundaries of the City.

General

The City of Victorville (the “City”) is situated approximately 97 miles Northeast of Los Angeles
and 35 miles northeast of San Bernardino. The City is just north of the San Bernardino mountains, at the
edge of the Mojave desert. Interstate 15 and State Highway 18 intersect near the heart of the City and
Victorville is bordered on the west by State Highway 395. Major trucking and rail routes run through the
area. The City is conveniently close to Southern California Logistics Airport and within 30-40 minutes of
Ontario International Airport.

The City was incorporated on September 21, 1962, as a general law city with a population of
approximately 8,110 and an area of 9.7 square miles. As of June 30, 2004 the City’s population and area
was approximately 77,679 and 74.09 square miles respectively. These figures indicate the City has grown
substantially in its history as a municipality. Prior to incorporation the community had a history which
goes back over 100 years, when the first settlers of European descent arrived.

During World War II, construction of Victorville Army Airfield, later renamed George Air Force
Base, was completed. When fully activated, the base supported two Tactical Fighter Wings of the
Tactical Air Command whose primary aircraft was the F-4 Phantom. It also employed approximately
6,000 civilian and military personnel. On January 5, 1989, the Secretary of Defense announced the
closure of George Air Force Base under the Base Closure and Realignment Act. The base was
deactivated December 15, 1992. The former military base was annexed into the City on July 21, 1993,
and has been renamed Southern California Logistics Airport (SCLA). In 1998, SCLA was master
planned with a reuse plan that proposed redevelopment of the former military facility as a 5,000-acre fully
dedicated business and logistics park integrating rail, ground and aviation transportation into one location
benefiting logistics operators and manufacturers. SCLA makes available Foreign Trade Zone access, 24-
hour/day U.S. Customs Service, Enterprise Zone incentives and municipal utility service.

Municipal Government

The City functions as a general law city under the council-manager form of government. Five
council members are elected at large to serve four year overlapping terms. Members of the council select
the Mayor from among their members to serve a two-year term. The City Manager is appointed by the
City Council.

The City has approximately 646 full time and part time employees. The City has a contract with
the San Bernardino County Sheriff’s Department to provide 24 hour protection, including dispatch and
911 service. Victorville has 6 fully equipped and manned fire stations including 59 full time firefighters.

A-1
Miscellaneous Statistics

The following are miscellaneous statistics with respect to the City:

Date of Incorporation.............................................................. September 21, 1962

Form of Government .............................................................. Council/Manager
Employees............................................................................... 646
Population ............................................................................... 95,145
Area (square miles)................................................................. 74.09 square miles
Miles of streets........................................................................ 401
Parks & Recreation:
Parks................................................................................... 18
Acres in Parks .................................................................... 263
Public Education:
Victor Valley Joint Union High School District
Elementary Schools in the City.......................................... 15
Secondary Schools in the City ........................................... 3

Police Protection:
San Bernardino Sheriff’s Department
No. of Officers ................................................................... 92
Fire Protection:
Victorville Fire Department
No. of Stations:................................................................... 6
No. of Firefighters.............................................................. 86
Sewer:
Length of Sewer Lines ....................................................... 198 miles
____________________
Source: City of Victorville.

Population

Beginning in 1980 and continuing through the present, population growth in the City has been
rapid. The population of the City according to the 2000 U.S. Census was 63,600, which represents a
56.4% increase over the 1990 U.S. Census. Population as of January 1, 2006 was 95,145 according to the
State Department of Finance.

A-2
 The following table shows a historical comparison of the respective populations of the City, the
County and the State of California since 1970.

CITY OF VICTORVILLE, SAN BERNARDINO COUNTY, AND STATE OF CALIFORNIA

Population Comparison

City of Percent San Bernardino Percent State of Percent

Year Victorville Change County Change California Change
1970 10,845 -- 682,233 -- 19,935,144 --
1980 14,220 31.1% 878,000 28.7% 23,668,562 18.6%
1990 40,674 186.0 1,418,380 61.5 29,588,000 24.9
2000 63,600 56.4 1,709,434 20.5 34,336,000 16.0
2001 66,700 4.9 1,741,400 1.9 34,367,000 0.1
2002 69,700 4.5 1,788,500 2.7 35,000,000 1.8
2003 72,500 4.0 1,833,000 2.5 35,591,000 1.7
2004 78,147 7.8 1,897,950 3.5 36,271,091 1.9
2005 86,680 10.9 1,950,806 2.8 36,728,196 1.3
2006 95,145 9.8 1,991,829 2.1 37,172,015 1.2
_____________________
Sources: U.S. Department of Commerce, Bureau of the Census (1970-1990 and 2000); State Department of Finance
(2001-2006).

The 2000 U.S. Census reported that the County’s population stood at 1,709,434, an increase of
20.5% since 1990. The strongest growth was in 1990. Cities experiencing the strongest growth include
Victorville, San Bernardino, Adelanto, Chino Hills, Fontana, Ontario, Rancho Cucamonga, and Rialto.

Employment and Industry

The City’s total labor force, the number of persons who work or are available for work, averaged
30,400 in calendar year 2006. The number of employed workers in the labor force averaged 28,600.

The following table sets forth information regarding the size of the labor force, employment and
unemployment rates for the City for the calendar years 2002 through 2006.

CITY OF VICTORVILLE
LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
Calendar Years 2002 through 2006

Unemployment
Year Labor Force Employed Unemployed Rate
2002 21,670 20,160 1,710 7.8%
2003 22,340 20,740 1,910 8.5
2004 28,800 26,800 2,000 6.8
2005 29,600 27,800 1,800 6.0
2006 30,400 28,600 1,800 5.8
____________________
Source: State of California Employment Development Department.

In the County of San Bernardino, the service industries accounted for more than 82.2% of total
non-agricultural employment in 2005, with a total of 528,900 jobs. The government sector was the
second largest sector in 2005, comprising approximately 18.2% of total County non-agricultural
employment with a total of 117,100 jobs.

A-3
 During 2005, trade accounted for approximately 17.8% of total non-agricultural employment and
manufacturing accounted for an additional 10.7%. The construction and transportation sectors of
employment are greatly influenced by the general health of the economy due to the fact that they serve
exclusively the local market. These two sectors are therefore directly influenced by the growth of
population and housing.

The following table sets forth the annual average employment by industry within the County for
the fiscal years 2001 through 2005.

SAN BERNARDINO COUNTY

ANNUAL AVERAGE EMPLOYMENT BY INDUSTRY
(In Thousands)
2001 through 2005

2001 2002 2003 2004 2005

Total All Industries 562,100 570,900 585,900 617,800 642,800
Agriculture 4,300 4,100 4,000 3,600 3,100
Mining 700 700 700 700 800
Transportation and Public Utilities 35,100 35,200 37,800 41,900 44,600
Construction 35,100 35,900 38,200 41,300 44,600
Manufacturing 68,000 65,600 66,100 69,300 68,500
Trade 96,400 96,900 99,900 106,200 114,400
Finance, Insurance and Real Estate 17,900 18,200 19,400 21,300 23,400
Services 458,400 468,800 480,800 506,500 528,900
Government 111,000 116,200 115,300 114,700 117,100
____________________
Source: State of California Employment Development Department.

The following table sets forth the principal employers in the City as of June 30, 2006.

CITY OF VICTORVILLE
PRINCIPAL EMPLOYERS
(As of June 30, 2006)

COMPANY NAME Number of Percent of Total

Employees Employment
Southern California Logistics Airport (Businesses located at SCLA) 1,900 6.38%
Victor Valley College 1,100 3.69
PrimeCare Medical Group/Desert Valley Hospital 900 3.02
Verizon 900 3.02
Victor Valley Elementary School District 830 2.79
Federal Correction Complex Victorville 820 2.75
Victor Valley Union High School District 800 2.68
Walmart 600 2.01
Victor Valley Community Hospital 544 1.83
City of Victorville 597 1.81
____________________
Source: City of Victorville Economic Development Department.

A-4
Economic Development

The Victor Valley includes the communities of Adelanto, Apple Valley, Barstow Hesperia,
Lucerne Valley, Oak Hills, Phelan, Victorville and Wrightwood. Victorville is the business hub of the
Victor Valley and draws consumers from well beyond its immediate area. It is the largest commercial
center between San Bernardino and the Nevada border.

Most of the area’s employment opportunities fall into service-related businesses, with nearly 42%
of businesses in the city located in the retail sales category. Local manufacturing companies are primarily
related to mining and cement production.

Within the City, there are some 3,250 acres zoned for commercial use -- and nearly 60% remains
available for development. Rental rates range from 50 cents to $2.00 per square foot. Victorville is home
to the largest enclosed regional shopping center between San Bernardino and Las Vegas. The Mall of
Victor Valley is anchored by major department stores such as the Harris Company, J.C. Penney,
Mervyns, and Sears. The City also offers many other retail facilities for consumers.

Since the closure of the former George Air Force Base (“GAFB,” which is in close proximity to
the Project Area) in December of 1992, the City has focused its economic development efforts towards
creating new jobs that compliment the efforts to redevelop the former military facility into a 5,000-acre
fully dedicated business and logistics park integrating rail, ground and aviation transportation into one
location benefiting logistics operators and manufacturers. SCLA makes available Foreign Trade Zone
access, 24-hour/day U.S. Customs Service, Enterprise Zone incentives and municipal utility service.

The closure of GAFB in December 1992 immediately impacted the Victorville community. With
the loss of approximately 10,000 military and civilian jobs, overall development activity within the City
declined accordingly. The following table provides information on total new construction activity in the
City from January 1995 through June, 2006.

CITY OF VICTORVILLE
TOTAL RESIDENTIAL AND COMMERCIAL CONSTRUCTION ACTIVITY

Year Permits Issued Value

1996 341 $ 39,508,535
1997 179 22,316,955
1998 197 28,235,607
1999 329 47,838,071
2000 372 78,964,622
2001 661 130,036,226
2002 1,017 205,211,306
2003 2,125 373,788,445
2004 2,724 571,225,681
2005 2,272 417,579,392
2006 3,052 600,058,537
TOTAL 13,269 $2,514,763,377

____________________
Source: City of Victorville Department of Building and Safety.

Residential construction has seen the largest increase in valuation in recent years. Since 1996, a
total of 13,045 residential building permits were issued. The total valuation of new residential units
constructed in the City was $2,245,594,800 from 1996 through June 2006.

A-5
 CITY OF VICTORVILLE
TOTAL RESIDENTIAL CONSTRUCTION ACTIVITY

Year Permits Issued Value

1996 327 $ 32,953,011
1997 152 15,360,636
1998 176 21,725,896
1999 315 38,061,018
2000 345 44,417,533
2001 641 102,732,467
2002 986 162,736,629
2003 2,102 358,131,375
2004 2,699 478,940,771
2005 2,263 405,191,347
2006 3,039 585,344,117
TOTAL 13,045 $2,245,594,800
____________________
Source: City of Victorville Department of Building and Safety.

Commercial construction activity increased ten-fold in 2005 over the values achieved during
1995. Included in the following table of commercial construction statistics are retail/office and industrial
facilities that do not involve product manufacturing. Also included in the table is the recently completed
169,000 square foot GE Aircraft Engines jet testing facility located at SCLA with an estimated value of
$12 million. Not included in the following table is the High Desert Power Plant (HDPP). Construction
on the HDPP was completed in March 2003 at SCLA, with an estimated $450 million valuation.

CITY OF VICTORVILLE
TOTAL COMMERCIAL CONSTRUCTION VALUE

Year Permits Issued Value

1996 14 $ 6,555,524
1997 27 6,956,319
1998 21 6,509,711
1999 14 9,777,053
2000 27 34,547,089
2001 20 27,303,759
2002 31 42,474,677
2003 22 13,975,978
2004 30 31,228,325
2005 9 12,388,045
2006 13 14,714,420
228 $206,430,900
TOTAL

____________________
Source: City of Victorville Department of Building and Safety

Since 1996 the City has added an estimated 2,300 new manufacturing and distribution related
jobs at SCLA and the Foxborough Industrial Park. Hoping to add an additional 2,000 new
manufacturing/distribution related jobs in the next 5 years, the City anticipates a continued upward trend
in economic development activity in the Project Area.

A-6
Assessed Valuation and Property Taxes

Taxes are levied for each fiscal year on taxable real and personal property which is situated in the
City as of the preceding January 1. For assessment and collection purposes, property is classified as
either “secured” or “unsecured.” Secured property is that part of the assessment roll containing State
assessed property and property secured by a lien on real property which is sufficient, in the opinion of the
County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”

The County of San Bernardino (the “County”) levies a 1% property tax on behalf of all taxing
agencies in the County, including the City. The taxes collected are allocated on the basis of a formula
established by State law. Under this formula, the City and all other taxing entities receive a base year
allocation plus an allocation on the basis of “situs” growth in assessed value (new construction, change of
ownership and inflation) among the jurisdictions which serve the tax rate areas within which the growth
occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the
levying of taxes for less than county-wide or less than city-wide special districts.

Assessed valuations in the County are established by the County Assessor, except for utility
property which is assessed by the State Board of Equalization. Property is assessed at 100% of actual
market value and tax rates are expressed in terms of the ratio of “full cash value” to actual market value.
During each County fiscal year, property which is improved or with respect to which a change in
ownership occurs, is subject to reassessment to the then current market value. Property that is not subject
to reassessment is subject to a maximum 2% increase per year. Such increases in assessed value during
each County fiscal year are compiled as the County’s “supplemental roll,” and supplemental taxes are
levied on such increases in assessed value during the County’s fiscal year.

State law currently exempts $7,000 of the assessed value of an owner occupied dwelling, but the
City does not suffer any revenue loss because an amount equivalent to the tax on such exempt amount is
paid by the State.

State law also exempts the full value of business inventories from taxation, but provides agencies
based on their respective shares of the revenues derived from the application of the maximum tax rate,
adjusted to reflect changes in population and the consumer price index. Since the 1984-85 County fiscal
year, the reimbursement for the business inventory exemption has been consolidated into the State motor
vehicle in-lieu fee revenue, which currently more than restores the revenue lost through the business
inventory exemption.

See “RISK FACTORS – Risks Related to Taxation in California” for additional information
relating to taxation and collection of taxes.

Tax Levies, Collections and Delinquencies

Property taxes on the secured roll are due in two installments, on November 1 and February 1. If
unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a ten percent
penalty attaches to any delinquent payment. In addition, property on the secured roll becomes tax
delinquent on June 30. Such property may thereafter be prepaid by payment of the delinquent taxes plus
the delinquency penalty, plus a prepayment penalty of one and one-half percent per month to the time of
prepayment. If taxes remain unpaid for a period of five years or more, the property is subject to sale by
the County Tax Collector.

Property taxes on the unsecured roll are due as of the January 1 lien date and become delinquent,
if unpaid, on August 31. A ten percent (10%) penalty attaches to delinquent taxes on property on the
unsecured roll, and an additional penalty of one and one-half percent per month begins to accrue on

A-7
November 1. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a
civil action against the taxpayer, (2) filing a certificate in the office of the County Clerk specifying certain
facts in order to obtain a judgment lien on certain property of the taxpayer, (3) filing a certificate of
delinquency for record in the County Recorder’s office in order to obtain a lien on certain property of the
taxpayer, and (4) seizure and sale of personal property, improvements or possessory interests, belonging
or assessed to the taxpayer.

Each county levies (except for levies to support prior voter-approved indebtedness) and collects
all property taxes for property located within that county’s taxing boundaries. The County has not
established a property tax distribution program commonly referred to as the “Teeter Plan.” Taxes are
distributed to taxing agencies within the County on the basis of actual tax collections rather than on the
basis of tax levy.

See “RISK FACTORS – Risks Related to Taxation in California” for additional information
relating to taxation and collection of taxes.

The following tables present information regarding the assessed valuation of property within the
City. All assessed valuations include homeowner exemptions.

CITY OF VICTORVILLE
ASSESSED AND ESTIMATED ACTUAL VALUES
OF TAXABLE PROPERTY

Secured Unsecured Percentage

Fiscal Year Value Value Exemptions Total Increase

1995-96 $2,471,180,268 $169,880,670 $66,962,128 $2,574,098,810 (4.6)%

1996-97 2,467,241,921 167,290,626 68,399,955 2,566,132,592 0.3
1997-98 2,480,701,345 167,853,539 69,593,655 2,578,961,229 0.5
1998-99 2,469,982,261 168,406,113 69,086,800 2,569,301,574 (0.4)
1999-00 2,508,611,362 168,460,263 68,428,045 2,608,643,580 1.5
2000-01 2,533,888,969 162,122,941 66,925,039 2,629,086,871 0.8
2001-02 2,664,492,621 185,506,058 69,635,609 2,780,363,070 5.8
2002-03 2,882,111,100 377,596,247 70,828,458 3,188,878,889 12.8
2003-04 3,619,342,427 222,374,575 75,921,932 3,765,795,070 18.1
2004-05 4,321,679,328 219,013,498 78,759,094 4,461,933,732 18.5
2005-06 5,461,474,235 232,280,144 83,226,084 5,610,528,295 25.7
2006-07 7,147,243,820 253,572,707 87,798,142 7,313,018,385 30.3
____________________
Source: San Bernardino County Auditor/Controller.

A-8
 Principal Property Taxpayers

The following table provides a list of the principal property taxpayers within the City. The
twenty largest taxpayers account for about 10.65% of the total net assessed valuation.

CITY OF VICTORVILLE
2005-06 LARGEST LOCAL SECURED TAXPAYERS

2005-06 % of
Property Owner Land Use Assessed Valuation Total (1)
1. Macerich Victor Valley LLC Shopping Center $ 72,008,857 1.45%
2. AFG Leasing Company Inc. Industrial 52,341,553 1.05
3. Cemex California Cement LLC Industrial 48,715,966 0.98
4. AHE of California Inc. Office Building 30,269,047 0.61
5. Synleaseco Delaware Business Trust Industrial 25,365,611 0.51
6. General Electric Company Industrial 20,060,340 0.40
7. Empire Homes II LLC Residential Development 19,520,439 0.39
8. KB Home Greater Los Angeles Inc. Residential Development 18,694,641 0.38
9. Paxbello Inc. Industrial 17,178,733 0.35
10. Bear Valley Partners Commercial 16,591,603 0.33
11. Victorville Residential Development Partnership Residential Development 16,060,101 0.32
12. VNF Properties Shopping Center 15,613,289 0.31
13. Han & Brothers Capital LLC Commercial Store 15,591,822 0.31
14. Wimbledon 289 Ltd. Apartments 14,591,778 0.29
15. Victor Valley Town Center LLC Shopping Center 13,658,654 0.27
16. K. Hovnanian Forecast Homes Inc. Residential Development 13,406,970 0.27
17. Glen L. Ludwig, Trust Residential Properties 12,831,509 0.26
18. Victorville 200 Ltd. Apartments 12,006,865 0.24
19. Costco Wholesale Corp. Commercial Store 11,756,872 0.24
20. Victorville 7th Street LP Shopping Center 11,374,775 0.23
$457,639,425 9.20%
____________________
(1)
2005-06 Local Secured Assessed Valuation: $4,973,962,731

Transportation

The City is centrally located on both sides of Interstate 15, approximately 35 miles north of San
Bernardino. U.S. Highway 395, which heads north to Ridgecrest, Bishop and northwestern Nevada
bisects the western sector of the City. State Highway 18 from Palmdale enters the City to the west and
traverses the City on its way to Apple Valley, Lucerne Valley and Big Bear Lake.

The City has an Amtrak stop on the Burlington Northern Santa Fe main line between Las Vegas
and Los Angeles. It is also on the proposed “Mag Lev” route, also between Las Vegas and Anaheim.
“Mag Lev” refers to the proposed high speed rail connection between Las Vegas and Orange County.
Finally, rail transportation construction is proposed in connection with the Southern California Logistics
Airport, which is located within the City limits.

Regularly scheduled air transportation for passengers occurs at Ontario International Airport,
located approximately 40 miles south of the City. The City also offers a fixed transit system, providing
local transportation to the entire community, including the Project Area.

A-9
Utilities & Public Services

The following summarizes the utilities and public services provided to City residents:

Natural Gas: Southwest Gas Company.

Electric Power: Southern California Edison Company.
Telephone: Verizon.
Water: Baldy Mesa Water District; Victor Valley Water District.
Sewer: Victorville is a member of the Victor Valley Wastewater
Reclamation Authority.
Cable: Charter Communications.
Police Department: Victorville has a contract with the San Bernardino County
Sheriff’s office to provide full service police protection, offering
up-to-date equipment and 24-hours protection including
dispatching and 911 emergency services.
Fire Department: Victorville has 4 well-equipped, completely manned fire stations
including 27 reserve firefighters.
Library: The Victorville City Library
Senior Citizens: Victorville has an active Senior Center Club.
________________________________
Source: Victorville Chamber of Commerce, City of Victorville.

A-10
 APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE CITY FOR

THE FISCAL YEAR ENDED JUNE 30, 2006

B-1
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
 CITY OF VICTORVILLE
Victorville, California

Comprehensive Annual
Financial Report
Year ended June 30, 2006

Prepared by:
City of Victorville Finance Department

Cover Photograph by:

Heather Kurowski
 CITY OF VICTORVILLE
Comprehensive Annual Financial Report

Year ended June 30, 2006

TABLE OF CONTENTS

Page
INTRODUCTORY SECTION:

Letter of Transmittal v
Elected Officials and Administrative Personnel x
Organizational Chart xi

FINANCIAL SECTION:

Independent Auditors’ Report 1

Management’s Discussion and Analysis 4
Basic Financial Statements:
Government-wide Financial Statements
Statement of Net Assets 19
Statement of Activities 20
Fund Financial Statements:
Governmental Funds:
Balance Sheet 24
Reconciliation of the Balance Sheet of Governmental Funds to the
Statement of Net Assets 27
Statement of Revenues, Expenditures and Changes in Fund Balances 28
Reconciliation of the Statement of Revenues, Expenditures and Changes
in Fund Balances of Governmental Funds to the Statement of Activities 30
Proprietary Funds:
Statement of Net Assets 33
Statement of Revenues, Expenses and Changes in Fund Net Assets 34
Statement of Cash Flows 35
Fiduciary Funds:
Statement of Fiduciary Net Assets 36
Notes to the Basic Financial Statements 37

i
 CITY OF VICTORVILLE
Comprehensive Annual Financial Report

Year ended June 30, 2006

TABLE OF CONTENTS, (CONTINUED)

Page
Required Supplementary Information:
Schedule of Revenues, Expenditures and Changes in Fund Balances -
Budget and Actual:
General Fund 88
Solid Waste Management - Special Revenue Fund 89
Measure I Street Arterials - Special Revenue Fund 90
Notes to the Required Supplementary Information 91
Supplementary Schedules:
Nonmajor Governmental Funds:
Combining Balance Sheet 94
Combined Statement of Revenues, Expenditures and Changes in Fund Balance 95
Nonmajor Special Revenue Funds:
Combining Balance Sheet 98
Combining Statement of Revenues, Expenditures and Changes in Fund Balance 100
Schedule of Revenues, Expenditures and Changes in Fund Balances -
Budget and Actual:
Fire Protection Fund 102
Parks and Recreation Fund 103
Street Lighting Fund 104
Traffic Safety Fund 105
General Asset Seizure Fund 106
Storm Drain Utility Fund 107
Redevelopment Agency - Low and Moderate Housing Fund 108
Gas Tax Fund 109
Transportation Tax Fund 110
Other State Grants Fund 111
CDBG Fund 112
Other Federal Grants Fund 113

ii
 CITY OF VICTORVILLE
Comprehensive Annual Financial Report

Year ended June 30, 2006

TABLE OF CONTENTS, (CONTINUED)

Page
Nonmajor Debt Service Fund:
Combining Balance Sheet 116
Combining Statement of Revenues, Expenses and Changes in Fund Balances 117
Nonmajor Enterprise Funds:
Combining Statement of Net Assets 120
Combining Statement of Revenues, Expenses and Changes in Net Assets 122
Combining Statement of Cash Flows 124
Fiduciary Funds:
Combining Statement of Fiduciary Assets and Liabilities 129
Combining Statement of Changes in Fiduciary Assets and Liabilities 130

STATISTICAL SECTION:

Net Assets by Component 135

Change in Net Assets 136
Governmental Activities Tax Revenue by Source 138
Fund Balances of Governmental Funds 139
Changes in Fund Balances of Governmental Funds 140
General Government Revenues by Source 141
General Government Expenditures by Function 142
Combined Revenues and Expenditures 143
Assessed Value of Property 144
Property Tax Rates-Direct and Overlapping Governments 145
Principal Property Taxpayers 146
Property Tax Levies and Collections by District 147
Property Tax Levies and Collections All Districts 148
Ratios of Outstanding Debt by Type 149
Ratio of Net General Bonded Debt to Assessed Value and

iii
 CITY OF VICTORVILLE
Comprehensive Annual Financial Report

Year ended June 30, 2006

TABLE OF CONTENTS, (CONTINUED)

Page

Net General Bonded Debt per Capita 150

Computation of Direct and Overlapping Dept 151
Legal Debt Margin Information 152
Pledge-Revenue Coverage 153
Demographic Statistics 154
Principal Employers 155
Full-Time and Part-Time City Employees by Function 156
Operation Indicators by Function 157
Capital Asset Statistics by Function 158
Property Values and Construction 159
Breakdown of Basic 1% Property Tax Rate 160
Top 25 Sales Tax Producers 161

iv
xii
BASIC FINANCIAL STATEMENTS

17
18
 CITY OF VICTORVILLE
Statement of Net Assets
June 30, 2006

Governmental Business-Type
Activities Activities Total 2005
Assets:
Cash and investments (note 2) $ 89,393,464 30,430,673 119,824,137 120,668,399
Cash with fiscal agent (note 2) 24,652,840 42,872,740 67,525,580 54,005,660
Receivables:
Accounts 3,714,486 2,137,756 5,852,242 2,056,263
Interest 693,178 583,171 1,276,349 667,281
Notes 4,364,069 29,247,513 33,611,582 5,882,432
Due from other governments 5,549,810 3,155,234 8,705,044 10,657,077
Deposits - 111,796 111,796 96,169
Inventory 442,719 - 442,719 359,976
Prepaid items 1,296,575 - 1,296,575 1,862,660
Interfund balances (3,402,052) 3,402,052 - -
Land held for resale (note 5) 14,560,925 - 14,560,925 4,397,895
Capital assets (note 4):
Non-depreciable assets:
Land and rights of way 203,780,256 20,152,454 223,932,710 215,476,201
Construction in progress 27,086,016 52,402,857 79,488,873 21,041,815
Investment in joint venture 3,412,500 - 3,412,500 3,412,500
Depreciable assets, net 219,494,115 115,150,561 334,644,676 286,401,814
Other assets - 7,597,500 7,597,500 7,506,300
Total assets 595,038,901 307,244,307 902,283,208 734,492,442

Liabilities:
Accounts payable 7,551,128 5,428,232 12,979,360 10,729,741
Accrued liabilities 830,665 - 830,665 635,053
Interest payable 156,632 729,492 886,124 658,119
Deposits payable 89,141 1,999,418 2,088,559 2,342,892
Unearned revenue 681,908 99,853 781,761 5,232,716
Due to other governments - - - 388,854
Noncurrent liabilities (notes 6 and 7):
Due within one year 2,090,872 5,879,780 7,970,652 3,448,050
Due in more than one year 51,611,878 208,013,523 259,625,401 169,714,154
Total liabilities 63,012,224 222,150,298 285,162,522 193,149,579

Net assets:
Invested in capital assets,
net of related debt 442,886,951 42,706,392 485,593,343 414,640,900
Restricted for:
Public safety 56,959 - 56,959 129,702
Community development 8,844,919 - 8,844,919 16,975,540
Public works 56,370,768 - 56,370,768 45,213,671
Parks and recreation 1,116,642 - 1,116,642 555,463
Debt service - - - -
Unrestricted 22,750,438 42,387,617 65,138,055 63,827,587
Total net assets $ 532,026,677 85,094,009 617,120,686 541,342,863

See accompanying notes to the basic financial statements.

19
 CITY OF VICTORVILLE
Statement of Activities
Year ended June 30, 2006

Program Revenues
Operating Capital
Charges for Contributions Contributions
Expenses Services and Grants and Grants
Governmental activities:
General government $ 10,228,775 4,538,720 407,918 -
Public safety 22,619,254 5,140,097 649,267 -
Community development 1,272,203 - 230,430 -
Public works 35,874,622 36,692,637 16,696,083 50,538,668
Parks and recreation 10,896,592 11,610,917 747,418 44,494
Interest on long-term debt 2,555,657 - - -
Total governmental activities 83,447,103 57,982,371 18,731,116 50,583,162

Business-type activities:
Sanitary 4,954,456 7,950,599 - 1,353,775
Airport 34,871,818 4,531,221 - 5,201,295
Golf courses 2,112,755 1,389,947 - -
Transit - 119 - -
Water 2,397,870 2,058,421 - -
Rail 953,948 - - -
Municipal utility 12,684,907 3,392,855 - -
Total business-type activities 57,975,754 19,323,162 - 6,555,070
Total primary government $ 141,422,857 77,305,533 18,731,116 57,138,232

General revenues:
Taxes:
Property taxes
Sales taxes
Transient occupancy tax
Other taxes
Pass through tax increment
Investment income
Motor vehicle in lieu, unrestricted
Gain on sale of assets
Miscellaneous revenues
Transfers
Total general revenues and transfers
Change in net assets
Net assets at beginning of year, as restated (note 18)
Net assets at end of year

See accompanying notes to the basic financial statements.

20
 Governmental Business-type
Activities Activities 2006 2005

(5,282,137) - (5,282,137) 2,844,646

(16,829,890) - (16,829,890) (21,637,221)
(1,041,773) - (1,041,773) (5,226,333)
68,052,766 - 68,052,766 17,769,781
1,506,237 - 1,506,237 (7,804,679)
(2,555,657) - (2,555,657) (1,351,296)
43,849,546 - 43,849,546 (15,405,102)

-
- 4,349,918 4,349,918 5,896,378
- (25,139,302) (25,139,302) (15,633,689)
- (722,808) (722,808) (841,453)
- 119 119 367,641
- (339,449) (339,449) (325,367)
- (953,948) (953,948) (2,272,667)
- (9,292,052) (9,292,052) (5,007,678)
- (32,097,522) (32,097,522) (17,816,835)
43,849,546 (32,097,522) 11,752,024 (33,221,937)

19,297,789 - 19,297,789 16,499,226

18,008,211 - 18,008,211 15,640,652
895,302 - 895,302 760,543
1,629,120 - 1,629,120 797,588
6,291,491 8,949,634 15,241,125 9,485,131
2,447,300 3,800,938 6,248,238 2,313,590
604,154 - 604,154 509,472
5,870 - 5,870 6,464,279
220,990 - 220,990 203,424
(14,803,295) 14,803,295 - -
34,596,932 27,553,867 62,150,799 52,673,905
78,446,478 (4,543,655) 73,902,823 19,451,968
453,580,199 89,637,664 543,217,863 521,890,895
$ 532,026,677 85,094,009 617,120,686 541,342,863

21
22
 Major Governmental Funds
________________________________________

General Fund
This fund accounts for the revenues and expenditures to carry out basic governmental activities
of the City such as general government, public safety, public works, and parks and recreation.
This fund accounts for all financial transactions not accounted for in the other funds.

Solid Waste Management

This fund accounts for all activities in the following programs: Solid Waste Management,
Source Reduction and Recycling, Landfill Mitigation, Household Hazardous Waste, and the
California Department of Conservation Grants.

Measure I Street Arterials

This fund accounts for the portion of sales tax revenue received from the County. The funds are
legally restricted expenditures for the local street networks that have significant
interjurisdictional or regional traffic.

Capital Impact Facilities

This fund accounts for the acquisition or construction of major capital facilities related to public
improvements needed as population increases.

Victorville Redevelopment Agency Capital Projects

This fund accounts for financial resources to be used for acquisition or construction of major
capital facilities.

Redevelopment Agency Debt Service

This fund accounts for the accumulation of resources for and payment of principal and interest
on the Victorville Redevelopment Agency Tax Allocation Bonds Bear Valley Road Project Area
for 2003 Refunding Series A and B, 2002 Series A, and 2006 Series A.

23
 CITY OF VICTORVILLE
Balance Sheet
Governmental Funds
June 30, 2006

Special Revenue
Solid Measure I
Waste Street
General Management Arterials
Assets
Cash and investments $ 19,070,000 3,271,903 18,110,933
Cash with fiscal agent - - -
Receivables:
Accounts 885,148 43,338 17,584
Interest 693,178 - -
Notes - - -
Due from other funds (note 3) 1,243,761 - -
Due from other governments 4,555,922 - 508,479
Inventories 442,719 - -
Prepaid items 380,431 - 896,000
Advances to other funds (note 3) 7,500,000 - -
Land held for resale - - -
Total assets $ 34,771,159 3,315,241 19,532,996

Liabilities and Fund Balances

Liabilities:
Accounts payable $ 2,929,346 276,373 34,683
Accrued liabilities 830,665 - -
Deposits payable 55,106 - -
Due to other funds (note 3) - - -
Deferred revenue - - -
Advances from other funds (note 3) 3,402,052 - -
Total liabilities 7,217,169 276,373 34,683
Fund balances (note 8):
Reserved 9,566,911 - 896,000
Unreserved:
Undesignated, reported in:
General fund 17,987,079 - -
Capital project funds - - -
Designated for:
Special revenue funds - 3,038,868 18,602,313
Capital project funds - - -
Total fund balances 27,553,990 3,038,868 19,498,313
Total liabilities and fund balances $ 34,771,159 3,315,241 19,532,996

See accompanying notes to basic financial statements.

24
 Debt Service Capital Projects
Victorville Capital Victorville Nonmajor
Redevelopment Impact Redevelopment Governmental Totals
Agency Facilities Agency Funds 2006 2005

- 27,627,977 3,421,542 17,891,109 89,393,464 81,887,823

24,521,293 - - 131,547 24,652,840 3,006,811

- - 166,340 2,602,076 3,714,486 1,217,816

- - - - 693,178 435,479
- - 79,152 4,284,917 4,364,069 5,882,432
- - - - 1,243,761 10,806,753
- - 121,037 364,372 5,549,810 9,051,399
- - - - 442,719 359,976
- - - 20,144 1,296,575 1,862,660
- - - 441,935 7,941,935 1,836,263
- - 14,560,925 - 14,560,925 4,397,895
24,521,293 27,627,977 18,348,996 25,736,100 153,853,762 120,745,307

6,600 3,221,633 145,088 937,405 7,551,128 4,393,895

- - - - 830,665 635,053
- - 32,500 1,535 89,141 84,335
- - - 1,243,761 1,243,761 10,806,753
- 681,908 - - 681,908 5,130,613
- - 7,941,935 - 11,343,987 5,238,315
6,600 3,903,541 8,119,523 2,182,701 21,740,590 26,288,964

24,514,693 - 14,640,077 4,878,543 54,496,224 28,146,190

- - - - 17,987,079 16,738,873
- - (4,410,604) - (4,410,604)

- - - 18,674,856 40,316,037 23,577,603

- 23,724,436 - - 23,724,436 25,993,677
24,514,693 23,724,436 10,229,473 23,553,399 132,113,172 94,456,343
24,521,293 27,627,977 18,348,996 25,736,100 153,853,762 120,745,307

25
26
 CITY OF VICTORVILLE
Governmental Funds
Reconciliation of the Balance Sheet of Governmental Funds
to the Statement of Net Assets
June 30, 2006

Fund balances of governmental funds $ 132,113,172

Amounts reported for governmental activities in the statement of

net assets are different because:

Capital assets, net of depreciation, have not been included

as financial resources in governmental fund activity.
Capital assets 631,386,748
Accumulated depreciation (177,613,861)

Long-term debt and compensated absences that have not been

included in the governmental fund activity:
Certificates of pariticipation (480,000)
Installment purchase agreement (2,549,700)
Tax allocation bonds (47,070,000)
Compensated absences (3,603,050)

Accrued interest payable for the current portion of interest due on

bonds payable has not been reported in the governmental funds. (156,632)

Net assets of governmental activities $ 532,026,677

See accompanying notes to the basic financial statements.

27
 CITY OF VICTORVILLE
Statement of Revenues, Expenditures and Changes in Fund Balances
Governmental Funds
Year ended June 30, 2006
Special Revenue
Solid Measure I
Waste Street
General Management Arterials
Revenues:
Taxes $ 32,867,978 864 7,501,413
Licenses and permits 7,877,751 153,355 -
Intergovernmental 790,210 21,230 -
Charges for services 10,420,037 10,631,002 73,646
Fines and forfeitures 178,792 3,219 -
Investment income 461,908 120,948 569,667
Sale of assets - - -
Other 536,265 154,997 -
Total revenues 53,132,941 11,085,615 8,144,726
Expenditures:
Current:
General government 8,098,740 - 17,900
Public safety 13,674,921 279,728 -
Community development - - -
Public works 18,359,715 9,925,581 4,199,728
Parks and recreation 387,932 - -
Debt service:
Principal - 133,371 -
Interest - 123,566 -
Fiscal agent charges - - -

Total expenditures 40,521,308 10,462,246 4,217,628

Excess (deficiency) of revenues

over (under) expenditures 12,611,633 623,369 3,927,098
Other financing sources (uses):
Transfers in (note 3) 399,094 - -
Transfers out (note 3) (14,334,869) (334) (142,165)
Sale of assets 5,870 - -
Issuance of debt - - -
Total other financing sources (uses) (13,929,905) (334) (142,165)

Net change in fund balances (1,318,272) 623,035 3,784,933

Fund balances (deficit) at beginning of year 28,872,262 2,415,833 15,713,380

Fund balances (deficit) at end of year $ 27,553,990 3,038,868 19,498,313

See accompanying notes to the basic financial statements.

28
 Debt Service Capital Projects
Victorville Capital Victorville Nonmajor
Redevelopment Impact Redevelopment Governmental Totals
Agency Facilities Agency Funds 2006 2005

- - 4,261,230 8,507,548 53,139,033 42,221,323

- 19,808,154 - 30,205 27,869,465 16,052,072
- - 2,364,173 14,773,169 17,948,782 15,040,848
- - 41,445 2,080,249 23,246,379 20,162,482
- - - 421,731 603,742 388,718
134,323 404,249 247,202 438,898 2,377,195 1,343,342
- - - - - 6,352,263
- - - 276,479 967,741 986,373
134,323 20,212,403 6,914,050 26,528,279 126,152,337 102,547,421

- 174,809 332,810 462,938 9,087,197 8,158,233

- 100,336 - 8,068,139 22,123,124 20,918,791
- - 61,089 1,205,461 1,266,550 1,041,639
- 11,242,238 - 6,360,998 50,088,260 35,668,636
- 4,209,711 - 6,235,747 10,833,390 8,019,939

510,000 - - 110,000 753,371 515,872

1,515,263 - - 30,125 1,668,954 1,324,772
852,237 - - - 852,237 -

2,877,500 15,727,094 393,899 22,473,408 96,673,083 75,647,882

(2,743,177) 4,485,309 6,520,151 4,054,871 29,479,254 26,899,539

1,418,271 - 4,085 7,301,607 9,123,057 7,506,639

(4,085) (232,622) (8,787,731) (424,546) (23,926,352) (16,131,858)
- - - - 5,870 -
22,975,000 - - - 22,975,000 -
24,389,186 (232,622) (8,783,646) 6,877,061 8,177,575 (8,625,219)

21,646,009 4,252,687 (2,263,495) 10,931,932 37,656,829 18,274,320

2,868,684 19,471,749 12,492,968 12,621,467 94,456,343 76,182,023

24,514,693 23,724,436 10,229,473 23,553,399 132,113,172 94,456,343

29
 CITY OF VICTORVILLE
Reconciliation of the Statement of Revenues, Expenditures,
and Changes in Fund Balances of Governmental Funds
to the Statement of Activities
Year ended June 30, 2006

Net changes in fund balances - total governmental funds $ 37,656,829

Amounts reported for governmental activities in the statement of

activities is different because:

Governmental funds report capital outlay as expenditures. However, in

the statement of activities, the cost of those assets is allocated over their
estimated useful lives as depreciation expense. This is the amount by which
capital outlays exceeded depreciation in the current period.
Capital outlay 76,447,126
Depreciation expense (12,865,551)

Proceeds from the issuance of bonds is reported as other financing sources in

governmental funds. The issuance of bonds increases liabilities in the statement
of net assets, but does not result in an increase in net assets in the statement
of activities. (22,975,000)

Repayment of long-term liabilities is an expenditure in the governmental funds,

but the repayment reduces long-term liabilities in the statement of net assets. 753,371

The statement of net assets includes accrued interest on long term debt. (34,466)

To record as an expense the net change in compensated absences in the

statement of activities. (535,831)

Change in net assets of governmental activities $ 78,446,478

See accompanying notes to the basic financial statements.

30
 Major Enterprise Funds
________________________________________

Sanitary District Fund

This fund accounts for capital acquisition of the City’s sanitary district. Revenue received for
these funding sources comprised of sewer user fees and property taxes.

Southern California Logistics Airport Authority Fund

This fund accounts for both operation and capital acquisition of the activities surrounding the
airport. The airport funding sources comprised of federal grants, charges for services and Tax
Allocation Bonds.

Municipal Utility
This fund accounts for the operation, maintenance, and capital expenditures of the City’s
municipal utility, which is funded by user charges, other fees and loans.

31
32
 CITY OF VICTORVILLE
Statement of Net Assets
Proprietary Funds
June 30, 2006

Southern California Nonmajor

Sanitary Logistics Airport Municipal Enterprise Totals
District Authority Utility Funds 2006 2005
Assets
Current assets:
Cash and investments $ 12,336,754 17,123,123 - 970,796 30,430,673 38,780,576
Cash with fiscal agent - 39,023,248 3,849,492 - 42,872,740 50,998,849
Accounts receivable 288,197 264,403 1,308,297 276,859 2,137,756 838,447
Interest receivable - 583,171 - - 583,171 231,802
Notes receivable (note 19) - 29,247,513 - - 29,247,513 -
Due from other funds (note 3) - 24,728,669 - 24,728,669 18,171,544
Due from other governments - 3,155,234 - - 3,155,234 1,605,678
Deposits - 111,796 - - 111,796 96,169
Advances to other funds (note 3) 3,402,052 - - - 3,402,052 3,402,052
Total current assets 16,027,003 114,237,157 5,157,789 1,247,655 136,669,604 114,125,117

Noncurrent assets:
Capital assets, net (note 4) 24,348,847 99,360,392 47,715,171 16,281,462 187,705,872 136,141,018
Other assets 3,780,000 91,200 - 3,726,300 7,597,500 7,506,300
Total noncurrent assets 28,128,847 99,451,592 47,715,171 20,007,762 195,303,372 143,647,318
Total assets 44,155,850 213,688,749 52,872,960 21,255,417 331,972,976 257,772,435
Liabilities and Net Assets
Current liabilities:
Accounts payable 351,674 2,581,732 1,904,159 590,667 5,428,232 6,335,846
Deposits payable 70,000 1,910,647 - 18,771 1,999,418 2,258,557
Due to other funds (note 3) - - 11,505,073 13,223,596 24,728,669 18,171,544
Unearned revenue 99,853 - - - 99,853 102,103
Due to other governments - - - - - 388,854
Interest payable 91,019 638,473 - - 729,492 535,953
Lease purchase agreement - curent (note 7) - - 438,490 - 438,490 417,487
Tax allocation bonds - current (note 7) - 5,441,290 - - 5,441,290 777,191
Total current liabilities 612,546 10,572,142 13,847,722 13,833,034 38,865,444 28,987,535
Noncurrent liabilities (note 7):
Lease purchase agreement - - 2,672,783 - 2,672,783 3,111,273
Tax allocation bonds - 144,340,740 - - 144,340,740 96,910,963
Notes payable 20,000,000 - - 20,000,000 -
Lease revenue bonds - - 41,000,000 - 41,000,000 41,000,000

Total noncurrent liabilities - 164,340,740 43,672,783 - 208,013,523 141,022,236

Total liabilities 612,546 174,912,882 57,520,505 13,833,034 246,878,967 170,009,771
Net assets:
Invested in capital assets,
net of related debt 24,348,847 (5,377,307) 7,453,390 16,281,462 42,706,392 44,922,955
Unrestricted 19,194,457 44,153,174 (12,100,935) (8,859,079) 42,387,617 42,839,709
Total net assets $ 43,543,304 38,775,867 (4,647,545) 7,422,383 85,094,009 87,762,664

See accompanying notes to the basic financial statements.

33
 CITY OF VICTORVILLE

Statement of Revenues, Expenses and Changes in Fund Net Assets

Proprietary Funds

Year ended June 30, 2006

Southern
California
Logistics Nonmajor
Sanitary Airport Municipal Enterprise Totals
District Authority Utility Funds 2006 2005
Operating revenues:
Intergovernmental $ - - - - - 1,397,577
Charges for services 7,950,599 4,360,411 2,144,568 3,304,486 17,760,064 14,713,078
Fines and forfeitures - 3,518 - - 3,518 3,576
Other - 167,292 1,248,287 144,001 1,559,580 2,296,199

Total operating revenues 7,950,599 4,531,221 3,392,855 3,448,487 19,323,162 18,410,430

Operating expenses:
Personnel services 4,267,369 8,112,876 3,509,659 2,598,589 18,488,493 18,344,917
Maintenance and operations 163,144 3,836,417 7,601,052 1,048,656 12,649,269 18,475,875
Cost of purchased natural gas - - 19,681 - 19,681 733,712
Cost of purchased water - - - 1,652,470 1,652,470 1,375,808
Depreciation 523,943 4,043,415 209,841 160,575 4,937,774 4,135,683

Total operating expenses 4,954,456 15,992,708 11,340,233 5,460,290 37,747,687 43,065,995

Operating income (loss) 2,996,143 (11,461,487) (7,947,378) (2,011,803) (18,424,525) (24,655,565)

Nonoperating revenues (expenses):

Intergovernmental - 14,150,929 - - 14,150,929 3,666,960
Investment income 143,286 2,842,177 803,185 12,290 3,800,938 1,039,719
Interest expense - (18,879,110) (1,344,674) (4,283) (20,228,067) (7,167,637)
Gain on sale of assets - - - - - 138,525

Total nonoperating
revenues (expenses) 143,286 (1,886,004) (541,489) 8,007 (2,276,200) (2,322,433)

Income (loss) before transfers 3,139,429 (13,347,491) (8,488,867) (2,003,796) (20,700,725) (26,977,998)

Capital contributions 1,353,775 - - - 1,353,775 11,201,639

Transfers in (note 3) - 9,508,719 8,493,923 1,117,481 19,120,123 8,965,219
Transfers out (note 3) - (4,316,828) - - (4,316,828) (340,000)

Change in net assets 4,493,204 (8,155,600) 5,056 (886,315) (4,543,655) (7,151,140)

Net assets (deficit) at beginning

of year, as restated (note 18) 39,050,100 46,931,467 (4,652,601) 8,308,698 89,637,664 94,913,804

Net assets (deficit) at end of year $ 43,543,304 38,775,867 (4,647,545) 7,422,383 85,094,009 87,762,664

See accompanying notes to the basic financial statements.

34
 CITY OF VICTORVILLE
Statement of Cash Flows
Proprietary Fund
Year ended June 30, 2006
Southern
California
Logistics Nonmajor
Sanitary Airport Municipal Enterprise Totals
District Authority Utlity Funds 2006 2005
Cash flows from operating activities:
Cash received from customers $ 7,787,566 4,446,259 2,251,911 3,621,541 18,107,277 17,853,120
Cash received from interfund charges - - - - - 1,423,538
Cash payments to employees for services (4,267,369) (8,112,876) (3,509,659) (2,598,589) (18,488,493) (19,078,629)
Cash payments to suppliers for goods and services (93,995) (3,151,993) (9,655,323) (2,991,342) (15,892,653) (16,056,518)
Net cash provided by (used for) operating activities 3,426,202 (6,818,610) (10,913,071) (1,968,390) (16,273,869) (15,858,489)
Cash flows from noncapital financing activities:
Cash received from other government - 8,949,634 - - 8,949,634 923,963
Cash received from other funds - 9,508,719 9,735,091 6,484,701 25,728,511 28,961,633
Cash paid to other funds - (10,873,953) - (51,263) (10,925,216) (19,032,584)
Net cash provided by (used for) noncapital
financing activities - 7,584,400 9,735,091 6,433,438 23,752,929 10,853,012
Cash flows from capital and related financing activities:
Cash received from other government - 3,566,065 - - 3,566,065 2,720,071
Proceeds of debt - 173,078,481 - - 173,078,481 82,946,307
Issuance of notes receivable - (29,247,513) - - (29,247,513) -
Cash payments to acquire capital and other assets (3,275,100) (12,728,147) (34,287,419) (4,949,387) (55,240,053) (12,045,041)
Cash received from sale of capital assets - 1,875,000 - - 1,875,000 -
Principal paid on capital-related debt - (103,295,000) (417,487) - (103,712,487) (1,277,488)
Interest paid on capital-related debt - (16,375,177) (1,344,674) (4,283) (17,724,134) (6,794,253)
Net cash provided by (used for) capital and
related financing activities (3,275,100) 16,873,709 (36,049,580) (4,953,670) (27,404,641) 65,549,596
Cash flows from investing activities:
Interest received on investments 143,286 2,490,808 803,185 12,290 3,449,569 1,039,719
Net cash provided by (used for) investing activities 143,286 2,490,808 803,185 12,290 3,449,569 1,039,719
Net increase (decrease) in cash and cash equivalents 294,388 20,130,307 (36,424,375) (476,332) (16,476,012) 61,583,838
Cash and cash equivalents at beginning of year 12,042,366 36,016,064 40,273,867 1,447,128 89,779,425 28,195,587
Cash and cash equivalents at end of year $ 12,336,754 56,146,371 3,849,492 970,796 73,303,413 89,779,425
Reconciliation of operating income to net cash
provided by (used for) operating activities:
Operating income (loss) $ 2,996,143 (11,461,487) (7,947,378) (2,011,803) (18,424,525) (24,655,565)
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities:
Depreciation 523,943 4,043,415 209,841 160,575 4,937,774 4,135,683
Gain on sale of assets - - - - - 138,525
(Increase) decrease in accounts receivable (160,783) (84,962) (1,140,944) 87,381 (1,299,308) 576,806
(Increase) decrease in due from other governments - - - 85,674 85,674 290,026
(Increase) decrease in deposits - (15,627) - - (15,627) 10,282
Increase (decrease) in accounts payable 69,149 781,188 (2,034,590) 276,639 (907,614) 1,837,540
Increase (decrease) in deposits payable - (81,137) - (178,002) (259,139) 1,430,246
Increase (decrease) in due to other governments - - - (388,854) (388,854) 388,854
Increase (decrease) in unearned revenue (2,250) - - - (2,250) (10,886)
Total adjustments 430,059 4,642,877 (2,965,693) 43,413 2,150,656 8,797,076
Net cash provided by (used for) operating activities $ 3,426,202 (6,818,610) (10,913,071) (1,968,390) (16,273,869) (15,858,489)

Noncash capital, financing and investing activities:

Capital asset acquired under lease purchase agreement - - - - - 2,054,000
Developer contributed capital assets 1,353,775 - - - 1,353,775 11,201,639
$ 1,353,775 - - - 1,353,775 13,255,639

See accompanying notes to the basic financial statements.

35
 CITY OF VICTORVILLE

Statement of Fiduciary Net Assets

Fiduciary Funds

June 30, 2006

Totals
2006 2005

Assets

Cash and investments (note 2) $ 12,166,308 11,852,176

Restricted assets:
Investments with fiscal agent (note 2) 5,334,167 2,764,753
Accounts receivable 2,434,634 913,119

Total assets $ 19,935,109 15,530,048

Liabilities

Deposits payable $ 17,440,274 13,035,213

Due to other governments 2,494,835 2,494,835

Total liabilities $ 19,935,109 15,530,048

See accompanying notes to the basic financial statements.

36
 City of Victorville
Notes to Basic Financial Statements
Year Ended June 30,2006

(1) Summary of Significant Accounting Policies

The financial statements of the City of Victorville, California (City) have been prepared in
conformity with generally accepted accounting principles (GAAP) as applied to government
units. The Governmental Accounting Standards Board (GASB) is the accepted standard-
setting body for establishing governmental accounting and financial reporting principles. The
more significant of the City’s accounting policies are described below.

(a) Reporting Entity

The City of Victorville is situated approximately 97 miles northeast of Los

Angeles in Southern California’s Mojave Desert. The City was incorporated in
1962 and had an estimated population at June 30, 2006 of 86,473.

The City is a general-law City that operates under the Council-Manager form of
government, with five elected Council members served by a full time City
Manager and staff. At June 30, 2006, the City’s staff comprised of 537 full and
part time employees who were responsible for the City-provided services.

The accounting policies of the City conform to accounting principles generally

accepted in the United States as applicable to governments.

As required by accounting principles generally accepted in the United States,

these financial statements present the City of Victorville 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 the City is able to
impose its will on that organization or there is a potential for that organization to
provide specific financial benefits to or impose specific financial burdens on the
City. The City is also considered to be financially 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 certain cases, other organizations are included 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.

37
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(a) Reporting Entity, (Continued)

Based upon the above criteria, the component units of the City include the
Redevelopment Agency of the City of Victorville, the Southern California
Logistics Airport Authority and the Southern California Logistics Rail Authority.

Since City Council serves as the governing board for the Redevelopment Agency
of the City of Victorville and Southern California Logistics Airport Authority, the
component units are considered to be blended component units. Blended
component units, although legally separate entities, are in substance, part of the
City’s operations and so data from these units are reported with the interfund data
of the primary government. The Redevelopment Agency of the City of
Victorville and Southern California Logistics Airport Authority issue separate
component unit financial statements. Upon completion, the financial statements
of these component units can be obtained at the City of Victorville, located at
14343 Civic Drive, Victorville, CA 92392. A brief description of the component
units follows:

Redevelopment Agency of the City of Victorville

The Redevelopment Agency’s financial activity commenced in September 1980.

The primary purpose of the Agency is to prepare and implement plans for
improvement, rehabilitation, and development of certain areas within the City.
The Agency’s financial data and transactions are included with the special
revenue fund type, debt service fund type, and the capital projects fund type.
Revenues of the Agency consist primarily of property tax allocations on the
incremental increase of property values in the redevelopment area and revenues
from the use of money and property.

Southern California Logistics Airport Authority

The Southern California Logistics Airport Authority (SCLAA), was formed in

1997 between the City of Victorville and the Redevelopment Agency of
Victorville to provide for the coordination of long range planning of the territory
of George Air Force Base. SCLAA’s financial data and transactions are included
as an enterprise fund of the City. SCLAA prepares a budget in sufficient detail to
constitute an operating outline for the source and amount of funds available to
SCLAA and expenditures to be made during the ensuing fiscal year.

38
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(a) Reporting Entity, (Continued)

Southern California Logistics Airport Authority, (Continued)

SCLAA revenues consist primarily of grants and loans received by SCLAA and
from profits, income, sales proceeds, interest earnings from leases and land sales
and tax increment revenues.

Southern California Logistics Rail Authority

The Southern California Logistics Rail Authority (SCLRA) was formed on

October 17, 2001 by the City of Victorville, the Victorville Redevelopment
Agency and the Southern California Logistic Airport Authority (SCLAA). The
purpose of SCLRA is to provide for the coordination of long range planning of
the development of rail facilities and adjoining land surrounding and including
Southern California Logistic Airport. SCLRA’s financial data and transactions
are included as an enterprise fund of the City. SCLRA prepares a budget in
sufficient detail to constitute an operating outline for the source and amount of
funds available to SCLRA and expenditures to be made during the ensuing fiscal
year. SCLRA revenues consist primarily of grants and loans received by SCLRA.

(b) Basis of Accounting and Measurement Focus

The basic financial statements of the City are composed of the following:

• Government-wide financial statements

• Fund financial statements

• Notes to the basic financial statements

Financial reporting is based upon all GASB pronouncements, as well as the

FASB Statements and Interpretations, APB Opinions, and Accounting Research
Bulletins that were issued on or before November 30, 1989 that do not conflict
with or contradict GASB pronouncements. FASB pronouncements issued after
November 1989 are not followed in the preparation of the accompanying
financial statements.

39
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(b) Basis of Accounting and Measurement Focus, (Continued)

Government-wide Financial Statements

Government-wide financial statements display information about the reporting

government as a whole, except for its fiduciary activities. These statements
include separate columns for the governmental and business-type activities of the
primary government (including its blended component units), as well as its
discreetly presented component units. The City of Victorville has no discretely
presented component units. Eliminations have been made in the Statement of
Activities so that certain allocated expenses are recorded only once (by the
function to which they were allocated). However, general government expenses
have not been allocated as indirect expenses to the various functions of the City.

Government-wide financial statements are presented using the economic

resources measurement focus and the accrual basis of accounting. Under the
economic resources measurement focus, all (both current and long-term)
economic resources and obligations of the reporting government are reported in
the government-wide financial statements. Basis of accounting refers to when
revenues and expenditures are recognized in the accounts and reported in the
financial statements. Under the accrual basis of accounting, revenues, expenses,
gains, losses, assets, and liabilities resulting from exchange and exchange-like
transactions are recognized when the exchange takes place. Revenues, expenses,
gains, losses, assets, and liabilities resulting from non-exchange transaction are
recognized in accordance with the requirements of GASB Statement No. 33.

Program revenues include charges for services and payments made by parties
outside of the reporting government’s citizenry if that money is restricted to a
particular program. Program revenues are netted with program expenses in the
statement of activities to present the net cost of each program. Taxes and other
items not included among program revenues are reported instead as general
revenues.

As a general rule the effect of interfund activity has been eliminated from the
government-wide financial statements.

40
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(b) Basis of Accounting and Measurement Focus, (Continued)

Amounts paid to acquire capital assets are capitalized as assets in the

government-wide financial statements, rather than reported as an expenditure.
Proceeds of long-term debt are recorded as a liability in the government-wide
financial statements, rather than as an other financing source. Amounts paid to
reduce long-term indebtedness of the reporting government are reported as a
reduction of the related liability, rather than as an expenditure.

Fund Financial Statements

The underlying accounting system of the City is organized and operated on the
basis of separate funds, each of which is considered to be a separate accounting
entity. The operations of each fund are accounted for with a separate set of self-
balancing accounts that comprise its assets, liabilities, fund equity, revenues and
expenditures or expenses, as appropriate. Governmental resources are allocated to
and accounted for in individual funds based upon the purposes for which they are
to be spent and the means by which spending activities are controlled.

Fund financial statements for the primary government’s governmental,

proprietary, and fiduciary funds are presented after the government-wide financial
statements. These statements display information about major funds individually
and nonmajor funds in the aggregate for governmental and enterprise funds.
Fiduciary statements include financial information for fiduciary funds and similar
component units. Fiduciary funds of the City primarily represent assets held by
the City in a custodial capacity for other individuals or organizations.

41
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(b) Basis of Accounting and Measurement Focus, (Continued)

Governmental Funds

In the fund financial statements, governmental funds are presented using the
modified-accrual basis of accounting. Their revenues are recognized when they
become measurable and available as net current assets. Measurable means that
the amounts can be estimated, or otherwise determined. Available means that the
amounts were collected during the reporting period or soon enough thereafter to
be available to finance the expenditures accrued for the reporting period. The City
uses a sixty day availability period. The City accrues the following revenue
types: taxes, licenses, fines and forfeitures, and other miscellaneous revenues.

Revenue recognition is subject to the measurable and availability criteria for the
governmental funds in the fund financial statements. Exchange transactions are
recognized as revenues in the period in which they are earned (i.e., the related
goods or services are provided). Locally imposed derived tax revenues are
recognized as revenues in the period in which the underlying exchange
transaction upon which they are based takes place. Imposed non-exchange
transactions are recognized as revenues in the period for which they were
imposed. If the period of use is not specified, they are recognized as revenues
when an enforceable legal claim to the revenues arises or when they are received,
whichever occurs first. Government-mandated and voluntary non-exchange
transactions are recognized as revenues when all applicable eligibility
requirements have been met.

In the fund financial statements, governmental funds are presented using the
current financial resources measurement focus. This means that only current
assets and current liabilities are generally included on their balance sheets. The
reported fund balance (net current assets) is considered to be a measure of
“available spendable resources.” Governmental fund operating statements present
increases (revenues and other financing sources) and decreases (expenditures and
other financing uses) in net current assets. Accordingly, they are said to present a
summary of sources and uses of “available spendable resources” during a period.

42
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(b) Basis of Accounting and Measurement Focus, (Continued)

Governmental Funds, (Continued)
Noncurrent portions of long-term receivables due to governmental funds are
reported on their balance sheets in spite of their spending measurement focus.
Special reporting treatments are used to indicate, however, that they should not be
considered “available spendable resources,” since they do not represent net
current assets. Recognition of governmental fund type revenues represented by
noncurrent receivables are deferred until they become current receivables.
Noncurrent portions of other long-term receivables are offset by fund balance
reserve accounts.
Because of their spending measurement focus, expenditure recognition for
governmental fund types excludes amounts represented by noncurrent liabilities.
Since they do not affect net current assets, such long-term amounts are not
recognized as governmental fund type expenditures or fund liabilities.
Amounts expended to acquire capital assets are recorded as expenditures in the
year that resources were expended, rather than as fund assets. The proceeds of
long-term debt are recorded as an other financing sources rather than as a fund
liability. Amounts paid to reduce long-term indebtedness are reported as fund
expenditures.
When both restricted and unrestricted resources are combined in a fund, expenses
are considered to be paid first from restricted resources, and then from
unrestricted resources.
Proprietary and Fiduciary Funds
The City’s enterprise funds are proprietary funds. In the fund financial
statements, proprietary funds are presented using the accrual basis of accounting.
Revenues are recognized when they are earned and expenses are recognized when
the related goods or services are delivered. In the fund financial statements,
proprietary funds are presented using the economic resources measurement focus.
This means that all assets and all liabilities (whether current or noncurrent)
associated with their activity are included on their balance sheets. Proprietary
fund type operating statements present increases (revenues) and decreases
(expenses) in total net assets.

43
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(b) Basis of Accounting and Measurement Focus, (Continued)

Proprietary and Fiduciary Funds, (Continued)

Proprietary fund operating revenues, such as charges for services, result from
exchange transactions associated with principal activity of the fund. Exchange
transactions are those in which each party receives and gives up essentially equal
values. Non-operating revenues, such as subsidies, taxes, and investment
earnings result from non-exchange transactions or ancillary activities. Operating
expenses for enterprise funds include the cost of sales and services,
administrative expenses, and depreciation on capital asses. All revenues and
expenses not meeting this definition are reported as nonoperating expenses.
Amounts paid to acquire capital assets are capitalized as assets in the proprietary
fund financial statements, rather than reported as an expediture. Proceeds of
long-term debt are recorded as a liability in the proprietary fund financial
statements, rather than as other financing source. Amounts paid to reduce long-
term indebtedness of the proprietary funds are reported as a reduction of the
related liability, rather than as expenditure.

Agency funds are custodial in nature (assets equal liabilities) and do not involve
the recording of City revenue and expenses.

(c) Major Funds and Fiduciary Fund Types

The City reports the following major governmental funds:

General Fund - The chief operating fund of a local government. The general fund
is used to account for all financial resources except those required to be
accounted for in another fund.

Solid Waste Management Special Revenue Fund - Accounts for all activities
occurred in the following programs: Solid Waste Management, Source Reduction
and Recycling, Landfill Mitigation, Household Hazardous Waste, and CA
Department of Conservation Grants.

44
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(c) Major Funds and Fiduciary Fund Types, (Continued)

Measure I Street Arterials Special Revenue Fund - Accounts for the portion of
sales tax revenue received from the county. The funds are legally restricted
expenditures for the local street networks that have significant interjurisdictional
or regional traffic.

Redevelopment Agency Debt Service - Accounts for the accumulation of

resources for and payment of principal and interest on the Victorville
Redevelopment Agency Tax Allocation Bonds.

Capital Impact Facilities Capital Projects Fund - Accounts for the acquisition or
construction of major capital facilities related to public improvements needed as
population increases. Revenue received from these funding sources comprised of
licenses and permits earned from impact fees.

Victorville Redevelopment Agency Capital Projects Fund - Accounts for financial

resources to be used for acquisition or construction of major capital facilities.
The fund is composed of the redevelopment project area in Bear Valley Road /
Hook Boulevard, the Old Town / Midtown project area and Victorville’s portion
of the Victor Valley Project Area.

The City reports the following major proprietary funds:

Sanitary District Fund - Accounts for capital acquisition of the City’s sanitary
district. Revenue received for these funding sources comprised of sewer user fees
and property taxes. Sewer user fees are charges for services to residents and
businesses. Since the City of Victorville elected to be a no property tax city, the
property tax revenue received is based from the sanitary district.
Southern California Logistics Airport Authority Fund - Accounts for both
operation and capital acquisition of the activities surrounding the airport. The
former George Air Force Base now known as Southern California Logistics
Airport Authority is a joint power authority formed by the City of Victorville and
the Victorville Redevelopment Agency. The authority was created to effectuate
the redevelopment of the former base and certain properties within an eight mile
radius of the boundaries of the airport. The airport funding sources comprised of
federal grants, charges for services and Tax Allocation Bonds.

45
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(c) Major Funds and Fiduciary Fund Types, (Continued)

Municipal Utility Fund - Accounts for the operation, maintenance, and capital
expenditures of the City’s municipal utility, which is funded by user charges,
other fees and loans.
Additionally, the City reports the following fiduciary fund type:
Agency Funds - Fiduciary fund used to account for assets held by the City as an
agent for individuals, private organizations, other governments and/or other
funds. Agency funds are custodial in nature (assets equal liabilities) and do not
involve measurement of results of operations.

(d) Cash and Investments

Cash includes demand deposits. The California Government Code and the City
of Victorville’s investment policy permit the City of Victorville to invest in
various instruments and pools. Investments are reported in the accompanying
balance sheet at fair value, except for certain investment contracts that are
reported at cost because they are not transferable and they have terms that are not
affected by changes in market interest rates.
Changes in fair value that occur during a fiscal year are recognized as investment
income reported for that fiscal year. Investment income includes interest
earnings, changes in fair value, any gains or losses realized upon the liquidation
or sale of investments and rental income.
The City pools cash and investments of all funds, except for assets held by fiscal
agents. Each fund’s share in this pool is displayed in the accompanying financial
statements as cash and investments. Investment income earned by the pooled
investments is allocated to the various funds based on each fund’s average cash
and investment balance.

46
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(e) Cash Equivalents

For purposes of the statement of cash flows, cash equivalents are defined as
short-term, highly liquid investments with original maturities of three months or
less from the date of acquisition that are both readily convertible to known
amounts of cash or so near their maturity that they present insignificant risk of
changes in value because of changes in interest rates. Cash equivalents represent
the proprietary funds’ share in the cash and investment pool of the City of
Victorville, and the cash recorded in the proprietary funds held by a fiscal agent.
(f) Due from Other Governments
The amounts recorded as a receivable due from other governments include sales
taxes, state gas taxes, and motor vehicle in-lieu taxes, collected or provided by
Federal, State, County and City Governments and unremitted to the City as of
June 30, 2006.
(g) Inventory and Prepaid Items
Inventories are valued on the average cost method. Inventory in the General Fund
consists of office supplies, hardware supplies, fuel and oil. The City uses the
consumption method of accounting for inventories.
Certain payments to vendors reflect costs applicable to future accounting periods
and are recorded as prepaid items in both government-wide and fund financial
statements.
(h) Land Held for Resale
Land held for resale consists of property acquired by the Victorville
Redevelopment Agency and intended to be sold for private developers. Land held
for resale is valued at the lower of cost of market.
(i) Capital Assets
Capital assets (including infrastructure) greater than $5,000 are capitalized and
recorded at cost or at the estimated fair value of the assets at the time of
acquisition where complete historical records have not been maintained. Donated
capital assets are valued at their estimated fair market value at the date of the
donation. The costs of normal maintenance and repairs that do not add to thee
value of the asset or materially extend assets lives are not capitalized.

47
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(i) Capital Assets, (Continued)
Capital assets include public domain (“infrastructure”) capital assets consisting of
certain improvements other than buildings, including roads, bridges, curbs and
gutters, streets and sidewalks, drainage systems and lighting systems.
Depreciation has been provided using the straight-line method over the estimated
useful life of the asset in the government-wide financial statements and in the
fund financial statements of the proprietary funds.
A summary of the estimated useful lives of capital assets is as follows:
Buildings and Improvements 10-50 years
Furniture and Equipment 3-7 years
Computer and Communications 5 years
Vehicles 8-15 years
Infrastructure 20-100 years
(j) Compensated Absences
In accordance with GASB Statement No. 16, a liability is recorded for unused
vacation and similar compensatory leave balances since the employees’
entitlement to these balances are attributable to services already rendered and it is
probably that virtually all of these balances will be liquidated by either paid time
off or payments upon termination or retirement.
Under GASB Statement No. 16, a liability is recorded for unused sick leave
balances only to the extent that it is probable that the unused balances will result
in termination payments. This is estimated by including in the liability the unused
balances of employees currently entitled to receive termination payment, as well
as those who are expected to become eligible to receive termination benefits as a
result of continuing their employment with the City. Other amounts of unused
sick leave are excluded from the liability since their payment is contingent solely
upon the occurrence of a future event (illness), which is outside the control of the
City and the employee.
Compensated absences (unpaid vacation and sick leave) are recorded as
expenditures in the year they are paid. The balance of unpaid vacation and vested
sick leave at year end is recorded as a long-term liability in the government-wide
financial statements, as these amounts will be recorded as fund expenditures in
the year in which they are paid or become due on demand to terminated
employees.

48
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(k) Claims and Judgments

The City records a liability for litigation, judgments, and claims when it is
probable that an asset has been impaired or a liability has been incurred prior to
year-end and the probable amount of loss can be reasonably estimated.
Accordingly, such claims are recorded as liabilities in the governmental and
proprietary funds.
(l) Bond Discounts/Issuance Costs
For the government fund financial statements, bond premiums and discounts, as
well as issuance costs, are recognized during the current period. Bond proceeds
are reported as other financing sources net of any applicable discount or premium.
Issuance costs, whether or not withheld from actual net proceeds received, are
reported as current expenditures. For government-wide financial statements and
proprietary fund financial statements, bond premiums and discounts, as well as
issuance costs, are deferred and amortized over the life of the bonds using the
straight-line method.
(m) Property Taxes
Property taxes attach as an enforceable lien on property as of March 1. Taxes are
levied on July 1 and are payable in two installments on December 10 and April
10. The County of San Bernardino, California bills and collects the property
taxes and remits them to the City in installments during the year. City property
tax revenues are recognized when levied to the extent that they result in current
receivables within 60 days.
The County is permitted by State law (Proposition 13) to levy taxes at 1% of full
market rate (at time of purchase) and can increase the property tax rate no more
than 2% per year. Cities receive a share of this basic levy proportionate to what it
received in the 1976 to 1978 period. As the City of Victorville did not receive
property taxes during the period of 1976-1978, the City receives a no/low
property tax subvention.
(n) Prior Year Data
The information included in the accompanying financial statements for the prior
year has been presented for comparison purposes only and does not represent a
complete presentation in accordance with generally accepted accounting
principles. Certain minor reclassifications of prior year have been made in order
to enhance their comparability with current year figures.

49
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(1) Summary of Significant Accounting Policies, (Continued)

(o) Invested in Capital Assets

Negative amount presented for net assets invested in capital assets is the result of
debt reduction occurring at a slower pace than depreciation. The City has
increased the period of time over which certain debt issues are being repaid as a
result of several refunding actions.

(2) Cash and Investments

Cash and investments as of June 30, 2006 are classified in the accompanying financial
statements as follows:

Statement of net assets:

Cash and investments $ 119,824,137
Cash with fiscal agent 67,525,580
Fiduciary funds:
Cash and investments 12,166,308
Cash with fiscal agent 5,334,167
Total cash and investments $ 204,850,192

Cash and investments as of June 30, 2006 consist of the following:

Cash on hand $ 6,694

Deposits with financial institutions 752,910
Investments 204,090,588

Total cash and investments $ 204,850,192

Investments Authorized by the California Government Code and the Agency’s

Investment Policy

The table below identifies the investment types that are authorized for the City by the
California Government Code and the City’s investment policy. The table also identifies
certain provisions of the California Government Code (or the City’s investment policy, if
more restrictive) that address interest rate risk, credit risk, and concentration of credit
risk. This table does not address investments of debt proceeds held by bond trustee that
are governed by the provisions of debt agreements of the City, rather than the general
provisions of the California Government Code or the City’s investment policy.

50
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(2) Cash and Investments, Continued)

Investments Authorized by the California Government Code and the City’s Investment
Policy (Continued)
Authorized by Maximum Maximum
Investment Types Investment Maximum Percentage Investment
Authorized by State Law Policy Maturity* of Portfolio* In One Issuer*

Local Agency Bonds No 5 years None None

U.S. Treasury Obligations Yes 2 years 70% None
U.S. Agency Securities Yes 5 years 75% None
Banker’s Acceptances No 180 days 40% 30%
Commercial Paper No 270 days 25% 10%
Negotiable Certificates of Deposit Yes 2 years 15% None
Repurchase Agreements No 1 year None None
Reverse Repurchase Agreements No 92 days 20% of base value None
Medium-Term Notes No 5 years 30% None
Mutual Funds No N/A 20% 10%
Money Market Mutual Funds Yes 5 years 5% 10%
Mortgage Pass-Through Securities No 5 years 20% None
County Pooled Investment Funds No N/A None None
Local Agency Investment Fund No N/A None None
JPA Pools (other investment pools) No N/A None None
* Based on state law requirements or investment policy requirements, whichever is more
restrictive.

Investments Authorized by Debt Agreements

Investment of debt proceeds held by bond trustee are governed by provisions of the debt
agreements, rather than the general provisions of the California Government Code or the
City’s investment policy. The table below identifies the investment types that are
authorized for investments held by bond trustee. The table also identifies certain
provisions of these debt agreements that address interest rate risk, credit risk, and
concentration of credit risk.

51
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(2) Cash and Investments, Continued)

Investments Authorized by Debt Agreements (Continued)

Maximum Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity Allowed In One Issuer
U.S. Treasury Obligations None None None
U.S. Agency Securities None None None
Banker’s Acceptances 30 days – 1 year None None
Commercial Paper 180 - 270 days None None
Money Market Mutual Funds None None None
Repurchase Agreements 30 days None None
Investment Contracts None None None
Federal Housing Admin Debentures None None None
Certificates of Deposits 30 days None None
State Obligations None None None
Local Agency Investment Fund None None None
California Common Law Trust Shares None None None
Pre-refunded Municipal Obligations None None None

Disclosures Relating to Interest Rate Risk

Interest rate risk is the risk that changes in market interest rates will adversely affect the
fair value of an investment. Generally, the longer the maturity of an investment, the
greater the sensitivity of its fair value to changes in market interest rates. One of the ways
that the City manages its exposure to interest rate risk is by purchasing a combination of
shorter term and longer term investments and by timing cash flows from maturities so
that a portion of the portfolio is maturing or coming close to maturity evenly over time as
necessary to provide the cash flow and liquidity needed for operations.
Information about the sensitivity of the fair values of the City’s investments (including
investments held by bond trustee) to market interest rate fluctuations is provided by the
following table that shows the distribution of the City’s investments by maturity:

Remaining Maturing (in Months)

12 Months 13 to 24 25 to 60 More Than
Investment Type Total Or Less Months Months 60 Months

Federal agency securities $ 20,551,429 8,000,000 4,000,000 8,551,429 -

State investment pool 110,679,412 110,679,412 - - -
Held by bond trustee:
Money market funds 72,859,747 72,859,747 - - -

Total $204,090,588 191,539,159 4,000,000 8,551,429 -

52
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(2) Cash and Investments, Continued)

Disclosures Relating to Credit Risk

Generally, credit risk is the risk that an issuer of an investment will not fulfill its
obligation to the holder of the investment. This is measured by the assignment of a rating
by a nationally recognized statistical rating organization. Presented below is the
minimum rating required by (where applicable) the California Government Code, the
City’s investment policy, or debt agreements, and the actual rating as of year end for each
investment type.
Minimum Exempt Rating as of Year End
Legal From Not
Investment Type Total Rating Disclosure AAA Rated
Federal agency securities $ 20,551,429 N/A - 20,551,429 -
State investment pool 110,679,412 N/A - - 110,679,412
Held by bond trustee:
Money market funds 72,859,747 A - 72,859,747 -

Total $204,090,588 - 93,411,176 110,679,412

Concentration of Credit Risk

The investment policy of the City contains no limitations on the amount that can be
invested in any one issuer beyond that stipulated by the California Government Code.
Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and
external investment pools) that represent 5% or more of total City investments are as
follows:
Issuer Investment Type Reported Amount
Federal Home Loan Bank Federal Agencies Securities $20,551,429

Custodial Credit Risk

Custodial credit risk for deposits is the risk that, in the event of the failure of a depository
financial institution, a government will not be able to recover its deposits or will not be
able to recover collateral securities that are in the possession of an outside party. The
custodial credit risk for investments is the risk that, in the event of the failure of the
counterparty (e.g., broker-dealer) to a transaction, a government will not be able to
recover the value of its investment or collateral securities that are in the possession of
another party. The California Government Code and the City’s investment policy do not
contain legal or policy requirements that would limit the exposure to custodial credit risk
for deposits or investments, other than the following provision for deposits: The
California Government Code requires that a financial institution secure deposits made by
state or local governmental units by pledging securities in an undivided collateral pool

53
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(2) Cash and Investments, Continued)

Custodial Credit Risk (Continued)

held by a depository regulated under state law (unless so waived by the governmental
unit). The market value of the pledged securities in the collateral pool must equal at least
110% of the total amount deposited by the public agencies. California law also allows
financial institutions to secure City deposits by pledging first trust deed mortgage notes
having a value of 150% of the secured public deposits. As of June 30, 2006, $4,332,876
of the City’s deposits with financial institutions in excess of federal depository insurance
limits was held in collateralized accounts.
For investments identified herein as held by bond trustee, the bond trustee selects the
investment under the terms of the applicable trust agreement, acquires the investment,
and holds the investment on behalf of the reporting government.
Investment in State Investment Pool
The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is
regulated by the California Government Code under the oversight of the Treasurer of the
State of California. The fair value of the City’s investment in this pool is reported in the
accompanying financial statements at amounts based upon the City’s pro-rata share of
the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized
cost of that portfolio). The balance available for withdrawal is based on the accounting
records maintained by LAIF, which are recorded on an amortized cost basis.

(3) Interfund Receivables, Payables and Transfers

The composition of interfund balances as of June 30, 2006 is as follows:
Due to/from other funds:
Receivable Fund Payable Fund Amount
General Fund Nonmajor Governmental Funds $ 1,243,761 (a)

Southern California Logistics

Airport Authority Municipal Utility 11,505,073
Nonmajor Enterprise Funds 13,223,596
Subtotal 24,728,669 (b)
Total $25,972,430

54
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(3) Interfund Receivables, Payables and Transfers, (Continued)

Advances to/from other funds:
Receivable Fund Payable Fund Amount
General Fund Redevelopment Agency – CP $7,500,000 (c)
Sanitary District Operations General Fund 3,402,052 (d)
Nonmajor Governmental Funds Redevelopment Agency - CP 441,935 (e)
Total $11,343,987
Generally, the above balances result from:
(a) The $1,243,761 due from Nonmajor Governmental Funds to General Fund are
short term borrowings due to negative cash balances at the end of this fiscal year,
including $101,923 from Fire Protection, $150,200 from Other State Grants,
$195,010 from CDBG Grants, and $796,628 from Other Federal Grants.
(b) The $24,728,669 due from Municipal Utility and Nonmajor Enterprise Funds to
Southern California Logistics Air Authority are short term borrowings due to
negative cash balances at the end of this fiscal year, including $11,505,073 from
Municipal Utility, $584,925 from Westwinds Golf Course, $4,021,977 from
Green Tree Golf Course and $8,616,694 from Southern California Logistics Rail
Authority.
(c) The $7,500,000 due from the Victorville Redevelopment Agency - CP is due to
an agreement entered into on February 21, 2006 by which the City lent the
Agency $7,500,000 to enable the Agency to fund the costs of ongoing and future
project activities. The terms of repayment specify that all sums loaned to the
Agency shall be repaid to the City within 5 years from the date of the agreement.
In addition, all sums advanced as part of the agreement shall bear interest at a rate
equal to the Local Agency Investment Fund (LAIF) rate, and shall bear interest at
such rate per annum from the date of the payment by the City until repaid in full.
(d) During the fiscal years ended June 30, 1993, loans were made to the General
Fund from the Sanitary District. There are no terms relating to interest rate or
period of repayment.
(e) The $441,935 due from Redevelopment Agency – Capital Projects Fund is due to
an agreement entered into on March 8, 1999 by which the Redevelopment
Agency - Low and Moderate Housing Fund lent the Agency’s Capital Project
Fund $300,000 to fund redevelopment activities in the Oldtown/Midtown Project
Area, and was set up because at the time there was no tax increment coming from
the Oldtown/Midtown Project Area. The advance took place on July 1, 1999, with
a term of repayment of five years, including 5.69% fixed interest during the term.

55
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(3) Interfund Receivables, Payables and Transfers, (Continued)

Transfers in/out:
Transfers In Transfers Out Amount
General Fund Nonmajor Governmental Fund $ 399,094
Redevelopment Agency - CP Redevelopment Agency - DS 4,085
Redevelopment Agency – DS Redevelopment Agency - CP 1,418,271 (1)
Southern California Logistics
Airport Authority General Fund 2,139,259 (2)
Redevelopment Agency - CP 7,369,460 (3)
Subtotal 9,508,719
Municipal Utility General Fund 4,410,478 (4)
Southern California Logistics
Airport Authority 4,083,445 (5)
Subtotal 8,493,923
Nonmajor Governmental Funds General Fund 7,027,163 (6)
Solid Waste Management 334
Measure I 142,165
Capital Impact Facilities 131,945
Subtotal 7,301,607
Nonmajor Enterprise Funds General Fund 757,969 (7)
Capital Impact Facilities 100,677
Southern California Logistic
Airport Authority 233,383
Nonmajor Governmental Funds 25,452
Subtotal 1,117,481
Total $28,243,180

56
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(3) Interfund Receivables, Payables and Transfers, (Continued)

(1) Transfers from the Redevelopment Agency - Capital Projects Fund to

Redevelopment Agency – Debt Service Fund include transfers for payment of the
2002 Series A, 2003 Series A and B, as well as the 2006 Series A Tax Allocation
Bonds.

(2) The General Fund completed transfers of $2,139,259 to Southern California

Logistics Airport Authority to support airport operations.

(3) Transfers from the Redevelopment Agency - Capital Project Fund to the Southern
California Logistics Airport Authority consist of the following:
a) $5,939,460 transferred for debt service payments related to Southern
California Logistics Airport Authority’s Tax Allocation Bonds.
b) $1,430,000 transferred for operating costs.

(4) The General Fund transferred $4,410,478 to Municipal Utility to support

operations.
(5) The Southern California Airport Authority transferred $4,083,445 to Municipal
Utility for capital asset acquisitions.
(6) Transfers from the General Fund to Nonmajor Governmental Funds consist of the
following:
a) $4,549,358 transferred to the Fire Protection Fund to support fire
department operations.
b) $1,235,352 transferred to the Park and Recreation Fund to support the
park department operations.
c) $1,179,488 transferred to the Gas Tax Fund to support the repair and
maintenance of streets.
d) $516 transferred to the CDBG Grants Fund to support the removal of
graffiti.
e) $62,449 transferred to close out the Street Lighting Fund reserve account.
(7) Transfers from the General Fund to Nonmajor Enterprise Funds consist of the
following:
a) $442,527 transferred to the Green Tree Golf Course Fund to support golf
course operations.
b) $315,442 transferred to the Westwinds Golf Course Fund to support the
golf course operations.

57
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(4) Capital Assets

Governmental activities
The following is a summary of changes in capital assets for the year ended June 30,
2006:
Balance at Balance at
July 1, 2005 Additions Deletions June 30, 2006
Buildings and improvements $ 21,918,482 824,526 - 22,743,008
Furniture and equipment 8,823,568 1,453,821 - 10,277,389
Computer and communications 2,780,835 234,434 - 3,015,269
Vehicles 3,275,647 437,155 - 3,712,802
Infrastructure:
Roadways 247,190,576 45,036,095 - 292,226,671
Streets 47,290,581 9,780,108 - 57,070,689
Storm drains 7,672,279 330,041 - 8,002,320
Water pipelines - 59,828 - 59,828
Total cost of depreciable
assets 338,951,968 58,156,008 - 397,107,976
Less accumulated depreciation:
Buildings and improvements (7,338,991) (897,359) - (8,236,350)
Furniture and equipment (5,796,276) (584,015) - (6,380,291)
Computer and communication (1,942,639) (278,616) - (2,221,255)
Vehicles (1,856,462) (290,122) - (2,146,584)
Infrastructure:
Roadways (119,222,958) (9,914,497) - (129,137,455)
Streets (25,826,513) (887,711) - (26,714,224)
Storm drains (2,764,471) (12,633) - (598)
Water pipelines - (598) - (2,777,104)
Total accumulated
depreciation (164,748,310) (12,865,551) - (177,613,861)
Net depreciable assets 174,203,658 45,290,457 - 219,494,115
Capital assets not depreciated:
Land 23,899,291 533,936 (80,561) 24,352,666
Rights of way 179,427,590 - - 179,427,590
Construction in progress 9,248,273 22,373,699 (4,535,956) 27,086,016
Investment in joint venture 3,412,500 - - 3,412,500
Capital assets, net $ 390,191,312 68,198,092 (4,616,517) 453,772,887

58
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(4) Capital Assets, (Continued)

Depreciation expense was charged in the following functions in the Statement of

Activities:

General government $ 1,035,821

Public safety 344,664
Public works 11,485,066

$12,865,551

Business-type activities

The following is a summary of capital assets for enterprise funds at June 30, 2006:

Balance at
July 1, 2005 Balance at
(as restated)(1) Additions Deletions June 30, 2006

Buildings and improvements $134,374,319 2,887,035 (1,875,000) 135,386,354

Furniture and equipment 8,213,002 921,218 - 9,134,220
Computer and communications 96,728 - - 96,728
Vehicles 499,363 50,923 - 550,286
Sewer 27,974,802 4,031,003 - 32,005,805
Storm drains 265,982 - - 265,982
Water lines 2,446,063 - - 2,446,063
Gas lines 307,480 - - 307,480
Runways and roads 42,566,735 - - 42,566,735

Total cost of
depreciable assets 216,744,474 7,890,179 (1,875,000) 222,759,653

59
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(4) Capital Assets, (Continued)

Balance at
July 1, 2005 Balance at
(as restated)(1) Additions Deletions June 30, 2006
Less accumulated depreciation:
Buildings and improvements (77,166,688) (2,851,775) - (80,018,463)
Furniture and equipment (1,708,542) (470,972) - (2,179,514)
Computer and communication (54,642) (11,915) - (66,557)
Vehicles (224,445) (21,758) - (246,203)
Sewer (9,211,703) (475,509) - (9,687,212)
Storm drains (265,982) - - (265,982)
Water lines (338,250) (34,586) - (372,836)
Gas lines (20,498) (10,249) - (30,747)
Runways and roads (13,680,568) (1,061,010) - (14,741,578)
Total accumulated
depreciation (102,671,318) (4,937,774) - (107,609,092)
Net depreciable assets 114,073,156 2,952,405 (1,875,000) 115,150,561
Capital assets not depreciated:
Land 12,149,320 8,003,134 - 20,152,454
Construction in progress 11,793,542 42,080,055 (1,470,740) 52,402,857
Capital assets, net $138,016,018 53,035,594 (3,345,740) 187,705,872
(1) The beginning balance has been increased by $1,875,000 to reflect the inclusion of building
owned by the Southern California Logistic Airport Authority fund that was previously unrecorded.
Depreciation expense was charged in the following programs of the primary government:
Sanitary $ 523,943
Airport 4,043,415
Golf courses 81,531
Water 79,044
Municipal utility 209,841
Total $4,937,774

60
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(5) Land Held for Resale

As of June 30, 2006, the Victorville Redevelopment Agency has acquired and developed
parcels of land in the Bear Valley and Old Town/Midtown project areas. These parcels
were purchased for the purpose of providing incentives to developers in order to
construct future commercial projects on the property, and are recorded as land held for
resale at the value of $14,560,925.

(6) Governmental Long-Term Liabilities

Changes in Long-Term Liabilities

A summary of changes in long-term liabilities for the year ended June 30, 2006 is noted
below:
Balance at Balance at Due Within
July 1, 2005 Additions Retirements June 30, 2006 One Year
City Debt:
Compensated Absences $ 3,067,219 580,738 44,907 3,603,050 500,000
Certificates of Participation:
1997 Series EE Refunding 590,000 - 110,000 480,000 110,000
Installment Purchase Agreement:
2004 Project Revenue Bond 2,683,071 - 133,371 2,549,700 135,872
Redevelopment Agency Debt:
Tax Allocation Bonds:
2002 Tax Allocation Bonds, A 9,540,000 - 195,000 9,345,000 205,000
2003 Tax Allocation Bonds, A 10,100,000 - 210,000 9,890,000 215,000
2003 Tax Allocation Bonds, B 4,965,000 - 105,000 4,860,000 105,000
2006 Tax Allocation Bonds, A - 22,975,000 - 22,975,000 820,000

Totals $30,945,290 23,555,738 798,278 53,702,750 2,090,872

Compensated Absences

The City’s policies relating to compensated absences are described in note 1. This
liability, amounting to $3,603,050 at June 30, 2006, will be paid in future years from
future resources, generally liquidated by the general fund.

61
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(6) Governmental Long-Term Liabilities, (Continued)

1997 Refunding Certificates of Participation, Series EE

In December 1997, $6,795,000 1997 Series EE Refunding Certificates of Participation
were issued by the California Special Districts Association Finance Corporation. The
City of Victorville portion of this debt issuance is $1,315,000. The proceeds were used
to refinance the costs of constructing a new Community Center evidenced by the CSDA
1989 Series C Certificates of Participation.
Certificates maturing in the years 1997 to 2013 are payable December 1 in annual
installments of $125,000 to $610,000. The bonds bear interest at 4.1% to 6.0%, which is
due June 1 and December 1 of each year.
The certificates maturing on or after December 1, 2007 are subject to optional
prepayment in whole or in part by lot with premium of 2%, 1% and 0% for periods
December 1, 2007 to November 30, 2008, December 1, 2008 to November 30, 2009 and
December 1, 2009 and thereafter, respectively.
The required reserve for the Bonds is $131,500. As of June 30, 2006, the reserve amount
was $131,547. The bonds are a special obligation of the City of Victorville payable from
tax increment revenues. The amount of bonds outstanding at June 30, 2006 total
$480,000.
Obligation Under Installment Purchase Agreement
On November 1, 1994, the City of Victorville entered into an installment purchase
agreement to acquire a one-half undivided interest in the Victor Valley Materials
Recovery Facility. The design and construction of the Facility was completed in October
1995 and was funded by the issuance of $6,825,000 Project Revenue Bonds, Series 1994
through the Mojave Desert and Mountain Solid Waste Joint Powers Authority
(“Authority”). On May 1, 2004, the $5,910,000 Project Revenue Refunding Bonds,
Series 2004 were used to currently refund the 1994 bonds, which have no balance. The
City is obligated to make monthly installment purchase payments to the Authority equal
to the sum of (1) one-twelfth of the next principal payment and (2) one-sixth of the next
interest payment. Interest on the installment purchase obligation ranges from 2.0% to
5.3% and total annual principal installments range from $135,000 to $252,500.
The City will pay to the Authority the installment payments solely from service revenues,
which consist primarily of rates and charges imposed by the City for solid waste
management services. Covenants within the installment purchase agreement require the
City of Victorville to establish annual rates sufficient to pay operating expenses and debt
service payments in such fiscal year.

62
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(6) Governmental Long-Term Liabilities, (Continued)

Obligation Under Installment Purchase Agreement, (Continued)

In addition, such rates shall be charged to produce net revenues equal to at least 125% of
the debt service payments due and payable in such fiscal year. Since the beginning of the
fiscal year on July 1, 2006 through June 30, 2006, the City was in compliance with the
rate covenants.

The required reserve for the bonds is $536,070. As of June 30, 2006, the reserve amount
was $538,026. The amount of bonds outstanding (net of unamortized discounts of
$127,800) at June 30, 2006 is $2,549,700.

Tax Allocation Bonds Payable

2002 Tax Allocation Bonds, Series A
In August 2002, the Redevelopment Agency issued $9,710,000 principal amount of Tax
Allocation Bonds, Series A. The proceeds were used to finance certain redevelopment
activities within and of the benefit to the project area.
Bonds maturing in the years 2003 to 2021 are serial bonds payable December 1 in annual
installments of $80,000 to $290,000. Bonds maturing on December 1, 2014, December
1, 2031 and December 1, 2031 in the amounts of $455,000, $1,545,000 and $3,890,000
are term bonds. The outstanding bonds (serial and term) bear interest at 3.00% to 5.14%
due December 1 of each year.
The bonds are subject to redemption prior to maturity as described in the bond covenants.
The serial bonds maturing on December 1, 2013 are subject to optional redemption in
whole or in part by lot, with premium of 2%, 1% and 0% for periods December 1, 2012
to November 30, 2013, December 1, 2013 to November 30, 2014 and December 1, 2014
and thereafter, respectively.
The term bonds maturing on December 1, 2014, December 1, 2031 and December 1,
2031 are subject to mandatory redemption in part by lot, without premium commencing
December 1, 2005, December 1, 2015 and December 1, 2022 respectively, from sinking
fund payments made by the Agency.
The required reserve for the Bonds is $200,000. As of June 30, 2006, the reserve amount
was $330,408. The bonds are payable solely from the tax revenues allocated and paid to
the Victorville Redevelopment Agency with respect to the Redevelopment Project Area.
The amount of bonds outstanding at June 30, 2006 total $9,345,000.

63
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(6) Governmental Long-Term Liabilities, (Continued)

2003 Tax Allocation Bonds, Series A

In September 2003, the Redevelopment Agency issued $10,195,000 principal amount of

Tax Allocation Bonds, Series A. The proceeds were used to refund the 1994 Tax
Allocation Bonds, Series A, as well as finance certain redevelopment activities within
and of the benefit to the project area.

Bonds maturing in the years 2004 to 2020 are serial bonds payable December 1 in annual
installments of $95,000 to $380,000. Bonds maturing on December 1, 2023, December
1, 2027 and December 1, 2031 in the amounts of $1,250,000, $1,975,000 and $2,410,000
are term bonds. The outstanding bonds (serial and term) bear interest at 3.00% to 5.09%
due December 1 of each year.

The term bonds maturing on December 1, 2023, December 1, 2027 and December 1,
2031 are subject to mandatory redemption in part by lot, without premium commencing
December 1, 2021, December 1, 2024 and December 1, 2028 respectively, from sinking
fund payments made by the Agency.
The required reserve for the Bonds is $280,000. As of June 30, 2006, the reserve amount
was $281,063. The bonds are payable solely from the tax revenues allocated and paid to
the Victorville Redevelopment Agency with respect to the Redevelopment Project Area.
The amount of bonds outstanding at June 30, 2006 is $9,890,000.
2003 Tax Allocation Bonds, Series B

In September 2003, the Redevelopment Agency issued $5,025,000 principal amount of

Tax Allocation Bonds, Series B. The proceeds were used to refund the 1994 Tax
Allocation Bonds, Series C, as well as finance certain redevelopment activities within
and of the benefit to the project area.

Bonds maturing in the years 2004 to 2022 are serial bonds payable December 1 in annual
installments of $60,000 to $205,000. Bonds maturing on December 1, 2027 and
December 1, 2031 in the amounts of $1,185,000 and $1,185,000 are term bonds. The
outstanding bonds (serial and term) bear interest at 3.00% to 5.09% due December 1 of
each year.

64
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(6) Governmental Long-Term Liabilities, (Continued)

2003 Tax Allocation Bonds, Series B, (Continued)

The term bonds maturing on December 1, 2027 and December 1, 2031 are subject to
mandatory redemption in part by lot, without premium commencing December 1, 2023
and December 1, 2028 respectively, from sinking fund payments made by the Agency.

The required reserve for the Bonds is $140,000. As of June 30, 2006, the reserve amount
was $143,214. The bonds are payable solely from the tax revenues allocated and paid to
the Victorville Redevelopment Agency with respect to the Redevelopment Project Area.
The amount of bonds outstanding at June 30, 2006 is $4,860,000.

2006 Taxable Tax Allocation Parity Bonds, Series A

In May 2006, the Redevelopment Agency issued $22,975,000 principal amount of
Taxable Tax Allocation Parity Bonds, Series A. The proceeds were used to finance
certain redevelopment activities benefiting the project area.

Bonds maturing on December 1, 2011, December 1, 2021 and December 1, 2036 in the
amounts of $2,185,000, $4,175,000 and $16,615,000 are term bonds. The outstanding
bonds bear interest at 5.375% to 6.000% due June 1 and December 1 of each year.

The bonds are subject to redemption prior to maturity as described in the bond covenants.

The bonds maturing on December 1, 2011, December 1, 2021 and December 1, 2036 are
subject to mandatory redemption in part by pro rata, without premium commencing
December 1, 2006, December 1, 2012 and December 1, 2022 respectively, from sinking
fund payments made by the Agency.
The required reserve for the Bonds is $1,043,706. As of June 30, 2006, the reserve
amount was $1,045,736. The bonds are payable solely from the tax revenues allocated
and paid to the Victorville Redevelopment Agency with respect to the Redevelopment
Project Area. The amount of bonds outstanding at June 30, 2006 is $22,975,000.

Debt Service Requirements to Maturity

The annual requirements to amortize outstanding general long-term liabilities of the City
excluding compensated absences as of June 30, 2006 are as follows:

65
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(6) Governmental Long-Term Liabilities, (Continued)

Debt Service Requirements to Maturity, (Continued)

Certificates Certificates Tax Tax Installment Installment
Year of of Allocation Allocation Purchase Purchase
Ending Participation Participation Bonds Bonds Agreement Agreement
June 30 Principal Interest Principal Interest Principal Interest
2007 $110,000 24,131 1,345,000 2,529,080 145,000 119,290
2008 115,000 17,886 780,000 2,426,341 152,500 114,940
2009 125,000 11,103 815,000 2,392,682 155,000 110,213
2010 130,000 3,770 850,000 2,356,132 160,000 104,942
2011 - - 885,000 2,318,104 167,500 98,943
2012 - - 925,000 2,278,358 172,500 92,075
2013 - - 965,000 2,235,673 182,500 84,657
2014 - - 1,010,000 2,189,548 190,000 76,445
2015 - - 1,060,000 2,139,494 197,500 67,945
2016 - - 1,110,000 2,085,756 210,000 58,015
2017 - - 1,165,000 2,029,330 220,000 47,535
2018 - - 1,225,000 1,969,850 230,000 36,745
2019 - - 1,285,000 1,907,094 242,500 25,245
2020 - - 1,350,000 1,839,540 252,500 12,878
2021 - - 1,420,000 1,766,854 - -
2022 - - 1,495,000 1,690,057 - -
2023 - - 1,575,000 1,608,159 - -
2024 - - 1,660,000 1,521,006 - -
2025 - - 1,745,000 1,429,231 - -
2026 - - 1,840,000 1,332,556 - -
2027 - - 1,940,000 1,230,575 - -
2028 - - 2,045,000 1,123,034 - -
2029 - - 2,155,000 1,008,625 - -
2030 - - 2,275,000 886,866 - -
2031 - - 2,400,000 758,334 - -
2032 - - 2,530,000 622,772 - -
2033 - - 2,670,000 473,100 - -
2034 - - 2,830,000 308,100 - -
2035 - - 3,000,000 133,200 - -
2036 - - 350,000 32,700 - -
2037 - - 370,000 11,100 - -
Subtotal 480,000 56,890 47,070,000 46,633,251 2,677,500 1,049,868

Less:
Unamortized
discount - - - - 127,800 -

Total $480,000 56,890 47,070,000 46,633,251 2,549,700 1,049,868

66
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(7) Business-Type Long-Term Liabilities

Changes in Long-Term Liabilities
A summary of changes in long-term liabilities for the year ended June 30, 2006 is noted
below:
Balance at Balance at Due Within
July 1, 2005 Additions Retirements June 30, 2006 One Year

Lease Purchase Agreements

Zion First National Bank $ 1,883,839 - (274,715) 1,609,124 289,337
Comerica Leasing Corp. 1,644,921 - (142,772) 1,502,149 149,153
Lease Subtotal 3,528,760 - (417,487) 3,111,273 438,490
Tax Allocation Bonds:
2001 Tax Allocation Bonds 13,560,000 - (13,560,000) - -
Less: unamortized discount (664,576) - 664,576 - -
2001 TABs Subtotal 12,895,424 - (12,895,424) - -
2003 Tax Allocation Bonds 44,400,000 - (44,400,000) - -
Less: unamortized discount (1,554,240) - 1,554,240 - -
2003 TABs Subtotal 42,845,760 - (42,845,760) - -
2005 Tax Allocation Bonds 42,185,000 - (15,335,000) 26,850,000 625,000
Less: unamortized discount (238,030) - 91,579 (146,451) (6,102)
2005 TABs Subtotal 41,946,970 - (15,243,421) 26,703,549 618,898
2006 Tax Allocation Bonds
(Non-housing bond) - 62,780,000 - 62,780,000 2,225,000
Less: unamortized discount - (796,835) - (796,835) (21,536)
2003 TABs Subtotal - 61,983,165 - 61,983,165 2,203,464
2006 Tax Allocation Bonds
(Housing Set-Aside) - 16,855,000 - 16,855,000 595,000
Less: unamortized discount - (216,934) - (216,934) (5,863)
2003 TABs Subtotal - 16,638,066 - 16,638,066 589,137
2006 Tax Allocation Bonds - 45,020,000 - 45,020,000 2,045,000
Less: unamortized discount - (562,750) - (562,750) (15,209)
2003 TABs Subtotal - 44,457,250 - 44,457,250 2,029,791
Notes Payable:
2005 Taxable Industrial
Development Revenue Notes - 20,000,000 (20,000,000) - -
2006 Taxable Industrial
Development Revenue Notes - 30,000,000 (10,000,000) 20,000,000 -
Lease Revenue Bonds:
2005 Lease Revenue Bond 41,000,000 - - 41,000,000 -
Total $142,216,914 173,078,481 (101,402,092) 213,893,303 5,879,780

67
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(7) Business-Type Long-Term Liabilities, (Continued)

Lease Purchase Agreements

In May of 2003, the Municipal Utility entered into an agreement with Zion’s National
Bank to set up a $2,300,000 lease purchase agreement. The proceeds were used to lease
co-generation equipment necessary for ongoing activities, recorded at its acquisition cost
of $2,730,173.

The lease has an interest rate of 5.22%. Repayments by the Municipal Utility will be
made in quarterly payments of $91,933. Quarterly payments from the Municipal Utility
began in November of 2003 and continue through May of 2011. The amount of the lease
purchase agreement outstanding at June 30, 2006 is $1,609,124.

In November of 2004, the City of Victorville entered into an agreement with Comerica
Leasing Corporation to set up a $2,054,000 lease purchase agreement. The proceeds were
used to lease natural gas generator necessary for ongoing activities, recorded at its
acquisition cost of $2,054,000.

The lease has an interest rate of 4.396%. An initial payment of $340,000 was made on
November of 2004. Remaining repayments are being made quarterly, which began in
February of 2005 and continue through November of 2015. The amount of the lease
purchase agreement outstanding at June 30, 2006 is $1,502,149.

Tax Allocation Bonds, Series 2001

In November 2001, the Southern California Logistics Airport Authority issued

$13,560,000 principal amount of Tax Allocation Bonds, Series 2001. The proceeds were
used to defease the Victor Valley Economic Development Authority Taxable Lease
Revenue Notes, Series 1996 and finance certain public capital improvements benefiting
the Southern California Logistics Airport.
In the fiscal year ended June 30, 2006 these bonds have been defeased by the issuance of
the Tax Allocation Revenue Parity Bonds, Refunding Series 2006 (Non-Housing). The
amount of bonds outstanding at June 30, 2006 is $0.

68
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(7) Business-Type Long-Term Liabilities, (Continued)

Tax Allocation Parity Bonds, Series 2003

In December 2003, the Southern California Logistics Airport Authority issued

$45,120,000 principal amount of Tax Allocation Parity Bonds, Series 2003. The
proceeds were used to finance certain public capital improvements benefiting the
Southern California Logistics Airport and to finance certain low and moderate income
housing projects.

In the fiscal year ended June 30, 2006 these bonds have been defeased by the issuance of
the Tax Allocation Revenue Parity Bonds, Refunding Series 2006 (Non-Housing), and
the Tax Allocation Revenue Parity Bonds, Refunding Series 2006 (Housing Set-Aside).
The amount of bonds outstanding at June 30, 2006 is $0.

Tax Allocation Parity Bonds, Series 2005A

In June 2005, the Southern California Logistics Airport Authority issued $42,185,000
principal amount of Tax Allocation Parity Bonds, Series 2005A. The proceeds were
used to finance certain public capital improvements benefiting the Southern California
Logistics Airport.
Bonds maturing on December 1, 2010, December 1, 2015, December 1, 2020, December
1, 2025, December 1, 2030, and December 1, 2035 in the amounts of $2,765,000,
$3,365,000, $5,140,000, $6,335,000, $7,870,000 and $15,335,000 are term bonds. The
outstanding bonds bear interest at 3.50% to 5.00% due June 1 and December 1 of each
year.
The bonds are subject to redemption prior to maturity as described in the bond covenants.
The bonds maturing on or after June 1, 2015 are subject to optional redemption in whole
or in part by lot, without premium.
The bonds maturing on December 1, 2010, December 1, 2015, December 1, 2020,
December 1, 2025, December 1, 2030, and December 1, 2035 are subject to mandatory
redemption in part by lot, without premium, commencing December 1, 2007, December
1, 2012, December 1, 2016, December 1, 2021, December 1, 2026, and December 1,
2031, respectively, from sinking fund payments made by SCLAA.

In the fiscal year ended June 30, 2006 these bonds have been partially defeased by the
issuance of the Tax Allocation Revenue Parity Bonds, Refunding Series 2006 (Non-
Housing). The required reserve for the Bonds is $1,797,890. As of June 30, 2006 the
reserve amount was $2,505,968. The bonds are a special obligation of the Southern
California Logistics Airport Authority payable from tax increment revenues. The amount
of bonds outstanding (net of unamortized discounts of $146,451) at June 30, 2006 is
$26,703,549.

69
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(7) Business-Type Long-Term Liabilities, (Continued)

Tax Allocation Revenue Parity Bonds, Refunding Series 2006 (Non-Housing)

In June 2006, the Southern California Logistics Airport Authority issued $62,780,000
principal amount of Tax Allocation Revenue Parity Bonds, Refunding Series 2006. The
proceeds were used to refund the 2001 Tax Allocation Bonds, a portion of 2003 Tax
Allocation Bonds, and a portion of 2005 Tax Allocation Bonds. As a result, the 2001 and
2003 Tax Allocation Bonds are considered to be defeased, and the 2005 Tax Allocation
Bonds are considered to be partially defeased. The respective liabilities have been
removed from the statement of net assets. This advance refunding was undertaken to
reduce total debt service payments over the next 10 years by $2,421,895 and resulted in
an economic gain of $1,665,044.

Bonds maturing on December 1, 2026, December 1, 2031, December 1, 2036 and

December 1, 2043 in the amounts of $6,895,000, $8,595,000, $10,810,000 and
$20,335,000 are term bonds. The outstanding bonds bear interest at 4.50% to 5.00% due
June 1 and December 1 of each year.

The bonds are subject to redemption prior to maturity as described in the bond covenants.
The bonds maturing on or after June 1, 2016 are subject to optional redemption in whole
or in part by lot without premium.

The bonds maturing on December 1, 2026, December 1, 2031, December 1, 2036 and
December 1, 2043 are subject to mandatory redemption in part by lot, without premium,
commencing December 1, 2022, December 1, 2027, December 1, 2032 and December 1,
2037, respectively, from sinking fund payments made by the Agency.

The required reserve for the Bonds is $4,504,646. As of June 30, 2006, the reserve
amount was $ 4,504,646. The bonds are a special obligation of the Southern California
Logistics Airport Authority payable from tax increment revenues. The amount of bonds
outstanding (net of unamortized discounts of $796,835) at June 30, 2006 is $61,983,165.

Tax Allocation Revenue Parity Bonds, Refunding Series 2006 (Housing Set-Aside)

In June 2006, the Southern California Logistics Airport Authority issued $16,855,000
principal amount of Housing Set-Aside Revenue Bonds, Refunding Series 2006. The
proceeds were used to refund a portion of the 2003 Tax Allocation Bonds. As a result the
2003 Tax Allocation Bond is considered to be defeased and the liability has been
removed from the statement of net assets. This advance refunding was undertaken to
reduce total debt service payments over the next 10 years by $1,563,960 and resulted in
an economic gain of $533,504

70
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(7) Business-Type Long-Term Liabilities, (Continued)

Tax Allocation Revenue Parity Bonds, Refunding Series 2006 (Housing Set-Aside),
(Continued)

Bonds maturing on December 1, 2026, December 1, 2031, December 1, 2036 and

December 1, 2043 in the amounts of $1,855,000, $2,305,000, $2,905,000 and $5,460,000
are term bonds. The outstanding bonds bear interest at 4.50% to 5.00% due June 1 and
December 1 of each year.
The bonds are subject to redemption prior to maturity as described in the bond covenants.
The bonds maturing on or after June 1, 2016 are subject to optional redemption in whole
or in part by lot without premium.

The bonds maturing on December 1, 2026, December 1, 2031, December 1, 2036 and
December 1, 2043 are subject to mandatory redemption in part by lot, without premium,
commencing December 1, 2022, December 1, 2027, December 1, 2032 and December 1,
2037, respectively, from sinking fund payments made by the Agency.
The required reserve for the Bonds is $1,209,395. As of June 30, 2006, the reserve
amount was $ 1,209,395. The bonds are a special obligation of the Southern California
Logistics Airport Authority payable from tax increment revenues. The amount of bonds
outstanding (net of unamortized discounts of $216,934) at June 30, 2006 is $16,638,066.

Tax Allocation Revenue Parity Bonds, Taxable Series 2006

In June 2006, the Southern California Logistics Airport Authority issued $45,020,000
principal amount of Tax Allocation Revenue Parity Bonds, Taxable Series 2006. The
proceeds were used to finance certain redevelopment activities benefiting the Southern
California Airport.
Bonds maturing on December 1, 2036, and December 1, 2043 in the amounts of
$20,080,000, and $24,940,000 are term bonds. The outstanding bonds bear interest at
6.10% due June 1 and December 1 of each year.
The bonds are subject to redemption prior to maturity as described in the bond covenants.
The bonds are subject to optional redemption in whole or in part by lot, subject to a
premium.
The bonds maturing on December 1, 2036, December 1, 2043 are subject to mandatory
redemption in part by pro rata, without premium, commencing December 1, 2006,
December 1, 2037, respectively, from sinking fund payments made by SCLAA.
The required reserve for the Bonds is $3,230,315. As of June 30, 2006, the reserve
amount was $ 3,230,315. The bonds are a special obligation of the Southern California
Logistics Airport Authority payable from tax increment revenues. The amount of bonds
outstanding (net of unamortized discounts of $562,750) at June 30, 2006 is $44,457,250.

71
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(7) Business-Type Long-Term Liabilities, (Continued)

Taxable Industrial Development Revenue Notes, Series 2006 A

In November 2005, the Southern California Logistic Airport Authority issued
$20,000,000 principal amount of Taxable Industrial Development Revenue Notes. The
proceeds were used to make a loan to a developer to construct certain hangar facilities
within the Southern California Logistic Airport Authority. In February 2006, the
Southern California Logistic Airport Authority issued $30,000,000 principal amount of
Taxable Industrial Development Revenue Notes. The proceeds were used to refund the
$20,000,000 Taxable Industrial Development Revenue Notes, Series 2005A and to make
a loan to a developer to construct certain hangar facilities within the Southern California
Logistic Airport.

The notes bear interest at 5.50% from the date of issuance to November 1, 2007 and at
three month Libor rate plus 5% each interest period thereafter, due February 1, May 1,
August 1, and November 1 of each year, commencing May 1, 2006.

The amount of notes outstanding at June 30, 2006 is $20,000,000.

Variable Rate Lease Revenue Bonds, Series 2005A

In April 2005, the Victorville Joint Powers Financing Authority issued $41,000,000
principal amount of Variable Rate Lease Revenue Bonds, Series 2005A. The proceeds
were used to assist the City of Victorville in financing a cogeneration power plant and
other related facilities.
The bonds are subject to optional redemption in whole or in part by lot, without
premium.
The required reserve for the Bonds is $2,230,000. As of June 30, 2006, the reserve
amount was $2,328,492. The bonds are a special obligation of the Victorville Joint
Powers Financing Authority payable from revenues consisting primarily of base rental
lease payments paid by the city and amount held in the funds and established under the
indenture. The amount of bonds outstanding at June 30, 2006 is $41,000,000, and the
interest rate was 4.48%.

Debt Service Requirements to Maturity

The annual requirements to amortize outstanding proprietary fund debt of the City as of
June 30, 2006, are as follows for each fiscal year ending June 30:

72
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(7) Business-Type Long-Term Liabilities, (Continued)

Tax Allocation Bonds Lease Purchase Agreements Lease Revenue Bonds Notes Payable
Principal Interest Principal Interest Principal Interest Principal Interest

2007 5,490,000 7,103,734 438,490 141,992 1,836,800 - 1,100,000

2008 1,630,000 7,284,234 460,557 119,925 1,836,800 - 1,598,063
2009 1,685,000 7,226,000 483,742 96,740 755,000 1,802,976 - 2,096,126
2010 1,745,000 7,164,558 508,102 72,380 785,000 1,767,808 - 2,096,126
2011 1,805,000 7,100,418 533,696 46,786 815,000 1,731,296 20,000,000 1,048,063
2012 1,875,000 7,032,655 185,595 27,155 845,000 1,693,440 - -
2013 1,940,000 6,955,628 193,890 18,860 875,000 1,654,240 - -
2014 2,030,000 6,869,198 202,554 10,196 910,000 1,613,472 - -
2015 2,115,000 6,778,106 104,647 1,728 945,000 1,571,136 - -
2016 2,210,000 6,682,271 - - 980,000 1,527,232 - -
2017 2,310,000 6,584,938 - - 1,020,000 1,481,536 - -
2018 2,405,000 6,486,050 - - 1,055,000 1,434,272 - -
2019 2,505,000 6,381,373 - - 1,095,000 1,385,216 - -
2020 2,610,000 6,270,745 - - 1,140,000 1,334,144 - -
2021 2,725,000 6,154,307 - - 1,180,000 1,281,280 - -
2022 2,850,000 6,029,956 - - 1,225,000 1,226,400 - -
2023 2,975,000 5,897,643 - - 1,275,000 1,169,280 - -
2024 3,115,000 5,759,135 - - 1,320,000 1,110,144 - -
2025 3,255,000 5,614,143 - - 1,375,000 1,048,544 - -
2026 3,400,000 5,462,593 - - 1,425,000 984,704 - -
2027 3,555,000 5,303,513 - - 1,480,000 918,400 - -
2028 3,715,000 5,136,498 - - 1,535,000 849,632 - -
2029 3,890,000 4,961,665 - - 1,595,000 778,176 - -
2030 4,070,000 4,778,645 - - 1,655,000 704,032 - -
2031 4,255,000 4,587,213 - - 1,715,000 627,200 - -
2032 4,455,000 4,372,518 - - 1,785,000 547,232 - -
2033 4,685,000 4,126,428 - - 1,850,000 464,352 - -
2034 4,940,000 3,860,833 - - 1,920,000 378,336 - -
2035 5,215,000 3,580,503 - - 1,995,000 288,960 - -
2036 5,505,000 3,284,425 - - 2,070,000 196,224 - -
2037 5,810,000 2,971,713 - - 2,150,000 99,904 - -
2038 6,130,000 2,641,533 - - 2,230,000 - - -
2039 6,470,000 2,292,928 - - - - - -
2040 6,830,000 1,924,788 - - - - - -
2041 7,205,000 1,536,085 - - - - - -
2042 7,605,000 1,125,740 - - - - - -
2043 8,025,000 692,463 - - - - - -
2044 8,470,000 234,960 - - - - - -

151,505,000 188,250,136 3,111,273 535,762 41,000,000 35,343,168 20,000,000 7,938,378

Less:
Unamortized
discount (1,722,970) - - - - - - -

$ 149,782,030 188,250,136 3,111,273 535,762 41,000,000 35,343,168 20,000,000 7,938,378

73
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(8) Fund Balances

Fund balances of governmental funds at June 30, 2006 consisted of the following
reserves:

Measure I Victorville Victorville

Street Redevelopment Redevelopment Nonmajor
General Arterials Agency - DS Agency - CP Funds Totals

Reserved for:
Notes receivable $ - - - 79,152 4,284,917 4,364,069
Due from other fund 1,243,761 - - - - 1,243,761
Inventories 442,719 - - - - 442,719
Prepaid items 380,431 896,000 - - 20,144 1,296,575
Advances
to other funds 7,500,000 - - - 441,935 7,941,935
Land held for resale - - - 14,560,925 - 14,560,925
Debt service - - 24,514,693 - 131,547 24,646,240

Total reserved $ 9,566,911 896,000 24,514,693 14,640,077 4,878,543 54,496,224

(9) Deficit
Fund Balances

The following funds had deficit fund balances/net assets as of June 30, 2006.

Deficit Fund Balance

Special Revenue Funds:

Fire Protection $ 1,224
Other State Grants 190,141
CDBG Grants 16,642
Other Federal Grants 830,488
Enterprise Funds:
Municipal Utility 4,647,545
Westwinds Golf Course 500,675
Southern California Logistics
Rail Authority 2,831,077

74
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(10) Expenditures in Excess of Appropriations

The following funds reported total expenditures in excess of total appropriations for the
year ended June 30, 2006:
Budget Actual Variance
Special Revenue Funds:
Fire Protection 6,545,964 7,227,969 (682,005)
Parks and Recreation 5,045,949 5,653,078 (607,129)
Street Lighting Fund 729,719 774,584 (44,865)

(11) Defined Benefit Pension Plan

The City of Victorville contributes to the California Public Employees Retirement

System (PERS), an agent multiple-employer public employee defined benefit pension
plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments,
and death benefits to plan members and beneficiaries. PERS acts as a common
investment and administrative agent for participating public entities within the State of
California. Copies of PERS’ annual financial report may be obtained from their
executive office: 400 P Street, Sacramento, California 95814.

Participants are required to contribute 7% (9% for safety employees) of their annual
covered salary. The City makes the contributions required of City employees on their
behalf and for their account. Benefit provisions and all other requirements are
established by state statutes and city contract with employee bargaining groups.

Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual
required contribution (ARC) plus an adjustment for the cumulative difference between
the APC and the employer’s actual plan contributions for the year. The cumulative
difference is called the net pension obligation (NPO). The ARC for the period July 1,
2005 to June 30, 2006 has been determined by an actuarial valuation of the plan as of
June 30, 2003. The contribution rate indicated for the period is 19.789% of payroll for
the safety plan and 12.882% of payroll for the miscellaneous plan. In order to calculate
the dollar value of the ARC for inclusion in financial statements prepared as of June 30,
2006, this contribution rate would be multiplied by the payroll of covered employees that
was actually paid during the period July 1, 2005 to June 30, 2006.

75
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(11) Defined Benefit Pension Plan,

(Continued)

A summary of principle assumptions and methods used to determine the ARC is shown
below.

Valuation Date June 30, 2003

Actuarial Cost Method
Amortization Method
Average Remaining Period
Asset Valuation Method
Actuarial Assumptions
Investment Rate of Return
Projected Salary Increases
Inflation
Payroll Growth
Individual Salary Growth
Entry Age Actuarial Cost Method
Level Percent of Payroll
16 Years as of the Valuation Date
3 Year Smoothed Market
7.75% (net of administrative expenses)
3.25% to 13.15% depending on Age,
Service, and type of employment
3.00%
3.25%
A merit scale varying by duration of
employment coupled with an assumed
annual inflation component of 3.00%
and an annual production growth of
0.25%.

Initial unfunded liabilities are amortized over a closed period that depends on the plan’s
date of entry into CalPERS. Subsequent plan amendments are amortized as a level % of
pay over a closed 20-year period. Gains and losses that occur in the operation of the plan
are amortized over a rolling period, which results in an amortization of 10% of
unamortized gains and losses each year. If the plan’s accrued liability exceeds the
actuarial value of plan assets, then the amortization period may not be lower than the
payment calculated over a 30 year amortization period.

For the safety plan, the unfunded actuarial liability is amortized over a period ending
June 30, 2035. For the miscellaneous plan, the unfunded actuarial liability is amortized
over a period ending June 30, 2035.

The Schedule of Funding Progress below shows the recent history of the actuarial value
of assets, actuarial accrued liability, their relationship, and the relationship of the
unfunded accrued liability to payroll.

76
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(11) Defined Benefit Pension Plan,

(Continued)

Required Supplementary Information - Safety

Unfunded
Liability/ Annual **UAAL
Valuation Entry Age Normal Actuarial Value (Excess Funded Covered As a % of
Date Accrued Liability of Assets Assets) Status Payroll Payroll

6/30/03* $1,218,082,935 1,083,690,137 134,392,798 89.0% 184,098,257 73.0%

6/30/04 996,203,370 885,549,650 110,653,720 88.9% 149,407,703 74.1%
6/30/05 742,247,338 646,358,708 95,888,630 87.1% 115,062,820 83.3%

* Cities with less than 100 members have been placed in a pool with other cities that
have similar benefit provisions. With the implementation of risk pooling, individual
stand-alone valuations are no longer prepared. Instead, the plan’s financial results are
pooled with the plans of other cities. The data shown beginning with the June 30, 2003
valuation date represents data for the pool, rather than the individual city.
Required Supplementary Information - Miscellaneous

Unfunded
Liability/ Annual **UAAL
Valuation Entry Age Normal Actuarial Value (Excess Funded Covered As a % of
Date Accrued Liability of Assets Assets) Status Payroll Payroll

6/30/03 $41,416,569 39,068,200 2,348,369 94.3% 13,791,139 17.0%

6/30/04 47,021,098 42,595,316 4,425,782 90.6% 14,979,104 29.5%
6/30/05 54,377,328 47,812,544 6,564,784 87.9% 17,604,962 37.3%

**UAAL refers to unfunded actuarial accrued liability.

Three-Year Trend Information

Annual Pension Cost (Employer Contribution)
Fiscal Percentage of Net Pension
Year Safety Miscellaneous APC Contributed Obligation
6/30/04 $319,304 279,981 100% -0-
6/30/05 754,192 1,735,988 100% -0-
6/30/06 869,858 2,596,591 100% -0-

77
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(12) Deferred Compensation

The City has established a deferred compensation plan through Great-West Life and
Annuity Insurance Company in accordance with Internal Revenue Code Section 457(b),
whereby the City employees may elect to defer portions of their compensation in a self-
directed investment plan for retirement. The City makes no contribution to the plan on
behalf of the members. Plan assets are invested in each individual’s name with several
deferred compensation plan providers. Distributions are made upon the participant’s
termination, retirement, death or total disability, and in a manner in accordance with the
election made by the participant. The City has no liability for losses under the plan.

(12) Construction Contracts

The City is committed to approximately $14,176,000 of open construction contracts as of

June 30, 2006. The contracts outstanding include:

Contract Balance to
Amount Complete

Mojave Vista $ 3,400,000 420,000

City Hall Construction 27,000,000 13,400,000
Green Tree Irrigation 2,200,000 356,000

(13) Post Employment Benefit Plan

Employees who retire from the City are eligible to receive health care benefits covering
themselves only. The City pays based on years of service, a percentage of all premiums
charged under a health benefit plan administered by the Public Employee’s Retirement
System (PERS) in which the individuals are able to select, on an annual basis, an
insurance carrier from a number of insurance carriers. Expenditures for post-retirement
health care benefits for the fiscal year ended June 30, 2006 amounted to $41,892, which
included 20 participants.

78
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(14) Joint Ventures

The City participates in joint ventures through formally organized and separate entities
established under the Joint Exercise of Powers Act of the State of California. As
separate legal entities, these entities exercise full powers and authorities within the scope
of the related Joint Powers Agreements including the preparation of annual budgets,
accountability for all funds, the power to make and execute contracts and the right to sue
and be sued. Each joint venture is governed by a board consisting of representatives
from member municipalities. Each board controls the operations of the respective joint
ventures, including selection of management and approval of operating budgets,
independent of any influence by member municipalities beyond their representation on
that board. Obligations and liabilities of these joint ventures are not the City’s
responsibility and the City does not have an equity interest in the assets of each joint
venture except upon dissolution of the joint venture.
Regional Fire Protection Authority
Regional Fire Protection Authority (RFPA) was formed in 1979 between the City of
Victorville, Apple Valley Fire Protection Agency and Hesperia Fire Protection District
on an equal basis to provide fire protection, emergency dispatch, and related functions in
order to reduce individual agency financial and personnel requirements. An Advisory
Committee was established with a representative appointed by each member agency.
The Advisory Committee shall consider and adopt an annual budget for RFPA. Each
member contributes its pro rata share of operating costs to RFPA. As of June 30, 2004,
Hesperia Fire Protection District terminated membership in RFPA. The City
contributed $235,483 to RFPA for the year ended June 30, 2006 for fire protection
services. Financial statements may be obtained by mailing a request to City of
Victorville, 14343 Civic Drive, Victorville, CA 92392.
Mojave Desert and Mountain Integrated Waste Management Authority
Mojave Desert and Mountain Integrated Waste Management Authority (MDMA) was
formed in September of 1991 between the cities of Victorville, Barstow, Big Bear Lake,
Needles, Twentynine Palms, the Towns of Apple Valley and Yucca Valley and the
County of San Bernardino to operate the recycling processing center known as Victor
Valley Materials Recovery Facility (MRF). The City of Victorville maintains a 50%
interest in the MRF. The City’s net investment in the Joint Venture at June 30, 2006 was
$3,412,500. The remaining 50% interest is maintained by the Town of Apple Valley.
Contribution rates from member agencies are based on each member’s current population
as a percentage of the total population of the MDMA. The City’s contribution toward the
cost of operating and maintaining the facility during the year June 30, 2006 was $71,921.
Financial statements may be obtained by mailing a request to the City of Victorville,
14343 Civic Drive, Victorville, CA 92392.

79
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(14) Joint Ventures, (Continued)

Victor Valley Economic Development Authority

The Victor Valley Economic Development Authority (VVEDA) was formed in 1992
between the Cities of Victorville and Hesperia, the Town of Apple Valley and the
County of San Bernardino to provide the mechanism and funding to acquire George Air
Force Base, facilitate the successful reuse of the property and promote economic
development within the area surrounding the Air Base. In 2000, the City of Adelanto was
added as a member of the Authority. Financial statements may be obtained by mailing a
request to the City of Victorville, 14343 Civic Drive, Victorville, CA 92392.

Victor Valley Transit Authority

The Victor Valley Transit Authority (VVTA) was formed in 1993 between the Cities of
Victorville, Adelanto, and Hesperia, the Town of Apple Valley, and the County of San
Bernardino for the purpose of implementing a public transit system to serve the Victor
Valley and to provide connecting services to all other areas. The governing body of
VVTA is made up of representatives from each significant participant in VVTA.
Budgeting and financing are the responsibility of VVTA. The City of Victorville has
agreed to sell monthly bus passes issued by VVTA and to remit between the first and
tenth day of each month the previous month’s sales receipts and proceeds. Financial
statements may be obtained by sending a written request to Victor Valley Transit
Authority, 11741 E. Santa Fe Avenue, Hesperia, CA 92345.

Victor Valley Wastewater Reclamation Authority

The Victor Valley Wastewater Reclamation Authority (VVWRA) was formed in 1999
between the Cities of Victorville, Adelanto, and Hesperia, the Town of Apple Valley,
and the County of San Bernardino for the purpose of construction, operation and
maintenance of sewer collection, transmission and treatment facilities within the high
desert region. The governing body of VVWRA is made up of representatives of each
significant participant in VVWRA. Budgeting and financing are the responsibility of the
VVWRA. The City makes monthly payments to VVWRA for sewer treatment and
connection fee services. The City made payments totaling $11,438,124 to VVWRA for
the year ended June 30, 2006. Financial statements may be obtained by sending a written
request to Victor Valley Wastewater Reclamation Authority, 20111 Shay Road,
Victorville, CA 92394.

80
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(15) Participation in Risk Pool

The City is a member of the Public Entity Risk Management Authority (PERMA),
formerly Coachella Valley Joint Powers Insurance Authority (CVJPIA), a joint powers
authority formed under Section 990 of the California Government Code for the purpose
of jointly funding programs of insurance coverage for its members. PERMA is
comprised of twenty-five participating member agencies, eighteen cities with populations
ranging from 1,500 to 100,000, three transit agencies, and five special districts. The City
participates in the liability and worker’s compensation insurance programs of PERMA.

The liability program provides coverage up to $40 million per occurrence for personal
injury, bodily injury, property damage and public officials’ errors and omissions. The
City has selected a self-insured retention of $50,000 and participates in risk sharing pools
for losses up to $1 million followed by PERMA’s membership in the California Joint
Powers Risk Management Authority (CFPRMA) for excess coverage to the limits.

The workers’ compensation program provides $150 million per accident for workers’
compensation and $5 million each accident for employers’ liability. The City self-
insures up to a level of $250,000 per accident or employee and participates in a risk
sharing pool for losses up to $500,000 followed by PERMA’s membership in the Local
Agency Worker’s Compensation Excess Joint Powers Authority (LAWCX) and the
California Public Entity Insurance Authority (CPEIA) for excess coverage to the limits.

Changes in the amount of claims payable for the past two fiscal years are as follows:

Current Year
Claims and
Beginning Changes in Claim Ending Due within
Balance Estimates Payments Balance one year

2004-05 1,440,653 405,510 147,843 1,698,320 208,986

2005-06 1,698,320 (51,314) 438,678 1,205,328 285,550

Claim payments represent disbursements from deposits held by PERMA on behalf of the
City. None of the above programs of protection have had settlements or judgments that
exceeded pooled or insured coverage for the past 3 years.

81
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(16) Debt Without Government Commitment

Special Tax Bonds

The City is the collection and paying agent for the Community Facilities District No. 01-
01 of the City of Victorville Special Tax Bonds, 2002 Series A. The special tax bonds are
secured by valid assessment liens upon certain lands within the special assessment
district and are not direct liabilities of the City and, accordingly, are not included in the
accompanying general purpose financial statements. The City has no obligation beyond
the balances in the designated agency funds for any delinquent assessment district bond
payments. If delinquencies occur beyond the amounts held in the reserve funds created
from bond proceeds, the City has no duty to pay the delinquency out of any available
funds of the City. Neither the faith, credit or taxing power of the City is pledged to the
payment of the bonds. The City acts solely as an agent for those paying assessments and
for the bondholders. The outstanding balance at June 30, 2006 was $1,005,000.
The City is the collection and paying agent for the Community Facilities District No. 90-
1 of the City of Victorville Special Tax Refunding Bonds, 2005 Series A. The special tax
bonds were issued to refund the District’s Special Tax Bonds, 1991 Series A. The special
tax bonds are secured by valid assessment liens upon certain lands within the special
assessment district and are not direct liabilities of the City and, accordingly, are not
included in the accompanying general purpose financial statements. The City has no
obligation beyond the balances in the designated agency funds for any delinquent
assessment district bond payments. If delinquencies occur beyond the amounts held in
the reserve funds created from bond proceeds, the City has no duty to pay the
delinquency out of any available funds of the City. Neither the faith, credit or taxing
power of the City is pledged to the payment of the bonds. The City acts solely as an
agent for those paying assessments and for the bondholders. The outstanding balance at
June 30, 2006 was $7,395,000.
The City is the collection and paying agent for the Community Facilities District No. 01-
01 of the City of Victorville Special Tax Bonds, 2005 Series A. The special tax bonds are
secured by valid assessment liens upon certain lands within the special assessment
district and are not direct liabilities of the City and, accordingly, are not included in the
accompanying general purpose financial statements. The City has no obligation beyond
the balances in the designated agency funds for any delinquent assessment district bond
payments. If delinquencies occur beyond the amounts held in the reserve funds created
from bond proceeds, the City has no duty to pay the delinquency out of any available
funds of the City. Neither the faith, credit or taxing power of the City is pledged to the
payment of the bonds. The City acts solely as an agent for those paying assessments and
for the bondholders. The outstanding balance at June 30, 2006 was $3,245,000.

82
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(16) Debt Without Government Commitment, (Continued)

Multifamily Housing Revenue Bonds

In November of 1988, the City of Victorville issued $8,400,000 Variable Rate Demand
Multifamily Housing Revenue Bonds to finance the construction and development of 200
multifamily housing units in the City of Victorville. The outstanding debt at June 30,
2006 was $6,300,000. These bonds do not constitute a debt or an obligation of the City
because the bonds are solely payable and secured by assets and revenues of other parties.

In May of 1996, the City of Victorville issued $7,725,000 Series 1996A Tax-Exempt
Multifamily Housing Revenue Refunding Bonds. The outstanding debt at June 30, 2006
was $7,025,000. These bonds do not constitute a debt or an obligation of the City
because the bonds are solely payable and secured by assets and revenues of other parties.

(17) Contingencies

The City is subject to litigation arising in the normal course of business. In the opinion
of the City Attorney there is no pending litigation which is likely to have a material
adverse effect on the financial position of the City.

The City participates in several Federal and State grant programs. These programs have
been audited through the fiscal year ended June 30, 2006 by the City’s independent
accountants in accordance with the provisions of the Federal Single Audit Act
amendments of 1996, and applicable State requirements. No cost disallowances were
proposed as a result of these audits; however, these programs are still subject to further
examination by the grantors and the amount, if any, of expenditures which may be
disallowed by the granting agencies cannot be determined at this time. The City expects
such amounts, if any, to be immaterial.

83
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(18) Restatement of Net Assets

Net assets at June 30, 2005 have been adjusted to reflect the accumulated result of the
changes to the financial statements for the following business-type funds.

Fund Financial Government wide

Statements - Proprietary Financial Statements
Southern California Business-Type
Logistic Airport Authority Activities

Net assets at beginning of year,

as previously reported $ 45,056,467 87,762,664

To record building owned by the

Southern California Logistics
Airport Authority Fund
but not previously recorded
in capital assets 1,875,000 1,875,000

Net assets at beginning of year,

as restated $46,931,467 89,637,664

(19) Subsequent Events

In conjunction with the issuance of $30,000,000 of 2006 Taxable Industrial Development

Revenue Notes (“Hangar Notes”) for the purpose of building hangars at the Southern
California Logistics Airport, SCLAA entered into a loan agreement with CBS Aviation
Development, LLC (“CBS”), where CBS agreed to make all payments required by the
notes.

84
 City of Victorville
Notes to Basic Financial Statements
(Continued)

(19) Subsequent Events, (Continued)

As of August 11, 2006, all of CBS’s interest in the hangars located at SCLA built with
the notes as well as all liabilities owed to SCLA by CBS were transferred to KND
Affiliates, LLC (“KND”) as part of a Mutual Release and Settlement Agreement entered
into by CBS, KND and SCLAA. The amount of notes receivable related to the Hangar
Notes owed to SCLAA as of June 30, 2006 was confirmed to be $30,000,000. The note
receivable is shown on the Statement of Net Assets as $29,247,513 and $752,487
included in cash with fiscal agent.
Other subsequent events of note relating to the SCLAA hangars include:
On July 27, 2006, KND borrowed $10,000,000 from SCLAA with a balloon payment
loan that calls for 12 LAIF-rate interest only payments and repayment in full within 13
months of the loan’s start date.
On August 17, 2006, KND borrowed $12,200,000 from SCLAA with a balloon payment
loan that calls for 12 LAIF-rate interest only payments and repayment in full within 13
months of the loan’s start date.
On October 10, 2006, KND borrowed $15,777,880 from SCLAA with a balloon payment
loan that calls for 12 LAIF-rate interest only payments and repayment in full within 13
months of the loan’s start date.
On November 1, 2006, SCLAA issued $34,980,000 in Tax Allocation Revenue Parity
Bonds, Taxable Forward Series, and used $20,000,000 of the proceeds of those bonds to
pay off the outstanding portion remaining on the Hangar Notes.

85
86
REQUIRED SUPPLEMENTARY INFORMATION

87
 CITY OF VICTORVILLE

General Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Taxes $ 30,105,286 30,105,286 32,867,978 2,762,692
Licenses and permits 6,457,960 6,457,960 7,877,751 1,419,791
Intergovernmental 1,031,270 1,031,270 790,210 (241,060)
Charges for services 6,786,509 8,724,066 10,420,037 1,695,971
Fines and forfeitures 123,100 123,100 178,792 55,692
Investment income 350,000 350,000 461,908 111,908
Other 738,500 738,500 536,265 (202,235)

Total revenues 45,592,625 47,530,182 53,132,941 5,602,759

Expenditures:
Current:
General government 7,537,627 8,530,064 8,098,740 431,324
Public safety 13,705,759 13,769,806 13,674,921 94,885
Public works 17,210,913 19,447,981 18,359,715 1,088,266
Parks and recreation 396,553 396,553 387,932 8,621

Total expenditures 38,850,852 42,144,404 40,521,308 1,623,096

Excess (deficiency) of revenues

over (under) expenditures 6,741,773 5,385,778 12,611,633 7,225,855

Other financing sources (uses):

Transfers in 670,528 670,528 399,094 (271,434)
Transfers out (13,625,985) (13,625,985) (14,334,869) (708,884)
Sale of assets 275,000 275,000 5,870 (269,130)

Total other financing sources (uses) (12,680,457) (12,680,457) (13,929,905) (1,249,448)

Net changes in fund balances (5,938,684) (7,294,679) (1,318,272) 5,976,407

Fund balances at beginning of year 28,872,262 28,872,262 28,872,262 -

Fund balances at end of year $ 22,933,578 21,577,583 27,553,990 5,976,407

88
 CITY OF VICTORVILLE

Solid Waste Management - Special Revenue Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Taxes $ 50,000 50,000 864 (49,136)
Licenses and permits 148,027 148,027 153,355 5,328
Intergovernmental - - 21,230 21,230
Charges for services 10,504,028 10,504,028 10,631,002 126,974
Fines and forfeitures 3,000 3,000 3,219 219
Investment income 2,500 2,500 120,948 118,448
Other 127,219 127,219 154,997 27,778

Total revenues 10,834,774 10,834,774 11,085,615 250,841

Expenditures:
Current:
Public safety 407,172 407,172 279,728 127,444
Public works 10,586,050 10,667,672 9,925,581 742,091
Debt service:
Principal 133,371 133,371 133,371 -
Interest 123,566 123,566 123,566 -

Total expenditures 11,250,159 11,331,781 10,462,246 869,535

Excess (deficiency) of revenues

over (under) expenditures (415,385) (497,007) 623,369 1,120,376

Other financing sources (uses):

Transfers out - - (334) (334)

Total other financing sources (uses) - - (334) (334)

Net changes in fund balances (415,385) (497,007) 623,035 1,120,042

Fund balances (deficit) at beginning of year 2,415,833 2,415,833 2,415,833 -

Fund balances (deficit) at end of year $ 2,000,448 1,918,826 3,038,868 1,120,042

89
 CITY OF VICTORVILLE

Measure I Street Arterials - Special Revenue Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Taxes $ 11,000,000 11,000,000 7,501,413 (3,498,587)
Charges for services - - 73,646 73,646
Investment income 346,000 346,000 569,667 223,667

Total revenues 11,346,000 11,346,000 8,144,726 (3,201,274)

Expenditures:
Current:
General government - 31,000 17,900 13,100
Public works 14,776,821 14,898,708 4,199,728 10,698,980

Total expenditures 14,776,821 14,929,708 4,217,628 10,712,080

Excess (deficiency) of revenues

over (under) expenditures (3,430,821) (3,583,708) 3,927,098 7,510,806

Other financing sources (uses):

Transfers out - - (142,165) (142,165)

Total other financing sources (uses) - - (142,165) (142,165)

Net change in fund balances (3,430,821) (3,583,708) 3,784,933 7,368,641

Fund balances at beginning of year 15,713,380 15,713,380 15,713,380 -

Fund balances at end of year $ 12,282,559 12,129,672 19,498,313 7,368,641

90
 City of Victorville
Notes to Required Supplementary Information
June 30, 2006

(1) Budgetary Data

The City Manager submits to the City Council a proposed operating budget. The
operating budget includes proposed expenditures and the sources of financing. City
Council may amend the budget by resolution during the fiscal year. The City Manager is
authorized to transfer funds appropriated within the same fund.

The level at which the expenditures may not legally exceed appropriations is the fund
level.

Legally adopted budgets for general fund and special revenue funds are established on a
basis consistent with generally accepted accounting principles. Budgeted amounts are as
originally adopted and as further amended by the City Council.

Supplemental amendments were made during the year and have been reflected in the
financial statements, resulting in an increase of total appropriations in the amount of
$6,068,806.

91
92
SUPPLEMENTARY SCHEDULES

93
 CITY OF VICTORVILLE

Combining Balance Sheet

Nonmajor Governmental Funds

June 30, 2006

Special Debt
Revenue Service 2006 2005
Assets
Assets:
Cash and investments $ 17,891,109 - 17,891,109 11,198,855
Cash with fiscal agent - 131,547 131,547 131,527
Receivables:
Accounts 2,602,076 - 2,602,076 380,544
Notes 4,284,917 - 4,284,917 4,309,287
Due from other governments 364,372 - 364,372 4,485,935
Prepaid items 20,144 - 20,144 -
Advances to other funds 441,935 - 441,935 1,836,263

Total assets $ 25,604,553 131,547 25,736,100 22,342,411

Liabilities and Fund Balances

Liabilities:
Accounts payable $ 937,405 - 937,405 856,307
Deposits payable 1,535 - 1,535 1,468
Due to other funds 1,243,761 - 1,243,761 4,672,982
Unearned revenue - - - 4,190,187

Total liabilities 2,182,701 - 2,182,701 9,720,944

Fund balances:
Reserved 4,746,996 131,547 4,878,543 6,277,077
Unreserved:
Designated 19,712,127 - 19,712,127 11,032,791
Undesignated (1,037,271) - (1,037,271) (4,688,401)

Total fund balances 23,421,852 131,547 23,553,399 12,621,467

Total liabilities and fund balances $ 25,604,553 131,547 25,736,100 22,342,411

94
 CITY OF VICTORVILLE
Combining Statement of Revenues, Expenditures and Changes in Fund Balances
Nonmajor Governmental Funds
Year ended June 30, 2006

Special Debt
Revenue Service 2006 2005
Revenues:
Taxes $ 8,507,548 - 8,507,548 6,502,244
Licenses and permits 30,205 - 30,205 28,591
Intergovernmental 14,773,169 - 14,773,169 7,767,639
Charges for services 2,080,249 - 2,080,249 2,613,876
Fines and forfeitures 421,731 - 421,731 203,824
Investment income 430,698 8,200 438,898 296,950
Other 276,479 - 276,479 382,648

Total revenues 26,520,079 8,200 26,528,279 17,795,772

Expenditures:
Current:
General government 462,938 - 462,938 1,196,010
Public safety 8,068,139 - 8,068,139 6,835,817
Community development 1,205,461 - 1,205,461 995,144
Public works 6,360,998 - 6,360,998 7,932,300
Parks and recreation 6,235,747 - 6,235,747 5,681,876
Debt service:
Principal - 110,000 110,000 100,000
Interest - 30,125 30,125 35,745

Total expenditures 22,333,283 140,125 22,473,408 22,776,892

Excess (deficiency) of revenues

over (under) expenditures 4,186,796 (131,925) 4,054,871 (4,981,120)

Other financing sources (uses):

Transfers in 7,169,662 131,945 7,301,607 5,929,398
Transfers out (424,546) - (424,546) (189,714)

Total other financing sources (uses) 6,745,116 131,945 6,877,061 5,739,684

Net change in fund balances 10,931,912 20 10,931,932 758,564

Fund balances at beginning of year 12,489,940 131,527 12,621,467 11,862,903

Fund balances at end of year $ 23,421,852 131,547 23,553,399 12,621,467

95
 Nonmajor Governmental Funds
Special Revenue Funds
________________________________________

Special revenue funds are used to account for revenue derived from specific taxes or other
revenue sources that are restricted by law or administrative action to expenditure for specified
purposes.
________________________________________

Fire Protection
This fund accounts for assessments made upon parcels of land within the Fire Protection District
and disbursed funds related to fire prevention and protection.

Parks and Recreation

This fund accounts for revenue received from assessments levied on parcels within the District
and revenue earned from recreation programs. The funds disbursed are for Park and Recreation
activities.

Street Lighting
This fund accounts for revenue received from assessments levied within the District and
disbursed funds are for street lighting maintenance activities.

Traffic Safety
This fund accounts for revenue received from fines and forfeitures under Section 1463 of the
Penal Code and disbursed funds are related to the maintenance and improvement of traffic
control devices, as well as the compensation of school crossing guards who are not regular full-
time members of the police department of the City.

General Asset Seizure

This fund accounts for a portion of revenues received from sales of assets seized during drug-
related arrests and disbursed for authorized public safety activities.

Storm Drain Utility

This fund accounts for revenue received from storm drain user fees and expensed funds are
related to storm drains.

Redevelopment Agency-Low and Moderate Housing

This fund accounts for property tax increments received by the Victorville Redevelopment
Agency to use for low and moderate-income housing programs.

Gas Tax
This fund accounts for revenue received form the State of California under Street and Highways
Code Section 2105, 2106, and 2107. The allocations should be spent for street and highway
maintenance and improvements.

96
 Nonmajor Governmental Funds
Special Revenue Funds
(Continued)
________________________________________

Transportation Tax
This fund accounts for revenue received for public Transportation projects through the Local
Transportation Fund, which derived from a ¼ cent of the General Sales Tax. Eligible expenses
include projects related to maintenance and repair of streets and roads.

Other State Grants

This fund accounts for moneys received from the California Law Enforcement Equipment
Program, AB 3229 Grant, Office of Traffic Safety Grant, California Integrated Waste
Management, Job-Housing Incentive Grant, Homeland Security Grant, and Alcoholic Beverage
Control Grant.

CDBG Grants
This fund accounts for the revenues and expenditures under the guidelines of the Federal
Community Development Block Grant program of the U.S. Department of Housing and Urban
Development. The grants are primarily used for the development of viable urban communities
by providing decent housing, suitable living environments, and expanding economic
opportunities for persons of low and moderate-incomes.

Other Federal Grants

This fund accounts for federal moneys received for the following grants: HOME, COPS Fast
Grant, Federal Demonstration, Transportation Enhancement Act, Congestion Mitigation Air
Quality Grant, Police Hiring Supplement Grant, Federal Asset Seizure, and EPA Water Reuse
Grant.

97
 CITY OF VICTORVILLE
Nonmajor Governmental Funds
Special Revenue Funds
Combining Balance Sheet

June 30, 2006

Parks General Storm

Fire and Street Traffic Asset Drain
Protection Recreation Lighting Safety Seizure Utility
Assets

Cash and investments $ - 1,134,909 1,787,951 - 25,577 1,395,891

Accounts receivable 106,058 150,778 25,524 34,906 - -
Notes receivable - - - - - -
Due from other governments - - - - - -
Prepaid items 20,144 - - - - -
Advances to other funds - - - - - -

Total assets $ 126,202 1,285,687 1,813,475 34,906 25,577 1,395,891

Liabilities:
Accounts payable $ 25,503 167,565 53,874 2,300 - 615
Deposits payable - 1,480 - - - -
Due to other funds 101,923 - - - - -
Unearned revenue - - - - - -

Total liabilities 127,426 169,045 53,874 2,300 - 615

Fund balances (deficit):

Reserved for:
Notes receivable - - - - - -
Prepaid expenses 20,144 - - - - -
Advances - - - - - -
Unreserved:
Designated for special purpose (21,368) 1,116,642 1,759,601 32,606 25,577 1,395,276
Undesignated - - - - - -

Total fund balances (deficit) (1,224) 1,116,642 1,759,601 32,606 25,577 1,395,276

Total liabilities and fund balances $ 126,202 1,285,687 1,813,475 34,906 25,577 1,395,891

98
Redevelopment
Agency - Low Other Other
and Moderate Gas Transportation State CDBG Federal
Housing Tax Tax Grants Grants Grants 2006 2005

8,892,944 788,058 3,865,779 - - - 17,891,109 11,198,855

46,536 973 2,164,728 34,762 - 37,811 2,602,076 380,544
4,284,917 - - - - - 4,284,917 4,309,287
- 159,426 - 2,279 195,930 6,737 364,372 4,485,935
- - - - - - 20,144 -
441,935 - - - - - 441,935 1,836,263

13,666,332 948,457 6,030,507 37,041 195,930 44,548 25,604,553 22,210,884

489,961 12,509 12,126 76,982 17,562 78,408 937,405 856,307

- - 55 - - - 1,535 1,468
- - - 150,200 195,010 796,628 1,243,761 4,672,982
- - - - - - - 4,190,187

489,961 12,509 12,181 227,182 212,572 875,036 2,182,701 9,720,944

4,284,917 - - - - - 4,284,917 4,309,287

- - - - - - 20,144 -
441,935 - - - - - 441,935 1,836,263

8,449,519 935,948 6,018,326 - - - 19,712,127 11,032,791

- - - (190,141) (16,642) (830,488) (1,037,271) (4,688,401)

13,176,371 935,948 6,018,326 (190,141) (16,642) (830,488) 23,421,852 12,489,940

13,666,332 948,457 6,030,507 37,041 195,930 44,548 25,604,553 22,210,884

99
 CITY OF VICTORVILLE
Nonmajor Governmental Funds
Special Revenue Funds
Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Year ended June 30, 2006

General Storm
Fire Parks and Street Traffic Asset Drain
Protection Recreation Lighting Safety Seizure Utility
Revenues:
Taxes $ 2,505,881 4,126,515 628,902 - - -
Licenses and permits 30,205 - - - - -
Intergovernmental - - - - - -
Charges for services 86,996 787,898 - - - 1,178,412
Fines and forfeitures 75 70 - 410,357 10,977 -
Investment income - 11,281 7,515 - 439 13,781
Other 1,002 78,593 - - - -

Total revenues 2,624,159 5,004,357 636,417 410,357 11,416 1,192,193

Expenditures:
Current:
General government - - - - - -
Public safety 7,227,969 - - 5,905 35,065 -
Community development - - - - - -
Public works - 22,072 774,584 - - 617,540
Parks and recreation - 5,631,006 - - - -

Total expenditures 7,227,969 5,653,078 774,584 5,905 35,065 617,540

Excess (deficiency) of revenues

over (under) expenditures (4,603,810) (648,721) (138,167) 404,452 (23,649) 574,653

Other financing sources (uses):

Transfers in 4,549,358 1,235,352 62,449 - - -
Transfers out - (25,452) - (399,094) - -

Total other financing sources (uses) 4,549,358 1,209,900 62,449 (399,094) - -

Excess (deficiency) of revenues

and other sources over (under)
expenditures and other uses (54,452) 561,179 (75,718) 5,358 (23,649) 574,653

Fund balances (deficit) at beginning

of year 53,228 555,463 1,835,319 27,248 49,226 820,623

Fund balances (deficit) at end of year $ (1,224) 1,116,642 1,759,601 32,606 25,577 1,395,276

100
Redevelopment
Agency - Low Other Other
and Moderate Gas Transportation State CDBG Federal
Housing Tax Tax Grants Grants Grants 2006 2005

1,246,250 - - - - - 8,507,548 6,502,244

- - - - - - 30,205 28,591
3,935,718 1,592,012 2,470,296 1,172,671 939,551 4,662,921 14,773,169 7,767,639
- 409 26,534 - - - 2,080,249 2,613,876
- - 252 - - - 421,731 203,824
230,703 31,379 132,591 2,164 - 845 430,698 288,762
108,921 - - - - 87,963 276,479 382,648

5,521,592 1,623,800 2,629,673 1,174,835 939,551 4,751,729 26,520,079 17,787,584

137,279 - - - 303,919 21,740 462,938 1,196,010

- - - 494,254 187,058 117,888 8,068,139 6,835,817
1,088,409 - - - 72,052 45,000 1,205,461 995,144
- 2,740,260 837,359 - 276,468 1,092,715 6,360,998 7,932,300
- - - 589,933 14,808 - 6,235,747 5,681,876

1,225,688 2,740,260 837,359 1,084,187 854,305 1,277,343 22,333,283 22,641,147

4,295,904 (1,116,460) 1,792,314 90,648 85,246 3,474,386 4,186,796 (4,853,563)

- 1,179,488 142,165 334 516 - 7,169,662 5,801,826

- - - - - - (424,546) (189,714)

- 1,179,488 142,165 334 516 - 6,745,116 5,612,112

4,295,904 63,028 1,934,479 90,982 85,762 3,474,386 10,931,912 758,549

8,880,467 872,920 4,083,847 (281,123) (102,404) (4,304,874) 12,489,940 11,731,391

13,176,371 935,948 6,018,326 (190,141) (16,642) (830,488) 23,421,852 12,489,940

101
 CITY OF VICTORVILLE

Fire Protection Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Taxes $ 1,793,000 2,793,000 2,505,881 (287,119)
Licenses and permits 30,000 30,000 30,205 205
Charges for services 122,320 122,320 86,996 (35,324)
Fines and forfeitures 1,650 1,650 75 (1,575)
Other 1,500 1,500 1,002 (498)

Total revenues 1,948,470 2,948,470 2,624,159 (324,311)

Expenditures:
Current:
Public safety 6,366,964 6,545,964 7,227,969 (682,005)

Total expenditures 6,366,964 6,545,964 7,227,969 (682,005)

Excess (deficiency) of revenues

over (under) expenditures (4,418,494) (3,597,494) (4,603,810) (1,006,316)

Other financing sources (uses):

Transfers in 2,623,050 3,580,400 4,549,358 968,958

Total other financing sources (uses) 2,623,050 3,580,400 4,549,358 968,958

Net changes in fund balances (1,795,444) (17,094) (54,452) (37,358)

Fund balances at beginning of year 53,228 53,228 53,228 -

Fund balances at end of year $ (1,742,216) 36,134 (1,224) (37,358)

102
 CITY OF VICTORVILLE

Parks and Recreation Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Taxes $ 2,250,250 3,250,250 4,126,515 876,265
Charges for services 648,930 648,930 787,898 138,968
Fines and forfeitures - - 70 70
Investment income - - 11,281 11,281
Other 65,446 65,446 78,593 13,147

Total revenues 2,964,626 3,964,626 5,004,357 1,039,731

Expenditures:
Current:
Public works - - 22,072 (22,072)
Parks and recreation 4,930,321 5,045,949 5,631,006 (585,057)

Total expenditures 4,930,321 5,045,949 5,653,078 (607,129)

Excess (deficiency) of revenues

over (under) expenditures (1,965,695) (1,081,323) (648,721) 432,602

Other financing sources (uses):

Transfers in 128,592 1,087,864 1,235,352 147,488
Transfers out - - (25,452) (25,452)

Total other financing sources (uses) 128,592 1,087,864 1,209,900 122,036

Net changes in fund balances (1,837,103) 6,541 561,179 554,638

Fund balances at beginning of year 555,463 555,463 555,463 -

Fund balances at end of year $ (1,281,640) 562,004 1,116,642 554,638

103
 CITY OF VICTORVILLE

Street Lighting Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Taxes $ 550,000 550,000 628,902 78,902
Investment income 15,000 15,000 7,515 (7,485)

Total revenues 565,000 565,000 636,417 71,417

Expenditures:
Current:
Public works 729,719 729,719 774,584 (44,865)

Total expenditures 729,719 729,719 774,584 (44,865)

Excess (deficiency) of revenues

over (under) expenditures (164,719) (164,719) (138,167) 26,552

Other financing sources (uses):

Transfers in - - 62,449 62,449

Total other financing sources (uses) - - 62,449 62,449

Net changes in fund balances (164,719) (164,719) (75,718) 89,001

Fund balances at beginning of year 1,835,319 1,835,319 1,835,319 -

Fund balances at end of year $ 1,670,600 1,670,600 1,759,601 89,001

104
 CITY OF VICTORVILLE

Traffic Safety Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Fines and forfeitures $ 200,000 200,000 410,357 210,357

Total revenues 200,000 200,000 410,357 210,357

Expenditures:
Current:
Public safety 200,000 200,000 5,905 194,095

Total expenditures 200,000 200,000 5,905 194,095

Excess (deficiency) of revenues

over (under) expenditures - - 404,452 404,452

Other financing sources (uses):

Transfers out - - (399,094) (399,094)

Total other financing sources (uses) - - (399,094) (399,094)

Net changes in fund balances - - 5,358 5,358

Fund balances at beginning of year 27,248 27,248 27,248 -

Fund balances at end of year $ 27,248 27,248 32,606 5,358

105
 CITY OF VICTORVILLE

General Asset Seizure Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Fines and forfeitures $ 20,000 20,000 10,977 (9,023)
Investment income 900 900 439 (461)

Total revenues 20,900 20,900 11,416 (9,484)

Expenditures:
Current:
Public safety 49,900 49,900 35,065 14,835

Total expenditures 49,900 49,900 35,065 14,835

Net changes in fund balances (29,000) (29,000) (23,649) 5,351

Fund balances at beginning of year 49,226 49,226 49,226 -

Fund balances at end of year $ 20,226 20,226 25,577 5,351

106
 CITY OF VICTORVILLE

Storm Drain Utility Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Charges for services $ 1,050,000 1,050,000 1,178,412 128,412
Investment income 5,000 5,000 13,781 8,781

Total revenues 1,055,000 1,055,000 1,192,193 137,193

Expenditures:
Current:
Public works 603,066 618,082 617,540 542

Total expenditures 603,066 618,082 617,540 542

Net changes in fund balances 451,934 436,918 574,653 137,735

Fund balances at beginning of year 820,623 820,623 820,623 -

Fund balances at end of year $ 1,272,557 1,257,541 1,395,276 137,735

107
 CITY OF VICTORVILLE

Redevelopment Agency - Low and Moderate Housing Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Taxes $ 1,000,000 1,000,000 1,246,250 246,250
Intergovernmental 1,500,000 1,500,000 3,935,718 2,435,718
Investment income - - 230,703 230,703
Other - - 108,921 108,921

Total revenues 2,500,000 2,500,000 5,521,592 3,021,592

Expenditures:
Current:
General government - - 137,279 (137,279)
Community development 1,465,519 3,219,029 1,088,409 2,130,620

Total expenditures 1,465,519 3,219,029 1,225,688 1,993,341

Net changes in fund balances 1,034,481 (719,029) 4,295,904 5,014,933

Fund balances at beginning of year 8,880,467 8,880,467 8,880,467 -

Fund balances at end of year $ 9,914,948 8,161,438 13,176,371 5,014,933

108
 CITY OF VICTORVILLE

Gas Tax Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Intergovernmental $ 1,007,500 1,007,500 1,592,012 584,512
Charges for services 35,000 35,000 409 (34,591)
Investment income 100,000 100,000 31,379 (68,621)

Total revenues 1,142,500 1,142,500 1,623,800 481,300

Expenditures:
Current:
Public works 2,923,427 2,947,427 2,740,260 207,167

Total expenditures 2,923,427 2,947,427 2,740,260 207,167

Excess (deficiency) of revenues

over (under) expenditures (1,780,927) (1,804,927) (1,116,460) 688,467

Other financing sources (uses):

Transfers in 1,179,488 1,179,488 1,179,488 -

Total other financing sources (uses) 1,179,488 1,179,488 1,179,488 -

Net changes in fund balances (601,439) (625,439) 63,028 688,467

Fund balances at beginning of year 872,920 872,920 872,920 -

Fund balances at end of year $ 271,481 247,481 935,948 688,467

109
 CITY OF VICTORVILLE

Transportation Tax Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Intergovernmental $ 1,117,571 1,117,571 2,470,296 1,352,725
Charges for services 25,000 25,000 26,534 1,534
Fines and forfeitures - - 252 252
Investment income 25,000 25,000 132,591 107,591

Total revenues 1,167,571 1,167,571 2,629,673 1,462,102

Expenditures:
Current:
Public works 1,649,402 1,664,618 837,359 827,259

Total expenditures 1,649,402 1,664,618 837,359 827,259

Excess (deficiency) of revenues

over (under) expenditures (481,831) (497,047) 1,792,314 2,289,361

Other financing sources (uses):

Transfers in 142,165 142,165 142,165 -

Total other financing sources (uses) 142,165 142,165 142,165 -

Net changes in fund balances (339,666) (354,882) 1,934,479 2,289,361

Fund balances at beginning of year 4,083,847 4,083,847 4,083,847 -

Fund balances at end of year $ 3,744,181 3,728,965 6,018,326 2,289,361

110
 CITY OF VICTORVILLE

Other State Grants Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Intergovernmental $ 1,737,380 1,737,380 1,172,671 (564,709)
Investment income - - 2,164 2,164

Total revenues 1,737,380 1,737,380 1,174,835 (562,545)

Expenditures:
Current:
Public safety 795,323 1,145,767 494,254 651,513
Parks and recreation 589,934 589,934 589,933 1

Total expenditures 1,385,257 1,735,701 1,084,187 651,514

Excess (deficiency) of revenues

over (under) expenditures 352,123 1,679 90,648 88,969

Other financing sources (uses):

Transfers in - - 334 334

Total other financing sources (uses) - - 334 334

Net changes in fund balances 352,123 1,679 90,982 89,303

Fund balances at beginning of year (281,123) (281,123) (281,123) -

Fund balances at end of year $ 71,000 (279,444) (190,141) 89,303

111
 CITY OF VICTORVILLE

CDBG Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Intergovernmental $ 2,348,093 2,348,093 939,551 (1,408,542)

Total revenues 2,348,093 2,348,093 939,551 (1,408,542)

Expenditures:
Current:
General government 603,683 603,683 303,919 299,764
Public safety 190,698 190,698 187,058 3,640
Community development 354,050 435,438 72,052 363,386
Public works 712,519 719,059 276,468 442,591
Parks and recreation 435,088 435,088 14,808 420,280

Total expenditures 2,296,038 2,383,966 854,305 1,529,661

Excess (deficiency) of revenues

over (under) expenditures 52,055 (35,873) 85,246 121,119

Other financing sources (uses):

Transfers in - - 516 516

Total other financing sources (uses) - - 516 516

Net changes in fund balances 52,055 (35,873) 85,762 121,635

Fund balances at beginning of year (102,404) (102,404) (102,404) -

Fund balances at end of year $ (50,349) (138,277) (16,642) 121,635

112
 CITY OF VICTORVILLE

Other Federal Grants Fund

Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual

Year ended June 30, 2006

Variance with
Final Budget
Budgeted Amounts Positive
Original Final Actual (Negative)
Revenues:
Intergovernmental $ 8,040,754 8,040,754 4,662,921 (3,377,833)
Investment income - - 845 845
Other - - 87,963 87,963

Total revenues 8,040,754 8,040,754 4,751,729 (3,289,025)

Expenditures:
Current:
General government - - 21,740 (21,740)
Public safety 3,580,000 3,580,000 117,888 3,462,112
Community development - - 45,000 (45,000)
Public works 6,255,201 6,255,201 1,092,715 5,162,486

Total expenditures 9,835,201 9,835,201 1,277,343 8,557,858

Excess (deficiency) of revenues

over (under) expenditures (1,794,447) (1,794,447) 3,474,386 5,268,833

Fund balances (deficit) at beginning of year (4,304,874) (4,304,874) (4,304,874) -

Fund balances (deficit) at end of year $ (6,099,321) (6,099,321) (830,488) 5,268,833

113
114
 Nonmajor Governmental Funds
Debt Service Funds
________________________________________

Debt service funds are used to account for the accumulation of resources for and payment of the
City’s general long-term debt principal and interest.
________________________________________

Parks and Recreation COP

This fund accounts for the accumulation of resources for, and payment of, the CSDA 1989
Series C Certificates of Participation principal and interest. This COP is used to refinance the
costs of construction of a new community center.

115
 CITY OF VICTORVILLE
Nonmajor Governmental Funds
Debt Service Funds - Parks and Recreation COP
Combining Balance Sheet

June 30, 2006

2006 2005

Assets

Cash with fiscal agent $ 131,547 131,527

Total assets $ 131,547 131,527

Liabilities and Fund Balances

Fund balances:
Reserved for:
Debt service 131,547 131,527

Total fund balances 131,547 131,527

Total liabilities and

fund balances $ 131,547 131,527

116
 CITY OF VICTORVILLE
Nonmajor Governmental Funds
Debt Service Funds - Parks and Recreation COP
Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Year ended June 30, 2006

2006 2005
Revenues:
Investment income $ 8,200 8,188

Total revenues 8,200 8,188

Expenditures:
Debt service:
Principal 110,000 100,000
Interest 30,125 35,745

Total expenditures 140,125 135,745

Excess (deficiency) of revenues

over (under) expenditures (131,925) (127,557)

Other financing sources (uses):

Transfers in 131,945 127,572

Total other financing sources (uses) 131,945 127,572

Net change in fund balances (deficit) 20 15

Fund balances at beginning of year 131,527 131,512

Fund balances at end of year $ 131,547 131,527

117
118
 Nonmajor Business-type Funds
Enterprise Funds
________________________________________

Enterprise funds are proprietary fund types used to report an activity for which a fee is charged
to external users for goods or services.
________________________________________

Westwinds Golf Course

This fund accounts for the operation and maintenance of the City’s Golf Course at Southern
California Logistic Airport. The golf course is funded by user charges and other fees.

Green Tree Golf Course

This fund accounts for the operation and maintenance of the City’s Golf Course, which is funded
by user charges and other fees.

Fixed Route Transit

This fund accounts for the operation of transit services provided for the City of Victorville’s
local community.

Water
This fund accounts for the operation and maintenance of the City’s Water Department at
Southern California Logistics Airport. This fund is supported by user charges and other fees.

Southern California Logistics Rail Authority

This fund accounts for expenditures such as: acquisition, installation, and construction of rail
facilities. The future rail intermodal facilities will be located adjacent to Southern California
Logistics Airport. This fund is supported by grants, loans, bonds, and tax increment revenue.

119
 CITY OF VICTORVILLE
Nonmajor Enterprise Funds
Combining Statement of Net Assets
June 30, 2006

Westwinds Green Tree Fixed

Golf Golf Route
Course Course Transit
Assets
Current assets:
Cash and investments $ - - -
Accounts receivable 1,168 1,504 -
Due from other governments - - -

Total current assets 1,168 1,504 -

Noncurrent assets:
Capital assets, net 101,841 8,096,477 -

Other assets - 1,342,200 -

Total noncurrent assets 101,841 9,438,677 -

Total assets 103,009 9,440,181 -

Liabilities and Net Assets

Current liabilities:
Accounts payable 18,759 56,473 -
Deposits payable - 12,971 -
Due to other funds 584,925 4,021,977 -
Due to other governments - - -

Total current liabilities 603,684 4,091,421 -

Total liabilities 603,684 4,091,421 -

Net assets:
Invested in capital assets, net of related debt 101,841 8,096,477 -
Unrestricted (602,516) (2,747,717) -

Total net assets (deficit) $ (500,675) 5,348,760 -

120
 Southern California
Logistics Rail
Water Authority 2006 2005

970,796 - 970,796 1,447,128

274,187 - 276,859 364,239
- - - 85,674

1,244,983 - 1,247,655 1,897,041

2,062,061 6,021,083 16,281,462 11,492,651

2,384,100 - 3,726,300 3,726,300

4,446,161 6,021,083 20,007,762 15,218,951

5,691,144 6,021,083 21,255,417 17,115,992

279,969 235,466 590,667 314,028

5,800 - 18,771 196,773
- 8,616,694 13,223,596 7,907,639
- - - 388,854

285,769 8,852,160 13,833,034 8,807,294

285,769 8,852,160 13,833,034 8,807,294

2,062,061 6,021,083 16,281,462 11,492,651

3,343,314 (8,852,160) (8,859,079) (3,183,953)

5,405,375 (2,831,077) 7,422,383 8,308,698

121
 CITY OF VICTORVILLE

Nonmajor Enterprise Funds

Combining Statement of Revenues, Expenses and Changes in Net Assets

Year ended June 30, 2006

Westwinds Green Tree Fixed

Golf Golf Route
Course Course Transit
Operating revenues:
Intergovernmental $ - - -
Charges for services 478,607 767,458 -
Other 46,716 97,166 119

Total operating revenues 525,323 864,624 119

Operating expenses:
Personnel services 491,572 788,734 -
Maintenance and operations 279,143 467,492 -
Cost of purchased water - - -
Depreciation 11,560 69,971 -

Total operating expenses 782,275 1,326,197 -

Operating income (loss) (256,952) (461,573) 119

Nonoperating revenues (expenses):

Investment income - - -
Interest expense - (4,283) -

Total nonoperating revenues (expenses) - (4,283) -

Income (loss) before transfers (256,952) (465,856) 119

Capital contributions - - -
Transfers in 315,442 568,656 -

Change in net assets 58,490 102,800 119

Net assets (deficits) beginning of year (559,165) 5,245,960 (119)

Net assets (deficits) end of year $ (500,675) 5,348,760 -

122
 Southern California
Logistics Rail
Water Authority 2006 2005

- - - 1,397,577
2,058,421 - 3,304,486 2,784,064
- - 144,001 107,481

2,058,421 - 3,448,487 4,289,122

528,541 789,742 2,598,589 2,714,058

137,815 164,206 1,048,656 3,079,823
1,652,470 - 1,652,470 1,375,808
79,044 - 160,575 160,000

2,397,870 953,948 5,460,290 7,329,689

(339,449) (953,948) (2,011,803) (3,040,567)

12,290 - 12,290 10,307

- - (4,283) (37,933)

12,290 - 8,007 (27,626)

(327,159) (953,948) (2,003,796) (3,068,193)

- - - 1,306,843
- 233,383 1,117,481 891,748

(327,159) (720,565) (886,315) (869,602)

5,732,534 (2,110,512) 8,308,698 9,178,300

5,405,375 (2,831,077) 7,422,383 8,308,698

123
 CITY OF VICTORVILLE
Nonmajor Enterprise Funds
Combining Statement of Cash Flows
Year ended June 30, 2006

Westwinds Green Tree Fixed

Golf Golf Route
Course Course Transit
Cash flows from operating activities:
Cash received from customers $ 524,813 863,120 85,793
Cash received from interfund charges - - -
Cash payments to employees for services (491,572) (788,734) -
Cash payments to suppliers for goods and services (297,420) (458,449) (188,934)
Net cash provided by (used for) operating activities (264,179) (384,063) (103,141)

Cash flows from noncapital financing activities:

Cash received from other funds 315,442 610,101 -
Cash paid to other funds (51,263) - -
Net cash provided by (used for)
noncapital financing activities 264,179 610,101 -
Cash flows from capital and related financing activities:
Cash payments to acquire fixed assets - (221,755) -
Interest paid on capital-related debt - (4,283) -
Net cash provided by (used for) capital
and related financing activities - (226,038) -
Cash flows from investing activities:
Interest received on investments - - -
Net cash provided by (used for) investing activities - - -
Net increase (decrease) in cash and cash equivalents - - (103,141)
Cash and cash equivalents at beginning of year - - 103,141
Cash and cash equivalents at end of year $ - - -
Reconciliation of operating income to net cash
provided by (used for) operating activities:
Operating income (loss) $ (256,952) (461,573) 119
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities:
Depreciation 11,560 69,971 -
(Increase) decrease in accounts receivable (510) (1,504) -
(Increase) decrease in due from other governments - - 85,674
Increase (decrease) in accounts payable (18,277) 4,850 (2,539)
Increase (decrease) in deposits payable - 4,193 (186,395)
Increase (decrease) in due to other governments - - -
Total adjustments (7,227) 77,510 (103,260)
Net cash provided by (used for) operating activities $ (264,179) (384,063) (103,141)

Noncash investing and financing activities:

Developer contributed capital assests $ - - -
- - -

124
 Southern California
Logistics Rail
Water Authority 2006 2005

2,147,815 - 3,621,541 3,051,452

- - - 1,397,577
(528,541) (789,742) (2,598,589) (2,714,058)
(1,999,569) (46,970) (2,991,342) (4,750,344)
(380,295) (836,712) (1,968,390) (3,015,373)

- 5,559,158 6,484,701 4,001,655

- - (51,263) (521,040)

- 5,559,158 6,433,438 3,480,615

(5,186) (4,722,446) (4,949,387) (186,868)

- - (4,283) (37,933)

(5,186) (4,722,446) (4,953,670) (224,801)

12,290 - 12,290 10,307

12,290 - 12,290 10,307
(373,191) - (476,332) 250,748
1,343,987 - 1,447,128 1,196,380
970,796 - 970,796 1,447,128

(339,449) (953,948) (2,011,803) (3,040,567)

79,044 - 160,575 160,000

89,395 - 87,381 (84,957)
- - 85,674 244,864
175,369 117,236 276,639 (164,371)
4,200 - (178,002) (519,196)
(388,854) - (388,854) 388,854
(40,846) 117,236 43,413 25,194
(380,295) (836,712) (1,968,390) (3,015,373)

- - - 1,306,843
- - - 1,306,843

125
126
 Fiduciary Funds
Agency Funds
________________________________________

Agency funds are one of four types of fiduciary funds. Agency funds are used to report
resources held by the reporting government in a purely custodial capacity. Agency funds
typically involve only the receipt, temporary investment, and remittance of fiduciary resources to
individuals, private organizations, or other governments.
________________________________________

Other Funds
This fund accounts for various deposits such as deposit trust and deferred compensation funds.
These deposits are held by the City and returned to the depositor upon completion of projects or
fulfillment of purpose. Other funds, which have their own separate financial statements and are
in the custody of the City, are included as part of this section. They are Mojave Desert and
Mountain Integrated Waste Management Authority, Regional Fire Protection Authority, and
Victor Valley Economic Development Authority.

Community Facilities District 90-01

This fund accounts for the Brentwood, West Creek and Joshua Ridge assessment district in
accordance with the Mello-Roos Community Facilities Act of 1982. The taxes received are for
the payment made to the debt service related to this bond issuance.

Community Facilities District 01-01

This fund accounts for the Eagle Ranch assessment district in accordance with the Mello-Roos
Community Facilities Act of 1982. The taxes received are for the payment made to the debt
service related to this bond issuance.

127
128
 CITY OF VICTORVILLE

Combining Statement of Fiduciary Assets and Liabilities

Fiduciary Funds

June 30, 2006

Community Community
Other Facilities Facilities Totals
Funds District 90-01 District 01-01 2006 2005

Assets

Cash and investments $ 10,084,886 1,584,891 496,531 12,166,308 11,852,176

Restricted assets:
Investments with fiscal agent 608,298 1,143,134 3,582,735 5,334,167 2,764,753
Accounts receivable 2,389,074 33,232 12,328 2,434,634 913,119

Total assets $ 13,082,258 2,761,257 4,091,594 19,935,109 15,530,048

Liabilities

Deposits payable $ 10,587,423 2,761,257 4,091,594 17,440,274 13,035,213

Due to other governments 2,494,835 - - 2,494,835 2,494,835

Total liabilities $ 13,082,258 2,761,257 4,091,594 19,935,109 15,530,048

129
 CITY OF VICTORVILLE
Combining Statement of Changes in Fiduciary Assets and Liabilities
Fiduciary Funds
Year ended June 30,2006

Beginning Ending
Balance Additions Deletions Balance
Other Funds

Assets:
Cash and investments $ 6,784,192 3,300,694 - 10,084,886
Restricted assets:
Investments with fiscal agent 602,956 5,342 - 608,298
Accounts receivable 875,751 1,513,323 - 2,389,074

Total assets $ 8,262,899 4,819,359 - 13,082,258

Liabilities:
Deposits payable $ 5,768,064 4,819,359 - 10,587,423
Due to other governments 2,494,835 - - 2,494,835

Total liabilities $ 8,262,899 4,819,359 - 13,082,258

Community Facilities District 90-01

Assets:
Cash and investments $ 4,729,945 - 3,145,054 1,584,891
Restricted assets:
Investments with fiscal agent 1,784,967 - 641,833 1,143,134
Accounts receivable 28,009 5,223 - 33,232

Total assets $ 6,542,921 5,223 3,786,887 2,761,257

Liabilities:
Deposits payable $ 6,542,921 5,223 3,786,887 2,761,257
Total liabilities $ 6,542,921 5,223 3,786,887 2,761,257

(Continued)

130
 CITY OF VICTORVILLE
Combining Statement of Changes in Fiduciary Assets and Liabilities
Fiduciary Funds
(Continued)

Beginning Ending
Balance Additions Deletions Balance
Community Facilities District 01-01
Assets:
Cash and investments $ 338,039 158,492 - 496,531
Restricted assets:
Investments with fiscal agent 376,830 3,205,905 - 3,582,735
Accounts receivable 9,359 2,969 - 12,328

Total assets $ 724,228 3,367,366 - 4,091,594

Liabilities:
Deposits payable $ 724,228 3,367,366 - 4,091,594

Total liabilities $ 724,228 3,367,366 - 4,091,594

Total-All Agency Funds

Assets:
Cash and investments $ 11,852,176 3,459,186 3,145,054 12,166,308
Restricted assets:
Investments with fiscal agent 2,764,753 3,211,247 641,833 5,334,167
Accounts receivable 913,119 1,521,515 - 2,434,634

Total assets $ 15,530,048 8,191,948 3,786,887 19,935,109

Liabilities:
Deposits payable $ 13,035,213 8,191,948 3,786,887 17,440,274
Due to other governments 2,494,835 - - 2,494,835

Total liabilities $ 15,530,048 8,191,948 3,786,887 19,935,109

131
132
STATISTICAL SECTION

133
134
162
[THIS PAGE INTENTIONALLY LEFT BLANK]
 APPENDIX C

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following statements are summaries of the provisions of the Indenture and the Lease. These
statements are qualified in their entirety by reference to the full terms of such documents.

INDENTURE

Definitions

“Additional Rental” means the amounts specified as such in the Lease, as such amounts may be
adjusted from time to time in accordance with the terms thereof.

“Agency” means the Redevelopment Agency of the City of Victorville, a public body, corporate
and public.

“Alternate Credit Facility” means a credit facility delivered to the Trustee pursuant to the
Indenture, including, but not limited to, an irrevocable letter of credit, an investment contract, a guaranty,
a bond insurance policy, a surety bond or other financial arrangement which secures the payment of the
principal of and interest on the Bonds when due, or such an instrument, together with a separate
instrument such as an irrevocable letter of credit, a guaranty, a committed line of credit or an investment
contract, issued by a financial institution pursuant to the Indenture which provides a method of purchasing
Bonds tendered for purchase on a Tender Date.

“Assignment Agreement” means that certain Assignment Agreement dated as of May 1, 2007 by
and between the Authority and the Trustee.

“Authority” means the Victorville Joint Powers Financing Authority, established pursuant to the
laws of the State of California, organized and created pursuant to the terms and conditions of the Joint
Powers Agreement.

“Authorized Denominations” shall mean (i) with respect to the Bonds bearing interest at the
Weekly Rate or Daily Rate, $100,000 or any integral multiple of $5,000 in excess thereof and (ii) with
respect to the Bonds bearing interest at the Fixed Rate, $5,000 or any integral multiple of $5,000.

“Authorized Investments” means, if and to the extent permitted by law:

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

(2) Bonds or notes which are exempt from federal income taxes and for the payment of
which cash or obligations described in clause (1) of this definition in an amount sufficient to pay the
principal of, premium, if any, and interest on when due have been irrevocably deposited with a trustee or
other fiscal depositary and which are rated in the highest Rating Category by S&P and Moody’s.

C-1
 (3) Obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by
any of the following: Federal Home Loan Bank System, Government National Mortgage Association,
Farmer’s Home Administration, Federal Home Loan Mortgage Corporation or Federal Housing
Administration; provided that with respect to the funds and accounts established under the Indenture, such
obligations shall at no time exceed an amount equal to ten percent (10%) of the aggregate principal
amount of the Bonds Outstanding.

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

(5) Federal funds or banker’s acceptances with a maximum term of one year of any bank that
has an unsecured, uninsured and unguaranteed obligation rating of “Prime-1” or “A3” by Moody’s and
“A-l” or “A” or better by S&P (including the Trustee).

(6) Repurchase obligations with a term not exceeding 30 days pursuant to a written
agreement between the Trustee and either a primary dealer on the Federal Reserve reporting dealer list
which falls under the jurisdiction of the SIPC or a federally chartered commercial bank whose long-term
debt obligations are rated A or better by S&P and Moody’s, with respect to any security described in
clause (1); provided that the securities which are the subject of such repurchase obligation (i) must be free
and clear of all liens, (ii) in the case of a SIPC dealer, were not acquired pursuant to a repurchase or
reverse repurchase agreement, (iii) must be deposited with the Trustee and maintained through weekly
market valuations in an amount equal to 104% of the invested funds plus accrued interest; and further
provided that the Trustee must have a valid first perfected security interest in such securities.

(7) Taxable government money market portfolios that have a rating by S&P of Am-G or Am
or better and rated in one of the three highest rating categories of Moody’s consisting of securities issued
or guaranteed as to payment of principal and interest by the full faith and credit of the United States,
subject to a maximum permissible limit equal to six months of principal and interest on the Bonds
including portfolios of the Trustee and its affiliates.

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

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

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

(11) Investment agreements, including guaranteed investment contracts (“GICs”) forward

purchase agreements and reserve fund put agreements with banks or other financial institutions rated, or
guaranteed by institutions rated, or with senior unsecured debt rated, by S&P and Moody’s, in one of the
two highest rating categories assigned by such agencies and approved by the Credit Entity.

C-2
 (12) Any other investments for which each rating agency then rating the Bonds confirms that
such investment will not adversely affect its ratings of the Bonds and approved by the Credit Entity.

“Authorized Representative” means the President, Vice-President, Executive Director, Secretary

or any other person designated as an Authorized Representative by a Written Certificate of the Authority
signed as its President and filed with the Authority and the Trustee.

“Available Moneys” means (a) with respect to any Bond Payment Date occurring during the term
of a Credit Facility, moneys (other than moneys received from draws under the Credit Facility or
remarketing proceeds) which have been on deposit with and pursuant to written direction of the Authority
and segregated by the Trustee for at least 123 days, during or prior to which no Event of Bankruptcy shall
have occurred, as evidenced by a certificate of the Authority to the Trustee, upon which the Trustee may
conclusively rely, (b) moneys received from draws under the Credit Facility and remarketing proceeds
and (c) proceeds with respect to the refunding of any of the Bonds.

“Base Rental” means the amounts specified as such in the Lease, as such amounts may be
adjusted from time to time in accordance with the terms thereof.

“Bond Counsel” means an attorney or firm of attorneys of recognized national standing in the
field of municipal finance selected by the Authority.

“Bond Payment Date” means (a) until the Fixed Rate Conversion, the first Business Day of each
month commencing June 1, 2007 to and including the Fixed Rate Conversion Date, (b) after the Fixed
Rate Conversion Date, each May 1 and November 1 commencing on the first May 1 or November 1
which is at least 75 days after the Fixed Rate Conversion Date, and (c) with respect to Credit Facility
Bonds, the dates set for payment of principal of and interest on Credit Facility Bonds under the
Reimbursement Agreement.

“Bond Year” means each twelve-month period extending from May 2 in one calendar year to
May 1 of the succeeding calendar year, both dates inclusive, except that the first Bond Year shall extend
from the Closing Date to May 1, 2007.

“Bonds” means the Victorville Joint Powers Financing Authority Variable Rate Lease Revenue
Bonds, 2007 Series A (Cogeneration Facility Project), authorized by, and at any time Outstanding
pursuant to the Indenture.

“Business Day” means any day other than a Saturday, Sunday, or a day on which banking
institutions or governmental offices in the State or the office of the Credit Entity where draws on the
Credit Facility are to be presented are authorized or required to close, or a day on which the Federal
Reserve System is closed.

“Certificate,” “Statement,” “Request,” “Requisition” or “Order” means, respectively, a written

certificate, statement, request, requisition or order in its name by, with respect to the City, the City
Manager, or by any other officer of the City duly authorized by the City for that purpose, and, with
respect to the Authority, the Authorized Representative. Any such instrument and supporting opinions or
representation, and the two or more so combined shall be read and construed as a single instrument.

“City” means the City of Victorville, California.

“Closing Date” means May 8, 2007, the date on which the Bonds are delivered by the Authority
to the original purchaser thereof.

C-3
 “Code” means the Internal Revenue Code of 1986, as amended and any regulations promulgated
from time to time thereunder.

“Cogeneration Project Surplus Revenues” means the Cogeneration Project Surplus Revenues as
such term is defined in the Lease.

“Construction Fund” means the fund so designated and established pursuant to the Indenture

“Continuing Disclosure Agreement” means any continuing disclosure agreement or continuing

disclosure certificate by the City relating to the Bonds, as originally executed and as it may be amended
from time to time in accordance with the terms thereof.

“Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable
to the Authority or the City, relating to the authorization, issuance, sale and delivery of the Bonds,
including, but not limited to, printing expenses, title insurance policy premiums with respect to the
Leased Property, rating agency fees, any premium or other fees with respect to insurance provided in
connection with the issuance of the Bonds, including but not limited to, municipal bond insurance, rental
interruption insurance and other types of insurance as may be required by the Lease, filing and recording
fees, initial fees and charges and the first annual administrative fee of the Trustee, fees and costs
associated with obtaining any Credit Facility obtained in connection with the issuance of the Bonds, fees,
charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other
professionals, fees and charges for preparation, execution and safekeeping of the Bonds, and any other
costs, charges or fees in connection with the original issuance of the Bonds.

“Costs of Issuance Fund” means the fund so designated and established pursuant to the Indenture.

“Credit Entity” means Fortis Bank S.A./N.V., acting through its New York Branch, as the issuer
of the Credit Facility being delivered on the Closing Date with respect to the Bonds and thereafter, the
issuer of any Alternate Credit Facility delivered hereunder in effect from time to time. All references and
requirements in the Indenture with respect to notices or other communications to, or consents from, the
Credit Entity shall include the providers of the Credit Facility.

“Credit Facility” means an irrevocable letter of credit, an investment contract, a guaranty, a bond
insurance policy, a surety bond or other financial arrangement which secures the payment of the principal
and interest on the Bonds when due, or such an instrument, together with a separate instrument, such as
an irrevocable letter of credit, a guaranty, a committed line of credit, an investment contract or a standby
purchase agreement, issued by a financial institution, which provides a method of purchasing Bonds
tendered for purchase on a Tender Date, including an Alternate Credit Facility.

“Credit Facility Account” means the account by that name in the Debt Service Fund established
in accordance with the Indenture.

“Credit Facility Bond” means any Bank Bond, as defined in the Reimbursement Agreement.

“Credit Facility Prepayment Account” means the account by that name in the Redemption Fund
established in accordance with the Indenture.

“Daily Rate” means the interest rate with respect to the Daily Rate Period.

“Daily Rate Period” means each period during which Bonds bear interest at a Daily Rate.

C-4
 “Debt Service Fund” means the fund so designated and established pursuant to the Indenture.

“DTC” means The Depository Trust Company, New York, New York, and its successors and
assigns.

“Event of Default” means any of the events specified in the Indenture.

“Financial Newspaper or Journal” means The Wall Street Journal or The Bond Buyer or any
other newspaper or journal containing financial news, printed in the English language, customarily
published on each Business Day and circulated in California, and selected by the Trustee.

“Fiscal Year” means the year beginning on July 1 of each year and ending on the next succeeding
June 30, or any other twelve-month period selected and designated as the official fiscal year period of the
Authority.

“Fixed Rate” means the fixed interest rate or rates applicable to the Bonds established in
accordance with the Indenture.

“Fixed Rate Conversion Date” means the date on which the rate of interest borne by the Bonds is
converted to the Fixed Rate.

“Indenture” means the Indenture, dated as of May 1, 2007, by and between the Authority and the
Trustee.

“Information Services” means Financial Information, Inc.’s “Daily Called Special Service,” 30
Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Mergent/FIS, Inc.,
5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Municipal News Reports;
and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification
Department; and, in accordance with then current guidelines of the Securities and Exchange Commission,
such other addresses and/or such other information services providing information with respect to called
bonds as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee.

“Interest Period” means the period from each Thursday to and including the following
Wednesday.

“Interest Rate Conversion Date” means any date (which must be a Business Day) on which the
interest rate borne by the Bonds is established at a new rate for a corresponding interest rate period as set
forth in the Indenture, other than a Fixed Rate Conversion Date.

“Joint Powers Agreement” means that certain Joint Exercise of Powers Agreement, dated as of
September 1, 1990, by and between the City and the Agency creating the Authority for the purposes,
among other things, of assisting in the financing of Public Capital Improvements, as such term is defined
in Section 6585(g) of the California Government Code, together with any amendments thereof and
supplements thereto.

“Law” means Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of
the California Government Code.

“Lease” means that certain Lease Agreement dated as of May 1, 2007 by and between the
Authority, as lessor, and the City, as lessee.

C-5
 “Lease Payment Account” means the account by that name in the Debt Service Fund established
in accordance with the Indenture.

“Lease Prepayment Account” means the account by that name established and held by the Trustee
pursuant to the Indenture.

“Leased Property” means that certain land and facilities described in Exhibit A to the Lease.

“Liquidity Account” means the account by that name in the Tender Fund established in
accordance with the Indenture.

“Mandatory Tender Date” means (1) the Bond Payment Date on or prior to the date at least five
days prior to the date on which the Credit Facility is scheduled to expire or terminate in accordance with
its respective terms and the Trustee has not received notice at least 40 days prior to such Bond Payment
Date that an Alternate Credit Facility, will be provided, (2) on any Interest Rate Conversion Date for
which a notice can be given, (3) the first Business Day to occur on or after the seventh day following
receipt by the Trustee of notice from the Credit Entity of the occurrence of an event of default under the
Reimbursement Agreement, or that the Credit Entity will not reinstate the interest portion of the Credit
Facility as provided in the Indenture, and in each case directing the mandatory tender of the Bonds, (4)
the Fixed Rate Conversion Date, or (5) the last Business Day prior to the effective date of any Alternate
Credit Facility.

“Maximum Rate” means with respect to the Bonds other than Credit Facility Bonds, 12% per
annum calculated on the basis of a 365-day year or 366-day year, as applicable, for actual days elapsed,
during the Weekly Rate Period or Daily Rate Period and 12% per annum calculated on the basis of a 360-
day year of twelve 30-day months on and after the Fixed Rate Conversion Date, and with respect to
Credit Facility Bonds, the maximum rate of interest permitted by law.

“Moody’s” means Moody’s Investors Service or any successor corporation thereto.

“Net Proceeds” means any insurance proceeds or condemnation award paid with respect to the
Leased Property remaining after payment therefrom of all expenses incurred in the collection thereof.

“Nominee” means the nominee of the Depository, which may be the Depository, or any nominee
substituted by the Depository pursuant to the Indenture.

“Optional Tender Date” means the date designated by an Owner to the Tender Agent on which
such Owner will tender his Bond in accordance with the Indenture.

“Outstanding,” when used as of any particular time with reference to the Bonds, means (subject
to the provisions of the Indenture all Bonds theretofore issued by the Authority except:

(1) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation;

(2) Bonds for the payment or redemption of which moneys or securities in the necessary
amount shall have been theretofore deposited in trust (whether upon or prior to the maturity or the
redemption date of such Bonds), provided that, if such Bonds are to be redeemed prior to the maturity
thereof, notice of such redemption shall have been given as provided in the Indenture;

(3) Untendered Bonds; and

C-6
 (4) Bonds in lieu of, or in substitution for, other Bonds which shall have been authorized,
executed, issued and delivered by the Authority pursuant to the Indenture.

“Owner” or “Bondowner” means the Person or Persons whose name appears on the registration
books maintained by the Trustee as the registered owner of a Bond or Bonds.

“Participant” means those broker-dealers, banks and other financial institutions from time to time
for which the Depository holds Bonds as a securities depository.

“Person” means an individual, corporation, firm, association, partnership, trust, or other legal
entity or group of entities, including a governmental entity or any agency or political subdivision thereof.

“Prepayment” means any payment made by the City pursuant to the Lease as a prepayment of
Base Rental payments.

“Principal Office” means the principal corporate trust office of the Trustee in Los Angeles,
California, or the principal office of the Tender Agent in Los Angeles, California, or the principal
corporate trust office of any successor Trustee or Tender Agent.

“Prior Trustee” means The Bank of New York Trust Company, N.A.

“Qualified Reserve Fund Credit Instrument” means an irrevocable standby or direct-pay letter of
credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee
pursuant to the Indenture, provided that all of the following requirements are met: (i) at all times during
the term of such letter of credit or surety bond, the long-term credit rating of such bank is within the
highest rating category of Moody’s and S&P, or the claims paying ability of such insurance company is
rated within the highest rating category of A.M. Best & Company and S&P; (ii) such letter of credit or
surety bond has a term which ends no earlier than the last Bond Payment Date of the series of Bonds to
which the Reserve Requirement applies; (iii) such letter of credit or surety bond has a stated amount at
least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be
released pursuant to the Indenture; and (iv) the Trustee is authorized pursuant to the terms of such letter of
credit or surety bond to draw thereunder amounts necessary to carry out the purposes specified in the
Indenture, including the replenishment of the Lease Payment Account.

“Rating Category” means one of the general rating categories of S&P or Moody’s, as the case
may be, without regard to any refinement or graduation of such rating category by numerical modifier or
otherwise.

“Record Date” means, during the period during which the Bonds accrue interest at the Fixed
Rate, the close of business on the fifteenth day of the month immediately preceding each Bond Payment
Date, and, during the Weekly Rate Period or a Daily Rate Period, the close of business on the Business
Day immediately preceding the Bond Payment Date.

“Redemption Fund” means the fund so designated and established pursuant to the Indenture.

“Reimbursement Agreement” means the agreement or agreements entered into between the City
and the Credit Entity setting forth the terms and conditions relating to the issuance of the Credit Facility
and the City’s obligations to repay the Credit Entity in the event moneys are drawn under the Credit
Facility.

C-7
 “Remarketing Agent” means Gates Capital Corporation, in its capacity as remarketing agent for
the Bonds while the Bonds bear interest at the Variable Rate, as “Variable Rate Remarketing Agent” and
Kinsell, Newcomb & De Dios, Inc., as “Fixed Rate Remarketing Agent,” or any successor entity or
entities appointed by the Authority to perform the duties of the Remarketing Agent hereunder.

“Remarketing Agreement” means the Remarketing Agreement, dated as of May 1, 2007, between
the Authority and the Remarketing Agent, and any other agreement relating to the services of the
Remarketing Agent in effect at any time.

“Remarketing Proceeds Account” means the account by that name in the Tender Fund established
in accordance with the Indenture.

“Reserve Fund” means the fund so designated and established pursuant to the Indenture.

“Reserve Requirement” means, as of the date of calculation thereof, the least of (i) the maximum
aggregate annual Base Rental payments payable during the then-current or any remaining Bond Year
during which the Bonds are to remain Outstanding by their terms, (ii) 125% of the average annual
aggregate Base Rental payments payable for the then-current and any remaining Bond Years during
which the Bonds are to remain Outstanding by their terms, or (iii) ten percent (10%) of the proceeds
derived from the sale of the Bonds, with all such calculations assuming, during any period while the
Bonds bear interest at a Weekly Rate or a Daily Rate, the greater of (a) the average interest rate per
annum borne by the Bonds during the preceding twelve-month period, or (b) an average 4.5% per annum
interest rate borne by the Bonds; and provided, however, that during any period when the Bonds bear
interest at a Fixed Rate, such calculation shall be based on the actual rate or rates of interest. Following
the date of delivery of the Bonds, and at the instruction of the Authority, the Trustee shall recalculate the
Reserve Requirement under clauses (i) or (ii) above, whichever is less, and shall transfer any amounts in
excess of the Reserve Requirement in accordance with the Indenture.

“Revenues” means all amounts received by the Authority as lessor under the Lease, including,
without limiting the generality of the foregoing, scheduled Base Rental payments, prepayments, and
insurance and condemnation proceeds, and all interest, profits or other income derived from the
investment of amounts in any fund or account established under the Indenture.

“Securities Depositories” means The Depository Trust Company, 55 Water Street, 50th Floor,
New York, N.Y. 10041-0099 Attn. Call Notification Department, Fax (212) 855-7232, and, in accordance
with then current guidelines of the Securities and Exchange Commission, such other addresses and/or
such other securities depositories as the Authority may designate in a Written Certificate of the Authority
delivered to the Trustee.

“Serial Bonds” means the Bonds falling due by their terms in specified years, for which no
mandatory sinking account payments are provided.

“Special Record Date” means the date established by the Trustee pursuant to the Indenture.

“Supplemental Indenture” means any indenture hereafter duly authorized and entered into
between the Authority and the Trustee, supplementing, modifying or amending the Indenture; but only if
and to the extent that such supplemental indenture is specifically authorized hereunder.

“S&P” means Standard & Poor’s or any successor corporation thereto.

“State” means the State of California.

C-8
 “Tax Certificate” means the Tax Certificate delivered by the Authority and the City at the time of
issuance and delivery of the Bonds, as the same may be amended or supplemented in accordance with its
terms.

“Tender Agent” means The Bank of New York Trust Company, N.A., or any successor entity
appointed by the Authority to perform the duties of the Tender Agent hereunder, which duties shall
include those of acting as a co-transfer agent, co-paying agent for payment of principal and co-registrar
hereunder.

“Tender Date” means a Mandatory Tender Date or an Optional Tender Date.

“Tender Fund” means the fund by that name established and held by the Tender Agent pursuant
to the Indenture.

“Term Bonds” means the Bonds payable at or before their specified maturity date or dates from
mandatory sinking account payments established for that purpose and calculated to retire such Bonds on
or before their specified maturity date or dates.

“Trustee” means The Bank of New York Trust Company, N.A., or any successor trustee
appointed pursuant to the provisions of the Indenture.

“2005 Bonds” means the Authority’s $41,000,000 Variable Rate Lease Revenue Bonds 2005
Series A (Cogeneration Facility Project).

“2005 Indenture” means that certain Indenture, dated as of May 1, 2005, by and between the
Authority and the Prior Trustee.

“2006 Bonds” means the Authority’s $23,645,000 Variable Rate Lease Revenue Bonds 2006
Series A (Cogeneration Facility Expansion Project).

“2006 Indenture” means that certain Indenture, dated as of July 1, 2006, by and between the
Authority and the Prior Trustee.

“Untendered Bonds” means Bonds for which a Tender Date has become effective and for which
the purchase price thereof has been irrevocably deposited in trust with the Tender Agent but for which the
Tender Agent has not yet received the Bonds.

“Weekly Rate” means the interest rate with respect to the Weekly Rate Period.

“Weekly Rate Period” means the period during which Bonds bear interest at a Weekly Rate.

“Written Certificate,” “Written Request” and “Written Requisition” of the Authority means,
respectively, a written certificate, request or requisition signed in the name or the Authority by its
Authorized Representative. Any such instrument and supporting opinions or representations, if any, may
, but need not, be combined in a single instrument with any other instrument, opinion or representation,
and the two or more so combined shall be read and construed as a single instrument.

Revenues and Funds

Establishment of Funds. In addition to the funds established in the Indenture, the Trustee shall
further establish, maintain and hold in trust the following funds and accounts:

C-9
 (a) Debt Service Fund, in which there is further established a Lease Payment
Account and a Credit Facility Account.

(b) Redemption Fund in which there is further established a Lease Prepayment

Account and a Credit Facility Prepayment Account.

Pledge and Assignment; Equal Security.

(a) The Bonds and the obligations of the City set forth in the Reimbursement
Agreement are secured by a pledge of and lien on all of the Revenues (except as otherwise provided in the
Indenture) and upon all of the moneys in the funds and accounts established hereunder. Except for the
Revenues and such moneys, no funds or properties of the Authority shall be pledged to, or otherwise
liable for, the payment of principal of, premium (if any) or interest on the Bonds.

(b) The Authority and the City, as their interests may appear, hereby grant to the
Credit Entity and to the Trustee, for the benefit of the Owners, a lien on and a security interest in the
Lease and the Revenues, including all moneys in the funds held by the Trustee under the Indenture
(excepting only the moneys set aside by the Trustee to satisfy the requirements of the Indenture and
amounts in the Remarketing Proceeds Account to be applied to pay the purchase price of Bonds),
including, without limitation, the Debt Service Fund, and all such moneys shall be held by the Trustee in
trust and applied to the respective purposes specified in the Indenture and in the Lease; provided,
however, that no security interest is granted to the Credit Entity or to the Trustee for the purpose of
paying its fees or expenses in money drawn by the Trustee under the Credit Facility to the extent such
moneys are applied to the payment of the amounts due to the Owners. The Trustee shall be entitled to
and shall collect and receive all of the Revenues, and any Revenues collected or received by the Authority
shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the
Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to
and shall take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either
jointly with the Authority or separately, all of the rights of the Authority that have been assigned to the
Trustee and all of the obligations of the City under the Lease.

(c) In consideration of the acceptance of the Bonds by those who shall own them
from time to time, the Indenture shall be deemed to be and shall constitute a contract between the
Authority and the Owners from time to time of the Bonds and the covenants and agreements in the
Indenture set forth to be performed on behalf of the Authority shall be for the equal and proportionate
security and protection of all Owners of the Bonds without preference, priority or distinction as to
security or otherwise of any of the Bonds over any of the others by reason of the number or date thereof,
of the time of sale, execution and delivery thereof, or otherwise for any cause whatsoever, except as
expressly provided therein or in the Indenture.

Deposit of Revenues.

(a) There shall be deposited in the Lease Payment Account of the Debt Service Fund
all Base Rental (other than Prepayments, which shall be deposited in the Lease Prepayment Account of
the Redemption Fund pursuant to the Indenture) and Cogeneration Project Surplus Revenues received by
the Trustee.

(b) There shall be deposited in the Credit Facility Account of the Debt Service Fund
all amounts drawn under the Credit Facility, except for amounts drawn thereunder with respect to
Prepayments which shall be deposited in the Credit Facility Prepayment Account of the Redemption Fund

C-10
pursuant to the Indenture and amounts drawn thereunder with respect to the payment of the purchase price
of tendered Bonds.

Application of Moneys.

(a) Except as provided in subsection (b) below, all amounts in the Lease Payment
Account of the Debt Service Fund shall be used and withdrawn by the Trustee solely for the purpose of
paying the principal of and interest on the Bonds as the same shall become due and payable, in
accordance with the provisions of the Indenture.

(b) During the term of any Credit Facility, on each Bond Payment Date, following a
draw on the Credit Facility and receipt of the proceeds of such draw, the Trustee shall withdraw the
amounts, if any, on deposit in the Lease Payment Account and, to the extent moneys are owed to the
Credit Entity under the Reimbursement Agreement, pay such amounts to the Credit Entity; provided,
however, the Trustee shall not be required to pay amounts to the Credit Entity in excess of the amount
drawn on the Credit Facility unless the Credit Entity has certified to the Trustee and to the City, in
writing, the additional amounts due and owing and specifying the section in the Reimbursement
Agreement pursuant to which such additional amounts are due and such additional amounts are on deposit
in the Lease Payment Account.

(c) Sources of funds for the payment of the Bonds shall be applied in the following
order of priority to pay principal and interest with respect to the Bonds:

(i) moneys deposited in the Credit Facility Account or the Credit

Facility Prepayment Account, as appropriate;

(ii) moneys on deposit in the Reserve Fund;

(iii) other Available Moneys furnished to the Trustee; and

(iv) any other money made available to the Trustee for such purpose.

Payment of Bonds registered to or on behalf of the Credit Entity shall be made from amounts on
deposit in the Lease Payment Account of the Debt Service Fund, the Reserve Fund and the Lease
Prepayment Account of the Redemption Fund, and other Available Moneys furnished to the Trustee and
any other money made available to the Trustee for such purpose, as applicable.

Investment of Moneys in Funds and Accounts. All moneys in any of the funds and accounts
established pursuant to the Indenture (other than the Credit Facility Account, Credit Facility Prepayment
Account and the Tender Fund, which moneys shall be held uninvested) shall be invested by the Trustee
solely in Authorized Investments. Upon written request of an Authorized Representative of the
Authority, the Trustee shall invest all moneys as directed by such Authorized Representative, provided
such moneys are invested solely in Authorized Investments; provided, however, that the Trustee shall
have received at least two (2) Business Days prior to the date of any such proposed investment or
reinvestment, written directions of the Authority specifying the Authority’s request for investment or
reinvestment. In the absence of Request from the Authority, the Trustee shall invest such moneys solely
in the investments described in subparagraph (9) of the definition of “Authorized Investments.”
Authorized Investments may be purchased at such prices as the Authority may in its discretion determine.
All Authorized Investments shall be acquired subject to the limitations set forth in the Indenture, the
limitations as to maturities set forth in the Indenture and such additional limitations or requirements

C-11
consistent with the foregoing as may be established by Request of the Authority and are consistent with
the fiduciary duties of the Trustee.

Moneys in the funds and accounts shall be invested in Authorized Investments maturing not later
than the date on which it is estimated that such moneys will be required by the Trustee or the Authority.
Authorized Investments purchased under a repurchase agreement may be deemed to mature on the date or
dates on which the Trustee may deliver such Authorized Investments for repurchase under such
agreement. Authorized Investments acquired as an investment of moneys in any fund or account
established under the Indenture shall be credited to such fund or account. Except as otherwise provided in
the Indenture, all interest, profits and other income received from the investment of moneys in any fund
or account shall be deposited therein. For the purpose of determining the amount in any fund, all
Authorized Investments credited to such fund shall be valued at the lesser of (i) cost (exclusive of
brokerage commissions or accrued interest, if any); (ii) the par amount thereof; or (iii) the market value
thereof.

Except for moneys held by the Trustee in the Credit Facility Account, the Credit Facility
Prepayment Account, the Tender Fund and the Liquidity Account and the Remarketing Proceeds Account
therein, the Trustee may commingle moneys on deposit in any of the funds or accounts established
pursuant to the Indenture and held by the Trustee into a separate fund or funds for investment purposes
only, provided that all funds or accounts held by the Trustee hereunder shall be accounted for separately
as required by the Indenture. The Trustee or an affiliate may act as principal or agent in the making or
disposing of any investment and shall be entitled to its customary fees therefor. The Trustee may sell at
the best price obtainable, or present for redemption, any Authorized Investments so purchased whenever
it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or
disbursement from the fund or account to which such Authorized Investment is credited, and, subject to
the provisions of the Indenture, the Trustee shall not be liable or responsible for any loss on any
investment made pursuant to the Indenture or resulting from any such sale which the Trustee reasonably
makes in good faith. Any Authorized Investments that are registerable securities shall be registered in the
name of the Trustee.

The Trustee shall, using its best efforts, sell or present for redemption, any Authorized Investment
so purchased by the Trustee whenever it shall be necessary in order to provide moneys to meet any
required payment, transfer, withdrawal or disbursement from the fund to which such Authorized
Investment is credited. The Trustee shall conclusively be deemed to have used its best efforts if the
Trustee obtains three bids and sells the Authorized Investments to the highest bidder.

The Trustee shall furnish to the Authority, not less than monthly, and to the Credit Entity upon
request, an accounting of all investments made by the Trustee. The Trustee shall keep accurate records of
all funds administered by it and all Bonds paid and discharged.

Investment earnings in the Debt Service Fund shall first be applied to the payment of Additional
Rental. If no Additional Rental is owing, investment earnings within the Debt Service Fund shall be
transferred to the Lease Payment Account. Unless otherwise directed in the Indenture, investment
earnings in all other funds and accounts established hereunder shall remain in such funds and accounts.

Particular Covenants

Punctual Payment. The Authority covenants and agrees that it will duly and punctually pay or
cause to be paid the principal of and interest on each of the Bonds together with the premium thereon, if
any, on the date, at the place and in the manner provided in said Bonds, and amounts owing to the Credit

C-12
Entity under the Reimbursement Agreement solely from the Revenues and other funds as provided in the
Indenture.

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

Against Encumbrances. The Authority covenants and agrees that it will not issue any other
obligations payable as to either principal or interest from the Revenues which have, or purport to have any
lien upon the Revenues superior to or on a parity with the lien of the Bonds.

Against Additional Indebtedness. The Authority covenants and agrees that it will not issue any
other bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness,
which is in any case payable, as to either principal or interest, from all or any part of Revenues.

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

The Authority shall preserve and protect the security of the Bonds and the rights of the Owners
and the Credit Entity and defend their rights against all claims and demands of all persons. Until such
time as an amount has been set aside sufficient to pay at maturity, or to call and redeem prior to maturity,
all Outstanding Bonds plus unpaid interest thereon to maturity, and to pay amounts owing to the Credit
Entity under the Reimbursement Agreement, the Authority will (through its proper members, officers,
agents or employees) faithfully perform and abide by all the covenants, undertakings and provisions
contained in the Indenture or in any Bond issued hereunder for the benefit of the Owners and the Credit
Entity.

Accounting Records and Financial Statements. The Authority covenants and agrees that it will at
all times keep, or cause to be kept, proper and current books and accounts (separate from all other records
and accounts) in which complete and accurate entries shall be made of all transactions relating to the
Revenues and of the funds and accounts provided for in the Indenture. Such books of record and
accounts shall at all times during business hours be subject to the inspection of the Trustee, the Credit
Entity or the Owners of not less than ten percent (10%) of the aggregate principal amount of the Bonds
then Outstanding or their representative authorized in writing. The parties to the Indenture acknowledge
that any such books, records or accounts will be maintained by the Trustee so long as all Base Rental
Payments are made directly from the City to the Trustee and that the Authority shall not be responsible
for keeping such books, records or accounts unless Base Rental Payments are received by it.

C-13
 Tax Covenant. The Authority covenants that it shall not use, and shall not permit the use of, and
shall not omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction
or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if
made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to
section 103(a) of the Code from the gross income of the owner thereof for federal income tax purposes.

Waiver of Laws. The Authority shall not at any time insist upon or plead in any manner
whatsoever, or claim to take the benefit or advantage of, any stay or extension of law now or at any time
hereafter in force that may affect the covenants and agreements contained in the Indenture or in the
Bonds, and all benefit or advantage of any such law or laws is hereby expressly waived by the Authority
to the extent permitted by law.

Further Assurances. The Authority shall make, execute and deliver any and all such further
indentures, instruments and assurances as may be reasonably necessary or proper to carry out the
intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto
the Owners of the Bonds and the Credit Entity of the rights and benefits provided in the Indenture.

Events of Default and Remedies of Bondowners

Events of Default. The following events shall be Events of Default:

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

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

(c) Default by the Authority in the observance of any of the other covenants,
agreements or conditions on its part contained in the Indenture or in the Bonds if such default shall have
continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring
the same to be remedied, shall have been given to the Authority by the Trustee, or to the Authority and
the Trustee by the Credit Entity or the Owners of not less than twenty-five percent (25%) in aggregate
principal amount of the Bonds at the time Outstanding; provided, however, that such default shall not
constitute an Event of Default hereunder if the Authority shall commence to cure such default within said
sixty-day period and thereafter diligently and in good faith proceed to cure such default within a
reasonable period of time.

Remedies on Default. Subject to the rights of the Credit Entity and provided that the Credit
Facility is in effect and the Credit Entity is not in default thereunder, upon the occurrence and continuance
of any Event of Default specified in the Indenture, the Trustee, upon the direction of the Credit Entity,
shall proceed, or upon the occurrence and continuance of any Event of Default specified in the Indenture,
the Trustee may proceed (and upon written request of the Credit Entity or upon written request of the
Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding and the
consent of the Credit Entity so long as the Credit Facility remains in effect and the Credit Entity is not in
default thereunder and receipt of indemnity satisfactory to the Trustee, shall proceed), to exercise the
remedies set forth in the Lease or available to the Trustee hereunder; provided, however, that there shall
be no right to accelerate maturities of the Bonds or otherwise to declare any Base Rental not then in
default to be immediately due and payable. Upon the occurrence and continuance of any Event of
Default, the Trustee shall exercise the rights and remedies invested in it by the Indenture with the same

C-14
degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.

Application of Revenues and Other Funds After Default. If an Event of Default shall occur and
be continuing, all Revenues and any other funds (other than moneys drawn under any Credit Facility
which shall be deposited into the Credit Facility Account and moneys in the Credit Facility Prepayment
Account, such moneys in both such accounts to be applied only to the payment of principal and interest
on the Bonds) then held or thereafter received by the Trustee under any of the provisions of the Indenture
shall be applied by the Trustee as follows and in the following order of priority:

(1) To the payment of any expenses necessary in the opinion of the Trustee
to protect the interests of the Owners of the Bonds and payment of all reasonable fees, charges
and expenses of the Trustee incurred in and about the performance of its powers and duties under
the Indenture; and

(2) To the payment of the principal of and interest then due on the Bonds
(upon presentation of the 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 Indenture, as follows:

First: To the payment to the Persons entitled thereto, including the Credit Entity,
of all interest then due and payable, and, if the amount available shall not be
sufficient to pay in full all such interest, then to the payment thereof ratably,
according to the amounts due thereon, to the Persons entitled thereto, without any
discrimination or preference;

Second: To the payment to the Persons entitled thereto, including the Credit
Entity, of the unpaid principal of any Bonds which shall have become due and
payable, 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
Bonds from the respective dates upon which such Bonds became due and
payable, and, if the amount available shall not be sufficient to pay in full all the
principal of the Bonds due on any date, together with such interest, then to the
payment first of such interest, ratably, according to the amount of interest due on
such date, and then to the payment of such principal, ratably, according to the
amounts of principal due on such date to the Persons entitled thereto, without any
discrimination or preference; and

Third: To the payment of the interest on and the principal of the Bonds, the
purchase and retirement of the Bonds and to the redemption of the Bonds, all in
accordance with the provisions of the Indenture.

(3) To the payment of any obligations due and owing to the Credit Entity
under the Reimbursement Agreement.

Trustee to Represent Bondowners. The Trustee is hereby irrevocably appointed (and the
successive respective Owners of the Bonds, by taking and holding the same, shall be conclusively deemed
to have so appointed the Trustee) as trustee and true and lawful attorney-in-fact of the Owners of the
Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be
available to such Owners under the provisions of the Bonds, the Indenture, and applicable provisions of
the Law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a
right in the Trustee to represent the Bondowners, the Trustee in its discretion may with the consent of the

C-15
Credit Entity so long as the Credit Facility remains in effect and the Credit Entity is not in default
thereunder, and upon the written request of the Owners of not less than a majority in aggregate principal
amount of the Bonds then Outstanding and with the consent of the Credit Entity so long as the Credit
Facility remains in effect and the Credit Entity is not in default thereunder, and upon being indemnified to
its satisfaction therefor, shall, proceed to protect or enforce its rights or the rights of such Owners by such
appropriate action, suit, mandamus or other proceedings as it shall deem most effectual to protect and
enforce any such right, at law or in equity, either for the specific performance of any covenant or
agreement contained in the Indenture, or in aid of the execution of any power granted in the Indenture, or
for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in
such Owners under the Indenture or any law; and upon instituting such proceeding, the Trustee shall be
entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged
under the Indenture or the Bonds pending such proceedings.

All rights of action under the Indenture or the Bonds or otherwise may be prosecuted and
enforced by the Trustee without the possession of any of the Bonds or the production thereof in any
proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be
brought in the name of the Trustee for the benefit and protection of all the Owners of such Bonds, subject
to the provisions of the Indenture.

Bondowners’ Direction of Proceedings. Subject to the prior rights of the Credit Entity to direct
proceedings, anything in the Indenture to the contrary notwithstanding, the Owners of a majority in
aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or
concurrent instruments in writing executed and delivered to the Trustee, to direct the method of
conducting all remedial proceedings taken by the Trustee hereunder, provided that such direction shall not
be otherwise than in accordance with law and the provisions of the Indenture, and that the Trustee shall
have the right to decline to follow any such direction which in the opinion of the Trustee would be
unjustly prejudicial to Bondowners not parties to such direction.

Limitation on Bondowners’ Right to Sue. No Owner of any Bond shall have the right to institute
any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy
under the Indenture or any applicable law with respect to such Bond unless (1) such Owner previously
shall have given to the Trustee and the Credit Entity written notice of the occurrence of an Event of
Default; (2) the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the
Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted
or to institute such suit, action or proceeding in its own name; (3) such Owner or said Owners shall have
tendered to the Trustee reasonable indemnity in adequate form against the costs, expenses and liabilities
to be incurred in compliance with such request; and (4) the Trustee shall have refused or omitted to
comply with such request for a period of sixty (60) days after such written request shall have been
received by, and said tender of indemnity shall have been made to, the Trustee, and in every case, the
Credit Entity shall have approved such request so long as the Credit Facility is in effect and the Credit
Entity is not in default thereunder.

Such notification, request, tender of indemnity and refusal or omission are hereby declared, in
every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy hereunder or
under law; it being understood and intended that no one or more Owners of Bonds shall have any right in
any manner whatsoever by his or their action to affect, disturb or prejudice the security of the Indenture or
the rights of any other Owners of Bonds, or to enforce any right under the Indenture or applicable law
with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law
or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the
Indenture and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the
provisions of the Indenture.

C-16
 Absolute Obligation of Authority. Nothing in any other provision of the Indenture, or in the
Bonds, contained, shall affect or impair the obligation of the Authority, which is absolute and
unconditional, to pay the principal of and interest on the Bonds to the respective Owners of the Bonds at
their respective dates of maturity or upon call for redemption, as provided in the Indenture, but only out of
the Revenues and other assets pledged therefor, or affect or impair the right of such Owners, which is also
absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds.

Termination of Proceeding. In case any proceedings taken by the Trustee or any one or more
Bondowners on account of any Event of Default shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Trustee or the Bondowners, then in every such case
the Authority, the Trustee, the Credit Entity and the Bondowners, subject to any determination in such
proceedings, shall be restored to their former positions and rights hereunder, severally and respectively,
and all rights, remedies, powers and duties of the Authority, the Trustee, the Credit Entity and the
Bondowners shall continue as though no such proceedings had been taken.

Remedies Not Exclusive. No remedy in the Indenture conferred upon or reserved to the Trustee
or to the Owners of the Bonds or the Credit Entity is intended to be exclusive of any other remedy or
remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in
addition to any other remedy given hereunder or now or hereafter existing at law or in equity or
otherwise.

No Waiver of Default. No delay or omission of the Trustee, the Credit Entity or of any Owner of
the Bonds to exercise any right or power arising upon the occurrence of any Event of Default shall impair
any such right or power or shall be construed to be a waiver of any such default or an acquiescence
therein; and every power and remedy given by the Indenture to the Trustee, the Credit Entity or to the
Owners of the Bonds may be exercised from time to time and as often as may be deemed expedient.

Rights of Credit Entity. Notwithstanding any other provision of the Indenture, so long as the
Credit Facility is in effect and the Credit Entity is not in default thereunder or any amounts remain owing
to the Credit Entity, the Credit Entity shall be subrogated to the rights of any Owners to the extent that it
has paid the principal or interest represented by the Bonds of such Owners.

Modification or Amendment of Indenture and Lease

Amendments Permitted.

(a) With Consent. After first requesting and obtaining the prior written approval of
the Credit Entity, the Indenture and the rights and obligations of the Owners of the Bonds and the Lease
and the rights and obligations of the parties thereto, may be modified or amended at any time by a
supplement which shall become effective when the written consents of the Owners of at least a majority
in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided
in the Indenture, shall have been filed with the Trustee and Moody’s if the Bonds are rated by Moody’s or
S&P if the bonds are rated by S&P. No such modification or amendment shall (1) extend or have the
effect of extending the fixed maturity of any Bond or reducing the interest rate with respect thereto or
extending the time of payment of interest, or reducing the amount of principal thereof or reducing any
premium payable upon the redemption thereof, without the express consent of the Owner of such Bond,
or (2) reduce or have the effect of reducing the percentage of Bonds required for the affirmative vote or
written consent to an amendment or modification of the Indenture or the Lease, or (3) modify any of the
rights or obligations of the Trustee without its written assent thereto. Any such supplemental agreement
shall become effective as provided in the Indenture.

C-17
 (b) Without Consent. The Indenture and the rights and obligations of the Owners of
the Bonds, and the Lease and the rights and obligations of the parties thereto, may be modified or
amended at any time by a supplemental agreement, without the consent of any such Owners, but with the
written consent of the Credit Entity and only to the extent permitted by law and only (1) to cure, correct
or supplement any ambiguous or defective provision contained in the Indenture or therein, and which
shall not adversely affect the interest of the Owners of the Bonds, (2) to reflect the comments of S&P
and/or Moody’s in order to maintain any applicable rating on the Bonds, or (3) in regard to matters arising
hereunder or thereunder, as the parties to the Indenture or thereto may deem necessary or desirable and
which shall not adversely affect the interest of the Owners of the Bonds. Any such supplemental
agreement shall become effective upon execution and delivery by the parties to the Indenture or thereto as
the case may be and shall be provided to Moody’s, if the Bonds are rated by Moody’s or S&P, if the
Bonds are rated by S&P.

Procedure for Amendment with Written Consent of Bond Owners. The Indenture or the Lease
may be amended by supplemental agreement in the event the consent of the Owners of the Bonds and the
Credit Entity is required pursuant to the Indenture. A copy of such supplemental agreement, together
with a request to the Owners of the Bonds for their consent thereto, shall be mailed first class mail by the
Trustee to the Credit Entity and to each Owner of a Bond at his address as set forth in the Bond
registration books maintained, but failure to receive copies of such supplemental agreement and request
so mailed shall not affect the validity of the supplemental agreement when assented to as provided in the
Indenture.

Such supplemental agreement shall not become effective unless there shall be filed with the
Trustee the written consent of the Owners of at least a majority in aggregate principal amount of the
Bonds then Outstanding (exclusive of Bonds disqualified as provided in the Indenture) and of the Credit
Entity and notices shall have been mailed as provided in the Indenture. Each such consent by the Owners
of the Bonds shall be effective only if accompanied by proof of ownership of the Bonds for which such
consent is given. Any such consent shall be binding upon the Owner of the Bond giving such consent and
on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent
is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation
with the Trustee prior to the date when the supplemental agreement has become effective.

After the Owners of the required percentage of Bonds and the Credit Entity shall have filed their
consents to such supplemental agreement, the Trustee shall mail a notice to the Owners of the Bonds in
the manner provided in the Indenture for the mailing of such supplemental agreement, stating in substance
that such supplemental agreement has been consented to by the Owners of the required percentage of
Bonds and will be effective as provided in the Indenture (but failure to mail copies of said notice shall not
affect the validity of such supplemental agreement or consents thereto). A record, consisting of the
papers required by the Indenture to be filed with the Trustee, shall be proof of the matters therein stated
until the contrary is proved.

Disqualified Bonds. Bonds owned or held by or for the account of the City or the Authority or by
any person directly or indirectly controlled or controlled by, or under direct or indirect common control
with the City or the Authority (except any Bonds held in any pension or retirement fund) shall not be
deemed Outstanding for the purpose of any vote, consent, waiver or other action or any calculation of
Outstanding Bonds provided for in the Indenture, and shall not be entitled to vote upon, consent to, or
take any other action provided for in the Indenture except that for purposes of determining whether the
Trustee shall be protected in relying on such vote, consent, waiver or other action, only Bonds so owned
of which the Trustee has knowledge shall be disqualified.

C-18
 Effect of Supplemental Agreement. From and after the time any supplemental agreement
becomes effective pursuant to the Indenture, the Indenture or the Lease, as the case may be, shall be
deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations
of the parties to the Indenture or thereto and all Owners of Bonds Outstanding and the Credit Entity, as
the case may be, shall thereafter be determined, exercised and enforced hereunder and thereunder subject
in all respects to such modification and amendment, and all the terms and conditions of any supplemental
agreement shall be deemed to be part of the terms and conditions of the Indenture or the Lease, as the
case may be, for any and all purposes.

The Authority or the Trustee may adopt appropriate regulations to require each Owner, before his
consent provided for in the Indenture shall be deemed effective, to reveal if the Bonds as to which such
consent is given are disqualified as provided in the Indenture.

Endorsement or Replacement of Bonds Delivered After Amendments. The Trustee may

determine that Bonds delivered after the effective date of any action taken as provided in the Indenture
shall bear a notation, by endorsement, in form approved by the Trustee, as to such action. In that case,
upon demand of the Owner of any Outstanding Bond at such effective date and presentation of his Bond
for the purpose at the Principal Office, a suitable notation shall be made on such Bond at the cost of the
Authority. The Trustee may determine that new Bonds, so modified as in the opinion of the Trustee is
necessary to conform to such Bond Owners’ action, shall be prepared, executed and delivered. In that
case, upon demand of the Owner of any Bond then Outstanding, such new Bond shall be exchanged in the
Principal Office, without cost to such Owner, for a Bond of the same character then Outstanding, upon
surrender of such Bond at the cost of the Authority.

Amendatory Endorsement of Bonds. The provisions of the Indenture shall not prevent any Bond
Owner from accepting any amendment as to the particular Bonds held by him, provided that due
notification thereof is made on such Bonds.

Consent of Credit Entity Required. Notwithstanding anything in the Indenture to the contrary, no
amendment or supplement to the Indenture or the Lease shall become effective unless first approved by
the Credit Entity, which approval shall not be unreasonably withheld.

Defeasance

Discharge of Indenture. The Bonds may be paid, in whole or in part, by the Authority in any of
the following ways, provided that the Authority also pays or causes to be paid any other sums payable
hereunder by the Authority:

(a) by well and truly paying or causing to be paid the principal of and interest and
redemption premiums, if any, on such Bond, as and when the same become due and payable;

(b) if prior to maturity and having given notice of redemption (which redemption
date shall be the first available redemption date) by irrevocably depositing with the Trustee, in trust, at or
before maturity, an amount of cash which, together with amounts then on deposit in the Lease Payment
Account and available for such purpose, is sufficient to pay in Available Moneys or from the proceeds of
a draw under the Credit Facility all principal of and interest (which shall be calculated at the Maximum
Rate if the Bonds bear interest at a Weekly Rate or Daily Rate) and redemption premiums, if any, on such
Bonds; or

(c) by irrevocably depositing with the Trustee, in trust, noncallable Authorized

Investments described in paragraph (1) or (2) of the definition thereof purchased with Available Moneys,

C-19
or draws under the Credit Facility together with cash, if required, in such amount as will in the opinion of
an independent certified public accountant, together with interest to accrue thereon and moneys then on
deposit in the Lease Payment Account and available for such purpose, together with the interest to accrue
thereon, be fully sufficient to pay and discharge in Available Moneys or draws under the Credit Facility
all principal of and interest (which shall be calculated at the Maximum Rate if the Bonds bear interest at a
Weekly Rate or Daily Rate) and redemption premiums, if any, on such Bond.

If all Outstanding Bonds shall be paid in one or more of the preceding ways, all amounts shall
have been paid to the Credit Entity and all Additional Rental shall have been paid or arrangements
satisfactory to the Trustee shall have been made for the payment of such Additional Rental, then,
notwithstanding that any Bonds shall not have been surrendered for payment, the Indenture and the
pledge of Revenues and other assets made under the Indenture with respect to such Bonds and all
covenants, agreements and other obligations of the Authority and the Trustee under the Indenture with
respect to such Bonds shall cease, terminate, become void and be completely discharged and satisfied,
except only the covenants of the Authority hereunder to comply with the Code and the obligation of the
Trustee to pay or cause to be paid, from Base Rental paid by or on behalf of the City from funds deposited
pursuant to paragraphs (b) and (c) above, to the Owners of the Bonds not so surrendered and paid all sums
due with respect thereto.

Any funds held by the Trustee, at the time of the defeasance of all Outstanding Bonds, which are
not required for payment as required therein, shall be paid over to the Credit Entity to the extent of any
amounts owed under the Reimbursement Agreement, then to the Trustee to pay any amounts owed to the
Trustee under the Indenture, and the remainder, if any, shall be paid over to the City.

During the term of any Credit Facility, prior to or at the time of a deposit pursuant to paragraph
(b) or (c) above, there shall be delivered to the Trustee an opinion of nationally recognized bankruptcy
counsel to the effect that payments to the Owners of Bonds defeased from such Available Moneys or
draws under the Credit Facility on deposit with the Trustee will not constitute avoidable preferences
under Title 11 and Title 9 of the United States Bankruptcy Code upon the occurrence of an Event of
Bankruptcy.

Payment of Bonds After Discharge of Indenture. In any event any Bond shall not be presented
for payment when the principal with respect thereof becomes due, either at maturity, or at the date fixed
for redemption thereof, if moneys sufficient to pay such Bond shall have been deposited in the Credit
Facility Account or if Available Moneys sufficient to pay such Bond shall have been deposited in the
Lease Payment Account, all liability of the Authority to the Owner thereof for payment of such Bond
shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the
Trustee to hold such moneys, without liability for interest thereon, for the benefit of the Owner of such
Bond who shall thereafter be restricted exclusively to such moneys, for any claim of whatever nature on
his or her part under the Indenture or on, or with respect to, said Bond.

Any moneys so deposited with and held by the Trustee not so applied to the payment of Bonds
within two (2) years after the date on which the same were deposited with the Trustee due shall be paid by
the Trustee to the City. Thereafter, Owners shall be entitled to look only to the City for payment, and
then only to the extent of the amount so disbursed by the Trustee. The City shall not be liable for any
interest on the sums paid to it and shall not be regarded as a trustee or trustees of such money. Any
moneys held shall be held uninvested.

C-20
 LEASE AGREEMENT

Definitions.

“Additional Rental” means all amounts payable by the City pursuant to the Lease.

“Authority” means the Victorville Joint Powers Financing Authority, a joint powers authority
duly created and lawfully existing under the Constitution and laws of the State.

“Base Rental” means all amounts payable by the City as Base Rental pursuant to the Lease.

“City” means the City of Victorville, a municipal corporation duly organized and existing under
the Constitution and laws of the State.

“Cogeneration Project” means the cogeneration power plant and related facilities being financed
with the proceeds of the Bonds.

“Cogeneration Project Surplus Revenues” means the net operating revenues of the Cogeneration
Project determined in accordance with generally accepted accounting principles less amounts set aside for
capital improvement projects and operating reserves in such amounts as determined by the City Council.

“Credit Entity” means Fortis Bank S.A./N.V., acting through its New York Branch, as the issuer
of the Credit Facility being delivered on the Closing Date with respect to the Bonds and thereafter the
issuer of any Alternate Credit Facility delivered under the Indenture in effect from time to time.

“Hazardous Substances” means any substances, wastes, pollutants or contaminants now or

hereafter included in such (or any similar) term under any federal, state or local statute, regulation,
ordinance or code now existing or hereafter enacted or amended.

“Indenture” means that certain Indenture dated as of May 1, 2007, by and between the Authority
and The Bank of New York Trust Company, N.A., as originally executed and entered into and as it may
from time to time be amended or supplemented in accordance therewith.

“Insurance Consultant” means an individual or firm employed by the City as an independent

insurance consultant, experienced in the field of risk management.

“Lease” means the Lease Agreement dated as of May 1, 2007, by and between the City and the
Authority, as originally executed and as it may from time to time be amended or supplemented in
accordance herewith.

“Leased Property” means the land together with any improvements thereon, as described in
Exhibit A to the Lease.

“Net Proceeds” means any insurance proceeds or condemnation award paid with respect to the
Leased Property remaining after payment therefrom of all expenses incurred in the collection thereof.

“Opinion of Counsel” means a written opinion of counsel of recognized national standing in the
field of law relating to municipal bonds, appointed and paid by the City.

“Permitted Encumbrances” means as of any particular time: (i) liens for general ad valorem
taxes and assessments, if any, not then delinquent, or which the City may, pursuant to the Lease, permit to
remain unpaid; (ii) the Lease and the Site Lease; (iii) the Assignment Agreement; (iv) any right or claim

C-21
of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by
law after the date of the Lease; (v) easements, rights of way, mineral rights, drilling rights and other
rights, reservations, covenants, conditions or restrictions which exist of record as of the date of initial
issuance of the Bonds and which the City certifies in writing will not materially impair the beneficial use
and occupancy of the Leased Property by the City; and (vi) easements, rights of way, mineral rights,
drilling rights and other rights, reservations, covenants, conditions or restrictions established following
the date of recordation of the Lease and to which the Authority, the City and the Credit Entity consent in
writing.

“Project” means the cogeneration power plant and related facilities to be constructed within the
City.

“Removal” means the release of all or a portion of the Leased Property from the leasehold as
provided in the Lease.

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

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

“Trustee” means The Bank of New York Trust Company, N.A., a national banking association
existing under and by virtue of the laws of the United States of America, the trustee acting in its capacity
as such under the Indenture, or any successor as therein provided.

Lease of the Leased Property. The Authority hereby leases to the City, and the City hereby rents
and hires from the Authority, the Leased Property on the conditions and terms set forth in the Lease. The
City hereby agrees and covenants that during the term of the Lease, except as provided in the Lease, it
will use the Leased Property for public purposes so as to afford the public the benefits contemplated
hereby and to permit the Authority to carry out its agreements and covenants contained in the Lease and
in the Indenture, and the City hereby further agrees and covenants that during the term of the Lease that it
will not abandon or vacate the Leased Property.

Quiet Enjoyment. The parties mutually covenant that the City, so long as it observes and
performs the agreements, conditions, covenants and terms required to be observed or performed by it
contained in the Lease and is not in default hereunder, shall at all times during the term of the Lease
peaceably and quietly have, hold and enjoy the Leased Property without suit, trouble or hindrance from
the Authority.

Right of Entry and Inspection. The Authority shall have the right to enter the Leased Property
and inspect the Leased Property during reasonable business hours (and in emergencies at all times) for
any purpose connected with the Authority’s rights or obligations hereunder and for all other lawful
purposes.

Prohibition Against Encumbrance or Sale. The City and the Authority will not create or suffer to
be created any mortgage, pledge, lien, charge or encumbrance upon the Leased Property, except Permitted
Encumbrances. The City and the Authority will not sell or otherwise dispose of the Leased Property or
any property essential to the proper operation of the Leased Property, except as otherwise provided in the
Lease.

Liens. In the event the City shall at any time during the term of the Lease cause any
improvements to the Leased Property to be constructed or materials to be supplied in or upon or attached

C-22
to the Leased Property, the City shall pay or cause to be paid when due all sums of money that may
become due or purporting to be due for any labor, services, materials, supplies or equipment furnished or
alleged to have been furnished to or for the City in, upon, about or relating to the Leased Property and
shall keep the Leased Property free of any and all liens (except for Permitted Encumbrances) against the
Leased Property or the Authority’s interest therein. In the event any such lien attaches to the Leased
Property, the City shall cause such lien to be fully discharged and released at the time the performance of
any obligation secured by any such lien matures or becomes due. If any such lien shall be reduced to
final judgment and such judgment or any process as may be issued for the enforcement thereof is not
promptly stayed, or if so stayed and such stay thereafter expires, the City shall forthwith pay and
discharge or cause to be paid and discharged such judgment. The City shall, to the maximum extent
permitted by law, indemnify and hold the Authority, the Trustee and the Credit Entity and their respective
directors, officers and employees harmless from, and defend each of them against, any claim, demand,
loss, damage, liability or expense (including attorneys’ fees) as a result of any such lien or claim of lien
against the Leased Property or the Authority’s interest therein.

Substitution or Removal of Leased Property.

(a) The City may amend the Lease to substitute additional real property and/or
improvements (the “Substituted Property”) for existing Leased Property, or to remove real property or
improvements from the definition of Leased Property, upon compliance with all of the conditions set forth
in subsection (b). After a Substitution or Removal, the part of the Leased Property for which the
Substitution or Removal has been effected shall be released from the leasehold hereunder and all right,
title and interest in and to such Leased Property shall vest in the City. In connection with such release of
part of the Leased Property, the Authority shall execute such conveyances, deeds, and other documents,
and shall take or cause to be taken all actions that are necessary to provide that such released Leased
Property constitutes a valid legal parcel, the ownership of which is recordable in the real property records
of the County of San Bernardino for which a title insurance policy may be legally obtained, as may be
necessary to effect such vesting of record.

(b) No Substitution or Removal, except as provided below, shall take place

hereunder until the City delivers to the Authority, the Credit Entity and the Trustee the following:

(1) A Certificate of the City containing, in the event of a Removal, a

description of all or part of the Leased Property to be released and, in the event of a Substitution,
a description of the Substituted Property to be substituted in its place and a certification that the
remaining useful life of the Substituted Property is not less than the remaining term of the Lease;

(2) A Certificate of the City stating that the fair rental value of the Leased
Property after a Substitution or Removal, in each year during the remaining term of the Lease is
at least equal to the Base Rental payments in each such year attributable to the Leased Property
prior to said Substitution or Removal, as determined by the City on the basis of evidence
satisfactory to Bond Counsel and the Credit Entity of the fair rental value of the Leased Property
after said Substitution or Removal;

(3) An Opinion of Counsel to the effect that the amendments to the Lease
contemplating Substitution or Removal have been duly authorized, executed and delivered and
constitute the valid and binding obligations of the City and the Authority enforceable in
accordance with their terms;

(4) In the event of a Substitution, a policy of title insurance in an amount

equal to the same proportion of the principal amount as the Base Rental payments for the

C-23
 Substituted Property bears to the total Base Rental payments, insuring the City’s leasehold
interest in the Substituted Property (except any portion thereof which is not real property) subject
to Permitted Encumbrances, together with an endorsement thereto making said policy payable to
the Trustee for the benefit of the Owners of the Bonds and the Credit Entity;

(5) In the event of a Substitution, an opinion of the City Attorney of the City
to the effect that the exceptions, if any, contained in the title insurance policy referred to in (4)
above do not interfere with the beneficial use and occupancy of the Substituted Property
described in such policy by the City for the purposes of leasing or using the Substituted Property;

(6) An Opinion of Counsel that the Substitution or Removal does not cause
the interest on the Bonds to fail to be excluded from the gross income of the Owners thereof for
federal income tax purposes;

(7) Evidence that the City has complied with the covenants contained in the
Lease with respect to the Substituted Property;

(8) Evidence that the City has delivered to any rating agency then rating the
Bonds copies of the certificates and appraisal described in clauses (1) and (2) above, and that the
rating agency has indicated that such substitution, in and of itself, will not result in a lower rating
on the Bonds; and

(9) Written Consent of the Credit Entity.

(c) Notwithstanding the foregoing, upon completion of the City Hall and the
issuance of a Certificate of Occupancy, the Authority and the City may release from the lien hereof and of
any site leases thereon any of the components of the Leased Property listed on Exhibit A to the Lease
whose combined value (using such values as set forth in Exhibit A) is not greater than the difference
between the new insured value of the City Hall and $34,775,000.

(d) Additionally, upon completion of the Cogeneration Project, the Authority and the
City may release the Leased Property shown on Exhibit A to the Lease in whole or in part from the lien
hereof and of any site leases thereon and substitute therefor the Cogeneration Project upon satisfaction of
all of the requirements of this Section.

(e) The City may grant or vacate, or cause the granting or vacating of, any easement
burdening or benefiting the Leased Property, provided that the City shall satisfy the requirements of
subsections (b)(1) through (b)(8) (such requirements understood to pertain to the granting or vacating of
easements instead of the addition or removal of property), which are hereby declared to be conditions
precedent to such grant or vacation. The City shall not be entitled to any reduction, diminution, extension
or other modification of the Base Rental or Additional Rental payments whatsoever as a result of such
granting and/or vacating of easements.

Changes to the Leased Property. Subject to the Lease and with the prior written consent of the
Credit Entity, the City shall, at its own expense, have the right to remodel the Leased Property or to make
additions, modifications and improvements to the Leased Property. All such additions, modifications and
improvements shall thereafter comprise part of the Leased Property and be subject to the provisions of the
Lease. Such additions, modifications and improvements shall not in any way damage the Leased
Property or cause it to be used for purposes other than those authorized under the provisions of state and
federal law; and the Leased Property, upon completion of any additions, modifications and improvements

C-24
made pursuant to the Lease, shall be of a value which is at least equal to the value of the Leased Property
immediately prior to the making of such additions, modifications and improvements.

Title to the Leased Property. During the term of the Lease, title to the Leased Property shall
remain in the City.

Acquisition of Additional Property. The City covenants to use its best effort to acquire such
additional real property as may be necessary or appropriate for the operation of the Leased Property, and,
by executing appropriate amendments, to lease such property to the Authority pursuant to an appropriate
ground lease and to sublease such property from the Authority pursuant to the Lease.

Commencement of the Lease. The term of the Lease shall commence as of May 8, 2007 or the
date the Lease or a memorandum thereof is recorded, whichever is later, and shall end on May 1, 2040,
unless such term is sooner terminated or is extended as provided in the Lease.

If on May 1, 2040, the Indenture shall not be discharged by its terms or if the rental
payable hereunder shall have been abated at any time and for any reason or any amounts remain owing to
the Credit Entity under the Reimbursement Agreement, then the term of the Lease shall be extended until
ten (10) days after all Bonds shall be fully paid and all amounts owing to the Credit Entity under the
Reimbursement Agreement have been paid. If prior to May 1, 2050, the Indenture shall be discharged by
its terms, the term of the Lease shall thereupon
end.

Termination of the Lease. The Lease will terminate upon the earlier of either of the following
events:

(a) a default by the City and the Authority’s election to terminate the Lease ; or

(b) the payment by the City of all Base Rental payments, Additional Rental and all
other amounts authorized or required to be paid by it hereunder.

Tax Covenants. The City shall not use, permit the use of, or omit to use Gross Proceeds or any
other amounts (or any property the acquisition, construction or improvement of which is to be financed
directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, would cause
the interest on any of the Bonds to fail to be excluded pursuant to section 103(a) of the Code from the
gross income of the owners thereof for federal income tax purposes.

Rental Payments. The City agrees to pay to the Authority, its successors or assigns, without
deduction or offset of any kind, as rental for the use and occupancy of the Leased Property, the following
amounts at the following times:

(a) Base Rental. The City shall pay to the Authority as Base Rental hereunder rental
payments with interest and principal components in accordance with the Base Rental Payment Schedule
set forth in Exhibit B attached to the Lease. Base Rental Payments shall be made by the City on the
twenty-fifth day of the month immediately preceding each Bond Payment Date (the “Lease Payment
Date”), which shall be sufficient in both time and amount, taking into consideration any Cogeneration
Project Surplus Revenues deposited in the Lease Payment Account held by the Trustee under the
Indenture, to pay when due the principal of the Bonds, as set forth in Exhibit B, as such Exhibit B may be
amended and supplemented from time to time, together with interest on the Bonds to be calculated by the
Trustee as provided in the Indenture. The interest components of the Base Rental payable by the City

C-25
hereunder shall be paid by the City as and shall constitute interest paid on the principal components of the
Base Rental payable by the City hereunder.

Payment of Base Rental and Additional Rental for each rental payment period during the term of
the Lease shall constitute the total rental for such rental payment period, and shall be paid by the City in
each rental payment period for and in consideration of the right to the use and occupancy, and the
continued quiet enjoyment, of the Leased Property during the rental payment period for which such rental
is paid.

The City shall provide written notice to the Trustee, the Credit Entity and the Authority at least
five (5) Business Days prior to any Lease Payment Date upon which the City expects to be unable to
appropriate and pay the Base Rental payment due on such Lease Payment Date, informing the Trustee
and the Authority of such inability to appropriate and pay.

If the term of the Lease shall have been extended, Base Rental payments shall continue to be due
on Lease Payment Dates, and payable as described in the Lease, continuing to and including the date of
termination of the Lease. Upon such extension of the Lease, the principal and interest components of the
Base Rental shall be established so that the principal components will in the aggregate be sufficient to pay
all unpaid principal components with interest components sufficient to pay all unpaid interest components
plus interest on the extended principal components at a rate equal to the rate of interest on the principal
component of the Base Rental payable on May 1 of the year after the date of such extension.

The parties to the Lease have agreed and determined that the Base Rental payments shown in the
Base Rental Payment Schedule set forth in Exhibit B represent the fair market value of the Leased
Property. In making such determination, consideration has been given to the costs of the Leased
Property, the fair market value thereof, the other obligations of the parties hereunder, the uses and
purposes which may be served by the Leased Property and the benefits therefrom which will accrue to the
City, its residents and the general public.

Each installment of Base Rental and Additional Rental payable hereunder shall be paid in lawful
money of the United States of America to or upon the order of the Authority at the office of the Trustee.
To the extent permitted by law, any such installment of Base Rental or Additional Rental accruing
hereunder which shall not be paid when due shall bear interest at the rate equal to the interest rate
applicable to the delinquent installment of Base Rental or, in the case of Additional Rental (other than
amounts owing to the Credit Entity under the Reimbursement Agreement), the interest rate on the Bonds
on the date the Additional Rental was not paid and in the case of amounts owing to the Credit Entity
under the Reimbursement Agreement, at the rate of interest set forth in the Reimbursement Agreement.
All such delinquent installments of Base Rental and the interest thereon shall be deposited in the Lease
Payment Account of the Debt Service Fund. All such delinquent installments of Additional Rental and
interest thereon shall be paid to the order of the Authority, the Trustee or the Credit Entity.
Notwithstanding any dispute between the Authority, or the Trustee and the City, the City shall make all
rental payments when due hereunder without deduction or offset of any kind and shall not withhold any
rental payments pending the final resolution of such dispute.

(b) Additional Rent. The City shall pay to the Authority as Additional Rental
hereunder such amounts in each year as shall be required by the Authority for the payment in full of
payments to the Credit Entity required by the Reimbursement Agreement (other than reimbursement for
draws on the Credit Facility which are payable from Base Rental), all costs and expenses incurred by the
Authority, and the Trustee in connection with the execution, performance or enforcement of the Lease or
any assignment of the Lease, of the Indenture and of the lease of the Leased Property to the City,
including but not limited to payment of all fees, costs and expenses and all administrative costs of the

C-26
Authority, and the Trustee in connection with the Leased Property, the Lease, and the Indenture and all
taxes, assessments and governmental charges of any nature whatsoever hereafter levied or imposed by
any governmental authority against the Authority, the Leased Property, or the rentals and the other
payments required to be made by the City hereunder. Such Additional Rental shall be billed to the City
by the Authority, or the Trustee from time to time, together with a statement certifying that the amount so
billed has been paid by the Authority, or the Trustee for one or more of the items above described, or that
such amount is then payable by the Authority, or the Trustee for one or more of such items, and all
amounts so billed shall be due and payable by the City within thirty (30) days after receipt of each bill
therefor by the City.

Annual Budgets; Reporting Requirements. The City covenants to take action as may be
necessary to include all such rental payments due hereunder in its annual budgets and to make the
necessary annual appropriations for all such rental payments. For this budgetary purpose, and while the
Bonds bear interest at the Weekly Rate or the Daily Rate, the City shall assume an interest component for
any Fiscal Year equal to the average interest rate borne by the Bonds during the 12 months preceding the
time of consideration, plus 200 basis points. The City shall furnish to the Trustee at least 15 days before
final adoption of the proposed budget for each Fiscal Year a certificate stating that it has included in the
proposed budget all Base Rental and Additional Rental due hereunder in the Fiscal Year covered by such
proposed budget and following adoption of the final budget a certificate stating that the Base Rental and
Additional Rental was included in the final budget as adopted. The City shall file with the Trustee the
certificate regarding adoption of the final budget by July 1 of each year unless the City is permitted by
applicable law to adopt its final budget after such date, and has in fact not adopted its final budget by July
1, in which event, the City will file with the Trustee by July 1 a certificate stating the specified later date
by which the City may adopt its final budget under applicable law and will file with the Trustee by such
specified later date such certificate following such adoption.

To the extent that the amount of any such payment becomes known after the adoption of the
annual budget, such amounts shall be included and maintained in such budget as amended. The City
covenants to take such action as is necessary to include such amounts in a supplemental budget of the
City. The covenants on the part of the City contained in the Lease shall be deemed to be and shall be
construed to be ministerial duties imposed by law and it shall be the ministerial duty of each and every
public official of the City to take such action and do such things as are required by law in the performance
of the official duty of such officials to enable the City to carry out and perform the covenants and
agreements in the Lease agreed to be carried out and performed by the City.

The obligation of the City to pay Base Rental and Additional Rental hereunder shall constitute a
current expense of the City and shall not in any way be construed to be a debt of the City, or the State, or
any political subdivision thereof, in contravention of any applicable constitutional or statutory limitation
or requirements concerning the creation of indebtedness by the City, the State, or any political subdivision
thereof, nor shall anything contained in the Lease constitute a pledge of general revenues, funds or
moneys of the City beyond the Fiscal Year for which the City has appropriated funds to pay Base Rental
and Additional Rental hereunder or an obligation of the City for which the City is obligated to levy or
pledge any form of taxation or for which the City has levied or pledged any form of taxation.

Application of Rental Payments. All rental payments received shall be applied first to the interest
components of the Base Rental payments due hereunder, then to the principal components (including any
prepayment premium components) of the Base Rental payments due hereunder and thereafter to all
Additional Rental due hereunder, but no such application of any payments which are less than the total
rental due and owing shall be deemed a waiver of any default hereunder.

C-27
 Rental Abatement. Except to the extent (i) amounts held by the Trustee in the Debt Service Fund,
(ii) amounts received in respect of rental interruption insurance, and (iii) amounts, if any, otherwise
legally available to the Trustee for payments in respect of the Bonds, during any period in which, by
reason of material damage, destruction, title defect or condemnation there is substantial interference with
the use and possession by the City of any portion of the Leased Property, rental payments due hereunder
with respect to such portion of the Leased Property shall be abated proportionately by an amount such
that the portion of Base Rental remaining unabated represents the fair rental value of the remaining
portion of the Leased Property, as calculated by the City and set forth in writing to the Authority, the
Trustee and the Credit Entity. Any abatement of rental payments pursuant to the Lease shall not be
considered an event of default as defined in the Lease. The City waives the benefits of Civil Code
Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease by virtue of any
such interference and the Lease shall continue in full force and effect. Such abatement shall continue for
the period commencing with the date of such damage, destruction, title defect or condemnation and
ending with the substantial completion of the work of repair or replacement of the portions of the Leased
Property so damaged, destroyed, defective or condemned.

In the event that rental is abated, in whole or in part, due to damage, destruction, title defect or
condemnation of any part of the Leased Property and the City is unable to repair, replace or rebuild the
Leased Property from the proceeds of insurance, if any, the City agrees to apply for and obtain, if
reasonably available, any appropriate state and/or federal disaster relief in order to obtain funds to repair,
replace or rebuild the Leased Property.

Prepayment of Rental Payments.

(a) Prepayment from Net Proceeds. The City may prepay, from Net Proceeds
received by it, all or any portion of the components of Base Rental relating to any portion of the Leased
Property then unpaid, in whole on any date, or in part on any Bond Payment Date in Authorized
Denominations.

(b) Optional Prepayment. Subject to the terms and conditions of the Lease, the
Authority hereby grants an option to the City to prepay in whole or in part the principal components of
Base Rental payments relating to the Leased Property, to the extent, on the dates and at the redemption
prices provided in the Indenture as such provision may be amended from time to time with respect to
conversion to a Fixed Rate. The City shall execute said option by giving written notice to the Trustee
thereof at least 45 days (or such shorter period as approved by the Trustee) prior to the date of redemption
of Bonds from such prepayment and depositing with said notice cash in the minimum amount of (1)
accrued interest on the principal component of Base Rental payments to be prepaid to the date of
redemption of Bonds with the proceeds of such prepayment, plus (2) the principal component of any Base
Rental payments to be prepaid, plus (3) the applicable redemption premium described in the Indenture.

Obligation to Make Rental Payments. The agreements and covenants on the part of the City
contained in the Lease shall be deemed to be and shall be construed to be duties imposed by law and it
shall be the duty of each and every public official of the City to take such action and do such things as are
required by law in the performance of the official duty of such officials to enable the City to carry out and
perform the agreements and covenants contained in the Lease agreed to be carried out and performed by
the City.

THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS DOES NOT
CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO
LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR
PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS NOR THE OBLIGATION TO

C-28
MAKE SUCH BASE RENTAL PAYMENTS CONSTITUTES AN INDEBTEDNESS OF THE CITY,
THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE
MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR
RESTRICTION.

Maintenance of the Leased Property by the City. The City agrees that, at all times during the
term of the Lease, it will, at its own cost and expense, maintain, preserve and keep the Leased Property
and every portion thereof in good repair, working order and condition and that it will from time to time
make or cause to be made all necessary and proper repairs, replacements and renewals. The Authority
shall have no responsibility in any of these matters or for the making of additions or improvements to the
Leased Property.

Taxes, Other Governmental Charges and Utility Charges. The parties to the Lease contemplate
that the Leased Property will be used for public purposes by the City and, therefore, that the Leased
Property will be exempt from all taxes presently assessed and levied with respect to real and personal
property, respectively. In the event that the use, possession or acquisition by the City or the Authority of
the Leased Property is found to be subject to taxation in any form, the City will pay during the term of the
Lease, as the same respectively become due, all taxes and governmental charges of any kind whatsoever
that may at any time be lawfully assessed or levied against or with respect to the Leased Property and any
other property acquired by the City in substitution for, as a renewal or replacement of, or a modification,
improvement or addition to the Leased Property, as well as all gas, water, steam, electricity, heat, power,
air conditioning, telephone, utility and other charges incurred in the operation, maintenance, use,
occupancy and upkeep of the Leased Property; provided, that with respect to any governmental charges or
taxes that may lawfully be paid in installments over a period of years, the City shall be obligated to pay
only such installments as are accrued during such time as the Lease is in effect.

Insurance. The City shall procure or cause to be procured and maintain or case to be maintained
through the term of the Lease for the Leased Property insurance against the following risks in the
following respective amounts:

(1) insurance against loss or damage to the Leased Property or such structure
or item of furniture or equipment caused by fire or lightning, with an extended coverage
endorsement and vandalism and malicious mischief insurance, which such extended coverage
insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot,
aircraft, vehicle damage, smoke and such other hazards as are normally covered by such
insurance. The insurance required by this paragraph shall be in an amount equal to the
replacement cost (without deduction for depreciation) of improvements located or to be located
on the Leased Property but shall be not less than the principal amount of the Outstanding Bonds
(except that such insurance may be subject to deductible clauses of not to exceed ten percent
(10%) of the amount of any one loss);

(2) rental interruption insurance against the Authority’s loss of income due
to events giving rise to the right of abatement on the part of the City under the Lease in an amount
sufficient to pay the total Base Rental payments attributable to the Leased Property for a 24
month period (measured by the Base Rental payments for the 24 months following the month in
which the insurance commences and assuming for such purpose that interest components will be
payable at a fixed rate of 12% per annum or such lesser amount as may be agreed upon by the
Credit Entity); provided, that the amount of such insurance need not exceed the total remaining
Base Rental payments attributable to the Leased Property;

C-29
 (3) workers’ compensation insurance covering all employees working in or
on the Leased Property, in the same amount and type as other workers’ compensation insurance
maintained by the City for similar employees doing similar work; and the City shall also require
any other person or entity working in or on the Leased Property to carry the foregoing amount of
workers’ compensation insurance;

(4) a standard comprehensive public entity liability insurance policy or

policies in protection of the City, the Authority, and their respective directors, officers and
employees and the Trustee, and the Credit Entity as additional insured, indemnifying and
defending such parties against all direct or contingent loss or liability for damages for personal
injury, death or property damage occasioned by reason of the possession, operation or use of the
Leased Property. Such public liability and property damage insurance shall be in the form of a
single limit policy in the amount of not less than three million dollars ($3,000,000), subject to a
deductible clause of not to exceed $250,000, covering all such risks; and

(5) a CLTA standard coverage leasehold policy of title insurance on the

Leased Property in an amount at least equal to the initial aggregate amount of the principal
amount of Base Rental payments issued by a company of recognized standing duly authorized to
issue the same. The title policy or policies shall insure the City’s leasehold estate hereunder with
respect to the Leased Property, subject only to Permitted Encumbrances together with an
endorsement thereto making said policy payable to the Trustee for the benefit of the Owners of
the Bonds and the Credit Entity.

Insurance coverage required by paragraphs (1), (2), (3) and (4) may be maintained as part of or in
conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in
part in the form of insurance maintained through a joint exercise of powers agency created for such
purpose or other program providing pooled insurance.

Notwithstanding the above provisions, as an alternative to providing the insurance required by

paragraphs (1), (3) and (4) above, with the prior written consent of the Credit Entity, the City may provide
a self-insurance method or plan of protection. Any such self-insurance maintained by the City pursuant to
the foregoing sections, shall be similar in nature and scope to self-insurance programs maintained by
other California cities of comparable size and operations, and shall be reviewed annually by an Insurance
Consultant.

Any insurance policy issued pursuant to the Lease shall be so written or endorsed as to make
losses, if any, payable to the City, the Authority, the Credit Entity and the Trustee as their respective
interests may appear and the net proceeds of the insurance required in the Lease shall be applied as
provided in the Lease. The net proceeds, if any, of the insurance policy described in the Lease shall be
payable to the Trustee and deposited in the Debt Service Fund. Each insurance policy shall contain a
provision to the effect that the insurance company shall not cancel the policy or modify it materially and
adversely to the interests of the Authority, the Credit Entity or the Trustee without first giving written
notice thereof to the Authority, the Credit Entity and the Trustee at least sixty (60) days in advance of
such intended cancellation or modification; provided, that the Trustee shall not be responsible for the
sufficiency of any insurance required in the Lease and shall be fully protected in accepting payment on
account of such insurance or any adjustments, compromise or settlement of any loss agreed to by it.

The City shall file a certificate with the Trustee and the Credit Entity not later than September 1
of each year certifying that the insurance required is in full force and effect and that the Trustee and the
Credit Entity are named as loss payees and additional insureds on each insurance policy which the Lease
requires to be so endorsed.

C-30
 Notwithstanding the generality of the foregoing, the City shall not be required to maintain or
cause to be maintained more insurance than is specifically referred to above or any policies of insurance
other than standard policies of insurance with standard deductibles offered by reputable insurers at a
reasonable cost on the open market.

Advances. In the event the City shall fail to maintain the full insurance coverage required hereby
or shall fail to keep the Leased Property in good repair and operating condition, the Authority may (but
shall be under no obligation to) purchase the required policies of insurance and pay the premiums on the
same or may make such repairs or replacements as are necessary and provide for payment thereof; and all
amounts so advanced therefor by the Authority shall become Additional Rental, which amounts the City
agrees to pay within thirty (30) days of a written request therefor, together with interest thereon at the
maximum rate allowed by law.

Damage, Destruction, Title Defect and Condemnation; Use of Net Proceeds. If prior to the
termination of the term of the Lease (a) the Leased Property or any portion thereof is destroyed (in whole
or in part) or is damaged by fire or other casualty; or (b) title to, or the temporary use of, the Leased
Property or any portion thereof or the estate of the City or the Authority in the Leased Property or any
portion thereof is defective or shall be taken under the exercise of the power of eminent domain by any
governmental body or by any person or firm or corporation acting under governmental authority, then the
City shall, as expeditiously as possible, continuously and diligently cause the repair or replacement
thereof (unless the City elects not to repair or replace), and the City and the Authority will cause the Net
Proceeds remaining after such work has been completed to be paid to the City; provided, that the City, at
its option with the prior written consent of the Credit Entity and provided that the proceeds of such
insurance or condemnation award together with any other moneys then available for the purpose are at
least sufficient to prepay aggregate annual amounts of principal and interest on any Outstanding Bonds
attributable to the Base Rental payments with respect to that portion of the Leased Property so destroyed,
damaged, defective or condemned (determined by reference to the proportion which the fair rental value
of the destroyed, damaged, defective or condemned portion thereof bears to the fair rental value of the
entire Leased Property), may elect not to repair, reconstruct or replace the damaged, destroyed, defective
or condemned portion of the Leased Property and thereupon shall cause said Net Proceeds to be used for
the redemption of Outstanding Bonds pursuant to the provisions of the Indenture.

In the event that the Net Proceeds, if any, are insufficient either to (i) repair, rebuild or replace the
Leased Property so that the fair rental value of the Leased Property would be at least equal to the Base
Rental payments or (ii) to prepay the Outstanding Bonds, both as provided in the preceding paragraph,
then the City may, in its sole discretion, budget and appropriate an amount necessary to effect such repair,
rebuilding or replacement or prepayment; provided that the failure of the City to so budget and/or
appropriate shall not be a breach of or default under the Lease.
Assignment by Authority. The parties understand that certain of the rights of the Authority, as
assignee hereunder, will be assigned to the Trustee pursuant to the Assignment Agreement, and
accordingly the City agrees to make all payments due hereunder to the Trustee, notwithstanding any
claim, defense, setoff or counterclaim whatsoever (whether arising from a breach of the Lease or
otherwise) that the City may from time to time have against the Authority or the Trustee. The City agrees
to execute all documents, including notices of assignment or financing statements which may be
reasonably requested by the Authority or the Trustee to protect their interests in the Leased Property
during the term of the Lease.

Assignment by City and Sublease. The Lease and the interest of the City in the Leased Property
may not be assigned or encumbered by the City except with the written consent of the Credit Entity and
except as provided in the Lease. The City may sublease all or any portion of the Leased Property in

C-31
connection with the issuance by the Authority or additional bonds for the purpose of completing and/or
making improvements to the Project. The City shall at all times remain liable for the performance of the
covenants and conditions on its part to be performed under the Lease. Nothing contained in the Lease
shall be construed to relieve the City from its obligation to pay Base Rental and Additional Rental as
provided in the Lease or to relieve the City from any other obligations contained in the Lease.

Indemnification. The City shall, to the full extent then permitted by law, indemnify, protect, hold
harmless, save and keep harmless the Authority, the Trustee, and their respective directors, officers,
employees, attorneys, consultants, receivers and agents from and against any and all liability, obligations,
losses, claims and damages whatsoever, regardless of the cause thereof, and expenses in connection
therewith, including, without limitation, counsel fees and expenses, penalties and interest arising out of or
as the result of the entering into of the Lease or the Indenture, or any accident in connection with the
operation, use, condition or possession of the Leased Property or any portion thereof resulting in damage
to property or injury to or death to any person including, without limitation, any claim alleging latent and
other defects, whether or not discoverable by the City or the Authority; any claim for patent, trademark or
copyright infringement, any claim arising out of strict liability in tort, and any claim arising out of the use,
presence, storage, disposal or release of any Hazardous Substances on or about the Leased Property. The
indemnification arising under the Lease shall continue in full force and effect notwithstanding the full
payment of all obligations hereunder or the termination of the Lease for any reason. The City and the
Authority mutually agree to promptly give notice to each other of any claim or liability hereby
indemnified against following either’s learning thereof.

Default.

(a) The following events shall be events of default under the Lease:

(i) the City shall fail to pay any item of Additional Rental as and when the
same shall become due and payable pursuant to the Lease; or

(ii) the City shall fail to deposit with the Trustee any Base Rental payment
required to be so deposited by the close of business on the day such deposit is required pursuant
to the Lease, provided, that failure to deposit any Base Rental payments abated pursuant to the
Lease shall not constitute an event of default;

(iii) the City shall breach any other terms, covenants or conditions contained
in the Lease, and shall fail to remedy any such breach with all reasonable dispatch within a period
of thirty (30) days after written notice thereof from the Authority, the Trustee or the Credit Entity
to the City; provided, however, that if the failure stated in the notice cannot be corrected within
such period, then the Authority shall not unreasonably withhold its consent to an extension of
such time if corrective action is instituted by the City within such period and is diligently pursued
until the default is corrected.

(b) In addition to any default resulting from breach by the City of any agreement,
condition, covenant or term of the Lease, if (1) the City’s interest in the Lease or any part thereof be
assigned, sublet or transferred without the written consent of the Authority and the Credit Entity, either
voluntarily or by operation of law; or (2) the City or any assignee shall file any petition or institute any
proceedings under any act or acts, state or federal, dealing with or relating to the subject of bankruptcy or
insolvency or under any amendment of such act or acts, either as a bankrupt or as an insolvent or as a
debtor or in any similar capacity, wherein or whereby the City asks or seeks or prays to be adjudicated a
bankrupt, or is to be discharged from any or all of its debts or obligations, or offers to its creditors to
effect a composition or extension of time to pay its debts, or asks, seeks or prays for a reorganization or to

C-32
effect a plan of reorganization or for a readjustment of its debts or for any other similar relief, or if the
City shall make a general or any assignment for the benefit of its creditors; or (3) the City shall abandon
or vacate the Leased Property or any portion thereof; then in each and every such case the City shall be
deemed to be in default hereunder.

Upon the happening of any of the events specified in subsection (a) or (b) (in either case an
“Event of Default”), then it shall be lawful for the Authority to exercise any and all remedies available or
granted to it pursuant to law or hereunder. Upon the breach of any agreement, condition, covenant or
term contained in the Lease required to be observed or performed by the City, the Authority may, with the
consent of the Credit Entity, or at the direction of the Credit Entity, shall exercise any and all rights of
entry upon or repossession of the Leased Property, and also, at its option, with or without such entry,
may, with the consent of the Credit Entity, or at the direction of the Credit Entity, shall terminate the
Lease; provided, that no termination shall be effected either by operation of law or acts of the parties to
the Lease except upon express written notice from the Authority to the City terminating the Lease, as
provided below. In the event of such default and notwithstanding any entry by the Authority, the
Authority may at any time thereafter (with or without notice and demand and without limiting any other
rights or remedies the Authority may have):

(1) Maintain the Lease in full force and effect and recover rent and other
monetary charges as they become due without terminating the City’s right to possession of the
Lease Property, regardless of whether or not the City has abandoned the Leased Property. In the
event the Authority elects not to terminate the Lease, it shall have the right and the City hereby
irrevocably appoints the Authority as its agent and attorney-in-fact for such purpose to attempt to
relet the Lease Property at such rent, upon such conditions and for such term, so long as the
Trustee obtains an Opinion of Counsel that the tax-exempt status of the interest components of
Base Rental payments will be preserved, and to do all other acts to maintain or preserve the
Leased Property, including removal of persons or property therefrom or taking possession
thereof, as the Authority deems desirable or necessary, and the City hereby waives any and all
claims for any damages that may result to the Leased Property thereby; provided, that no such
actions shall be deemed to terminate the Lease and the City shall continue to remain liable for any
deficiency that may arise out of such reletting, taking into account expenses incurred by the
Authority due to such reletting, payable at the same time and manner as provided for Base Rental
in the Lease.

(2) Terminate the City’s right to possession of the Leased Property by giving
a written notice of termination to the City. On the date specified in such notice (which shall be
not less than three (3) days after the giving of such notice) the City’s right to possession under the
Lease shall terminate and the City shall surrender possession of the Lease Property, as the case
may be, to the Authority, unless on or before such date all arrears of rental and all other sums
payable by the City hereunder, and all costs and expenses incurred by or on behalf of the
Authority hereunder, including attorney’s fees incurred in connection with such defaults, shall
have been paid by the City and all other defaults or breaches hereunder by the City at the time
existing shall have been fully remedied to the satisfaction of the Authority. Upon such
termination, the Authority may recover, in addition to all other damages available by contract or
at law, to the extent permitted by law, from the City: (i) the worth at the time of award of the
unpaid rental which had been earned at the time of termination; and (ii) the worth at the time of
award of the amount by which the unpaid rental which would have been earned after termination
until the time of award exceeds the amount of such rental loss that the City proves could have
been reasonably avoided. The “worth at the time of award” of the amounts referred to in clauses
(i) and (ii) above is computed by allowing interest at the rate of twelve per cent (12%) per annum.

C-33
 Without otherwise limiting any of the rights or remedies of the Authority set forth in the Lease,
the Authority expressly waives the right to receive any amount from the City pursuant to Section
1951.2(a)(3) of the California Civil Code.

Each and all of the remedies given to the Authority hereunder or by any law now existing or
hereafter enacted are cumulative and the exercise of any one remedy shall not impair the right of the
Authority to any or all other remedies.

(c) Neither the City nor the Authority shall be in default in the performance of any of
its obligations hereunder (except for the obligation to pay Base Rental and Additional Rental pursuant to
the Lease) unless and until it shall have failed to perform such obligation within thirty (30) day after
notice by the City or the Authority, as the case may be, to the other party properly specifying wherein it
has failed to perform such obligation.

C-34
 APPENDIX D

BOOK-ENTRY ONLY SYSTEM

The information in this section concerning DTC and DTC’s book-entry system has been obtained
from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the
accuracy thereof.

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 will be issued for each maturity of the Bonds, in the aggregate principal
amount of such maturity, 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 2.2 million
issues of U.S. and non-U.S. 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, in turn, is owned by a number of Direct
Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income
Clearing Corporation, and Emerging Markets Clearing Corporation (NSCC, FICC, and EMCC, also
subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange
LLC, and the National Association of Securities Dealers, Inc. 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 Standard & Poor’s highest rating: AAA.
The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission.
More information about DTC can be found at www.dtcc.com and www.dtc.org.

Purchases of Bonds under the DTC system must be made by or through Direct Participants,
which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual
purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect
Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their
purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of
the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the
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 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 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.

D-1
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.

Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being
prepaid, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such
issue to be prepaid.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to
Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual
procedures, DTC mails an Omnibus Proxy to the Authority (or the Trustee on behalf thereof) 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 Bonds are credited on the record date (identified in a listing
attached to the Omnibus Proxy).

Redemption proceeds, distributions, and dividend payments 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 or 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 nor its nominee, Trustee, or the Authority, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend
payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of
DTC) is the responsibility of the Authority or 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.

A Beneficial Owner shall give notice to elect to have its Bonds purchased or tendered, through its
Participant, to the Trustee, and shall effect delivery of such Bonds by causing the Direct Participant to
transfer the Participant’s interest in the Bonds, on DTC’s records, to the Trustee. The requirement for
physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed
satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC’s records
and followed by a book-entry credit of tendered Bonds to the Trustee’s DTC account.

DTC may discontinue providing its services as depository with respect to the Bonds at any time
by giving reasonable notice to the Authority or Trustee. Under such circumstances, in the event that a
successor depository is not obtained, Bonds 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, Bonds will be printed and delivered.

D-2
 APPENDIX E

FORM OF BOND COUNSEL OPINION

[Closing Date]

Victorville Joint Powers Financing Authority

14343 Civic Drive
Victorville, California 92393-5001

City of Victorville
14343 Civic Drive
Victorville, California 92393-5001

Victorville Joint Powers Financing Authority

Variable Rate Lease Revenue Bonds, 2007 Series A
(Cogeneration Facility Project)

Ladies and Gentlemen:

We have acted as bond counsel to the Victorville Joint Powers Financing Authority, a joint
exercise of powers entity established under the Constitution and laws of the State of California (the
“Issuer”), in connection with the issuance of $83,770,000 aggregate principal amount of its Variable Rate
Lease Revenue Bonds, 2007 Series A (Cogeneration Facility Project) (the “Bonds”).

The Bonds are being issued pursuant to Article 4 of Chapter 5 of Division 7 of Title 1 of the
California Government Code and an Indenture, dated as of May 1, 2007 (the “Indenture”), by and
between the Issuer and The Bank of New York Trust Company, N.A., as trustee (the “Trustee”). The
Bonds are payable from Revenues, as defined in the Indenture, consisting primarily of Base Rental
Payments to be made by the City of Victorville, California (the “City”) pursuant to a Lease Agreement,
dated as of May 1, 2007 (the “Lease”), by and between the Issuer and the City. The City has leased the
real property and improvements encumbered by the Lease to the Issuer pursuant to a Site Lease, dated as
of May 1, 2007 (the “Site Lease”), by and between the City and the Issuer. A portion of the real property
and improvements thereon leased to the Authority has been leased to the City pursuant to a Site Lease
(the “Park Site Lease”), dated as of May 1, 2007, by and between the City and the Victorville Recreation
and Park District (the “Park District”) and pursuant to a Site Lease (the “Fire Site Lease” and, together
with the Park Site Lease, the “District Site Leases”), dated as of May 1, 2007, by and between the City
and the Victorville Fire Protection District (the “Fire District”). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Indenture or the Lease, as applicable.

As bond counsel, we have examined copies certified to us as being true and complete copies of
the proceedings of the Issuer and the City in connection with the issuance of the Bonds. We have also
examined such certificates of officers of the Issuer and the City and others as we have considered
necessary for the purposes of this opinion.

Based upon the foregoing, we are of the opinion that:

1. The Indenture has been duly and validly authorized, executed and delivered by
the Issuer and, assuming such Indenture constitutes the legally valid and binding obligation of the

E-1
Trustee, constitutes the legally valid and binding obligation of the Issuer, enforceable against the
Issuer in accordance with its terms.

2. The Lease has been duly and validly authorized, executed and delivered by the
City and the Issuer, and constitutes the legally valid and binding obligation of the City and the
Issuer, enforceable against the City and the Issuer in accordance with its terms.

3. The Site Lease has been duly and validly authorized, executed and delivered by
the Issuer and the City, and constitutes the legally valid and binding obligation of the Issuer and
the City, enforceable against the Issuer and the City in accordance with its terms.

4. The District Site Leases have been duly and validly authorized, executed and
delivered by the City, the Park District and the Fire District and constitute the legally valid and
binding obligations of the City, the Park District and the Fire District enforceable against the
City, the Park District and the Fire District in accordance with their terms.

5. The Bonds constitute valid and binding limited obligations of the Issuer as
provided in the Indenture, and are entitled to the benefits of the Indenture.

6. The Bonds are secured by a valid pledge of the Revenues and all moneys in the
Revenue Fund and the Reserve Fund, including all amounts derived from the investment of such
moneys, subject to the application thereof on the terms and conditions as set forth in the
Indenture.

7. The Internal Revenue Code of 1986 (the “Code”) imposes certain requirements
that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be
and remain excluded from the gross income of the owners thereof for federal income tax
purposes. Noncompliance with such requirements could cause the interest on the Bonds to be
included in gross income retroactive to the date of issue of the Bonds. The Issuer has covenanted
in the Indenture to maintain the exclusion of interest on the Bonds from the gross income of the
owners thereof for federal income tax purposes.

In our opinion, under existing law, interest on the Bonds is exempt from personal income
taxes of the State of California and, assuming compliance with the aforementioned covenant,
interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of
the owners thereof for federal income tax purposes.

We are further of the opinion that under existing statutes, regulations, rulings and court
decisions, the Bonds are not “specified private activity bonds” within the meaning of section
57(a)(5) of the Code and, therefore, that interest on the Bonds will not be treated as an item of tax
preference for purposes of computing the alternative minimum tax imposed by section 55 of the
Code. The receipt or accrual of interest on Bonds owned by a corporation may affect the
computation of the alternative minimum taxable income, upon which the alternative minimum tax
is imposed, to the extent that such interest is taken into account in determining the adjusted
current earnings of that corporation (75 percent of the excess, if any, of such adjusted current
earnings over the alternative minimum taxable income being an adjustment to alternative
minimum taxable income (determined without regard to such adjustment or to the alternative tax
net operating loss deduction)).

Except as stated in the preceding three paragraphs, we express no opinion as to any

federal or state tax consequences of the ownership or disposition of the Bonds. Furthermore, we
express no opinion as to any federal, state or local tax law consequences with respect to the

E-2
 Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds
thereof predicated or permitted upon the advice or approval of other bond counsel.

The opinions expressed in paragraphs 1, 2, 3 and 4 above are qualified to the extent the
enforceability of the Indenture, the Lease, the Site Lease and the Bonds may be limited by applicable
bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors’ rights generally or as to the availability of any particular
remedy. The enforceability of the Indenture, the Lease, the Site Lease and the Bonds is subject to the
effect of general principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or
injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the
limitations on legal remedies against governmental entities in California. We advise you that we have not
made or undertaken to make any investigation of the state of title to any of the real property or ownership
of any property described in the Lease and the Site Lease, or of the accuracy or sufficiency of the
description of such property contained therein, and we express no opinion with respect to such matters.

No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official

Statement or other offering material relating to the Bonds.

We call attention to the fact that the opinions expressed herein and the exclusion from gross
income of the interest on the Bonds as described above may be affected by actions taken or omitted or
events occurring or not occurring after the date hereof. We have not undertaken to determine, or to
inform any person or entity, whether any such actions or events are taken, omitted, occur or fail to occur.

Our opinions are based on existing law, which is subject to change. Such opinions are further
based on our knowledge of facts as of the date hereof. We assume no duty to update or supplement our
opinions to reflect any facts or circumstances that may thereafter come to our attention or to reflect any
changes in any law that may thereafter occur or become effective. Moreover, our opinions are not a
guarantee of result and are not binding on the Internal Revenue Service; rather, such opinions represent
our legal judgment based upon our review of existing law that we deem relevant to such opinions and in
reliance upon the representations and covenants referenced above.

Very truly yours,

E-3
[THIS PAGE INTENTIONALLY LEFT BLANK]