Kern County Debt Financing Policies

(Policy on Land Secured and Non-Land Secured Financing)

(May 28, 1999)

POLICY STATEMENT

The County of Kern (hereinafter the "County"), has created these policies for debt financing (hereinafter the "Policies"), to assist all concerned parties in determining the County’s approach to land secured and non-land secured financing. It is the County’s intent to support projects which address a significant public need and provide a significant public benefit and which would not otherwise be constructed absent the County’s participation. These Policies are also designed to comply with sections 53312.7 and 53345.8 of the Government Code, as amended.

Land Secured

For purposes of these Policies, the term "land secured financing" shall refer to financings whose primary repayment is secured by either a special tax or by a confirmed assessment lien. Examples of land secured financings are bonds issued by a community facility district under the Mello-Roos Community Facility District Act of 1982, as amended and assessment district bonds issued under the Improvement Act of 1913 and the 1915 Municipal Improvement Bond Act.

a. The County encourages the development of commercial or industrial property. The Board of Supervisors (hereinafter the "Board"), will consider the use of community facilities districts, or special assessment districts, as well as other methods of public financing to assist these types of projects. Where, in the Board’s opinion, the public facilities associated with a residential project provide a significant public benefit, these types of public financing will also be considered.

b. While recognizing that public facilities proposed to be financed by any of these types of financing are to benefit those properties within the boundaries of the proposed projects, the Board finds that public benefit can only be "significant" when the benefit is received by the community at large or are regional in nature but have direct and special benefit to the properties within the proposed financing district. An example of a public facility having significant public benefit is one that has regional impact such as an all-weather bridge, a freeway overpass, a regional water or waste water treatment plant, etc. Significant public benefit can also take the form of affordable housing through reduced housing costs, etc.

c. The use of community facilities districts or assessment districts will be permitted to finance public facilities whose useful life will be equal to or greater than the term of the bonds. Except for maintenance and operation of the public facilities being financed, the use of community facilities districts for funding those services identified as eligible by the Mello-Roos Community Facilities Act of 1982, as amended, shall not be allowed. Only facilities which are, upon completion, owned, operated or maintained by a public agency as determined under the 1986 Internal Revenue Code, as amended, will be considered a public facility.

d. The County is concerned that the proposed project that is to be financed is not premature for the area in which it is to be located. The proposed project must:

Be consistent with the County’s Comprehensive General Plan; and
Have been reviewed by the Kern County Subdivision Review Committee, or its successor, and have satisfied all of the requirements specified by said Committee; and
Have had the service levels for the required public facilities established or the exact public facilities required for the project identified. Projects that require:

A General Plan amendment;
A change of zone that increases the density or intensity of land use;
A specific plan; or
A specific plan amendment to increase density or intensity of land use will require an evaluation by the County’s Planning Department as to whether the proposed project is premature.

The Debt Advisory Committee will not recommend any financing to the Board without the completion of any and all appropriate environmental documents.
The Debt Advisory Committee will not recommend any financing to the Board which has a current or prior tax delinquency outstanding by the direct or indirect owner(s) and/or the direct or indirect owner(s) have filed a petition for relief under the United States Bankruptcy Code within the previous five (5) years.

e. Extending public financing to a proposed project for identified public improvements cannot be done without considering the aggregate public service needs for the project. Upon receipt of an application for public financing, the County will notify the other public entities having responsibility to service the proposed project and request comment on the application. Periodic meetings and/or communication as required with all affected public entities will be encouraged by the County to address the issues relative to overlapping debt considerations.

f. The Debt Advisory Committee will not issue land secured bonds in an aggregate principal amount of bonds of less than one million dollars ($1,000,000). Further, the financing shall not be structured pursuant to the improvement Act of 1911, (section 5000 et seq. of the Streets and Highways Code), Chapter 27 Part 3, Division 7 of the Streets and Highways Code (commencing at section 5870).

Application for land secured financing in an amount equal to or more than one million dollars ($1,000,000) shall be made to the Director of Engineering and Survey Services Department for a referral to the Debt Advisory Committee.

g. Land secured financings sponsored by a special district, agency or other political entity for which County approval is needed will be subject to only those provisions of these Policies determined appropriate by the Committee.

Non-Land Secured

For purposes of these Policies, the term "non-land secured financing" shall mean financings who are not supported by any County fund and shall not include land-based financings. An example of a non-land secured financing is an industrial development bond, whose repayment by the developer of the bond proceeds that have been loaned by the issuer of the bonds to the developer to pay for identified and approved costs needed to construct and/or equip a manufacturing facility and other related costs.

a. The County encourages industrial development projects which will increase the employment base within the County in order to create a synergistic jobs/housing balance throughout the County.

b. The Debt Advisory Committee will not recommend any financing to the Board without the completion of any and all appropriate environmental assessments, reports, documents, reviews, mitigation and/or remediation.

c. The Debt Advisory Committee will not recommend any financing to the Board which there is a current or prior tax delinquency outstanding by the direct or indirect owner(s) and/or the direct or indirect owner(s) have filed a petition for relief under the United States Bankruptcy Code within the previous five (5) years.

Mortgage revenue bonds ("MRBs") are not a claim against the County general fund or any other County fund. MRBs are supported by the loan repayments of home purchasers or owners of rental property, along with reserves, and possibly, insurance. The County itself may issue MRBs, or an entity such as the Housing Authority of the County of Kern, an incorporated city in the County, or an authority within the State are all eligible MRB issuers. In order to qualify as a tax-exempt MRB, the County must approve a TEFRA hearing under IRC section 147(f). The Committee shall request any and all information as it deems necessary to evaluate requests for TEFRA approval. Any and all of the County’s costs shall be borne by the applicant, including County administrative expenses.

3. Mortgage Credit Certificates ("MCCs") is another method of helping to make financing available for home purchasers. Neither MCCs nor any financing connected with individual home purchases represent a claim against the County general fund or any other County fund. The County itself and the Housing Authority of the County of Kern or an incorporated city in the County may apply to the State for authority to issue MCCs. Third-parties may request that the County participate with the third-party’s issuance of MCCs, or in the alternative, third-parties may request that the County transfer its allocation to the third-party. In such cases, the Committee shall request any and all information it deems necessary to evaluate such requests. Any and all of the County’s costs shall be borne by the applicant, including County administrative expenses.

4. Where the Board of Supervisors is required or requested to make a finding of public benefit for multifamily housing financing the applicant shall present to the committee and the Board of Supervisors the positive and negative public benefits that the project brings to the community. The Board of Supervisors generally finds the following to be a public benefit related to such projects.

a. Creation of additional affordable housing (provide rent comparison).

b. Creation of additional recreational facilities.

c. Minimal displacement of existing tenants.

d. Rehabilitation of dilapidated and vacant facilities.

e. Increased employment opportunity.

f. Guaranteed long term reduced rent.

g. Esthetic compatibility or enhancement of the neighborhood.

In submitting this information to the Committee and the Board of Supervisors the applicant shall present evidence addressing the above items and any others that may be relevant to the Board’s finding.

Joint Powers

(County Involvement In Joint Powers Agreement)

The County will consider entering into joint powers agreements with other public entities to assist in land secured financings for private parties for construction of public infrastructure or improvements upon approval by the Board of Supervisors where, in the Board’s opinion such an agreement will provide a significant public benefit. Any proposed agreements should provide for adoption of the then current County of Kern Debt Financing Policies, a dollar limit on the issuance of debt commensurate with the public facilities to be financed, and a governing structure that will permit sufficient oversight of debt issue by the County. Specific provisions will be negotiated on a "case-by-case" basis.

FINANCE INITIATION

Application

The proponent of a project must obtain and submit the required application to the responsible County department. The responsible County department for each of the types of financing addressed by the Policies are as follows:

1. Application for formation of assessment districts, Mello-Roos Community Facility Districts, or other land secured financings: Engineering and Survey Services Department.

2. Industrial Development Revenue Bonds: Community Development Program Department.

3. Mortgage Revenue Bonds or Mortgage Credit Certificates: Community Development Program Department.

4. Other: Kern County Treasurer-Tax Collector.

Prior to accepting an application for a land secured financing, the responsible County department may request that the proposed project be reviewed and commented on by a special committee to be composed of representatives of any potentially affected County departments and affected districts, County Counsel, and the County’s financial advisor.

An application must be completed and the necessary information provided, as determined by the responsible County department, before any action will be taken to process the application and initiate financing for a project. Prior to acceptance of the application, all prior and current year taxes must be paid.

Processing Fees

Land Secured

Applications are to be accompanied by a processing or formation fee. All costs to the County associated with the proceedings statutorily required to establish either a community facilities district or an assessment district are to be advanced by the applicant. If monies are available, the applicant may be reimbursed solely from the proceeds of the bonds sold for monies advanced.

An initial deposit in an amount of not less than fifteen thousand dollars ($15,000) is to be attached to the completed application submitted; such deposit amount to be determined by the responsible County department. The deposit shall be placed in a trust account held by the County. All costs of the County and/or its consultants retained during the formation process are to be paid from this account.

If, in the judgment of the responsible County department the costs incurred or projected will cause the balance in this account to fall below five thousand dollars ($5,000), a written request shall be made to the applicant to advance monies sufficient to bring the account to a balance that is projected to meet remaining costs required to establish the financing district. Failure to advance the requested monies within ten (10) days of a written demand by the County will result in all processing of the application to cease and no further action to be taken toward establishing the financing district until the monies have been received. Waiver of this requirement can be made only by formal action of the Board.

Monies held in the trust account are to be applied to pay the County and its staff in reviewing and processing the application as well as the costs of the legal fees, financial advisor, assessment engineer, special tax consultant, appraiser, absorption consultant, all publication expenses, and any other costs determined by the County to be necessary and appropriate to establish the financing district. Accompanying the application may be an agreement governing the processing or formation fee, its deposit in a trust account, and the use of the monies.

Non-Land Secured

All costs to the County associated with the proceedings required to issue industrial development bonds, mortgage credit certificates or mortgage revenue bonds are to be advanced by the applicant. If monies are available, the applicant may be reimbursed solely from the proceeds of the bonds sold for monies advanced.

To initiate financing of industrial development revenue bonds, mortgage credit certificates or mortgage revenue bonds an initial non-refundable deposit in the amount of not less than one thousand five-hundred dollars ($1,500) is required upon submittal of an application; such deposit amount to be determined by the responsible County department. The deposit shall be placed in a trust account held by the County. All costs of the County and/or its consultants retained during the process are to be paid from this account. When a request for a bond allocation is made by the County to the State of California, an additional non-refundable deposit of three hundred dollars ($300) plus a commitment fee equal to one percent (1%) of the bond funds desired by the applicant or those amounts required by State statute or regulation will be needed.

If, in the judgment of the responsible County department the costs incurred or projected will cause the balance in this account to fall below two hundred fifty dollars ($250), a written request shall be made to the applicant to advance monies sufficient to bring the account to a balance that is projected to meet remaining costs required by the County. Failure to advance the requested monies within ten (10) days of a written demand by the County will result in all processing of the application to cease and no further actions will be taken until the monies have been received. Waiver of this requirement can be made only by formal action of the Board.

Accompanying the application may be an agreement governing the processing or formation fee, its deposit in a trust account, and the use of the monies.

Formation Petiton

(and Waiver of Time Requirements of the Election)

The following requirements apply to land secured financing. Petitions are not applicable to non-land secured financing.

1. Community Facilities Districts

The Mello-Roos Community Facilities Act of 1982, as amended, (the "Act"), requires that a petition requesting the formation of a proposed community facilities district signed by landowners holding title to ten percent (10%) of the land by area within the proposed community facilities district be submitted to the County before formal action can be commenced to form the community facilities district. The form of the petition will be supplied by bond counsel once the completed application has been received and initial processing has been completed.

The property owners’ approvals shall also comply with any requirements of Article XIIID of the California Constitution (Proposition 218).

The Act also provides that the formation can be shortened if one hundred percent (100%) of the property owners within the proposed boundaries of the community facilities district executes a waiver regarding the timing of and certain procedures associated with the required special election. The applicant should indicate on the application whether this waiver can be secured.

Financing Team

(Selection of)

The County shall select the bond counsel, disclosure counsel, financial advisor, underwriter or placement agent or remarketing agent, appraiser, fiscal agent/trustee, and any and all other necessary professionals. Providers of letters of credit, liquidity supports and other types of credit enhancements are also subject to the approval of the County. Bond counsel and underwriter or disclosure counsel will be subject to the approval of the Office of the County Counsel. Fees for professional consultants not selected by the County, but who are otherwise retained by the applicant(s), shall not be paid from the bond proceeds.

Land Secured

In addition to the consultants that compose the financing team, as noted above, the County shall select an assessment engineer for assessment district or special tax consultant for community facilities districts to determine a fair and reasonable method to allocate the assessment or special tax required to meet debt service on the bonds and other related expenses of the proposed financing district.

Unless satisfactory and current information regarding land values for property within the proposed financing district is available, the County shall require that a real estate appraiser of its choice be retained and an appraisal made. Additionally, an economist or real estate appraiser or other qualified independent third party may also be retained for the purpose outlined in Section IV.A. In addition, the County reserves the right to retain additional professional consultants that it deems appropriate.

Non-Land Secured

For industrial development revenue bonds, the County will select the bond counsel, disclosure counsel, financial advisor, appraiser, underwriter, and any all other professionals deemed necessary. Bond counsel and disclosure counsel shall be subject to the approval of the Office of the County Counsel. In addition to the professional consultants noted above, the County reserves the right to retain additional professional consultants as it deems appropriate. Fees for professional consultants not selected by the County shall not be paid or reimbursed from bond or note proceeds.

Time Limits

1. The applicant shall become invalid if the Debt Advisory Committee has not made a recommendation to the Board of Supervisors to approve the issuance of the requested debt within 9 months of receipt of the application by the County. The Debt Advisory Committee may, with just cause, extend this time for up to another 9 months. If the committee agrees to extend the application, they may require the applicant to updated information which was previously submitted.

2. The Board of Supervisor’s approval to issue debt shall terminate within 18 months of the Board’s action unless the applicant has issued the bonds or the Board has specified another time within its approval to issue debt.

DEBT ADVISORY

The Board established the Debt Advisory Committee to review and comment upon all land secured and non-land secured financings as well as other types of financing proposed to be issued by the County or referred by the Board to the Debt Advisory Committee. In addition, the Committee shall review and comment on all MRBs and other bonds requiring a TEFRA hearing as well as MCCs for which the County has made an allocation or is a participant. The Debt Advisory Committee is to review each proposed debt issue and provide comment on whether the proposed debt issue is consistent with these Policies. It is to comment on the economic viability and credit worthiness of the proposed debt issue. In performing its function the Debt Advisory Committee may, in its sole discretion, review a matter more than once and retain additional consultants to assist in its review. The cost of such consultants is to be borne by the proponent of the debt issue. In addition, the Debt Advisory Committee has an ongoing responsibility to monitor the status of debt issued by the County.

A written summary of the Debt Advisory Committee’s review of the proposed financing is to be prepared and submitted to the Board when it considers the financing. The written summary will state the issues considered by the Debt Advisory Committee, whether the financing and the issues considered were consistent with or where they vary with these Policies, and its recommendation with regard to each issue and the financing. If the vote of the voting members on the Debt Advisory Committee is not unanimous, the written summary is to so indicate and summarize the position taken by the minority voting members on the Debt Advisory Committee.

The following are those matters which at minimum the Debt Advisory Committee is to review and comment upon with regard to land secured and non-land secured financing.

Land Secured

Comm. Fac. Districts

a. Prior to the Board considering the resolution of intention to establish a community facilities district, the Debt Advisory Committee is to determine that all land use approvals and environmental reviews and all other requirements under Section IV have been fulfilled and that the proposed rate and method of apportionment of the special tax is consistent with Section V.A.1 of these Policies. Any variation from these Policies is to be noted and a recommendation made to the Board with regard thereto.

b. Prior to the Board considering the resolution authorizing the sale and issuance of bonds, the Debt Advisory Committee is to determine that:

1. A current appraisal and any related absorption study have been prepared consistent with Sections IV.A and IV.B of these Policies and that satisfactory land value to lien ratios exist.

2. Each property owner responsible for twenty percent (20%) or more of the debt service on the bonded indebtedness to be incurred has supplied the financial information required by Section IV.C of these Policies.

3. Any credit enhancement required by Section VIII of these Policies will be provided. If a variance is requested, the request is to be noted and a recommendation made to the Board with regard thereto.

4. The rate and method of apportionment of the special tax is in compliance with Section V.A.1 of these Policies.

5. The structure of the proposed financing is consistent with the applicable subsections of Section VI of these Policies.

6. All environmental studies, assessments, reports, remediation and/or mitigation as deemed necessary by the Debt Advisory Committee.

7. The bonds are submitted for rating by either Moody’s, Standard & Poor’s or Fitch.

Any variation from these Policies is to be noted and a recommendation made to the Board with regard thereto. In addition, the Debt Advisory Committee is to make any comment it deems relevant in determining the economic viability or credit worthiness of the proposed debt issue. The Debt Advisory Committee is to make a recommendation to the Board as to whether or not to proceed with the sale and issuance of the bonds.

Assessment Districts

a. Prior to the Board considering the resolution of intention to establish an assessment district, the Debt Advisory Committee is to determine that all land use approvals, environmental reviews and other matters required for the project under Section IV have been fulfilled, and that the proposed assessment lien and its apportionment to the parcels comprising the proposed assessment district is consistent with Section V.A.2 of these Policies. If a variance is requested, the request is to be noted and a recommendation made to the Board with regard thereto.

b. Prior to the Board considering the resolution authorizing the sale and issuance of bonds, the Debt Advisory Committee is to determine that:

1. A current appraisal and related absorption study have been prepared consistent with Sections IV.A and IV.B of these Policies and satisfactory land value to lien ratios exist.

2. Each property owner responsible for twenty percent (20%) or more of the debt service on the bonded indebtedness has supplied the financial information required by Section IV.C of these Policies.

4. The assessment lien and its apportionment is in compliance with Section V.A.2 of these Policies.

5. All environmental studies, reports, remediation as deemed necessary by the Debt Advisory Committee have been performed.

6. The bonds are submitted for rating by Moody’s, Standard & Poor’s or Fitch.

7. The structure of the proposed financing is consistent with the applicable subsections of Section VI of these Policies.

Any variation from these Policies is to be noted and a recommendation made to the Board with regard thereto. In addition, the Debt Advisory Committee is to make any comment it deems relevant in determining the economic viability or credit worthiness of the proposed debt issue. The Committee is to make a recommendation to the Board as to whether or not to proceed with the sale and issuance of the bonds.

If the proposed financing contemplates that bonds are to issued in series, then each series is to be reviewed and commented upon by the Debt Advisory Committee before that series is considered by the Board for issuance.

Non-Land Secured

Industrial Development

(Revenue Bonds)

Prior to the Board considering a resolution authorizing the sale and issuance of industrial development revenue bonds the Debt Advisory Committee is to determine that:

a. The bonds are submitted for rating by either Standard & Poor’s, Moody’s or Fitch.

b. The applicant and each participant that is responsible for twenty percent (20%) of the debt service on the bonds have supplied the financial information required by Section IV.C of these Policies.

c. The structure of the proposed financing is consistent with the applicable subsections of Section VI of these Policies.

In addition, the Debt Advisory Committee is to make any comment it deems relevant in determining the economic viability or credit worthiness of the proposed debt issue. The Committee is to make a recommendation to the Board as to whether or not to proceed with the sale and issuance of the bonds.

Any proposal for refunding or defeasing either a particular land secured or non-land secured financing is to be reviewed for consistency with Section XI of these Policies and commented on by the Debt Advisory Committee prior to it being submitted to the Board for consideration.

Once issuance of bonds has been approved by the Board and the bonds have been sold, the responsible County department having responsibility for the administration of the bond issue is to annually file with the Debt Advisory Committee, a report regarding the status of the bond financing on forms provided by the Debt Advisory Committee. The occurrence of a technical default, or the likelihood thereof, is to be reported immediately to the Debt Advisory Committee by the administering County department.

Mortgage Revenue

(Bonds)

a. The 1986 Internal Revenue Code, as amended, requires a "TEFRA" hearing as a condition precedent to the issuance of MRBs. Although another agency is the issuer, as part of the TEFRA hearing, the Board must approve the issuance of the bonds after a duly noticed public hearing for the bonds to receive favorable tax treatment. Because the Board must approve MRBs for which a TEFRA hearing is required, the Committee shall review and consider the proposed issuance and make its recommendation to the Board. The Kern County Community Development Program Department and other Departments as directed by the Committee shall review any proposal which requires the Board to approve the issuance of bonds and provide written comments, evaluation and recommendations to the Committee.

b. As part of the Committee’s review process, the Committee shall request from the proposed issuer, any and all information the Committee considers appropriate. Such information shall be provided to the Committee in sufficient time for the Committee to review the information and render a preliminary recommendation to approve or disapprove the proposed issuance. The information shall include, without limitation, the following:

1. all applications to the California Debt Limit Allocation Committee ("CDLAC") and changes to such applications and those changes contemplated. The issuer shall submit to the Committee the issuer’s final CDLAC application prior to the Committee’s making its recommendation to the Board; and

2. all notices of public hearing and proof of publication; and

3. audits for all open debt issuances, and any closed out over the prior three years, which the issuer participated in; and

4. For the issuer, copies of audited financial statements for the prior three years; and

5. the Committee may require that the issuer have its president, chief financial officer, financial advisor and/or other officer(s) or representative(s) present at one or more Committee meetings as deemed appropriate by the Committee.

After the TEFRA Hearing and consideration of all information requested by the Committee, the Committee shall make its recommendation to the Board whether the County should approve the proposed issuance, disapprove the proposed issuance or such other recommendation as the Committee deems appropriate. The Committee’s recommendation shall include its evaluation of whether the proposed issue meets the requirements set forth in IRC section 147(f) and the regulations promulgated thereunder.

Mortgage Credit

(Certificates)

The MCC program is governed by IRC section 25. The Kern County Community Development Program Department and other Departments as directed by the Committee shall review any proposal which includes the County as an MCC participant and provide written comments, evaluation and recommendations to the Committee. Should the County determine to participate in the MCC Program, the County shall apply to CDLAC and shall execute the appropriate agreements with such other jurisdictions in the County which desire to participate in the MCC Program. The County may delegate the administration of the MCC Program to a third-party, should it so determine.

Other Financings

(Requiring Board Approval and Referred to the Committee)

Under various statutes, the Board is required to approve various aspects of various financings by cities, special districts, and other political entities. In such cases, the Board may direct the Debt Advisory Committee to review and comment on a particular financing. Unless otherwise directed by the Board, the Debt Advisory Committee is to determine that:

1. The lien-to-value is in compliance with Section IV of these Policies;

2. The overlapping debt, including current year property taxes, does not exceed two percent (2%) of the value as determined under Section V of these Policies;

3. Any credit enhancement otherwise required by Section VIII of these Policies will be provided;

4. All environmental reviews, assessments, remediation and mitigation are performed; and

5. The bonds are rated by either Moody’s, Standard & Poor’s or Fitch.

Any variation from these Policies is to be noted and a recommendation made to the Board with regard thereto. In addition, the Debt Advisory Committee is to make any comment it deems relevant in determining the economic viability or credit worthiness of the proposed debt issue. The Committee is to make a recommendation to the Board as to whether or not to approve the proposed issue.

ECONOMIC VIABILITY

(of the Financing)

In evaluating the application and the proposed debt issue, the County may require any or all of the following to determine the economic viability of the proposed project and the timing of the sale of any bonds or series thereof.

Absorption Study

The following requirement applies to land secured financing. Absorption studies are not required for non-land secured financing.

Unless waived by the Debt Advisory Committee, an absorption study of the proposed project shall be required for land secured financing. The absorption study shall be used as a basis to verify that the assumptions supporting the assessment spread or the special tax formula is appropriate and sufficient revenues can be collected to support the bonded indebtedness to be incurred. The absorption study will also be used to evaluate the timing considerations identified by the applicant and the financing team. The absorption study will be provided to the appraiser. The appraisal required below in Section IV.B shall reflect consideration of the absorption study.

Appraisal

Land Secured

A current appraisal will be required of the property that compromises the financing district against which a lien will be placed to secure the bonded indebtedness to be incurred. The appraisal will be made by an appraiser retained by County. It is to be made consistent with the guidelines attached hereto as Attachment "A."

The "Bulk Land Value" as specified in Attachment "A" will serve as the basis for establishing the land value-to-lien ratios. The County requires, for residential projects, an overall minimum land value-to-lien ratio of 3 to 1. The lien component of the ratio is to include all debt represented by any overlapping community facilities district or assessment district affecting the property, as well as the current year’s property taxes. The County will also review the land value-to-lien ratios on an individual parcel and/or grouping of parcels within the boundaries of the financing district to determine the security of the debt issue.

Non-Land Secured

For industrial development revenue bonds, if the proposed debt issue is neither to be rated nor insured, an appraisal of the proposed project will be required. The appraisal is to be made by an appraiser acceptable to the County and prepared consistent with the guidelines attached hereto as Attachment "A."

Financial Information

(Required of Applicant)

Both at time of application and prior to the sale and issuance of any bonds, the applicant for a land secured debt issue and all property owners owning within the boundaries of the proposed financing district that will be responsible for twenty percent (20%) or more of the debt service on the bonded indebtedness to be incurred shall provide financial statements (preferably audited) for the current and prior two fiscal years. The applicant shall also provide all other financial information related to the proposed project that may be requested by the County.

For all non-land secured financing, the applicant and other participants or related entities in the proposed project who will be responsible for twenty percent (20%) or more of the debt service on the bonded indebtedness to be incurred may be required to provide financial information regarding themselves and the financial viability of the proposed project to be financed. This requirement will be adjusted appropriately if the proposed debt issue is to be rated or insured or otherwise guaranteed by an appropriate credit enhancement.

Subsequent to the sale and issuance of the bonds, Federal and State statutes and/or regulations regarding the particular type of financing may require the preparation of periodic reports. The applicant and all major participants in the project will be required to provide that information needed to complete such statutorily required reports. In addition, the County department responsible for the administration of the bonds may require information on the applicant or the major participants in the project to satisfy reporting demands of rating agencies or institutional buyers.

Land Use Approvals

1. For land secured financing the County will require, at a minimum, that the proposed project must:

a. Be consistent with the County’s Comprehensive General Plan;

b. Be reviewed by Kern County’s Subdivision Review Committee or its successor, and have satisfied all of the requirements specified by said committee; and

c. Have had the service levels for the required public facilities established or the exact public facilities required for the project identified.

A proposed project that requires:

a. A General Plan amendment;

b. A change of zone that increases the density or intensity of land use;

c. A specific plan, or

d. A specific plan amendment that increased the density or intensity of land use will be referred to the County’s Planning Department for evaluation as to whether the project is premature.

An appropriate environmental review of the proposed project is to have been completed that will have addressed all of the public facilities that are to be constructed through the proposed financing.
For all non-land secured financings, it will be required that:

a. All final land use approvals have been secured; and

b. All conditions thereon have been satisfied; and

c. All required environmental assessments, reviews, remediation and/or mitigation are to have been performed and/or completed.

Equity Participation by Applicant and Major Participants

In evaluating the proposed debt issue, the Debt Advisory Committee will consider the equity participation of the applicant and the major participants in the proposed project. At the time the application for the proposed financing is received, an analysis will be made as to the equity interest that the applicant has in the proposed project. It will also be required of the applicant that in addition to the financing, the applicant will fund in-tract infrastructure and may be expected to contribute to other public improvements related to the proposed project.

6. Hazardous/Toxic Waste Review/ Remediation/ Mitigation

The applicant shall submit to the Debt Advisory Committee a Phase I Environmental Site Assessment, and if indicated, a Phase II Environmental Site Assessment, and/or a Phase III Environmental Remediation/Mitigation. Said Assessments shall be reviewed by the Debt Advisory Committee and the Kern County Environmental Health Department. Any and all remediation shall be performed, if indicated, as determined by the Debt Advisory Committee and the Environmental Health Department, prior to the Debt Advisory Committee’s recommendation of the Project to the Board.

REVENUE FINANCING

(Revenue Supporting the Financing)

Land Secured

Land secured bonds are termed "limited obligation" whose primary repayment is secured, in the case of community facilities districts, by a special tax, or in case of assessment districts, by a confirmed assessment lien. The following are the criteria that will be applied in evaluating the revenue stream that will be supporting a proposed land secured bond financing.

1. Community Facilities Districts

a. The rate and method of apportionment of the special tax must be both reasonable and equitable in apportioning the costs of the public facilities to be financed to each of the parcels within the boundaries of the proposed district.

b. The County prefers that this apportionment of costs be based on the benefit that each parcel is to receive from the public facilities.

c. The rate and method of apportionment of the special tax is to provide for the administrative expenses of the proposed district, including, but not limited to, those expenses necessary for the enrollment and collection of the special tax and bond administration.

d. All property not otherwise exempted by the Act from taxation shall be subject to the special tax. The rate and method of apportionment may provide for exemptions to be extended to parcels that are to be dedicated at a future date to public entities, held by a home owner’s association, or designated open space.

e. The annual special tax levy on each residential parcel developed to its final land use shall be approximately equal each year, except that a variation for administrative expenses will be allowed. The County will allow an annual escalation factor, not to exceed two percent (2%), on parcels to be developed for commercial or industrial uses.

f. The maximum annual special tax, together with ad valorem property taxes, County Service Area charges, special assessments or taxes for an overlapping financing district, or any other charges, taxes or fees payable from and secured by the property, including potential charges, taxes, or fees relating to authorized but unissued debt of public entities other than the County, in relation to the expected assessed value of each parcel upon completion of the private improvements to the parcel is of great importance to the County in evaluating the proposed financing.

g. The objective of the County is to limit the "overlapping" debt burden on any parcel to two percent (2%) of the expected assessed value of the parcel upon completion of the private improvements. In evaluating whether this objective can be met, the County will consider the aggregate public service needs for the proposed project. It will consider what public improvements the applicant is proposing be financed in relation to these aggregate needs and decide what is an appropriate amount to extend in public financing to the identified public improvements. This evaluation will be based on information obtained from other affected taxing entities that have jurisdiction to impose a levy on the proposed project.

h. The total annual special taxes that can be collected from taxable property in a district, taking into account any potential changes in land use or development density or rate, and less all projected administrative expenses, must be equal to at least one hundred ten percent (110%) of the gross annual debt service on any bonds issued by or on behalf of the district in each year that said bonds will remain outstanding.

i. The rate and method of apportionment of the special tax shall include a provision for a back up tax to protect against any changes in development that would result in insufficient special tax revenues to meet the debt service requirement of the district. Such backup tax shall be structured in such a manner that it shall not violate any provisions of the Act regarding cross-collateralization limitations for residential properties.

j. A formula to provide for the prepayment of the special tax may be provided; however, neither the County nor the community facilities district shall be obligated to pay for the cost of determining the prepayment amount which is to be paid by the applicant.

Assessment Districts

a. The apportionment of the assessment lien among the parcels comprising the proposed assessment district shall be based upon the direct and special benefit each parcel receives from the public facilities to be financed.

b. The assessment lien is to provide for the administrative expenses of the assessment district including, but not limited to, those expenses necessary for the enrollment and collection of the annual assessment installments and bond administration.

c. All property within the boundaries of the proposed assessment district not statutorily exempted by the applicable provisions of the California Streets and Highways Code will be subject to an assessment lien.

d. The annual assessment installment levied on each parcel developed to its final land use shall be approximately equal each year, except that a variation for administrative expenses will be allowed.

e. The annual assessment installment, together with ad valorem property taxes, County Service Area charges, special assessments or taxes for an overlapping financing district or any other charges, taxes or fees payable from and secured by the property, including potential charges, taxes, or fees relating to authorized but unissued debt of public entitles other than the County, in relation to the expected assessed value of each parcel upon completion of the private improvements to the parcel is of great importance to the County in evaluating the proposed financing.

The objective of the County is to limit the "overlapping" debt burden on any parcel to two percent (2%) of the expected assessed value of the parcel upon completion of the private improvements. In evaluating whether this objective can be met, the County will consider the aggregate public service needs for the proposed project. It will consider what public improvements the applicant is proposing be financed in relation to these aggregate needs and decide what is an appropriate amount to extend in public financing to the identified public improvements.

This evaluation will be based on information obtained from other affected taxing entities that have jurisdiction to impose a levy on the proposed project.

f. Consistent with the applicable statutory provisions of the California Streets and Highways Code, a property owner shall have the right to prepay all or a part of the assessment lien.

Reimbursement Revenues

Full or partial reimbursement revenue received from a public agency or entity for construction by the financing district of identified public facilities required to be sized to exceed the service needs of the properties within the financing district shall be considered revenues of the financing district. These reimbursements shall, depending on date of receipt, be used to either augment construction proceeds or to reduce the outstanding bonded indebtedness of the financing district as determined appropriate by the County.

Non-Land Secured

1. Industrial Development Bonds

Industrial development revenue bonds are to be supported by the repayment by the developer of the bond proceeds that have been loaned by the issuer of the bonds to the developer to pay for identified and approved costs needed to construct and/or equip a manufacturing facility and other related costs. Frequently, the repayment of the loaned proceeds is guaranteed by a letter of credit or similar credit support. In evaluating a proposed debt issue for industrial development revenue bonds, the County will require the following:

a. A letter of credit or other credit support from a credit facility provider with a rating of "AA" by Standard & Poor’s, Moody’s or Fitch.

b. Any industrial development bond financing requiring a credit support must be structured to provide that all outstanding bonds will be redeemed if:

1. The rating of the credit support provider falls below "BBB/Baa" or "SP-2/VMIG-2"; or

2. The County receives notice that the credit support facility is not being extended beyond its original term or is not being replaced with a credit support facility acceptable to the County.

c. A credit support facility shall have an irrevocable term of at lease five (5) years from its date of issue, and be automatically renewed.

d. The face amount of the credit facility shall be an amount equal to twenty-five percent (25%) of the term of the bond annual debt service obligation (principal and interest).

e. If an industrial development bond financing provides for a conversion from a variable to a fixed interest rate, the revenue supporting the fixed interest rate bonds, including any required credit support, must be sufficient to receive a rating of "A" from Standard & Poor’s, Moody’s or Fitch upon conversion.

Mortgage Revenue Bonds

Mortgage revenue bonds are to be supported by the repayment by the developer of the bond proceeds that have been loaned by the issuer of the bonds to the developer to pay for identified and approved costs. Frequently, the repayment of the loaned proceeds is guaranteed by a letter of credit or similar credit support. In evaluating a proposed debt issue for Mortgage revenue bonds, the County will require the following:

a. A letter of credit or other credit support from a credit facility provider with a rating of "A" or better by Standard & Poor’s, Moody’s or Fitch; or

b. Bond Insurance rated "A" or better by Standard & Poor’s, Moody’s or Fitch that provides for the repayment of loaned proceeds, which, in the opinion of the Committee, is appropriate in type and amount.

c. If an MRB bond financing provides for a conversion from a variable to a fixed interest rate, the revenue supporting the fixed interest rate bonds, including any required credit support, must be sufficient to receive a rating of "A" from Standard & Poor’s, Moody’s or Fitch upon conversion.

3. All land secured bonds and non-land secured bonds must be submitted for rating by either Standard & Poor’s, Moody’s or Fitch.

FINANCE STRUCTURE

In structuring a particular land secured or non-land secured financing, the County and its financing team will insure that the following issues are addressed if determined to be applicable or appropriate for the particular debt issue.

Land Secured

Land secured financing is to be structured with level debt service, or as otherwise permitted in these Policies, and to mature within twenty-five (25) years of the date of the initial bonds issued.

Non-Land Secured

However, non-land secured financings may bear either a fixed or variable interest rate and have a final maturity that is not more than twenty-five (25) years, as determined appropriate by the County’s financing team. A variable interest rate or a maturity of less than twenty-five (25) years shall be structured such that the principal of the bonds assumes, at minimum, a twenty-five (25) year amortization.

Redemption Provisions

a. Land Secured Financing

1. Prepayment and optional redemption

a. Community Facilities Districts

It is the preference of the County that the bonds will have redemption provisions that provide call protection with the maximum premium to be paid not to exceed two percent (2%) and allow for bonds to be redeemed not later than the eleventh year without a premium.

b. Assessment Districts

It is the preference of the County that the bonds will have redemption provisions that provide that the maximum premium to be paid will not exceed two percent (2%), the term for which the premium is to be paid will not exceed ten (10) years, and in the eleventh year, the bonds can be redeemed without a premium.

2. Unexpended construction proceeds. Land secured financing is to have redemption features that will allow the County use unexpended proceeds to redeem bonds at par upon completion of the public facilities to be financed, or upon the County, in its sole discretion, determining that all or a portion of the public facilities cannot be constructed.

3. Open market purchase. The County shall be permitted, in lieu of redeeming bonds, to purchase bonds on the open market at a price not to exceed par plus accrued interest.

b. Non-Land Secured Financing

Those redemption provisions that are statutorily required or determined by the financing team to be most compatible with a particular non-land secured financing will be required.

Reserve Funds

The County will require that for each type of financing, be it land secured or non-land secured, a reserve fund be established at a required funding level as determined appropriate by the financing team. For land secured financing, the County has determined the appropriate funding level to be the lesser of:

a. Maximum annual debt service on all bonds then outstanding; or

b. One hundred twenty-five percent (125%) of average annual debt service on all bonds then outstanding; or

c. Ten percent (10%) of the original proceeds of the bonds; or

d. As otherwise required by federal law.

Capitalized Interest

In land secured financing, the County is concerned with the degree to which property ownership, and therefore the responsibility for payment of the special tax or annual assessment installments, is concentrated in one or more individuals or entities. Capitalized interest is considered a means by which the County can assure itself and bond owners that debt service obligations will be met during the initial year(s) of the financing district. However, the amount of capitalized interest should be balanced against the annual levy on future landowners.

The amount of capitalized interest that will be required to be funded from bond proceeds in a particular land secured financing shall be based on the degree to which the property ownership is concentrated in one individual or entity. Whenever one individual or entity whose land holdings within the financing district is directly or indirectly responsible for ten percent (10%) or more of the debt service on the bonds, then eighteen (18) months of capitalized interest, or an amount determined by the Debt Advisory Committee to be adequate, will be required.

Foreclosure Covenant

For land secured financing only, the County will extend the following covenant dealing with judicial foreclosure:

"The County covenants for the benefit of the owners of the Bonds that, subject to the exception stated in the following sentence, it will commence judicial foreclosure proceedings against parcels with aggregate delinquent assessments/special taxes in excess of $_____ [amount to be determined by the Debt Advisory Committee] within 150 days of the delinquency date of each tax year and will commence judicial foreclosure proceedings against all parcels with delinquent assessments/special taxes within 150 days of the delinquency date of each tax year in which it receives assessments/special taxes in an amount which is less than 95% of the total assessments/special taxes needed to pay principal and interest on the bonds for the current tax year, and diligently pursue to completion such foreclosures. Notwithstanding the foregoing, the County, in its sole discretion, may elect to defer foreclosure proceedings on any parcel so long as the amount in the reserve fund after the payment is at least equal to the reserve requirement. The County may, but shall not be obligated to, advance funds from any source of legally available finds in order to maintain the reserve fund at the reserve requirement. For purposes hereof, the 10th of December of each tax year shall be determined to be the "delinquency date" unless said date falls on a Saturday or Sunday, in which event the "delinquency date" shall mean the first Monday immediately thereafter."

Underwriter

(and Original Issue Discount)

The underwriter’s discount shall be negotiated and determined solely by the County and shall be competitive with and comparable to such discounts on similar financing being issued by the County or other public entities. The County shall consider any other compensation the underwriter may be receiving in connection with the bond financing in determining the appropriate amount of the discount.

An original issue discount will be permitted only if the County determines that such discounts results in a lower true interest cost on the bonds and that, for land secured financing, the use of an original issue discount will not adversely affect the ability of the financing district to construct public facilities identified by the bond documents.

Bond Sale Timing

a. Land Secured Financing

No resolution authorizing issuance and sale of bonds or any series of bonds will be considered by the Board until plans and bid specifications for the public facilities to be financed by the bonds are final and all required approvals associated therewith have been received. However, if the debt issue can be structured in more than one series and if the statutory authority pursuant to which the financing district has been established allows, and the Board finds that the proposed public facilities have regional and/or other significant public benefit, the initial bond series may finance the design, engineering and preparation of the bid specifications for the public facilities.

b. Non-Land Secured Financing

No resolution authorizing issuance and sale of the bonds will be considered by the Board until the financing team determines that all conditions precedent thereto have been satisfied.

AGREEMENTS

(with Affected Public Entities)

Land Secured

1. County Issued Land Secured Financing

a. For community facilities districts, the acquisition agreements required with other public entities which will own, maintain or operate the facilities to be financed must be adopted and approved by all parties at or prior to the adoption of the resolution establishing the district.

b. For assessment districts, the utility agreement with the affected public entities will be adopted and approved by all parties at or prior to the adoption of the resolution authorizing the sale and issuance of the bonds to finance the facilities that are the subject of the utility agreement.

c. Should a debt issue be for the construction of public facilities required to be sized to exceed the service needs of the properties within the boundaries of the financing district, the County will negotiate the following:

1. To the extent that the affected public entity’s regulations allow, a credit against connection fees or other fees such that the credit will preclude the affected properties from contributing twice toward the cost of the identified public facilities.

2. For a community facilities district, to the extent that the affected public entity’s regulations allow, a reimbursement for oversized facilities that will allow the community facilities district to balance the bonded indebtedness incurred with the level of benefit the properties are to receive from the public facilities that are to be financed.

3. For an assessment district, a determination as to whether the design standards of the affected public entity require an oversizing of the public facilities that will benefit properties outside the boundaries of the proposed district, a valuation of the oversizing, and a determination of who will be responsible for the cost of the oversizing.

4. Any reimbursement for oversizing received from the affected public entity are to be paid to the financing district and, depending upon date of receipt, will be used either to augment construction proceeds or to reduce the outstanding bonded indebtedness of the financing district as determined appropriate by the County.

2. Land Secured Financing Not Issued By County

A review will be made by the Debt Advisory Committee of all non-County issued land secured financing that will require either an acquisition agreement and/or utility agreement with the County to ensure compliance with the following minimum requirements.

a. For community facilities districts containing residential projects, the rate and method of apportionment of the special tax shall not provide for an annually increasing maximum special tax for any residential classification. However, for commercial and industrial projects within the community facilities district, the County will accept a maximum special tax for such classifications that escalate at a rate not to exceed two percent (2%) per year.

b. For community facilities districts, the total projected annual special tax revenues, less estimated annual administrative expenses, must exceed the projected annual gross debt service on the bonds by ten percent (10%). In structuring the rate and method of apportionment of the special tax, projected annual interest earnings may also be included as part of the projected annual revenues to satisfy this coverage requirement. Annual bond reserve fund interest earnings shall be calculated at a rate to be determined by the County but, in no event greater than the then current passbook savings rate.

c. Whether the projected ad valorem property tax and other direct and overlapping debt for the property within the proposed boundaries of the financing district, including the proposed maximum special tax or assessment, does meet the County’s objective of not exceeding two percent (2%) of the anticipated assessed value of each improved parcel upon completion of the private improvements as articulated in Sections V.A.1.e and V.A.2.e will be reviewed. This review will include current or estimated County Service Area or Community Service District charges, benefit assessments, levies for authorized but unissued debt and any other anticipated charge which may be included on the property tax bill.

d. With regard to any bonds to be issued, there will be created a reserve fund that shall be funded from the proceeds of each series of bonds in an amount equal to the lesser of:

1. Ten percent (10%) of the original principal amount of the bonds; or

2. Maximum annual debt service; or

3. One hundred twenty-five percent (125%) of average annual debt service; or

4. As otherwise required by federal tax law.

e. All contracts for public facilities to be owned, operated, or maintained by the County shall be solicited, let and administered as public works consistent with the applicable sections of the Government Code, the Public Contracts Code, the Labor Code and the Civil Code of the State of California.

f. Bond proceeds may not be used to pay for development and mitigation fees established by the County.

g. If the County is to:

1. Own, operate, or maintain a majority of the facilities to be financed;

2. Be the single largest recipient of the facilities to be financed; or

3. Own, operate or maintain facilities having a combined construction cost of ten million dollars ($10,000,000) or more, including design, engineering, construction contingencies and related costs of the construction project.

Then the County will require that all of the appropriate Policies set forth herein shall be adhered to before entering into a joint financing agreement or a utility agreement.

Non-Land Secured

For industrial development revenue bonds, when the site of the project to be financed is not within the unincorporated territory of the County, the County must enter into a cooperation agreement with the affected city prior to submitting the proposed financing to the State for receipt of allocation. The affected city will be expected to apply a portion of its allocation allotment to support the proposed project to be financed.

ENHANCEMENTS

(Credit)

Credit enhancements, if required by the County, are utilized either to improve the credit worthiness of the proposed financing or to insure that the debt service requirements of the proposed debt issue are met in a timely manner. It is important to the County to minimize the possibility of a debt issue being placed in default and to insure that sufficient cash flows are available to meet debt service requirements.

The County will examine carefully the provider of the required credit facility and the form that the credit facility will take. The rating of the provider, as well as the provider’s capitalization are of principal concern, and a reduction in either during the term of the credit facility to a level unacceptable to the County may require that an alternate credit facility be secured from an acceptable provider. The County reserves the right, in its sole discretion, to determine the acceptability of both the credit facility and its provider.

The nature and terms of the credit facility will vary with regard to the type of financing for which it is being required. The following are the principal considerations of the County in requiring credit enhancement for either land secured or non-land secured financing.

Land Secured

If property, within the proposed boundaries of either an assessment district or community facilities district, owned directly or indirectly by one or more related entities is responsible for twenty percent (20%) or more of the debt service obligation of the proposed debt issue, a credit facility having the following terms will be required:

1. The credit facility will name the County and the financing district as beneficiary.

2. The face amount of the credit facility will be equal to twenty-five percent (25%) of the term of the bond annual debt service obligation (principal and interest) for which the property owner(s) is responsible.

3. The credit facility will have an initial term of three (3) years and be subject to annual renewal or call.

4. The credit facility may be drawn upon should there be a default by the property owner in the timely payment of the special tax obligation or the annual assessment installment.

5. The face amount of the credit facility may be drawn should the credit facility not be timely renewed or a substitute credit facility acceptable to the County timely provided, or if the rating or the capitalization of the provider fall to a level not acceptable to the County, as stated below.

6. The face amount of the credit facility will be subject to periodic adjustments should the property owner sell or transfer portions of the property to unrelated third parties.

7. The credit facility provider shall be rated "AA" or better by either Standard & Poor’s, Moody’s, or Fitch.

For purposes of these Policies, parties will be considered to be related should they be so deemed by the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. However, the County does reserve the right to apply a stricter standard than that provided by the Internal Revenue Code in determining parties to be related. The County may, in its sole discretion, require additional credit enhancements for a particular land secured financing if it is determined that they are needed to bring the credit worthiness of the proposed debt issue to a level that is acceptable to the County, over and above the requirements set forth in these Policies.

Non-Land Secured

1. Development Bonds

The credit facility will at a minimum satisfy the criteria listed in Section Industrial V.B.1 of these Policies.

2. Mortgage Revenue Bonds

The credit facility will at a minimum satisfy the criteria listed in Section V. B. 2 of these Policies.

OFFERING STATEMENTS

It is the intent of the County to comply with all applicable federal, State, Securities and Blue Sky law requirements regarding disclosure to insure that fair and accurate descriptions of debt issues are provided to the purchasers of the bonds. The County will require retention of counsel by an underwriter or disclosure counsel for any particular land secured or non-land secured financing having an aggregate principal value of one million dollars ($1,000,000) or more. Decisions as to the adequacy of the disclosure will be determined by the County, its bond counsel, disclosure counsel, financial advisor and underwriter. Except as otherwise provided herein, no preliminary or final offering statement for a particular land secured or non-land secured financing will be released for circulation unless it is deemed final by the County on the advice of its bond counsel and disclosure counsel, if any.

The proponent(s) of a particular land secured or non-land secured financing and all principal participants therein are expected to provide the information requested by the County, its bond counsel, disclosure counsel, and the underwriter, its counsel that is deemed necessary for disclosure purposes. The proponent shall provide a certificate to the County certifying as to the adequacy of the disclosure statement and that the disclosure satisfies the SEC Rule10b-5 requirements. Failure on the part of the proponent and any principal participants to comply with such requests will jeopardize completion of the debt issue.

The proponent of a particular land secured or non-land secured financing and all principal participants therein will be required to execute those certificates and provide those written opinions of their respective counsel that are required by the terms of the bond purchase agreement. Failure to do so will result in the bonds not being issued and so

With respect to mortgage revenue bond, the issuer shall be solely responsible for the contents of all preliminary statements and official statements. Both the preliminary statement and the official statements shall include the following disclaimers in the following format:

THIS OBLIGATION IS NOT AN OBLIGATION OF THE COUNTY OF KERN.

THE COUNTY OF KERN HAS NOT REVIEWED EITHER THE PRELIMINARY STATEMENT OR THE OFFICIAL STATEMENT. THE COUNTY OF KERN MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OF ANY OF THE MATERIALS, REPRESENTATIONS, STATEMENTS OR FACTS CONTAINED IN EITHER THE PRELIMINARY STATEMENT OR THE OFFICIAL STATEMENT.

THE COUNTY OF KERN IS NOT AN OBLIGATED PARTY. AS SUCH, THE COUNTY OF KERN IS NOT OBLIGATED TO MAKE ANY CONTINUING DISCLOSURE.

All disclaimers shall be prominently displayed, appear in bold type, all caps, and at least a 12 point font.

ADMINISTRATION

Bond Administration

Land Secured

a. Community Facilities Districts

These bonds issued by the County of Kern pursuant to bond indentures or fiscal agent agreements which identify the Kern County Engineering & Survey Services Department to have administrative responsibility for these debt issues. This includes, among other duties, the computation and enrollment of the special tax, payment of principal and interest on the bonds, initiation of foreclosure proceedings with regard to delinquent parcels, and management and investment of monies held in all funds and accounts created by the bond indentures or fiscal agent agreements.

a. Assessment Districts

These bonds issued by the County of Kern pursuant to bond indentures or fiscal agent agreements that will identify the Kern County Engineering & Survey Services Department to have administrative responsibility for these debt issues. This includes, among other duties, the computation and enrollment of the annual assessment installment, payment of principal and interest on the bonds, initiation of foreclosure proceedings with regard to delinquent parcels, and management and investment of monies held in all funds and accounts created by the bond indentures or fiscal agent agreement.

Non-Land Secured

a. Industrial Development Revenue Bonds

These bonds are issued pursuant to trust indentures which place principal administrative responsibility with the trustee. There are certain matters that do require direction from either the proponent or developer of the project, the issuer, or both. The issuer is the Industrial Development Authority of the County of Kern. This related agency of the County is administered by the Kern County Community Development Department.

Construction

(Construction Contract Administration)

Land Secured

a. Acquisition

The County will acquire public facilities to be financed by the proceeds of this type of financing only if the public facilities have been constructed prior to the adoption of the resolution establishing the community facilities district or the resolution of intention to form an assessment district.

b. Reimbursement

At the time of submission of an application for a land secured financing, the County department receiving the application will consider whether it will allow the public facilities to be constructed by the proponent of the financing as if they were a public work. If this is to be allowed, the public facilities are to constructed as public works consistent with all applicable statutory requirements. Design engineering, project management and construction contract administration are to be provided by the financing proponent but subject to oversight and approval by the County.

At the time the financing district is established, the proponent of the financing shall enter into an acquisition funding agreement that will identify the public facilities to be constructed and the amount to be paid for each facility.

Upon completion of the entire project or specified public facilities, the financing district will acquire the completed facilities consistent with the terms of the agreement.

The determination of whether the proponent of the financing is suitable for a reimbursement construction program will be made by the responsible County department.

c. Construction

The responsible County department at the time or receiving the application for a land secured financing may determine that the public facilities to be financed are to be constructed as a public work with project management and construction contract administration services provided by the County. If this determination is made, then in the resolution of intention for establishing the financing district, the County will find that it is not in the public interest to allow the property owners within the financing district to enter into a contract to construct the public facilities.

Non-Land Secured

a. Industrial Development Revenue Bonds

The proponent or developer will have sole responsibility for the construction of the project financed by the proceeds of the industrial development revenue bonds.

Notice

(Notice to Future Property Owners)

The following provisions apply to land secured financing. Notification of future landowners is not required for non-land secured financing.

a. Community Facilities Districts

The Mello-Roos Community Facilities Act of 1982, as amended, requires that certain disclosure certificates regarding the existence of a community facilities district and the special tax obligation be provided to those individuals purchasing property within the district. The County will require that the statutorily prescribed disclosure be made to the initial purchaser of property within a community facilities district, and it will make available the information necessary to complete the disclosure certificate required for secondary transfers. The County finds that the statutory requirements of disclosure to property purchasers contained in the Mello-Roos Community Facilities Act of 1982, as amended, most notably, but not limited to, sections 53328.3, 53328.5 (including the referenced sections of California Streets and Highways Code), 53340.2 and 53341.5 adequately address this need, and no additional procedures need be imposed by the County. The County reserves the right to require additional disclosure procedures in any particular case. In its sole discretion, the County may require additional disclosure if to do so will aid subsequent purchasers to be made aware of the existence of the community facilities district and the lien obligations created by the special tax.

b. Assessment Districts

Consistent with the applicable provisions of the Streets and Highways Code dealing with notice as to the existence of an assessment district, the County considers the recordation of the notice of an assessment lien with regard to a parcel sufficient notice as to the existence of an assessment district and the amount of the lien.

Annual Reporting

The County departments identified in Section X.A of these Policies as having responsibility for bond administration will prepare and timely file with the State and federal agencies all statutorily required reports.

Consistent with Section III of these Policies, County department having responsibility for bond administration is to prepare and submit annually to the Debt Advisory Committee a report on the status of their respective debt issues on forms to be provided by the Debt Advisory Committee. The occurrence of technical default, or the likelihood thereof, is to be reported immediately to both the Debt Advisory Committee and to the Board by the administering department or related district. For the purposes of these Policies, the term "technical default" shall mean the occurrence of an event or omission that may result in the inability to make timely payment of debt service on the financing or would jeopardize the tax exempt status of the financing (e.g., the need to draw on a reserve to make a required rebate payment.) fund, the insolvency or bankruptcy of a principal property owner, the insolvency of a provider of a credit enhancement, or insufficient funds.

The information contained in these reports will allow the Debt Advisory Committee to prepare an analysis of the outstanding debt of the County.

REFUNDING

The principal objective of the County in refunding an outstanding debt issue is to secure a public benefit which may include an interest rate savings that will result in both an actual and present value savings to the property owners responsible for paying debt service on the bonds. The actual value of the savings must significantly exceed the costs of the refunding and any increase in the principal amount of bonds that will be outstanding as a result of the refunding.

Land Secured

A. Land Secured Financing Refunding of a particular land secured financing must at minimum be structured to reflect the following:

1. The refunding bonds shall mature on a date not later than the date on which the bonds being refunded (the "prior bonds") mature.

2. Annual debt service savings to be realized from the refunding are to be apportioned equally over the remaining life of the refunding bonds.

3. If there are no provisions for their defeasance, a defeasance escrow shall be established that will contain only cash or direct obligations of the United States.

4. A refunding that results in an increase in the principal amount of bonds outstanding must consider prepayments that have been received prior to the refunding.

The County will also consider refunding an outstanding land secured financing to address unacceptable or unworkable bond covenants, debt service schedules or bond maturities.

Non-Land Secured

The County will consider refunding a particular outstanding non-land secured financing to address unacceptable or unworkable bond covenants, debt service schedules or bond maturities.

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