The date of this Official Statement is July 23, 2014.

NEW ISSUE — BOOK-ENTRY

Standard & Poor’s: “AA” (BAM Insured)“A+” (Underlying)

(See “CONCLUDING INFORMATION — Ratings” Herein)In the opinion of Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming continuing compliance

with covenants intended to preserve the exclusion from gross income for federal income tax purposes of interest on the Bonds, interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from present State of California personal income taxes. See “CONCLUDING INFORMATION — Tax Exemption” herein.

$10,970,000

SUCCESSOR AGENCY TO THE NORCO COMMUNITY REDEVELOPMENT AGENCY

Norco Redevelopment Project Area No. One Tax Allocation Refunding Bonds (School District Pass-Through)

Issue of 2014

Dated: Delivery Date Due: March 1, as shown on the inside front coverThe above-captioned bonds (the “Bonds”) will be delivered as fully registered bonds, registered in the name of Cede & Co. as nominee

of The Depository Trust Company, New York, New York (“DTC”), and will be available to ultimate purchasers (“Beneficial Owners”) in the denomination of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC. Beneficial Owners will not be entitled to receive delivery of bonds representing their ownership interest in the Bonds. The principal of, premium if any, and semiannual interest (due March 1 and September 1 of each year, commencing March 1, 2015) on the Bonds will be payable by U.S. Bank National Association, as Trustee, to DTC for subsequent disbursement to DTC participants, so long as DTC or its nominee remains the registered owner of the Bonds (see “THE BONDS — Book-Entry System” herein).

The Bonds are subject to optional redemption prior to maturity, in whole or in part, on March 1, 2024 and on any day thereafter, at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, without premium. The Bonds are also subject to mandatory sinking fund redemption.

The Bonds are being issued by the Successor Agency to the Norco Community Redevelopment Agency (the “Agency” or the “Successor Agency”) to (i) refinance the Prior Agency’s previously issued $5,100,000 Norco Redevelopment Project Area No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2001, (the “2001 Bonds”) of which $3,605,000 is currently outstanding and the Prior Agency’s previously issued $11,250,000 Norco Redevelopment Project No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2004 (the “2004 Bonds”) of which $8,870,000 is currently Outstanding (collectively, the “Refunded Bonds”); (ii) purchase a municipal bond debt service reserve insurance policy in an amount equal to half of the proportionate share of the Reserve Requirement for the reserve account for the Bonds; (iii) fund the balance of proportionate share of the Reserve Requirement and (iv) pay costs of issuance of the Bonds.

The Bonds are payable from and secured by the Pledged Tax Revenues, as defined herein, to be derived from the Norco Redevelopment Project Area No. One (the “Project Area”) on a parity with the Prior Agency’s previously issued $12,200,000 Norco Redevelopment Project No. One, Tax Allocation Bonds (School District Pass-Through) Issue of 2009 of which $11,075,000 are currently Outstanding (the “2009 Bonds”). Taxes levied on the property within the Amendment No. 1 portion of the Project Area on that portion of the taxable valuation over and above the taxable valuation of the base year property tax rolls deposited in the Redevelopment Property Tax Trust Fund and, to the extent they constitute Pledged Tax Revenues, shall be deposited in the Redevelopment Obligation Retirement Fund, and administered by the Agency and the Trustee in accordance with the Indenture (as herein defined).

The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by Build America Mutual Assurance Company. See “BOND INSURANCE” and Appendix E — “SPECIMEN MUNICIPAL BOND INSURANCE POLICY.”

This cover page of the Official Statement contains information for quick reference only. It is not a complete summary of the

Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. Attention is hereby directed to certain risk factors more fully described herein.

The Bonds are not a debt of the City of Norco, the State of California or any of its political subdivisions (except the Agency) and neither said City, said State or any of its political subdivisions (except the Agency) is liable therefor. The principal of and interest on the Bonds are payable solely from the Pledged Tax Revenues allocated to the Agency from the Project Area (all as defined herein and in the Indenture) and other funds as set forth in the Indenture. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction.

The Bonds are offered, when, as and if issued, subject to the approval of Harper & Burns, LLP, Orange, California, Bond Counsel. Certain legal matters will be passed on for the Agency by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, Disclosure Counsel, and for the Underwriter by Fulbright & Jaworski LLP, Los Angeles, California, a member of Norton Rose Fulbright, as Underwriter’s Counsel. It is anticipated that the Bonds will be available for delivery through the facilities of DTC on or about August 13, 2014.

SOUTHWEST SECURITIES, INC.

SUCCESSOR AGENCY TO THE NORCO COMMUNITY REDEVELOPMENT AGENCY Norco Redevelopment Project Area No. One

Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2014

Maturity Schedule

Maturity Date (March 1)

Principal Amount

Interest Rate Yield CUSIP†

2015 $350,000 2.000% 0.280% 655505AA3 2016 425,000 3.000 0.510 655505AB1 2017 435,000 4.000 0.800 655505AC9 2018 460,000 4.000 1.160 655505AD7 2019 475,000 5.000 1.550 655505AE5 2020 505,000 5.000 1.840 655505AF2 2021 520,000 5.000 2.130 655505AG0 2022 550,000 5.000 2.390 655505AH8 2023 575,000 5.000 2.610 655505AJ4 2024 605,000 5.000 2.780 655505AK1

$6,070,000 5.000% Term Bonds due March 1, 2032 Yield: 3.650%C, CUSIP† 655505AL9

† CUSIP® is a registered trademark of the American Bankers Association. Copyright© 1999-2014 American Bankers

Association. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services, managed by Standard & Poor’s Financial Services LLC on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for CUSIP Global Services. CUSIP® numbers are provided for convenience of reference only. Neither the Agency nor the Underwriter takes any responsibility for the accuracy of such numbers.

C Yield to optional redemption date of March 1, 2024, at par.

SUCCESSOR AGENCY TO THE NORCO COMMUNITY REDEVELOPMENT AGENCY

NORCO, CALIFORNIA

BOARD OF DIRECTORS

Berwin Hanna, Chair Herb Higgins, Vice-Chair Kathy Azevedo, Member

Kevin Bash, Member Greg Newton, Member

AGENCY/CITY STAFF

Andy Okoro, Executive Director/City Manager Cheryl Link, Agency Secretary/City Clerk

John Harper, Agency Counsel/City Attorney

SPECIAL SERVICES

Bond Counsel Harper & Burns LLP Orange, California

Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation

Newport Beach, California

Trustee and Escrow Bank U.S. Bank National Association

Los Angeles, California

Financial Advisor Urban Futures, Inc. Orange, California

Dissemination Agent Willdan Financial Services

Temecula, California

Underwriter Southwest Securities, Inc.

Cardiff by the Sea, California

Verification Consultant Grant Thornton

Minneapolis, Minnesota

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations with respect to the Bonds other than as contained in this Official Statement, and, if given or made, such other information or representation must not be relied upon as having been given or authorized by the Agency or the Underwriter.

Use of Official Statement. This Official Statement is submitted in connection with the sale of the Bonds described in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement does not constitute a contract between any Bond owner and the Agency or the Underwriter.

Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

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

This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the Agency or the other parties described in this Official Statement, since the date of this Official Statement.

Document Summaries. All summaries of the Indenture or other documents contained in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all such provisions. All references in this Official Statement to the Indenture and such other documents are qualified in their entirety by reference to such documents, which are on file with the Agency.

No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

No Registration with the SEC. The issuance and sale of the Bonds have not been registered under the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2) and 3(a)(12), respectively, for the issuance and sale of municipal securities.

Public Offering Prices. The Underwriter may offer and sell the Bonds to certain dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and the Underwriter may change those public offering prices from time to time.

Web Page. The City of Norco maintains a website. However, the information maintained on the website is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.

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

TABLE OF CONTENTS

Page

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INTRODUCTORY STATEMENT .............................................................................................................. 1 Authority and Purpose .............................................................................................................................. 1 The Redevelopment Plan .......................................................................................................................... 2 Tax Allocation Financing .......................................................................................................................... 2 School District Pass-Through Agreement ................................................................................................. 3 Security for the Bonds ............................................................................................................................... 3 Reserve Account ....................................................................................................................................... 4 Further Information ................................................................................................................................... 4

BOND INSURANCE ................................................................................................................................... 5 Bond Insurance Policy .............................................................................................................................. 5 Build America Mutual Assurance Company ............................................................................................ 5 Capitalization of BAM .............................................................................................................................. 5 Additional Information Available from BAM .......................................................................................... 6

SOURCES AND USES OF FUNDS ............................................................................................................ 7

THE BONDS ................................................................................................................................................ 7 Authority for Issuance ............................................................................................................................... 7 Description of the Bonds ........................................................................................................................... 7 Book-Entry System ................................................................................................................................... 8 Optional Redemption ................................................................................................................................ 8 Sinking Fund Redemption ........................................................................................................................ 8 Notice of Redemption ............................................................................................................................... 8

SECURITY FOR THE BONDS ................................................................................................................... 9 Tax Increment Financing ........................................................................................................................ 11 Redevelopment Property Tax Trust Fund ............................................................................................... 12 Recognized Obligation Payment Schedule ............................................................................................. 13 Parity Bonds ............................................................................................................................................ 15

THE INDENTURE ..................................................................................................................................... 17 Allocation of Tax Revenues .................................................................................................................... 17 Pledged Tax Revenues – Application ..................................................................................................... 17 Investment of Moneys in Funds and Accounts ....................................................................................... 19 Covenants of the Agency ........................................................................................................................ 20 Events of Default and Remedies ............................................................................................................. 23 Application of Funds Upon Acceleration ............................................................................................... 24 Amendments ........................................................................................................................................... 24

THE SUCCESSOR AGENCY TO THE NORCO COMMUNITY REDEVELOPMENT AGENCY ...... 25 Members and Officers ............................................................................................................................. 26 Agency Powers ....................................................................................................................................... 26

RISK FACTORS ........................................................................................................................................ 26 Reduction in Taxable Value .................................................................................................................... 27 Risks to Real Estate Market .................................................................................................................... 27 Reduction in Inflationary Rate ................................................................................................................ 27 Development Risks ................................................................................................................................. 28 Levy and Collection of Taxes ................................................................................................................. 28

TABLE OF CONTENTS (Continued)

Page

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State Budget Issues ................................................................................................................................. 29 Recognized Obligation Payment Schedule ............................................................................................. 29 Bankruptcy and Foreclosure ................................................................................................................... 31 Estimated Revenues ................................................................................................................................ 31 Hazardous Substances ............................................................................................................................. 31 Natural Disasters ..................................................................................................................................... 32 Changes in the Law ................................................................................................................................. 32 Investment Risk ...................................................................................................................................... 32 Additional Obligations ............................................................................................................................ 32 Secondary Market ................................................................................................................................... 33 IRS Audit of Tax-Exempt Bond Issues ................................................................................................... 33 Insured Bonds ......................................................................................................................................... 33

PROPERTY TAXATION IN CALIFORNIA ............................................................................................ 34 Property Tax Collection Procedures ....................................................................................................... 34 Unitary Property ...................................................................................................................................... 36 Article XIIIA of the State Constitution ................................................................................................... 36 Appropriations Limitation – Article XIIIB ............................................................................................. 37 Articles XIIIC and XIIID of the State Constitution ................................................................................ 37 Redevelopment Time Limits ................................................................................................................... 38 Appeals of Assessed Values ................................................................................................................... 38 Proposition 8 ........................................................................................................................................... 39 Propositions 218 and 26 .......................................................................................................................... 39 Future Initiatives ..................................................................................................................................... 39

THE PROJECT AREA ............................................................................................................................... 40 Assessment Appeals ................................................................................................................................ 41 Land Use ................................................................................................................................................. 42 Limitations and Requirements of the Redevelopment Plan .................................................................... 42 School District Pass-Through Agreement ............................................................................................... 43 Largest Local Secured Taxpayers ........................................................................................................... 44

PLEDGED TAX REVENUES ................................................................................................................... 44 Schedule of Historical Pledged Tax Revenues ....................................................................................... 45 Projected Taxable Valuation and Pledged Tax Revenues ....................................................................... 46 Annual Debt Service ............................................................................................................................... 47 Combined Debt Service .......................................................................................................................... 48 Debt Service Coverage ............................................................................................................................ 49

CONCLUDING INFORMATION ............................................................................................................. 50 Underwriting ........................................................................................................................................... 50 Verification of Mathematical Accuracy .................................................................................................. 50 Legal Opinion ......................................................................................................................................... 51 Tax Exemption ........................................................................................................................................ 51 Litigation ................................................................................................................................................. 52 Legality for Investment in California ...................................................................................................... 52 Ratings .................................................................................................................................................... 52 Continuing Disclosure ............................................................................................................................. 53 Miscellaneous ......................................................................................................................................... 55

TABLE OF CONTENTS (Continued)

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APPENDIX A DEFINITIONS ................................................................................................................ A-1

APPENDIX B FORM OF BOND COUNSEL OPINION ...................................................................... B-1

APPENDIX C BOOK-ENTRY ONLY SYSTEM .................................................................................. C-1

APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT .......................................... D-1

APPENDIX E SPECIMEN MUNICIPAL BOND INSURANCE POLICY .......................................... E-1

APPENDIX F FINANCIAL ADVISOR’S REPORT ............................................................................. F-1

APPENDIX G SUPPLEMENTAL INFORMATION – THE CITY OF NORCO ................................. G-1

APPENDIX H COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2013 (EXCLUDING SUPPLEMENTARY INFORMATION) ...... H-1

[THIS PAGE INTENTIONALLY LEFT BLANK]

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OFFICIAL STATEMENT

$10,970,000 SUCCESSOR AGENCY TO THE

NORCO COMMUNITY REDEVELOPMENT AGENCY Norco Redevelopment Project Area No. One

Tax Allocation Refunding Bonds (School District Pass-Through) Issue of 2014

INTRODUCTORY STATEMENT

This Official Statement, including the cover page, is provided to furnish information in connection with the sale by the Successor Agency to the Norco Community Redevelopment Agency (the “Agency” or the “Successor Agency”) of $10,970,000 Norco Redevelopment Project Area No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2014 (the “Bonds”).

Authority and Purpose

The Bonds are being issued pursuant to the Constitution and laws of the State of California (the “State”), including Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code (the “Bond Law”) and an Indenture of Trust dated as of July 1, 2014 (the “Indenture”) by and between the Agency and U.S. Bank National Association, as trustee (the “Trustee”). See “THE BONDS — Authority for Issuance.”

The Bonds are being issued to refinance the Norco Community Redevelopment Agency’s (the “Prior Agency”) previously issued $5,100,000 Norco Redevelopment Project Area No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2001 (the “2001 Bonds”) of which $3,605,000 are currently outstanding and the Prior Agency’s previously issued $11,250,000 Norco Redevelopment Project No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2004 (the “2004 Bonds”) of which $8,870,000 are currently Outstanding (collectively, the “Refunded Bonds”); (ii) purchase a municipal bond debt service reserve insurance policy in an amount equal to half of the Reserve Requirement for the reserve account for the Bonds; (iii) fund the balance of the Reserve Requirement and (iv) pay costs of issuance of the Bonds.

The City of Norco (the “City”) is approximately 51 miles east of the City of Los Angeles and 125 miles north of San Diego and is located in Riverside County (the “County”). The City was incorporated as a general law city on December 28, 1964 and became a charter city in 2003. The City provides for a Council-Manager form of government made up of five Council Members elected to four-year overlapping terms. The City encompasses an area of approximately 15 square miles and the 2014 population was estimated to be 26,582.

The Prior Agency was established on January 2, 1980 by the City Council of the City with the adoption of Ordinance No. 434, pursuant to the Community Redevelopment Law (Part 1, Division 25, commencing with Section 33000 of the Health and Safety Code of the State) (the “Redevelopment Law”). On June 29, 2011, Assembly Bill No. 26 (“ABx1 26”) was enacted as Chapter 5, Statutes of 2011, together with a companion bill, Assembly Bill No. 27 (“ABx1 27”). A lawsuit was brought in the California Supreme Court, California Redevelopment Association, et al. v. Matosantos, et al., 53 Cal. 4th 231 (Cal. Dec. 29, 2011), challenging the constitutionality of ABx1 26 and ABx1 27. The California Supreme Court largely upheld ABx1 26, invalidated ABx1 27, and held that ABx1 26 may be severed from ABx1 27 and enforced independently. As a result of ABx1 26 and the decision of the California Supreme Court in the California Redevelopment Association case, as of February 1, 2012, all redevelopment agencies in the State were dissolved, including the Prior Agency, and successor agencies

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were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.

The primary provisions enacted by ABx1 26 relating to the dissolution and wind down of former redevelopment agency affairs are Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State, as amended on June 27, 2012 by Assembly Bill No. 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012 (as amended from time to time, the “Dissolution Act”).

On January 11, 2012, the City Council of the City elected to serve as the Agency, pursuant to Resolution No. 2012-01, adopted by the City as the governing body of the Agency and Section 34173 of the Dissolution Act. Subdivision (g) of Section 34173 of the Dissolution Act, added by AB 1484, expressly affirms that the Agency is a separate public entity from the City, that the two entities shall not merge, and that the liabilities of the Prior Agency will not be transferred to the City nor will the assets of the Prior Agency become assets of the City.

The Redevelopment Plan

The Redevelopment Plan for Norco Redevelopment Project Area No. One (the “Redevelopment Plan”) was approved by Ordinance No. 458 adopted by the City Council of the City on July 15, 1981 and amended by Ordinance No. 502 adopted by the City Council of the City on November 16, 1983, Ordinance No. 537 adopted by the City Council of the City on May 1, 1985, Ordinance No. 683 adopted by the City Council of the City on December 1, 1993, Ordinance No. 841 adopted by the City Council of the City on February 1, 2006, and Ordinance No. 896 adopted by the City Council of the City on July 2, 2008. Norco Redevelopment Project Area No. One (the “Project Area”) consists of three contiguous areas which total approximately 4,991 acres. The Project Area is zoned for mixed land uses with residential property as the dominant land use. See Appendix G — “SUPPLEMENTAL INFORMATION — THE CITY OF NORCO.”

Tax Allocation Financing

Prior to the enactment of ABx1 26, the Redevelopment Law authorized the financing of redevelopment projects through the use of tax increment revenues. This method provided that the taxable valuation of the property within a redevelopment project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts the redevelopment plan becomes the base year valuation. Assuming the taxable valuation never drops below the base year level, the taxing agencies thereafter received that portion of the taxes produced by applying then current tax rates to the base year valuation, and the redevelopment agency was allocated the remaining portion produced by applying then current tax rates to the increase in valuation over the base year. Such incremental tax revenues allocated to a redevelopment agency were authorized to be pledged to the payment of redevelopment agency obligations.

The Dissolution Act authorizes refunding bonds, including the Bonds, to be secured by a pledge of monies deposited from time to time in a Redevelopment Property Tax Trust Fund (the “Redevelopment Property Tax Trust Fund”) held by a county auditor-controller with respect to a successor agency, which are equivalent to the tax increment revenues that were formerly allocated under the Redevelopment Law to the redevelopment agency and formerly authorized under the Redevelopment Law to be used for the financing of redevelopment projects. Under the Indenture, Pledged Tax Revenues consist of the amounts deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to and as provided in the Dissolution Act less certain payments to taxing agencies but subject to any adjustments thereto pursuant to Section 34183(b) of the Dissolution Act and amounts required to pay debt service on

3

the Bonds, as defined below. See “SECURITY FOR THE BONDS — Tax Increment Financing” herein for additional information.

Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See “RISK FACTORS.”

School District Pass-Through Agreement

The Agency has entered into an agreement (the “Pass-Through Agreement”) for the allocation and distribution of tax increment revenues from Amendment No. 1 to the Project Area with the Corona-Norco Unified School District (the “School District”). The Pass-Through Agreement states that the Agency shall pay the School District its share of (37.37%) of tax increment revenues.

Security for the Bonds

The Dissolution Act requires the County Auditor-Controller to determine the amount of property taxes that would have been allocated to the Prior Agency had the Prior Agency not been dissolved pursuant to the operation of ABx1 26, using current assessed values on the last equalized roll on August 20, and to deposit that amount in the Redevelopment Property Tax Trust Fund for the Agency established and held by the County Auditor-Controller pursuant to the Dissolution Act. The Dissolution Act provides that any bonds authorized thereunder to be issued by the Agency will be considered indebtedness incurred by the dissolved Prior Agency, with the same legal effect as if the bonds had been issued prior to effective date of ABx1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to that date, and will be included in the Agency’s Recognized Obligation Payment Schedule (see Appendix A — “DEFINITIONS” and “SECURITY FOR THE BONDS — Recognized Obligation Payment Schedule”).

The Dissolution Act further provides that bonds authorized thereunder to be issued by the Agency will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund, and that property tax revenues pledged to any bonds authorized under the Dissolution Act, such as the Bonds, are taxes allocated to the Agency pursuant to the provisions of the Redevelopment Law and the State Constitution which provided for the allocation of tax increment revenues under the Redevelopment Law, as described in the foregoing paragraph.

In accordance with the Dissolution Act, “Pledged Tax Revenues” are defined under the Indenture as the portion of the monies deposited from time to time in the Redevelopment Property Tax Trust Fund derived from the Amendment No. 1 portion of the Project Area, as provided in paragraph (2) of subdivision (a) of Section 34183 of the Dissolution Act in an amount not to exceed that portion of the tax revenues required by the Pass-Through Agreement to be paid to the School District under the Prior Law. In accordance with the Dissolution Act, the Bonds shall be payable from and secured by the Pledged Tax Revenues. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include all tax revenues allocated to the payment of indebtedness pursuant to Health & Safety Code Section 33670 or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution for payment under the Pass-Through Agreement.

The Bonds and the 2009 Bonds are payable from and secured by the Pledged Tax Revenues, all of the monies in the Redevelopment Obligation Retirement Fund established and held by the Agency pursuant to the Dissolution Act, and all of the monies in the Debt Service Fund (including the Interest Account, the Principal Account, and the Reserve Account therein) established and held by the Trustee

4

under the Indenture. Taxes levied on the property within the Project Area on that portion of the taxable valuation over and above the taxable valuation of the applicable base year property tax roll with respect to the various territories within the Project Area, will be deposited in the Redevelopment Property Tax Trust Fund for transfer by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund on January 2 and June 1 of each year to the extent required for payments listed in the Agency’s Recognized Obligation Payment Schedule in accordance with the requirements of the Dissolution Act (see “SECURITY FOR THE BONDS — Recognized Obligation Payment Schedule”). Monies deposited by the County Auditor-Controller into the Agency’s Redevelopment Obligation Retirement Fund, will be transferred by the Agency to the Trustee for deposit in the Debt Service Fund established under the Indenture and administered by the Trustee in accordance with the Indenture.

Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See “RISK FACTORS.”

The scheduled payment of principal and interest on the Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Bonds by Build America Mutual Assurance Company (the “Bond Insurer”). See “BOND INSURANCE.”

Reserve Account

In order to further secure the payment of the principal of and interest on the Bonds, proceeds of the Bonds in an amount equal to half of the proportionate share of the Reserve Requirement will be deposited in a Reserve Account within the Debt Service Fund is created pursuant to the Indenture in an amount equal to the Reserve Requirement. “Reserve Requirement” means, as of the date of computation, an amount equal to the lesser of (i) Maximum Annual Debt Service on the Bonds and any Parity Bonds, (ii) 10% of the net proceeds of the Bonds and any Parity Bonds, or (iii) 125% of the Annual Debt Service on all Bonds and any Parity Bonds Outstanding.

Concurrently with the issuance of the Bonds, the Bond Insurer will issue a Municipal Bond Debt Service Reserve Insurance Policy for the benefit of the Bonds (the “Reserve Policy”) to be deposited in the Reserve Account in an amount equal to half of the proportionate share of the Reserve Requirement. The Reserve Policy provides that the Bond Insurer will make payment to the Trustee on the later of (i) the Business Day on which principal and interest becomes due for Payment or (ii) the first Business Day following the Business Day on which the Bond Insurer shall have received Notice of Nonpayment, not to exceed the policy limit. The Reserve Policy will not be available for the payment of debt service on any Parity Bonds, and is being issued only for the benefit of the Bonds in the event of a Reserve Account draw on a pro-rata basis with any outstanding Parity Bonds.

Further Information

Brief descriptions of the Bonds, the Indenture, the Agency, the Prior Agency and the City are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture, the Bond Law, the Redevelopment Law, the Dissolution Act, the Constitution and the laws of the State as well as the proceedings of the Prior Agency, the Agency and the City are qualified in their entirety by reference to such documents. References herein to the Bonds are qualified in their entirety by the form thereof included in the Indenture and the information with respect thereto included herein, copies of which are all available for inspection at the offices of the Agency. During the period of the offering of the Bonds, copies of the forms of all documents are available at the offices of Southwest Securities, Inc., 2533 South Coast Hwy 101, Suite 250, Cardiff by the Sea, California 92007, and thereafter from the City Clerk’s office, City of Norco, 2870 Clark Avenue, Norco, California 92860.

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BOND INSURANCE

The following information has been furnished by the Bond Insurer for use in this Official Statement. Such information has not been independently confirmed or verified by the Agency. The City makes no representation as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. Reference is made to Appendix E for a specimen of the municipal bond insurance policy.

Bond Insurance Policy

Concurrently with the issuance of the Bonds, Build America Mutual Assurance Company (“BAM”) will issue its municipal bond insurance policy for the Bonds (the “Policy”). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as Appendix E to this Official Statement.

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

Build America Mutual Assurance Company

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

The address of the principal executive offices of BAM is: 1 World Financial Center, 27th Floor, 200 Liberty Street, New York, New York 10281, its telephone number is: 212-235-2500, and its website is located at: www.buildamerica.com.

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

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

Capitalization of BAM

BAM’s total admitted assets, total liabilities, and total capital and surplus, as of March 31, 2014 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New

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York State Department of Financial Services were $478.6 million, $12.7 million and $465.9 million, respectively.

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

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

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

Additional Information Available from BAM

Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM’s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM’s website at www.buildamerica.com/creditinsights/.

Obligor Disclosure Briefs. Subsequent to closing, BAM posts an Obligor Disclosure Brief on every issue insured by BAM, including the Bonds. BAM Obligor Disclosure Briefs provide information about the gross par insured by CUSIP, maturity and coupon; sector designation (e.g. general obligation, sales tax); a summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. The Obligor Disclosure Briefs are also easily accessible on BAM’s website at buildamerica.com/obligor/.

Disclaimers. The Obligor Disclosure Briefs and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Obligor Disclosure Briefs and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Obligor Disclosure Briefs and Credit Insight videos are prepared by BAM and have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and they assume no responsibility for their content.

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

The websites or webpages referenced herein are in no way incorporated into this Official Statement. They are cited for informational purposes only. The Agency makes no representation whatsoever as to the accuracy or completeness of any of the information on such websites.

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SOURCES AND USES OF FUNDS

The estimated sources and uses of funds is summarized as follows:

Sources: Principal Amount of Bonds $ 10,970,000.00 2001 Bonds Funds and Accounts 453,824.64 2004 Bonds Funds and Accounts 966,378.44 Original Issue Premium 1,317,194.90 Total Sources $ 13,707,397.98 Uses: Underwriter’s Discount $ 88,857.00 2001 Bonds Escrow Fund(1) 3,711,848.19 2004 Bonds Escrow Fund(2) 9,107,380.56 Reserve Account (3) 540,602.20 Costs of Issuance Fund(4) 258,710.03 Total Uses $ 13,707,397.98 (1) Amount sufficient to pay interest then due on the 2001 Bonds on September 1, 2014 and principal and interest then due on

the 2001 Bonds on the redemption date of September 15, 2014. (2) Amount sufficient to pay interest then due on the 2004 Bonds on September 1, 2014 and principal and interest then due on

the 2004 Bonds on the redemption date of September 15, 2014. (3) The balance of the proportionate share of the Reserve Requirement will satisfied by the deposit of the Reserve Policy. (4) Costs of Issuance include fees and expenses for Bond Counsel, Disclosure Counsel, Financial Advisor, Trustee, printing

expenses, rating fee, bond insurance and Reserve Policy premiums and other costs.

THE BONDS

Authority for Issuance

The Bonds were authorized for issuance pursuant to the Indenture, the Bond Law, and the Dissolution Act. The issuance of the Bonds and the Indenture were authorized by the Agency pursuant to Resolution No. 2014-02 adopted on February 19, 2014 (the “Resolution”), and by the Oversight Board for the Agency pursuant to Resolution No. 2014-04 adopted on February 26, 2014 (the “Oversight Board Action”).

Written notice of the Oversight Board Resolution was provided to the California Department of Finance (“DOF”) pursuant to the Dissolution Act on February 28, 2014, and the DOF requested a review within five business days of such written notice. On April 28, 2014, the DOF provided a letter to the Agency stating that based on the DOF’s review and application of the law, the Oversight Board Action approving the Bonds is approved by the DOF. A copy of the letter from DOF can be obtained from the Agency.

Description of the Bonds

The Bonds will be executed and delivered as one fully-registered Bond in the denomination of $5,000 or any integral multiple thereof for each maturity, initially in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), as registered owner of all Bonds. See “Book-Entry System” below. The initially executed and delivered Bonds will be dated the Delivery Date and mature on March 1 in the years and in the amounts shown on the inside cover page of this Official Statement. Interest on the Bonds will be calculated at the rates shown on the inside cover page of this Official Statement, payable semiannually on March 1 and September 1 in each year, commencing on

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March 1, 2015, by check mailed to the registered owners thereof or upon the request of the Owners of $1,000,000 or more in principal amount of Bonds, by wire transfer to an account in the United States which shall be designated in written instructions by such Owner to the Trustee on or before the Record Date preceding the Interest Payment Date.

Book-Entry System

The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered 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 certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See Appendix C — “BOOK-ENTRY ONLY SYSTEM.”

Optional Redemption

Optional Redemption. The Bonds may be called before maturity and redeemed at the option of the Agency, in whole or in part, from the proceeds of refunding bonds or other available funds, on March 1, 2024 or on any date thereafter prior to maturity. Bonds called for redemption will be redeemed at the following redemption price (expressed as a percentage of the principal amount of Bonds to be redeemed) plus accrued interest to the redemption date:

Redemption Date Redemption Price

March 1, 2024 and thereafter 100% Sinking Fund Redemption

The Bonds maturing on March 1, 2032 will be subject to mandatory redemption in part, by lot, on March 1, 2025 and on each March 1 until maturity, at a redemption price equal to the principal amount thereof together with accrued interest thereon to the redemption date, without premium, from minimum sinking fund payments on hand in the Debt Service Fund in the years and amounts as follows:

2032 TERM BONDS

Year Amount

2025 $630,000 2026 670,000 2027 700,000 2028 735,000 2029 775,000 2030 815,000 2031 850,000 2032 (maturity) 895,000

Notice of Redemption

Notice of redemption prior to maturity shall be given by first class mail, postage prepaid not less than thirty (30) nor more than sixty (60) days prior to the redemption date to the registered owner of each such Bond at the address shown on the registration books of the Trustee. Neither the failure to receive such notice nor any defect in any notice mailed shall affect the sufficiency of the proceedings for the

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redemption of any Bonds. The notice of redemption shall: (a) state the redemption date; (b) state the redemption price; (c) state the numbers of the Bonds to be redeemed; provided, however, that whenever any call for redemption includes all of the Outstanding Bonds, the numbers of the Bonds need not be stated; (d) state, as to any Bonds redeemed in part only, the registered Bond numbers and the principal portion thereof to be redeemed; and (e) state that interest on the principal portion of the Bonds designated for redemption shall cease to accrue from and after the redemption date and that on the redemption date there shall become due and payable on each of such Bonds the redemption price for each Bond.

The actual receipt by the Owner of any Bond or notice of redemption shall not be a condition precedent to redemption, and failure to receive notice shall not affect the validity of the proceedings for the redemption of the Bonds or the cessation of interest on the redemption date. Notice of redemption of Bonds shall be given by the Trustee on behalf of the Agency and at the expense of the Agency.

SECURITY FOR THE BONDS

The Dissolution Act requires the County Auditor-Controller to determine the amount of property taxes that would have been allocated to the Prior Agency (pursuant to subdivision (b) of Section 16 of Article XVI of the State Constitution) had the Prior Agency not been dissolved pursuant to the operation of ABx1 26, using current assessed values on the last equalized roll on August 20, and to deposit that amount in the Redevelopment Property Tax Trust Fund for the Agency established and held by the County Auditor-Controller pursuant to the Dissolution Act. The Dissolution Act provides that any bonds authorized thereunder to be issued by the Agency will be considered indebtedness incurred by the dissolved Prior Agency, with the same legal effect as if the bonds had been issued prior to effective date of ABx1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to that date, and will be included in the Agency’s Recognized Obligation Payment Schedule (see Appendix A — “DEFINITIONS” and “SECURITY FOR THE BONDS — Recognized Obligation Payment Schedule”).

The Dissolution Act further provides that bonds authorized thereunder to be issued by the Agency will be secured by a pledge of, and lien on, and will be repaid from moneys deposited from time to time in the Redevelopment Property Tax Trust Fund, and that property tax revenues pledged to any bonds authorized to be issued by the Agency under the Dissolution Act, including the Bonds, are taxes allocated to the Agency pursuant to the subdivision (b) of Section 33670 of the Redevelopment Law and Section 16 of Article XVI of the State Constitution.

Pursuant to subdivision (b) of Section 33670 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plan, taxes levied upon taxable property in the Project Area each year by or for the benefit of the State, any city, county, city and county, district, or other public corporation (herein sometimes collectively called “taxing agencies”) after the effective date of the ordinance approving the Redevelopment Plan, or the respective effective dates of ordinances approving amendments to the Redevelopment Plan that added territory to the Project Area, as applicable, are to be divided as follows:

(a) To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of the taxing agencies upon the total sum of the assessed value of the taxable property in the Amendment No. 1 portion of the Project Area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance adopting the Redevelopment Plan, or the respective effective dates of ordinances approving amendments to the Redevelopment Plan that added territory to the Project Area, as applicable (each, a “base year valuation”), will be allocated to, and when collected will be paid

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into, the funds of the respective taxing agencies as taxes by or for the taxing agencies on all other property are paid; and

(b) To the Prior Agency/Agency: Except for that portion of the taxes in excess of the amount identified in (a) above which are attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficient to make annual repayments of the principal of, and the interest on, any bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989 for the acquisition or improvement of real property, which portion shall be allocated to, and when collected shall be paid into, the fund of that taxing agency, that portion of the levied taxes each year in excess of such amount, annually allocated within the Plan Limit following the Delivery Date, when collected will be paid into a special fund of the Prior Agency. Section 34172 of the Dissolution Act provides that, for purposes of Section 16 of Article XVI of the State Constitution, the Redevelopment Property Tax Trust Fund shall be deemed to be a special fund of the Agency to pay the debt service on indebtedness incurred by the Prior Agency or the Agency to finance or refinance the redevelopment projects of the Prior Agency.

That portion of the levied taxes described in paragraph (b) above, less amounts deducted pursuant to Section 34183(a) of the Dissolution Act for permitted administrative costs of the County Auditor-Controller, constitute the amounts required under the Dissolution Act to be deposited by the County Auditor-Controller into the Redevelopment Property Tax Trust Fund. In addition, Section 34183 of the Dissolution Act effectively eliminates the January 1, 1989 date from paragraph (b) above.

“Pledged Tax Revenues” are defined under the Indenture as the portion of the monies deposited from time to time in the Redevelopment Property Tax Trust Fund derived from the Amendment No. 1 portion of the Project Area, as provided in paragraph (2) of subdivision (a) of Section 34183 of the Dissolution Act in an amount not to exceed that portion of the tax revenues required by the Pass-Through Agreement to be paid to the School District under the Prior Law. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include all tax revenues allocated to the payment of indebtedness pursuant to Health & Safety Code Section 33670 or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution for payment under the Pass-Through Agreement.

The Bonds and the 2009 Bonds are payable from and secured by (i) an irrevocable pledge of the Pledged Tax Revenues, (ii) an irrevocable pledge of all of the monies in the Redevelopment Obligation Retirement Fund established and held by the Agency pursuant to the Dissolution Act, and (iii) an irrevocable first pledge and lien on all of the monies in the Debt Service Fund (including the Interest Account, the Principal Account and the Reserve Account therein) established and held by the Trustee in trust for the Bondowners under the Indenture.

Taxes levied on the property within the Project Area on that portion of the taxable valuation over and above the taxable valuation of the applicable base year property tax roll with respect to the various territories within the Project Area, after deducting the county administration costs will be deposited in the Redevelopment Property Tax Trust Fund for transfer by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund on January 2 and June 1 of each year to the extent required for payments listed in the Agency’s Recognized Obligation Payment Schedule in accordance with the requirements of the Dissolution Act (see “SECURITY FOR THE BONDS — Recognized Obligation Payment Schedule”). Monies deposited by the County Auditor-Controller into the Agency’s Redevelopment Obligation Retirement Fund will be transferred by the Agency to the Trustee for deposit in the Debt Service Fund for the Bonds and the 2009 Bonds and administered by the Trustee in accordance with the Indenture.

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Equal Rights. It is the intention of the Successor Agency that the Bonds and the 2009 Bonds shall be secured by and payable from all moneys deposited into the Redevelopment Obligation Retirement Fund on an equal basis. To the extent that moneys deposited into the Redevelopment Obligation Retirement Fund are insufficient to pay debt service on the Bonds and the 2009 Bonds as such becomes due, the Bonds and the 2009 Bonds shall be payable on a pro-rata basis from all available moneys deposited into the Redevelopment Obligation Retirement Fund.

The Agency has no power to levy and collect taxes, and various factors beyond its control could affect the amount of Pledged Tax Revenues available in any six-month period to pay the principal of and interest on the Bonds (see “SECURITY FOR THE BONDS — Tax Increment Financing,” “— Recognized Obligation Payment Schedule” and “RISK FACTORS”).

The Bonds are not a debt of the City, the State or any of its political subdivisions (except the Agency), and none of the City, the State or any of its political subdivisions (except the Agency) is liable therefor. The Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction.

Tax Increment Financing

Prior to the enactment of ABx1 26, the Redevelopment Law authorized the financing of redevelopment projects through the use of tax increment revenues. This method provided that the taxable valuation of the property within a redevelopment project area on the property tax roll last equalized prior to the effective date of the ordinance which adopts the redevelopment plan becomes the base year valuation. Assuming the taxable valuation never drops below the base year level, the taxing agencies thereafter received that portion of the taxes produced by applying then current tax rates to the base year valuation, and the redevelopment agency was allocated the remaining portion produced by applying then current tax rates to the increase in valuation over the base year. Such incremental tax revenues allocated to a redevelopment agency were authorized to be pledged to the payment of redevelopment agency obligations.

The Dissolution Act authorizes refunding bonds, including the Bonds, to be secured by a pledge of monies deposited from time to time in a Redevelopment Property Tax Trust Fund held by a county auditor-controller with respect to a successor agency, which are equivalent to the tax increment revenues that were formerly allocated under the Redevelopment Law to the redevelopment agency and formerly authorized under the Redevelopment Law to be used for the financing of redevelopment projects, less amounts deducted pursuant to Section 34183(a)(1) of the Dissolution Act for payments to other taxing agencies, but subject to prior deduction from such amounts pursuant to Section 34183(b) of the Dissolution Act. Under the Indenture, Pledged Tax Revenues consist of the amounts distributed semi-annually from the Redevelopment Property Tax Trust Fund pursuant to Section 34183(a)(2) of the Dissolution Act from the Pass-Through Agreement. Successor agencies have no power to levy property taxes and must look specifically to the allocation of taxes as described above. See “RISK FACTORS.”

Prior to the dissolution of redevelopment agencies, tax increment revenues from one project area could not be used to repay indebtedness incurred for another project area. However, the Dissolution Act has only required that county auditor-controllers establish a single Redevelopment Property Tax Trust Fund with respect to each former redevelopment agency within the respective county. Additionally, the Dissolution Act now requires that all revenues equivalent to the amount that would have been allocated as tax increment to the former redevelopment agency will be allocated to the Redevelopment Property Tax Trust Fund of the applicable successor agency, and this requirement does not require funds derived from separate project areas of a former redevelopment agency to be separated. In effect, in situations where a former redevelopment agency had established more than one redevelopment project area, the Dissolution

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Act combines the property tax revenues derived from all project areas into a single trust fund, the Redevelopment Property Tax Trust Fund, to repay indebtedness of the former redevelopment agency or the successor agency. To the extent the documents governing outstanding bonds of a redevelopment agency have pledged revenues derived from a specific project area, the Dissolution Act states, “It is the intent ... that pledges of revenues associated with enforceable obligations of the former redevelopment agencies are to be honored. It is intended that the cessation of any redevelopment agency shall not affect either the pledge, the legal existence of that pledge, or the stream of revenues available to meet the requirements of the pledge.” The implications of these provisions of the Dissolution Act are not entirely clear when a former redevelopment agency has established more than one redevelopment project area. The Prior Agency established one redevelopment project area. The Pledged Tax Revenues will include tax revenues derived from the Amendment No. 1 portion of the Project Area.

Redevelopment Property Tax Trust Fund

The Redevelopment Law authorized redevelopment agencies to make payments to school districts and other taxing agencies to alleviate any financial burden or detriments to such taxing agencies caused by a redevelopment project. The Prior Agency entered into several agreements for this purpose. The Pass-Through Agreement with Corona-Norco Unified School District expressly provides that payments thereunder are to be used to pay debt service on the School District Bonds and thereafter are subordinate to payments on the Prior Agency’s bonds. See “THE PROJECT AREA — School District Pass-Through Agreement.” The Dissolution Act requires the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund amounts required to be distributed under the pass-through agreements and for statutory pass-through amounts to the taxing entities for each six-month period before amounts are distributed to the Agency’s Redevelopment Obligation Retirement Fund each January 2 and June 1, unless (i) pass through payment obligations have previously been made subordinate to debt service payments for the bonded indebtedness of the Prior Agency, as succeeded by the Agency, (ii) the Agency has reported, no later than the December 1 and May 1 preceding the January 2 or June 1 distribution date, that the total amount available to the Agency from the Redevelopment Property Tax Trust Fund allocation to the Agency’s Redevelopment Obligation Retirement Fund, from other funds transferred from the Prior Agency, and from funds that have or will become available through asset sales and all redevelopment operations is insufficient to fund the Agency’s enforceable obligations, pass-through payments, and the Agency’s administrative cost allowance for the applicable six-month period, and (iii) the State Controller has concurred with the Agency that there are insufficient funds for such purposes for the applicable six month period.

If the requirements stated in clauses (i) through (iii) of the foregoing paragraph have been met, the Dissolution Act provides for certain modifications in the distributions otherwise calculated to be distributed for such six-month period. To provide for calculated shortages to be paid to the Agency for enforceable obligations, the amount of the deficiency will first be deducted from the residual amount otherwise calculated to be distributed to the taxing entities under the Dissolution Act after payment of the Agency’s enforceable obligations, pass-through payments, and the Agency’s administrative cost allowance. If such residual amount is exhausted, the amount of the remaining deficiency will be deducted from amounts available for distribution to the Agency for administrative costs for the applicable six month period in order to fund the enforceable obligations. Finally, funds required for servicing bond debt, in an amount not to exceed the subordinated pass-through amounts may be deducted from the amounts to be distributed under Section 34183(a)(1) to other Taxing Agencies, in order to be paid to the Agency for enforceable obligations, but only after the amounts described in the previous two sentences have been exhausted. The Agency has not made any report pursuant to Section 34183(b) and therefore has not included any subordinated pass-through amounts for the purpose of determining debt service coverage.

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The Agency expects, but cannot guarantee, that the process prescribed by the Dissolution Act of administering the Pledged Tax Revenues and the subordinations provided in the pass-through agreements will effectively result in adequate Pledged Tax Revenues for the payment of principal of and interest on the Bonds and the 2009 Bonds when due. See “SECURITY FOR THE BONDS — Recognized Obligation Payment Schedule.” See also “THE PROJECT AREA — School District Pass-Through Agreement” for additional information regarding the School District Pass-Through Agreement and the revenues derived from the Project Area.

Recognized Obligation Payment Schedule

Before each six-month period, the Dissolution Act requires successor agencies to prepare and approve, and submit to the successor agency’s oversight board and the DOF for approval, a Recognized Obligation Payment Schedule (the “Recognized Obligation Payment Schedule”) pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. As defined in the Dissolution Act, “enforceable obligation” includes bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of the outstanding bonds of the former redevelopment agency, as well as other obligations such as loans, judgments or settlements against the former redevelopment agency, any legally binding and enforceable agreement that is not otherwise void as violating the debt limit or public policy, contracts necessary for the administration or operation of the successor agency, and amounts borrowed from the Low and Moderate Income Housing Fund. A reserve may be included on the Recognized Obligation Payment Schedule and held by the successor agency when required by the bond indenture or when the next property tax allocation will be insufficient to pay all obligations due under the provisions of the bond for the next payment due in the following six-month period (see “THE INDENTURE — Covenants of the Agency”).

Under the Dissolution Act, the categories of sources of payments for enforceable obligations listed on a Recognized Obligation Payment Schedule are the following: (i) the Low and Moderate Income Housing Fund, (ii) bond proceeds, (iii) reserve balances, (iv) administrative cost allowance, (v) the Redevelopment Property Tax Trust Fund (but only to the extent no other funding source is available or when payment from property tax revenues is required by an enforceable obligation or otherwise required under the Dissolution Act), or (vi) other revenue sources (including rents, concessions, asset sale proceeds, interest earnings, and any other revenues derived from the former redevelopment agency, as approved by the oversight board). Other than amounts deposited in the Redevelopment Property Tax Trust Fund and amounts held in funds and accounts under the Indenture, the Agency does not expect to have any other funds available to pay the Bonds.

The Dissolution Act provides that only those payments listed in the Recognized Obligation Payment Schedule may be made by the Agency from the funds specified in the Recognized Obligation Payment Schedule.

The Recognized Obligation Payment Schedule, with respect to each six-month period beginning January 1 and July 1, must be submitted by the Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the DOF, and the State Controller by 90 days before the date of the next January 2 or June 1 property tax distribution. If the Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by such deadlines, the City will be subject to a civil penalty equal to $10,000 per day for every day the schedule is not submitted to the DOF. Additionally, the Agency’s administrative cost allowance is reduced by 25% if the Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by the 80th day before the date of the next January 2 or June 1 property tax distribution, as applicable, with respect to the

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Recognized Obligation Payment Schedule for subsequent six-month periods. For additional information regarding procedures under the Dissolution Act relating to late Recognized Obligation Payment Schedules and implications thereof on the Bonds, see “RISK FACTORS — Recognized Obligation Payment Schedule.”

The Dissolution Act requires the DOF to make a determination of the enforceable obligations and the amounts and funding sources of the enforceable obligations no later than 45 days after the Recognized Obligation Payment Schedule is submitted. Within five business days of the determination by the DOF, the Agency may request additional review by the department and an opportunity to meet and confer on disputed items, if any. The DOF will notify the Agency and the County Auditor-Controller as to the outcome of its review at least 15 days before the January 2 or June 1 date of property tax distribution, as applicable. Additionally, the County Auditor-Controller may review a submitted Recognized Obligation Payment Schedule and object to the inclusion of any items that are not demonstrated to be enforceable obligations and may object to the funding source proposed for any items, provided that the County Auditor-Controller must provide notice of any such objections to the Agency, the Oversight Board, and the DOF at least 60 days prior to the January 2 or June 1 date of property tax distribution, as applicable.

In connection with the allocation and distribution by the County Auditor-Controller of property tax revenues deposited in the Redevelopment Property Tax Trust Fund, under the Dissolution Act the County Auditor-Controller must prepare estimates of the amounts of (i) property tax to be allocated and distributed and (ii) the amounts of pass-through payments to be made in the upcoming six-month period, and provide those estimates to the entities receiving the distributions and the DOF no later than October 1 and April 1 of each year, as applicable. If, after receiving such estimate from the County Auditor Controller, the Agency determines and reports, no later than December 1 or May 1, as applicable (i.e., by December 1, 2014 with respect to the Recognized Obligation Payment Schedule for January 2, 2015 through June 30, 2015), that the total amount available to the Agency from the Redevelopment Property Tax Trust Fund allocation to the Agency’s Redevelopment Obligation Retirement Fund, from other funds transferred from the Prior Agency, and from funds that have or will become available through asset sales and all redevelopment operations, is insufficient to fund the payment of pass-through obligations, for Agency enforceable obligations listed on the Recognized Obligation Payment Schedule, and for the Agency’s administrative cost allowance, the County Auditor-Controller must notify the State Controller and the DOF no later than 10 days from the date of the Agency’s notification. If the State Controller concurs that there are insufficient funds to pay required debt service, the Dissolution Act provides for certain adjustments to be made to the estimated distributions, as described in more detail under “SECURITY FOR THE BONDS — Redevelopment Property Tax Trust Fund” above.

The Dissolution Act provides that any bonds authorized thereunder to be issued by the Agency will be considered indebtedness incurred by the dissolved Prior Agency, with the same legal effect as if the bonds had been issued prior to effective date of ABx1 26, in full conformity with the applicable provision of the Redevelopment Law that existed prior to that date, and will be included in the Agency’s Recognized Obligation Payment Schedule. Additionally, if an enforceable obligation provides for an irrevocable commitment of property tax revenue and where allocation of revenues is expected to occur over time, the Dissolution Act provides that a successor agency may petition the DOF to provide written confirmation that its determination of such enforceable obligation as approved in a Recognized Obligation Payment Schedule is final and conclusive, and reflects the department’s approval of subsequent payments made pursuant to the enforceable obligation. If the confirmation is granted by the DOF, then the DOF’s review of such payments in each future Recognized Obligation Payment Schedule will be limited to confirming that they are required by the prior enforceable obligation.

The Agency has covenanted to take all actions required under the Dissolution Act to include scheduled debt service on the Bonds, as well as any amount required under the Indenture to replenish the

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Reserve Account of the Debt Service Fund, in Recognized Obligation Payment Schedules for each six-month period so as to enable the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund to the Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Agency to pay principal of, and interest on, the Bonds coming due in the respective six-month period, including listing a reserve on the Recognized Obligation Payment Schedule to the extent required by the Indenture or when the next property tax allocation is projected to be insufficient to pay all obligations due under the provisions of the Bonds for the next payment due in the following six-month period.

With regard to each semiannual period ending on June 30 of a calendar year, the Agency shall include in the Recognized Obligation Payment Schedule for such semiannual period an amount which is at least equal to the full amount of principal and interest on the Bonds coming due and payable on the succeeding March 1 and September 1. See “THE INDENTURE — Covenants of the Agency.”

Parity Bonds

Under the Indenture, in addition to the Bonds and the 2009 Bonds, the Agency may issue or incur additional tax allocation bonds (including, without limitation, bonds, notes, interim certificates, debentures or other obligations) secured by a pledge and lien on Pledged Tax Revenues on a parity with the Bonds and the 2009 Bonds (“Parity Bonds”) in such principal amount as shall be determined by the Agency, pursuant to a separate or Supplemental Indenture adopted or entered into by the Agency and Trustee and for such purposes as are permitted under the Dissolution Act, including without limitation Section 34177.5 thereof.

Section 34177.5 of the Dissolution Act presently permits successor agencies to issue bonds or incur other indebtedness secured by property tax revenues comprised of former tax increment and required to be deposited into the respective Redevelopment Property Tax Trust Fund for the applicable successor agency under limited circumstances:

(i) to provide debt service savings to the successor agency;

(ii) for the purpose of financing debt service spikes, including balloon maturities; provided, (A) the existing indebtedness is not accelerated, except to the extent necessary to achieve substantially level debt service, and (B) the principal amount of the refunding bonds or the indebtedness will not exceed the amount required to defease the refunded bonds or other indebtedness, to establish customary debt service reserves, and to pay related costs of issuance;

(iii) for the purpose of amending an existing enforceable obligation under which the successor agency is obligated to reimburse a political subdivision of the state for the payment of debt service on a bond or other obligation of the political subdivision or to pay all or a portion of the debt service on the bond or other obligation of the political subdivision to provide savings to the successor agency, when such amendment is in connection with a refunding of the bonds or other obligations of the separate political subdivision so that the enforceable obligation will apply to the refunding obligations of the political subdivision; or

(iv) for the purpose of making payments under an existing enforceable obligation when the enforceable obligation includes the irrevocable pledge of property tax increment (i.e., formerly tax increment revenues prior to the effective date of the Dissolution Act) or other funds and the obligation to issue bonds secured by that pledge.

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When bonds are issued pursuant to the situations contemplated in clauses (i) and (iii), the following two constraints apply to the size of the financing: (A) the total interest cost to maturity on the refunding bonds or indebtedness plus the principal amount of the refunding bonds or other indebtedness shall not exceed the total remaining interest cost to maturity on the bonds or other indebtedness to be refunded plus the remaining principal of the bonds or other indebtedness to be refunded, and (B) the principal amount of the refunding bonds or the indebtedness will not exceed the amount required to defease the refunded bonds or other indebtedness, to establish customary debt service reserves, and to pay related costs of issuance. If the foregoing conditions are satisfied, the initial principal amount of the refunding bonds or indebtedness may be greater than the outstanding principal amount of the bonds or other indebtedness to be refunded. The successor agency may pledge to the refunding bonds or other indebtedness the revenues pledged to the bonds or other indebtedness being refunded, having the same lien priority as the pledge of the bonds or other obligations to be refunded.

Subject to the foregoing, the Agency may issue or incur such Parity Bonds subject to the following additional specific conditions precedent:

(a) The Agency will be in compliance with all covenants set forth in the Indenture and the 2009 Bonds Indenture;

(b) The Oversight Board shall have approved the issuance of Parity Bonds;

(c) The Parity Bonds will be on such terms and conditions as may be set forth in a separate or Supplemental Indenture, which will provide for (i) bonds substantially in accordance with the Indenture, and (ii) the deposit of moneys or Alternate Reserve Account Security into its applicable the reserve account in an amount sufficient, together with the balance of other reserve accounts, to equal the Reserve Requirement on all Bonds and Parity Bonds expected to be outstanding including the Bonds and the 2009 Bonds;

(d) Receipt of a certificate or opinion of an Independent Financial Consultant stating:

(i) For the current and each future Bond Year the debt service for each such Bond Year with respect to all the Bonds, the 2009 Bonds and other Parity Bonds reasonably expected to be outstanding following the issuance of the Parity Bonds;

(ii) For the then current Fiscal Year, the Pledged Tax Revenues to be received by the Agency based upon the most recently certified assessed valuation of taxable property in the Project Area provided by the appropriate officer of the County;

(iii) For each future Fiscal Year, the Pledged Tax Revenues referred to in item (ii) together with the amount of Pledged Tax Revenues to be payable with respect to construction completed but not yet on the tax roll, and taking into account the expiration of the time to receive Pledged Tax Revenues with respect to any portion of the Project Area and any amounts to be paid pursuant to any pass-through agreements entered into in accordance with the Redevelopment Law; and

(iv) That for the then current Fiscal Year, the Pledged Tax Revenues referred to in item (ii) and for each future Fiscal Year the Pledged Tax Revenues referred to in item (iii) are at least equal to the sum of 125% of the Maximum Annual Debt Service with respect to the amounts referred to in item (i) above, and, for the then current Fiscal Year, 100% of Annual Debt Service with respect to any subordinate debt and that the Agency is entitled under the Dissolution Act, the Redevelopment Law and the Redevelopment Plan to receive taxes in an amount sufficient to meet expected debt service with respect to all Bonds, and other Parity Bonds.

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(e) The Parity Bonds will mature on and interest will be payable on the same dates as the Bonds and the 2009 Bonds (except the first interest payment may be from the date of the Parity Bonds until the next succeeding March 1 or September l).

THE INDENTURE

The following is a summary of certain provisions of the Indenture and does not purport to be complete. Reference is hereby made to the Indenture and to Appendix A for the definition of certain terms used herein. A copy of the Indenture is available from the Agency upon request. All capitalized terms used herein and not otherwise defined will have the same meaning as used in the Indenture.

Allocation of Tax Revenues

Under the Dissolution Act, the Agency has previously established a special trust fund called the Redevelopment Obligation Retirement Fund (the “Redevelopment Obligation Retirement Fund”), which is held by the Agency and into which the County Auditor-Controller distributes property tax revenues each January 2 and June 1 from the Redevelopment Property Tax Trust Fund for the payment by the Agency of enforceable obligations pursuant to the Recognized Obligation Payment Schedule. From the amounts deposited in the Redevelopment Obligation Retirement Fund, the Agency will first transfer to the Trustee accounts required to be depicted in the Debt Service Fund established under the Indenture and the 2009 Bonds Indenture.

There is established by the Indenture a special trust fund known as the “Debt Service Fund,” and the accounts therein referred to below, which will be held by the Trustee. The Agency will deposit all of the Pledged Tax Revenues received in any Bond Year from the Redevelopment Property Tax Trust Fund in accordance with the Dissolution Act in the Redevelopment Obligation Retirement Fund promptly upon receipt thereof by the Agency, and promptly thereafter shall deposit amounts received therein to the Debt Service Fund established and held under the Indenture until such time during such Bond Year as the amounts so transferred to the Debt Service Fund under the Indenture equal the aggregate amounts required to be transferred to the Trustee for deposit into the Interest Account, the Principal Account and the Reserve Account of the Debt Service Fund in such Bond Year pursuant to the Indenture and for deposit in such Bond Year in the funds and accounts established with respect to Parity Bonds, as provided in any Supplemental Indenture.

Pledged Tax Revenues – Application

There are established under the Indenture accounts within the Debt Service Fund as set forth below, to be known respectively as the Interest Account, the Principal Account and the Reserve Account. Moneys in the Redevelopment Obligation Retirement Fund will be transferred by the Agency to the Trustee in the following amounts at the following times, for deposit by the Trustee in the following respective accounts within the Debt Service Fund, which are continued with the Trustee, in the following order of priority:

(a) Interest Account. On or before the 5th Business Day preceding each Interest Payment Date, the Agency will withdraw from the Redevelopment Obligation Retirement Fund and transfer to the Trustee for deposit in the Interest Account an amount which, when added to the amount contained in the Interest Account on that date, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date and the next following Interest Payment Date. No such transfer and deposit need to be made to the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Outstanding Bonds. Subject to the Indenture, all moneys in the Interest Account will be used

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and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds redeemed prior to maturity pursuant to the Indenture).

(b) Principal Account. On or before the 5th Business Day preceding March 1 in each year beginning March 1, 2015, the Agency will withdraw from the Redevelopment Obligation Retirement Fund and transfer to the Trustee for deposit in the Principal Account an amount equal to the principal payments and sinking account payments becoming due and payable on the Outstanding Bonds on such March 1, to the extent monies on deposit in the Redevelopment Obligation Retirement Fund are available therefor. No such transfer and deposit need be made to the Principal Account if the amount contained therein is at least equal to the principal payments and sinking account payments to become due on such March 1 on all Outstanding Bonds. Subject to the Indenture, all moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of paying the principal payments of the Bonds as it becomes due and payable.

(c) Reserve Account. In the event that the Agency fails to deposit with the Trustee no later than five (5) Business Days before any Interest Payment Date the full amount of the interest, principal payments required to be deposited pursuant to the Indenture, the Trustee will, five (5) Business Days before such Interest Payment Date, withdraw from the Reserve Account an amount equal to any such deficiency and will notify the Agency of any such withdrawal. Promptly upon receipt of any such notice, the Agency will withdraw from the Redevelopment Obligation Retirement Fund and transfer to the Trustee for deposit in the Reserve Account that will be sufficient to maintain the Reserve Requirement on deposit in the Reserve Account and the Reserve Account of any additional Parity Bonds. If there is not sufficient moneys in the Redevelopment Obligation Retirement Fund to transfer an amount that will be sufficient to maintain the Reserve Requirement on deposit in the Reserve Account and the Reserve Account of any additional Parity Bonds, the Agency shall have an obligation to continue making transfers of Pledged Tax Revenues into the Redevelopment Obligation Retirement Fund, as such revenues become available, and thereafter, as moneys become available in the Redevelopment Obligation Retirement Fund, shall make transfers to the Reserve Account and the Reserve Account for any additional Parity Bonds until there is an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Account and the Reserve Account for any additional Parity Bonds on a combined basis. No such transfer and deposit need be made to the Reserve Account (or any subaccount therein) so long as there is on deposit therein a sum at least equal to the Reserve Requirement. Subject to the Indenture, all money in the Reserve Account will be used and withdrawn by the Trustee solely for the purpose of making transfers to the Interest Account and the Principal Account (and subaccounts therein, as the case may be), in such order of priority, in the event of any deficiency at any time in any of such accounts or for the retirement of all the Bonds then Outstanding, except that so long as the Agency is not in default, any amount in the Reserve Account in excess of the Reserve Requirement will be withdrawn from the Reserve Account semiannually on or before the 5th Business Day preceding March 1 and September 1 by the Trustee and deposited in the Interest Account. The prior written consent of the Insurer shall be condition precedent to the deposit of any credit instrument provided in lieu of a cash deposit into the Reserve Account. Notwithstanding anything to the contrary set forth in the Indenture, amounts on deposit in the Reserve Account shall be applied solely to the payment of debt service due on the Bonds.

Notwithstanding the foregoing, so long as the portion of the Reserve Requirement is covered by the Reserve Policy, in the event the Agency fails to deposit with the Trustee no later than five (5) Business Days before any Interest Payment Date the full amount of the interest and principal and sinking account payments required to be deposited under the Indenture, the Trustee will, five (5) Business Days before such Interest Payment Date, give Notice of Nonpayment, as defined in the Reserve Policy, to the Bond Insurer and the Agency. Upon receipt of payment from the Bond Insurer, the Trustee shall deposit such amounts in the Interest Account or Principal Account to the extent of any shortfall therein as

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required by the Indenture. Amounts payable under the Reserve Policy shall only be used to secure payments due on the Bonds. Promptly upon receipt of any such notice, the Agency will withdraw from the Redevelopment Obligation Retirement Fund and transfer to the Trustee for application on a prorata basis to (i) reimbursement of the Bond Insurer pursuant to the Reimbursement Agreement in an amount sufficient to cause the Reserve Policy to be reinstated in an amount equal to the policy limit and (ii) an amount equal to the portion of the Reserve Requirement applicable to the Parity Bonds. If there is not sufficient moneys in the Redevelopment Obligation Retirement Fund to transfer an amount sufficient to cause the Reserve Policy to be reinstated and the Parity Bond reserve accounts to be funded in the amount equal to the Reserve Requirement, the Agency will have an obligation to continue making transfers of Pledged Tax Revenues into the Redevelopment Obligation Retirement Fund, as such revenues become available, and thereafter, as moneys become available in the Redevelopment Obligation Retirement Fund, will make transfers to the Reserve Account until there is an amount sufficient to fully reinstate the Reserve Policy and to maintain the portion of the Reserve Requirement applicable to the Parity Bonds on deposit in the Reserve Accounts established pursuant to the Parity Bond Indentures and the Indenture.

The Indenture also creates a Rebate Fund for the purpose of collecting the amounts required, if any, to be rebated to the United States in accordance with the requirements of Section 148(f) of the Code. Section 148 of the Code requires, among other things and with certain exceptions, that any amounts earned on nonpurpose investments in excess of the amount which would have been earned if such investments were made at a rate equal to the yield on the Bonds be rebated to the United States. The Indenture requires the Agency to calculate such amount and deposit it into the Rebate Fund for eventual rebate to the United States Treasury.

Investment of Moneys in Funds and Accounts

Subject to the provisions of the Indenture, all moneys held by the Trustee in the Debt Service Fund, the Costs of Issuance Fund, the Reserve Account or the Rebate Fund will be invested at the written direction of the Agency only in Permitted Investments. If the Trustee receives no written directions from the Agency as to the investment of moneys held in any Fund or Account, the Trustee shall request such written direction from the Agency and, pending receipt of instructions, will invest such moneys only in Permitted Investments described in subsection (5) of the definition thereof.

(a) Moneys in the Redevelopment Obligation Retirement Fund will be invested by the Agency only in obligations permitted by the Redevelopment Law which will by their terms mature not later than the date the Agency estimates the moneys represented by the particular investment will be needed for withdrawal from the Redevelopment Obligation Retirement Fund.

(b) Moneys in the Interest Account and the Principal Account of the Debt Service Fund will be invested only in obligations which will by their terms mature on such dates as to ensure that before each interest and principal payment date there will be in such Account, from matured obligations and other moneys already in such Account, cash equal to the principal and interest payable on such payment date.

(c) Moneys in the Reserve Account will be invested in (i) obligations which will by their terms mature on or before the date of the final maturity of the Bonds or five (5) years from the date of investment, whichever is earlier or (ii) an investment agreement or Reserve Account Surety Bond which permits withdrawals or deposits without penalty at such time as such moneys will be needed or in order to replenish the Reserve Account.

(d) Moneys in the Rebate Fund will be invested in Defeasance Securities which mature on or before the date such amounts are required to be paid to the United States.

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Except as otherwise provided in the Indenture, obligations purchased as an investment of moneys in any of the Funds or Accounts will be deemed at all times to be a part of such respective Fund or Account, and the interest accruing thereon and any gain realized from an investment will be credited to such Fund or Account and any loss resulting from any authorized investment will be charged to such Fund or Account without liability to the Trustee. The Agency or the Trustee, as the case may be, will sell or present for redemption any obligation purchased whenever it will be necessary to do so in order to provide moneys to meet any payment or transfer from such Fund or Account as required by the Indenture and will incur no liability for any loss realized upon such a sale. All interest earnings received on any moneys invested in the Interest Account, Principal Account or Reserve Account, to the extent they exceed the amount required to be in such Account, will be transferred on each Interest Payment Date to the Debt Service Fund. All interest earnings on moneys invested in the Rebate Fund will be retained in such Fund and applied as set forth in the Indenture.

Covenants of the Agency

As long as the Bonds are outstanding and unpaid, the Agency will (through its proper members, officers, agents or employees) faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture or in any Bond issued under the Indenture, including the following covenants and agreements for the benefit of the Bondowners which are necessary, convenient and desirable to secure the Bonds and will tend to make them more marketable; provided, however, that the covenants do not require the Agency to expend any funds other than the Pledged Tax Revenues.

Covenant 1. Use of Proceeds; Management and Operation of Properties. The Agency covenants and agrees that the proceeds of the sale of the Bonds will be deposited and used as provided in the Indenture and that it will manage and operate all properties owned by it comprising any part of the Project Area in a sound and businesslike manner.

Covenant 2. No Priority. The Agency covenants and agrees that it will not issue any obligations payable, either as to principal or interest, from the Pledged Tax Revenues which have any lien upon the Pledged Tax Revenues prior or superior to the lien of the Bonds, the 2009 Bonds or any other Parity Bonds. Except as permitted by the Indenture, it will not issue any obligations, payable as to principal or interest, from the Pledged Tax Revenues, which have any lien upon the Pledged Tax Revenues on a parity with the Bonds authorized in the Indenture. Notwithstanding the foregoing, nothing in the Indenture shall prevent the Agency (i) from issuing and selling pursuant to law, refunding obligations payable from and having any lawful lien upon the Pledged Tax Revenues, if such refunding obligations are issued for the purpose of, and are sufficient for the purpose of, refunding all of the Outstanding Bonds, (ii) from issuing and selling obligations which have, any lien upon the Pledged Tax Revenues which is junior to the Bonds, or (iii) from issuing and selling bonds or other obligations which are payable in whole or in part from sources other than the Pledged Tax Revenues. As used in the Indenture “obligations” includes, without limitation, bonds, notes, interim certificates, debentures or other obligations.

Covenant 3. Punctual Payment. The Agency 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 on the date, at the place and in the manner provided in the Bonds and the 2009 Bonds. Further, it will take all actions required under the Dissolution Act to include on the Recognized Obligation Payment Schedules for each six-month period all payments to the Trustee to satisfy the requirements of the Indenture, including any amounts required under the Indenture to replenish the Reserve Account of the Debt Service Fund to the full amount of the Reserve Requirement.

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Covenant 4. Payment of Taxes and Other Charges. The Agency covenants and agrees that it will from time to time pay and discharge, or cause to be paid and discharged, all payments in lieu of taxes, service charges, assessments or other governmental charges which may lawfully be imposed upon the Agency or any of the properties then owned by it in the Project Area, or upon the revenues and income therefrom, and will pay all lawful claims for labor, materials and supplies which if unpaid might become a lien or charge upon any of the properties, revenues or income or which might impair the security of the Bonds and the 2009 Bonds or the use of Pledged Tax Revenues or other legally available funds to pay the principal of and interest on the Bonds and the 2009 Bonds all to the end that the priority and security of the Bonds and the 2009 Bonds shall be preserved; provided, however, that nothing in this covenant shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of the payment.

Covenant 5. Books and Accounts; Financial Statements. The Agency 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 Pledged Tax Revenues and other funds relating to the Agency. The Agency will prepare within one hundred eighty (180) days, after the close of each of its Fiscal Years a complete financial statement or statements for such year, in reasonable detail covering the Pledged Tax Revenues and other funds, accompanied by an opinion of an Independent Certified Public Accountant appointed by the Agency, and will furnish a copy of the statement or statements to the Trustee and any rating agency which maintains a rating on the Bonds, and, upon written request, to any Bondowner. The Trustee shall have no duty to review the Agency’s financial statements. The Agency’s financial statements may be included as part of the City’s Comprehensive Annual Financial Report.

Covenant 6. Eminent Domain Proceeds. The Agency covenants and agrees that if all or any part of the Redevelopment Project Area should be taken from it without its consent, by eminent domain proceedings or other proceedings authorized by law, for any public or other use under which the property will be tax exempt, it shall take all steps necessary to adjust accordingly the base year property tax roll of the Project Area.

Covenant 7. Disposition of Property. The Agency covenants and agrees that it will not dispose of more than ten percent (10%) of the land area in the Project Area (except property shown in the Redevelopment Plan in effect on the date the Indenture is adopted as planned for public use, or property to be used for public streets, public off-street parking, sewage facilities, parks, easements or right-of-way for public utilities, or other similar uses) to public bodies or other persons or entities whose property is tax exempt, unless such disposition will not result in Pledged Tax Revenues to be less than the amount required for the issuance of Parity Bonds as provided in the Indenture, based upon the certificate or opinion of an Independent Financial Consultant appointed by the Agency.

Covenant 8. Protection of Security and Rights of Bondowners. The Agency covenants and agrees to preserve and protect the security of the Bonds and the 2009 Bonds and the rights of the Bondowners and to contest by court action or otherwise (a) the assertion by any officer of any government unit or any other person whatsoever against the Agency that (i) the Redevelopment Law is unconstitutional or (ii) that the Pledged Tax Revenues pledged under the Indenture cannot be paid to the Agency for the debt service on the Bonds or (b) any other action affecting the validity of the Bonds or diluting the security therefor.

Covenant 9. Tax Covenants. The Agency covenants and agrees to contest by court action or otherwise any assertion by the United States of America or any department or agency thereof that the interest received by the Bondowners is includable in gross income of the recipient under federal income tax laws on the date of issuance of the Bonds. In order to preserve the exclusion from gross income of

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interest on the Bonds, and for no other reason, the Agency covenants to comply with all applicable requirements of the Internal Revenue Code of 1986, as amended (the “Code”), together with any amendments thereto or regulations promulgated thereunder necessary to preserve such tax exemption as more specifically provided in the Indenture.

Covenant 10. Compliance with Dissolution Act. The Agency shall comply with all of the requirements of the Dissolution Act. The Agency shall take all actions required under the Dissolution Act to prepare and file Recognized Obligation Payment Schedules so as to enable the County Auditor Controller to distribute from the Redevelopment Property Tax Trust Fund for deposit in the Redevelopment Obligation Retirement Fund all amounts as shall be required to enable the Agency to pay timely principal of, and interest on, the Bonds and all outstanding Bonds coming due in such Bond Year.

Without limiting the generality of the foregoing paragraph, the Agency will take all actions required under the Dissolution Act to include on the Recognized Obligation Payment Schedules for each semiannual period all payments to the Trustee to satisfy the requirements of the Indenture and the Indenture, including any amounts required to replenish the respective reserve accounts established for the Bonds. In addition, the Agency will take all actions required under the Dissolution Act to include scheduled debt service on the Bonds and the 2009 Bonds, as well as any amount required to replenish the respective reserve accounts established for the Bonds and the 2009 Bonds, in Recognized Obligation Payment Schedules for each semiannual period so as to enable the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund to the Redevelopment Obligation Retirement Fund on each January 2 and June 1, the amounts required to pay principal of and interest on the Bonds coming due in the respective semiannual period. These actions will include, without limitation, placing on the periodic Recognized Obligation Payment Schedule for approval by the Oversight Board and the DOF, to the extent required, the amounts to be held by the Agency as a reserve until the next semiannual period that are required to provide for the payment of principal of and interest on the Bonds and the 2009 Bonds.

Covenant 11. Limitation on Indebtedness. The Agency covenants and agrees that it has not and will not incur any loans, obligations or indebtedness repayable from Pledged Tax Revenues such that the total aggregate debt service on said loans, obligations or indebtedness incurred from and after the date of adoption of the Redevelopment Plan, when added to the total aggregate debt service on the Bonds, will exceed the maximum amount of Pledged Tax Revenues to be divided and allocated to the Agency pursuant to the Redevelopment Plan. The Agency shall file annually with the Trustee on or prior to August 1 of each year a Written Certificate of the Agency certifying that Pledged Tax Revenues received by the Agency through the date of the certificate combined with the amount remaining to be paid on all outstanding obligations of the Agency will not exceed the Plan Limits. To the extent it does, all Pledged Tax Revenues will be deposited in an escrow account and applied to the payment of such outstanding obligations.

Covenant 12. Further Assurances. The Agency covenants and agrees to adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Indenture.

Covenant 13. Continuing Disclosure. The Agency covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement dated the Closing Date. Notwithstanding any other provision of the Indenture, failure of the Agency to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, any participating underwriter, holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

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Events of Default and Remedies

The following events will constitute Events of Default under the Indenture:

(a) if default is made in the due and punctual payment of the principal of or interest on any Bond when and as the same becomes due and payable, whether at maturity as therein expressed, by declaration or otherwise;

(b) if default is made by the Agency in the observance of any of the covenants, agreements (including default by the obligor on any underlying agreement) or conditions on its part in the Indenture or in the Bonds contained, other than a default described in the preceding clause (a), and such default is continued for a period of thirty (30) days following receipt by the Agency of written notice from the Trustee or any Owner of the occurrence of such default; or

(c) if the Agency commences a voluntary action under Title 11 of the United States Code or any substitute or successor statute.

If an Event of Default has occurred and is continuing, the Trustee may, or if requested in writing by the Owners of the majority in aggregate principal amount of the Bonds then Outstanding, the Trustee will by written notice to the Agency, (a) declare the principal of the Bonds, together with the accrued interest thereon, to be due and payable immediately, and upon any such declaration the same will become immediately due and payable, and (b) upon receipt of indemnity to its satisfaction exercise any other remedies available to the Trustee and the Owners in law or at equity.

Immediately upon becoming aware of the occurrence of an Event of Default, the Trustee will give notice of such Event of Default to the Agency by telephone confirmed in writing. Such notice will also state whether the principal of the Bonds will have been declared to be or have immediately become due and payable. With respect to any Event of Default described in clauses (a) or (c) above the Trustee will, and with respect to any Event of Default described in clause (b) above the Trustee in its sole discretion may, also give such notice to the Agency and the Owners in the manner provided for in the Indenture, which will include the statement that interest on the Bonds will cease to accrue from and after the date, if any, on which the Trustee has declared the Bonds to become due and payable pursuant to the preceding paragraph (but only to the extent that principal and any accrued, but unpaid interest on the Bonds is actually paid on such date).

This provision, however, is subject to the condition that if, at any time after the principal of the Bonds has been so declared due and payable, and before any judgment or decree for the payment of the moneys due has been obtained or entered, the Agency deposits with the Trustee a sum sufficient to pay all principal on the Bonds matured prior to such declaration and all matured installments of interest (if any) upon all the Bonds, with interest on such overdue installments of principal and interest (to the extent permitted by law) at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, including but not limited to attorneys’ fees, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) has been made good or cured to the satisfaction of the Trustee or provisions deemed by the Trustee to be adequate has been made therefor, then, and in every such case, the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Agency and to the Trustee, may, on behalf of the Owners of all the Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment will extend to or will affect any subsequent default, or will impair or exhaust any right or power consequent thereon.

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Upon the occurrence of an event of default, the Trustee may, with the consent of a majority of the Holders, by written notice to the Agency, declare the principal of the Bonds and Parity Bonds to be immediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in the Indenture or in the Bonds to the contrary notwithstanding. Notwithstanding the foregoing, the maturity of Bonds insured by the Insurer shall not be accelerated without the consent of the Insurer and in the event the maturity of the Bonds is accelerated, the Insurer may elect, in its sole discretion, to pay accelerated principal and interest accrued, on such principal to the date of acceleration (to the extent unpaid by the Agency) and the Trustee shall be required to accept such amounts. Upon payment of such accelerated principal and interest accrued to the acceleration date as provided above, the Insurer’s obligations under the Insurance Policy with respect to such Bonds shall be fully discharged.

Application of Funds Upon Acceleration

All of the Pledged Tax Revenues and all sums in the funds and accounts established and held by the Trustee upon the date of the declaration of acceleration as provided in the Indenture, and all sums thereafter received by the Trustee thereunder, will be applied by the Trustee in the order following, upon presentation of the Bonds, and the stamping thereon of the payment if only partially paid, or upon the surrender thereof if fully paid:

First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in exercising the rights and remedies set forth in the Indenture, including reasonable compensation to its agents, attorneys and counsel; and

Second, to the payment of the whole amount then owing and unpaid upon the Bonds for principal and interest, with interest on the overdue principal and installments of interest at the net effective rate then borne by the Outstanding Bonds and Parity Bonds (to the extent that such interest on overdue installments of principal and interest has been collected), and in case such moneys will be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds and Parity Bonds, then to the payment of such principal and interest without preference or priority of principal over interest, or interest over principal, or of any installment of interest over any other installment of interest, ratably to the aggregate of such principal and interest or any Bond or Parity Bond over any other Bond or Parity Bond.

Amendments

Subject to the terms of the Indenture, the Indenture and the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which will become binding upon adoption, without consent of any Owners, to the extent permitted by law and any for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Agency in the Indenture contained, other covenants and agreements thereafter to be observed or to limit or surrender any rights or powers therein reserved to or conferred upon the Agency; or

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

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(c) to provide the issuance of Parity Bonds pursuant to the Indenture, and to provide the terms and conditions under which such Parity Bonds may be issued, including but not limited to the establishment of special funds and accounts relating thereto and any other provisions relating solely thereto, subject to and in accordance with the provisions of the Indenture; or

(d) to amend any provision thereof relating to the requirements of or compliance with the Code to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income for purposes of federal income taxation of interest on any of the Bonds, in the opinion of a nationally recognized bond counsel.

Except as set forth in the preceding paragraph and subject to the terms of the Indenture and the rights and obligations of the Agency and of the Owners may be modified or amended at any time by a Supplemental Indenture which will become binding when the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment will (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Agency to pay the principal or interest at the time and place and at the rate and in the currency provided therein or any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. Any amendment, supplement, modification to, or waiver of, the Indenture or any other transaction document, including any underlying security agreement (each a “Related Document”), that requires the consent of Bondowners or adversely affects the rights and interests of the Insurer shall be subject to the prior written consent of the Insurer.

THE SUCCESSOR AGENCY TO THE NORCO COMMUNITY REDEVELOPMENT AGENCY

The Prior Agency was established on January 2, 1980 by the City Council of the City with the adoption of Ordinance No. 434, pursuant to the Redevelopment Law. On June 29, 2011, ABx1 26 was enacted as Chapter 5, Statutes of 2011, together with a companion bill, ABx1 27. A lawsuit was brought in the California Supreme Court, California Redevelopment Association, et al. v. Matosantos, et al., 53 Cal. 4th 231 (Cal. 2011), challenging the constitutionality of ABx1 26 and ABx1 27. In its December 29, 2011 decision, the California Supreme Court largely upheld ABx1 26, invalidated ABx1 27, and held that ABx1 26 may be severed from ABx1 27 and enforced independently. As a result of ABx1 26 and the decision of the California Supreme Court in the California Redevelopment Association case, as of February 1, 2012, all redevelopment agencies in the State were dissolved, including the Prior Agency, and successor agencies were designated as successor entities to the former redevelopment agencies to expeditiously wind down the affairs of the former redevelopment agencies.

On January 11, 2012, pursuant to Resolution No. 2012-01 and Section 34173 of the Dissolution Act, the City Council of the City elected to serve as successor agency to the Prior Agency. Subdivision (g) of Section 34173 of the Dissolution Act, added by AB 1484, expressly affirms that the Agency is a separate public entity from the City, that the two entities shall not merge, and that the liabilities of the Prior Agency will not be transferred to the City nor will the assets of the Prior Agency become assets of the City.

The Agency is governed by a five-member Board of Directors (the “Board”) which consists of the members of the City Council of the City of Norco. The Mayor acts as the Chair of the Board, the City Manager as its Executive Director and the City Clerk as its Secretary.

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Members and Officers

The members and officers of the Agency and the expiration dates of their terms are as follows:

Name and Office Expiration of Term

Berwin Hanna, Chair November, 2015 Herb Higgins, Vice-Chair November, 2017 Kathy Azevedo, Member November, 2015

Kevin Bash, Member November, 2017 Greg Newton, Member November, 2017

Agency Powers

All powers of the Agency are vested in its five-members who are elected members of the City Council. Pursuant to the Dissolution Act, the Agency is a separate public body from the City and succeeds to the organizational status of the Prior Agency but without any legal authority to participate in redevelopment activities, except to complete any work related to an approved enforceable obligation. The Agency is tasked with expeditiously winding down the affairs of the Prior Agency, pursuant to the procedures and provisions of the Dissolution Act. Under the Dissolution Act, many Agency actions are subject to approval by the Oversight Board, as well as review by the DOF. California has strict laws regarding public meetings (known as the Ralph M. Brown Act) which generally make all Agency and Oversight Board meetings open to the public in similar manner as City Council meetings.

Under a State initiative enacted in 1974, public officials are required to make extensive disclosures regarding their financial interests by filing such disclosures as public records. As of the date of this Official Statement, the members of the City Council and the Agency, and other City and Agency officials have made the required filings.

Section 34179.5 of the Dissolution Act established a due diligence review process for determining the unobligated balances that redevelopment agencies had available as of June 30, 2012 to remit to their respective county auditor-controllers for distribution to affected taxing entities within the project areas of the former redevelopment agencies.

The Agency has remitted to the County Auditor-Controller all of the unobligated balances as determined by the DOF. On November 6, 2013, the Agency received its Finding of Completion from the DOF. Receipt of the Finding of Completion allows the Agency to do several things, among them, developing a plan for the disposition of any properties held by the Agency, reinstating loans previously made by the City to the Prior Agency and spending proceeds of bonds issued prior to December 31, 2010, all requiring approval of the Oversight Board.

RISK FACTORS

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

The various legal opinions to be delivered concurrently with the issuance of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by State and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors’ rights, including equitable principles.

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Reduction in Taxable Value

Pledged Tax Revenues allocated to the Redevelopment Property Tax Trust Fund are determined by the amount of incremental taxable value in the Amendment No. 1 portion of the Project Area and the current rate or rates at which property in the Project Area is taxed. The reduction of taxable values of property in the Amendment No. 1 portion of the Project Area caused by economic factors beyond the Agency’s control, such as relocation out of the Project Area by one or more major property owners, sale of property to a non-profit corporation exempt from property taxation, or the complete or partial destruction of such property caused by, among other eventualities, earthquake or other natural disaster, could cause a reduction in the Pledged Tax Revenues that provide for the repayment of and secure the Bonds and the 2009 Bonds. Such reduction of Pledged Tax Revenues could have an adverse effect on the Agency’s ability to make timely payments of principal of and interest on the Bonds and the 2009 Bonds.

As described in greater detail under the heading “PROPERTY TAXATION IN CALIFORNIA — Article XIIIA of the State Constitution,” Article XIIIA provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflation rate, not to exceed a two percent increase for any given year, or may be reduced to reflect a reduction in the consumer price index, comparable local data or any reduction in the event of declining property value caused by damage, destruction or other factors (as described above). Such measure is computed on a calendar year basis. Any resulting reduction in the full cash value base over the term of the Bonds could reduce Pledged Tax Revenues securing the Bonds.

In addition to the other limitations on, and required application under the Dissolution Act of Pledged Tax Revenues on deposit in the Redevelopment Property Tax Trust Fund, described herein under the heading “RISK FACTORS,” the State electorate or Legislature could adopt a constitutional or legislative property tax reduction with the effect of reducing Pledged Tax Revenues allocated to the Redevelopment Property Tax Trust Fund and available to the Agency. Although the federal and State Constitutions include clauses generally prohibiting the Legislature’s impairment of contracts, there are also recognized exceptions to these prohibitions. There is no assurance that the State electorate or Legislature will not at some future time approve additional limitations that could reduce the Pledge Tax Revenues and adversely affect the source of repayment and security of the Bonds.

Risks to Real Estate Market

The Agency’s ability to make payments on the Bonds will be dependent upon the economic strength of the Project Area. The general economy of the Project Area will be subject to all of the risks generally associated with urban real estate markets. Real estate prices and development may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development within the Project Area could be adversely affected by limitations of infrastructure or future governmental policies, including governmental policies to restrict or control development. In addition, if there is a decline in the general economy of the Project Area, the owners of property within the Project Area may be less able or less willing to make timely payments of property taxes or may petition for reduced assessed valuation causing a delay or interruption in the receipt of Pledged Tax Revenues by the Agency from the Amendment No. 1 portion of the Project Area.

Reduction in Inflationary Rate

As described in greater detail below, Article XIIIA of the State Constitution provides that the full cash value of real property used in determining taxable value may be adjusted from year to year to reflect

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the inflationary rate. The annual inflationary adjustment, while limited to 2%, is determined annually and may not exceed the percentage change in the California Consumer Price Index (“CCPI”).

Because the Revenue and Taxation Code does not distinguish between positive and negative changes in the CCPI used for purposes of the inflation factor, there was a decrease of 0.237% in Fiscal Year 2009-10 – applied to the Fiscal Year 2010-11 tax roll – reflecting the actual change in the CCPI, as reported by the State Department of Finance. For each fiscal year since Article XIIIA has become effective (Fiscal Year 1978-79), the annual increase for inflation has been at least 2% except in eight fiscal years (including for the upcoming Fiscal Year 2014-15) as shown below:

Fiscal Year Tax Roll Percentage

1981-82 1.000% 1995-96 1.190 1996-97 1.110 1998-99 1.853 2004-05 1.867 2010-11 0.237 2011-12 0.753 2014-15 0.454

The Agency is unable to predict if any adjustments to the full cash value of real property within

the Project Area, whether an increase or a reduction, will be realized in the future.

Development Risks

The general economy of the Project Area will be subject to all the risks generally associated with real estate development. Future development within the Project Area may be subject to unexpected delays, disruptions and changes. Real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development operations within the Project Area could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If future development in the Project Area are delayed or halted, the economy of the Project Area could be affected. If such events lead to a decline in assessed values they could cause a reduction in Pledged Tax Revenues. In addition, if there is a decline in the general economy of the Project Area, the owners of property within the Project Area may be less able or less willing to make timely payments of property taxes causing a delay or stoppage of the Pledged Tax Revenues received by the Agency from the Project Area. In addition, the insolvency or bankruptcy of one or more large owners of property within the Project Area could delay or impair the receipt of Pledged Tax Revenues by the Agency.

Levy and Collection of Taxes

The Agency has no independent power to levy or collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Pledged Tax Revenues, and accordingly, could have an adverse impact on the security for and the ability of the Agency to repay the Bonds.

Likewise, if the County no longer deposits funds to the Redevelopment Property Tax Trust Fund on first collection, delinquencies in the payment of property taxes by the owners of land in the Project Area, and the impact of bankruptcy proceedings on the ability of taxing agencies to collect property taxes,

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could have an adverse effect on the Agency’s ability to make timely payments on the Bonds. Any reduction in Pledged Tax Revenues, whether for any of these reasons or any other reasons, could have an adverse effect on the Agency’s ability to pay the principal of and interest on the Bonds.

State Budget Issues

ABx1 26 and AB 1484 were enacted by the State Legislature and Governor as trailer bills necessary to implement provisions of the State’s budget acts for its Fiscal Years 2011-12 and 2012-13, respectively. The State’s budget for fiscal year 2013-14 was enacted on June 22, 2013 and did not include any additional legislation dealing with dissolution of redevelopment agencies. In the Governor’s Proposed Budget for Fiscal Year 2014-15 subsequent May Revision also did not include any provisions dealing with redevelopment dissolution. There can be no assurance that additional legislation will not be enacted in the future to additionally implement provisions relating to the State budget or otherwise that may affect successor agencies or Pledged Tax Revenues. The full text of each State Assembly bill cited above may be obtained from the “Official California Legislative Information” website maintained by the Legislative Counsel of the State of California pursuant to State law, at the following web link: http://www.leginfo.ca.gov/bilinfo.html.

Information about the State budget and State spending is available at various State maintained websites. Text of the 2013-14 Budget Summary, the current State budget, and other documents related to the State budget may be found at the website of the DOF, www.dof.ca.gov. A nonpartisan analysis of the budget is posted by the Legislative Analyst’s Office at www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets may be found at the website of the State Treasurer, www.treasurer.ca.gov.

None of the websites or webpages referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. The Agency makes no representation whatsoever as to the accuracy or completeness of any of the information on such websites.

Recognized Obligation Payment Schedule

The Dissolution Act provides that, commencing on the date the first Recognized Obligation Payment Schedule is valid thereunder, only those payments listed in the Recognized Obligation Payment Schedule may be made by the Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each six-month period, the Dissolution Act requires successor agencies to prepare and approve, and submit to the successor agency’s oversight board and the DOF for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund without a duly approved and effective Recognized Obligation Payment Schedule obtained in sufficient time prior to the January 2 or June 1 distribution dates, as applicable. See “SECURITY FOR THE BONDS — Recognized Obligation Payment Schedule” and “PROPERTY TAXATION IN CALIFORNIA — Property Tax Collection Procedures — Recognized Obligation Payment Schedule.” In the event the Agency were to fail to file a Recognized Obligation Payment Schedule with respect to a six month period, the availability of Pledged Tax Revenues to the Agency could be adversely affected for such period.

In the event a successor agency fails to submit to the DOF an oversight board-approved Recognized Obligation Payment Schedule complying with the provisions of the Dissolution Act within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to

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determine the amount of property tax allocations, the DOF may determine if any amount should be withheld by the applicable county auditor-controller for payments for enforceable obligations from distribution to taxing entities pursuant to clause (iv) in the following paragraph, pending approval of a Recognized Obligation Payment Schedule. Upon notice provided by the DOF to the county auditor controller of an amount to be withheld from allocations to taxing entities, the county auditor controller must distribute to taxing entities any monies in the Redevelopment Property Tax Trust Fund in excess of the withholding amount set forth in the notice, and the county auditor-controller must distribute withheld funds to the successor agency only in accordance with a Recognized Obligation Payment Schedule when and as approved by the DOF.

Typically, under the Redevelopment Property Tax Trust Fund distribution provisions of the Dissolution Act, the County Auditor-Controller is to distribute funds for each six-month period in the following order specified in Section 34183 of the Dissolution Act: (i) first, subject to certain adjustments for subordinations to the extent permitted under the Dissolution Act (as described above under “SECURITY FOR THE BONDS — Tax Increment Financing”) and no later than each January 2 and June 1, to each local agency and school entity, to the extent applicable, amounts required for pass-through payments such entity would have received under provisions of the Redevelopment Law, as those provisions read on January 1, 2011, including pursuant to the pass-through agreements and statutory pass-through amounts; (ii) second, on each January 2 and June 1, to the Agency for payments listed in its Recognized Obligation Payment Schedule, with debt service payments scheduled to be made for tax allocation bonds having the highest priority over payments scheduled for other debts and obligations listed on the Recognized Obligation Payment Schedule; (iii) third, on each January 2 and June 1, to the Agency for the administrative cost allowance, as defined in the Dissolution Act; and (iv) fourth, on each January 2 and June 1, to taxing entities any moneys remaining in the Redevelopment Property Tax Trust Fund after the payments and transfers authorized by clauses (i) through (iii), in an amount proportionate to such taxing entity’s share of property tax revenues in the tax rate area in that fiscal year (without giving effect to any pass-through obligations that were established under the Redevelopment Law).

If the Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule within five business days of the date upon which the Recognized Obligation Payment Schedule is to be used to determine the amount of property tax allocations and the DOF does not provide a notice to the County Auditor-Controller to withhold funds from distribution to taxing entities, amounts in the Redevelopment Property Tax Trust Fund for such six-month period would be distributed to taxing entities pursuant to clause (iv) above. However, the Agency has covenanted to take all actions required under the Dissolution Act to include scheduled debt service on the Bonds as well as any amount required under the Indenture to replenish the Reserve Account of the Debt Service Fund, in Recognized Obligation Payment Schedules for each six-month period and to enable the County Auditor-Controller to distribute from the Redevelopment Property Tax Trust Fund to the Agency’s Redevelopment Obligation Retirement Fund on each January 2 and June 1 amounts required for the Agency to pay principal of, and interest on, the Bonds coming due in the respective six-month period, including listing a reserve on the Recognized Obligation Payment Schedule to the extent required by the Indenture or when the next property tax allocation is projected to be insufficient to pay all obligations due under the provisions of the Bonds for the next payment due in the following six-month period (see “THE INDENTURE — Covenants of the Agency”).

AB 1484 also adds new provisions to the Dissolution Act implementing certain penalties in the event the Agency does not timely submit a Recognized Obligation Payment Schedule for a six-month period. Specifically, a Recognized Obligation Payment Schedule must be submitted by the Agency, after approval by the Oversight Board, to the County Administrative Officer, the County Auditor-Controller, the DOF, and the State Controller no later than 90 days before the date of the next January 2 or June 1 property tax distribution with respect to each subsequent six-month period. If the Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by such deadlines, the

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City will be subject to a civil penalty equal to $10,000 per day for every day the schedule is not submitted to the DOF. Additionally, the Agency’s administrative cost allowance is reduced by 25% if the Agency does not submit an Oversight Board-approved Recognized Obligation Payment Schedule by the 80th day before the date of the next January 2 or June 1 property tax distribution, as applicable, with respect to the Recognized Obligation Payment Schedule for subsequent six-month periods.

The Agency has submitted the first five Recognized Obligation Payment Schedules, including the 2013-14B Recognized Obligation Payment Schedule for the period of January 2 to June 30, 2014 duly approved by the Oversight Board, in a timely manner.

Bankruptcy and Foreclosure

Enforceability of the rights and remedies of the Owners of the Bonds and the obligations of the Agency may be limited by bankruptcy, insolvency, or other laws generally affecting creditors’ rights or by the laws of the State relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.

Although bankruptcy proceedings would not cause the liens to become extinguished, bankruptcy of a property owner could result in a delay in the payment of the property taxes from which Pledged Tax Revenues are derived and the ability of the County to foreclose on the lien of a delinquent unpaid tax. Such delay would increase the possibility of delinquent tax installments not being paid in full and thereby increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds but only if the County changes its current allocation method to one that includes delinquencies.

Estimated Revenues

In estimating that Pledged Tax Revenues will be sufficient to pay debt service on the Bonds after payment of the Bonds, the Agency has made certain assumptions with regard to, among other things, future assessed valuation in the Project Area and future tax rates. The Agency believes these assumptions to be reasonable, but there is no assurance these assumptions will be realized and to the extent that the assessed valuation and the tax rates are less than expected, the Pledged Tax Revenues available to pay debt service on the Bonds will be less than those projected and such reduced Pledged Tax Revenues may be insufficient to provide for the payment of principal of, premium (if any) and interest on the Bonds.

Hazardous Substances

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

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Natural Disasters

The value of the property in the Project Area in the future can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements on property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides and floods and climatic conditions such as droughts. In the event that one or more of such conditions occur, such occurrence could cause damages of varying seriousness to the land and improvements and the value of property in the Project Area could be diminished in the aftermath of such events. A substantial reduction of the value of such properties and could affect the ability or willingness of the property owners to pay the property taxes.

The City, like most communities in California, is an area of unpredictable seismic activity, and therefore, is subject to potentially destructive earthquakes. Numerous active and inactive fault lines pass through or near the City. The occurrence of severe seismic activity in the City could result in substantial damage to property located in the Project Area, and could lead to successful appeals for reduction in assessed values of such property. Such a reduction could result in a decrease in Pledged Tax Revenues.

Changes in the Law

There can be no assurance that the California electorate will not at some future time adopt initiatives or that the Legislature will not enact legislation that will amend the Dissolution Act, the Redevelopment Law or other laws or the Constitution of the State resulting in a reduction of Pledged Tax Revenues, which could have an adverse effect on the Agency’s ability to pay debt service on the Bonds.

Investment Risk

Funds held under the Indenture are required to be invested in Permitted Investments as provided under the Indenture. See Appendix A attached hereto for a summary of the definition of Permitted Investments. The funds and accounts of the Agency, into which a portion of the proceeds of the Bonds will be deposited and into which Pledged Tax Revenues are deposited, may be invested by the Agency in any investment authorized by law. All investments, including the Permitted Investments and those authorized by law from time to time for investments by municipalities, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal.

Further, the Agency cannot predict the effects on the receipt of Pledged Tax Revenues if the County were to suffer significant losses in its portfolio of investments or if the County or the City were to become insolvent or declare bankruptcy. See Appendix H — “COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2013 (EXCLUDING SUPPLEMENTARY INFORMATION)” regarding the City’s finances. See also “RISK FACTORS — Bankruptcy and Foreclosure.”

Additional Obligations

The potential for the issuance of Parity Bonds could, in certain circumstances, increase the risks associated with the Agency’s payment of debt service on the Bonds in the event of a decrease in the Agency’s collection of Pledged Tax Revenues. However, Section 34177.5 of the Dissolution Act provides limited authority for successor agencies to issue bonds, and the Agency’s ability to issue Parity

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Bonds is subject to the requirements of the Dissolution Act as in effect from time to time. For additional information, see described “SECURITY FOR THE BONDS — Parity Bonds.”

Secondary Market

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

IRS Audit of Tax-Exempt Bond Issues

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

Insured Bonds

In the event that the Agency fails to provide funds to make payment of the principal of and interest with respect to the Bonds when the same shall become due, any owner of such Bonds shall have a claim on the Policy for such payments. However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed under the Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration. The Policy does not insure the payment of any redemption premium payable upon the optional redemption of the Bonds.

Purchasers of the Bonds should also note that, while the Policy will insure payment of the principal amount paid to any owner of the Bonds in connection with the mandatory or optional prepayment of any Bond which is recovered from such owner as a voidable preference under applicable bankruptcy law, such amounts will be repaid by the Bond Insurer to the Owner only at the times and in the amounts as would have been due absent such prepayment unless the Bond Insurer chooses to pay such amount at an earlier date or dates.

Under no circumstances, including the situation in which the interest with respect to the Bonds becomes subject to federal taxation for any reason, can the maturities of the Bonds be accelerated without the consent of the Bond Insurer, so long as the Bond Insurer performs its obligations under the Policy. Furthermore, so long as the Bond Insurer performs its obligations under the Policy, the Bond Insurer shall be deemed to be the sole holder of the Bonds insured by it for the purpose of exercising any voting right or privilege or giving any consent of direction or taking any other action that the Owners of such Bonds are entitled to take pursuant to the Indenture pertaining to defaults and remedies, and the duties and obligations of the Trustee.

In the event that the Bond Insurer is unable to make payments of principal of and interest on the Bonds as such payments become due, the Bonds are payable solely from moneys received by the Trustee pursuant to the Indenture.

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In the event that the Bond Insurer is required to pay principal of or interest with respect to the Bonds, no representation or assurance is given or can be made that such event will not adversely affect the market price for or marketability of the Bonds.

The long-term rating on the Bonds is dependent, in part, on the claims paying ability or financial strength ratings, as applicable, of the Bond Insurer. The Bond Insurer’s current claims paying ability or financial strength ratings are predicated upon a number of factors which could change over time and could result in downgrading of the ratings on the Bonds insured by the Bond Insurer. Such a downgrade could adversely affect the market price for, and marketability of, the Bonds. The Bond Insurer is not contractually bound to maintain its present claims paying ability or financial strength ratings in the future. See “CONCLUDING INFORMATION — Ratings” herein.

Creditworthiness of the Bond Insurer. The Bond Insurer’s obligation under the Policy is a general obligation of the Bond Insurer. Default by the Bond Insurer may result in insufficient funds being available to pay the principal of and interest on the Insured Bonds. In such event, the remedies available to the applicable Trustee may be limited by, among other things, certain risks related to bankruptcy proceedings, and may also have been altered prior to a default by the Bond Insurer, which has the right, acting with the Trustee, without Owner consent, to amend the applicable provisions of the Indenture governing defaults and remedies and to direct the Trustee to direct remedies with respect to such Obligation. The Policy does not insure the payment of redemption premiums.

When making an investment decision on the Insured Bonds a prospective Owner should look to the ability of the Agency to pay principal and interest on the Bonds and not solely to the Bond Insurer’s ability to pay claims under the Policy. No review of the business or affairs of the Bond Insurer has been conducted by the Agency in connection with the offering of the Bonds. No assurance can be given by the Agency as to the Bond Insurer’s ability to pay claims under the Policy. See “BOND INSURANCE” herein and Appendix E hereto for further information concerning the Bond Insurer and the Policy, including instructions for obtaining certain financial information concerning the Bond Insurer.

PROPERTY TAXATION IN CALIFORNIA

Property Tax Collection Procedures

Classification. In the State, property which is subject to ad valorem taxes is classified as “secured” or “unsecured.” Secured and unsecured property are entered on separate parts of the assessment roll maintained by the County assessor. The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens on the secured property arising pursuant to State law, regardless of the time of the creation of other liens.

Generally, ad valorem taxes are collected by a county (the “Taxing Authority”) for the benefit of the various entities (cities, schools and special districts) that share in the ad valorem tax (each a taxing entity) and successor agencies eligible to receive distributions from the respective Redevelopment Property Tax Trust Fund.

Collections. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured personal property taxes: (i) initiating a civil action against the taxpayer, (ii) filing a certificate in the

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office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer, (iii) filing a certificate of delinquency for record in the county recorder’s office to obtain a lien on certain property of the taxpayer, and (iv) seizing and selling personal property, improvements or possessory interests belonging or assessed to the assessee. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent.

Penalty. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default by operation of law and declaration of the tax collector on or about June 30 of each fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the county tax collector. A 10% penalty also applies to delinquent taxes with respect to property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on varying dates related to the tax bill mailing date.

Delinquencies. The valuation of property is determined as of the January 1 lien date as equalized in August of each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1 and become delinquent August 31.

Supplemental Assessments. California Revenue and Taxation Code Section 75.70 provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Prior to the enactment of this law, the assessment of such changes was permitted only as of the next tax lien date following the change, and this delayed the realization of increased property taxes from the new assessments for up to 14 months. This statute provides increased revenue to the Redevelopment Property Tax Trust Fund to the extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the January 1 lien date. To the extent such supplemental assessments occur within the Project Area, Pledged Tax Revenues may increase.

Property Tax Administrative Costs. In 1990, the Legislature enacted SB 2557 (Chapter 466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions in proportion to the tax-derived revenues allocated to each. SB 1559 (Chapter 697, Statutes of 1992) explicitly includes redevelopment agencies among the jurisdictions which are subject to such charges. In addition, Sections 34182(e) and 34183(a) of the Dissolution Act allow administrative costs of the County Auditor-Controller for the cost of administering the provisions of the Dissolution Act, as well as the foregoing SB 1559 amounts, to be deducted from property tax revenues before monies are deposited into the Redevelopment Property Tax Trust Fund. For Fiscal Year 2013-14, the County’s administrative charge to the Agency, based on the Amendment No. 1 portion of the Project Area, is estimated to have been $161,977.

Negotiated Pass-Through Agreements. Prior to 1994, under the Redevelopment Law, a redevelopment agency could enter into an agreement to pay increment revenues to any taxing agency that has territory located within a redevelopment project in an amount which in the agency’s determination is appropriate to alleviate any financial burden or detriment caused by the redevelopment project. These agreements normally provide for payment or pass-through of tax increment revenue directed to the affected taxing agency, and, therefore, are commonly referred to as pass-through agreements or tax sharing agreements. See “SECURITY FOR THE BONDS — Tax Increment Financing” for additional discussion of the treatment of pass-through agreements under the Dissolution Act.

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Recognized Obligation Payment Schedule. The Dissolution Act provides that, commencing on the date the first Recognized Obligation Payment Schedule is valid thereunder, only those payments listed in the Recognized Obligation Payment Schedule may be made by the Agency from the funds specified in the Recognized Obligation Payment Schedule. Before each six-month period, the Dissolution Act requires successor agencies to prepare and approve, and submit to the successor agency’s oversight board and the DOF for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Pledged Tax Revenues will not be distributed from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller to the Agency’s Redevelopment Obligation Retirement Fund without a duly approved and effective Recognized Obligation Payment Schedule obtained in sufficient time prior to the January 2 or June 1 distribution dates, as applicable. See “SECURITY FOR THE BONDS — Recognized Obligation Payment Schedule” and “RISK FACTORS — Recognized Obligation Payment Schedule.”

Unitary Property

Assembly Bill (“AB”) 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with fiscal year 1988-89, assessed value derived from State-assessed unitary property (consisting mostly of operational property owned by utility companies) is to be allocated county-wide as follows: (i) each tax rate area will receive that same amount from each assessed utility received in the previous fiscal year unless the applicable county-wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro-rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro-rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State-assessed property is changed from March 1 to January 1.

AB 454 (Statutes of 1987, Chapter 921) further modifies chapter 1457 regarding the distribution of tax revenues derived from property assessed by the State Board of Equalization. Chapter 921 provides for the consolidation of all State-assessed property, except for regulated railroad property, into a single tax rate area in each county. Chapter 921 further provides for a new method of establishing tax rates on State-assessed property and distribution of property tax revenue derived from State-assessed property to taxing jurisdictions within each county in accordance with a new formula. Railroads will continue to be assessed and revenues allocated to all tax rate areas where railroad property is sited.

Article XIIIA of the State Constitution

Article XIIIA limits the amount of ad valorem taxes on real property to 1% of “full cash value” of such property, as determined by the county assessor. Article XIIIA defines “full cash value” to mean “the County Assessor’s valuation of real property as shown on the 1975-76 tax bill under ‘full cash value,’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” Furthermore, the “full cash value” of all real property may be increased to reflect the rate of inflation, as shown by the consumer price index, not to exceed 2% per year, or may be reduced. (See “RISK FACTORS — Reduction in Inflationary Rate.”)

Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by substantial damage, destruction or other factors, and to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster and in other special circumstances.

Article XIIIA (i) exempts from the 1% tax limitation taxes to pay debt service on (a) indebtedness approved by the voters prior to July 1, 1978 or (b) bonded indebtedness for the acquisition or

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improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition; (ii) requires a vote of two-thirds of the qualified electorate to impose special taxes, or certain additional ad valorem taxes; and (iii) requires the approval of two-thirds of all members of the State Legislature to change any State tax laws resulting in increased tax revenues.

The validity of Article XIIIA has been upheld by both the California Supreme Court and the United States Supreme Court.

In the general election held November 4, 1986, voters of the State approved two measures, Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms “purchase” and “change of ownership,” for the purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. This amendment to Article XIIIA may reduce the rate of growth of local property tax revenues.

Proposition 60 amended Article XIIIA to permit the Legislature to allow persons over the age of 55 who sell their residence and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence assessed value to the new residence. As a result of the Legislature’s action, the growth of property tax revenues may decline.

Legislation enacted by the Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value (except as noted). Tax rates for voter-approved bonded indebtedness and pension liabilities are also applied to 100% of assessed value.

Appropriations Limitation – Article XIIIB

Article XIIIB limits the annual appropriations of the State and its political subdivisions 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 government entity. The “base year” for establishing such appropriations limit is the 1978/79 fiscal year, and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies.

Section 33678 of the Redevelopment Law provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness shall not be deemed the receipt by an agency of proceeds of taxes levied by or on behalf of an agency within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law. The constitutionality of Section 33678 has been upheld in two California appellate court decisions. On the basis of these decisions, the Agency has not adopted an appropriations limit.

Articles XIIIC and XIIID of the State Constitution

At the election held on November 5, 1996, Proposition 218 was passed by the voters of California. The initiative added Articles XIIIC and XIIID to the State Constitution. Provisions in the two articles affect the ability of local government to raise revenues. The Bonds are secured by sources of revenues that are not subject to limitation by Proposition 218. See also “— Propositions 218 and 26” below.

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Redevelopment Time Limits

In 1993, the State legislature passed AB 1290, which, among other things, required redevelopment agencies to adopt time limits in each redevelopment plan specifying: 1) the last date to incur debt for a redevelopment project; 2) the last date to undertake redevelopment activity within a project area; and 3) the last date to collect tax increment revenue from a project area to repay debt. Pursuant to AB 1290, which took effect January 1, 1994, the City Council adopted ordinances amending the Redevelopment Plan in the Project Area to impose limits on plan activity in each area, as well as a date past which tax increment revenue could not be collected.

In 2001, the California Legislature enacted SB 211, Chapter 741, Statutes 2001, effective January 1, 2002 (“SB 211”), which authorized, among other things, the deletion by ordinance of the legislative body of the AB 1290 limitation on incurring indebtedness contained in a redevelopment plan adopted prior to January 1, 1994. However, such elimination triggers statutory tax sharing with those taxing entities that do not have pass-through agreements. The City adopted an ordinance, pursuant to the authorization contained in SB 211, deleting the limit on the Agency’s authority to incur loans, advances and indebtedness with respect to the Project Area.

SB 211 also prescribed additional requirements that a redevelopment agency would have to meet upon extending the time limit on the effectiveness of a redevelopment plan, including requiring an increased percentage of new and substantially rehabilitated dwelling units to be available at affordable housing cost to persons and families of low or moderate income prior to the termination of the effectiveness of the plan.

Legislation passed in 2003 (SB 1045) and 2004 (SB 1096) required redevelopment agencies to remit monies to the applicable county Educational Revenue Augmentation Fund (“ERAF”) and also permits redevelopment agencies to extend their ability to collect tax increment by one year for each payment required by such legislation to be made in 2003-04, 2004-05 and 2005-06. The extensions for 2004-05 and 2005-06 apply only to plans with existing limits on the effectiveness of the plan that are less than 20 years from the last day of the fiscal year in which the ERAF payment is made. The City adopted ordinances, pursuant to the authorization granted in SB 1045, SB 1096, extending the time limits on the effectiveness of the Redevelopment Plan and the receipt of the tax increment. See “THE PROJECT AREA.”

Appeals of Assessed Values

Pursuant to California law, a property owner may apply for a reduction of the property tax assessment for such owner’s property by filing a written application, in a form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board.

In the County, a property owner desiring to reduce the assessed value of such owner’s property in any one year must submit an application to the County Assessment Appeals Board (the “Appeals Board”). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of each application by the staff of the County Assessor’s Office, the staff makes a recommendation to the Appeals Board on each application which has not been rejected for incompleteness or untimeliness or withdrawn. The Appeals Board holds a hearing and either reduces the assessment or confirms the assessment. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal’s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level for fiscal years following the year for which the reduction application is filed. However, if the taxpayer establishes through proof of

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comparable values that the property continues to be overvalued (known as “ongoing hardship”), the Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year as well. Appeals for reduction in the “base year” value of an assessment, which generally must be made within three years of the date of change in ownership or completion of new construction that determined the base year, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. Moreover, in the case of any reduction in any one year of assessed value granted for “ongoing hardship” in the then current year, and also in any cases involving stipulated appeals for prior years relating to base year and personal property assessments, the property tax revenues from which Pledged Tax Revenues are derived attributable to such properties will be reduced in the then current year. In practice, such a reduced assessment may remain in effect beyond the year in which it is granted. See “THE PROJECT AREA — Largest Local Secured Taxpayers” for information regarding the assessed valuations of the top ten property owners within the Project Area. (See Appendix F — “FINANCIAL ADVISOR’S REPORT” herein for a discussion of pending appeals.)

Proposition 8

Proposition 8, approved in 1978 (California Revenue and Taxation Code Section 51(b)), provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions under this code section may be initiated by the County Assessor or requested by the property owner.

After a roll reduction is granted under this code section, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA.

Propositions 218 and 26

On November 5, 1996, California voters approved Proposition 218—Voter Approval for Local Government Taxes—Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. On November 2, 2010, California voters approved Proposition 26, the “Supermajority Vote to Pass New Taxes and Fees Act.” Proposition 26 amended Article XIIIC of the California Constitution by adding an expansive definition for the term “tax,” which previously was not defined under the California Constitution. Pledged Tax Revenues securing the Bonds are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which are limited by Proposition 218 and outside of the scope of taxes which are limited by Proposition 26.

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to

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California’s initiative process. From time to time other initiative measures could be adopted, further affecting Agency revenues or the Agency’s ability to expend revenues.

THE PROJECT AREA

The original Project Area was composed of approximately 290 acres generally bounded by Second Street on the north, Interstate 15 Freeway on the east, the City boundary on the south, and Mountain Avenue on the west. As a result of Amendment No. 1, the Project Area was expanded with the addition of approximately 5,400 acres generally contained within an area northerly of the City of Corona, westerly of the City's eastern boundary, southerly of the Santa Ana River and areas centered to the west of Hamner Avenue. Amendment No. 2 removed approximately 712 acres from the Project Area located in the extreme southeasterly portion of the Project Area, and Amendment No. 3 added approximately 13 acres. The resulting Project Area encompasses approximately 4,991 acres within the City or 55% of the City.

The Redevelopment Plan has as its basic objective to reverse conditions of blight and economic decline. Conditions in the Project Area when it was established included unpaved streets, inadequate street access to properties, mixed and incompatible land uses, irregular parcels of land, flooding due to inadequate drainage and flood control facilities, dilapidated and deteriorating buildings, and large parcels of vacant and underutilized land. The Project Area is composed of a mix of residential, commercial, industrial uses and vacant land.

Redevelopment of the Project Area was centered around the elimination of blight through the reconstruction or construction of needed public improvements and the encouragement of economic development activities. As a result of the rehabilitation of the Project Area, a higher and better utilization of the property within the Project Area has evolved thereby stimulating economic activity which will contribute to the public health, safety and welfare of the community. Benefits have occurred for the property owners of the Project Area as well as the residents and taxpayers of the City as the conditions of blight and economic decline are reversed.

As a major step toward implementation of the Redevelopment Plan, the City Council on May 14, 1991 adopted the Gateway Specific Plan. The Gateway Specific Plan encompasses approximately 317 gross acres, of which about 90% is developed. The Gateway Specific Plan is included within the boundaries of the Redevelopment Project Area.

The Gateway Specific Plan is located within the southern most portion of the City and incorporates territory east and west of Hamner Avenue; the Gateway Specific Plan lies directly west of Interstate 15. Existing land uses within the Gateway Specific Plan include residential, commercial, industrial, park, pasture/agricultural, quasi-public and vacant land. Land uses adjacent to the Gateway Specific Plan generally include residential, commercial, industrial, vacant land and public rights-of-way.

The Gateway Specific Plan contains the essential components and the policy direction which serve as the foundation for development regulations and guidelines that will actually be used in reviewing and approving development projects proposed within the Gateway Specific Plan.

In order for the Gateway Specific Plan to function at its best, a partnership between the City/Agency, property owners, business owners and tenants will be essential. The Gateway Specific Plan is intended to be the foundation for that partnership.

The ultimate goal of the Gateway Specific Plan is to create an area that is attractive and of high quality with a unifying design theme reflective of community standards and identity, providing an

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economically viable setting for a balanced mixture of light industrial, commercial and office/professional uses, serviced by a safe and efficient circulation/transportation system, and to eliminate existing and prevent future service infrastructure deficiencies. All new uses must respect and accommodate existing uses that will remain both within and adjacent to the Gateway Specific Plan.

The following is current development activity within the Project Area as of February 1, 2014:

Recent development activity in the Project Area includes the completion of the Norco Town Center, a new retail, restaurant, and office complex consisting of two buildings with a combined 43,500 square feet; a two-story 20,972 square foot retail/office building; the expansion of a Quikrete cement and concrete products facility; and Norco Country Center, consisting of 27,100 square feet of retail space, and 11,100 square feet of restaurant space. A 96 room Fairfield Inn is currently nearing completion, and is expected to open in June, 2014.

Assessment Appeals

Within the last five years, 76 of 334 appeals were successful in reducing the assessed value of property within the entire Project Area. In the aggregate, these appeals sought to reduce the total assessed value of property within the entire Project Area from $631,609,894 to $360,462,234 – a reduction of $271,147,660. The appeals resulted in a reduction in assessed value within the entire Project Area of $33,620,741, which represents approximately 12.4% of the assessed value sought to be reduced.

As of April 21, 2014, there were 69 appeals pending within the entire Project Area: 3 from 2011, 27 from 2012 and 39 from 2013. In the aggregate, these appeals seek to reduce the total assessed value of the property within the entire Project Area by $69,030,681. Based on recent history, assuming that these appeals result in a 12.4% reduction in assessed value, the Agency projects that total assessed value of property within the entire Project Area will be reduced by $8,559,405.

A summary of all top ten taxpayer pending appeals is shown below:

Property Owner Tax Roll Value Appeal Value Requested Reduction

Rbe Norco Hidden Valley LLC $10,050,444 $2,344,658 $7,705,786 Grayburn Prop Inc. 8,711,000 5,552,500 3,158,500 Source: Urban Futures, Inc.

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Land Use

The breakdown of land uses in the Amendment No. 1 portion of the Project Area is shown in the following table:

NORCO REDEVELOPMENT AGENCY Amendment No. 1 Portion of

Norco Redevelopment Project Area No. One Project Area Land Uses

FY 2013-14

Land Use Number of Parcels 2013-14 Secured

Assessed Valuation Percent of Total Secured AV (1)

Single Family Residential 3,774 $ 937,438,112 68.18% Commercial 415 344,383,574 25.02% Multifamily Residential 261 73,599,146 5.35% Miscellaneous 163 7,810,485 0.57% Agricultural 20 7,167,234 0.62% Vacant Residential 19 5,009,193 0.36% Governmental 207 0 0.00% Total 4,859 $1,376,406,744 100.00% (1) Based on FY 2013-14 secured assessed valuation: $ 1,376,406,744. Source: Urban Futures Inc.

Limitations and Requirements of the Redevelopment Plan

Pursuant to the Redevelopment Plan, the total tax increment revenues received by the Agency over the life of the Redevelopment Plan cannot exceed $750,000,000. The total amount of outstanding bonded indebtedness incurred by the Agency, payable from tax increment revenues, which can be outstanding at any one time cannot exceed $375,000,000.

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The following table summarizes the Redevelopment Plan.

Norco Redevelopment Project Area No. One Plan and Financing Limitations

Limitation Description Time or Dollar Limit

1. Plan Effective/Duration a. Original Plan July 15, 2024 b. Amendment No. 1 November 16, 2026 c. Amendment No. 3 December 1, 2034 2. Debt Incurrence Time Limit (eliminated) 3. Tax Increment Receipt Time Limit a. Original Area July 15, 2034 b. Amendment No. 1 November 16, 2036 c. Amendment No. 3 December 1, 2044 4. Total Tax Increment Dollar Limit $750,000,000 (1) 5. Bonded Indebtedness Dollar Limit $375,000,000 (2) (1) $197,748,003 received to date. (2) Currently $83,245,000 outstanding, including the Bonds and all other Agency bonded debt. School District Pass-Through Agreement

The Agency has entered into an agreement for the allocation and distribution of tax increment revenues from Amendment No. 1 to the Project Area with the Corona-Norco Unified School District (the “School District”). The School District Pass-Through Agreement states that the Agency shall pay the School District its share (37.37%) of tax increment revenues. The School District Pass-Through Agreement payments must be used first to pay debt service on the School District Bonds and are thereafter subordinate to the payment of debt service on Agency obligations.

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Largest Local Secured Taxpayers

Set forth below are the ten largest local secured taxpayers in the Amendment No. 1 portion of the Project Area based on the 2013-14 property tax roll. The total valuation of these taxpayers is $81,059,368 which represents approximately 5.893% of the total valuation in the Project Area.

Taxpayer Land Use

Fiscal Year 2013-14 Taxable

Valuation

Percent of Total

Assessed Valuation (1)

1. Rbe Norco Hidden Valley LLC Commercial: Miscellaneous $12,624,647 0.92% 2. H & H Properties Ltd

Partnership Residential & Agricultural: Poultry Ranches

11,890,685 0.86

3. Grayburn Prop Inc. Commercial: Miscellaneous 9,877,000 0.72 4. Rexco Norco Commercial: Miscellaneous 8,612,334 0.63 5. Garfield Beach CVS LLC Commercial: Miscellaneous 7,577,904 0.55 6. Ducoing, Brent W Commercial: Miscellaneous 6,993,562 0.51 7. I & J Prop Management Inc. Commercial: Miscellaneous 6,767,700 0.49 8. Pacific Costanzo Lewis Commercial: Miscellaneous 5,799,156 0.42 9. Town & County Inv Commercial: Miscellaneous 5,754,000 0.42 10. Super American Mini Storage I Commercial: Miscellaneous 5,162,380 0.38 $81,059,368 5.89% (1) Based on Fiscal Year 2013-14 secured assessed valuation: $1,376,406,744. Source: Urban Futures, Inc.

PLEDGED TAX REVENUES

Pledged Tax Revenues (as described in the section “SECURITY FOR THE BONDS” herein) are to be deposited in the Redevelopment Obligation Retirement Fund, and thereafter transfers have been made by the Agency to the Debt Service Fund, administered by the Trustee and applied to the payment of the principal of and interest on the Bonds.

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Schedule of Historical Pledged Tax Revenues

The following table is a schedule of the taxable valuations in and Pledged Tax Revenues from the Project Area for Fiscal Years 2010-11 through 2013-14.

NORCO REDEVELOPMENT PROJECT AREA NO. ONE HISTORICAL ASSESSED VALUATIONS AND TAX INCREMENT REVENUES

2010-11 2011-12 2012-13 2013-14

Taxable Valuation $ 1,634,764,203 $ 1,655,485,996 $ 1,626,964,309 $ 1,677,496,346 Less: Base Year Valuation 260,849,450 260,849,450 260,849,450 260,849,450 Incremental Valuation(1) $ 1,373,914,753 $ 1,394,636,546 $ 1,366,114,859 $ 1,416,646,896 Typical Tax Rate/$100 1.000 1.000 1.000 1.000 Incremental Revenue $ 13,739,148 $ 13,946,365 $ 13,661,149 $ 14,166,469 Unitary Revenue 141,274 155,295 161,977 161,977 Less: County Admin. Fees 197,328 178,429 181,399 199,590 Tax Revenues(2) $ 13,683,094 $ 13,923,231 $ 13,641,727 $ 14,128,856 Pledged Tax Revenues $ 3,134,806 $ 3,163,203 $ 3,349,306 $ 3,403,905 (1) Increase over base year valuation. (2) From Amendment No. 1 Component Area pursuant to the School District Pass-Through Agreement. Source: Urban Futures, Inc.

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Projected Taxable Valuation and Pledged Tax Revenues

The Agency has retained Urban Futures, Inc. of Orange, California to provide projections of taxable valuation and Pledged Tax Revenues from developments in the Amendment No. 1 portion of the Project Area. The Agency believes the assumptions (set forth in the footnotes below and Appendix F — “FINANCIAL ADVISOR’S REPORT”) upon which the projections are based are reasonable; however, some assumptions may not materialize and unanticipated events and circumstances may occur (see “RISK FACTORS”). Therefore, the actual Pledged Tax Revenues received during the forecast period may vary from the projections and the variations may be material. The projected Pledged Tax Revenues are as follows:

Fiscal Year Pledged Revenues(1)(2)

2014 $3,403,905 2015 3,512,919 2016 3,624,337 2017 3,737,984 2018 3,853,903 2019 3,972,141 2020 4,092,744 2021 4,215,758 2022 4,341,233 2023 4,469,218 2024 4,599,762 2025 4,732,917 2026 4,868,735 2027 5,007,270 2028 5,148,575 2029 5,292,706 2030 5,439,720 2031 5,589,674 2032 5,742,627

(1) Based on assessed valuation growth of 2% annually, over actual Fiscal Year 2013-14 valuation. (2) Based on the School District Pass-Through Agreement for the Amendment No. 1 component area. Source: Urban Futures, Inc.

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Annual Debt Service

Set forth below is the annualized debt service (assuming minimum sinking account payments) for the term of the Bonds.

Bond Year Ending March 1 of Principal Interest Debt Service

2015 $ 350,000 $ 286,302.50 $ 636,302.50 2016 425,000 513,550.00 938,550.00 2017 435,000 500,800.00 935,800.00 2018 460,000 483,400.00 943,400.00 2019 475,000 465,000.00 940,000.00 2020 505,000 441,250.00 946,250.00 2021 520,000 416,000.00 936,000.00 2022 550,000 390,000.00 940,000.00 2023 575,000 362,500.00 937,500.00 2024 605,000 333,750.00 938,750.00 2025 630,000 303,500.00 933,500.00 2026 670,000 272,000.00 942,000.00 2027 700,000 238,500.00 938,500.00 2028 735,000 203,500.00 938,500.00 2029 775,000 166,750.00 941,750.00 2030 815,000 128,000.00 943,000.00 2031 850,000 87,250.00 937,250.00 2032 895,000 44,750.00 939,750.00 Total $ 10,970,000 $ 5,636,802.50 $ 16,606,802.50

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Combined Debt Service

Set forth below is the combined debt service (assuming minimum sinking account payments) for the term of the 2009 Bonds and the Bonds.

Bond Year Ending March 1 of

2009 Bonds Total Debt Service

Bonds Total Debt Service

Combined Total Debt Service

2015 $ 975,092.50 $ 636,302.50 $ 1,930,782.50(1) 2016 978,636.26 938,550.00 1,917,186.26 2017 980,823.76 935,800.00 1,916,623.76 2018 976,911.26 943,400.00 1,920,311.26 2019 976,511.26 940,000.00 1,916,511.26 2020 974,546.26 946,250.00 1,920,796.26 2021 975,865.00 936,000.00 1,911,865.00 2022 980,552.50 940,000.00 1,920,552.50 2023 978,240.00 937,500.00 1,915,740.00 2024 978,080.00 938,750.00 1,916,830.00 2025 981,220.00 933,500.00 1,914,720.00 2026 977,320.00 942,000.00 1,919,320.00 2027 976,720.00 938,500.00 1,915,220.00 2028 979,080.00 938,500.00 1,917,580.00 2029 974,060.00 941,750.00 1,915,810.00 2030 977,000.00 943,000.00 1,920,000.00 2031 981,050.00 937,250.00 1,918,300.00 2032 976,950.00 939,750.00 1,916,700.00 2033 2,055,050.00 -- 2,055,050.00 2034 2,054,400.00 -- 2,054,400.00 Total $21,708,108.80 $16,606,802.50 $38,634,298.80

_________________ (1) Inclusive of the Agency’s September 1, 2014 debt service payment for the Refunded Bonds received on the June

Recognized Obligation Payment Schedule.

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Debt Service Coverage

Set forth below is the estimated debt service coverage of the Bonds and the 2009 Bonds using Pledged Tax Revenues based on Fiscal Year 2013-14 assessed value without additional inflationary growth or new construction.

Bond Year Ending March 1

No Growth Pledged Tax Revenues

Annual Debt Service (1)

Debt Service Coverage

2015 $3,403,905 $1,930,783 1.76x 2016 3,403,905 1,917,186 1.78x 2017 3,403,905 1,916,624 1.78x 2018 3,403,905 1,920,311 1.77x 2019 3,403,905 1,916,511 1.78x 2020 3,403,905 1,920,796 1.77x 2021 3,403,905 1,911,865 1.78x 2022 3,403,905 1,920,553 1.77x 2023 3,403,905 1,915,740 1.78x 2024 3,403,905 1,916,830 1.78x 2025 3,403,905 1,914,720 1.78x 2026 3,403,905 1,919,320 1.77x 2027 3,403,905 1,915,220 1.78x 2028 3,403,905 1,917,580 1.78x 2029 3,403,905 1,915,810 1.78x 2030 3,403,905 1,920,000 1.77x 2031 3,403,905 1,918,300 1.77x 2032(2) 3,403,905 1,916,700 1.78x 2033 3,403,905 2,055,050 1.66x 2034 3,403,905 2,054,400 1.66x

(1) Annual debt service for both the 2009 Bonds and the Bonds. (2) Final maturity of the Bonds. Source: Urban Futures, Inc. and the Underwriter.

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Set forth below is the estimated debt service coverage of the Bonds and the 2009 Bonds using Pledged Tax Revenues projections based on the assumptions discussed in the Financial Advisor’s Report. See Appendix F — “FINANCIAL ADVISOR’S REPORT.”

Bond Year Ending March 1

Pledged Tax Revenues

Annual Debt Service (1)

Debt Service Coverage

2015 $3,512,919 $1,930,783 1.82x 2016 3,624,337 1,917,186 1.89x 2017 3,737,984 1,916,624 1.95x 2018 3,853,903 1,920,311 2.01x 2019 3,972,141 1,916,511 2.07x 2020 4,092,744 1,920,796 2.13x 2021 4,215,758 1,911,865 2.21x 2022 4,341,233 1,920,553 2.26x 2023 4,469,218 1,915,740 2.33x 2024 4,599,762 1,916,830 2.40x 2025 4,732,917 1,914,720 2.47x 2026 4,868,735 1,919,320 2.54x 2027 5,007,270 1,915,220 2.61x 2028 5,148,575 1,917,580 2.68x 2029 5,292,706 1,915,810 2.76x 2030 5,439,720 1,920,000 2.83x 2031 5,589,674 1,918,300 2.91x 2032(2) 5,742,627 1,916,700 3.00x 2033 5,673,951 2,055,050 2.76x 2034 5,827,022 2,054,400 2.84x

(1) Annual debt service for both the 2009 Bonds and the Bonds. (2) Final maturity of the Bonds. Source: Urban Futures, Inc. and the Underwriter.

CONCLUDING INFORMATION

Underwriting

The Bonds have been sold at a net interest cost of 3.8785227%. The original purchase price (including the reoffering premium and less the Underwriter’s discount) to be paid for the Bonds is $12,198,337.90 for the Bonds. The Underwriter intends to offer the Bonds to the public initially at the yield set forth on the inside cover page of this Official Statement, which yield may subsequently change without any requirement of prior notice.

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

Verification of Mathematical Accuracy

Grant Thornton, LLP, Minneapolis, Minnesota, an independent accountant, upon delivery of the Bonds, will deliver a report on the mathematical accuracy of certain computations, contained in schedules provided to them that were prepared by the Underwriter, relating to the sufficiency of moneys deposited

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into the respective Escrow Funds created under the Escrow Agreement, to pay, when due, the principal, whether at maturity or upon prior redemption, interest and redemption premium requirements with respect to the Refunded Bonds.

The report of Grant Thornton, LLP, will include the statement that the scope of its engagement is limited to verifying the mathematical accuracy of the computations contained in such schedules provided to it, and that it has no obligation to update its report because of events occurring, or date or information coming to its attention, subsequent to the date of its report.

Legal Opinion

The opinion of Harper& Burns LLP, Orange, California, Bond Counsel, approving the validity of the Bonds and stating that interest on the Bonds is excluded from gross income for federal income tax purposes and interest on the Bonds is exempt from personal income taxes of the State of California under present State income tax laws, will be furnished to the purchaser at the time of delivery of the Bonds at the expense of the Agency. Compensation for Bond Counsel’s services is entirely contingent upon the sale and delivery of the Bonds.

A copy of the proposed form of Bond Counsel’s final approving opinion with respect to the Bonds is attached hereto as Appendix B.

The legal opinion is only as to legality and is not intended to be nor is it to be interpreted or relied upon as a disclosure document or an express or implied recommendation as to the investment quality of the Bonds.

In addition, certain legal matters will be passed on by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, as Disclosure Counsel and by Fulbright & Jaworski LLP, Los Angeles, California, a member of Norton Rose Fulbright, as Underwriter’s Counsel.

Tax Exemption

In the opinion of Harper & Burns LLP, Orange, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the Bonds may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations.

In addition, the amount by which a Bondholder’s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable Bond premium, which must be amortized under Section 171 of the Code; such amortizable Bond premium reduces the Bondholder’s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of Bond premium may result in a Bondholder realizing a taxable gain when a Bond is sold by the holder for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the holder.

Bond Counsel’s opinion as to the exclusion from gross income for federal income tax purposes of interest on the Bonds is based upon certain representations of fact and certifications made by the City, the

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Agency and others and is subject to the condition that the City and the Agency comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the delivery of the Bonds to assure that interest on the Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements might cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to the date of delivery of the Bonds. The Agency has covenanted to comply with all such requirements. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring after the date of delivery of the Bonds may affect the tax status of the interest on the Bonds.

Bond Counsel’s opinion may be affected by action taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions taken or events are taken or do occur. Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded from gross income for income tax purposes provided that the Agency continues to comply with certain requirements of the Code, the ownership of and the accrual or receipt of interest with respect to the Bonds may otherwise affect the tax liability of the recipient. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the Bonds.

Litigation

There is no action, suit or proceeding known to the Agency to be pending and notice of which has been served upon and received by the Agency, or threatened, restraining or enjoining the execution or delivery of the Bonds or the Indenture or in any way contesting or affecting the validity of the foregoing or any proceedings of the Agency taken with respect to any of the foregoing.

Legality for Investment in California

The Redevelopment Law provides that obligations authorized and issued under the Redevelopment Law will be legal investments for all banks, trust companies and savings banks, insurance companies, and various other financial institutions, as well as for trust funds. The Bonds are also authorized security for public deposits under the Redevelopment Law.

The Superintendent of Banks of the State of California has previously ruled that obligations of a redevelopment agency are eligible for savings bank investment in California.

Ratings

Standard & Poor’s Ratings Group is expected to assign a rating of “AA” (Stable Outlook) to the Bonds with the understanding that upon delivery of the Bonds, a municipal bond insurance policy insuring the payment of principal of and interest on the Bonds when due will be issued by Build America Mutual Assurance Company. See “BOND INSURANCE.” In addition, Standard & Poor’s has assigned its underlying municipal bond rating of “A+” (Stable Outlook) on the Bonds without giving effect to the above-described municipal bond insurance policy.

These ratings reflect the view of Standard & Poor’s as to the credit quality of the Bonds. The ratings reflect only the view of Standard & Poor’s, and explanation of the significance of the ratings may be obtained from Standard & Poor’s Ratings Group, 55 Water Street, New York, New York 10041 (212) 438-2124. There is no assurance that the ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by Standard & Poor’s, if in the judgment of

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Standard & Poor’s, circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Bonds.

A securities rating is not a recommendation to buy, sell or hold securities and may be subject to withdrawal or revision at any time.

Continuing Disclosure

Pursuant to a Continuing Disclosure Agreement with Willdan Financial Services (“Willdan”), as Dissemination Agent (the “Disclosure Agreement”), the Agency has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board (“MSRB”) certain annual financial information and operating data, including its postaudit of the financial transactions and records of the Agency for the applicable fiscal year pursuant to Section 34177(n) of the Dissolution Act and information of the type set forth in this Official Statement under the heading “PLEDGED TAX REVENUES — Schedule of Historical Pledged Tax Revenues.” In addition, the Agency has agreed to provide, or cause to be provided, to the MSRB in a timely manner, not in excess of ten business days after the occurrence of any such event, notice of the following “Listed Events”: (1) principal and interest payment delinquencies; (2) non-payment related defaults, if material; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (7) modifications to rights of security holders, if material; (8) bond calls, if material, and tender offers; (9) defeasances; (10) release, substitution, or sale of property securing repayment of the securities, if material; (11) rating changes; (12) bankruptcy, insolvency, receivership or similar event of the Obligated Person (as defined in Appendix D — “FORM OF CONTINUING DISCLOSURE AGREEMENT”); (13) the consummation of a merger, consolidation, or acquisition involving an Obligated Person or the sale of all or substantially all of the assets of the Obligated Person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (14) appointment of a successor or additional trustee or the change of name of a trustee, if material. These covenants have been made in order to assist the Underwriter in complying with SEC Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission.

As previously described herein, the Prior Agency was statutorily dissolved on February 1, 2012, and the Agency commenced operations as of the same date. Therefore, the Prior Agency operated for only seven months in fiscal year ended June 30, 2012, and the Agency operated for the last five months of fiscal year ended June 30, 2012. Commencing with the Comprehensive Annual Financial Report (i.e., audited financial statements) of the City for the fiscal year ended June 30, 2012, the activities of the Agency will be reported as a fiduciary trust fund as part of the City’s Comprehensive Annual Financial Report, which is in accordance with guidance issued by the DOF and available on its website as of September 19, 2012, interpreting Section 34177(n) of the California Health and Safety Code concerning certain successor agency postaudit obligations.

The final seven months of activity of the Prior Agency prior to its February 1, 2012 dissolution was reported in the governmental funds of the City in the Comprehensive Annual Financial Report for the fiscal year ended June 30, 2012.

Pursuant to the Dissolution Act, the housing assets, housing obligations, and housing activities of the Prior Agency have been transferred to the County of Riverside Housing Authority after the dissolution

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date and have been reported in a special fund in the Comprehensive Annual Financial Report for the fiscal year ended June 30, 2012.

See Appendix H — “COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2013 (EXCLUDING SUPPLEMENTARY INFORMATION),” and in particular Note 12 therein regarding “Successor Agency Trust for Assets of Former Redevelopment Agency.” A complete copy of the City’s Comprehensive Annual Financial Report for fiscal year ended June 30, 2013 can be obtained from the City’s Finance Department.

In accordance with accounting principles generally accepted in the United States of America which provide guidance for determining which governmental activities, organizations and functions should be included in the reporting entity, the Comprehensive Annual Financial Report presents information on the activities of the reporting entity, which includes the City (the primary government) and related but separate legal entities such as the Prior Agency, the Agency and the Norco Financing Authority. Such accounting presentation, however, does not change the separate legal status of the entities. With regard to the Agency in particular, as set forth in Section 34173(g) of the Dissolution Act, “A successor agency is a separate public entity from the public agency that provides for its governance and the two entities shall not merge.”

A failure by the Agency to comply with the provisions of the Disclosure Agreement is not an event of default under the Indenture (although the holders and beneficial owners of the Bonds do have remedies at law and in equity). However, a failure to comply with the provisions of the Disclosure Agreement must be reported in accordance with the SEC Rule 15c2-12(b)(5) and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds. Therefore, a failure by the Agency to comply with the provisions of the Disclosure Agreement may adversely affect the marketability of the Bonds on the secondary market. In its capacity as Dissemination Agent, Willdan has reviewed the Undertakings, and all annual report and event filings made pursuant thereto, and concludes that in the previous five years, to the knowledge of Willdan after reasonable inquiry , except as noted below, all annual report and event filings required to be made pursuant to the Rule have been made in a timely manner pursuant to the Rule.

In its capacity as Dissemination Agent, Willdan Financial Services (“Willdan”) has reviewed the Undertakings, and all event filings (if any) made pursuant thereto, and concludes that in the previous five years, to the knowledge of Willdan after reasonable inquiry, except as noted below, all event filings required to be made pursuant to the Rule have also been made in a timely manner pursuant to the Rule. On occasion the Issuer has failed to timely file its annual financial statements by the deadline set forth in the continuing disclosure undertakings and has failed to timely file notice of rating changes with respect to the Prior Agency’s outstanding Bonds which occurred on June 5, 2009, June 24, 2009, July 28, 2009, July 29, 2009, November 24, 2009, December 22, 2009, March 25, 2010, November 30, 2010, April 7, 2011, February 28, 2013, May 8, 2013, May 10, 2013, May 21, 2013, March 18, 2014 and May 21, 2014. The Issuer filed all required event notices on June 10, 2014 and is developing procedures that it believes will be sufficient to ensure timely future compliance with its continuing disclosure undertakings.

The Agency may amend the Disclosure Agreement, and waive any provision thereof, by written agreement of the parties, without the consent of the Owners, if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law (including rules or regulations) or in interpretations thereof, or a change in the identity, nature or status of the Agency or the type of business conducted thereby; (2) the Disclosure Agreement as so amended would have complied with the requirements of Rule 15c2-12 as of the date of the Disclosure Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; (3) the Agency shall

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have delivered to the Dissemination Agent an opinion of nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Agency and the Dissemination Agent, to the same effect as set forth in clause (2) above; (4) the Agency shall have delivered to the Dissemination Agent an opinion of nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the Agency, to the effect that the amendment does not materially impair the interests of the Owners; and (5) the Agency shall have delivered copies of such opinion and amendment to the MSRB.

In addition, the Agency’s obligations under the Disclosure Agreement shall terminate upon the defeasance or payment in full of all of the Bonds. The provisions of the Disclosure Agreement are intended to be for the benefit of the Owners and shall be enforceable by the Trustee on behalf of such Owners, provided that any enforcement action by any such person shall be limited to a right to obtain specific enforcement of the Agency’s obligations under the Disclosure Agreement and any failure by the Agency to comply with the provisions thereof shall not be an event of default under the Indenture. See Appendix D — “FORM OF CONTINUING DISCLOSURE AGREEMENT.”

Miscellaneous

All of the preceding summaries of the Indenture, the Bond Law, the Dissolution Act, the Redevelopment Law, other applicable legislation, the Redevelopment Plan for the Project Area, 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 Agency 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 so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.

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

SUCCESSOR AGENCY TO THE NORCO COMMUNITY REDEVELOPMENT AGENCY

By: /s/ Andy Okoro Executive Director

[THIS PAGE INTENTIONALLY LEFT BLANK]

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APPENDIX A

DEFINITIONS

The following are definitions of certain terms contained in the Indenture and used in this Official Statement.

“Act” or “Bond Law” means Article 11 (commencing with Section 53580) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code.

“Additional Bonds” or “Parity Bonds” means bonds (including, without limitation, bonds, Bonds, interim certificates, debentures or other obligations) secured by a pledge of Pledged Tax Revenues on a parity with the Bonds and the 2009 Bonds.

“Agency” or “Successor Agency” means the Successor Agency to the Norco Community Redevelopment Agency.

“Alternate Reserve Account Security” means one or more letters of credit, surety bonds, bonds insurance policies, or other form of guaranty from a financial institution for the benefit of the Trustee, the long-term, unsecured obligations of which are rated at the time of the delivery not less than “A” by Moody's Investors Services, or “A” by Standard & Poor's Corporation in substitution for or in place of all or any portion of the Reserve Requirement.

“Amendment No. 1” means that portion of the Project Area approved by Ordinance No. 502 of the City which became effective on December 16, 1983.

“Annual Debt Service” means, for any Bond Year, the principal and interest, including scheduled sinking fund payments, payable on the Outstanding Bonds in such Bond Year.

“Bond” or “Bonds” or “2014 Bonds” means the Successor Agency to the Norco Community Redevelopment Agency, Norco Redevelopment Project Area No. One (School District Pass-Through), Tax Allocation Refunding Bonds, Issue of 2014.

“Bond Counsel” means Harper & Burns LLP, a Professional Corporation, an attorney or firm of attorneys acceptable to the Agency of nationally recognized standing in matters pertaining to the federal tax exemption of interest on bonds issued by states and political subdivisions.

“Bond Insurer” or “BAM” means Build America Mutual Assurance Company, or any successor thereto.

“Bondowner” or “Owner of Bonds,” or any similar term, means any person who shall be the registered owner or his duly authorized attorney, trustee or representative of any Outstanding Bond. For the purpose of Bondowners' voting rights or consents, Bonds owned by or held for the account of the Successor Agency or the City, directly or indirectly (as certified by the City or Agency), shall not be counted.

“Bond Year” means the twelve (12) month period commencing on March 2 of each year and each anniversary date thereafter, provided that the first Bond Year shall extend from the Delivery Date to March 1, 2015.

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“Business Day” means any day other than (i) a Saturday or Sunday or legal holiday or a day on which banking institutions in the city in which the corporate trust office of the Trustee is located are authorized to close, or (ii) a day on which the New York Stock Exchange is closed.

“Cede & Co.” means the nominee of DTC, and any successor nominee of DTC with respect to the Bonds.

“Certificate” or “Certificate of the Agency” means a certificate signed by the Chairman of the Agency or their respective deputies.

“Chairman” means the Chairman of the Agency appointed pursuant to Section 33113 of the Health and Safety Code of the State of California, or other duly appointed officer of the Successor Agency authorized by the Agency by resolution or bylaw to perform the functions of the chairman in the event of the chairman's absence or disqualification.

“City” means the City of Norco, California.

“Code” means the Internal Revenue Code of 1986, as amended and any regulations, rulings, judicial decisions, and notices, announcements and other releases of the United States Treasury Department or Internal Revenue Service interpreting and construing it.

“Computation Year” means the twelve (12) month period commencing on March 2 of each year and ending on March 1 of the following year.

“Continuing Disclosure Agreement” shall mean that certain Continuing Disclosure Agreement executed by the Agency and Willdan Financial Services, as Dissemination Agent dated the date of issuance and delivery of the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof.

“Corporate Trust Office” means the corporate trust office of the Trustee, currently at U.S. Bank National Association, except for exchange, surrender and payment of the Bonds, in which case “Trust Office” shall refer to the corporate trust office of U.S. Bank National Association in St. Paul, Minnesota, or such other or additional offices as may be specified to the Agency by the Trustee in writing.

“Costs of Issuance” means the costs and expenses incurred in connection with the issuance and sale of the Bonds including the acceptance and initial fees and expenses of the Trustee, legal fees and expenses of the Trustee and the Agency, costs of printing the Bonds and Official Statement, fees of financial consultants and other fees and expenses set forth in a Certificate of the Agency.

“Cost of Issuance Fund” means that fund created pursuant to the Indenture.

“County” means the County of Riverside, California.

“Debt Service Fund” means the Fund by that name continued and held by the Trustee pursuant to the Indenture.

“Defeasance Securities” means: (1) cash, (2) non-callable direct obligations of the United States of America (“Treasuries”), (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to

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whom the custodian may be obligated, (4) subject to the prior written consent of the Insurer, pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody’s, respectively, or (5) subject to the prior written consent of the Insurer, securities eligible for “AAA” defeasance under than existing criteria of S & P or any combination, unless the Insurer otherwise approves.

Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date).

“Delivery Date” means the date the Bonds are delivered to the original purchaser thereof.

“Depository” means (a) initially, DTC, and (b) any other Securities Depositories acting as Depository pursuant to the Indenture.

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

“DTC” means The Depository Trust Company, New York, New York, and its successors and assigns.

“Dissolution Act” means Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State of California.

“Escrow Bank” means U.S. Bank National Association, Los Angeles, California, as escrow bank under the 2001 Bonds and 2004 Bonds Escrow Agreement.

“Event of Default” means any of the events described in the Indenture.

“Excess Investment Earnings” means an amount equal to the sum of:

(i) The excess of:

(A) the aggregate amount earned from the Delivery Date on all Nonpurpose Investment in which Gross Proceeds of the Bonds are invested (other than amounts attributable to an excess described in this subparagraph (i)), over

(B) the amount that would have been earned if the yield on such Nonpurpose Investment (other than amounts attributable to an excess described in this subparagraph (i)) had been equal to the yield on the Bonds, plus

(ii) any income attributable to the excess described in paragraph (i).

“Fiscal Year” means any twelve (12) month period beginning on July 1st and ending on the next following June 30th.

“Government Obligations” means 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 and CATS and TGRS) or obligations the principal and interest on which are unconditionally guaranteed by of the United States of America.

“Gross Proceeds” means the sum of the following amounts: (i) original proceeds, being the amounts received by the Agency, or held by the Trustee as proceeds of the original issuance of the Bonds

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(after payment of all expenses of issuing the Bonds); (ii) investment proceeds, being amounts received at any time by the Agency or the Trustee, such as interest and dividends, resulting from the investment of proceeds of the Bonds, including profits and less losses received on such investment; (iii) amounts, other than original proceeds and investment proceeds, held in any fund or account and reasonably expected to be used to pay principal of or interest on the Bonds; (iv) securities or obligations pledged as security for the payment of the Bonds by an ultimate obligor (or a related person) or the Agency; (v) amounts used to pay principal or interest with respect to the Bonds; and (vi) amounts received as a result of investing the amounts listed in clauses (i) through (v).

“Indenture” means the Indenture of Trust between the Agency and the Trustee, dated as of July 1, 2014, as originally adopted or as it may be amended or supplemented by any Supplemental Indenture entered into pursuant to the provisions thereof.

“Independent Financial Consultant,” or “Independent Redevelopment Consultant” means any individual or firm engaged in the profession involved, appointed by the Agency, and who, or each of whom, has a favorable reputation in the field in which his/her opinion or certificate will be given, and:

(1) Is in fact independent and not under domination of the Agency;

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

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

“Insured Obligations” means the Bonds.

“Interest Account” means the account by that name referenced in the Indenture.

“Interest Payment Date” means March 1 and September 1 of each year commencing March 1, 2015.

“Investment Property” means any security, any obligation, any annuity contract and any investment-type property (other than any tax-exempt bond, any demand deposit SLG and any qualified temporary investment within the meaning of Section 148 of the Code), as determined pursuant to the Code and Regulations.

“Law” means the Community Redevelopment Law of the State of California (commencing with Health and Safety Code Section 33000).

“Maximum Annual Debt Service” means the largest of the sums obtained for any Bond Year after the computation is made, by totaling the following for each such Bond Year:

(1) The principal amount of all Bonds and Parity Bonds, if any, and the amount of any sinking account payments payable in such Bond Year; and

(2) The interest which would be due during such Bond Year on the aggregate principal amount of Bonds and Parity Bonds which would be outstanding in such Bond Year if the Bonds and Parity Bonds outstanding on the date of such computation were to mature or be redeemed in accordance with the maturity schedules for the Bonds and Parity Bonds. At the time and for the purpose of making such computation, the amount of term Bonds and term Parity Bonds already retired in advance of the above-mentioned schedules shall be deducted pro rata from the remaining amounts thereon.

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“Moody's” means Moody's Investors Service, Inc., New York, New York.

“Municipal Bond Debt Service Reserve Insurance Policy” means that policy issued by the Bond Insurer covering a portion of the Reserve Requirement with regard to the Bonds.

“Municipal Bond Insurance Policy” means that policy issued by the Bond Insurer with regard to the Bonds.

“Nominee” means (a) initially, CEDE & CO. as nominee of DTC, and (b) any other nominee of the Depository designated pursuant to the Indenture.

“Nonpurpose Investment” means any Investment Property in which Gross Proceeds are invested and which is not acquired to carry out the governmental purpose of the Bonds.

“Original Purchaser” means Southwest Securities Inc., as original purchaser of the Bonds.

“Opinion of Counsel” means a written opinion of an attorney or firm of attorneys of favorable reputation in the field of municipal bond law. Any opinion of such counsel may be based upon, insofar as it is related to factual matters, information which is in the possession of the Successor Agency as shown by a certificate or opinion of, or representation by, an officer or officers of the Successor Agency, unless such counsel knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which his or her opinion may be based, as aforesaid, is erroneous.

“Outstanding”, when used as of any particular time with reference to Bonds, means, subject to the Indenture, all Bonds except:

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

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

(c) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Successor Agency pursuant to the Indenture or any Supplemental Indenture.

“Oversight Board” means the Oversight Board duly constituted from time to time pursuant to Section 34179 of the Dissolution Act.

“Parity Bonds” means the 2009 Bonds and any Additional Bonds.

“Pass-Through Agreement” or “School District Pass-Through Agreement” means the agreement entered into pursuant to the Prior Law by and between the Corona-Norco Unified School District, dated as of January 18, 1984, amended on January 1, 1987 and January 1, 1992, relating to Amendment No. 1.

“Paying Agent” means any paying agent appointed by the Successor Agency pursuant to the Indenture.

“Permitted Investments” means with respect to the Bonds, any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein:

(a) For all purposes, including defeasance investments in refunding escrow accounts.

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(1) Defeasance Securities

(b) For all purposes other than defeasance investments in refunding escrow accounts.

(1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including:

- Export-Import Bank

- Rural Economic Community Development Administration

- U.S. Maritime Administration

- Small Business Administration

- U.S. Department of Housing & Urban Development (PHAs)

- Federal Housing Administration

- Federal Financing Bank

(2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America:

- Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC).

- Obligations of the Resolution Funding Corporation (REFCORP)

- Senior debt obligations of the Federal Home Loan Bank System

- Senior debt obligations of other Government Sponsored Agencies

(3) U.S. dollar denominated deposit accounts, federal funds and bankers’ acceptances with domestic commercial banks, which may include the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody’s and “A-1” or “A-1+” by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank);

(4) Commercial paper which is rated at the time of purchase in the single highest classification, “P-1” by Moody’s and “A-1+” by S&P and which matures not more than 270 calendar days after the date of purchase;

(5) Investments in a money market fund, including those of an affiliate of the Trustee rated “AAAm” or “AAAm-G” or better by S&P;

(6) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and

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(A) which are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of Moody’s or S&P or any successors thereto; or

(B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (2) of the definition of Defeasance Securities, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate.

(7) Municipal Obligations rated “Aaa/AAA” or general obligations of States with a rating of “A2/A” or higher by both Moody’s and S&P.

(8) Investment Agreements with an entity rated “A” or higher by S&P; and;

(9) The Local Agency Investment Fund of the State or any state administered pooled investment fund in which the Successor Agency is statutorily permitted or required to invest will be deemed a permitted investment.

(c) The value of the above investments shall be determined as follows:

(1) For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The Trustee shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include but are not limited to pricing services provided by Financial Times Interactive Data Corporation, and Bank of America Merrill Lynch.

(2) As to certificates of deposit and bankers’ acceptances: the face amount thereof, plus accrued interest thereon; and

(3) As to any investment not specified above: the value thereof established by prior agreement among the Successor Agency and the Trustee.

“Plan Limit” means the limitation contained in the Redevelopment Plan on the number of dollars of taxes which may be divided and allocated to the Successor Agency pursuant to the Redevelopment Plan, as such limitation is prescribed by Section 33333.2 of the Law.

“Pledged Tax Revenues” means the monies deposited from time to time in the Redevelopment Property Tax Trust Fund established pursuant to subdivision (c) of Section 34172 of the Dissolution Act, as provided in paragraph (2) of subdivision (a) of Section 34183 of the Dissolution Act, in an amount not to exceed that portion of the tax revenues required by the Pass-Through Agreement to be paid to the School District under the Prior Law. If, and to the extent, that the provisions of Section 34172 or paragraph (2) of subdivision (a) of Section 34183 are invalidated by a final judicial decision, then Pledged Tax Revenues shall include all tax revenues allocated to the payment of indebtedness pursuant to Health

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& Safety Code Section 33670 or such other section as may be in effect at the time providing for the allocation of tax increment revenues in accordance with Article XVI, Section 16 of the California Constitution for payment of the Pass Through Agreement.

“Policy” shall mean the Municipal Bond Insurance Policy issued by the Bond Insurer that guarantees the scheduled payment of principal of and interest on the Insured Obligations.

“Principal Account” means the account by that name referenced in the Indenture.

“Principal Payment Date” means the date a principal payment is due on a Bond.

“Prior Agency” means the Norco Community Redevelopment Agency or Norco Redevelopment Agency.

“Prior Law” means the Community Redevelopment Law of the State of California (commencing with Health and Safety Code Section 33000) as it existed on or before June 29, 2011.

“Project Area” means the project area described and defined in the Redevelopment Plan.

“Rating Agencies” shall mean Standard and Poor's Ratings Group, New York, New York and Moody's Investors Service, New York, New York or their respective successors and assigns.

“Rebate Fund” means the fund by that name referenced in Section 404 of the Indenture.

“Rebate Regulations” mean the final Treasury Regulations issued under Section 148(f) of the Code.

“Recognized Obligation Payment Schedule” means a Recognized Obligation Payment Schedule, each prepared and approved from time to time pursuant to subdivision (l) of Section 34177 of the Dissolution Act.

“Redemption Fund” shall mean the fund by that name created pursuant to the Indenture.

“Redevelopment Property Tax Trust Fund” or “RPTTF” means the fund by that name established pursuant to Health & Safety Code Section 34170.5(b) and administered by the County auditor-controller.

“Redevelopment Obligation Retirement Fund” means the fund by that name referenced in the Indenture.

“Redevelopment Plan” means the Redevelopment Plan for the Norco Redevelopment Project Area No. One, approved and adopted by the City Council of the City of Norco and includes any amendment thereof made pursuant to the Law.

“Redevelopment Project” means the Norco Redevelopment Project Area No. One.

“Refunded Bonds” means the 2001 Bonds and the 2004 Bonds.

“Regular Record Date” means the close of business on February 15 or August 15, preceding each Interest Payment Date, as applicable.

“Regulations” means the regulations adopted by the Department of Treasury from time to time.

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“Report” means a document in writing signed by an Independent Financial Consultant and including:

(a) A statement that the person or firm making or giving such Report has read the pertinent provisions of the Indenture to which such Report relates;

(b) A brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and

(c) A statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report.

“Representations Letter” means the Letter of Representation from the Successor Agency and the Trustee to DTC in which the Successor Agency and the Trustee make certain representations to DTC with respect to the Bonds, the payment thereof and delivery of notices with respect thereto or any comparable letter to a successor depository to DTC for the Bonds.

“Reserve Policy” means the Municipal Bond Debt Service Reserve Insurance Policy.

“Reserve Requirement” means, as of the date of computation, an amount equal to the least of (i) Maximum Annual Debt Service of the Bonds and any Parity Bonds Outstanding, (ii) 10% of the net proceeds of the Bonds and any Parity Bonds Outstanding, or (iii) 125% of the Annual Debt Service on all Bonds and Parity Bonds Outstanding.

“Revenues” means the Pledged Tax Revenues together with all other moneys held by the Trustee in any Fund or Account and the interest earnings thereon.

“School District” means the Corona-Norco Unified School District.

“Securities Depositories” means The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Fax-(516) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures-Call Notification, 440 South LaSalle Street, Chicago, Illinois 60605, Fax-(312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, Pennsylvania 19103, Attention: Bond Department, Fax-(215) 496-5058; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and / or such other securities depositories as the Successor Agency may designate in a written request of the Successor Agency delivered to the Trustee.

“S&P” means Standard & Poor's Ratings Group, New York, New York.

“SLG” means U.S. Treasury State and Local Government Series.

“State” means the State of California.

“Subordination Agreement” means Amendment No. 1 to the Cooperation Agreement among the County of Riverside, the City and the Successor Agency, dated November 18, 1992.

“Supplemental Indenture” or “supplemental indenture” means any indenture then in full force and effect which has been duly entered into by the Successor Agency under the Law, or any act supplementary thereto or amendatory thereof, at a meeting of the Successor Agency duly convened and

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held, at which a quorum was present and acted thereon, amendatory of or supplemental to the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized thereunder.

“Tax Certificate” means that certain Tax Certificate executed in connection with the issuance of the Bonds or any Additional Bonds.

“Tax Code” means the Internal Revenue Code of 1986, as amended, as in effect on the date of issuance of the Bonds or (except as otherwise referenced in the Indenture) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Tax Code (including the Tax Regulations).

“Treasurer” or “Treasurer of the Successor Agency” means the officer who is then performing the functions of Treasurer of the Successor Agency.

“Trustee” means the trustee appointed by the Successor Agency pursuant to the Indenture, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Indenture.

“Written Request of the Successor Agency” or “Written Certificate of the Successor Agency” means a request or certificate, in writing signed by the Executive Director, Secretary or Finance Officer of the Successor Agency or by any other officer of the Successor Agency duly authorized by the Successor Agency for that purpose.

“2001 Bonds” means the Prior Agency's Norco Redevelopment Project Area No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2001.

“2001 Bonds Indenture” means the Indenture of Trust dated as of December 1, 2001 by and between the Prior Agency and trustee for the 2001 Bonds.

“2001 Bonds and 2004 Bonds Escrow Agreement” means the Escrow Agreement, dated as of June 1, 2014 by and between the Successor Agency and the Escrow Bank, together with any amendments thereto, with respect to the 2001 Bonds and the 2004 Bonds.

“2004 Bonds” means the Prior Agency's Norco Redevelopment Project Area No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2004.

“2004 Bonds Indenture” means the Indenture of Trust dated as of December 1, 2004 by and between the Prior Agency and trustee for the 2004 Bonds.

“2009 Bonds” means the Prior Agency's Norco Redevelopment Project Area No. One, Tax Allocation Bonds (School District Pass-Through), Issue of 2009 and any refunding bonds issued therefore.

“2009 Bond Indenture” means the Indenture of Trust dated as of April 1, 2009 between the Prior Agency and the trustee for the 2009 Bonds.

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APPENDIX B

FORM OF BOND COUNSEL OPINION

August 13, 2014 Successor Agency to the Norco Community Redevelopment Agency 2870 Clark Avenue Norco, California 92860 BOND COUNSEL OPINION: RE: $10,970,000 Successor Agency to the Norco Community Redevelopment Agency Tax Allocation Refunding Bonds (School District Pass-Through) Issue of 2014 Members of the Successor Agency:

We have examined the Constitution and the laws of the State of California, a certified record of the proceedings of the Successor Agency to the Norco Community Redevelopment Agency (the “Agency”) taken in connection with the authorization and issuance of its Successor Agency to the Norco Community Redevelopment Agency Tax Allocation Refunding Bonds, (School District Pass- Through) Issue of 2014 in the aggregate principal amount of $10,970,000 (the “Bonds”) and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we also have relied upon certain representations of fact and certifications made by the Agency, the Trustee, the purchasers of the Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us.

The Bonds have been issued pursuant to Part I of Division 24 of the Health and Safety Code of the State of California, as amended, (the “Law”) and the Indenture of Trust dated as of July 1, 2014 (the “Indenture”) by and between the Agency and U.S. Bank National Association, as Trustee (the “Trustee”) which was approved by Resolution No. 2014-02 of the Agency adopted on 19th day of February, 2014, and Resolution No. 2014-04 of the Oversight Board of the Successor Agency to the Norco Community Redevelopment Agency (collectively, the “Resolutions”), adopted on the 26th day of February, 2014.

The Bonds are dated as of the Delivery Date and mature on the dates and bear interest payable on the dates and at the rates per annum set forth in the Indenture. The Bonds are registered Bonds in the form set forth in the Indenture, redeemable in the amounts, at the times and in the manner provided for in the Indenture and the Bonds. Capitalized terms not defined here shall have the meaning ascribed to such term in the indenture.

Based upon our examination of all of the foregoing, and in reliance thereon and on all matters

of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that:

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(1) The Bonds have been duly and validly authorized by the Agency and are legal, valid

and binding special obligations of the Agency, secured and payable solely from Pledged Tax Revenues (as defined in the Indenture) and other sources as and to the extent provided for in the Indenture. The Bonds are enforceable in accordance with their terms and the terms of the Indenture, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting creditors’ rights generally or by the exercise of judicial discretion in accordance with general principles of equity. The Bonds are not a debt of the City of Norco, the State of California or any other political subdivisions thereof and neither the City of Norco nor the State of California or any of its political subdivisions is liable for the payment thereof.

(2) The Indenture has been duly authorized by the Agency, is valid and binding upon the Agency and is enforceable in accordance with its terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by the exercise of judicial discretion in accordance with general principles of equity.

(3) The Indenture creates a valid pledge of that which the Indenture purports to pledge, subject to the provisions of the Indenture, except to the extent that the enforceability of the Indenture may be limited by moratorium, bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by the exercise of judicial discretion in accordance with general principles of equity.

(4) Assuming continuing compliance with the covenants and agreements contained in the Indenture, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes, and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that, with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income earnings for the purpose of computing the alternative minimum tax imposed on such corporations.

(5) Under existing laws, interest on the Bonds is exempt from present State of California personal income taxation.

(6) The difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of a maturity are to be sold to the public) and the stated redemption price at maturity with respect to such Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Bondowner before receipt of cash attributable to such excludable income. The amount of the original issue discount deemed received by a Bondowner will increase the Bondowner’s basis in the applicable Bond. Original issue discount that accrues to the Bondowner is excluded from the gross income of such owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations (as described in paragraph 4 above), and is exempt from the State of California personal income tax. (7) The amount by which a Bond owner’s original basis for determining loss on sale or exchange in the applicable Bond (generally the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended; such amortizable bond

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premium reduces the bond owner’s basis in the applicable Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a Bond owner realizing a taxable gain when a Bond is sold by the owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the owner.

The opinion set forth in paragraph (4) and (6) above are subject to the condition that the Agency complies with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Bonds in order that interest due with respect thereto be excusable from gross income for federal income tax purposes. Failure to comply with such requirements could cause the interest on the Bonds to be included in gross income retroactive to the date of issuance of the Bonds. The Agency has covenanted to comply with all such requirements. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the foregoing opinions and the exclusion from gross income of interest on the Bonds may be affected by actions taken or events occurring after the date hereof and could result in the inclusion of such interest in gross income retroactive to the date of issuance of the Bonds. We have not undertaken to determine, or to inform any person, whether such actions or events arc taken or occur.

Respectfully submitted,

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APPENDIX C

BOOK-ENTRY ONLY SYSTEM

The information in this Appendix C concerning The Depository Trust Company (“DTC”), New York, New York, and DTC’s book-entry system has been obtained from DTC and the Agency takes no responsibility for the completeness or accuracy thereof. The Agency cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

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 certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of 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

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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. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

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 MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium (if any), and interest 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 Agency or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Principal, premium (if any), and interest payments with respect to the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Agency or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a

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successor depository is not obtained, certificates representing the Bonds are required to be printed and delivered.

The Agency may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, representing the Bonds will be printed and delivered to DTC in accordance with the provisions of the Indenture.

The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Agency believes to be reliable, but the Agency takes no responsibility for the accuracy thereof.

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APPENDIX D

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated as of August 13, 2014, is executed and delivered by the Successor Agency to the Norco Community Redevelopment Agency (the “Successor Agency”) and Willdan Financial Services as dissemination agent (the “Dissemination Agent”), in connection with the issuance of the $10,970,000 Successor Agency to the Norco Community Redevelopment Agency, Norco Redevelopment Project Area No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2014 (the “Bonds”). The Bonds are being issued pursuant to provisions of an Indenture of Trust, dated as of July 1, 2014 (the “Indenture”) by and between the Successor Agency and U.S. Bank National Association, as trustee (the “Trustee”). The Successor Agency and the Dissemination Agent covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Successor Agency and the Dissemination Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

SECTION 2. Definitions. In addition to the definitions set forth in the Indentures, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

“Annual Report” shall mean any Annual Report or any addendum thereto provided by the Successor Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

“Disclosure Representative” shall mean the City Manager of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee and Dissemination Agent from time to time.

“Dissemination Agent” shall mean Willdan Financial Services, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Successor Agency and which has filed with the Trustee a written acceptance of such designation.

“Listed Events” shall mean any of the events listed in Section 5(a) of this Disclosure Agreement.

“MSRB” shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Marketplace Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org.

“Participating Underwriter” shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

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“Rule” shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time.

“SEC” shall mean the United States Securities and Exchange Commission.

“State” shall mean the State of California.

SECTION 3. Provision of Annual Reports.

(a) The Successor Agency shall, or shall cause the Dissemination Agent to, not later than March 31 of each year, commencing March 31, 2015, provide to the MSRB and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement.

(b) Not later than fifteen days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the Successor Agency shall provide the Annual Report to the Dissemination Agent. If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the Successor Agency of such failure to receive the Annual Report. The Successor Agency shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the Successor Agency and shall have no duty or obligation to review such Annual Report.

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A.

(d) The Dissemination Agent shall, to the extent information is known to it, file a report with the Successor Agency and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided.

SECTION 4. Content of Annual Reports. The Successor Agency’s Annual Report shall contain or include by reference the following (unless otherwise stated, such information shall be as of the end of the most recent Fiscal Year and shall be with respect to the Successor Agency):

(i) A postaudit of the financial transactions and records of the Successor Agency for the Fiscal Year to be made by an Independent Certified Public Accountant appointed by the Successor Agency prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Successor Agency’s postaudit is not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain an unaudited statement of financial transactions and records of the Successor Agency in a format required by Section 34177(n) of the Dissolution Act, and the postaudit shall be filed in the same manner as the Annual Report when they become available.

(ii) Financial information and operating data relating to the Amendment No. 1 portion of the Project Area, if available, or the Project Area contained in the Official Statement for the Bonds under the headings “THE PROJECT AREA — “Assessment Appeals” and “Largest Local Secured Taxpayers,” and “PLEDGED TAX REVENUES — Schedule of Historical Pledged Tax Revenues.”

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(iii) An update of the debt service coverage table shown in the Official Statement using the most recent Fiscal Year Pledged Tax Revenues.

(iv) A listing of the amount of each distribution from the Riverside County Auditor-Controller of property tax revenues from the Redevelopment Property Tax Trust Fund received by the Successor Agency for its enforceable obligations for the most recent Fiscal Year, as reasonably available 15 days prior to the due date of each Annual Report.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Successor Agency or related public entities, which are available to the public on the MSRB’s EMMA Website or filed with the SEC.

SECTION 5. Reporting of Listed Events.

(a) Pursuant to the provisions of this section, upon the occurrence of any of the following events (in each case to the extent applicable) with respect to the Bonds, the Successor Agency shall give, or cause to be given by so notifying the Dissemination Agent in writing and instructing the Dissemination Agent to give, notice of the occurrence of such event, in each case, pursuant to Section 5(c) hereof:

1. principal or interest payment delinquencies;

2. non-payment related defaults, if material;

3. modifications to the rights of the Bondholders, if material;

4. optional, contingent or unscheduled calls, if material, and tender offers;

5. defeasances;

6. rating changes;

7. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;

8. unscheduled draws on the debt service reserves reflecting financial difficulties;

9. unscheduled draws on the credit enhancements reflecting financial difficulties;

10. substitution of the credit or liquidity providers or their failure to perform;

11. release, substitution or sale of property securing repayment of the Bonds, if material;

12. bankruptcy, insolvency, receivership or similar proceedings of the Successor Agency, which shall occur as described below;

13. appointment of a successor or additional trustee or the change of name of a trustee, if material, or;

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14. the consummation of a merger, consolidation, or acquisition involving the Successor Agency or the sale of all or substantially all of the assets of the Successor Agency other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

For these purposes, any event described in item 12 of this Section 5(a) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Successor Agency in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Agency, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Successor Agency.

(b) Upon receipt of notice from the Successor Agency and instruction by the Successor Agency to report the occurrence of any Listed Event, the Dissemination Agent shall provide notice thereof to the MSRB in accordance with Section 5(c) hereof. In the event the Dissemination Agent shall obtain actual knowledge of the occurrence of any of the Listed Events, the Dissemination Agent shall, immediately after obtaining such knowledge, contact the Disclosure Representative, inform such person of the event, and request that the Successor Agency promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to Section 5(c). For purposes of this Disclosure Agreement, “actual knowledge” of the occurrence of such Listed Event shall mean actual knowledge by the Dissemination Agent, if other than the Trustee, and if the Dissemination Agent is the Trustee, then by the officer at the corporate trust office of the Trustee with regular responsibility for the administration of matters related to the Indentures. The Dissemination Agent shall have no responsibility to determine the materiality, if applicable, of any of the Listed Events.

(c) The Successor Agency, or the Dissemination Agent, if the Dissemination Agent has been instructed by the Successor Agency to report the occurrence of a Listed Event, shall file a notice of such occurrence with the MSRB in a timely manner not more than ten business days after the occurrence of the event.

SECTION 6. Termination of Reporting Obligation. The Successor Agency’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Successor Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

SECTION 7. Dissemination Agent. The Successor Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Successor Agency pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Willdan Financial Services. The Dissemination Agent may resign by providing thirty days’ written notice to the Successor Agency and the Trustee. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the Successor Agency. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the Successor Agency in a timely manner and in a form suitable for filing.

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SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Successor Agency and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Successor Agency) provided, the Dissemination Agent shall not be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Successor Agency shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Successor Agency.

SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Successor Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Successor Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Successor Agency shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Filings with the MSRB. All financial information, operating data, financial statements, notices, and other documents provided to the MSRB in accordance with this Disclosure Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB.

SECTION 11. Default. In the event of a failure of the Successor Agency to comply with any provision of this Disclosure Agreement, the Trustee (at the written request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall, but only to the extent funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Trustee whatsoever, including, without limitation, fees and expenses of its attorneys), or any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Successor Agency or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indentures, and the sole remedy under this Disclosure Agreement in the event of any failure of the Successor Agency or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance.

SECTION 12. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Indentures pertaining to the Trustee is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indentures and the Trustee and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Trustee thereunder. The Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Successor Agency agrees to indemnify and save the Dissemination Agent and Trustee, their officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s

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or Trustee’s respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Successor Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the Successor Agency, the Bondholders, or any other party. Neither the Trustee nor the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Disclosure Agreement. The obligations of the Successor Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

SECTION 13. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the Successor Agency: Successor Agency to the Norco Community Redevelopment Agency 2870 Clark Avenue Norco, California 92860 Attn: Executive Director Phone: (951) 270-5611

To the Dissemination Agent: Willdan Financial Services 27368 Via Industria, Suite 110 Temecula, California 92590 Attn: Disclosure Group Phone: (951) 587-3500

To the Trustee: U.S. Bank, National Association 633 West Fifth Street, 24th Floor Los Angeles, California 90071 Attention: Corporate Trust Services Phone: (213) 615-6052

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent.

SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Successor Agency, the Trustee, the Dissemination Agent, the Participating Underwriter and holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

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SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

SUCCESSOR AGENCY TO THE NORCO COMMUNITY REDEVELOPMENT AGENCY

By Executive Director

WILLDAN FINANCIAL SERVICES, as Dissemination Agent

By Authorized Representative

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EXHIBIT A

NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT

Name of Obligated Party: Successor Agency to the Norco Community Redevelopment Agency

Name of Bond Issue: Successor Agency to the Norco Community Redevelopment Agency, Norco Redevelopment Project Area No. One, Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2014

Date of Issuance: August 13, 2014

NOTICE IS HEREBY GIVEN that the Successor Agency has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of August 13, 2014, with respect to the Bonds. [The Successor Agency anticipates that the Annual Report will be filed by ___________________________.]

Dated:

WILLDAN FINANCIAL SERVICES, on behalf of the Successor Agency

cc: Successor Agency

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APPENDIX E

SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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BAM ISSUER: [NAME OF ISSUER]

MEMBER: [NAME OF MEMBER]

BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on]

MUNICIPAL BOND INSURANCE POLICY

"'· Risk Premium: tt / -,\ Member su1plus Contril:iutton:.Qf' ___ _

Total Insurance Pa.Yn[etit: $ ___ _

BUILD AJVIERICA MUTUAL ASSURANCE COMPANY ("BAM:'); for consid~tion recei~, t::.by UNCONDIT!ONALLY AND iRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying ag~{ (the "Paying,Ag'l:nf') f<zYthe Bonds named above (as set forth in the documentation providing for the issua.nce a~d secudng of the Bonds), for the benefit of the o) vners or, at the. election of BAM, directly to each Owner, subJeCt only to the terms of tbts Pohcy (wh1ch mcludes each endorsement hereto), that-portiOn of the pnnc1pal of and mterest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer.

On the later of the day on which such principal and infere: becomes Due for PayZ t or the first Business Day following the Business Day on which BAM shall have receiverl Notice nfNonpayment:f'lAM)will disburse (hut without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of th~fsonds, the face amou$'6'f ptincipal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment b~ the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of sue'\ principal or iliies est then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owneris rights wit\.!:,espect to p.i'yment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will J~,(dceyncd received on a givStf Business Day if it is received prior to I :00 p.m. (New York time) on such Business Day; otherwise, it will be deell]cct/recciv_ed on the ne..xi);siofess Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received"by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any<((f wliom may, sullmit"ao amended Notice of Nonpayment. Up011 disbursement under this Policy in respect of a Bond and to the extent of such payment, BAivf.'shall becom~ .. the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest-on such Bond and sba'll be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under such Bondp;";.ymenrby BAM eithev td'the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpaymefit shall disc!large the obligafion of BAM under this Policy with respect to said Nonpayment.

Except to tl:xtent expri y modified~ an endorsement hereto, the following tcm1s shall have the meanings specified for all purposes of this Policy. "Business Day" meafts any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the lnsurcr;{Fis.?il! Agent (as defi~ herein) are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a ~rld, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory ;inking.Jund-redcmptim:vand does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sioKiilg)imd redep1ption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date f6r payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Tmstee or; lfthere is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment"~hall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a [mal, nonappealable order of a court having competent jurisdiction. "Notice" means delivery to BAM of a notice of claim and certificate, by certified mail, email or telecopy as set forth on the attached Schedule or other acceptable electronic delivety, in a form satisfact01y to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, {d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. "Owner'' means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the tenns of such Bond to payment thereof, except that "Owner" shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.

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BAM may appoint a fiscal agent (the "Insurer's Fiscal Agent") for purposes of this Policy by giving written notice to the Trustee, the Paying Agent, the Member and tbe Issuer specifying the name and notice address of the Insurer's Fiscal Agent. From and after the date of receipt of such notice by the Trustee, the Paying Agent, the Member or the Issuer (a) copies of all notices required to be dcllvcrcd to BAM pursuant to this Policy shall be simultaneously delivered to the Insurer 's Fiscal Agent and to BAM and shall not be deemed received until received by both and (b) all payments required to be made by BAM under this Policy may be made directly by BAM or by the Insurer's Fiscal Agent on behalf of BAM. The Insurer's Fiscal Agent is the agent of BAM only, and the Insurer's Fiscal Agent shall in no event be liable to the Trustee, Paying Agent or any Owner for any act of the Insurer's Fiscal Agent or any failure of BAM to deposit or cause to be deposited sufficient funds to make payments due under this Policy.

To the fullest extent permitted by applicable law, BAM agrees not to assert, and hereby waives, only for the benefit of each Owner, all rights (whether by counterclaim, setoiT or otherwise) and defenses (including, without limitation, the defense of fraud), ~hethcr acquired by subrogation, as;ignment or otherwise, to the extent that such rights and defenses may be available to BAM to avoid paymen.(of its obligations under this Policy in accordance with the express provisions of this Policy. This Policy may not be canceled or revoked.

This Policy sets fo11h in full the undertaking of BAM and shall not be modified, altered or aiTected by any other agreement or instrument, including any modification or amendment thereto. Except to the extent expressly modified by an endorsement her~to, any premium pai.d_i~-espect of this Policy is nonrefundable for any reason whatsoever, including payment, or provision being made for p~yment, of tfie,._Bonds ptior to maturity. TH IS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED (N'~TlCLE 76 OF THE NEW YORK INSURANCE LAW. TIDS POLICY IS ISSUED WITHOUT CONTfNGENT MUTUAL(fXBrL!TY FOR ASSESSMENT.

In witness whereof, BUILD AMERICA MUTUAL ASSURANCE COMPANY has ca~,~~:is Polil y to be'""exccutt::n its behalf by its

Authorized Officer. A "Y /..

BUlLD AMERl~A M ' L AY CE COMPANY

By: ~ Authorips!:l>fficer

.:j

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Email: claims@buildamerica.com

Address: I World Financial Center, 27th floor 200 Liberty Street New York, New York 10281

Tclccopy: 212-962-1524 (attention: Claims)

Notices (Unless Othcnvisc Specified by BAM)

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APPENDIX F

FINANCIAL ADVISOR’S REPORT

[THIS PAGE INTENTIONALLY LEFT BLANK]

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May 30, 2014 Andy Okoro, City Manager City of Norco 2870 Clark Ave. Norco, CA 92860 RE: Successor Agency to the Norco Community Redevelopment Agency

Norco Redevelopment Project Area No. One Tax Allocation Refunding Bonds (School District Pass Through), Issue of 2014

Dear Mr. Okoro:

Urban Futures, Inc. (UFI) is pleased to present this report of projected School District Pass Through revenues to the Successor Agency (the “Agency”) to the Norco Community Redevelopment Agency (the "Prior Agency") from the Amendment No. 1 component area of the Norco Redevelopment Project Area No. One (the “Project Area”). The following information is included as exhibits to this report:

Exhibits A-1 and A-2: Projected School District Pass Throughs

Exhibit B: Historical Assessed Valuations & Tax Revenues

Exhibit C: Largest Taxpayers, by A.V. (Amendment No. 1 area)

Exhibit D: Project Area Land Uses, by A.V. (Amendment No. 1 area)

Exhibit E: Assessment Appeals

Exhibit F: Re-sale Analysis

Projected taxable valuations and tax revenues contained in this report are based on assumptions derived from the following information:

1. Historical growth trends;

2. Trended growth in valuation as permitted by Article XIIIA of the California Constitution (Proposition 13);

3. California State Board of Equalization assessment procedures;

4. Financial reports and information supplied or prepared by the

Agency; and

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5. Assessed valuation information provided by the County of Riverside,

from the offices of the Auditor-Controller and Assessor. The purpose of the projections is to demonstrate the availability of tax increment revenue expected to be generated by the Project Area, to secure debt service requirements of the Agency for the 2014 Tax Allocation Refunding Bonds (School District Pass Through) (the “2014 School Bonds”). Tax revenues will be allocated to the Agency pursuant to the procedures described in AB X1 26, as amended by AB 1484 (the “Dissolution Act”), which include requirements that the Agency periodically file a Recognized Obligation Payment Schedule (the “ROPS”) with the County and the State, and that each such ROPS be approved by the Agency’s oversight board (the “Oversight Board”) and by the State Department of Finance. Revenue projections have been conservatively estimated in order to reduce the risk of overstating future tax revenues. General Projection Assumptions 1. The revenue projections (Exhibit A) are based on a 2% assessed valuation growth factor for

FY 14-15, and 2% annual assessed valuation growth thereafter, representing annual inflation increases allowable under Proposition 13. For FY 2014-15, the 2% growth factor includes inflation growth of 1.00454% as reported by the State Board of Equalization, and additional projected valuation growth from new construction activity in the Project Area.

2. The Project Area tax rate is assumed to be 1.00% in FY 2013-14 and thereafter. Norco Redevelopment Project Area The Redevelopment Plan for Norco Redevelopment Project Area No. One (the “Redevelopment Plan”) was approved by Ordinance No. 458 adopted by the City Council of the City (the “City Council”) on July 15, 1981 and amended by Ordinance No. 502 adopted by the City Council on November 16, 1983, Ordinance No. 537 adopted on May 1, 1985, Ordinance No. 683 adopted on December 1, 1993, Ordinance No. 841 adopted on February 1, 2006, Ordinance No. 896 adopted on July 2, 2008, and Ordinance No. 921 adopted April 7, 2010. The Project Area consists of three contiguous areas which total approximately 4,991 acres. The Project Area is zoned for mixed land uses with residential property as the dominant land use. Table 1 below shows the current time limits and dollar limits for the Project Area.

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As of June 30, 2013, the Agency and the Prior Agency have been allocated cumulative tax increment revenues in the amount of $182,854,777, since the inception of the Project Area. For FY 13-14, $14,893,226 of tax revenue generated from the Project Area was deposited into the Agency’s Redevelopment Property Tax Trust Fund (“RPTTF”). Based on the tax revenue projections (Exhibit A-1), the Agency’s cumulative tax revenues from the Project Area will not reach the $750 million cap amount before the final term date of the Bonds. Project Tax Rate Areas (TRAs) The tax rate area numbers used by the Riverside County Auditor-Controller’s Office to identify tax revenue apportionment for the Project Area are summarized in Table 2 below.

Orig. Plan Amend. No. 1

Amend. No. Plan

Date of Adoption July 15, 1981 November 16, 1983 December 1, 1993

$248,096,363

Base $12,028,020 $725,067 Project Area Sizein 290

Time and Limits

Debt Incurrence

Eliminated (All Areas)

13

Debt Repayment

July 15, 2034 November 16, 2036 December 1, 2044

Plan

November 16, 2026 December 1, 2034 July, 15, 2024

Tax Increment Limit

$750,000,000 (Combined Areas)

BondedIndebtedness Limit

$375,000,000 (Combined Areas)

4,688 Acres

Table 1 - Project Area Time and Dollar Limitations

Tax Rate Area #s:

Table 2 - Project Area Tax Rate Area Numbers

15-014, 15-018, 15-019, 15-603, 15-607

04-137, 15-003, 15-006, 15-007, 15-008,

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Project Area Tax Rate The FY 2013-14 tax rate for the Project Area is 1.08962%, consisting of the 1.00% general tax levy, and various override rates for bonded indebtedness of several taxing entities. However, pursuant to Health & Safety Code Sections 33670(e) and 34183(a)(1), the Successor Agency does not derive any benefit from tax override rates in the Project Area. Therefore, the applicable tax rate in the Project Area used to generate tax revenues for deposit into the Agency’s RPTTF is limited to 1.00%, and projected revenues shown in Exhibits A-1 and A-2 are based on a 1.00% Project Area tax rate. Pass-Through Agreements The Agency has not entered into any tax sharing agreements relative to the original Project Area. The Agency has entered into four (4) agreements for the allocation and distribution of tax increment revenues from Amendment No. 1 to the Project Area on a subordinate basis to the payment of debt service on Agency obligations. The first agreement is with Riverside County (including the County Free Library) and states that the County shall receive its share (24%) of tax increment revenue. The second agreement is with the Northwest Mosquito Abatement District (the “Abatement District”), and states that the Agency shall pay the Abatement District its share (.83%) of tax increment revenues. The third agreement is with the Riverside County Flood Control District (the “Flood Control District”), and states that the Agency shall pay the Flood Control District its share (4.9%) of tax increment revenues according to the following schedule:

(a) The Flood Control District shall receive its share of tax increment revenue generated by a 2% increase in assessed valuation, through 1993-94; (b) Using 1993-94 as a new base year, the Flood Control District shall receive 50% of its share of tax increment revenue, commencing in 1994-95; (c) Once the Flood Control District's share of cumulative tax increment revenue distributed to the Agency reaches $5,000,000, the Flood Control District shall receive 100% of its share of the Agency's tax increment revenue.

The fourth agreement is with the Riverside Community College District, (the “College District”) and states that the Agency shall pay the College District 50% of tax increment revenue generated from property located in Tract No. 23507 and Tract No. 22429 (the “Woodcrest” and “Lewis Homes” developments), less the proportionate share of such tax revenues that are:

(a) Required to be paid to other taxing entities pursuant to existing tax sharing agreements; and (b) Required to be set aside in the Agency's Low and Moderate Income Housing Fund.

The Agency has entered into three (3) agreements for the allocation and distribution of tax increment revenues from Amendment No. 3 to the Project Area. An agreement with Riverside County amends the terms of the Amendment No. 1 Agreement between the County and the Agency, to include tax increment generated by taxable valuation of property from the Amendment No. 3

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area. The second agreement is with the Flood Control and Water Conservation District, and states that the Flood Control District shall receive 25% of its share (4.9%), less a pro rata contribution to the Agency's Low and Moderate Income Housing Fund (the “LMI Fund”). Commencing in Fiscal Year 2004-05, the Flood Control District will receive an additional 21% of its share of tax increment revenue generated by the Project Area incremental valuation of the then current Fiscal Year over the assessed valuation of the Project Area in Fiscal Year 2003-04 (the First Adjusted Base Year Value), less a pro rata contribution to the LMI Fund. The third agreement is with the Riverside County Superintendent of Schools (the “Superintendent”), and states that the Superintendent shall receive its share (4.63%) of tax increment revenue generated from the Amendment No. 3 area, and its share of tax increment revenue generated by the Project Area as it existed prior to the adoption of Amendment No. 3 in excess of $6,250,000 per year. School District Pass-Through Agreement The Agency has entered into an agreement for the allocation and distribution of tax increment revenues from Amendment No. 1 to the Project Area with the Corona-Norco Unified School District (the “School District”). The School District Pass-Through Agreement states that the Agency shall pay the School District its share (37.37%) of tax increment revenues resulting from annual assessed valuation increases, using a base year valuation from FY 1993-94. The School District Pass-Through Agreement payments must be used first to pay debt service on the School District Bonds and are thereafter subordinate to the payment of debt service on Agency obligations. Statutory Pass Throughs Section 33607.5 of the Health and Safety Code of the State eliminated the statutory authority for negotiated pass through agreements and provided a formula for mandatory tax sharing, applicable to projects adopted after January 1, 1994 or amended after that date to add territory. Generally speaking, under Section 33607.5, the Agency is to pay to the affecting taxing agencies percentages of tax increment generated in the Project Area as follows pursuant to SB 211 and ordinances: (a) throughout the term of the Project Area eligibility to receive tax increment, 25% of post set aside revenues; plus, (b) for the eleventh year of the receipt of tax increment and thereafter, 21% of post set- aside revenues in excess of tenth year revenue; plus, (c) for the thirty first year of the receipt of tax increment and thereafter, 14% of post set- aside revenues in excess of thirtieth year revenues. As indicated, amounts specified as payable to taxing agencies are to be computed after deducting the housing set aside amount. The taxing agencies subject to Statutory Pass Throughs include the following: the City, the County, the County Library, the Corona-Norco Unified School District, the Riverside Community College District, the County Office of Education, the Northwest Mosquito Abatement District, the Western Municipal Water District and the Riverside-Corona Resource Conservation District. The Statutory Pass-Throughs have been subordinated pursuant to Health & Safety Code, Section 33607.5 (e).

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County Administration Fees The County of Riverside Auditor-Controller will deduct administration charges from the tax increment distributed to the Agency’s RPTTF for the Project Area. For FY 2013-14, County administration fees and charges in the amount of $195,025 attributable to the Project Area were deducted from the Agency’s RPTTF fund. Future estimated administration charges (1.38% of gross tax increment) have been deducted from the projected Project Area Tax Increment Revenues (see: Exhibits A-1 and A-2). Assessment Appeals In Riverside County, a property owner desiring to reduce the assessed value of such owner's property in any one year must submit an application to the County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. The Appeals Board, within two years of each appeal's filing date, will hold a hearing and then either reduce the assessment or confirm the assessment. As of April 30, 2014, there are 69 appeals outstanding for properties in the Project Area for multiple tax years, representing $170,122,989 of total assessed valuation. Exhibit E shows a breakdown of the outstanding assessment appeals by tax year. The projected tax revenues in Exhibits A-1 and A-2 have not been adjusted for potential assessment appeal reductions, as the outcome of pending appeals cannot be predicted with certainty. * * * * * While UFI has taken steps to assure the accuracy of the data used in the formulation of these projections, we cannot insure that projected valuations will, in fact, be realized because actual values will most likely be affected by future events and conditions that cannot be predicted with certainty. We believe that this report provides the Successor Agency to the Norco Community Redevelopment Agency with a reasonable basis for demonstrating the available tax increment revenues and School District Pass Throughs of the Agency from Norco Redevelopment Project Area No. One (and the Amendment No. 1 area, with respect to the School District Pass Throughs). We are available to answer any questions that you may have regarding this information. Sincerely, URBAN FUTURES, INC. Douglas P. Anderson Managing Principal

Norco Successor Agency Exhibit A‐1

Amendment Area No. 1

Projected Tax Revenues (School District)

Pledged 

FY Revenues (a)(b)

13-14 3,403,905$

14-15 3,512,919

15-16 3,624,337

16-17 3,737,984

17-18 3,853,903

18-19 3,972,141

19-20 4,092,744

20-21 4,215,758

21-22 4,341,233

22-23 4,469,218

23-24 4,599,762

24-25 4,732,917

25-26 4,868,735

26-27 5,007,270

27-28 5,148,575

28-29 5,292,706

29-30 5,439,720

30-31 5,589,674

31-32 5,742,627

Source: Urban Futures, Inc.

  (a) Based on assessed valuation growth of 2% annually, over actual FY 13‐14

  valuation.  

  (b) Based on Tax Sharing Agreement for the Amendment No. 1 component area.

Norco Successor Agency Exhibit A‐2

Amendment Area No. 1

Projected Tax Revenues (School District) ‐ No Growth

Pledged 

FY Revenues (a)(b)

13-14 3,403,905$

14-15 3,403,905

15-16 3,403,905

16-17 3,403,905

17-18 3,403,905

18-19 3,403,905

19-20 3,403,905

20-21 3,403,905

21-22 3,403,905

22-23 3,403,905

23-24 3,403,905

24-25 3,403,905

25-26 3,403,905

26-27 3,403,905

27-28 3,403,905

28-29 3,403,905

29-30 3,403,905

30-31 3,403,905

31-32 3,403,905

Source: Urban Futures, Inc.

  (a) Based on no assumed growth over actual FY 13‐14 valuation.

  (b) Based on Tax Sharing Agreement for the Amendment No. 1 component area.

Exhibit B FY 2009-10 to 2013-14

2009-10 2010-11 2011-12 2012-13 2013-14

Taxable Valuation 1,669,878,689$ 1,634,764,203$ 1,655,485,996$ 1,626,964,309$ 1,677,496,346$ Less: Base Year Valuation 260,849,450 260,849,450 260,849,450 260,849,450 260,849,450

Incremental Valuation(1) 1,409,029,239$ 1,373,914,753$ 1,394,636,546$ 1,366,114,859$ 1,416,646,896$ Typical Tax Rate/$100 1.000 1.000 1.000 1.000 1.000

Incremental Revenue 14,090,292$ 13,739,148$ 13,946,365$ 13,661,149$ 14,166,469$ Unitary Revenue 134,373 141,274 155,295 161,977 161,977 Less: County Admin. Fees 211,354 197,328 178,429 181,399 199,590

Tax Revenues 14,013,311 13,683,094 13,923,231 13,641,727 14,128,856 Pledged Revenues: School Pass Through (2) 3,200,312$ 3,134,806$ 3,163,203$ 3,349,306$ 3,403,905$

(1) Increase over base year valuation.(2) Based on Tax Sharing Agreement for the Amendment No. 1 component area.Source: Urban Futures, Inc.

SCHEDULE OF HISTORICAL PLEDGED TAX REVENUES

NORCO SUCCESSOR AGENCY Exhibit CAmendment No. 1 Component Area

Largest Locally Secured TaxpayersFY 2013-14

Taxpayer Land Use2013-14 Secured

Assessed Valuation% of Total

Secured AV (1)

1. Rbe Norco Hidden Valley LLC Commercial: Miscellaneous 12,624,647$ 0.92%2. H & H Properties Ltd Partnership Residential & Agricultural: Poultry Ranches 11,890,685 0.86%3. Grayburn Prop Inc Commercial: Miscellaneous 9,877,000 0.72%4. Rexco Norco Commercial: Miscellaneous 8,612,334 0.63%5. Garfield Beach CVS LLC Commercial: Miscellaneous 7,577,904 0.55%6. Ducoing, Brent W Commercial: Miscellaneous 6,993,562 0.51%7. I & J Prop Management Inc Commercial: Miscellaneous 6,767,700 0.49%8. Pacific Costanzo Lewis Commercial: Miscellaneous 5,799,156 0.42%9. Town & Country Inv Commercial: Miscellaneous 5,754,000 0.42%

10. Super American Mini Storage I Commercial: Miscellaneous 5,162,380 0.38%81,059,368 5.89%

Source: Urban Futures Inc.(1) Based on FY 2013-14 secured assessed valuation: $1,376,406,744. $1,376,406,744

Exhibit D

Land UseNumber of

ParcelsSecured Assessed

Valuation

Percent of

Secured A.V.(1)

Single Family Residential 3,774 $938,437,112 68.18%

Commercial 415 344,383,574 25.02%

Multi-Family Residential 261 73,599,146 5.35%

Miscellaneous 163 7,810,485 0.57%

Agricultural 20 7,167,234 0.52%

Vacant Residential 19 5,009,193 0.36%

Governmental 207 0 0.00%

Total All Secured 4,859 $1,376,406,744 100.00%

Source: Urban Futures, Inc. with information from the Riverside Co. 2013-14 Secured Property Tax Roll.

Norco Successor Agency

Amendment No. 1 Component Area

Land Use Summary

Fiscal Year 2013-14

(1) Based on Fiscal Year 2013-14 secured assessed valuation of $1,376406744

Norco Redevelopment Project Area No. One

Historical Assessment Appeals Exhibit E

For Closed Appeals Reviewed from January 2009 through April 2014

Number of Appeals

Filed

Number of Successful

AppealsAssessed Value of

PropertyOwner's Opinion

of ValueTotal Requested

AV ReductionReduction

Allowed by Board

Allowed Reductions as

% of Requested

334 76 $631,609,894 $360,462,234 $271,147,660 $33,620,741 12.40%

Outstanding Assessment Appeals as of 4/21/2014

Roll Year Appealed

Number of Appeals

OutstandingAssessed Value of

PropertyOwner's Opinion

of ValueTotal Requested

AV ReductionHistorical Success

Rate

Potential Reduction (based on Historical success)

2011 3 $6,064,900 $2,756,342 $3,308,558 12.40% $410,242

2012 27 $53,486,907 $29,802,498 $23,684,409 12.40% $2,936,730

2013 39 $110,571,182 $68,533,468 $42,037,714 12.40% $5,212,433

TOTALS 69 $170,122,989 $101,092,308 $69,030,681 # $8,559,405

Source: Urban Futures, Inc. with information from the County of Riverside.

Norco Successor Agency Exhibit F

Resale Analysis

January 1, 2013 to December 31, 2013, and

January 1, 2014 to April 30, 2014

Calendar Year

Number of Transactions

(a) Sales PriceTax Roll Assessed

ValuationValuation

Difference +/(-)

2013 149 $79,771,500 $66,416,328 $ 13,355,172

2014 (b) 55 28,383,000 19,727,115 8,655,885

Totals 204 $ 108,154,500 $ 86,143,443 $ 22,011,057

(a) Based on property sales with a full sales priced reported.

  (b) Through April 30, 2014.

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APPENDIX G

SUPPLEMENTAL INFORMATION — THE CITY OF NORCO

The following information concerning the City of Norco (the “City”) and surrounding areas is

included only for the purpose of supplying general information regarding the community. The Bonds are not a debt of the City, the State or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable therefor.

General Background

Norco is located directly north of Corona in Western Riverside County 44 miles east of Los Angeles along U.S. Interstate 15. Norco is approximately 17 square miles in area. Norco is an animal-keeping and equestrian-oriented community.

Incorporated as a general law city on December 28, 1964 and a charter city in 2003, the City now functions under a Council/Manager form of Government. A five member City Council, including the Mayor, is elected at large for staggered four-year terms. The City Council elects one of the Council members as Mayor. The City Treasurer is also appointed by the City Council

Norco provides fire protection, animal control, building safety regulation and inspection, street lighting, beautification, water and sewer service, refuse collection, land use planning, and zoning, housing and community services, maintenance and improvement of streets and related structures, traffic safety maintenance and improvement and recreational and cultural programs for citizen participation. Law enforcement services are provided by the Riverside County Sheriff’s Department.

Population

The following table sets forth population estimates for the City of Norco, the County of Riverside and the State of California for the past ten years:

CITY OF NORCO ESTIMATED POPULATION

Year (January 1)

City of Norco

Riverside County

State of California

2005 26,532 1,895,695 35,869,173 2006 27,045 1,975,913 36,116,202 2007 27,017 2,049,902 36,399,676 2008 26,812 2,102,741 36,704,375 2009 26,852 2,140,626 36,966,713 2010 27,069 2,179,692 37,223,900 2011 26,968 2,205,731 37,427,946 2012 27,123 2,234,193 37,668,804 2013 26,632 2,255,653 37,966,471 2014 26,582 2,279,967 38,340,074

Source: State of California Department of Finance, January 1 estimates.

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Commercial Activity

The table below presents Norco’s retail permits and transactions for the years 2005 through 2012.

CITY OF NORCO Taxable Transactions For Years 2005 through 2012

(Dollars in Thousands)

Retail Permits Retail Stores

Taxable Transactions Total Permits Total Outlets

Taxable Transactions

2005 832 $764,281 1,635 $868,104 2006 425 478,807 831 557,095 2007 411 434,197 843 509,334 2008 421 369,338 849 436,753 2009 524 287,864 808 340,697 2010 540 301,681 827 354,729 2011 571 330,169 862 384,972 2012 607 364,646 902 429,119

Source: California State Board of Equalization.

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Building Activity

The following presents the residential building permit valuations for the City of Norco for the calendar years 2009 through 2013:

CITY OF NORCO Building Permit Valuation and New Housing Units

2009 2010 2011 2012 2013Residential Single Family $ 0 $ 531,390 $ 0 $ 686,868 $ 0 Multi-Family 0 0 0 0 0 Alteration/Additions 1,071,082 1,966,905 2,156,126 1,551,087 246,663 Total $ 1,071,082 $ 2,498,295 $ 2,156,126 $ 2,237,955 $ 246,663 Non-Residential New Commercial $ 0 $ 305,452 $ 0 $ 0 $ 0 New Industry 0 0 0 0 0 Other(1) 4,735,401 3,268,680 1,311,095 2,056,452 1,987,070 Alteration/Additions 1,574,398 1,358,919 2,243,836 5,043,292 115,000 Total $ 6,309,799 $ 4,927,051 $ 3,554,931 $ 7,099,744 $ 2,102,070 Total All Industry $ 7,380,881 $ 7,425,346 $ 5,711,057 $ 14,273,223 $ 2,348,733 New Housing Units Single Family Units 0 2 0 2 0 Multi-Family Units 0 0 0 0 0 Total 0 2 0 2 0 (1) Includes churches and religious building, hospitals and institutional buildings, schools and educational buildings, residential

garages, public works and utilities buildings and non-residential alterations and additions. (2) May not add up due to rounding. Source: Construction Industry Research Board.

City’s Taxable Valuation

Taxable valuation within the City is established by the Riverside County Assessor, except for utility and other unitary property, which is assessed by the State Board of Equalization. Article XIII A of the State Constitution provides that, beginning with the 1978 79 fiscal year, property taxes in California are limited to one percent of full cash value, except for taxes to pay debt service on indebtedness approved by the voters prior to July 1, 1978. Article XIII A defines full cash value as the County Assessor’s valuation of real property as shown on the 1975 76 tax bill (“base year”), except in the case of newly-constructed property or property which undergoes a change in ownership. Yearly taxable value increases following the base year are limited to the growth in the consumer price index, but may not exceed two percent annually.

For assessment and collection purposes, property is classified either as “secured” or “unsecured”, and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed property and property the taxes on which are a lien on real

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property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll”.

The following table summarizes the assessed value of Norco for fiscal years 2006-07 through 2013-14.

CITY OF NORCO Assessed Valuations For Fiscal Years 2006-07 Through 2013-14

Secured Utility Unsecured Total

2006-07 $2,551,862,702 $418,176 $89,619,583 $2,641,900,461 2007-08 2,800,377,143 418,176 90,604,880 2,891,400,199 2008-09 2,827,637,775 418,176 82,417,775 2,910,473,726 2009-10 2,503,656,576 418,176 79,381,526 2,583,456,278 2010-11 2,454,649,231 418,176 76,129,796 2,531,197,203 2011-12 2,449,693,756 418,176 94,059,179 2,544,171,111 2012-13 2,460,807,396 418,176 69,942,186 2,531,167,758 2013-14 2,551,949,046 418,176 67,134,768 2,619,501,990

Source: California Municipal Statistics, Inc. Labor Force

The following tables show the largest employers located in the County as of fiscal year 2013.

LARGEST EMPLOYERS County of Riverside

2013

Rank Name of Business Employees Type of Business

1. County of Riverside 18,728 County Government 2. March Air Reserve Base 9,000 Military Reserve Base 3. Stater Bros. Markets 6,900 Supermarkets 4. Walmart 5,681 Super Store 5. University of California, Riverside 5,497 University 6. Riverside Unified School District 5,000 School District 7. Corona Norco Unified School District 4,633 School District 8. Kaiser Permanente Riverside Medical Center 4,500 Medical Center 9. Moreno Valley Unified School District 3,355 School District

10. Hemet Unified School District 3,270 School District Source: County of Riverside ‘Comprehensive Annual Financial Report’ for the year ending June 30, 2013.

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The following listing sets forth the top employers in the City as of June 30, 2013:

CITY OF NORCO Major Employers and Number of Employees

Employer Approximate

No. of Employees Percentage of Total City Employment

Corona Norco Unified School District 4,199 30.65% Naval Surface Warfare Center 1,300 9.49 California Rehabilitation Center 1,156 8.44 Riverside Community College 377 2.75 Target Stores 187 1.36 Quick Crete Products Corp. 157 1.15 International E-Z Up, Inc. 110 0.80 Computer Science Corp (DynCorp) 93 0.68 Hemborg Ford, Inc. 93 0.68 Avid Identification Systems, Inc. 85 0.62 Source: City of Norco, Comprehensive Annual Financial Report’ for the year ending June 30, 2013.

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Employment and Industry

Employment data is not separately reported on an annual basis for the City but is compiled for the Riverside-San Bernardino-Ontario Metropolitan Statistical Area, which includes Riverside and San Bernardino Counties. Set forth in the table below is the employment data for the Riverside-San Bernardino-Ontario Metropolitan Statistical Area for 2009 to 2013.

RIVERSIDE-SAN BERNARDINO-ONTARIO MSA INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE

2009 2010 2011 2012 2013

Civilian Labor Force 1,776,000 1,802,100 1,800,000 1,812,800 1,818,300 Civilian Employment 1,542,100 1,543,700 1,556,100 1,594,900 1,633,400 Civilian Unemployment 233,800 258,400 243,900 217,900 184,900 Civilian Unemployment Rate 13.2% 14.3% 13.6% 12.0% 10.2% Total Farm 14,900 15,000 14,900 15,000 14,600 Total Nonfarm 1,162,800 1,144,200 1,147,300 1,179,200 1,226,400 Total Private 927,600 910,000 919,800 954,600 1,001,400 Goods Producing 157,800 145,800 145,200 150,500 157,300 Natural Resources and Mining 1,100 1,000 1,000 1,200 1,200 Construction 67,900 59,700 59,100 62,600 69,300 Manufacturing 88,700 85,100 85,100 86,700 86,800 Service Providing 1,005,000 998,400 1,002,200 1,028,800 1,069,100 Trade, Transportation and Utilities 271,900 270,700 276,300 288,200 299,300 Wholesale Trade 48,900 48,600 49,000 52,100 56,000 Retail Trade 156,200 155,500 158,500 162,300 164,800 Transportation, Warehousing and

Utilities 66,800 66,600 68,800 73,800 78,600

Information 14,100 14,000 12,100 11,500 11,300 Financial Activities 42,500 41,000 39,900 40,800 42,000 Professional and Business Services 125,200 123,400 125,800 127,100 132,600 Educational and Health Services 155,000 154,800 157,600 167,200 182,000 Leisure and Hospitality 123,800 122,800 124,000 129,300 136,200 Other Services 37,300 38,200 39,100 40,100 40,800 Government 235,200 234,300 227,500 224,600 225,000 Total, All Industries 1,177,600 1,159,300 1,162,200 1,194,200 1,241,000

Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons

involved in labor-management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding. The “Total, All Industries” data is not directly comparable to the employment data found in this Appendix G.

Source: State of California, Employment Development Department, March 2013 Benchmark.

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The following table summarizes the annual labor force, employment and unemployment figures for 2009-2013 for the City, the County, the State and the nation as a whole.

COUNTY OF RIVERSIDE, STATE OF CALIFORNIA AND UNITED STATES

Average Annual Civilian Labor Force, Employment and Unemployment

Year and Area Labor Force Employment(1) Unemployment(2) Unemployment

Rate (%)(3)

2009 Norco 13,700 12,200 1,500 10.9% Riverside County 917,100 794,400 122,800 13.4 California 18,220,100 16,155,000 2,065,100 11.3 United States(4) 154,142,000 139,877,000 14,265,000 9.3 2010 Norco 14,000 12,300 1,700 11.9% Riverside County 939,500 803,300 136,200 14.5 California 18,336,300 16,068,400 2,267,900 12.4 United States(4) 153,889,000 139,064,000 14,825,000 9.6 2011 Norco 14,000 12,400 1,600 11.2% Riverside County 942,200 812,800 129,400 13.7 State of California 18,417,900 16,249,600 2,168,300 11.8 United States(4) 153,617,000 139,869,000 13,747,000 8.9 2012 Norco 14,100 12,700 1,400 10.0% Riverside County 950,600 835,200 115,400 12.1 State of California 18,519,000 16,589,700 1,929,300 10.4 United States(4) 154,975,000 142,469,000 12,506,000 8.1 2013 Norco 14,300 13,100 1,200 8.3% Riverside County 953,200 855,300 97,900 10.3 State of California 18,596,800 16,933,300 1,663,500 8.9 United States(4) 154,937,000 144,586,000 10,351,000 6.7 (1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded

figures in this table. (4) Not strictly comparable with data for prior years. Source: California Employment Development Department, March 2013 Benchmark and U.S. Department of Labor, Bureau of

Labor Statistics.

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Direct and Overlapping Debt

The following table reflects the estimated direct and overlapping debt within the City.

CITY OF NORCO 2013-14 Assessed Valuation: $2,619,501,990 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 5/1/14 Metropolitan Water District 0.120% $ 158,730 Riverside City Community College District 3.371 7,676,764 Alvord Unified School District 0.003 6,827 Corona-Norco Unified School District 9.577 24,907,141 City of Norco 100.000 0(1) City of Norco Community Facilities District No. 93-1 100.000 978,100 City of Norco Community Facilities District No. 97-1 100.000 5,940,000 City of Norco Community Facilities District No. 2001-1 100.000 34,890,000 City of Norco Community Facilities District No. 2002-1 100.000 1,376,484 Corona-Norco Unified School District Community Facilities District No. 88-1 9.706 51,927 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $75,985,973 OVERLAPPING GENERAL FUND DEBT: Riverside County General Fund Obligations 1.250% $ 8,822,498 Riverside County Pension Obligations 1.250 4,181,438 Riverside County Board of Education Certificates of Participation 1.250 33,750 Alvord Unified School District Certificates of Participation 0.003 61 Corona-Norco Unified School District Certificates of Participation 9.577 2,670,068 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $15,707,815 Less: Riverside County self-supporting obligations 126,278 TOTAL NET OVERLAPPING GENERAL FUND DEBT $15,581,537 OVERLAPPING TAX INCREMENT DEBT (Successor Agencies): $86,672,597 GROSS COMBINED TOTAL DEBT $178,366,385(2) NET COMBINED TOTAL DEBT $178,240,107 Ratios to 2013-14 Assessed Valuation: Direct Debt ................................................................................................... 0.00% Total Direct and Overlapping Tax and Assessment Debt .............................. 2.90% Gross Combined Total Debt .......................................................................... 6.81% Net Combined Total Debt .............................................................................. 6.80% Ratios to Redevelopment Incremental Valuation ($1,416,363,601): Total Overlapping Tax Increment Debt ......................................................... 6.12% _______________ (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital

lease obligations. Qualified Zone Academy Bonds are included based on principal due at maturity. Source: California Municipal Statistics, Inc.

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Transportation

Access to job opportunities in Riverside County, San Bernardino County, Orange County and Los Angeles County has been one of the major factors in Riverside County’s employment and population growth. Several major freeways and highways provide access between Riverside County and all parts of Southern California. U.S. Highways 10 and 60 extend in an east-west direction through the northern portion of the County, Intrastate Highway 91 extends in an east-west direction through the central portion of the county until connecting with U.S. Highway 15, and U.S. Highways 15 and 215 extend in a north-south direction through the central portion of the County, each linking the major cities in the County to other parts of the County and to the Los Angeles, San Bernardino and Orange metropolitan areas and to San Diego County. Norco is served by the Riverside Freeway (Calif. 91) to the south and the Pomona Freeway (Calif. 60) to the north, which are joined by Interstate 15 through the City. These principal arteries link the City to the vast interlocking freeway network of the Los Angeles Area.

Norco is served by or is adjacent to a variety of excellent land and air transportation facilities. Air service to all points is available at Ontario International Airport, 13 miles to the north, at Orange County Airport, 60 miles to the southwest and at Los Angeles International Airport, 60 miles to the west.

Interstate bus service is available via the Greyhound facilities in the adjacent City of Corona. Local bus service is provided by the Riverside Transit Authority. Passenger service is also provided by AMTRAK, which makes train trips daily each way through the County. Southern Pacific Railroad and Santa Fe Railway handle most of the freight movement in the County.

Education

The Corona-Norco Unified School District services elementary, middle and high school students in the Norco area. Six elementary schools, one intermediate school and two high schools are located within the City. The Riverside Community College Norco campus serves college students in Norco and the surrounding areas.

Community Services

The City of Norco Department of Parks, Recreation and Community Services offers a wide range of recreational and leisure programs, services and activities for the citizens of Norco and the surrounding communities. The Department also operates the Animal Control Division. The Department operates 15 Parks, all offering various recreational opportunities, from open park space and play areas to picnic shelters and lighted sports fields. Ingalls Park is a large equestrian complex which includes the City's major rodeo facility, a banquet and convention facility, and a variety of other amenities.

The Community Center Complex is home to a wide range of recreational and sports programs, special events and classes. The Center offers a variety of facilities, including a 15,000 square foot gym, Community Center Ball field, the Norco Children's Center, the Norco Community Center Pool, and a number of meeting halls and classrooms. Meeting and banquet facilities are available to rent for small gatherings to larger meetings, and banquets for up to 400 people.

The Recreation Division provides a range of programs, special events, classes and sports programs for small children to seniors. The Norco Senior Citizen Center is an 8000 square foot facility offering activities for seniors of all ages in our community. The City has one library, and residents may also use the library located at the Norco Campus of Riverside Community College.

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APPENDIX H

COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2013 (EXCLUDING SUPPLEMENTARY INFORMATION)

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED

JUNE 30, 2013

City of Norco California

CITY OF NORCO, CALIFORNIA

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED JUNE 30, 2013

Prepared by the Fiscal and Support Services Department

CITY OF NORCO, CALIFORNIA

Comprehensive Annual Financial Report For The Fiscal Year Ended June 30, 2013

Table of Contents

PAGE INTRODUCTORY SECTION: Letter of Transmittal i Organizational Chart viii Directory of City Officials ix GFOA Certificate of Achievement for Excellence in Financial Reporting x FINANCIAL SECTION: Independent Auditor’s Report 1 Management's Discussion and Analysis 4 Basic Financial Statements

Government-Wide Financial Statements Statement of Net Position 16 Statement of Activities 17 Fund Financial Statements

Governmental Funds Balance Sheet 19 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 20 Statement of Revenues, Expenditures, and Changes in Fund Balances 21 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 22

Proprietary Funds Statement of Fund Net Position 23 Statement of Revenues, Expenses, and Changes in Fund Net Position 25 Statement of Cash Flows 26

Agency Funds Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position

28 29

Notes to the Basic Financial Statements 30 Required Supplementary Information Budgetary Comparison Schedules General Fund 67 Schedule of Funding Progress - Other Post-Employment Benefits 68 Notes to Required Supplementary Information 69

CITY OF NORCO, CALIFORNIA

Comprehensive Annual Financial Report For The Fiscal Year Ended June 30, 2013

Table of Contents

PAGE Individual Fund Schedules and Combining Financial Statements Major Governmental Funds Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Streets Improvements Capital Projects Fund 70 Combining Non-major Governmental Funds Fund Descriptions 71 Combining Balance Sheet 74 Combining Statements of Revenues, Expenditures, and Changes in Fund Balances 82 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Special Revenue Funds Non-major Fund Budgetary Comparison Schedules 90 Miscellaneous Grant Fund Special Revenue Fund 91 Community Development Block Grant Special Revenue Fund 92 Gas Tax Special Revenue Fund 93 Measure A Special Revenue Fund 94 NPDES Special Revenue Fund 95 Air Quality Improvement Trust Special Revenue Fund 96 Supplemental Law Enforcement Block Grant Special Revenue Fund 97 Office of Traffic Safety Special Revenue Fund 98 Landscape Maintenance District #1 Special Revenue Fund 99 Landscape Maintenance District #2 Special Revenue Fund 100 Landscape Maintenance District #3 Special Revenue Fund 101 Landscape Maintenance District #4 Special Revenue Fund 102 Landscape Maintenance District #5 Special Revenue Fund 103 Special Asset Special Revenue Fund 104 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Capital Projects Funds Storm Drain Capital Projects Fund 105 General Government Improvement Capital Projects Fund 106 Fire Improvement Capital Projects Fund 107 Trails Improvement Capital Projects Fund 108 Community Facilities District 93-1 Capital Projects Fund 109 Park Improvement Capital Projects Fund 110 Public Library Capital Projects Fund 111 Public Meeting Capital Projects Fund 112 Aquatics Center Capital Projects Fund 113 Animal Control Capital Projects Fund 114

CITY OF NORCO, CALIFORNIA

Comprehensive Annual Financial Report For The Fiscal Year Ended June 30, 2013

Table of Contents

PAGE Internal Service Funds Internal Service Funds 115 Combining Statement of Net Position - Internal Service Funds 116 Combining Statement of Revenues, Expenses, and Changes in Fund Net Position - Internal Service Funds 117 Combining Statement of Cash Flows - Internal Service Funds 118 Agency Funds Agency Funds 120 Combining Statement of Fiduciary Assets and Liabilities 121 Combining Statement of Changes in Fiduciary Assets and Liabilities 123 STATISTICAL SECTION (NOT COVERED BY INDEPENDENT AUDITORS’ REPORT): Contents 126 Net Position by Component - Last Ten Fiscal Years 127 Changes in Net Position - Last Ten Fiscal Years 129 Fund Balances - Governmental Funds - Last Ten Fiscal Years 133 Changes in Fund Balances - Governmental Funds - Last Ten Fiscal Years 135 Assessed Value and Actual Value of Taxable Property - Last Ten Fiscal Years 137 Direct and Overlapping Property Tax Rates - Last Ten Fiscal Years 138 Principal Property Tax Payers - Current Year and Nine Years Ago 139 Property Tax Levies and Collections - Last Ten Fiscal Years 141 Ratio of Outstanding Debt by Type - Last Ten Fiscal Years 142 Ratio of General Bonded Debt Outstanding - Last Ten Fiscal Years 144 Direct and Overlapping Activities Debt 145 Legal Debt Margin Information - Last Ten Fiscal Years 146 Pledged-Revenue Coverage - Last Ten Fiscal Years 148 Demographic and Economic Statistics - Last Ten Fiscal Years 150 Principal Employers - Current Year and Nine Years Ago 151 Full-time Equivalent City Government Employees by Function / Program - Last Ten Fiscal Years 152 Operating Indicators by Function / Program - Last Nine Fiscal Years 154 Capital Asset Statistics by Function / Program - Last Ten Fiscal Years 156

INTRODUCTORY SECTION

CITY of NORCO

CITY HALL ● 2870 CLARK AVENUE ● NORCO CA 92860 ● (951) 735-3900 ● FAX (951) 270-5622

CITY COUNCIL KATHY AZEVEDO BERWIN HANNA KEVIN BASH HERB HIGGINS HARVEY SULLIVAN

Mayor Mayor Pro Tem Council Member Council Member Council Member

December 19, 2013 To the Honorable Mayor, Members of the City Council, and Citizens of the City of Norco, California: In accordance with the City’s Municipal Code, it is my pleasure to submit the City of Norco (City) Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2013 (FY 2013). This report provides a comprehensive view of the results of the City’s financial activities for the year and financial position at the end of the fiscal year. The basic financial statements have been presented in conformity with generally accepted accounting principles (GAAP) and audited in accordance with generally accepted auditing standards (GAAS) by a firm of licensed certified public accountants. The CAFR consists of management’s representations concerning the finances of the City. Consequently, management assumes full responsibility for the completeness and reliability of all information presented in this report. To provide a reasonable basis for making these representations, management has implemented a comprehensive internal control framework that is designed to both protect the City’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformity with GAAP. The City’s internal control procedures are established on the principle that the cost of internal controls should not outweigh their benefits. As a result, the City’s internal control systems have been designed to provide reasonable rather than absolute assurance that the financial statements will be free of any material misstatements. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. Management also recognizes that the internal control environment changes over time due to changes in operation or the personnel performing various duties. As a result, the internal control environment is continuously being assessed to ensure that adequate controls still exist within the City to achieve the City’s objectives. The City’s basic financial statements have been audited by Rogers, Anderson, Malody & Scott, LLP, a firm of licensed certified public accountants. The goal of an independent audit is to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2013, are free of any material misstatements. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures on the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall presentation of the financial statements. Based upon their audit, the independent auditors concluded that there was a reasonable basis for rendering an unqualified (clean) opinion that the City’s financial statements for the fiscal year ended June 30, 2013, are fairly presented in conformity with GAAP. The independent auditors’ report is presented as the first component of the financial section of this report.

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The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies under the Single Audit Act Amendments of 1996 and related OMB Circular A-133. Under the Single Audit Act, the independent auditor is required to report not only on fair presentation of financial statements, but also on the City’s internal controls and compliance with legal requirements, with emphasis on internal controls and legal requirements involving the administration of federal awards. For the fiscal year 2013, the City did not expend over $500,000 in federal grants and therefore, did not meet the threshold set by the Office of Management and Budgets (OMB) for a Single Audit. Consequently, separate Single Audit reports were not issued by the independent auditors. GAAP also requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management Discussion and Analysis (MD & A). This transmittal letter is designed to complement the MD & A and should be read in conjunction with it. The City’s MD & A can be found immediately following the report of the independent auditors. Profile of the City of Norco, California The City of Norco, California was incorporated as a general law City on December 28, 1964, and is located in southwestern Riverside County (part of the Inland Empire), approximately 45 miles east of Los Angeles. During most of the past decade, the Inland Empire was one of the top growth areas in the state with population growth of 33% over the last ten years. The City limits cover an area of approximately 15 square miles, with a permanent population of approximately 27,000. Norco is advantageously located with convenient access to the major interstate highways I-15, I-10, routes 60 and 91 freeway systems, as well as Ontario International Airport (ONT). Norco is an animal-keeping equestrian-oriented community, known as “Horsetown USA.” Residents enjoy over 400 acres of parkland and 120 miles of pedestrian and equestrian trails and more than 100 miles of streets. Most residential property is zoned for animal keeping with lot size minimum of one-half acre. Within 30 miles, there are several public and private colleges and universities providing a wide range of education facilities and opportunities. These include University of California–Riverside, University of California – Irvine, California State University – San Bernardino, California State University – Fullerton, California Polytechnic University – Pomona, Norco College, and others. The City operates under the Council-Manager form of government. Under this form of government, policy-making and legislative authority are vested in the City Council consisting of five members elected at large. The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees or commissions, and hiring both the City Manager and Attorney. The City Manager is responsible for carrying out the policies and ordinances of the City Council; overseeing the day-to-day operations of the City; appointing the heads of the various departments. The Council is elected on a non-partisan basis and each member serves a term of four years. The City Council selects by a majority vote a mayor who serves a one-year term. City Services: The City provides a full range of services, including police and fire protection; construction and maintenance of streets, trails and other infrastructure; recreational activities and cultural events; sanitation and water services; street lighting; planning and zoning; and animal control services. Police protection is provided through a contract between the City and Riverside County Sheriff’s Department. Fire and emergency medical services are provided through a cooperative contract with Riverside County Fire Department.

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The planning division is responsible for all current and advanced planning projects. Current planning projects include land use entitlement processes including site plans, variances, conditional use permits, zone changes and specific plans. Advanced planning consists of updates to the General Plan, annexations and inter-agency cooperation on transportation and habitat conservation issues. The City has over 900 acres of passive and active parkland and open space which are maintained by the City’s parks and recreation divisions. The vision of the division is to create community through people, animals, parks and programs. As an equestrian community, the animal control services division establishes standards for the care and health of animals; the division provides a safe haven animal shelter; sponsors adoption and placement of animals while enforcing laws to protect the well-being of all animals in the community. The animal shelter cares for more than 2,000 impounded animals annually. Through the City Manager’s office, the City provides economic development assistance to developers, real estate agents, appraisers, property owners and other residents. The primary purpose is to attract economic development projects to the City. Economic development will continue to be a high priority of the City during the fiscal year. The City’s public works and engineering department provides a variety of services to the City’s residents and businesses. Amongst these are production and distribution of potable water; collection and transmission of wastewater to regional treatment plants; construction and maintenance of pipe lines as well as installation and maintenance of equestrian trails. The department also provides plan check, permitting and inspection services for public and private construction projects. Fire prevention, suppression, emergency medical services, hazmat response, emergency preparedness and police protection make up the City’s public safety departments. Protecting the lives and property of the citizens of Norco is the primary mission of the public safety departments. The City maintains a significant investment in equipment, facilities and personnel to provide comfortable and safe neighborhoods for the community. Operating Budget Process: The development of the City’s Fiscal Year Annual Operating Budget begins in January. The City’s annual operating budget serves as the foundation for financial planning and control. Each City department is required to submit requests for annual appropriation to the City Manager. These budget requests are used as the starting point for developing a proposed budget. The City Manager presents a proposed budget to Council for review through staff and Council budget study sessions. At the completion of budget study sessions, the City Council is required to have a minimum of one public hearing to further review the proposed budget. At the conclusion of the public hearing(s), the budget is required to be adopted by a majority vote of the City Council no later than June 30, the close of the City’s fiscal year. The appropriated budget is prepared by fund and department. Within each department, the budget is further detailed by expenditure type and line items (e.g., salaries and benefits). Department heads can make transfers of appropriations within a department and fund. Transfer of appropriations between departments within the same fund requires the approval of the City Manager and transfers of appropriation between Funds requires Council authority. Expenditures may not legally exceed appropriations at the fund level. Budget-to-actual comparisons are provided in this report for each major individual governmental fund for which appropriated annual budget has been adopted. As part of the budgetary control process, quarterly budget-to-actual reports are presented to the City Council every quarter beginning with the end of the second quarter of the fiscal year.

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Factors Affecting Financial Condition The financial condition of the City is affected by internal and external factors including the local economy, state government actions, staffing/service levels, long term financial planning and other relevant financial policies. Local economy: While the City is largely an animal-keeping and equestrian oriented community, it also has balanced commercial, retail and light industrial activities. The City is included in the Riverside-San Bernardino labor market area. This area is also known as the Inland Empire region which is considered one of the most significant economies in the state. While the Inland Empire has faced its most serious economic challenge since the 1930s during the recent recession, the region has started to see some recovery due to improvement in home prices and employment. The weakness in the economy during the recession caused major job losses in the area especially in the blue collar sectors of construction, logistics and manufacturing. The job losses in these sectors resulted in the unemployment rate of nearly 12.1% at the beginning of the fiscal year. However, during FY 2013, the economic environment improved with unemployment dropping to 10%. Taxable sales in the area grew by more than 7.4% and real property values improved by nearly 20%. The City’s central business district is dominated by automobile dealerships, retail shops and restaurants. Sales tax revenues continued to increase during the fiscal year. On top of the 6% growth in FY 2012, the City recorded additional 11.3% growth in sales tax revenues during FY 2013. Long-term financial and strategic planning: Long-term financial and strategic planning continued to be a key tool in the City’s quest to achieve financial resiliency as the economy continues to recover. The primary focus of the City’s financial and strategic planning has been to find ways to enhance revenues while reducing expenditures through efficiency and or re-structuring. As a way to enhance revenues, the Council seeks to make the City a desirable destination by popularizing the City as “Horsetown USA,” an attractive western community with residents who enjoy a high quality rural lifestyle. To accomplish this vision, the following strategic action plans were implemented during the fiscal year.

Economic development and marketing efforts were undertaken to fill vacant sites throughout the City. Major retailers such as Winco Foods, Hobby Lobby, and Tractor Supply signed leases to open retail stores in the City.

Significant investments were made in infrastructure improvements including street widening, park improvements, right of way acquisitions, traffic signals and street extensions.

The City successfully implemented strategies to deal with the negative fiscal impact of the dissolution of the Redevelopment Agency. Part of the strategy included restructuring the City’s economic development program to improve efficiencies by focusing on targeted projects that yield higher return to the City’s economic base.

Relevant Financial Policies Budgetary Control Policies: The City has implemented strict expenditure control procedures and policies in response to the recent recession. Personnel costs represent the bulk of the City’s general government operating budget. To reduce personnel costs, the City continued to maintain a policy of negotiating short term labor agreements with employee organizations. These short term agreements provide the City with the flexibility to make further expenditure reduction in the future as revenues continue to decline.

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The City also achieves personnel expenditure reduction through the implementation of Attrition Management Program. Through this program, all positions that become vacant in the City are reviewed for potential elimination or conversion to part-time position. The program has already resulted in significant reduction of the City’s work force. Strict expenditure control is also being achieved through constant monitoring of expenditures. Budget to actual expenditure information is available on a real time basis to all departments. Hard copy monthly reports are also presented to each department and potential over expenditure indications are discussed with each department. Additionally, summarized budget to actual reports are presented to the City Council on a quarterly basis beginning with the second quarter. An extensive mid-year budget review process is also undertaken. The mid-year budget review process offers the City an opportunity to conduct a detail review of the budget and make adjustments as necessary. Pension, Health and OPEB Funding Policies: Pension, medical insurance and Other Post-Employment Benefits (OPEB) are significant cost items impacting the long-term financial condition of the City. During the fiscal year (effective January 1, 2013), the City implemented the provision of the State of California Public Employees’ Pension Reform Act. This reform reduced public employees’ pension benefits and required employees to make greater contribution towards funding of pension benefits. For the City, all employees hired before October 31, 2010 are required to contribute 4% of their pay towards funding for their pension. Employees hired after October 31, 2010 are required to contribute the full 8% of the employee portion of pension contribution. Similarly, employees hired after December 31, 2012 are required to contribute their entire share of pension contribution. The City also continued to maintain the policy that capped the amount of City subsidy towards the cost of retiree and active employee medical insurance costs at a maximum of $1,250 per month. As part of the implementation of GASB 45, the City established a Trust Account to accumulate funds for the payment of post-retirement healthcare costs. The City also adopted a funding policy. Under the policy the City made a significant amount of deposit into the Trust Account to prefund some of its unfunded retiree healthcare liabilities. As a result of substantial earnings accrued to the Trust Account, the City has been able to reduce the amount of its current year contributions to the OPEB Trust Account. This pre-funding arrangement has provided the City with some flexibility in the funding for OPEB costs. Other Relevant Financial Issues: The California state budget crisis continues to be of concern to local governments including the City of Norco. For several years, the State has struggled to eliminate the State’s General Fund structural budget deficit without much success. To solve its budget deficits the governor and the state legislature have often times relied on confiscating local revenues. This has created much uncertainty for local governments trying to balance their own stretched budgets. As part of the State budget for fiscal year 2011-2012, effective June 28, 2011, the legislature approved AB X1 26 and AB 1X 27 eliminating redevelopment agencies statewide (AB X1 26). After legal challenge, the California Supreme Court upheld the AB X1 26 on December 29, 2011 thereby dissolving all redevelopment agencies in the State of California as of January 31, 2012. Among other provisions, AB X1 26 required that upon dissolution of a redevelopment agency, either the City or another unit of local government agree to serve as the “Successor Agency” of the dissolved redevelopment agency. The role of the Successor Agency is to perform all activities necessary to wind down the activities of the former redevelopment agency including payment of debt service and completion of outstanding redevelopment activities.

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On January 11, 2012, the Norco City Council voted to serve as the Successor Agency except with respect to the former agency’s housing function. The dissolution of the redevelopment agency will likely have a long-term negative impact on the City’s ability to pursue future economic development activities. With the dissolution, the City is no longer able to receive allocation of property tax increment revenues except for the amount necessary to pay off outstanding enforceable obligations. During the Fiscal Year, the Successor Agency continued to meet all the requirements of AB X1 26 and AB 1484 by completing all the due diligence agreed upon procedures requirement and remitting any excess funds to the County Auditor-Controller. The City received a share of the excess funds resulting in temporary onetime revenue boost to the General Fund. Major Initiatives The City of Norco is dedicated to maintaining its City Living in a Rural Atmosphere by building and maintaining adequate infrastructure to serve its residents and attract compatible economic development. During the fiscal year ended June 30, 2013, the City engaged in the following major projects:

1. The City completed construction of a new animal shelter facility. The shelter which was completed at a cost of over $2 million will enhance the City’s ability to care for more than 2,000 animals annually. This state of the art facility will also preserve the City’s image as a friendly animal keeping community.

2. The City completed implementation of $2.8 million Advanced Metering Infrastructure system. This fixed network meter reading system allows the City to collect water meter readings on an hourly basis at City hall computers. This process improves meter reading accuracy, reduces labor costs and facilitates timely billing of utility services.

3. With funding from Enterprise Revenue Bonds, the City embarked on several water and wastewater infrastructure projects including California Rehabilitation Center and Navy facilities connection; expansion of treatment and storage facilities; and replacement/expansion of water lines. The reservoir, treatment and expansion facilities were designed to improve water quality, storage capacity and water availability while the automated meter reading project is designed to improve meter reading efficiency and accuracy.

4. Several street projects including Hamner Avenue widening, Second Street improvements, reconstruction, overlay and traffic signal projects were completed during the fiscal year. The Hamner Avenue Widening Project is being funded with Transportation Uniform Mitigation Fund allocation from Western Riverside County Council of Governments. Other street projects were funded by a combination of Special Transportation Tax Measure allocation, Redevelopment Agency Tax Allocation Bond proceeds and street impact fees.

5. The City also completed a Citywide Fiber Optics Network Infrastructure Project. This project is designed to provide high speed network communication between all City buildings and major infrastructure locations.

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Awards and Acknowledgments

The Government Finance Officers Association (GFOA) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Norco for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2012.

This is the tenth consecutive year that the City has received this prestigious award. In order to be awarded the annual certificate for excellence in financial reporting, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, the contents of which conform to program standards. Such reports must also satisfy generally accepted accounting principles, applicable rules, regulations and legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement program’s requirement and we will be submitting it to the GFOA to determine eligibility for another GFOA certificate. The preparation of this report could not be accomplished without the efficient and dedicated services of the entire staff of the Fiscal and Support Services Department and our independent auditors, Rogers, Anderson, Malody & Scott, LLP. Credit must also be given to the Mayor and City Council for their dedication and unfailing support in maintaining the highest level of professionalism in the management of City finances. Respectfully Submitted,

___________________ V. Andy Okoro, CPA City Manager

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CITY OF NORCO

ORGANIZATIONAL CHART June 30, 2013

Citizens of Norco

City Council

City Manager

City ClerkEconomic

Development

Fiscal & Support Services

Fire Sheriff

Public Works

Parks, Recreation &Community Services

Planning Division

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CITY OF NORCO

Directory of City Officials June 30, 2013

MAYOR

Kathy Azevedo

CITY COUNCIL

Berwin Hanna, Mayor Pro Tem Kevin Bash

Herb Higgins Harvey Sullivan

CITY MANAGER

Beth Groves

V. Andy Okoro Brenda Jacobs Deputy City Manager and City Clerk Director of Finance Steve King Lt. Dan Hedge Planning Director Chief of Police (Riverside County Sheriff) Geoff Pemberton Fire Chief Brian Petree Director, Parks, Recreation and Lori Askew Community Services Director of Public Works

Government Finance Officers Association

<:ertificate of Achievement

for Excellence in Financial Reporting

Presented to

City of Norco

California

For its Comprehensive Annual Financial Report

for the Fiscal Year Ended

June 30, 2012

Executive Director/CEO

FINANCIAL SECTION

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CERTIFIED PUBLIC ACCOUNT ANTS. SINCE I 948

Honorable Mayor and City Council City of Norco Norco, California

INDEPENDENT AUDITOR'S REPORT

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of City of Norco (City}, California, as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Statements

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

Auditor 's Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

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

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

STABILITY. ACCURACY TRUST -1-

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Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and budgetary comparison information on pages 4–15 and 67 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, supplemental schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements.

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

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

Implementation of new pronouncement As discussed in Note 1 of the financial statements, the City adopted the provisions of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position.

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Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated December 18, 2013 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

San Bernardino, California

December 18, 2013

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Management’s Discussion and Analysis The following Management Discussion and Analysis (MD&A) of the City of Norco’s (City) financial condition and performance provides an introduction and overview of the financial activities of the City for the fiscal year ended June 30, 2013. Since the Management’s Discussion and Analysis (MD&A) is designed to be condensed, we encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal and the basic financial statements including the accompanying notes to basic financial statements. Financial Highlights Total assets of the City at the end of fiscal year 2013 of $281.8 million exceeded total liabilities of

$46 million by $235.8 million. The difference between total assets and total liabilities is referred as total net position.

The City’s total net position increased by $4 million during the year. The increase in net position was due to revenues exceeding expenses in the governmental activities by $1.7 million and by $2.3 million in business-type activities.

As of June 30, 2013, the City’s governmental funds reported combined fund balance of $13 million, a net decrease of $0.6 million from prior fiscal year. The decrease in governmental fund balance is due to increase in capital projects expenditures. Approximately $8.9 million of the governmental funds’ fund balance is assigned or committed; $3.4 million is restricted; and the remaining fund balance of $0.7 million is unassigned.

Committed fund balance for the general fund was $3.6 million or 25% of total general fund recurring expenditures in fiscal year 2013. This represents an increase of $0.8 million from last fiscal year. Additionally, the general fund has assigned fund balance of $0.7 million, and unassigned fund balance of $0.8 million compared to a zero unassigned balance at the end of last year. The increase in unassigned fund balance was due to revenues exceeding expenditures.

The City’s total long-term debt decreased by a net of $0.8 million during the fiscal year due to principal debt service payment partially offset by an increase of $0.3 million in net Other Post-Employment Benefits (OPEB) obligation. The City did not issue any new debt during the fiscal year.

Overview of the Financial Statements The financial statements presented herein include all of the activities of the City of Norco; its component units and the Successor Agency to the former Redevelopment Agency as prescribed by GASB Statement No. 34. The MD&A is intended to serve as an introduction to the City’s financial statements. The City’s basic financial statements comprise the following three components:

1. Government-wide financial statements,

2. Fund financial statements, and

3. Notes to the basic financial statements.

The CAFR also contains other supplementary information in addition to the basic financial statements themselves.

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Government-wide financial statements: The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances in a manner that is similar to a private-sector business. Government-wide financial statements include a statement of net position and a statement of activities.

The Statement of Net Position presents information on all of the City’s assets and liabilities, with the difference between the two reported as net position. This is one way to measure the City’s financial health. Over time, increases or decreases in net position may provide a useful indicator on whether the financial position of the City is improving or deteriorating.

The Statement of Activities provides information that show how the City’s net position changed during the current fiscal year. These changes are reported using the full accrual basis of accounting. Under this method, transactions are reported when the economic event occurs, rather than when cash is received or paid. Consequently, revenues and expenses are also reported in the statement for some items that will only result in future cash inflows or outflows such as vacation earned but not paid and uncollected taxes.

In both the Statement of Net Position and Statement of Activities, financial reporting is divided into two kinds of activities:

Governmental Activities - financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, streets and highways, community/economic development, culture and leisure. Business-Type Activities – The City charges fees to customers to recover all or most of the cost of certain services it provides. The City’s water and sewer operations are reported as business-type activities.

The government-wide financial statements include not only the City, known as the primary government), but also its component units that are legally separate but whose activities the City is financially accountable. For the fiscal year ended June 30, 2013, the Norco Financing Authority is the only entity included as a component unit of the City. Due the dissolution of the former Norco Community Redevelopment Agency in FY 2012, the activities of the Successor Agency for the former agency is reported in a fiduciary fund (private-purpose trust fund) and thus have not been included in the consolidated financial statements of the primary government, the City of Norco. Fund Financial Statements: Fund financial statements are designed to report information about groupings of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The funds of the City can be divided into three broad categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds: Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike government-wide financial statements, governmental fund financial statements are prepared using the modified accrual basis of accounting which focuses on short-term receipts and disbursements of financial resources, as well as balance of financial resources available at the end of the fiscal year. Such information may be useful in evaluating the City’s near-term financing requirements.

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The focus of governmental funds in the fund financial statements is narrower than that of the government-wide financial statements; therefore, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual governmental funds organized by their type (general, special revenue, capital projects and debt service funds). Information is presented separately in the governmental fund balance sheet and the governmental funds’ statement of revenues, expenditures, and changes in fund balance for the general and street improvement capital projects funds, which the City has determined to be major funds. Data from the remaining governmental funds are combined into a single, aggregated presentation called non-major governmental funds. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The City adopts an annual appropriated budget for its general, special revenue and capital project funds. Budgetary comparison statements have been provided for these funds to demonstrate compliance with the budget. The basic governmental fund financial statements can be found on pages 19-22 of this report. Proprietary Funds: The City maintains two different types of proprietary funds, enterprise and internal service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for its water and sewer utilities. Internal service funds are an accounting device used to accumulate and allocate costs internally among the City’s various functions and departments. The City uses internal service funds to account for the acquisition and maintenance of its fleet of vehicles, risk financing activities and computer and related information systems. Because these funds predominantly benefit governmental activities rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as government-wide financial statements, only in a more detailed format. The proprietary fund financial statements provide separate information for the water and sewer operations, both of which are considered to be major funds of the City. Internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds is also provided in the form of combining statements elsewhere in this report. The basic proprietary fund financial statements can be found on pages 23-27 of this report. Fiduciary Funds: Fiduciary funds are used to account for resources held for the benefit of parties outside the City. In these cases, the City has a fiduciary responsibility and is acting as a trustee. The Statement of Fiduciary Net Position separately reports all of the City’s fiduciary activities. Fiduciary funds are not included in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The resources of the Successor Agency to the former Redevelopment Agency are accounted for in Fiduciary funds as a private purpose trust fund. The basic fiduciary fund financial statement can be found on pages 28-29 of this report.

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Notes to the basic financial statements: The notes to the basic financial statements which are an integral part of the financial statements provide additional information that is essential to a full understanding of the data in the government-wide and fund financial statements. The notes to the basic financial statements can be found on pages 30-66 of this report. Other information: In addition to the basic financial statements and accompanying notes, this report also present certain required supplementary information regarding the City’s progress in funding its Other Post-Employment Benefits (OPEB) obligation to provide health benefits to its employees. Required supplementary information can be found on pages 67-69 of this report. Combining statements for non-major governmental funds, internal service funds and agency funds are presented immediately following the required supplementary information. Combining financial statements and schedules are also presented elsewhere in this report. Government-wide financial analysis This analysis focuses on the City’s net position and changes in net position in the governmental and business-type activities. As noted earlier, net position may serve over time as a useful indicator of the City’s financial position. For the fiscal year ended June 30, 2013, total City assets of $281.8 million exceeded total liabilities of $46 million by $235.8 million. For comparative purposes, management has included data from the fiscal year ended June 30, 2012 as summarized below:

City of Norco, California

Statement of Net Position

Governmental Activities Business-type Activities Total 2013 2012 2013 2012 2013 2012

Assets: Current and other assets $ 21,667,788 $ 20,989,880 $ 24,356,231 $ 22,961,394 $ 46,024,019 $ 43,951,274 Capital assets (net of depreciation) 174,272,243 172,070,288 61,473,443 61,251,306 235,745,686 233,321,594 Total assets 195,940,031 193,060,168 85,829,674 84,212,700 281,769,705 277,272,868 Liabilities: Current and other Liabilities 3,889,775 2,845,239 2,944,196 2,833,163 6,833,971 5,678,402 Long-term liabilities 2,637,237 2,537,075 36,562,802 37,358,843 39,200,039 39,895,918 Total liabilities 6,527,012 5,382,314 39,506,998 40,192,006 46,034,010 45,574,320 Net position: Net invested in capital assets 173,830,963 172,040,285 46,023,517 46,718,775 219,854,480 218,759,060 Restricted 11,708,483 15,217,153 1,505,296 1,493,069 13,213,779 16,710,222 Unrestricted 3,873,573 420,416 (1,206,137) (4,191,150) 2,667,436 (3,770,734) Total net position $ 189,413,019 $ 187,677,854 $ 46,322,676 $ 44,020,694 $ 235,735,695 $ 231,698,548 Net position for the fiscal year ended June 30, 2013, includes investments in capital assets such as roads, streets, lighting systems, drainage systems, bridges, property plant and equipment.

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Including the value of infrastructure assets, net invested in capital assets total $219.9 million as of June 30, 2013. The City uses capital assets to provide services to citizens; consequently, these assets are not available for future spending. An additional portion of the City’s net position, $13.2 million for fiscal year 2013 and $16.7 million for fiscal year 2012, represent resources that are subject to restrictions on how they can be used. The remaining balance, unrestricted net position, is $2.7 million and ($3.8) million for fiscal years 2013 and 2012 respectively. The deficit unrestricted net position amount is due largely to the amount invested in governmental infrastructure assets which are not available for spending and the inclusion of all long-term liabilities in the statement of net position. Statement of Activities: The statement of activities shows how the City’s net assets changed during the year. Provided below is the summary of changes in net position.

During the year, total net position increased by $4 million primarily due to revenues exceeding expenses. Further analyses are provided below.

2013 2012 2013 2012 2013 2012Revenues:Program Revenues:

Charges for services 5,140,183$ 3,930,138$ 15,381,807$ 14,359,899$ 20,521,990$ 18,290,037$ Operating grants and contributions 1,657,693 3,062,424 28,481 - 1,686,174 3,062,424 Capital grants and contributions 2,504,159 83,834 1,264,389 902,597 3,768,548 986,431

General revenues 10,814,378 17,203,522 34,537 84,540 10,848,915 17,288,062 Total revenues 20,116,413 24,279,918 16,709,214 15,347,036 36,825,627 39,626,954

Expenses:General Government 3,186,491 2,047,480 - - 3,186,491 2,047,480 Public Safety 8,523,623 9,482,494 - - 8,523,623 9,482,494 Streets and Highways 3,954,013 4,389,492 - - 3,954,013 4,389,492 Community development 615,851 5,893,093 - - 615,851 5,893,093 Culture and leisure 2,390,293 2,421,643 - - 2,390,293 2,421,643 Interest on long-term debt - 842,156 - - - 842,156 Water - - 9,259,377 9,917,049 9,259,377 9,917,049 Sewer - - 4,858,832 5,309,232 4,858,832 5,309,232

Total expenses 18,670,271 25,076,358 14,118,209 15,226,281 32,788,480 40,302,639

Change in net position before transfers and extraordinary items 1,446,142 (796,440) 2,591,005 120,755 4,037,147 (675,685) Extraordinary Gain - 50,466,374 - - - 50,466,374 Transfers 289,023 272,337 (289,023) (272,337) - - Change in net position 1,735,165 49,942,271 2,301,982 (151,582) 4,037,147 49,790,689 Net position - beginning 187,677,854 137,735,582 44,020,694 44,172,276 231,698,548 181,907,858 Net position - ending 189,413,019$ 187,677,853$ 46,322,676$ 44,020,694$ 235,735,695$ 231,698,547$

Governmental activities

City of Norco, California

Statement of Activities

Business-type activities Total

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Governmental activities: Total net position from governmental activities increased by $1.7 million or 1% during the year primarily due to revenues exceeding expenses. The bulk of the change in net position came from the general fund The chart below provides a graphic representation of the City’s expenses compared to program revenues for governmental activities. This information is by function.

The chart on the next page provides a graphic representation of governmental activities revenues by source.

- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000

Gen

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Expense and Program Revenues - Governmental Activities

Expenses Program Revenues

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The governmental activities’ expense and program revenue chart is designed to reflect expenses associated with each City function and the revenues that are directly attributable to that function. It is important to note that general revenues such as property, sales and other taxes are not directly attributable to specific functions and are therefore used to support program activities citywide. Investment earnings are also not associated directly with any particular function. Capital grants and contributions represent revenues and contributions of capital assets received from developers and other third party entities including the federal government. Capital grants and contributions are restricted to the acquisition and construction of capital assets. Sales taxes are derived from taxable transactions originating from the City. Even though the City’s sales tax receipts are still significantly below where they were six years ago, sales tax revenues still account for a significant portion of general fund revenues. During the year, sales tax revenue increased by nearly 11% as receipts from auto and gasoline sales increased. The other taxes category represents taxes derived from business license, franchises and transient occupancy taxes. Business-type activities: Including non-operating income, net position of the business type activities increased $2.3 million during the fiscal year as capital contributions and charges for services exceeded expenses. The positive change in net position is attributable to significant reduction in the cost of purchased water during the year. The City was able to produce more water from its domestic water wells which resulted in less purchases of the more expensive imported water. Secondly, the full implementation of water rate adjustment during the fiscal year resulted in more revenues. Similarly, the final phase of a previously approved sewer rate adjustment was also implemented during the fiscal year which resulted in more revenues to the sewer fund. Individually, the net position of the water fund increased by $1.8 million while the net position of the sewer fund increased by $0.5 million.

Charges for services25%

Operating grants and contributions

8%

Capital grants and contributions

12%

Property taxes9%

Sales taxes25%

Other taxes18%

Other revenues3%

Revenues by Source - Governmental Activities

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The chart below provides graphic representation of the City’s revenues by source for business-type activities. Water fund charges exceeded operating expenses for the reasons previously stated. Water fund expenses make up 66 percent of total business-type activities expenses while sewer fund expenses make up the remaining 34 percent of total expenses. Total charges for services from business-type activities consist of 64 percent derived from Water Fund and 36 percent from the sewer fund. As shown on the revenues by source chart on the next page, charges for services represent 92 percent of business-type activities’ revenue while capital and operating contributions represent the remaining 8 percent.

-2,000,000 4,000,000 6,000,000 8,000,000

10,000,000 12,000,000

Water Sewer

Expenses and Program Revenues -Business-type Activities

Expenses

Program revenues

Charges for services

92%

Capital and operating

contributions

8%

Revenues by Source - Business-type Activities

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Financial Analysis of City Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds: The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s ability to meet financial obligations in the short-term. For example, assigned and unassigned fund balance could serve as a useful measure of the City’s net resources available for spending at the end of the fiscal year. As of June 30, 2013, the City’s governmental funds reported combined ending fund balances of $13 million, a decrease of $0.5 million due to capital projects expenditures made from existing fund balance. Of the $13 million, $3.4 million, or 26 percent, constitutes restricted fund balance which can only be used for specific purposes due to external restrictions or enabling legislation. The remainder of the fund balance is committed, assigned or unassigned. Committed fund balances include balances that have been constrained by the city council through a resolution or ordinance for specific future use. Total committed fund balance as of June 30, 2013 was $3.9 million. Assigned fund balance consists of amounts that have been designated for specific use without resolution or ordinance of the city council thus, the assignment can be changed at the discretion of management. Total assigned fund balance as of June 30, 2013 was $4.9 million. Unassigned fund balance of $0.8 million represent amount that is available for any purpose. In the general fund, revenues and transfers in exceeded expenditures by $2.3 million. This increase in fund balance was as a result of better than anticipated receipt of tax revenues and expenditure control measures. In the streets capital project fund, total fund balance decreased by $1.2 million due to capital projects expenditures funded from existing fund balance. The fund balance of other non-major governmental funds also decreased by $1.6 million due to capital projects expenditures paid from existing fund balance. Proprietary Funds: Proprietary funds provide the same type of information found in the governmental-wide financial statements, but in more detail. The City’s Proprietary funds consist of two major Enterprise Funds and three Internal Service Funds. The Internal Service Funds are presented as Governmental Activities in the Proprietary Funds financial statements. Individual fund data are presented in the form of combining statements. Operating revenues for Enterprise Funds consist primarily of charges for service. Unrestricted net position in the water fund at the end of the year was $2.3 million while the sewer fund had a negative unrestricted net position balance of ($3.5) million. The negative sewer fund unrestricted net position balance is due to the high investments in capital assets used to deliver services to customers. The investments in fixed assets are needed to ensure ongoing delivery of water and sewer services. During the fiscal year, the net position of the water fund increased by $1.8 million while the net position of the sewer fund increased by $0.5 million as charges for services exceeded expenses. The City also has three internal service funds used to allocate cost of the City’s information systems, equipment services and risk management activities to various departments. The increase in the net position of the internal service funds was due to total charges for services exceeding total expenses.

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Fiduciary Funds: The City uses Fiduciary funds to account for resources held for the benefit of other parties outside the City, in which the City is acting as a trustee. The resources of the various community facilities districts are accounted for in fiduciary funds. A Statement of Changes in Fiduciary Net Position, Private Purpose Trust Fund is used to report the additions and deductions to the net position of the Successor Agency created as result of the dissolution of the former Norco Redevelopment Agency. General Fund Financial and Budgetary Highlights The general fund is the chief operating fund of the City. At June 30, 2013, total fund balance was $5 million which consists of $3.6 million committed for emergencies, $0.6 million assigned, and $0.8 million unassigned. As a measure of general fund’s financial condition, it may be useful to compare this fund balance to total expenditures. This fund balance represents 36 percent of general fund recurring expenditures for the fiscal year. For the fiscal year, general fund’s total fund balance increased by $2.3 million due total revenues exceeding total expenditures. The excess of revenues over expenditures came from higher receipts from sales, property and other taxes and charges for services. Expenditures were lower than anticipated due to cost savings from public safety programs, general government; culture and leisure programs. With respect to the comparison of general fund actual revenues and expenditures to final budget, actual tax revenues exceeded budget by $0.4 million. The favorable budget variance came from higher sales and property tax receipts. Sales Tax increased due to increase in sales tax receipts from auto dealers and gasoline retailers. Additionally, actual revenue from licenses and permits; and charges for services exceeded budget due to higher than anticipated building and construction activities. However, this increase is offset by less than anticipated receipts from state cost reimbursements. On the expenditure side, the only material differences between the final budget and actual expenditures were in public safety programs; culture and leisure; and general government. The lower than anticipated expenditures in public safety programs; came from lower than anticipated increase in the cost of contracted public safety programs of fire and police services. Similarly, cost savings in general government and culture and leisure came from salary and other risk management expenditure savings. Capital Assets and Debt Administration Capital Assets: City investment in capital assets for its governmental and business-type activities as of June 30, 2013 amounted to $235.7 million (net of accumulated depreciation). Investment in capital assets includes infrastructure assets as well as land, buildings, improvements and equipment. During the year, capital assets net of depreciation increased by $2.2 million for governmental activities and increased by $0.2 million for business-type activities. Major capital assets events during the current fiscal year included the following: Park Improvements $0.3 million

Widening of Hamner Avenue $3.9 million

Traffic Signal at Detroit and Hamner $0.2 million

Other street improvements $0.4 million

Water infrastructure including pipelines on Hamner $1.5 million

Additional sewer capacity and River Road relocation project $0.6 million

Fiber optics network system installation $0.2 million

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Additional information on the City’s capital assets can be found in Note 4 to the basic financial statements beginning on page 45 and a summary is provided below.

City of Norco Capital Assets (net of depreciation)

June 30, 2013

Governmental Activities

Business-type

Activities

Total

Land $

101,161,035 $

1,644,507 $

102,805,542 Building and improvements 11,328,865 453,591 11,782,456 Equipment and machinery 562,640 54,661,669 55,224,309 Infrastructure 46,724,482 - 46,724,482 Intangible 86,246 - 86,246 Construction in progress 14,408,975 4,713,676 19,122,651 Total capital assets, net $ 174,272,243 $ 61,473,443 $ 235,745,686 Long-term debt: At the end of fiscal year 2013, the City‘s total long debt outstanding was $39.2 million. Of this amount, $36.6 million is debt of the sewer and water enterprise funds while $2.6 million represents debt governmental activities representing claims, judgment, compensated absences and OPEB liability. Outstanding long-term debt of the City is summarized below and additional information can be found in Note 6 to basic financial statements beginning on page 47.

City of Norco Outstanding Long Term Debt

June 30, 2013

Governmental Activities

Business-type Activities

Total

Capital leases $ 19,743 $ 675,549 $ 695,292 Notes/loans payable/advances - 379,323 379,323 Revenue bonds - 35,507,930 35,507,930 OPEB liability 1,148,827 - 1,148,827 Compensated absences 678,206 - 678,206 Claims and judgment 790,461 - 794,461 Total long-term debt $ 2,637,237 $ 36,562,802 $ 39,200,039

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Economic Factors and Next Year’s Budgets and Rates During the most recently completed fiscal year 2012-2013, the City’s sales tax revenues

improved by nearly 11% over the previous year which showed a 6% increase over the year before. This increase was largely due to increased receipts from auto and gasoline sales. Sales tax continues to be a significant portion of general fund revenues and sales tax generated from auto sales make up significant portion of sales tax revenues. Auto sales are highly dependent on the quality of dealerships at the City’s Auto Mall and the state of the US economy. As the economy has stabilized over the last three fiscal years, the quality of auto dealers in the City’s auto mall has also improved. This has resulted to additional increase in sales tax receipts into the City’s general fund. Sales tax derived from gasoline sales is also highly dependent upon the price of gasoline. Throughout the fiscal year, gasoline prices remained fairly stable resulting in additional sales tax for the City. As the price of gasoline can be very volatile, sudden material decreases in gasoline prices could negatively impact the City’s sales tax receipts. During the first quarter of FY 2013-2014, sales tax receipts were trending higher than FY 2012-2013. The City has continued to work hard to diversify general fund revenues by seeking economic opportunities that complements the City’s “Horsetown USA” motto. Additionally, it is anticipated that two high sales tax generators (Hobby Lobby and Tractor Supply) will commence operation in the City during the second half of FY 2013-2014.

Property tax revenues are based on the assessed value of real property located within the City’s boundary. The assessed value of real property in the City is expected to remain flat during the upcoming fiscal year. Consequently, future property tax receipts are expected to be flat from the amount received in the last fiscal year, excluding one-time receipts from the dissolution of the RDA.

In fiscal year 2011, the City Council approved water and sewer rate adjustments effective April 2011. The last phase of the rate adjustment was implemented at the beginning of FY 2012-2013. For the current fiscal year 2013-2014, there are no scheduled rate increases. Consequently, water and sewer revenues are anticipated to remain flat from FY 2012-2013. Due to existing working capital deficit in the water fund and continuing increase in the cost of purchased water, it is anticipated that further rate adjustments will be necessary in order to recover the full cost of services in future years.

Effective with FY 2013, all City employees began contributing at least 4% of their pay to help fund the cost of their future retirement pension benefits. In the past, the City paid the entire cost of pension contributions. With the implementation of this change, the total cost of City pension contribution will be reduced. The state’s pension reform act of 2013 will also contribute to reduced total pension costs for the City.

The City continues to contract out to California Department of Forestry through the County of Riverside for fire protection and emergency medical response services. This action is expected to continue to generate significant ongoing cost savings to the City’s general fund budget.

Requests for Information This financial report is designed to provide our citizens, taxpayers, customers, investors, creditors and all those with interest in the City’s finances with an overview of the City’s finances and to demonstrate accountability over the City’s financial assets. Questions concerning any of the information provided in this report or request for additional information should be addressed to the Director of Finance, City of Norco, 2870 Clark Avenue, Norco, California 92860, or call (951) 735-3900.

GOVERNMENT-WIDE FINANCIAL STATEMENTS

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City of Norco

Statement of Net Position June 30, 2013

Governmental Business-typeActivities Activities Total

ASSETSCash and investments 19,473,578$ 5,545,264$ 25,018,842$ Cash and investments with fiscal agents - 9,844,983 9,844,983 Receivables:

Accounts, net 171,946 2,392,757 2,564,703 Interest 8,230 16,533 24,763 Notes - 5,575,884 5,575,884

Due from other governments 2,007,297 - 2,007,297 Internal balances (12,941) 12,941 - Inventories - 82,198 82,198 Prepaids 19,678 - 19,678 Deferred charges - 885,671 885,671 Capital assets:

Land, improvements and construction in progress 115,570,010 6,358,183 121,928,193 Other capital assets, net of depreciation 58,702,233 55,115,260 113,817,493

Total assets 195,940,031 85,829,674 281,769,705

LIABILITIESAccounts payable 3,414,105 2,239,365 5,653,470 Accrued interest payable - 489,544 489,544 Retentions payable 297,375 12,506 309,881 Unearned revenue 171,895 - 171,895 Deposits payable 6,400 202,781 209,181 Noncurrent liabilities:

Due within one year 558,739 886,178 1,444,917 Due in more than one year 929,671 35,676,624 36,606,295 Net OPEB Obligation 1,148,827 - 1,148,827

Total liabilities 6,527,012 39,506,998 46,034,010

NET POSITIONNet invested in capital assets 173,830,963 46,023,517 219,854,480 Restricted for:

Debt service 88,244 1,488,828 1,577,072 Capital projects 3,231,441 16,468 3,247,909 Community development 8,388,798 - 8,388,798

Unrestricted 3,873,573 (1,206,137) 2,667,436

Total net position 189,413,019$ 46,322,676$ 235,735,695$

The accompanying notes are an integral part of these financial statements.

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City of Norco

Statement of Activities For the Year Ended June 30, 2013

Operating CapitalCharges for Contributions Contributions

Functions/Programs Expenses Service and Grants and GrantsGovernmental activities:

General government 3,186,491$ 2,244,812$ 88,975$ 6,798Public safety 8,523,623 766,447 288,440 141,772Streets and highways 3,954,013 806,158 1,164,419 2,184,466Community and economic development 615,851 597,494 45,859 119,675Culture and leisure 2,390,293 725,272 70,000 51,448

Total governmental activities 18,670,271 5,140,183 1,657,693 2,504,159

Business-type activities:Water 9,259,377 9,915,098 - 1,246,392 Sewer 4,858,832 5,466,709 28,481 17,997

Total business-type activities 14,118,209 15,381,807 28,481 1,264,389

Total primary government 32,788,480$ 20,521,990$ 1,686,174$ 3,768,548$

General revenues:Taxes:

Property tax, levied for general purposeTransient occupancy taxFranchise taxSales taxSales tax in lieuMotor vehicle in lieu tax - unrestrictedPublic service taxes

Unrestricted investment earningsIntergovernmental

Transfers

Total general revenues and transfers

Change in net position

Net position, beginning of year

Net position, end of year

Program Revenues

The accompanying notes are an integral part of these financial statements.

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Governmental Business-typeActivities Activities Total

(845,906)$ -$ (845,906)$ (7,326,964) - (7,326,964)

201,030 - 201,030 147,177 - 147,177

(1,543,573) - (1,543,573)

(9,368,236) - (9,368,236)

- 1,902,113 1,902,113 - 654,355 654,355

- 2,556,468 2,556,468

1,898,467 - 1,898,467 257,277 - 257,277

1,021,833 - 1,021,833 3,942,554 - 3,942,554 1,157,793 - 1,157,793 1,974,292 - 1,974,292

320,569 - 320,569 22,418 34,537 56,955

219,175 - 219,175 289,023 (289,023) -

11,103,401 (254,486) 10,848,915

1,735,165 2,301,982 4,037,147

187,677,854 44,020,694 231,698,548

189,413,019$ 46,322,676$ 235,735,695$

Changes in Net PositionNet (Expense) Revenue and

FUND FINANCIAL STATEMENTS

The accompanying notes are an integral part of these financial statements. -19-

City of Norco

Balance Sheet Governmental Funds

June 30, 2013

Total Capital Projects Nonmajor Total

Street Governmental GovernmentalGeneral Improvement Funds Funds

ASSETSCash and investments 6,084,284$ 822,521$ 7,743,997$ 14,650,802$ Receivables, net:

Accounts 171,946 - - 171,946 Interest 5,442 238 1,554 7,234

Prepaids 5,444 - 3,750 9,194 Due from other governments 726,289 854,435 426,573 2,007,297 Due from other funds 37,560 - - 37,560

Total assets 7,030,965$ 1,677,194$ 8,175,874$ 16,884,033$

LIABILITIES AND FUND BALANCESLiabilities:

Accounts payable and accrued items 1,884,769$ 793,878$ 673,229$ 3,351,876$ Retentions payable - 258,824 38,551 297,375 Deposits payable - - 6,400 6,400 Due to other funds - - 50,501 50,501 Unearned revenues 123,796 - 48,099 171,895

Total liabilities 2,008,565 1,052,702 816,780 3,878,047

Fund balances:Nonspendable 5,444 - 3,750 9,194 Restricted - - 3,394,873 3,394,873 Committed 3,560,200 - 378,013 3,938,213 Assigned 685,279 624,492 3,616,426 4,926,197 Unassigned 771,477 - (33,968) 737,509

Total fund balances 5,022,400 624,492 7,359,094 13,005,986

Total liabilities and fund balances 7,030,965$ 1,677,194$ 8,175,874$ 16,884,033$

The accompanying notes are an integral part of these financial statements. -20-

City of Norco

Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position

June 30, 2013

Fund balances of governmental funds 13,005,986$

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets used in governmental activities are not current financial resources and, therefore, are not reported in the funds. 173,830,963

Internal service funds are used by management to charge the costsof equipment usage, and certain employee benefits and City-wideinsurance coverage. The assets and liabilities of theinternal service funds are included in the governmentalactivities in the statement of net assets. 5,213,307

Some liabilities, including bonds payable, are not due and payablein the current period and, therefore, are not reported in funds.

Leases payable (19,743)$ Long-term compensated absences payable (678,206) Long-term claims and judgments payable (790,461) (1,488,410)

The City is required to report a net Other Post Employment Benefits (OPEB)obligation in accordance with Governmental Accounting StandardsBoard (GASB) Statement No. 45. This is the amount by which the annualrequired contribution (ARC) exceeds the actual contribution made to theOPEB plan by the City. The City has contributed less than the ARC tothe retiree medical plan and reports the OPEB obligation as a liability on thestatement of net position. (1,148,827)

Net position of governmental activities 189,413,019$

The accompanying notes are an integral part of these financial statements. -21-

City of Norco

Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds

For the Year Ended June 30, 2013

Total Capital Projects Non major Total

Street Governmental GovernmentalGeneral Improvement Funds Funds

REVENUESTaxes 10,568,238$ -$ 606,405$ 11,174,643$ Assessments - - 738,771 738,771 Licenses and permits 528,236 - - 528,236 Fines and forfeitures 363,652 - - 363,652 Development fees - 4,168 154,815 158,983 Intergovernmental 362,785 1,695,748 1,531,831 3,590,364 Charges for services 1,618,072 - 2,750 1,620,822 Investment earnings-lease income 550,354 467 3,260 554,081 Reimbursements 79,114 - - 79,114 Other 1,300,567 - - 1,300,567

Total revenues 15,371,018 1,700,383 3,037,832 20,109,233

EXPENDITURESCurrent:

General government 3,252,859 - 189,832 3,442,691 Public safety 8,075,411 - 314,335 8,389,746 Streets and highways 82,310 2,914,122 3,248,430 6,244,862 Community and economic development 568,929 - 13,225 582,154 Culture and leisure 1,714,240 - 393,725 2,107,965

Total expenditures 13,693,749 2,914,122 4,159,547 20,767,418

Excess (deficiency) of revenuesover (under) expenditures 1,677,269 (1,213,739) (1,121,715) (658,185)

OTHER FINANCING SOURCES (USES)Transfers in 829,830 - 25,000 854,830 Transfers out (207,824) (12,863) (544,053) (764,740)

Total other financing sources (uses) 622,006 (12,863) (519,053) 90,090

Net change in fund balances 2,299,275 (1,226,602) (1,640,768) (568,095)

Fund balances, beginning of year 2,723,125 1,851,094 8,999,862 13,574,081

Fund balances, end of year 5,022,400$ 624,492$ 7,359,094$ 13,005,986$

The accompanying notes are an integral part of these financial statements. -22-

City of Norco

Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental

Funds to the Statement of Activities For the Year Ended June 30, 2013

Net change in fund balance - total governmental funds (568,095)$

Amounts reported for governmental activities in the statement of activities are different because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimateduseful lives and reported as depreciation expense. Asset deletionsalso affect the amounts reported in the statement of activities.

Capital outlays 4,976,140$ Depreciation (2,607,516) Asset deletions (12,039) 2,356,585

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

Increase in OPEB liability (305,212)

Internal service funds are used by management to charge the costs of equipment usage,and certain employee benefits and City-wide insurance coverage to individual funds.The net revenue of the internal service funds are reported with governmental activities. 251,887

Change in net position of governmental activities 1,735,165$

The accompanying notes are an integral part of these financial statements. -23-

City of Norco

Statement of Fund Net Position Proprietary Funds

June 30, 2013

Governmental

Activities -Internal Service

Water Utility Sewer Utility Total Funds

ASSETSCurrent assets:

Cash and investments 2,362,191$ 3,183,073$ 5,545,264$ 4,822,776$ Cash and investments with fiscal agents 6,031,851 3,813,132 9,844,983 - Receivables:

Accounts, net 1,598,136 794,621 2,392,757 - Interest 7,216 9,317 16,533 996 Notes 2,787,942 2,787,942 5,575,884 -

Prepaids - - - 10,484 Due from other funds 12,941 - 12,941 - Inventories 82,198 - 82,198 -

Total current assets 12,882,475 10,588,085 23,470,560 4,834,256

Noncurrent assets:Deferred charges 322,561 563,110 885,671 - Capital assets:

Land 1,644,507 - 1,644,507 - Buildings and improvements 986,376 69,175 1,055,551 - Utility plant 9,472,229 2,600,064 12,072,293 - Wastewater capacity rights - 17,793,248 17,793,248 - Pipelines 32,619,871 26,757,120 59,376,991 - Fire Hydrants 1,891,676 - 1,891,676 - Meters 1,323,557 1,321,787 2,645,344 - Vehicles and equipment 316,971 26,784 343,755 2,273,659 Construction in progress 1,713,207 3,000,469 4,713,676 -

Less accumulated amortization - - - - Less accumulated depreciation (22,242,933) (11,754,785) (33,997,718) (1,918,625)

Intangible assets - - - 429,245 Less accumulated amortization - (6,065,880) (6,065,880) (342,999)

Total noncurrent assets 28,048,022 34,311,092 62,359,114 441,280

Total assets 40,930,497$ 44,899,177$ 85,829,674$ 5,275,536$

Business-type Activities - Enterprise Funds

The accompanying notes are an integral part of these financial statements. -24-

City of Norco

Statement of Fund Net Position Proprietary Funds

June 30, 2013

GovernmentalActivities -

Internal ServiceWater Utility Sewer Utility Total Funds

LIABILITIESCurrent liabilities:

Accounts payable and accrued liabilities 1,679,550$ 559,815$ 2,239,365$ 62,229$ Accrued interest payable 177,509 312,035 489,544 - Retentions payable 12,506 - 12,506 - Deposits payable 109,506 93,275 202,781 - Due to other funds - - - - Compensated absences - - - 169,551 Capital lease payable - 127,779 127,779 11,427 Claims and judgements - - - 377,761 Loan payable 88,399 - 88,399 - Bonds payable 259,050 410,950 670,000 -

Total current liabilities 2,326,520 1,503,854 3,830,374 620,968

Noncurrent liabilities:Compensated absences - - - 508,655 Capital lease payable - 547,770 547,770 8,316 Claims and judgements - - - 412,700 Loan payable 290,924 - 290,924 - Bonds payable 12,567,496 22,270,434 34,837,930 -

Total noncurrent liabilities 12,858,420 22,818,204 35,676,624 929,671

Total liabilities 15,184,940 24,322,058 39,506,998 1,550,639

NET POSITIONNet invested in capital assets 22,917,808 23,105,709 46,023,517 421,537 Restricted for capital projects 12,300 4,168 16,468 - Restricted for debt service 542,173 946,655 1,488,828 - Unrestricted 2,273,276 (3,479,413) (1,206,137) 3,303,360

Total net position 25,745,557$ 20,577,119$ 46,322,676$ 3,724,897$

Business-type Activities - Enterprise Funds

The accompanying notes are an integral part of these financial statements. -25-

City of Norco

Statement of Revenues, Expenses, and Changes in Fund Net Position

Proprietary Funds For the Year Ended June 30, 2013

GovernmentalActivities -

Internal ServiceWater Utility Sewer Utility Total Funds

OPERATING REVENUESSales and charges for services 9,865,646$ 5,473,590 15,339,236$ 1,084,411$ Connection fees 34,960 10,116 45,076 - Miscellaneous 29,754 29,481 59,235 4,671

Total operating revenues 9,930,360 5,513,187 15,443,547 1,089,082

OPERATING EXPENSESGeneral and administrative 382,036 337,369 719,405 871,221 Operations 7,206,175 2,167,221 9,373,396 - Amortization 20,817 425,009 445,826 31,731 Depreciation 898,121 622,422 1,520,543 141,608

Total operating expenses 8,507,149 3,552,021 12,059,170 1,044,560

Operating income 1,423,211 1,961,166 3,384,377 44,522

NONOPERATING REVENUES (EXPENSES)Investment earnings 20,395 14,142 34,537 2,508 Interest and fiscal charges (746,256) (1,296,386) (2,042,642) - Amortization of deferred charges (5,972) (10,425) (16,397) - Gain on disposal of assets - - - 5,924

Total nonoperating revenues (expenses) (731,833) (1,292,669) (2,024,502) 8,432

Income before contributionsand transfers 691,378 668,497 1,359,875 52,954

Capital contributions 1,231,130 - 1,231,130 - Transfers in - - - 198,933 Transfers out (146,050) (142,973) (289,023) -

Change in net position 1,776,458 525,524 2,301,982 251,887

Net position, beginning of year 23,969,099 20,051,595 44,020,694 3,473,010

Net position, end of year 25,745,557$ 20,577,119$ 46,322,676$ 3,724,897$

Business-type Activities - Enterprise Funds

The accompanying notes are an integral part of these financial statements. -26-

City of Norco

Statement of Cash Flows Proprietary Funds

For the Year Ended June 30, 2013

GovernmentalActivities -

InternalWater Utility Sewer Utility Total Service Funds

Cash flows from operating activities:Cash received from customers 9,013,745$ 6,570,717$ 15,584,462$ -$ Cash received from interfund services provided - - - 1,089,081 Cash payments to suppliers (5,969,907) (2,544,716) (8,514,623) (642,269) Cash payments to employees for services (876,049) (539,655) (1,415,704) (422,667)

Net cash provided by operating activities 2,167,789 3,486,346 5,654,135 24,145

Cash flows from noncapital financing activities:Transfer from other funds - - - 198,933 Transfer to other funds (146,050) (142,973) (289,023) -

Net cash provided by (used for)noncapital financing activities (146,050) (142,973) (289,023) 198,933

Cash flows from capital and related financing activities:

Acquisition and construction of capital assets (1,502,600) (644,471) (2,147,071) (18,709) Capital contributions 1,231,130 - 1,231,130 - Proceeds from disposal of capital assets - - - 5,924 Principal payments - loans (84,575) - (84,575) - Principal payments - capital lease - (124,298) (124,298) (10,260) Principal payments - bonds (244,227) (363,758) (607,985) - Interest and fiscal charges (742,184) (1,327,429) (2,069,613) -

Net cash used for capital and relatedfinancing activities (1,342,456) (2,459,956) (3,802,412) (23,045)

Cash flows from investing activities:Interest income 17,226 5,857 23,083 4,059 Loans (1,464,846) (1,464,844) (2,929,690) -

Net cash provided by (used for) investing activities (1,447,620) (1,458,987) (2,906,607) 4,059

Net increase (decrease) in cash and investments (768,337) (575,570) (1,343,907) 204,092

Cash and investments, beginning of year 9,162,379 7,571,775 16,734,154 4,618,684

Cash and investments, end of year 8,394,042$ 6,996,205$ 15,390,247$ 4,822,776$

Business-type Activities - Enterprise Funds

The accompanying notes are an integral part of these financial statements. -27-

City of Norco

Statement of Cash Flows Proprietary Funds

For the Year Ended June 30, 2013

GovernmentalActivities -

InternalWater Utility Sewer Utility Total Service Funds

Reconciliation of operating income to net cash provided by operating activities:Operating income 1,423,211$ 1,961,166$ 3,384,377$ 44,522$ Adjustments to reconcile operating income to net cash provided by operating activities:

Amortization 20,817 425,009 445,826 31,731 Depreciation 898,121 622,422 1,520,543 141,608 (Increase) decrease in assets:

Accounts receivable 89,488 43,078 132,566 (1,495) Deferred charges - 21,903 21,903 - Prepaids - - - - Due from other funds - 998,238 998,238 - Inventories 31,436 - 31,436 - Construction in progress - - - -

Increase (decrease) in liabilities:Accounts payable 710,818 (576,414) 134,404 3,512 Accrued wages - - - (943) Deposits (7,864) 12,087 4,223 - Deferred revenue - (17,776) (17,776) - Retentions payable - (3,367) (3,367) - Due to other funds (998,238) - (998,238) - Compensated absences - - - (11,966) Claims and judgements - - - (182,824)

Net cash provided by operating activities 2,167,789$ 3,486,346$ 5,654,135$ 24,145$

Noncash, investing, capital and financing activities: "None"

Business-type Activities - Enterprise Funds

The accompanying notes are an integral part of these financial statements. -28-

City of Norco

Statement of Fiduciary Net Position June 30, 2013

Successor AgencyPrivate Purpose Agency

Trust Fund FundsASSETS

Cash and investments 4,578,562$ 5,396,946$ Cash and investments with fiscal agents 10,942,733 2,732,047 Receivables:

Notes 707,595 - Accounts 14,205 397,142 Interest 65,852 9,068

Deferred charges - Unamortized costs 1,537,932 - Property held for resale 1,399,292 - Capital assets being depreciated, net 170,045 - Due from other governments - 96,447

Total assets 19,416,216$ 8,631,650$

LIABILITIESAccounts payable -$ 390,867$ Deposits payable - 1,316,202 Loans payable 3,000,000 - Accrued interest on debt 1,620,158 - Long term liabilities:

Due within one year 2,335,000 - Due in more than one year 86,690,000 -

Deferred charges amortizable within one year (131,900) - Deferred charges amortizable in more than one year (2,214,987) - Due to others - 36,852 Due to bond holders - 6,887,729

Total liabilities 91,298,271 8,631,650$

NET POSITIONHeld in trust for the Successor Agency and

other purposes (71,882,055)$

The accompanying notes are an integral part of these financial statements. -29-

City of Norco

Statement of Changes in Fiduciary Net Position Private Purpose Trust Fund

For the Year Ended June 30, 2013

Successor Agency

Private Purpose

Trust Fund

ADDITIONS

RPTTF distribution 7,591,742$

Investment earnings 172,067

Loan repayments received 12,326

Other receipts 18,707

Total additions 7,794,842

DEDUCTIONS

Administrative allowance 406,109

Debt service:

4,927,052

Issuances costs and discounts amortization 235,799

Depreciation 33,452

Other payments of enforceable obligations 1,746,520

Total deductions 7,348,932

Change in net position 445,910

Net position, beginning of the year (72,327,965)

Net position, end of the year (71,882,055)$

Interest

NOTES TO THE BASIC FINANCIAL STATEMENTS

30

City of Norco

Notes to the Basic Financial Statements June 30, 2013

I. SIGNIFICANT ACCOUNTING POLICIES Note 1: Organization and Summary of Significant Accounting Policies a. Description of the reporting entity The City of Norco (the City) was incorporated on December 28, 1964 as a general law city and operates under a Council/City Manager form of government. It is governed by an elected five member council. As required by generally accepted accounting principles, these financial statements present the City (the primary government) and its component units. The component units discussed below are included in the City’s reporting entity because of the significance of their operational or financial relationship with the City. These entities are legally separate from each other. However, the City’s elected officials have a continuing full or partial accountability for fiscal matters of the other entities. The financial reporting entity consists of: 1) the City, 2) organizations for which the City is financially accountable, and 3) organizations for which the nature and significance of their relationship with the City are such that exclusions would cause the City’s financial statements to be misleading or incomplete. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes or set rates or charges, or issue bonded debt without approval by the primary government. In a blended presentation, component unit balances and transactions are reported in a manner similar to the balances and transactions of the City. Component units are presented on a blended basis when the component unit’s governing body is substantially the same as the City’s or the component unit provides services almost entirely to the City. The following component units of the City have been included in the financial reporting entity as blended component unit. A description of the component unit and the method of incorporating its financial information in the accompanying basic financial statements is summarized as follows: Norco Public Financing Authority The Norco Public Financing Authority (the Authority) is a Joint Exercise of Powers Authority under the Laws of the State of California. The Authority is authorized to issue bonds under the Marks-Roos Local Bond Pooling Act of 1985 (Article 1 through 4, section 6500). The City of Norco and the Norco Community Redevelopment Agency formed the Authority by execution of the Joint Exercise of Powers Agreement. The purpose of the Authority is to provide financing to the Agency and the City for various project purposes. The Authority and its activity, if any, are presented as a blended component unit since its governing board is substantially the same as the City’s. Separate financial statements were not prepared for the Norco Public Financing Authority.

31

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) b. Government-wide and fund financial statements The government-wide financial statements include a statement of net position and a statement of activities. These statements present summaries of governmental and business-type activities for the City accompanied by a total column. Fiduciary activities of the City are not included in these statements. Certain eliminations have been made as prescribed by GASB Statement No. 34 in regard to interfund activities, payables, and receivables. All internal balances in the statement of net position have been eliminated except those representing balances between the governmental activities and the business-type activities, which are presented as internal balances and eliminated in the total primary government column. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct and indirect expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions, including special assessment, that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenue are reported instead as general revenues. In the statement of activities, Internal Service Fund transactions have been eliminated; however, those transactions between the governmental and business-type activities have not been eliminated. Separate financial statements are provided for governmental, proprietary, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

32

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) c. Measurement focus, basis of accounting, and financial statement presentation The government-wide statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary funds. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the cash flows. Accordingly, all of the City's assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying statement of net position. The statement of activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The types of transactions reported as program revenues for the City are reported in three categories: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted-net position and unrestricted-net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted-net position to have been depleted before unrestricted-net position is applied. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified-accrual basis of accounting. Under the modified-accrual basis of accounting, revenues are recognized in these funds when susceptible to accrual (i.e. when they are both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. For this purpose, the City considers property taxes collected after year-end, as available if they are collected within 60 days of the end of the current fiscal period. Other revenues susceptible to accrual include sales tax, state gasoline tax, utility users tax, investment income, and certain other intergovernmental revenues. Reimbursable grant revenues are considered to be available if they are collected within six months of the end of the current fiscal period. Grant funds earned but not received are recorded as a receivable, and grant funds received before the revenue recognition criteria have been met are reported as unearned revenues. Expenditures in the governmental funds are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, except for unmatured principal and interest on general long-term debt, as well as compensated absences and claims and judgments, which are recognized when due. Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted fund balance to have been depleted before using any of the unrestricted components of fund balance. Furthermore, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last.

33

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) The City reports the following major Governmental Funds: The General Fund is the government's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Capital Projects – Street Improvements Fund – to account for the cost of street improvements including widening and reconstruction, traffic signals, street landscaping, intersection improvements, and freeway interchange improvements. Financing is through an impact fee imposed on all new development in the City, grants and capital contributions from other governments and private entities. The City reports the following major Proprietary Funds: The Water Fund is used to account for the provision of water services to the residences and businesses in the City. The Sewer Fund is used to account for the revenues and expenses in connection with the operation and improvement of the City's sewer system. Additionally, the City reports the following fund types: The Internal Service Funds are used by the City to account for data processing and fleet management services provided to other City departments or agencies on a cost reimbursement basis and to allocate costs of compensated absences and claims and judgments charges to the funds on a pro-rata basis. The Fiduciary Funds are used to account for the receipt of assets, liabilities, property tax and deposits received from individuals, private organizations or other governments. These resources are held by the City in a fiduciary capacity and remittances are made to pay for services and supplies, debt service, and other administrative expenses. Fiduciary fund balances are not property of the City of Norco. The following are Fiduciary Funds of the City: Private Purpose Trust Fund is the Successor Agency to the former Norco Redevelopment Agency. Excluding the dissolved agency’s housing resources. Agency Funds are not reported utilizing a specific measurement focus as the assets and liabilities of the Governmental Funds.

34

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the government's water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues for the Water and Sewer enterprise funds and of the government’s internal service funds are charges to customers for sales and services. Operating expenses for these same Enterprise Funds include the cost of sales and services, administration expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses.

Other accounting policies Interfund receivables and payables Activity between funds in the fund financial statements that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e. the current portion of interfund loans). All other outstanding balances between funds are reported as "advances to/from other funds." Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. Property taxes The County of Riverside collects property taxes for the City. Tax liens attach annually as of 12:01 A.M. on the first day in March preceding the fiscal year for which the taxes are levied. The tax levy covers the fiscal period July 1st to June 30th. All secured personal property taxes and one-half of the taxes on real property are due November 1st, the second installment is due February 1st. All taxes are delinquent, if unpaid, on December 10th and April 10th respectively. Unsecured personal property taxes become due on the first of March each year and are delinquent, if unpaid, on August 31st.

35

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) Cash and cash equivalents For purposes of the statement of cash flows, the City considered cash and cash equivalents as short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. The City follows the practice of pooling cash and investments of all funds. Since cash and investments are pooled, the City utilizes the assumption that the cash and investments in the Enterprise Funds are cash and cash equivalents. Investments The City reports its investments at fair value on the balance sheet. All investment income, including changes in the fair value of investments, is recognized as revenue in the operating statement. Inventories and prepaid Inventories of materials and supplies are carried at cost on a first-in, first-out basis. The City uses the consumption method of accounting for inventories. Special reporting treatments are also applied to governmental fund inventories to indicate that they do not represent “available spendable resources,” even though they are a component of net current assets. Such amounts are designated as an unspendable component of fund balance. 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. Land held for resale Land held for resale is recorded at the lower of cost or net realizable value. Compensated absences Vacation pay is payable to employees at the time a vacation is taken or upon termination of employment. Management and mid-management and confidential employees cannot accrue more than two and one half times their regular annual entitlement. General and Safety employees cannot accrue more than two times their regular annual entitlement. Sick leave is payable when an employee is unable to work because of illness. Upon termination, general employees with 10 years continuous service will be paid 50% for any unused sick leave. Managers, mid-managers, and confidential employees with 5 years continuous service are also paid 50% for any unused sick leave. The total amount of liability for compensated absences is segregated between short-term and long-term with both portions reflected in the government-wide statements. The short-term portion is determined to be the amount due to employees for future absences which is attributable to services already rendered and which is expected to be paid during the next fiscal year.

36

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) Reclassifications Certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year’s presentation.

Capital assets Capital assets, which include property, plant and equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than or equal to $5,000 ($50,000 for infrastructure assets) and an estimated useful life of at least two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Property, plant and equipment of the primary government, as well as the component units, is depreciated using the straight-line method over the following estimated useful lives.

Assets Years Buildings 50 Building improvements 5 - 50 Public domain infrastructure 20 - 50 System infrastructure 10 - 60 Vehicles 5 - 20 Office equipment 5 - 10 Computer equipment 5 - 10

Use of estimates The financial statements have been prepared in accordance with generally accepted accounting principles accepted in the United States of America and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts.

37

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) Long-term obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. Unearned revenues In the government-wide financial statements and the fund financial statements, unearned revenues represent cash advances by various grantors that have not been spent; therefore, no revenue has been recognized. Fund equity Beginning with the 2011 fiscal year, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement provides more clearly defined fund balance categories to make the nature and extent of the constraints placed on a government’s fund balance more transparent. The following classifications describe the relative strength of the spending constraints placed on the purposes for which resources can be used: Nonspendable – amounts that are not in a spendable form (such as inventory) or are required to be maintained intact. Restricted – amounts constrained to specific purposes by their providers (such as grantors, bondholders and higher levels of government), through constitutional provisions or by enabling legislation. Committed – amounts constrained to specific purposes by a government itself, using the highest level of decision-making authority; to be reported as committed, amounts cannot be used for any other purpose unless the government takes the same highest level action to remove or change the constraint. A City Council ordinance or resolution is considered the highest level of commitment.

38

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 1: Organization and Summary of Significant Accounting Policies (continued) Assigned – amounts a government intends to use for a specific purpose; intent can be expressed by the governing body or by an official or body to which the governing body delegates the authority. The Director of Finance has authority to assigned amounts as appropriate. Unassigned – amounts that are for any purpose; positive amounts are reported only in a general fund. The City Council establishes, modifies and/or rescinds fund balance commitments by passage of an ordinance or resolution. The City of Norco considers that both, restricted and unrestricted amounts to have been spent when an expenditure is incurred for which both types of fund balances is available; the government also considers committed, assigned, and or unassigned amounts to have been used when an expenditure is incurred and any of those classifications apply to the expenditure. Implementation of new GASB pronouncement Beginning with the current fiscal year, the City implemented GASBS No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This statement is designed to improve financial reporting by standardizing the presentation of deferred outflows of resources and deferred inflows of resources and their effects on the governments net position. Deferred outflows of resources are transactions that result in the consumption of net assets in one period that are applicable to future periods and are not considered assets as described by the statement. Deferred outflows of resources are required to be presented separately after assets on the statement of net position. Deferred inflows of resources are transactions that result in the acquisition of net assets in one period that are applicable to future periods and are not considered to be liabilities as described by the statement. Deferred inflows of resources are required to be presented separately after liabilities on the statement of net position.

39

City of Norco Notes to the Basic Financial Statements

June 30, 2013

II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Note 1: Organization and Summary of Significant Accounting Policies (continued) a. Budgetary data

General budget policies Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds except for the Nonmajor Facility Improvement Capital Project Fund. Each City department is required to submit requests for annual appropriation to the City manager that are used as the starting point for developing a proposed budget. The City manager presents a proposed budget to Council for review through staff and council budget workshops. At the completion of the budget workshops, the City Council is required to have one public hearing to further review the proposed budget. At the conclusion of the public hearings, the budget is required to be adopted by a majority vote of the City Council no later than June 30, which is the close of the City’s fiscal year. The Council made several supplemental budgetary appropriations throughout the year, these supplemental appropriations were immaterial. The appropriated budget is prepared by fund and department. Within each department, the budget is further detailed by expenditure type (e.g., salaries and benefits). At fiscal year-end, all operating budget appropriations lapsed.

Encumbrances Encumbrances are estimations of costs related to unperformed contracts for goods and services. These commitments are recorded for budgetary control purposes in the General, Special Revenue, and similar governmental funds. Encumbrances outstanding at year-end represent the estimated amount of the expenditure ultimately to result if unperformed contracts at year-end are completed. They do not constitute expenditures or estimated liabilities.

4,500$

1,147,539 Non-major Funds in aggregate

Emcumbrances as of June 30, 2013

General Fund

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

Fund/Function Expenditures Appropriations Excess

Special Asset 502,056$ 500,000$ (2,056)$ Landscape Maintenance District #1 9,307 9,104 (203) Miscellanous Grants 83,224 75,009 (8,215)

40

City of Norco

Notes to the Basic Financial Statements June 30, 2013

III. DETAIL NOTES ON ALL FUNDS

Note 2: Cash and Investments Cash and investments are reported in the accompanying Statement of Net Position and Statement of Fiduciary Net Position as follows:

Statement of Net PositionCash and investments $ 25,018,842 Cash and investments with fiscal agents 9,844,983

Statement of Fiduciary Net PositionCash and investments 9,975,508 Cash and investments with fiscal agents 13,674,780

Total cash and investments $ 58,514,113

Cash and investments at June 30, 2013, consisted of the following:

Deposits with financial institutions and cash on hand $ 173,593 Investments 58,340,520

Total cash and investments $ 58,514,113

Investments authorized by the California Government Code and the City’s investment policy The table below identifies the investment types that are authorized by the City’s investment policy. The table also identifies certain provisions of the City’s investment policy 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.

Authorized investment type

Maximum maturity

Maximum percentage of

portfolio *

Maximum investment in

one issuer Local Agency Bonds 5 years None None U.S. Treasury Securities 5 years None None U.S. Agency Securities 5 years None None Banker’s Acceptances 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None State of California Obligations 5 years None None Medium-Term Notes 5 years 30% None Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None $50,000,000

* Excluding amounts held by bond trustee that are not subject to California Government Code restrictions.

41

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 2: Cash and Investments (continued) Investments authorized by debt agreements Investments 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.

Authorized investment type

Maximum maturity

Maximum percentage

allowed

Maximum investment in

one issuer U.S. Treasury Obligations None None None

U.S. Agency Securities None None None Banker’s Acceptances 180 days None None Commercial Paper 270 days None None Money Market Mutual Funds N/A None None Investment Contracts 30 years 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:

12 months 13 to 24 25 to 60 More thanTotal or less months months 60 months

State investment pool 34,567,324$ 34,567,324$ -$ -$ -$ Certificates of deposit 253,433 253,433 - - - Held by bond trustee:

Money market funds 3,700 3,700 - - - Investment contracts 3,243,016 - 734,450 - 2,508,566 Commercial paper 8,790,519 8,790,519 - - - Federal agency securities 11,482,528 264,528 6,530,000 1,727,000 2,961,000

58,340,520$ 43,879,504$ 7,264,450$ 1,727,000$ 5,469,566$

Remaining maturity

Investment type

42

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 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 City’s investment policy or debt agreements, and the actual rating as of year end for each investment type. LAIF does not have a rating provided by a nationally organized statistical rating organization.

Minimum Ratings as of NotTotal legal rating year end rated

State investment pool 34,567,324$ N/A - 34,567,324$ Certificates of deposit 253,433 N/A - 253,433 Held by bond trustee:

Money market funds 3,700 AAA/Aa AAA - Investment contracts 3,243,016 N/A - 3,243,016 Commercial paper 8,790,519 A Aa2,AA - Federal agency securities 11,482,528 N/A AAA,Aaa -

58,340,520$ 38,063,773$

Investment type

Concentration of credit risk The investment policy of the City contains certain limitations on the amount that can be invested in any one issuer. 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 amountU.S. Bank N.A. Commercial Paper $ 8,790,519

FMNA Mtn Federal Agency Securities 5,675,654 Federal Farms Credit BKS Federal Agency Securities 5,000,000

43

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 2: Cash and Investments (continued) 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 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, 2013, $979,604 of the City’s deposits with financial institutions in excess of Federal Depository Insurance Corporation (FDIC) limit of $250,000 was held in collateralized accounts as required by the California Government Code. 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. LAIF is a governmental investment pool managed and directed by the California State Treasurer and is not registered with the Securities and Exchange Commission. An oversight committee comprised of California State officials and various participants provide oversight to the management of the fund. The daily operations and responsibilities of LAIF fall under the auspices of the State Treasurer’s office. The maximum investment in LAIF is $50,000,000.

44

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 3: Receivables Due from other governments Due from other governments, as of year end, for the government's individual major funds, non-major funds in the aggregate, and fiduciary funds are as follows:

NonmajorGeneral Street Improvement Special Revenues

Assessments 77,538$ -$ 21,225$ Gas tax - - 56,549 Sales tax 613,812 - - Transportation Uniform

Mitigation fees - 854,435 - Grants and contributions - - 66,844 Other 34,939 - 134,136

Totals 726,289$ 854,435$ 278,754$

Nonmajor

Capital Projects Fiduciary funds

Assessments -$ 96,447$ Gas tax - - Sales tax - - Transportation Uniform Mitigation fees 147,819 - Grants and contributions - - Other - -

Totals 147,819$ 96,447$

45

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 4: Capital Assets Capital assets activity for the year ended June 30, 2013 was as follows:

Beginning EndingBalance Additions Deletions Balance

Governmental activities:Capital assets, not being depreciated:

Land 101,161,035$ -$ -$ 101,161,035$ Construction in progress 11,893,533 4,738,060 (2,222,618) 14,408,975

Total capital assets, not being depreciated 113,054,568 4,738,060 (2,222,618) 115,570,010

Capital assets, being depreciated:Buildings and improvements 14,630,748 2,056,658 - 16,687,406 Improvements other than buildings 3,755,506 - - 3,755,506 Vehicles and equipment 3,274,715 31,853 (5,875) 3,300,693 Infrastructure 96,231,712 378,857 - 96,610,569 Intangible 429,245 - - 429,245

Total capital assets, being depreciated 118,321,926 2,467,368 (5,875) 120,783,419

Less accumulated depreciation/amortization for:Buildings and improvements (4,960,708) (397,833) - (5,358,541) Improvements other than buildings (859,834) (165,879) - (1,025,713) Vehicles and equipment (2,558,468) (185,460) 5,875 (2,738,053) Infrastructure (50,615,928) (1,999,952) - (52,615,880) Intangible (311,268) (31,731) - (342,999)

Total accumulated depreciation/amortization (59,306,206) (2,780,855) 5,875 (62,081,186)

Total capital assets, being depreciated net 59,015,720 (313,487) - 58,702,233

Governmental activities capital assets, net 172,070,288$ 4,424,573$ (2,222,618)$ 174,272,243$

Business-type activities:Capital assets, not being depreciated:

Land and improvements 1,644,507$ -$ -$ 1,644,507$ Construction in progress 5,384,690 2,121,421 (2,792,435) 4,713,676

Total capital assets, not being depreciated 7,029,197 2,121,421 (2,792,435) 6,358,183

Capital assets, being depreciated:Buildings and improvements 1,055,551 - - 1,055,551 Utility plant 11,905,807 166,486 - 12,072,293 Wastewater capacity rights 17,793,248 - - 17,793,248 Pipelines 59,368,967 8,026 - 59,376,993 Vehicles and equipment 343,755 - - 343,755 Fire Hydrants 1,891,676 - - 1,891,676 Meters 1,769 2,643,574 - 2,645,343

Total capital assets, being depreciated 92,360,773 2,818,086 - 95,178,859

Less accumulated depreciation for:Buildings and improvements (578,228) (23,732) - (601,960) Utility plant (3,573,837) (283,881) - (3,857,718) Wastewater capacity rights (5,661,488) (404,392) - (6,065,880) Pipelines (26,848,025) (1,154,568) - (28,002,593) Vehicles and equipment (300,404) (20,121) - (320,525) Fire hydrants (1,176,682) (38,064) - (1,214,746) Meters - (177) - (177)

Total accumulated depreciation (38,138,664) (1,924,935) - (40,063,599)

Total capital assets, being depreciated net 54,222,109 893,151 - 55,115,260

Business-type activities capital assets, net 61,251,306$ 3,014,572$ (2,792,435)$ 61,473,443$

46

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 4: Capital Assets (continued) Depreciation and amortization expense were charged to functions of the primary government as follows:

Governmental activities:General government 84,468$ Public safety 171,908 Streets and highways 1,838,361 Culture and leisure 512,779 Capital assets held by the government's

internal service funds are charged to the various functions based on their usage of the assets

Depreciation 141,608 Amortization 31,731

Total depreciation - governmental activities 2,780,855$

Business-type activities:Water - depreciation expense 898,121$ Sewer - amortization expense 404,392 Sewer - depreciation expense 622,422

Total depreciation - business-type activities 1,924,935$

Note 5: Retirement Plan Plan Description The City contributes to the California Public Employees Retirements System (PERS), a cost sharing 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. Benefit provisions and all other requirements are established by State statue and City ordinance. Copies of PERS’ annual financial report may be obtained from their executive office: 400 “P” Street, Sacramento, California 95814. Funding Policy Participants who are considered “Classic” members under CalPERS rules are required to contribute 8% of their annual covered salary. Participants who are “New” members under CalPERS rules contribute 6.25% of their annual covered salary. The City makes 4% of the contributions required of the “Classic” employees on their behalf and for their account. The City is required to contribute an actuarially determined rate; the current rate for “Classic” non-safety members is 23.365% and 6.25% for “New” non-safety members.

47

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 5: Retirement Plan (continued) Annual Pension Cost For 2013, the City’s annual pension cost of $791,058 for PERS was equal to the City’s required contributions. The required contribution was determined as part of the June 30, 2011, CalPERS actuarial valuations for the Miscellaneous and Safety Plans, using the Entry Age Normal Cost Method.

6/30/2013 $ 791,058 100% $ -

6/30/2012 1,072,908 100% -

6/30/2011 1,110,813 100% -

THREE YEAR TREND INFORMATION FOR PERS

Annual pension cost (APC)

Percentage of APC contributed

Net pension obligationFiscal year

Note 6: Long-Term Debt

Governmental activities a. Capital leases Equipment During 2011, the City entered into a capital lease to finance the purchase of one copy machine. The present value of the future lease payments at the commencement of the lease was $6,188. Lease payments of $153 are due on a monthly basis commencing in January 2011. The equipment acquired with the lease has a net book value of $2,599 at June 30, 2013. In 2010, the City entered into a capital lease to finance the purchase of eight copy machines. The present value of the future lease payments at the commencement of the lease was $42,805. The monthly lease payment of $928 commenced on March 2010. The equipment acquired with the lease has a net book value of $14,268 at June 30, 2013. The following is a schedule by years of future payments to be made by the City:

Fiscal YearsEnding June 30, Capital leases

2014 11,426$ 2015 8,317

Total minimum lease payments 19,743 Less: amount representing interest (4,579)

Present value of minimum lease payments 15,164$

48

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 6: Long-Term Debt (continued) b. Accrued employee benefits and claims and judgments payable The City’s policy relating to compensated absences and claims and judgments are described in Note 1. The short term portion of the compensated absences liability is reported in the statement of net position and amount to $169,551. The long-term portions are also recorded in the statement of net position and amount to $508,655. The short term portion of the claims and judgments liability is recorded in the statement of net position and amount to $377,761. The long-term portion of $412,700 is also recorded on the statement of net position, governmental activities.

Business-type activities a. Capital lease Wastewater facility lease During 1996, the Western Riverside County Regional Wastewater Authority issued $25,400,000 of variable rate revenue bonds and took out a revolving loan to finance a portion of the acquisition, construction, installation and equipment of a Wastewater Treatment Plant. The City, as a member of the Western Riverside County Regional Wastewater Authority, will lease part of the wastewater facility for 66.39% of the annual debt service requirement for a period of 30 years. During 2009, proceeds from the 2009 Refunding Revenue Bonds were used to retire $12,209,120 of the outstanding lease. The following is a schedule by years of future payments to be made by the City for the revolving loan:

Wastewaterfacility lease

146,694$ 146,694 146,694 146,694 146,556

Total minimum lease payments 733,332 Less: amount representing interest (57,783)

Present value of minimum lease payments 675,549$

Fiscal Years Ending June 30,

2018

2014201520162017

The assets acquired through this lease are as follows:

Wastewater capacity rights 17,793,248$ Less: accumulated amortization (6,065,880)

Total 11,727,368$

49

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 6: Long-Term Debt (continued) b. Economic Development Administration Loan During fiscal year 1978-79, the City received a loan from the Economic Development Administration (EDA) to fund improvements to the City water system. The loan bears interest at a rate of 5% and was made in the original amount of $1,632,000. The principal due on this loan is recorded in the Water Enterprise Fund and as of June 30, 2013 the balance due was $379,323. Debt service requirements on this loan are as follows:

Fiscal YearsEnding June 30, Principal Interest

2014 88,399$ 17,349$ 2015 92,415 13,333 2016 96,631 9,117 2017 101,878 4,689

Totals 379,323$ 44,488$

c. Revenue bonds During March 2009, the City issued $39,000,000 Enterprise Revenue Refunding Bonds, Issue 2009, to advance refund $7,395,000 of outstanding 1998 Refunding Certificates of Participation (Sewer and Water System Refunding Certificates) and $12,209,120 of outstanding 1996 Variable Rate Revenue Bonds (Western Riverside County Regional Wastewater Treatment System Lease). In addition, proceeds were used to finance water and sewer system improvements within the City. The bonds are dated March 18, 2009 with interest paid at a rate from 3.00% to 5.00% payable semi-annually on April 1 and October 1, commencing on October 1, 2009. The advance refunding of the Certificates resulted in an increase in debt service payments over the following 20 years of $646,175 and an economic loss of $45,449. The advance refunding of the Variable Rate Bonds resulted in an increase in debt service payments over the following 30 years of $5,712,324 and an economic gain of $250,427.

50

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 6: Long-Term Debt (continued) The bonds are shown in the Water and Sewer Funds and the debt service requirements are as follows:

Fiscal YearsEnding June 30, Principal Interest Total

2014 670,000$ 1,944,773 2,614,773$ 2015 700,000 1,917,373 2,617,373 2016 725,000 1,888,873 2,613,873 2017 755,000 1,858,329 2,613,329 2018 785,000 1,822,660 2,607,660

2019-2023 4,565,000 8,466,800 13,031,800 2024-2028 5,855,000 7,134,890 12,989,890 2029-2033 7,625,000 5,302,137 12,927,137 2034-2038 10,035,000 2,835,142 12,870,142 2039-2040 4,845,000 276,329 5,121,329

Totals 36,560,000$ 33,447,306$ 70,007,306$

2009 Revenue Refunding Bonds

Changes in long-term liabilities The following is a schedule of changes in long-term debt of the City for the fiscal year ended June 30, 2013:

Beginning Ending Due withinBalance Additions Deletions Balance one year

Governmental activities:Capital leases:

Copiers 30,003$ -$ (10,260)$ 19,743 11,427$ Total capital leases 30,003 - (10,260) 19,743 11,427

OPEB Liability 843,615 305,212 - 1,148,827 - Claims and judgments 973,285 3,498 (186,322) 790,461 377,761 Compensated absences 690,172 333,100 (345,066) 678,206 169,551

Governmental activitylong-term liabilities 2,537,075$ 641,810$ (541,648)$ 2,637,237$ 558,739$

51

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 6: Long-Term Debt (continued)

Beginning Ending Due withinBalance Additions Deletions Balance one year

Business-type activities:Capital lease:

Wastewater facility 799,847$ -$ (124,298)$ 675,549$ 127,779$

Total capital lease 799,847 - (124,298) 675,549 127,779

Bonds:2009 Revenue refunding bonds 37,205,000 - (645,000) 36,560,000 670,000

(Less) deferred amounts:For deferred loss on issuance (671,960) - 41,434 (630,526) - For issuance discount (437,942) - 16,398 (421,544) -

Total bonds 36,095,098 - (587,168) 35,507,930 670,000

Loan payable:US Ecomnomic Development

Administration 463,898 - (84,575) 379,323 88,399

Business-type activitylong-term liabilities 37,358,843$ -$ (796,041)$ 36,562,802$ 886,178$

For governmental activities, claims and judgments and compensated absences are generally liquidated by the Internal Service Funds.

52

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 7: Interfund Receivables, Payables and Transfers The composition of interfund balances at June 30, 2013, is as follows: Due to/from other funds

Receivable Fund Payable fund Amount

General Fund Nonmajor Funds 37,560$

Proprietary Funds Nonmajor Funds 12,941

50,501$

Interfund transfers

Fund receiving transfers Fund making transfers Amount

General Fund Major Fund-Street Improvements 12,863$ (1)Non Major Capital Projects 25,327 (1)Sewer Utility 136,852 (1)Water Utility 137,722 (1)Non Major Special Revenues 517,066 (1)

829,830

Nonmajor funds General Fund 25,000 (1)

Transfers in - Governmental funds 854,830

Internal Service Funds General 182,824 (1)Non Major Special Revenues 1,660 (1)Sewer Utility 6,121 (1)Water Utility 8,328 (1)

198,933

Total transfers in 1,053,763$

(1) = Transfers made to reimburse expenditures/expenses.

53

City of Norco Notes to the Basic Financial Statements

June 30, 2013 Note 8: Fund Equity a. GASB Statement No. 54 determination of governmental fund balances The City has established fund balance accounts to report the amounts in the following funds which represent non-spendable and spendable resources according to GASB statement number 54:

Major Nonmajor TotalCapital Projects Governmental Governmental

Funds Funds FundsNonspendable 5,444$ -$ 3,750$ 9,194$ Restricted by: Granting agencies - - 3,394,873 3,394,873 Committed for: Emergencies 3,560,200 - 378,013 3,938,213 Assigned to: 2014 expenditures 685,279 - - 685,279 Fund purpose - - 3,616,426 3,616,426 Capital projects - 624,492 - 624,492 Unassigned 771,477 - (33,968) 737,509 Total fund balances 5,022,400$ 624,492$ 7,359,094$ 13,005,986$

General

Note 9: Assessment Bonds Included within the City are certain Assessment Districts and Community Facilities Districts which were financed by bonds issued pursuant to the Improvement Bond Act of 1915 under proceedings conducted under the provisions of the Municipal Improvement Act of 1913. As of June 30, 2013, the future assessments liability of property owners for amounts payable to bondholders for these Districts is as follows:

Principal Interest Total

Community Facilities District

97-1 Norco Hills refunding 6,170,000$ 3,029,897$ 9,199,897$

Community Facilities District

2001-1 Norco Ridge refunding 35,510,000 22,647,184 58,157,184

Community Facilities District

2002-1 Norco 50 1,400,000 1,129,375 2,529,375

2004 Special Tax Refunding

Community Facilities District 93-1 1,180,000 271,890 1,451,890

Totals 44,260,000$ 27,078,346$ 71,338,346$

54

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 9: Assessment Bonds (continued) Since the City is not liable for special assessment district act or community facility district defaults, no liability has been recognized on the City’s books and accordingly, none of the outstanding principal on the bonds is presented in the financial statements. For all completed projects, the City acts as an agent for those paying assessments and for the bondholders. Therefore, subsequent assessment collections and remittances are accounted for in an agency fund. Note 10: Risk Management The City is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City is a member of the Public Entity Risk Management Authority, a public entity risk pool currently operating as a common risk management and insurance program for 22 California Cities, six special districts and three transit agencies. The City pays an annual premium to the pool for its general liability and workers’ compensation insurance coverage. For its general liability insurance, the City, through the Authority, has a self-insured retention amount of $125,000 per occurrence. Claims above the $125,000 up to $1,000,000 are shared by the pool. Claims above $1,000,000 up to $50,000,000 are covered by excess insurance purchased through the pool. For workers’ compensation, the self-insurance retention is $250,000 per claim, with a maximum limit of $5,000,000. The City retains a risk of loss due to the fact that actual losses may exceed estimated claims or coverage amounts. Claims, expenditures and liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. At June 30, 2013, the amount of these liabilities was $790,461. The amount represents an estimate of $570,928 for reported claims through June 30, 2013 and $219,533 estimate of incurred but not reported claims. This liability is the City’s best estimate based on available information. Changes in the reported liability since July 1, 2012 resulted from the following:

YearLiability at beginning

Current year claims and changes in estimates Claim payments Liability at end

2013 973,285$ 125,780$ 308,604$ 790,461$ 2012 1,308,689 (189,368) 146,036 973,285 2011 1,131,869 380,786 203,966 1,308,689

There was no significant reduction in insurance coverage by major categories of risk from fiscal 2012 to 2013. Furthermore, there was no settlement which exceeded the insurance coverage for the fiscal years 2011/12 and 2012/13.

55

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 11: Other Post-Employment Benefits During the year ended June 30, 2009, the City implemented GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The new reporting requirements for these benefit programs as they pertain to the City are as follows: Plan Description The City provides post employment health care benefits for eligible city retirees and their beneficiaries through the California Public Employees’ Retirement System (CalPERS), an agent multiple-employer postemployment healthcare plan. Retirees from the city enrolled in the Public Employees Medical Insurance program through CalPERS are eligible for these benefits. The Plan does not issue a publicly available financial report. Funding Policy These health insurance benefits are authorized through city resolutions/Memorandums of Understanding defining health care benefits and contribution levels and through the contractual agreement between the City and CalPERS. The City contributes up to $1,250 of the current monthly required premium costs of active and non-vested retired employees. Additional contributions are made into a prefunded trust account as funds become available. There were 68 retired eligible employees. Annual OPEB Cost For fiscal year 2013, the City’s annual OPEB cost of $1,284,290 was below the annual required contribution (ARC) by a net amount of $28,710. The City’s current year contribution was $979,078, which increased the net OPEB liability from prior years by $305,212. The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2013 and the two preceding years were as follows:

Fiscal Year Ended6/30/2013 $ 1,284,290 76.2% $ 1,148,827 6/30/2012 1,372,000 58.6% 843,615 6/30/2011 1,744,000 57.8% 274,000

Percentage of Annual OPEB Cost ContributedAnnual OPEB Cost

Net OPEB Obligation

June 30, 2013

Annual required contribution 1,313,000$ Interest on net OPEB obligation 44,290 Adjustment to annual required contribution (73,000) Annual OPEB cost 1,284,290 Contributions made (979,078) Increase in net OPEB obligation 305,212 Net OPEB obligation, beginning of year 843,615 Net OPEB obligation, end of year 1,148,827$

56

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 11: Other Post-Employment Benefits (continued) Funded Status and Funding Progress The funded status of the plan as of the June 30, 2011 actuarial valuation was as follows:

(in thousands)Actuarial accrued liability (AAL):Actives $ 4,383 Retirees 13,106 Actuarial Value of Assets at June 30, 2011 (3,068)Unfunded actuarial accrued liability $ 14,421

Covered payroll (active plan members) $ 5,972 UAAL as a percentage of covered payroll 241.5%

Present Value of Future Benefits:Actives 7,154 Deferred Vested 2,525 Retirees 10,581 Total $ 20,260

Normal Cost $ 418 Normal Cost as a percent of payroll 7.00%

In accordance with GASB 45, the City hired an actuary to calculate its annual OPEB obligation. The annual OPEB cost is equal to the employer’s annual required contribution to the plan (ARC), with certain adjustments if the employer has a net OPEB obligation for past under or over contributions. The ARC is defined as the employer’s required contributions for the year, calculated in accordance with certain parameters, and includes, (a) the normal cost for the year, and (b) a component for amortization of the total unfunded actuarial accrued liabilities (or funding excess) of the plan over a period not to exceed thirty years. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents information as of June 30, 2011 about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the benefits.

57

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 11: Other Post-Employment Benefits (continued) Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between employer and plan member to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial liabilities and the actuarial assets, consistent with the long-term perspective of the calculations.

In the June 30, 2011 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumption included a 7.25 percent investment rate of return (net of administrative expenses), which is the assumed rate of expected long-term investment returns on plan assets. Calculation was based on the funded level of the plan at the valuation date and an annual healthcare cost trend rate of actual premiums, reduced by increments of 0.6% - 0.8% per year to an ultimate rate of 5.0% after the tenth year. The unfunded actuarial accrued liability (UAAL) is being amortized as a level percentage of projected payroll over 30 years. It is assumed the City’s payroll will increase 3.25% per year. Required Supplementary Information Valuation Date: June 30, 2011 Actuarial Cost Method: Entry Age Normal Asset Valuation Method: Market Value ARC as a Percent of Payroll: 23.1% Amortization Method: Level percentage of payroll Amortization Period: 26-year remaining on 30 year fixed 15-year fixed for subsequent plan changes Funding Policy: Phase in to full ARC funding Inflation Rate Assumed: 3.0% Schedule of Funding Progress (using 7.25% annual return assumption)

Actuarial Valuation

Date

Actuarial Value of Assets

(a)Actuarial Accrued

Liability (AAL) (b)Unfunded

AAL(UAAL)(b-a)Funded Ratio

(a/b)Covered Payroll

UAAL as Percentage of Covered

Payroll

6/30/2011 3,068,000$ 17,489,000$ 14,421,000$ 17.5% 5,972,000$ 241.5%1/1/2010 2,207,000 14,919,000 12,712,000 14.8% 5,784,000 219.8%1/1/2008 - 13,372,000 13,372,000 0.0% 6,279,000 213.0%

58

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 12: Successor Agency - Private Purpose Trust Fund On December 29, 2011, the California Supreme Court upheld Assembly BilI X1 26, ("the Bill”) that provides for the dissolution of all redevelopment agencies in the State of California. Most California cities had established a redevelopment agency that was included in the reporting entity of the city as a blended component unit (since the city council, in many cases, also served as the governing board for those agencies). The Bill provided that upon dissolution of a redevelopment agency, either the city or another unit of local government will agree to serve as the "Successor Agency" to hold the assets until they are distributed to other units of state and local government. If the city declines to accept the role of Successor Agency, other local agencies may elect to perform this role. If no local agency accepts the role of Successor Agency, the Governor is empowered by the Bill to establish a local "designated local authority" to perform this role. On January 11, 2012, the City Council met and created the Successor Agency to the former Norco Community Redevelopment Agency in accordance with the Bill as part of the City of Norco resolution number 2012-01. After enactment of the law, which occurred on June 28, 2011, redevelopment agencies in the State of California cannot enter into new projects, obligations or commitments. Subject to the control of a newly established oversight board, remaining assets could only be used to pay enforceable obligations in existence at the date of dissolution (including the completion of any unfinished projects that were subject to legally enforceable, contractual commitments). In future fiscal years, successor agencies will only be allocated tax increment revenue in the amount that is necessary to pay the estimated annual installment payments on enforceable obligations of the former redevelopment agency until all enforceable obligations of the prior redevelopment agency have been paid in full. The Bill directs the State Controller of the State of California to review the propriety of any transfers of assets between redevelopment agencies and other private and public bodies that occurred after January 1, 2011. If the body that received such transfers is not contractually committed to a third party for the expenditure or encumbrance of those assets, the State Controller is required to order the available assets to be transferred to the public body designated as the successor agency by the Bill. In accordance with the timeline set forth in the BiII (as modified by the California Supreme Court on December 29, 2011) all redevelopment agencies in the State of California were dissolved and ceased to operate as a legal entity on February 1, 2012. After the date of dissolution, January 31, 2012, the assets, liabilities, and activities of the dissolved redevelopment agency are reported in a fiduciary fund (private-purpose trust fund) in the financial statements of the City of Norco.

59

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 12: Successor Agency - Private Purpose Trust Fund (continued)

A. Successor Agency long-term debt In accordance with the provisions of the AB X1 26 and the California Supreme Court’s decision to uphold the Bill, the obligations of the former Community Redevelopment Agency became vested with the funds established for the Successor Agency upon the date of dissolution, February 1, 2012. Former tax increment revenues pledged to fund the debts of the former Community Redevelopment Agency will be distributed to the Successor Agency subject to the reapportionment of such revenues as provided by the Bill. The debt of the Successor Agency as of June 30, 2013 is as follows:

Beginning Ending Due withinBalance Additions Deletions balance one year

Bonds2001 Refunding tax

allocation bonds 25,395,000$ -$ 1,430,000$ 23,965,000$ 1,500,000$ 2001 Refunding tax allocation

bonds (School district) 3,875,000 - 130,000 3,745,000 140,000 2004 Tax allocation refunding bonds

(School district pass-through) 9,425,000 - 275,000 9,150,000 280,000 2005 Refunding tax

allocation bonds 16,675,000 - 65,000 16,610,000 70,000 2009 Tax allocation bonds

(School district pass-through) 11,515,000 - 215,000 11,300,000 225,000 2010 Refunding tax allocation

bonds 24,380,000 - 125,000 24,255,000 120,000

Subtotal bonds payable 91,265,000 - 2,240,000 89,025,000 2,335,000

Plus (less) deferred amountsFor deferred loss on refunding (2,187,808) - (126,060) (2,061,748) (126,060) For issuance premium 212,235 - 16,326 195,909 16,326 For issuance discount (503,214) - (22,166) (481,048) (22,166)

Total bonds payable 88,786,213 - 2,108,100 86,678,113 2,203,100

Total long-term debt 88,786,213$ -$ 2,108,100$ 86,678,113$ 2,203,100$

60

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 12: Successor Agency - Private Purpose Trust Fund (continued)

A. Successor Agency long-term debt (continued)

Future debt service requirements are as follows:

Fiscal Years

Ending June 30, Principal Interest

2014 2,335,000$ 4,860,474$

2015 2,450,000 4,748,655

2016 2,570,000 4,629,773

2017 2,695,000 4,503,724

2018 2,835,000 4,369,099

2019-2023 16,440,000 19,565,448

2024-2028 21,170,000 14,830,040

2029-2033 27,530,000 8,464,999

2034-2038 11,000,000 1,086,300

Totals 89,025,000$ 67,058,512$

Tax Allocation Bonds

In June 2000, the Redevelopment Agency issued Norco Redevelopment Project Area No. 1 Tax Allocation Bonds, Issue of 2000, in the aggregate principal amount of $2,425,000. The Bonds are dated June 1, 2000 with interest paid at a rate from 4.25% to 5.78% semi-annually on March 1 and September 1 in each year, commencing on March 1, 2001. The purpose of these Bonds was to fund projects undertaken for Redevelopment purposes. The bonds were advance refunded in April 2010 with proceeds from the 2010 Refunding Tax Allocation Bonds. In December 2001, the Redevelopment Agency issued Norco Redevelopment Project Area No. 1 Refunding Tax Allocation Bonds, Issue of 2001, in an aggregate principal amount of $36,000,000. The Bonds are dated December 1, 2001 with interest paid at a rate from 2.10% to 5.13% payable semi-annually on March 1 and September 1 commencing on March 1, 2002. The purpose of these bonds was to defease $18,310,000 of the Refunding Tax Allocation Bonds, Issue of 1992 and to fund projects undertaken for redevelopment purposes. Proceeds from the sale were placed in an irrevocable trust that is to be used to service the future debt service requirements of the old debt. On February 1, 2012 the outstanding balance of this issue was transferred to the Successor Agency.

61

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 12: Successor Agency - Private Purpose Trust Fund (continued)

A. Successor Agency long-term debt (continued) In December 2001, the Agency issued Norco Redevelopment Project Area No. 1 Tax Allocation Refunding Bonds (School District Pass-Through), Issue of 2001, in an aggregate principal amount of $5,100,000. The Bonds are dated December 1, 2001, with interest paid at a rate from 2.50% to 5.50% payable semi-annually on March 1 and September 1 commencing on March 1, 2002. The Bonds were issued to refund on a current basis a portion of the Norco Redevelopment Project Area No. 1, School District Capital Appreciation Tax Allocation Bonds, Issue of 1992. The Bonds were issued concurrently with and on a senior lien basis to the $3,375,000 Norco Redevelopment Project Area No. 1 Subordinated Tax Allocation Refunding Notes (School District Pass-Through), Issue of 2001 (the “Notes”). The proceeds from the sale were placed in an irrevocable trust along with the proceeds of the Notes to be used to service the future debt service requirements of the old debt. The Bonds are limited obligations of the Agency payable solely from Pledged Tax Revenues otherwise required by the Pass-Through Agreement to be passed through to the Corona-Norco Unified School District. On February 1, 2012, the outstanding balance of this issue was transferred to the Successor Agency. In July 2003, the Agency issued Norco Redevelopment Project Area No. 1 Tax Allocation Bonds, Issue of 2003, in an aggregate principal amount of $21,500,000. The bonds are dated July 1, 2003, with interest paid at a rate from 2.00% to 4.75% semi-annually on March 1 and September 1 in each year, commencing on September 1, 2003. The purpose of these bonds was to fund projects undertaken for redevelopment purposes. The bonds were advance refunded in April of 2010 with proceeds from the 2010 Refunding Tax Allocation Bonds In November 2004, the Agency issued Norco Redevelopment Project Area No. 1 Tax Allocation Refunding Bonds (School District Pass-through), Issue of 2004, in the aggregate principal of $11,250,000. The bonds are dated November 22, 2004, with interest paid at a rate from 1.75% to 4.50% semi-annually on March 1 and September 1 each year, commencing on March 1, 2005. The bonds were issued on a parity basis with the Agency’s previously issued Norco Redevelopment Project Area No. 1, Tax Allocation Refunding Bonds (School District Pass-through), Issue of 2001, to refund on a current basis the $3,375,000 Norco Redevelopment Project Area No. 1 Subordinated Tax Allocation Refunding Notes (School District Pass-through), Issue of 2001. The bonds were also issued to fund projects undertaken for redevelopment purposes. A portion of the bond proceeds from the sale were placed in an irrevocable trust to be used to service the future debt service requirements of the old debt. On February 1, 2012, the outstanding balance of this issue was transferred to the Successor Agency.

62

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 12: Successor Agency - Private Purpose Trust Fund (continued)

A. Successor Agency long-term debt (continued) In December 2005, the Agency issued Norco Redevelopment Project Area No. 1 Refunding Tax Allocation Bonds, Issue of 2005, in the aggregate principal of $17,245,000. The bonds are dated December 7, 2005, with interest paid at a rate from 3.00% to 4.35% semi-annually on March 1 and September 1 each year, commencing on March 1, 2006. The bonds were issued on a parity basis with the Agency’s previously issued Norco Redevelopment Project Area No. 1, 2001 Refunding Tax Allocation Bonds and Norco Redevelopment Project Area No. 1, 2003 Tax Allocation Bonds to refund on a current basis the $16,335,000 Norco Redevelopment Project Area No. 1, 1996 Refunding Tax Allocation Bonds. The bonds were also issued to fund projects undertaken for redevelopment purposes. A portion of the bond proceeds from the sale were placed in an irrevocable trust to be used to service the future debt service requirements of the old debt. On February 1, 2012, the outstanding balance of this issue was transferred to the Successor Agency. The reacquisition price exceeded the net carrying amount of the old debt by $325,100. This amount is being netted against the new debt and being amortized over the remaining life of the refunded debt. The advance refunding resulted in a decrease in debt service payments over the next 20 years of $1,257,574 and resulted in an economic gain of $888,220. The unamortized amount of this gain was transferred to the Successor Agency on February 1, 2012. In April 2009, the Agency issued Norco Redevelopment Project Area No. 1 Tax Allocation Bonds (School District Pass-through), Issue of 2009 in an aggregate principal amount of $12,200,000. The bonds are dated April 30, 2009 with interest paid at a rate from 3.25% to 7.00% payable semi-annually on March 1 and September 1, commencing on September 1, 2009. The bonds were issued on a parity basis with the Agency’s previously issued Norco Redevelopment Project Area No. 1, Tax Allocation Refunding Bonds (School District Pass-through), Issue of 2001, and with the Agency’s previously issued Norco Redevelopment Area No. 1 Tax Allocation Refunding Bonds (School District Pass-through), Issue of 2004. The bonds are limited obligations of the Agency’s payable solely from Pledged Tax Revenues otherwise required by the Pass-Through Agreement to be passed through to the Corona Norco Unified School District. On February 1, 2012, the outstanding balance of this issue was transferred to the Successor Agency. In April of 2010, the Agency issued Norco Redevelopment Project Area No. 1 Refunding Tax Allocation Bonds, Issue of 2010, in the aggregate principal of $24,500,000. The bonds are dated May 11, 2010, with interest paid at a rate from 2.15% to 6.14% semi-annually on March 1 and September 1 each year, commencing on September 1, 2010. The bonds were issued on a parity basis with the Agency’s previously issued Norco Redevelopment Project Area No. 1, 2000 Tax Allocation Bonds, Norco Redevelopment Project Area No. 1, 2001 Refunding Tax Allocation Bonds and Norco Redevelopment Project Area No. 1, 2003 Tax Allocation Bonds to refund on a current basis the $1,955,000 Norco Redevelopment Project Area No. 1, 2000 Tax Allocation Bonds, to advance refund the $21,500,000 Norco Redevelopment Project Area No. 1, 2005 Refunding Tax Allocation Bonds, to fund capitalized interest and the Reserve Account, and to finance the Project Area. The bonds were issued to reduce volatility in future debt service payment requirements in an effort to improve future cash flows. A portion of the bond proceeds from the sale were placed in an irrevocable trust to be used to service the future debt service requirements of the old debt. On February 1, 2012, the outstanding balance of this issue was transferred to the Successor Agency.

63

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 12: Successor Agency - Private Purpose Trust Fund (continued)

A. Successor Agency long-term debt (continued)

The reacquisition price exceeded the net carrying amount of the old debt by $2,196,103. This amount is being netted against the new debt and being amortized over the remaining life of the refunded debt. The advance refunding resulted in an increase in debt service payments over the next 25 years of $22,802,534 and resulted in an economic loss of $4,112,492. The unamortized amount of this loss was transferred to the Successor Agency on February 1, 2012.

B. Successor Agency receivables

Automobile dealer loans In December of 2008, the Agency entered into a Loan Agreement with a local automobile dealership to provide a Line of Credit not to exceed $500,000 from which the dealer could draw from in order to maintain its operations. The Loan is secured by Promissory Note executed by the owner. The loan is payable over seven years with interest at 5.15%. The balance outstanding at June 30, 2013, is $301,710. On February 1, 2012, the outstanding balance of these receivables was transferred to the Successor Agency. Cal Homes program Loans were available to qualifying low and very low-income residents through the Cal Homes program to assist with the cost of rehabilitating owner-occupied residences. Loans carried interest rates of either 0% (for eligible senior citizens) or 3% (for non senior citizens). Loans are due up to 30 years after origination or in the event the property is sold or refinanced. As of January 31, 2012, the total amount of loans disbursed under the program amounted to $508,073. On February 1, 2012, the outstanding balance of these receivables was transferred to the Successor Agency. Note 13: Low and Moderate Income Housing Successor

In accordance with the provisions of the AB X1 26, the California Health and Safety Code Section 34176, and the California Supreme Court’s decision to uphold the Bill, the city that authorized the creation of the Community Redevelopment Agency may elect to retain the housing assets and functions previously performed by the redevelopment agency as the Housing Successor. The City of Norco elected “not” to be Housing Successor of the previously performed housing functions of the Community Redevelopment Agency. If a city does not elect to retain the responsibility for performing housing functions previously performed by a redevelopment agency, all rights, powers, assets, duties, and obligations associated with the housing activities of the agency, excluding enforceable obligations retained by the Successor Agency and any amounts in the Low and Moderate Income Housing Fund, shall be transferred as follows: (1) If there is no local housing authority in the territorial jurisdiction of the former redevelopment agency, to the Department of Housing and Community Development. (2) If there is one local housing authority in the territorial jurisdiction of the former redevelopment agency, to that local housing authority.

64

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 13: Low and Moderate Income Housing Successor (continued) (3) If there is more than one local housing authority in the territorial jurisdiction of the former redevelopment agency, to the local housing authority selected by the city that authorized the creation of the redevelopment agency. As of June 30, 2013, there has not been a designation for a Housing Successor and the City of Norco and the Successor Agency are acting as a holding agent of the housing assets and liabilities to be transferred to the agency that would assume the housing functions previously performed by the Community Redevelopment Agency. The following schedule summarizes these balances of these assets and liabilities as of June 30, 2013:

ASSETS June 30, 2013Cash and investments 364,328$ Cash and investments with fiscal agents 1,566,723Receivables:

Notes 9,390,469Interest 11,890

Property held for resale 3,369,583Due from other governments 3,117,777

Total assets 17,820,770

LIABILITIESDeposits payable 5,615 Unearned revenue 3,343

Total liabilities 8,958

NET POSITIONHeld in trust for the entity to be designated

the Housing Successor 17,811,812$

A. Housing Successor receivables

First time home buyer loans/notes First time home buyer loans are available to qualifying low to moderate-income residents with a maximum loan amount of $80,000. Loans are due in 30 years or upon sale of property. Deferred loans are available to qualifying residents with a maximum loan amount of $40,000, up to $60,000 with executive approval. A 0% loan is available for seniors and the disabled and is not payable until sale or refinancing of the property. The 3% loan is available to qualified households without an age restriction and is due in 15 years or upon sale or refinancing of the property. On February 1, 2012, the outstanding balance of these receivables was transferred to the Successor Agency as a holding agent and to be forwarded to the organization assuming the Housing Successor function of the former Community Redevelopment Agency.

65

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 13: Low and Moderate Income Housing Successor (continued)

A. Housing Successor receivables(continued) Developer loans On May 22, 2008, the Agency entered into a Loan Agreement with a Developer to provide a loan of $5,100,000 to provide a portion of the funds to finance the rehabilitation and conversion of eighty-six units of low-and very-low income housing units in Heritage Park Senior Citizen Apartment Complex. The financial assistance is in the form of a residual receipts loan which is to be repaid over a fifty-seven year affordability covenant period. The Loan is secured by a Second Deed of Trust against the property. The loan payments are 50% of the residual receipts with simple interest at 1%. The complex will remain as a low/moderate income senior housing complex over the entire term of the loan. On February 1, 2012, the outstanding balance of this receivable was transferred to the Successor Agency as a holding agent and to be forwarded to the organization assuming the Housing Successor function of the former Community Redevelopment Agency. Deferred loans receivable The former agency administered several deferred loan programs to its low to moderate-income residents. Balances under the Sewer Connection Fee Program are forgiven after fifteen years with the loan amount equal to the actual cost. Due to the nature of this program and the probability of forgiveness of these loans, they are not reflected on the statements as receivables. Note 14: Risks and uncertainties Grants Amounts received or receivable from granting agencies are subject to audits and adjustments by those granting agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount of expenditures that may be disallowed by the grantor cannot be determined at this time, although the management of the City expects such amounts, if any, to be immaterial to the financial statements taken as a whole. Successor Agency Deductions (expenses) incurred by the Successor Agency for the year ended June 30, 2013 (and subsequent years in which the Successor Agency is in operation), are subject to review by various State agencies and the County in which the Successor Agency resides. If any expenses incurred by the Successor Agency are disallowed by the State agencies or County, the City, acting as the Successor Agency could be liable for the repayment of the disallowed costs from either its own funds or by the State withholding remittances normally paid to the City.

66

City of Norco

Notes to the Basic Financial Statements June 30, 2013

Note 14: Risks and uncertainties (continued) The amount, if any, of expenses that may be disallowed by the State agencies or County cannot be determined at this time as to be immaterial or not. Furthermore, as of June 30, 2013, the Successor Agency of the former Community Redevelopment Agency is subject to reviews and procedures to be performed on the appropriateness of the transfer of assets and liabilities to the Successor Agency and or the City. The result of these reviews and procedures could impact the City and its finances if an unfavorable outcome results from them. The amount, if any, for any possible contingency, cannot be determined at this time to be immaterial or not. Note 15: Norco Silverlakes Ground Lease On or about July 6, 2011, the City of Norco (Landlord) and Balboa Management Group, LLC (Tenant), entered into a Ground Lease, Development, and Shared Use Agreement with the purpose of the development, management and operation of the property known as Silverlakes into an Equestrian and Sports Park. The Ground Lease has an original term of Thirty (30) years, with options to extend the lease to maximum lease duration of Ninety-nine (99) years. Annual Minimum Rent The "Annual Minimum Rent" payable for the first five (5) years from and after the Term Commencement Date shall be $396,480. The Annual Minimum Rent shall be paid in twelve (12) equal monthly installments payable in advance on or before the first day of each calendar month. The Annual Minimum Rent shall be subject to adjustment as follows: (a) On the first day of the 6th Lease Year, the Annual Minimum Rent shall be increased by 8% of the Annual Minimum Rent in effect as of the Term Commencement Date; (b) On the first day of the 16th Lease Year, the Annual Minimum Rent shall be increased by 8% of the Annual Minimum Rent in effect immediately prior to the 16th year Adjustment Date; (c) On the first day of the 26th Lease Year, the Annual Minimum Rent shall be increased by 8% of the Annual Minimum Rent in effect immediately prior to the 26th year Adjustment Date, and d) On first day of the 31st Lease Year and on each five (5) year anniversary thereof occurring throughout the Extended Tem, the Annual Minimum Rent shall be adjusted by the percentage change in the Consumer Price Index ("Index") measured from the immediately preceding Adjustment Date to the instant Adjustment Date (as measured pursuant to the procedure described on the lease agreement), but in no event shall an increase be more than 10% or less than 3% of the Annual Minimum Rent in effect immediately prior to the applicable Adjustment Date. Future estimated revenues from the lease for the next five years are as follows:

Fiscal Year Amount2014 396,480$ 2015 396,480 2016 396,480 2017 412,339 2018 428,198